Stock Code : 683 KERRY PROPERTIES LIMITED ANNUAL REPORT 2006

KERRY PROPERTIES LIMITED 13/F - 14/F, Cityplaza 3, 14 Taikoo Wan Road, , Telephone: (852) 2967 2200 (Incorporated in Bermuda with limited liability) Facsimile: (852) 2967 9480 www.kerryprops.com ANNUAL REPORT 2006 We express the accomplishment and diversity of Kerry Properties with an artistically stylish and colourful montage depicting existing assets and future projects. The varying elements and visuals of the montage allow us to emphasize the company’s extensive portfolio that reflects our vision into the future. The Group’s future performance will be built on the strength of past results, and on the integrity of our people. Our commitment to innovate, rather than to simply reproduce, is key to differentiating the business and generating sustainable value for stakeholders over the long-term.

PROPERTY The property division of Kerry Properties Limited follows a strategy of investing in prime locations, typically in areas with limited supply of quality land, and focusing on large-scale mixed-use property projects that lend themselves to the creation of scale, scope and synergy effects that enhance their attractiveness.

LOGISTICS NETWORK Network Limited (Kerry Logistics) is positioned as a leading Asian-based international logistics operator. The Division delivers a seamless and integrated range of services that bring tangible results to cost efficiency, customer satisfaction and bottom-line results. Our customers are from industries as diverse as fresh produce to fashion and electronics to food & beverage and we provide a comprehensive range of logistics solutions to suit their industry specific needs.

INFRASTRUCTURE The Infrastructure Division holds great promise as a vehicle to support investment into environmentally friendly projects in the utilities sector, particularly in the Mainland. It is also a reliable source of recurrent income for the Group. CORPORATE INFORMATION & KEY DATES

BOARD OF DIRECTORS PRINCIPAL BANKERS HEAD OFFICE AND PRINCIPAL Executive Directors Agricultural Bank of China PLACE OF BUSINESS Mr ANG Keng Lam Bank of China (Hong Kong) Limited 13/F – 14/F, Cityplaza 3 Chairman 14 Taikoo Wan Road Bank of Communications Co., Ltd. Taikoo Shing, Hong Kong Mr WONG Siu Kong The Bank of Tokyo-Mitsubishi UFJ, Ltd. Deputy Chairman and Managing Director BNP Paribas BRANCH OFFICE Mr HO Shut Kan Calyon 21/F, CITIC Tower Mr MA Wing Kai, William China Construction Bank Corporation No 1 Tim Mei Avenue Citigroup Central, Hong Kong Independent DBS Bank Ltd. Non-executive Directors Hang Seng Bank Limited WEBSITE www.kerryprops.com Mr William Winship FLANZ The Hongkong and Shanghai Banking Corporation Limited Mr LAU Ling Fai, Herald Industrial and Commercial Bank Mr Christopher Roger MOSS, O.B.E. PRINCIPAL SHARE REGISTRAR of China (Asia) Limited AND TRANSFER OFFICE Mizuho Corporate Bank, Ltd. Butterfield Fund Services (Bermuda) Limited Non-executive Director Standard Chartered Bank Rosebank Centre Mr TSE Kai Chi (Hong Kong) Limited 11 Bermudiana Road Wing Lung Bank, Limited Pembroke Bermuda HM08 AUDIT COMMITTEE Mr Christopher Roger MOSS, O.B.E. AUDITOR Chairman PricewaterhouseCoopers HONG KONG BRANCH Mr LAU Ling Fai, Herald REGISTRAR AND TRANSFER OFFICE Mr TSE Kai Chi PROPERTY VALUERS Abacus Share Registrars Limited Savills Valuation and Professional 26/F, Tesbury Centre FINANCE COMMITTEE Services Limited 28 Queen’s Road East Mr ANG Keng Lam DTZ Debenham Tie Leung Limited Wanchai, Hong Kong Mr WONG Siu Kong Mr HO Shut Kan LEGAL ADVISERS CONTACT Hong Kong Law Corporate Communications Department Kerry Properties Limited Deacons REMUNERATION COMMITTEE 13/F – 14/F, Cityplaza 3 Mr ANG Keng Lam Stephenson Harwood & Lo 14 Taikoo Wan Road Chairman Taikoo Shing, Hong Kong Mr WONG Siu Kong Telephone: (852) 2967 2200 Bermudian Law Facsimile: (852) 2967 9480 Mr William Winship FLANZ Appleby Spurling Hunter Mr LAU Ling Fai, Herald KEY DATES Mr Christopher Roger MOSS, O.B.E. PRC Law Closure of Registers of Members Fangda Partners 30 April 2007 to 3 May 2007 EXECUTIVE COMMITTEE (both days inclusive) Mr ANG Keng Lam STOCK CODES Mr WONG Siu Kong Stock Exchange of Hong Kong: 683 Annual General Meeting Mr HO Shut Kan Bloomberg: 683 HK 3 May 2007 Mr MA Wing Kai, William Reuters: 683.HK REGISTERED OFFICE Proposed Payment of QUALIFIED ACCOUNTANT Final Dividend/ Despatch of Mr YU Kam Wah Canon’s Court 22 Victoria Street Share Certificates in respect of Hamilton HM12 Scrip Dividend COMPANY SECRETARY Bermuda 8 June 2007 Ms LI Siu Ching, Liz CONTENTS

4 FINANCIAL HIGHLIGHTS 8 2006 BUSINESS HIGHLIGHTS 10 CHAIRMAN’S STATEMENT MANAGEMENT DISCUSSION & ANALYSIS 15 OVERALL RESULTS 16 REVIEW OF PROPERTY BUSINESS 28 REVIEW OF LOGISTICS BUSINESS 33 REVIEW OF INFRASTRUCTURE BUSINESS 34 FINANCIAL REVIEW 36 PARTICULARS OF PROPERTIES HELD 48 CORPORATE SOCIAL RESPONSIBILITY REPORT 52 2006 Awards and Citations 54 CORPORATE GOVERNANCE REPORT 70 AUDIT COMMITTEE REPORT 71 REMUNERATION COMMITTEE REPORT 72 INTERNAL CONTROLS 73 DIRECTORS AND SENIOR MANAGEMENT 77 REPORT OF THE DIRECTORS 92 AUDITOR’S REPORT 94 CONSOLIDATED INCOME STATEMENT 95 CONSOLIDATED BALANCE SHEET 96 BALANCE SHEET 97 CONSOLIDATED CASH FLOW STATEMENT 98 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 172 TEN-YEAR FINANCIAL SUMMARY FINANCIAL HIGHLIGHTS

two-year overview FY 2006 FY 2005 % Change Turnover (HK$M) 10,193 8,009 +27% Gross profit (HK$M) 2,792 2,273 +23% Gross profit margin (%) 27.4 28.4 Operating profit (HK$M) 5,388 3,246 +66% Operating profit margin (%) 52.9 40.5 Profit attributable to shareholders (HK$M) – before fair value change of properties 2,944 1,759 +67% – after fair value change of properties 4,689 3,067 +53%

Net profit margin (%) – before fair value change of properties 28.9 22.0 – after fair value change of properties 46.0 38.3 Earnings per share (HK$) – before fair value change of properties 2.40 1.45 +66% – after fair value change of properties 3.83 2.53 +51% Shareholders’ equity (HK$M) 29,325 25,221 +16% Net borrowings (HK$M) 10,202 9,184 +11% Net asset value per share (HK$) 23.68 20.73 +14% Share price as at 31 December (HK$) 36.35 20.55 +77% Price earnings ratio# (times) – before fair value change of properties 15.1 14.2 – after fair value change of properties 9.5 8.1 Market capitalization as at 31 December# (HK$M) 45,012 25,001 +80% Dividend per share (HK$) 0.85 0.70 +21.4% Dividend payout ratio (%) – before fair value change of properties 35.4 48.3 – after fair value change of properties 22.2 27.7

Dividend cover (times) – before fair value change of properties 2.8 2.1 – after fair value change of properties 4.5 3.6 Dividend yield# (%) 2.3 3.4 Return on shareholders’ equity (%) – before fair value change of properties 10.0 7.0 – after fair value change of properties 16.0 12.2 Gearing (%) 34.8 36.4 Interest cover (times) – before fair value change of properties 7.3 9.9 – after fair value change of properties 11.7 16.1 Current ratio (times) 2.1 1.7 Liquidity ratio (times) 1.8 1.5 Premium/(discount) to net asset value# (%) 53.5 (0.9)

# Based on share prices as at 31 December 2006 an d 31 December 2005, respectively.

 KERRY PROPERTIES LIMITED BREAKDOWN OF TOTAL TURNOVER HK$ Million

12,000 Proceeds from sales of properties Development consultancy and project management fees 10,193 10,000 Warehouse income

28% Logistics income 8,000 8,009 Hotel revenue 15% 1% 4% Rental income 1% 5% 6,000 5,156 5,102

4,204 29% 54% The Group recorded a 27% increase in total turnover for FY2006 to 4,000 53% 1% 64% 36% 8% HK$10,193 million (2005: HK$8,009 million). 1% 1% 9% 2,000 8% 41% 18% 31% 3% 4% 4% 5% 4% 16% 19% 16% 11% 10% 0 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

BREAKDOWN OF RECURRENT INCOME HK$ Million

8,000 Development consultancy and project management fees 7,332 1%

6,797 6% Warehouse income 1% 6% Logistics income 6,000 Hotel revenue Rental income Net Profit Net Profit before fair after fair 75% Recurrent value change value change

4,000 3,605 75% 1% Total Turnover Income of properties of properties 11% 2,670 2% HK$ Million HK$ Million % Weighting HK$ Million HK$ Million 2,423 2% 13% 2,000 16% 59% FY 2002 5,156 2,423 47% 860 600 38% 49% 5% 5% FY 2003 4,204 2,670 64% 824 395 10% 7% 7% 34% 29% 22% 13% 13% FY 2004 5,102 3,605 71% 1,580 2,271 0 FY 2005 8,009 6,797 85% 1,759 3,067 FY 2006 10,193 7,332 72% 2,944 4,689 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

PROFIT ATTRIBUTABLE TO SHAREHOLDERS HK$ Million

5,000 4,689 The Group‘s net profit attributable to shareholders for FY 2006 increased by 53% to HK$4,689 million (2005: HK$3,067 million). 4,000 3,067 3,000 2,271 2,000

1,000 600 395

0 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

ANNUAL REPORT 2006  FINANCIAL HIGHLIGHTS (Continued)

PROFIT ATTRIBUTABLE TO SHAREHOLDERS BY DIVISION (before fair value change of properties) HK$ Million 2,500 FY 2006 Profit attributable to shareholders 2006 2005

2,023 FY 2005 (by division) HK$ Million HK$ Million % Change 2,000 PRC Property 213 295 -28% Hong Kong Property 2,023 780 159% 1,500 Overseas Property 38 65 -42% Logistics Network 673 507 33% 1,000

780 Infrastructure 31 38 -18% 673

507 Project, Property Management and Others (34) 74 -146% 500 295

213 2,944 1,759 67% 65 74 38 38 31 0 (34) PRC Network Property Property Property Logistics Overseas and Others Hong Kong Infrastructure Management Project, Property

PROFIT ATTRIBUTABLE TO SHAREHOLDERS BY DIVISION (after fair value change of properties) HK$ Million

3,000 FY 2006 Profit attributable to shareholders 2006 2005 2,676 2,676 FY 2005 (by division) HK$ Million HK$ Million % Change 2,400 PRC Property 807 372 117% Hong Kong Property 2,676 1,429 87% 1,800 Overseas Property 36 69 -48% 1,429

1,173 Logistics Network 1,173 1,085 8%

1,200 1,085 Infrastructure 31 38 -18% 807

600 Project, Property Management and Others (34) 74 -146% 372 4,689 3,067 53%

69 74 36 31 38 0 (34) PRC Network Property Property Property Logistics Overseas and Others Hong Kong Infrastructure Management Project, Property

EARNINGS PER SHARE (before exceptional items) EARNINGS PER SHARE (after exceptional items) HK$ HK$

5.0 5.0

4.0 4.0 3.83

3.0 3.0 2.53 2.40

2.0 2.0 1.90 1.45 1.32

1.0 0.74 1.0 0.70 0.52 0.33

0.0 0.0 FY 2002 FY 2003 FY 2004 FY 2005 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2006

 KERRY PROPERTIES LIMITED GROSS ASSET VALUE OF PROPERTIES

HK$ 35,722 Million HK$ 39,445 Million

2% 2% 4% 4% Hong Kong Residential 15% 16% Hong Kong Commercial 45% PRC Properties 40% Logistics & Warehouses Overseas Properties 21% Infrastructure 26%

13% 12%

FY 2005 FY 2006

SHARE PRICES PERFORMANCES FY 2006 HK$ KPL Share Price Hang Seng Index Hang Seng Properties Sub-index KPL Share Price High: HK$37.40 Low: HK$20.60 Average: HK$27.48 Year’s High PE: 14.8x Year’s Low PE: 8.1x Average PE: 10.9x Hang Seng Index Average PE: 12.7x Hang Seng Properties Sub-index Average PE: 9.4x

FY 2005 HK$ KPL Share Price Hang Seng Index Hang Seng Properties Sub-index KPL Share Price High: HK$21.95 Low: HK$15.30 Average: HK$18.73 Year’s High PE: 13.5x Year’s Low PE: 9.4x Average PE: 11.5x Hang Seng Index Average PE: 14.5x Hang Seng Properties Sub-index Average PE: 12.4x

ANNUAL REPORT 2006  2006 BUSINESS HIGHLIGHTS

May March The Group acquired a 71% interest The Group acquired a site located in certain existing residential March properties located at No. 20 Shan at 863-865 King’s Road*, Hong Kwong Road and No. 1-5 Village Kong, which is planned for KerryFlex Supply Chain Solutions Terrace in Happy Valley, Hong redevelopment into an office (“Kerry Flex”) (the trading arm Kong. The existing site offers a property with a developable GFA of Kerry Logistics) acquired Wah developable GFA of approximately of approximately 502,000 Cheong Company, Limited, a local company with over 50 years 220,000 square feet and is square feet. intended for high-end residential of specialist food distribution * Artist’s impression redevelopment. experience in Hong Kong. The acquisition of Wah Cheong will strengthen KerryFlex’s distribution network servicing food and beverage outlets, as well as enhancing its participation in procurement projects for hotel chains.

August September The Group signed a lease In India, the acquisition of a agreement with Hang Seng Bank 51% interest in Reliable Freight in relation to the tenancy of the Forwarders Private Limited, entire 15-storey office tower at renamed Kerry Reliable Logistics Enterprise Square Five, with a GFA Private Limited, was completed, measuring approximately 262,000 giving the Division an extensive square feet. The move by Hang September network in the country with seven Seng Bank’s operating units to Kerry Logistics began the set-up offices located at Chennai (the Enterprise Square Five validates the operations for its pan-European headquarters), Tirupur, Bangalore, Group’s confidence in the potential presence with the opening of initial Tuticorin, Mumbai and New Delhi. of Bay, as well as its efforts offices in Germany, Austria and to develop prime-quality premises Switzerland. in this emerging business zone.

 KERRY PROPERTIES LIMITED May The Group acquired an approximately 85,000 square-feet site in Futian, Shenzhen, located June June adjacent to the approximately The six-storey approximately A joint-venture project was 807,000 square-feet grade-A 269,000 square-feet facility undertaken by the Group for a office complex currently under incorporating a multi-function mixed-use property development development*. warehouse in Futian Free Trade project in Hedong District, Tianjin. Zone commenced operations. * Artist’s impression The property development offers an above-ground GFA of approximately 5,371,000 square feet and is currently intended to comprise a hotel, serviced apartments, offices, residences, a shopping mall and carparks and related ancillary facilities.

October December In addition to the mixed-use The construction works for property project currently under the 1.1 million square-feet development adjacent to Xihu “MegaBox”*, a proprietary retail in Xiacheng District, Hangzhou, and entertainment complex in the Group acquired another site Kowloon Bay were completed. in Xiacheng District, Hangzhou, This development is designed to designated for residential property November become the largest commercial development and which will mall in Hong Kong when it opens The Group’s deluxe residential generate a planned GFA of 2.7 for business in mid-2007. development at 15 Homantin Hill, million square feet. Kowloon, was completed. * Artist’s impression

ANNUAL REPORT 2006  Chairman’s Statement Mr Ang Keng Lam, Chairman of the Board of Directors

On behalf of the Board, I am pleased to report the annual results OPERATIONAL REVIEW of Kerry Properties Limited (the “Company”), its subsidiaries The Group’s three major lines of business: Property, Logistics and associated companies (collectively, the “Group”) for the and Infrastructure all contributed to the Group’s performance year ended 31 December 2006. in 2006. The combination of the divisions creates a balanced portfolio with the momentum to deliver recurrent earnings YEAR 2006 FINANCIAL RESULTS well into the future. The Group’s profit attributable to shareholders for the year ended 31 December 2006 was HK$4,689 million, representing I. Property an increase of 53% compared with HK$3,067 million reported The economies in and Hong Kong were for 2005. The increase in the Group’s earnings was mainly buoyant in 2006, and our property investments in each market attributable to the encouraging sales and leasing results during delivered positive returns. This is attributable to the generally the year and in particular, the profit arising from the Group’s robust market conditions and success in implementing the disposal of its interests in the Citibank Plaza joint venture. Group’s property investment strategy. The Group remains confident about prospects for property investment in our Earnings per share for the year were HK$3.83, representing an major markets. increase of 51% compared with HK$2.53 per share in 2005.

The Board has recommended the payment of a final dividend of HK$0.65 per share for the year, with a scrip dividend alternative. Together with the interim dividend of HK$0.20 per share, the total dividend for the year ended 31 December 2006 will be HK$0.85 per share, representing an increase of 21.4% compared with HK$0.70 per share in 2005.

10 KERRY PROPERTIES LIMITED The Group’s property portfolio is mainly in Mainland China Going forward, the Group will continue to invest in prime and Hong Kong. The portfolio includes properties under locations, typically in areas where quality land is in limited development, rental properties and properties for sale supply. We continue to focus on large-scale mixed-use consisting of a gross floor area of approximately 30 million property projects that lend themselves to the creation of scale, square-feet, of which approximately 14.4 million square- scope and synergy effects that enhance their attractiveness. feet are projects under development in Mainland China. Increasingly, our emphasis will be on opportunities in Out of the Mainland portfolio, approximately 11.6 million Mainland China. square-feet are composite developments comprising hotel, apartment and other residential accommodation, office and II. Logistics Network retail space. These mixed-use developments are landmark Strategic alliances and acquisitions extended our Logistics projects situated respectively in Tianjin, Shanghai, Hangzhou network throughout Asia, India, Europe, Australia and North and Yangzhou. These mixed-use developments, combined America. The Division is positioned as a leading Asian-based with the management skills within the Group and the prime international logistics operator. locations in which the developments are undertaken, shape our view that these investments will make a significant contribution to the financial performance of the Group into Further developing the Mainland China business is a priority the future. for the Division. Through a 70% holding in Kerry EAS Logistics Limited (KEAS), the Division now leads Mainland China in terms of logistics coverage. The Division also remains active in various We continue to invest in mixed-use development projects to markets across Asia, with the fastest growth taking place in take advantage of efficiencies of scope and scale. The Kerry Vietnam. The Group’s logistics network is preeminent in terms Centres in Beijing and Shanghai are examples of successful of its reach throughout Asia and Southeast Asia. projects of this kind that provides a convenient and high quality environment for customers and tenants. They enjoy high occupancy and deliver consistently good returns. These The consolidation effort undertaken in 2005 is yielding flagship properties make a great contribution to the profile synergies between Kerry Logistics and KEAS. Rationalization and presence of the Group and to our recurrent earnings. of the Division’s investment portfolio through the timed sale of non-strategic assets continued in 2006. The capital freed in this process is then redeployed within the Group. Further In Hong Kong, perhaps the most exciting development in the investment into the warehouse management business is one Group’s portfolio is the 1.6 million square-feet development example of how this strategy is being applied. that includes a twin office tower which provides 500,000 square-feet of office space and MegaBox, a composite proprietary 1.1 million square-feet retail and entertainment The Division will continue to focus on coordinating and complex that is scheduled to open in mid-2007. MegaBox integrating a variety of logistics related services in a way that revolves around the “Big Box” retail concept. With a unique supports the growth and development of our customers’ mix of retail, entertainment and dining facilities, it is destined businesses. Whether it be managing client inventory, to become a key shopping landmark and major tourist expediting product transfer to meet urgent demand, managing attraction in Hong Kong. Our development at Homantin warehouse and assembly activities, cooking and delivering Hill was completed in 2006, further enhancing the Group’s food to customer outlets, transporting non-standard cargoes reputation as a preeminent developer of luxury residential or creating end to end logistics solutions, the Division delivers accommodation. quality service to its clients. Our high standards, and the scope of services we offer, will continue to position us as a reliable and dependable partner for all the transactions we manage.

ANNUAL REPORT 2006 11 CHAIRMAN’S STATEMENT (Continued)

III. Infrastructure Growing affluence, rising exports and imports, greater The Division made a positive contribution to the Group’s geographic diversification of economic development, and recurrent income for the year. The performance of the Division increased investment in transportation systems will continue improved during the year. This is mainly attributable to an to generate opportunities for capable logistics operators increase of 8% year-on-year in the number of vehicles using the in Mainland China. This is particularly true given estimates in Hong Kong. that logistics costs in Mainland China represent twice the percentage of GDP as measured against some OECD economies. Mainland China’s vast infrastructure needs should STRATEGY also continue to provide investment opportunities for the The Group’s results reflect the success of its underlying Group. strategy involving a focus on quality development catering to the premium end of the market in which the Group has A key advantage for the Group in capitalizing on investment working knowledge and experiences. The Group also seeks to opportunities is that our capabilities are broader than many continually strategize by following closely macro-economic other competing organizations. The connectivity between development in Mainland China and Hong Kong. We possess our businesses, and those within the parent group, creates the local market knowledge in each location to ensure that synergies that are unique to the Group. This has been, and will opportunities are quickly identified and acted upon. The continue to be, a source of competitive strength. Group’s emphasis on innovation, commitment to quality and service, and our desire to benefit the communities we serve also contributed to the excellent progress during the year. Our commitment to quality and service is demonstrated by the Group’s reputation and the satisfaction registered by our customers. In properties, the Group is known as a developer of In terms of market focus, our Property Division is active with high-end accommodation that builds and manages properties projects in Mainland China and Hong Kong. Our Logistics to high standards. In logistics, the Group’s focus on technology Division has a wider reach and is best described as being Asia- driven innovation has led to major international companies based, but China focused. In Logistics, our Asia base allows us looking to the Group to provide logistics services integral to to take advantage of opportunities around the region and the their strategies in the region. globe, while our China presence allows us to benefit from the development of one of the world’s most dynamic economies. Importantly, the Group seeks to take on projects that contribute to the communities it serves as well as to the Business in Mainland China will have a positive financial bottom line. In Hong Kong, we have been involved in projects impact on the Group in the future. Even after more than two that are revitalizing and renewing older areas of the city. The decades of impressive growth, China’s GDP still registered a Group’s large-scale, mixed-use sites in emerging cities in real growth of 10.7% in 2006. China’s property sector has seen Mainland China often act as a catalyst to further development substantial growth and value appreciation in recent years. in the surrounding area. This makes the Group a positive In addition, there are over 100 cities in Mainland China with change agent for the community, while enhancing the value of a population of more than 1 million. Combined with rapid the Group’s own investments. urbanization and improving infrastructure, this points to the creation of new and sustainable opportunities for urban property developments and investments.

12 KERRY PROPERTIES LIMITED PEOPLE The Listing Rules in Hong Kong encourage companies to Shareholders will be well aware that the skills and dedication extend their reporting framework to cover community, of our staff is of paramount importance to the Group’s ethical, social and environmental issues. In addition to continued success. The Group has made significant making contributions to a host of charitable organizations, we investments in their training and development. The desire to diligently pursue opportunities to care for the environment innovate, rather than to simply reproduce, is fostered among by utilizing technologies designed to minimize both resource all our people. Our staff make determined efforts to immerse depletion and the environmental impact of construction and themselves in the business and to engage with our valued development projects. We are also dedicated to re-cycling and stakeholders in a variety of ways. to energy conservation. Our Corporate Social Responsibility Report outlines more fully the various ways in which we have responded to the challenge to render the Group more Our aim is to create an environment in which talented transparent and accountable. employees grow with the business. It is a source of pride that so many of our staff have chosen to make their careers with the Group. Their loyalty and hard work is the cornerstone on which OUTLOOK all else stands. In the absence of a major external shock, the outlook for business conditions is positive in all Divisions. Our view is that, in spite of the likely introduction of additional controls by the CORPORATE GOVERNANCE AND CORPORATE Central Government that are intended to slow the economy’s SOCIAL RESPONSIBILITY expansion to a targeted and sustainable level, Mainland China The Group aspires to uphold the highest standards of will continue to exhibit rapid economic growth and to present corporate governance, and to be a model corporate citizen attractive investment opportunities. With low domestic in every respect. Beyond merely complying with mandatory inflation, rising domestic demand and strong exports, the case reporting requirements, we are firmly committed to making for investing in the Chinese Mainland remains compelling. voluntary disclosures when we feel that greater transparency The sheer size of the market and the abundant opportunities is in the interests of shareholders. We also do this to enhance for development will continue to be an important investment our internal code of conduct. Over the years, this commitment focus for the Group. Our extensive experience in Mainland has resulted in a number of commendations. Most recently, China, and our understanding of the uniqueness of different the Company was nominated for a “Citation for Achievement Chinese cities, gives the Group competitive advantages in its in Corporate Governance Disclosure” in the 2006 HKMA Best Chinese operations. Annual Reports Awards Competition.

Hong Kong also has strong prospects. Organizations such as Our Independent Non-executive Directors play an important the World Economic Forum, the Institute for Management role in ensuring that the Group performs well in corporate Development, the Economist Intelligence Unit, the World governance terms. They hold a perfect record of attendance Bank, the Heritage Foundation and others, continue to rank for all Board and Committee meetings held during the year. Hong Kong among the world’s most competitive, open and Additionally, they are briefed monthly by the senior executive business-friendly economies in the world. The shortage of team to ensure that they are across all major issues. The Group supply of luxury residential units, increases in disposable is well served by them, and I appreciate their support and income, relaxed controls on cross-border investment, an influx guidance. of visitors to Hong Kong, greater integration and connectivity between Hong Kong and Mainland China, and an increase in the volume of business being done by Chinese enterprises in Hong Kong bodes well for another exceptional year.

ANNUAL REPORT 2006 13 CHAIRMAN’S STATEMENT (Continued)

APPRECIATION I take this opportunity to offer sincere thanks to all those who contributed to the success of our business in 2006. The professionalism and dedication of our partners, Board members, management and staff is an essential driver of the Group’s performance. Their services are integral to the stability and prosperity of the Group. Our shared commitment to excellence in all we do and our reputation for quality – a reputation that has been earned by all stakeholders working closely together over many years – should be a source of great pride to all involved.

Ang Keng Lam Chairman Hong Kong 22 March 2007

14 KERRY PROPERTIES LIMITED MANAGEMENT DISCUSSION & ANALYSIS

OVERALL RESULTS

The Group’s profit attributable to shareholders for the year Year ended 31 December ended 31 December 2006 was HK$4,689 million, representing 2006 2005 HK$ million HK$ million Increase an increase of 53% compared with HK$3,067 million reported Profit attributable to shareholders before taking into account for 2005. In accordance with Hong Kong Accounting Standard the net change in fair values 40 “Investment Property”, the Group measured its investment of investment properties and related tax effects 2,944 1,759 67% property portfolio on a fair value basis and recorded change in Add: fair values of investment properties (net of deferred taxation) of Net change in fair values of investment properties HK$1,745 million for the year ended 31 December 2006 (2005: and related tax effects 1,745 1,308 HK$1,308 million). Before taking into account the effects of Profit attributable to shareholders after taking into account the aforementioned change in fair values, the Group recorded the net change in fair values of investment properties and an increase of 67% in profit attributable to shareholders to related tax effects 4,689 3,067 53% HK$2,944 million for the year ended 31 December 2006 (2005: Year ended 31 December HK$1,759 million). The increase was mainly due to the profit 2006 2005 HK$ arising from the Group’s disposal of its 10.16% minority interest HK$ Increase Earnings per share in Citibank Plaza by way of participation in the global offering before taking into account the net change in fair values of the Champion Real Estate Investment Trust (the “Champion of investment properties and related tax effects 2.40 1.45 66% REIT”), which amounted to HK$1,160 million. Add: Net change in fair values of investment properties Earnings per share for the year were HK$3.83, representing an and related tax effects per share 1.43 1.08 increase of 51% compared with HK$2.53 per share in 2005. Earnings per share after taking into account The effect on the Group‘s profit attributable to shareholders the net change in fair values of investment properties and and earnings per share due to the net change in fair values of related tax effects 3.83 2.53 51% the Group‘s investment properties and related tax effects is as follows:

ANNUALANNUAL REPORTREPORT 20062006 15 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS Mainland China and Hong Kong Focus, Large-scale Mixed-use Projects, High Quality Flagship Properties.

OVERVIEW PROPERTY PORTFOLIO COMPOSITION 29.79 million square feet of GFA During the year ended 31 December 2006, the Group made solid progress in property developments and sales and site acquisitions in line with the Group’s strategy of developing and managing premium quality properties in strategic locations 27% across its key markets. The resultant increase in land bank and the pipeline of development projects will help sustain the Group’s growth momentum going forward. 73%

As at 31 December 2006, the Group held a portfolio (measured in gross floor area (“GFA”)) comprising 21.15 million square Properties Under Development/ Investment Properties/ feet (2005: 16.17 million square feet) of properties under Properties Held for Sale Hotel Properties 21.79 million square feet 8.00 million square feet development, 7.47 million square feet (2005: 7.47 million square feet) of completed investment properties, 0.54 million By Location square feet (2005: 0.50 million square feet) of hotel properties Mainland China 52% and 0.64 million square feet (2005: 0.22 million square feet) Hong Kong of properties held for sale. This healthy portfolio will enable Overseas 19% the Group to create long-term value by sustaining a strong Macau 29% 68% recurrent income stream generated from rental properties, 7% and for capturing attractive financial returns from the sales of 16% properties. 9%

16 KERRY PROPERTIES LIMITED PROPERTY PORTFOLIO COMPOSITION Mainland China Hong Kong Macau Overseas Total GFA (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) Investment Properties 3,626,048 1,505,208 – 2,336,897 7,468,153 Hotel Properties 499,642 37,517 – – 537,159 Properties Under Development 14,399,225 3,339,235 1,988,000 1,422,129 21,148,589 Properties Held for Sale 370,926 260,593 – 8,902 640,421 Total GFA 18,895,841 5,142,553 1,988,000 3,767,928 29,794,322

MAINLAND CHINA PROPERTY DIVISION For the year ended 31 December 2006, the Mainland China The Group continues to focus on the development of large- Property Division reported turnover of HK$1,006 million (2005: scale, mixed-use property projects in key locations. The cross- HK$1,012 million) and a net profit attributable to the Group marketing effect between the various categories of a mixed- of HK$807 million (2005: HK$372 million), after taking into use property development project will inevitably enhance account the increase in fair values of investment properties property values and rental rates. (after deferred taxation) of HK$594 million (2005: HK$77 million). Excluding the effect of the increase in fair values of Investment Properties investment properties (after deferred taxation), net profit During the year ended 31 December 2006, the Group’s portfolio attributable to the Group was HK$213 million (2005: HK$295 of investment properties in Mainland China generated rental million). The decrease in profit (before effects of investment turnover and operating profit from rental activities of HK$578 property revaluation) attributable to the Group from Mainland million and HK$403 million, respectively (2005: HK$542 million China Property Division is mainly due to the decrease in the and HK$428 million, respectively). sales of properties in Mainland China compared with 2005.

As at 31 December 2006, the Group’s investment property The Division remains extremely selective in its choice of new portfolio in Mainland China comprised an aggregate GFA property developments where prime locations are preferred of 3.63 million square feet (2005: 3.33 million square feet), and in which land supply is relatively restricted, in order to the geographical distribution of which is set out in the table ensure sustainable asset value and strong resilience during below: periods of market uncertainties. Behind this strategy also lies the Group’s objective to build on its expertise and reputation in Mainland China’s property market in creating a profile of strategically- located, high-end properties in élite neighbourhoods.

INVESTMENT PROPERTIES IN MAINLAND CHINA Beijing Shanghai Shenzhen Fuzhou Total GFA (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) Office 814,665 632,259 82,099- 1,529,023 Commercial 184,998 400,707 107,256 63,986 756,947 Residential 277,330 435,789 - - 713,119 Carparks and others 194,698 290,057 142,204 - 626,959 Total GFA 1,471,691 1,758,812 331,559 63,986 3,626,048

ANNUAL REPORT 2006 17 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS (Continued)

As at 31 December 2006, the Group’s investment property October 2006, and an aggregate GFA of approximately 26,000 portfolio of office, commercial and residential properties square feet was leased as at 31 December 2006. reported occupancy rates of 95%, 92% and 67%, respectively (2005: 95%, 92% and 72%, respectively). Highlights of the Upon completion, Central Residences Phase II was added to the occupancy rates of the Group’s major investment properties in Group’s prestigious portfolio of deluxe properties under the Mainland China as at 31 December 2006 are as follows: brand, signifying the Group’s dedication to bringing its tenants the highest possible levels of service OCCUPANCY RATES OF MAJOR INVESTMENT and attention. represents an exclusive PROPERTIES IN MAINLAND CHINA lifestyle delivered through total service by professional and Occupancy rate as at Occupancy rate as at committed management teams. Property 31 December 2006 31 December 2005 Beijing Kerry Centre 90% 89% Shanghai Kerry Centre 86% 91% Shenzhen Kerry Centre 97% 96% Sales of Completed Properties Kerry Everbright City Phase I 95% 95% Sales of completed properties during the year ended 31 December 2006 generated turnover and operating profit of Construction of Tower 3 of the approximately 342,000 square-feet HK$73 million and HK$3 million, respectively (2005: HK$149 luxury residential development, Central Residences Phase II in million and HK$37 million, respectively), mainly in relation to Changning District, was completed at the end of 2006. Leasing the sales of office units in Shenzhen Kerry Centre. of Tower 3 as serviced apartments has commenced since

PROPERTIES UNDER DEVELOPMENT IN MAINLAND CHINA Total GFA upon Beijing Shanghai Shenzhen Tianjin Hangzhou Yangzhou Manzhouli completion (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) (sq. ft.) Residential - 728,100 - 1,105,506 2,635,565 - - 4,469,171 Apartment / Serviced Apartment 223,006 153,710 - 79,115 430,560 494,283 852,627 2,233,301 Office - 1,085,772 1,550,016 546,951 215,280 - - 3,398,019 Commercial 13,244 462,476 107,640 632,923 883,079 - 61,161 2,160,523 Hotel - 884,474 - 267,410 430,560 538,200 - 2,120,644 Ancillary Facilities - 17,567 - - - - - 17,567 Total GFA upon completion 236,250 3,332,099 1,657,656 2,631,905 4,595,044 1,032,483 913,788 14,399,225

SHANGHAI CENTRAL KERRY RESIDENCES II CENTRE SHANGHAI, SHANGHAI, MAINLAND MAINLAND CHINA CHINA

18 KERRY PROPERTIES LIMITED MAINLAND CHINA PROPERTY PORTFOLIO Properties under Development 18.90 million square feet of GFA The Group engages in a balanced portfolio of property development projects for sale and investment purposes, as well as large-scale, mixed-use property projects in key locations 22% across Mainland China. With an excellent track record of premium quality developments in Shanghai, Beijing and Shenzhen, the Group is bringing its expertise and experience to the major 78% secondary cities to maximize the market potential created by the increasingly affluent consumer sectors in Mainland China.

Properties Under Development/ Investment Properties/ Shanghai Properties Held for Sale Hotel Property 14.77 million square feet 4.13 million square feet The approximately 1,598,000 square-feet Kerry Everbright City

By Location Phase II development, which comprises office, residential and Shanghai commercial properties, is located in a prime area of Zhabei 2% 43% 6% Beijing 8% District. Completion of Phase IIa of the project, which consists 7% Hangzhou of an office tower with a two-storey retail podium and four 11% Shenzhen 48% Yangzhou residential towers, is currently scheduled for the third quarter of 1% Manzhouli 2007. Phase IIb of the development will deliver four additional 25% 18% Fuzhou residential towers, which is currently expected to be completed Tianjin in first quarter of 2008. The pre-sale of the residential towers in 31% Phase IIa commenced in February 2007.

With regard to the mixed-use property development project in Jingan District, all the underlying contract approvals have been By Type obtained from the PRC government authorities. Development Commercial and construction works of the project are currently expected Office 37% 15% 15% to commence in the second quarter of 2007, with completion Residential 12% Hotel 18% currently scheduled in phases between 2010 and 2011. Being 14% 18% Apartment/ a development project of the Group in form of a joint venture Serviced apartment 23% Carparks and with Shangri-La Asia Limited (“SA”) on a 51%/49% basis, this 33% others mixed-use project will comprise two luxury hotels, office 15% and retail properties with an aggregate aboveground GFA of approximately 2,536,000 square feet.

JINGAN, CENTURY PARK SHANGHAI, PUDONG, MAINLAND SHANGHAI, CHINA MAINLAND CHINA

ANNUAL REPORT 2006 19 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS (Continued)

Development of a mixed-use property project located on a Manzhouli site adjacent to the Shanghai New International Expo Centre in In Manzhouli, Inner Mongolia, an apartment and commercial Pudong is currently scheduled for completion in second quarter property project is under development with a buildable GFA of 2010. The site is expected to deliver an aboveground GFA of of approximately 914,000 square feet. The project is currently approximately 2,476,000 square feet, comprising hotel, offices, scheduled to be completed in phases to 2010. serviced suites/serviced apartments, commercial properties and related ancillary facilities. The Group holds a 40.8% interest in this joint venture project. Hangzhou Project planning works are underway on a site adjacent to Xihu (West Lake) in Xia Cheng District, where the Group is planning Shenzhen a new mixed-use property project to incorporate a hotel, The grade-A office complex project in Futian Central District is offices, apartments and a commercial shopping complex under under construction with completion currently scheduled for its master development plan. The site offers a total buildable the fourth quarter of 2007. The project is expected to deliver a GFA of approximately 1,895,000 square feet and is currently GFA of approximately 807,000 square feet. scheduled for phased completion between 2009 and 2010.

In May 2006, the Group acquired another approximately 85,000 In October 2006, the Group acquired another site in Xia square-feet site adjacent to the above-mentioned project Cheng District which is designated for residential property in Futian Central District. Also planned for office property development and generates a planned GFA of approximately development comprising a developable GFA of approximately 2,700,000 square feet. The Group considers that this site offers 850,000 square feet, this additional site will enable the Group business opportunities which capitalizes on the growing to create maximum value from the development of this large demand for residential properties generated by the emerging project in this prime location. affluent consumer sector in Hangzhou.

TIANJIN KERRY CENTRE* TIANJIN, MAINLAND CHINA

* Artist’s impression

20 KERRY PROPERTIES LIMITED Yangzhou HONG KONG PROPERTY DIVISION The hotel and apartment development project in Yangzhou is During the year ended 31 December 2006, the Hong Kong progressing on schedule, with completion currently scheduled Property Division reported turnover of HK$2,827 million (2005: for 2009 which offers a total buildable GFA of approximately HK$1,415 million) and a net profit attributable to the Group 1,032,000 square feet. of HK$2,676 million (2005: HK$1,429 million), after taking into account the increase in fair values of investment properties (net Tianjin of deferred taxation) of HK$653 million (2005: HK$649 million). The Group engages in a mixed-use property development project in Hedong District, Tianjin in June 2006. Located During the year ended 31 December 2006, the Group recorded in Tianjin’s central business district, the project offers an a profit of HK$1,160 million from the disposal of its 10.16% aboveground GFA of approximately 5,371,000 square feet and minority interest in Citibank Plaza by way of participation in is currently planned for the development of hotel, serviced the global offering of the Champion REIT. Furthermore, the apartments, offices, residence, shopping mall and related Group disposed of its non-core assets during the year, namely ancillary facilities. Upon completion, the development will the investment properties situated at 111 High Street and 34th comprise a major component of investment properties which Floor, 36th Floor and 37th Floor of Citibank Tower. are expected to generate a recurrent income stream to the Group. The Group holds a 49% interest in this project, which On the back of the positive outlook for the Hong Kong property is currently scheduled for completion in phases between 2009 market, the Group’s investment properties in Hong Kong have and 2011. sustained steady rental levels and occupancy rates during the year. Sales of completed properties also contributed to Beijing Kerry Centre Hotel satisfactory profit margins for the Division. For the year ended 31 December 2006, Beijing Kerry Centre Hotel contributed turnover and operating profit of HK$355 Investment Properties million and HK$125 million, respectively (2005: HK$321 million The Division’s premium portfolio of investment properties and HK$111 million, respectively), and achieved an average provides a steady stream of rental income and earnings occupancy rate of 77% (2005: 79%) with a 14% increase in contributions to the Group. During the year ended 31 December average room tariff compared with that of 2005. 2006, the Group’s portfolio of investment properties in Hong Kong contributed rental turnover of HK$384 million (2005: HK$352 million) and operating profit of HK$86 million (2005: HK$135 million).

BEIJING KERRY BRANKSOME CENTRE CREST BEIJING, MID-LEVELS, MAINLAND HONG KONG CHINA

ANNUAL REPORT 2006 21 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS (Continued)

As at 31 December 2006, the Group maintained an investment HONG KONG PROPERTY PORTFOLIO property portfolio in Hong Kong measuring an aggregate GFA 5.14 million square feet of GFA of 1.5 million square feet (2005: 1.8 million square feet) which comprises the following:

INVESTMENT PROPERTIES IN HONG KONG 30% Total GFA (sq.ft.) Residential 964,983 70% Commercial 387,305 Office 152,920 Total GFA 1,505,208

As at 31 December 2006, the Group’s investment property portfolio of residential, commercial and office properties achieved occupancy rates of 90%, 91% and 83%, respectively Properties Under Development/ Investment Properties/ (2005: 93%, 94% and 96%, respectively). Properties Held for Sale Hotel Property 3.60 million square feet 1.54 million square feet

Novotel Century Harbourview By Type The Novotel Century Harbourview, a hotel acquired by the Commercial Group in June 2006, has reported improving revenues since 2% Office 63% the acquisition, benefiting from strong tourist arrivals as well 22% Residential Carparks and others as a further expansion of the main metropolitan area on Hong Hotel 25% Kong Island which benefits from the planned Mass Transit 2% 10% Railway line extensions. 46% 30%

Sales of Completed Properties Sales of completed properties in Hong Kong during the year ended 31 December 2006 contributed turnover of HK$2,443 million (2005: HK$1,063 million), which were attributable mainly

15 HOMANTIN HILL HO MAN TIN, HONG KONG

22 KERRY PROPERTIES LIMITED to the sales of units in , 15 Homantin Hill and and fits well with, the first-mover advantage offered by this Kai Enterprise Square Three, as well as the sales of 34th Floor, 36th Tak site re-development blueprint. Floor and 37th Floor of Citibank Tower. Together with the disposal of the Group’s 10.16% minority interest in Citibank Plaza by way PROPERTIES UNDER DEVELOPMENT IN HONG KONG of participation in the global offering of the Champion REIT, Total GFA the Division recorded an operating profit of HK$1,914 million upon completion (sq. ft.) from property sales during the year (2005: HK$516 million), Residential 1,514,797 representing an increase of 271% year-on-year. Commercial 1,081,897 Office 677,587 Properties under Development Carparks 64,954 Total GFA upon completion 3,339,235 Enterprise Square Five/“MegaBox”, Kowloon Bay Construction works at the 1.6 million square-feet Enterprise Shelley Street, Central Mid-Levels Square Five project progressed well as scheduled. This grade-A retail, entertainment and office complex is another landmark Construction works are ongoing in relation to the residential development in Kowloon Bay. The complex incorporates a property development project in Central Mid-Levels at No. 38 1.1 million square-feet retail portion, “MegaBox”, which is Shelley Street, Hong Kong. The project comprises a residential designed to become the largest commercial mall in Hong tower with commercial facilities, with an aggregate developable Kong and a unique destination for shopping, dining and family GFA of approximately 50,000 square feet. A total of 79 residential entertainment. With the leased space within the shopping mall units are planned for this project, which is currently expected to currently being handed over to tenants, “MegaBox” is scheduled be completed by the fourth quarter of 2007. for opening in mid-2007. As at 31 December 2006, “MegaBox” was over 80% pre-leased whilst the two office towers, with an First Street/Second Street, Mid-Levels West aggregate GFA of approximately 500,000 square feet, were With foundation works close to completion, superstructure more than 70% pre-leased. construction works are expected to commence in mid-2007. This joint development project with the Urban Renewal In October 2006, the Hong Kong SAR Government announced Authority at First Street/Second Street in Mid-Levels West, the re-development plan for the old Kai Tak airport site, which Hong Kong is designed to provide residential and commercial comprises the development of hotels, office and residential accommodation with a total GFA of approximately 400,000 accommodation, cruise terminals and a giant stadium, as well square feet which comprises a total of 468 residential units. as a monorail system linking this tourist hub with neighbouring This project is currently expected to be completed by the first Kowloon Bay and Kwun Tong. The Group’s Enterprise Square quarter of 2009. Five development in Kowloon Bay is expected to benefit from,

ENTERPRISE SQUARE FIVE/ MEGABOX KOWLOON BAY, HONG KONG

ANNUAL REPORT 2006 23 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS (Continued)

Tsuen Wan Shan Kwong Road/Village Terrace, Happy Valley With regard to this approximately 400,000 square-feet With regard to this re-development of No. 20 Shan Kwong residential development project in Kwok Shui Road, Tsuen Road and No. 1-5 Village Terrace, Happy Valley, Hong Kong, Wan, development works have commenced in the third demolition works have already begun. The existing site offers quarter of 2006, with completion currently expected for the a developable GFA of approximately 220,000 square feet, second quarter of 2009. A total of 548 units are planned for this and the Group intends to re-develop the existing residential residential project. properties with a currently expected completion date of the second quarter of 2010.

Ap Lei Chau Foundation works have commenced for this joint venture 863-865 King’s Road, North Point residential project in Ap Lei Chau. The Group holds a 35% interest Demolition works are currently underway. Plans are being and an attributable share of GFA measuring approximately prepared for the development of a grade-A office tower with 320,000 square feet. Development works are currently scheduled a developable GFA of approximately 502,000 square feet. This for completion in the third quarter of 2009. The development is office development project, in which the Group holds a 40% expected to offer a total of 776 residential units. interest, is currently expected to be completed in the second quarter of 2011.

Yuk Yat Street, To Kwa Wan The re-development of No. 5 and No. 9 Yuk Yat Street in To Macau Kwa Wan, Kowloon, progressed further with demolition works With regard to the Group’s planned residential development in completed. The site has a developable GFA of approximately Macau, it is encouraging to note that the necessary reclamation 163,000 square feet and is designated for re-development into scheme has been endorsed with positive environmental residential and commercial properties. This project is currently assessment by the authority and formal procedure leading up expected for completion in the fourth quarter of 2009. to the reclamation works is underway. It is currently expected that reclamation works would commence around the third quarter of 2007.

15 HOMANTIN HILL CLUBHOUSE HO MAN TIN, HONG KONG

24 KERRY PROPERTIES LIMITED OVERSEAS PROPERTY DIVISION The Philippines The Group’s Overseas Property Division holds a portfolio of The Group’s investments in property interests in the Philippines properties in Australia and the Philippines. During the year ended are held through its 73.88% aggregate direct and indirect 31 December 2006, the Division recorded a net profit after tax of interests in EDSA Properties Holdings Inc. (“EPHI”), whose HK$36 million (2005: HK$68 million). The decrease in the Group’s investment property interests comprise (i) a 78.72% interest share of profit from this Division is mainly attributable to the in the Shangri-La Plaza Mall, Manila; and (ii) indirect interests deferred tax credit recognized in the year ended 31 December in The Enterprise Centre, an office and commercial property in 2005 (as a result of the reduction in profits tax rate). Makati, Manila’s financial district.

OVERSEAS PROPERTY PORTFOLIO As at 31 December 2006, the Shangri-La Plaza Mall reported an The occupancy rate of 99% (2005: 96%), whilst the occupancy rate Australia Philippines Total GFA (sq. ft.) (sq. ft.) (sq. ft.) at The Enterprise Centre was 97% (2005: 96%). Investment Properties Hotel lease – 191,832 191,832 Shopping centre lease – 240,697 240,697 Carpark lease – 211,203 211,203 EPHI was also engaged in the development of (i) The Shang Shopping centre – 1,191,763 1,191,763 Grand Tower, a residential property project in Makati, Manila, in Commercial – 11,316 11,316 Office – 174,522 174,522 which EPHI has 100% beneficial interest; and (ii) The St. Francis Carparks and others – 315,564 315,564 Towers, which comprise two 60-storey towers in Mandaluyong Sub-total – 2,336,897 2,336,897 City, Manila delivering a total of 1,156 residential units upon Properties under Development/ Properties Held for Sale completion of development. As at 31 December 2006, 98% Residential 133,796 1,254,647 1,388,443 Office 42,588 – 42,588 (2005: 84%) of the GFA of The Shang Grand Tower in Manila was Sub-total 176,384 1,254,647 1,431,031 sold, and a total of 501 units of the two towers of The St. Francis Total GFA 176,384 3,591,544 3,767,928 Towers project were sold. Development of The St. Francis Towers project continues with completion currently scheduled Australia for the first quarter of 2009. As at 31 December 2006, 922 units (2005: 868 units) of the Group’s 25%-owned Jacksons Landing project were sold, representing 96% of a total of 957 units available for sale. The project is located at the Pyrmont Peninsula in Sydney and covers a site of 12 hectares designated for residential and commercial property development.

SHANGRI-LA THE ST. PLAZA MALL FRANCIS MANILA, TOWERS* THE PHILIPPINES MANILA, THE PHILIPPINES

*Artist’s impression

ANNUAL REPORT 2006 25 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF PROPERTY BUSINESS (Continued)

OUTLOOK and successful track records in the development of high quality Mainland China office, commercial and apartment complexes (such as Beijing Kerry Centre and Shanghai Kerry Centre), and to benefit from During the year 2006, a number of government authorities a recurrent income stream to be generated from the leasing in Mainland China jointly introduced and enforced new portions of these mixed-use properties upon completion of measures to further curb rapid increases in property prices development. This will essentially enhance the Group’s overall in metropolitan areas and to promote the healthy future recurrent income base going forward. development of Mainland China’s property market. These measures include, among others, the requirement for at least 70% of approved land supplies for residential property Furthermore, as of 1 February 2007, the State Administration development to be designated for developing low-to-medium of Taxation began to enforce more strictly the levy of land cost and small-to-medium sized units. The Group is of the view appreciation tax on the sale or transfer of state-owned land that these measures, which target mainly at the residential use rights, buildings and their ancillary facilities in Mainland sector, are unlikely to have a significant impact on the Group, China. The Group has made appropriate provisions for such for reason that the Group does not have a high concentration land appreciation tax in the financial statements as at 31 of residential properties to be developed for sales within the December 2006, in respect of the properties sold prior to that Group’s existing property development portfolio. On the other date. Furthermore, the diversified development mix between hand, the Group’s mixed-use property development projects, leasing and sales properties within the Group’s development such as those located in Shanghai (Jingan and Pudong Districts), portfolio in Mainland China also limits the Group’s exposure to Hangzhou and Tianjin, each has a diversified development mix the impact of land appreciation tax going forward. comprising a fairly sizeable leasing portion which cover office, commercial and hotel properties. This enables the Group’s property development portfolio in Mainland China to be well- positioned to capitalize on the Group’s experience, expertise

CENTRAL RESIDENCES II LOBBY SHANGHAI, MAINLAND CHINA

26 KERRY PROPERTIES LIMITED With a strong history of high quality property developments Investment activity in the office sector has been strong during and an established market niche in the high-end property the year. Harnessing strong demand from corporate tenants and sector, the Group is confident that the changes in the Mainland the reversionary cycle in rentals, the office sector has emerged as China property market landscape will be favourable to the the focus of the market as was evidenced by a number of major Group and will strengthen the Group’s competitive advantages transactions in the office property sector during the year. The and leading position. The Group will continue to leverage its Group remains optimistic about the outlook of the grade-A office proven business models in Beijing, Shanghai and Shenzhen to property market, as Hong Kong continues to enjoy the benefits pursue further opportunities, in these metropolitan cities and in arising from institutional capital inflows in acquiring quality the major secondary cities, which offer attractive development office and commercial properties, as well as the competitive potential. advantages offered by the Qualified Foreign Institutional Investor (QFII) Scheme which further affirms Hong Kong’s unique position as the commercial gateway to Mainland China. Hong Kong The Hong Kong property market has entered a relatively healthy growth period, with a continuing rebound of The continuously improving economic environment which its economy and investment sentiment giving it added results in increased domestic consumption power, and a momentum in 2006. The Group maintains its view that the sustained healthy tourism sector, are the main factors which high-end residential property sector will continue its healthy strengthen the fundamentals of the commercial property development over the long term, on the back of a sustained sector. The Group’s positive outlook of Hong Kong’s commercial economic recovery, increasing marriage and birth rates, as property sector is validated by the remarkable achievements in well as improved household wealth and affordability. The the pre-leasing of “MegaBox”, the Group’s major retail property Group will continue to leverage its strong brand equity in the project in Kowloon Bay which is scheduled to open in mid-2007. development of premium quality residential properties in prime and strategic locations, particularly in neighbourhoods With aspiration towards the creation of value for both the with good connectivity to Hong Kong’s commuting system, Group’s shareholders and the local community, the Division facilities and amenities and which possess long term potential will continue to develop high quality properties in Hong for further development. Kong, offering its tenants and residents the best environment, facilities and services.

MEGABOX ENTERPRISE ICE RINK* SQUARE THREE KOWLOON BAY, KOWLOON BAY, HONG KONG HONG KONG

* Artist’s impression

ANNUAL REPORT 2006 27 MANAGEMENT(PIC: HANGZHOU, NEED TODISCUSSION CROP) & ANALYSIS REVIEW OF LOGISTICS BUSINESS Asia Based, China Focus, Global Network.

OVERVIEW WAREHOUSING OPERATIONS IN HONG KONG During the year ended 31 December 2006, the Logistics During the year, the Division maintained its position as a Network Division recorded a turnover of HK$6,316 million leading warehouse operator in Hong Kong, with a portfolio (2005: HK$5,541 million), representing a 14% increase year-on- of 11 warehouses occupying an aggregate GFA of 6.28 million year. Net profit attributable to the Group for the year increased square feet (2005: 6.74 million square feet) as at 31 December by 8% year-on-year to HK$1,173 million (2005: HK$1,085 2006. The occupancy rate for the entire Hong Kong warehouse million). Excluding the effects of the increase in fair values portfolio operated by the Division was 96% as at 31 December of the warehouse properties, logistics centres and buildings 2006 (2005: 97%). (after deferred taxation) of HK$500 million (2005: HK$578 million), profit for the year attributable to operations increased During the year, the Division sold its warehouse properties by 33% to HK$673 million (2005: HK$507 million), and of which in Yuen Long and Fanling for an aggregate consideration of (i) HK$343 million (2005: HK$163 million) was contributed by HK$345 million. warehousing operations in Hong Kong; (ii) HK$107 million (2005: HK$129 million) was contributed by logistics operations; and (iii) HK$223 million (2005: HK$215 million) was contributed LOGISTICS OPERATIONS by the Division’s logistics investments. The year 2006 witnessed the Division’s continuing efforts in driving further growth and sustaining earnings generating power through active geographical expansion in both Asia and To date, the Division operated a portfolio of warehouses, Europe and enhancing the sales and marketing capabilities of logistics centres and port facilities measuring more than its operations in various markets. During the year ended 31 16 million square feet backed by a truck fleet of over 3,000 December 2006, the Division’s logistics operations contributed vehicles, with operations stretching across over 150 cities in 18 turnover of HK$5,543 million (2005: HK$5,142 million). The countries and supported by around 6,000 staff in total. moderate growth of 8% in turnover generated by the Division’s logistics operations reflects the results of the restructuring of

28 KERRY PROPERTIES LIMITED Kerry EAS Logistics Limited (“KEAS”) which cut down certain China Focus low- margin booking agency operations. The Division has since After the acquisition of a 70% equity interest in KEAS, the refocused its Mainland China operations on niche international Division now leads in terms of nationwide logistics coverage freight market and pan-China distribution. The slight drop in in Mainland China, serving over 1,100 cities in more than 32 profit contributed from the logistics operation for the year provinces with around 120 offices and over 4,500 staff, 1,600 2006, when compared to 2005, is mainly attributable to the trucks and around 3,000,000 square feet of warehouse and costs incurred in the setting up of 17 freight forwarding offices logistics facilities. Operating profit contributed by KEAS to the in Europe and Australia during the year, as well as the loss of Division for the year ended 31 December 2006 has increased by businesses resulting from the termination of the previous over 30% when compared to 2005. agency operations in these countries.

A substantial part of KEAS’ programme to rationalize its Hong Kong corporate and business structures, in conjunction with the The Division continues with its leading position in the logistics integration process between the operation of Kerry Logistics’ sector in Hong Kong. Capitalizing on Hong Kong’s continuing Mainland China business and KEAS, has been completed. The status as a key logistics hub in Asia and its excellent connectivity elimination of certain low-margin businesses for KEAS was a with Mainland China, the Division has been successful in securing result of the continuing business restructuring efforts of KEAS, large, integrated third-party logistics contracts from customers and has helped to enhance KEAS’s operating margin despite seeking to establish regional logistics hubs in Hong Kong. a decrease in revenue. With the new information technology (IT) system now connecting over 100 offices in Mainland China During the year, KerryFlex Supply Chain Solutions Limited under one IT network as well as the pan-China “Transport (“KerryFlex”), the trading arm of the Division, continued its strong Operations Platform” which was launched in mid-2006, KEAS is growth momentum with business growth registered across its now one of the very few logistics service providers in Mainland broad customer base ranging from healthcare to catering and China which operates a truly integrated nationwide distribution fast-moving grocery segments. In March 2006, KerryFlex acquired network. Going forward, the Division will continue to fine-tune Wah Cheong Company, Limited, which is a company with more its business focus, and align management procedures and than 50 years of specialist food distribution experience in Hong cultures across all operating units in Mainland China. Kong. This acquisition strengthens KerryFlex’s distribution network servicing food-and-beverage outlets and also paves the way for the Division’s participation in procurement projects for hotel chains.

MICHAEL DIECKMANN MARCO LUYTEN AT BVL CONGRESS AT BVL CONGRESS

ANNUAL REPORT 2006 29 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF LOGISTICS BUSINESS (Continued)

The newly-completed approximately 173,000 square- In Thailand, the Division has dedicated major management feet bonded logistics centre in Tianjin’s Free Trade Zone resources to establishing its nationwide distribution network commenced operations in the first half of 2006. This is the with a view to achieve distribution efficiency, as well as an IT Division’s largest bonded facility in Northern China and is platform to enhance operational efficiency of front-line staff. In strategically located adjacent to Tianjin Xingang, the biggest 2007, the container berth expansion works will be completed container hub in the northern region of China. In June 2006, which will further strengthen the Division’s logistics foothold the six-storey approximately 269,000 square-feet bonded in Thailand. logistics centre incorporating a multi-function warehouse in Shenzhen’s Futian Free Trade Zone also commenced operations. In India, the acquisition of a 51% equity interest in Reliable The Division will continue to explore opportunities for building Freight Forwarders Private Limited, now renamed Kerry new logistics facilities to strengthen its infrastructure network in Reliable Logistics Private Limited, was successfully completed other strategic locations in Mainland China, such as Shanghai, in September 2006. Such acquisition offers a country-wide Chengdu and Xiamen. network giving the Division immediate access to this growing market in the Indian sub-continent. The Division’s Indian Asia Based operation is headquartered in Chennai and is supported by a During the year, the Division pursued its geographical staff force of around 200. expansion in various markets across Asia. In Australia, the Division has opened three offices during the Vietnam registered the fastest growth among the Division’s year in Sydney, Brisbane and Melbourne, as a platform for operations in the Asia Pacific region. During the year, the further business expansion in the country. Division invested in four warehouses with an aggregate GFA of approximately 268,000 square feet, and obtained licences for bonded warehouse and container freight station (CFS). The Division will examine the feasibility of acquiring further logistics facilities to support its business expansion in Vietnam.

2007 GLOBAL STRATEGY AND POLICY COMMITTEE

DEDICATED CUSTOMER SOLUTIONS

30 KERRY PROPERTIES LIMITED Global Network CCT’s performance remained steady for the year 2006 with Outside Asia, in addition to its established businesses in the the new berths in place and continuous improvement in its United Kingdom and Spain, the Division has during the year operational efficiency. CCT recorded a volume throughput of further extended its operation to several countries in the 3.9 million TEUs in 2006 (2005: 3.6 million TEUs). European continent. With the headquarters for Central Europe and Western Europe operations located at Hamburg and INFORMATION TECHNOLOGY Antwerp, respectively, the Division has to date set up 14 offices The first phase of “KerrierVISION”, a supply chain enhancing in Germany, Austria, Switzerland, Belgium and the Netherlands. visibility software, was established in the fourth quarter of 2006 and is ready for commercial deployment. It complements the By setting up its own offices and thus establishing its own direct existing freight forwarding visibility tool, “Kerrier Track & Trace”, representation in these countries, the Division has successfully and the contract logistics visibility tool, “KerrierWEB”, in providing strengthened its global network in terms of its sales and a unified and even broader visibility platform for achieving a marketing capabilities in Central and Western Europe. The higher standard of supply chain management service. Division’s key trade development focus in Europe is mainly on import and export of cargoes between European countries and The Division’s continuous input into IT development is geared Asia, in particular Mainland China. towards constantly adding value to logistics solutions and enhancing the overall efficiency of the supply chain. Going LOGISTICS INVESTMENTS forward, integration will be a key emphasis of the Divison’s The Division’s logistics investments, which include a 15% IT initiatives. This aims to establish a data consolidation point interest in (“AAT”) and a 25% interest for universal data exchange between regions, agents and also in Chiwan Container Terminal (“CCT”), continue to provide a customers. It is a crucial foundation for facilitating the global steady source of recurrent earnings to the Group. During the information feed to “KerrierVISION”, whilst also serving internally year ended 31 December 2006, the Division’s equity share of as the EAI (Enterprise Application Integration) engine linking all profits after tax from AAT, CCT and other associated companies application systems being used by the Division’s offices in other amounted to HK$223 million (2005: HK$215 million). parts of the world.

The new Terminal 2 of AAT, next to the existing terminal at the Hong Kong International Airport, will commence operation in 2007. This Terminal 2 has an annual handling capacity of 910,000 tons, and the two terminals will provide an aggregate cargo-handling capacity of 1.5 million tons per annum.

STRATEGIC MEETING

SUPPLY CHAIN VISIBILITY

ANNUAL REPORT 2006 31 MANAGEMENT DISCUSSION & ANALYSIS REVIEW OF LOGISTICS BUSINESS (Continued)

OUTLOOK The Division’s expansion plan will continue in 2007 and more Following the disposal of two non-core warehouse properties offices will be set up in Germany, France, Poland, the Czech in November 2006 which has successfully reduced the Division’s Republic and Hungary. Although the initial set up costs incurred interest burden, and with the renewal of major warehouses’ in these European businesses may impact on their profitability leasing contracts during the year with improved rental rates, in 2007, it is expected that break-even position would be the Division expects a continuous but very moderate increase achieved by 2008. in warehousing revenue and profit in 2007. Meanwhile, the Division will also continue to take a proactive approach in It is also expected that the logistics industry in Asia Pacific will marketing and developing new business innovation in order to continue to experience rapid growth and changes in 2007 and secure additional cargo volume and new tenants especially in beyond. Global logistics operations will be increasingly focused certain specialized industries. on the Asia Pacific region along with the growth of cargo flows between Mainland China and the rest of the world. The Division

Leveraging its dominant presence in Asia, the Division’s logistics will continue to strengthen and upgrade its core activities operations will actively position itself to remain competitive in Mainland China and Asia, whilst also actively seeking in the new China-ASEAN landscape. With the signing of opportunities in other high growth areas within Asia, including agreements between ASEAN and Mainland China in January the Middle East, with a view of developing Kerry Logistics into a 2007 regarding the establishment of a China-ASEAN free trade truly pan-Asia operation. Our vision remains “Asia Based, China area in phases from 2010 to 2015, the land transportation Focus, Global Network”. between ASEAN member countries and Mainland China is expected to be enhanced in the coming years. The Division’s main target for 2007 is to extend its land transportation connectivity from Mainland China to various ASEAN countries. Besides, the Division will also continue to drive the development of niche markets, such as the Philippines and Cambodia, and plans to expand further into Bangladesh.

DYNAMIC WORKFORCE

LOGISTICS CONSULTANCY

32 KERRY PROPERTIES LIMITED MANAGEMENT(PIC: HANGZHOU, NEED TODISCUSSION CROP) & ANALYSIS REVIEW OF INFRASTRUCTURE BUSINESS Recurrent Income, Looking To The Future.

OVERVIEW In collaboration with TieTong Telecommunications Corporation The Infrastructure Division invests in a range of infrastructure, Shanghai Branch Company, the Group’s 25%-owned REDtone environmental protection and utilities-related projects in Hong Telecommunications (China) Limited, through its wholly Kong and Mainland China. Through such investments, the owned subsidiary in Shanghai, launched an “e-secretary” Division aims to play a part in improving the living environment, service in 2006, and continued to roll out new packages for whilst also contributing a steady recurrent income stream long distance discounted calls, initially in Shanghai. With an to the Group. Net profit attributable to the Group from this investment in this operation totalling US$937,500 (equivalent Division during the year ended 31 December 2006 amounted to to approximately HK$7.3 million), the Group recorded its share approximately HK$31 million (2005: HK$38 million). of net loss of HK$3 million, arising from the initial stage of commercial operation during the year. With a promising future for this operation, plans are being considered to tap into new HONG KONG market segments. The Division holds a 15% interest in the Western Harbour Crossing and a 15% interest in the Cross Harbour Tunnel OUTLOOK management contract. The Group’s share of aggregate net profits from these investments amounted to HK$43 million The Division will continue to identify and evaluate investment during the year ended 31 December 2006 (2005: HK$41 million). opportunities which can contribute strong recurrent income for the Group in the long run.

MAINLAND CHINA The water treatment project in Hohhot Municipality, Inner Mongolia Autonomous Region, in which the Group has an effective 13% interest, commenced commercial operation in 2006. The Group’s investment in this operation amounted to RMB27.7 million (equivalent to HK$27.8 million).

ANNUAL REPORT 2006 33 MANAGEMENT DISCUSSION & ANALYSIS

FINANCIAL REVIEW

The Group has centralized funding for all its operations. This Out of the Group’s total borrowings as at 31 December policy also achieves better control of treasury operations and 2006, HK$803 million (representing approximately 6%) was lower average cost of funds. repayable within one year, HK$385 million (representing approximately 3%) was repayable within two years, HK$8,029 million (representing approximately 62%) was repayable The Group closely reviews and monitors its foreign exchange between three to five years and HK$3,717 million (representing exposure. As at 31 December 2006, total foreign currency approximately 29%) was repayable over five years. The Group borrowings (excluding Renminbi (RMB) borrowings) amounted continued to maintain most of its borrowings on an unsecured to the equivalence of HK$4,232 million and RMB loans basis, with unsecured debt accounting for approximately 98% amounted to the equivalence of HK$164 million. Therefore, of total borrowings as at 31 December 2006. The Group will non-RMB total foreign currency borrowings and RMB loans continue to obtain financing on an unsecured basis whenever represented approximately 33% and 1%, respectively, of possible, and supplement such borrowings with secured the Group’s total borrowings of HK$12,934 million as at 31 project financing as and when the need arises. December 2006.

As at 31 December 2006, the gearing ratio for the Group was The non-RMB total foreign currency borrowings of HK$4,232 34.8% (2005: 36.4%), based on net debt of HK$10,202 million million mainly include the Fixed Rate Bonds (as referred to and shareholder’s equity of HK$29,325 million. hereinafter) amounting to US$420 million (approximately HK$3,243 million (net of direct issue costs)). The Group has arranged cross currency swap contracts amounting to US$417 As at 31 December 2006, the Group had outstanding interest million to hedge the exchange rate exposure between Hong rate swap contracts which amounted to HK$5.8 billion in total, Kong dollars and United States dollars. enabling the Group to hedge its interest rate exposure and to have a more stable interest rate profile in the next few years.

34 KERRY PROPERTIES LIMITED In terms of the Group’s available financial resources as at 31 coupon rate of 6.375% per annum, and have a maturity term December 2006, the Group had total undrawn bank loan and of 10 years until 25 August 2016. The issuance of the Fixed Rate overdraft facilities of HK$9,418 million and net cash on hand Bonds enables the Group to extend its debt maturity profile of HK$2,732 million. In addition, the generation of strong and broaden its fixed-income investor base. Standard & Poor’s recurrent cashflows from theGroup’s investment property awarded the Fixed Rate Bonds with a “BBB-” credit rating. portfolio, hotel operation and logistics, freight forwarding and warehousing businesses provide the Group with a strong On 22 February 2007, Gainlead International Limited, a wholly- financial position, and enables the Group to reap the benefits owned subsidiary of the Company, issued convertible bonds of investment opportunities as and when they arise. in the aggregate principal amount of HK$2,350,000,000 (the “Convertible Bonds”). The Convertible Bonds are zero coupon- On 27 February 2006, the Group signed a syndicated loan based, have a maturity term of 5 years until 22 February agreement for an unsecured HK$6 billion revolving loan facility. 2012 and are convertible into the Company’s ordinary shares The interest rate for this facility is HIBOR (Hong Kong Interbank at a conversion price of HK$52.65 per share (subject to Offered Rate) plus 29 basis points. This facility is for general adjustments). The issuance of the Convertible Bonds provides corporate funding requirements of the Group including a flexible and cost-efficient funding opportunity which is in the refinancing of the outstanding loan balance under a previous best interest of the Group. Upon conversion of the Convertible HK$4.5 billion syndicated loan facility obtained in January Bonds, the capital base of the Company will be enlarged and 2002. The facility received participations from 18 reputable strengthened which will benefit the Group’s future growth and international and local banks and financial institutions. developments. Standard & Poor’s awarded the Convertible Bonds with a “BBB-” credit rating.

On 15 August 2006, Standard & Poor’s reaffirmed a “BBB-” credit rating for Kerry Properties Limited with a stable outlook. Subsequent to the balance sheet date and up to 22 March 2007, an aggregate principal amount of HK$756,210,000 of the convertible bonds issued in 2005 has been converted On 25 August 2006, Gain Silver Finance Limited, a wholly- into an aggregate of 29,135,413 ordinary shares of HK$1 each owned subsidiary of the Company, issued fixed rate bonds in the Company, representing approximately 30.2% of the in the aggregate principal amount of US$420,000,000 (the entire amount of the aforementioned convertible bonds of “Fixed Rate Bonds”), the net proceeds of which were used to HK$2,500,000,000. repay part of the Company’s outstanding corporate loans. The Fixed Rate Bonds are guaranteed by the Company and carry a

ANNUAL REPORT 2006 35 PARTICULARS OF PROPERTIES HELD

Particulars of major properties held by the Group as at 31 December 2006 are as follows:–

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Mainland China Properties A. Held for investment

1. Beijing Kerry 1 Guang Hua Road Office 71.25 711,121 Medium lease Centre Chaoyang District Residential 277,330 Beijing Commercial 98,406 Carparks 190,806 430 1,277,663 2. Kerry Everbright 218 Tianmu Road West Commercial 64.35 286,122 Medium lease City Phase I Zhabei District Office 323,675 Shanghai Residential 6,333 Carparks 85,250 155 701,380 3. Shanghai Kerry 1515 Nanjing Road West Residential 74.25 142,355 Medium lease Centre Jingan District Office 308,584 Shanghai Commercial 103,971 Carparks 118,129 180 673,039 4. Shanghai Central 166 Lane 1038 Residential 100.00 287,101 Long lease Residences Huashan Road Carparks 54,982 154 Phase II Changning District – Tower 3 Shanghai 342,083 5. Shenzhen Kerry Renminnan Road Office 100.00 82,099 Medium lease Centre Lowu District Commercial 107,256 Shenzhen Carparks 88,319 193 Others 53,885 331,559 6. Beijing COFCO 8 Jianguomennei Avenue Office Tower A 15.00 49,649 Medium lease Plaza Dongcheng District Office Tower B 53,895 Beijing Commercial 86,592 Carparks and 3,892 25 others 194,028 7. Fuzhou Central 139 Gutian Road Commercial 100.00 63,986 – Long lease Residences Gu Lou District Fuzhou 8. Shanghai Trade 88-128 Siping Road Commercial 55.20 7,567 Medium lease Square Hongkou District Carparks 19,264 48 Shanghai 26,831 9. International 88-128 Siping Road Commercial 55.20 3,047 Medium lease Apartments Hongkou District Carparks 12,432 33 Shanghai 15,479

Total Mainland China investment properties 3,626,048 1,218

36 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Mainland China Properties B. Hotel property

1. Beijing Kerry 1 Guang Hua Road Hotel with Club 71.25 499,642 – Medium lease Centre Hotel Chaoyang District Beijing Total Mainland China hotel property 499,642 –

Group’s attributable interest Approximate gross floor Approximate area (2) site area Stage of Scheduled Property name Location Type % (square feet) (square feet) completion completion Mainland China Properties C. Under development

1. Shenzhen Kerry Futian Central District Office 100.00 807,300 75,412 Curtain wall Fourth quarter Plaza Lot No. B117-0021 installation of 2007 Shenzhen work in progress 2. Kerry Everbright Tianmu Road West Residential 64.35 728,100 235,495 Superstructure In phases City Phases IIa Zhabei District Office 270,187 work in to 2008 and IIb Shanghai Commercial 30,359 progress 1,028,646 3. Beijing Chaoyang Xin Yuan Street Apartment 71.00 223,006 70,249 Project 2008 Residential Chaoyang District Commercial 13,244 planning Project(1) Beijing 236,250 4. Yangzhou West of Huan Hu Road Hotel 100.00 538,200 469,138 Project 2009 Complex North of Wan Apartment 494,283 planning Development Chang Xi Road Yangzhou 1,032,483 5. Hangzhou East to You Che Gang Residential 100.00 2,635,565 1,125,064 Project In phases Residential South to Hua Feng Road Commercial 64,584 planning to 2009 Project(1) West to Proposed Yong Feng Road North to Yong Feng Cun Xia Cheng District Hangzhou 2,700,149 6. Futian Office Futian Central District Office 100.00 742,716 85,044 Project 2010 Project Phase II Lot No. B117-0004 Commercial 107,640 planning Shenzhen 850,356 7. Hangzhou Zhejiang University Hotel 100.00 430,560 709,757 Project In phases Kerry Centre(1) Hubin Campus Apartment 430,560 planning between East to Yan An Road Commercial 818,495 2009 and South to Qing Chun Road Office 215,280 2010 West to Chang Shou Road North to Hai Er Lane Xia Cheng District Hangzhou 1,894,895

Sub-total 8,550,079 2,770,159

Notes: (1) Payment for land use rights in progress. (2) Being aboveground gross floor area. ANNUAL REPORT 2006 37 PARTICULARS OF PROPERTIES HELD (Continued)

Group’s attributable interest Approximate gross floor Approximate area (2) site area Stage of Scheduled Property name Location Type % (square feet) (square feet) completion completion

Mainland China Properties C. Under development (continued)

8. Shanghai Pudong Adjacent to the Hotel 40.80 285,461 258,672 Project Second Kerry Centre Shanghai New Serviced 153,710 planning quarter of International Expo Centre Apartment 2010 West to Fangdian Road Commercial 202,019 North to Huamu Road Office 351,337 Pudong New Area Entrance Hall 17,567 Shanghai 1,010,094 9. Manzhouli Liu Dao Street Apartment 100.00 852,627 322,920 Basement In phases Apartment/ Manzhouli City Commercial 61,161 work in to 2010 Commercial Inner Mongolia progress 913,788 10. Tianjin Kerry Junction of Liuwei Road and Hotel 49.00 267,410 454,460 Project In phases Centre(1) Liujin Road Residential 1,105,506 planning between Hedong District Serviced 79,115 2009 and Tianjin Apartment 2011 Office 546,951 Commercial 632,923 2,631,905 11. Jingan Complex 1238 Yanan Zhong Road Hotel 51.00 599,013 252,501 Project In phases Development(3) 1288 Yanan Zhong Road Office 464,248 planning between 1537 Nanjing Xi Road Commercial 230,098 2010 and 1565 Nanjing Xi Road 2011 Jingan District Shanghai 1,293,359

Sub-total 5,849,146 1,288,553

Total Mainland China properties under development 14,399,225 4,058,712

Note: (3) Application for land use certificate in progress.

38 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Mainland China Properties D. Completed and held for sale

1. Shanghai Central 168 and 170 Lane 1038 Residential 100.00 350,184 119 Long lease Residences Huashan Road Phase II Changning District – Towers 1 and 2 Shanghai 2. Arcadia Court 1008 Haitian Road Residential 100.00 10,103 551 Long lease Futian District Commercial 4,608 Shenzhen 14,711 3. Fuzhou Central 139 Gutian Road Residential 100.00 4,454 112 Long lease Residences Gu Lou District Fuzhou 4. Shanghai Central Lane 1038 Huashan Road Residential 100.00 1,577 65 Long lease Residences Changning District – Tower 5 Shanghai

Total Mainland China properties completed and held for sale 370,926 847

Group’s attributable interest Approximate site area Property name Location Type % (square feet)

Mainland China Properties E. Held for future development

1. Changchun Southeast junction Industrial 65.00 699,660 (4) Industrial Site of Pudong Road and Dongsheng Avenue Changchun 2. Kerry Everbright Tianmu Road West Residential/ 64.35 115,384 City Phase III Zhabei District Commercial Shanghai 3. Guangxi Beihai Site Southwest junction Office/ 100.00 118,404 (5) of Beihai Avenue Commercial and Guizhou Road Beihai

Total Mainland China properties held for future development 933,448

TOTAL MAINLAND CHINA PROPERTY PORTFOLIO 19,829,289

Notes: (4) Agreement was signed on 23 July 2003 for the disposal of the site. Sale is pending completion. (5) Agreement was signed on 27 December 2006 for the disposal of the site. The transaction was completed in January 2007.

ANNUAL REPORT 2006 39 PARTICULARS OF PROPERTIES HELD (Continued)

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Hong Kong Properties A. Held for investment

I. Residential

1. Branksome 3 Tregunter Path Residential 100.00 257,372 73 Long lease Grande Mid-Levels Hong Kong 2. 12 Tregunter Path Residential 100.00 204,940 63 Long lease Mid-Levels Hong Kong 3. Branksome 3A Tregunter Path Residential 100.00 160,463 129 Long lease Crest Mid-Levels Hong Kong 4. Belgravia 57 South Bay Road Residential 100.00 122,353 75 Medium lease Repulse Bay Hong Kong 5. Tregunter 14 Tregunter Path Residential 100.00 113,095 34 Medium to long lease Towers 1 & 2 Mid-Levels Hong Kong 6. Tavistock 10 Tregunter Path Residential 100.00 104,460 24 Long lease Mid-Levels Hong Kong 7. Gladdon 3 May Road Residential 100.00 2,300 14 Long lease Mid-Levels Hong Kong 8. Central Park and MTR Olympic Station Carparks 32.50 – 238 Medium lease at 18 Hoi Ting Road Olympian City Kowloon 9. Island MTR Olympic Station Carparks 20.00 – 116 Medium lease Harbourview at 11 Hoi Fai Road Olympian City Kowloon

Sub-total 964,983 766

40 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Hong Kong Properties A. Held for investment (continued)

II. Commercial/office

1. Olympian City 2 MTR Olympic Station Commercial 32.50 170,016 64 Medium lease at Olympian 18 Hoi Ting Road City Kowloon 2. Enterprise 9 Sheung Yuet Road Commercial 100.00 41,242 26 Medium lease Square Kowloon Bay Office 79,144 Kowloon 120,386 3. Auto Plaza 65 Mody Road Commercial 100.00 95,847 980 Long lease Tsimshatsui Office 10,350 Kowloon 106,197 4. Hollywood 233 Hollywood Road Commercial 45.00 10,008 – Long lease Centre Sheung Wan Office 30,482 Hong Kong 40,490 5. Harbour Centre 25 Harbour Road Commercial 15.00 6,135(6) 43 Long lease Wanchai Office 32,944(7) Hong Kong 39,079 6. Olympian City 1 MTR Olympic Station Commercial 20.00 27,986 89 Medium lease at Olympian 11 Hoi Fai Road City Kowloon 7. Enterprise 39 Wang Chiu Road Commercial 100.00 19,800 – Medium lease Square Three Kowloon Bay Kowloon 8. South Seas Centre 75 Mody Road Commercial 100.00 9,555 – Long lease – Various Tsimshatsui portions Kowloon 9. Belair Monte 3 Ma Sik Road Commercial 8.00 3,820 – Medium lease Area 19 Luen Wo Hui Fanling 10. Wing On Plaza 62 Mody Road Commercial 10.00 2,896 – Long lease Tsimshatsui Kowloon

Sub-total 540,225 1,202

Total Hong Kong investment properties 1,505,208 1,968

Notes: (6) Being net floor area. (7) Being lettable floor area.

ANNUAL REPORT 2006 41 PARTICULARS OF PROPERTIES HELD (Continued)

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Hong Kong Properties B. Hotel property

1. Novotel Century 508 Queen’s Road West Hotel 30.00 37,517 – Long lease Harbourview Hong Kong

Total Hong Kong hotel property 37,517 –

Group’s attributable interest Approximate gross floor Approximate area(8) site area Stage of Scheduled Property name Location Type % (square feet) (square feet) completion completion

Hong Kong Properties C. Under development

1. Enterprise Square 38 Wang Chiu Road Commercial 100.00 1,081,897 135,574 Finishing work Second Five/MegaBox Kowloon Bay Office 476,844 in progress quarter of Kowloon Carparks 64,954 2007 1,623,695 2. Shelley Street 38 Shelley Street Residential/ 100.00 47,449 4,559 Superstructure Fourth Project Mid-Levels Commercial work in quarter of Hong Kong progress 2007 3. First Street/Second First Street/Second Street Residential/ 100.00 394,604 38,062 Foundation First quarter Street Project Sai Ying Pun Commercial work in of 2009 Hong Kong progress 4. Tsuen Wan 152-160 Kwok Shui Road Residential/ 100.00 397,988 78,577 Foundation Second Residential Project New Territories Commercial work in quarter of progress 2009 5. Ap Lei Chau Praya Road Residential/ 35.00 319,663 63,179 Foundation Third quarter Residential Project Ap Lei Chau Commercial work in of 2009 Hong Kong progress 6. Yuk Yat Street 5 and 9 Yuk Yat Street Residential/ 100.00 163,333 19,358 Demolition Fourth Residential Project To Kwa Wan Commercial work quarter of Kowloon completed 2009 7. Shan Kwong Road 20 Shan Kwong Road and Residential 71.00 154,595 19,805 Demolition Second Project 1-5 Village Terrace work in quarter of Happy Valley progress 2010 Hong Kong 8. King’s Road Project 863-865 King’s Road Office/ 40.00 200,743 13,631 Demolition Second Commercial/ work in quarter of Hong Kong Residential progress 2011 9. Des Voeux Road 26-30 Des Voeux Road West Residential/ 100.00 37,165 4,663 Conceptual Note (9) West Project Sheung Wan Commercial design Hong Kong stage

Total Hong Kong properties under development 3,339,235 377,408

Notes: (8) Subject to final Hong Kong SAR Government approval plans and documentations. (9) The development plan is under review.

42 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term Hong Kong Properties D. Completed and held for sale

1. 15 Homantin Hill 15 Homantin Hill Road Residential 100.00 145,393 65 Long lease Ho Man Tin Kowloon 2. Enterprise 39 Wang Chiu Road Office 100.00 98,700 134 Medium lease Square Three Kowloon Bay Kowloon 3. Richwood Park 33 Lo Fai Road Commercial 50.00 7,893 – Medium lease Tai Po New Territories 4. Central Park at MTR Olympic Station Residential 32.50 4,158 – Medium lease Olympian City 18 Hoi Ting Road Kowloon 5. Park Avenue at MTR Olympic Station Residential 32.50 3,802 – Medium lease Olympian City 18 Hoi Ting Road Kowloon 6. MTR Olympic Station Residential 20.00 647 – Medium lease at Olympian City 11 Hoi Fai Road Kowloon 7. MTR Hang Hau Station Carparks 40.00 – 78 Medium lease Tseung Kwan O Kowloon 8. 98 Route Twisk Carparks 50.00 – 74 Medium lease Tsuen Wan New Territories 9. Valverde 11 May Road Carparks 100.00 – 24 Long lease Mid-Levels Hong Kong 10. Tavistock II 10A Tregunter Path Carparks 100.00 – 15 Long lease Mid-Levels Hong Kong 11. Enterprise 3 Sheung Yuet Road Carparks 100.00 – 6 Medium lease Square Two Kowloon Bay Kowloon 12. Constellation 1 Hung Lam Drive Carparks 75.00 – 4 Medium lease Cove Tai Po New Territories

Total Hong Kong properties completed and held for sale 260,593 400

TOTAL HONG KONG PROPERTY PORTFOLIO 5,142,553

Macau Properties

With regard to the Group’s planned residential development in Macau, it is expected that reclamation works would commence around the third quarter of 2007.

ANNUAL REPORT 2006 43 PARTICULARS OF PROPERTIES HELD (Continued)

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term Overseas Properties A. Held for investment

1. Land leased to EDSA corner Shaw Blvd. Hotel lease 73.88(10) 191,832(11) – Freehold EDSA Shangri-La Mandaluyong City Hotel Philippines 2. Land leased to EDSA corner Shaw Blvd. Shopping centre 73.88(10) 240,697(11) – Freehold Shangri-La Mandaluyong City lease Plaza Mall Philippines 3. Land for open EDSA corner Shaw Blvd. Carparks and 73.88(10) 211,203(11) 160 Freehold carparks Mandaluyong City others Philippines 643,732(11) 4. Shangri-La EDSA corner Shaw Blvd. Shopping centre 58.15(12) 1,191,763 367 Freehold Plaza Mall Mandaluyong City Philippines 5. The Enterprise Ayala Avenue Office 17.38(13) 174,522 Freehold Centre cor. Paseo de Roxas Commercial 11,316 Makati City Carparks and 88,894 194 Philippines others 274,732 6. Carpark Building EDSA corner Shaw Blvd. Carparks 73.88(10) 226,670 527 Freehold Mandaluyong City Philippines

Total overseas investment properties 2,336,897 1,248

Notes: (10) Including attributable interest of 34.76% held through Philippine Deposit Receipts. (11) Being site area. (12) Including attributable interest of 27.36% held through Philippine Deposit Receipts. (13) Including attributable interest of 8.18% held through Philippine Deposit Receipts.

44 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate gross floor Approximate area site area Stage of Scheduled Property name Location Type % (square feet) (square feet) completion completion

Overseas Properties B. Under development

1. The St. Francis St. Francis St. corner Residential 73.88(10) 1,250,201 49,079 Superstructure First quarter Towers Internal Road work in of 2009 Shangri-La Complex progress Mandaluyong City Philippines 2. Various precincts, Lot 94, DP 868828 Residential 25.00 130,217 42,238 Design and In phases Jacksons Landing Pyrmont Office 41,711 concept to 2012 Sydney planning Australia stage 171,928

Total overseas properties under development 1,422,129 91,317

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term Overseas Properties C. Completed and held for sale

1. The Shang Grand Delarosa corner Residential 73.88(10) 4,446 13 Freehold Tower Nieva and Perea St. Legaspi Village Makati City Philippines 2. Distillery Stage 1 Bowman & Jones Streets Residential 25.00 3,286 Freehold Jacksons Landing Pyrmont Office 877 1 Sydney Australia 4,163 3. Distillery Stage 2a Bowman Street Residential 25.00 293 – Freehold Jacksons Landing Pyrmont Sydney Australia

Total overseas properties completed and held for sale 8,902 14

TOTAL OVERSEAS PROPERTY PORTFOLIO 3,767,928

ANNUAL REPORT 2006 45 PARTICULARS OF PROPERTIES HELD (Continued)

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term

Properties held for logistics operations A. Completed warehouses and logistics centres

1. Kerry Cargo Centre 55 Wing Kei Road Warehouse 100.00 1,443,356 777 Medium lease Kwai Chung Carparks 547,000 New Territories 1,990,356 2. Kerry TC 35 Wing Kei Road Warehouse 100.00 490,942 262 Medium lease Warehouse 2 Kwai Chung Carparks 171,490 New Territories 662,432 3. Kerry TC 3 Kin Chuen Street Warehouse 100.00 659,783 57 Medium lease Warehouse 1 Kwai Chung New Territories 4. Kerry Warehouse 3 Shing Yiu Street Warehouse 100.00 591,973 56 Medium lease (Tsuen Wan) Kwai Chung New Territories 5. Kerry Warehouse 50 Ka Yip Street Warehouse 100.00 535,037 53 Long lease () Chai Wan Hong Kong 6. Kerry Warehouse 36-42 Shan Mei Street Warehouse 100.00 431,530 64 Medium lease (Shatin) Shatin New Territories 7. Kerry Logistics 4 Martin Avenue Container 100.00 422,218 – Freehold (Australia) Pty Ltd Gillman terminal Adelaide Adelaide Logistics 88,232 South Australia 5013 centre 510,450 8. Kerry Warehouse 2 San Po Street Warehouse 100.00 356,253 37 Medium lease (Sheung Shui) Sheung Shui New Territories 9. Kerry Hung Kai 3 Fat Tseung Street Warehouse 50.00 299,115 29 Medium lease Warehouse (Cheung Sha Wan) Kowloon 10. Kerry Warehouse 4-6 Kwai Tai Road Warehouse 100.00 286,628 33 Medium lease (Kwai Chung) Kwai Chung New Territories 11. Kerry Warehouse 39 On Lok Mun Street Warehouse 100.00 283,580 30 Medium lease (Fanling 1) On Lok Tsuen Fanling New Territories 12. Kerry Vietnam Warehouse nos. 3-6 Logistics 100.00 267,378 – Medium lease Logistics Song Than Industrial Zone II centre Centre Di An District Binh Duong Province Vietnam 13. Shenzhen Kerry Lot No. 26 Logistics 55.00 255,608 – Medium lease Yantian Port South Area of Yantian centre Logistics Centre Port Free Trade Zone Shenzhen 14. Kerry D.G. 7 Kai Hing Road Warehouse 100.00 181,902 19 Medium lease Warehouse Kowloon Bay (Kowloon Bay) Kowloon

Sub-total 7,312,025 1,417

46 KERRY PROPERTIES LIMITED Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term Properties held for logistics operations A. Completed warehouses and logistics centres (continued) 15. Kerry Tianjin 168 Jinbinda Road Logistics 100.00 172,885 – Medium lease Logistics Centre Baoshui District centre Tianjin Port Tianjin 16. Kerry WaiGaoQiao 268 De Lin Road Logistics 100.00 152,698 – Medium lease Logistics Centre Waigaoqiao Free Trade Zone centre Shanghai 17. Shenzhen Kerry 15 Tao Hua Road Logistics 51.00 137,190 – Medium lease Futian Logistics Futian Free Trade Zone centre Centre Shenzhen 18. Beijing Tianzhu 18 Tianzhu Road Logistics 70.00 136,221 – Medium lease Logistics Centre Area A Beijing Tianzhu centre Airport Industrial Zone Shunyi District Beijing 19. Laem Chabang Highway No. 7 Logistics 71.00 128,484 – Freehold Logistics Centre (Bypass Laem Chabang) centre Nong-kham Sub-District Sriracha District Chonburi Province Thailand 20. Kerry BHL Logistics 1 South Road Jia Logistics 50.00 64,584 – Medium lease Centre Fourth Ring Road East centre Beijing 21. Beijing Shunyi Block 1 to 24 Logistics 70.00 33,174 – Medium lease District Logistics Jinmi Road East centre Centre Shunyi District Beijing

Sub-total 825,236 –

Total completed warehouses and logistics centres 8,137,261 1,417

Group’s attributable interest Approximate site area Property name Location Type % (square feet) Lease term Properties held for logistics operations B. Port facility 1. Kerry Siam Seaport 113/1 Moo Port 54.98 1,940,125 Freehold 1 Silo Road Tungsukha Sriracha District Chonburi Province Thailand

Total port facility 1,940,125

Group’s attributable interest Approximate Approximate gross floor no. of area carpark Property name Location Type % (square feet) spaces Lease term Properties held for logistics operations C. Office property 1. EAS Building 21 Xiao Yun Road Office 70.00 104,727 – Medium lease Chaoyang District Beijing

Total office property 104,727 – TOTAL PORTFOLIO OF PROPERTIES HELD FOR LOGISTICS OPERATIONS 10,182,113

ANNUAL REPORT 2006 47 Corporate Social Responsibility Report

SERVING THE COMMUNITY in the 50-kilometre hike, with a staff support team to boost The Group strongly believes that it has a responsibility to serve morale and provide food, water and first-aid support for our the communities wherever it operates. Such initiatives are colleagues. geared towards two major areas – care for the environment, as well as charitable donations and community services. Green Day, Community Chest The Group is also a supporter of Green Day, which features Care for the Environment as one of the Community Chest’s fund-raising charity events Since 2005, an environmental committee has been established as well as a special annual day to raise public awareness of to direct the Group’s green policies and activities. These the importance of environmental protection. On Green Day environmental initiatives are practised in the Group’s day-to- which was held on 23 June 2006, employees of participating day operations and management, which oversee the planning, companies were encouraged to exert their best efforts to design, construction and commissioning of its property minimize unnecessary waste. developments. These combined efforts have earned the Group a number of certificates and awards. The Group also encourages World Wildlife Fund – employee participation in environment-related activities. Walk for Nature @ Mai Po 2006 A team comprising staff and family members was among the Green Power Hike 135 participants in the Walk for Nature @ Mai Po 2006 event The Group also responded to the call for protection of the organized by World Wildlife Fund on 22 October 2006. The environment through its participation in the 13th Green Power Group’s team was awarded “The Most Enthusiastic Team” for Hike on 25 February 2006, which is an annual event organized being the largest participating group in the event. by Green Power to fund ‘green’ education among local kindergartens, primary schools and secondary schools. The Group sent four teams with a total of 16 members to take part

Green power hike

WALK FOR NATURE @ MAI PO 2006

48 KERRY PROPERTIES LIMITED Support of Recycling Initiatives Corporate Challenge, Community Chest In support of resources re-use and to help those in need, On 15 January 2006, 18 colleagues represented the Group in the Group has donated computer monitors, hardware and the Community Chest’s Corporate Challenge 2006, which was printers to the Hong Kong Caritas Computer Recycling Project organized to raise funds for those with visual and hearing organized by Caritas Hong Kong and sponsored by the impairments. Our colleagues took part in the 10-kilometre run Environmental Protection Department. and achieved good results.

The Group has also, for the second year, enrolled all residential MTR Hong Kong Race Walking 2006 properties under its management in the Used Books Recycling On 9 April 2006, the Group took part in the MTR Hong Kong Campaign 2006, organized by World Vision Hong Kong to Race Walking 2006 and was awarded the “Champion of the promote environmental protection through the recycling of Corporate Branding Team”. In addition to the team members books. The funds raised from the campaign will be used to from the Property Division, the Logistics Network Division and support education and training for disabled children in Ningxia Kerry Property Management Services Limited, many other Hui Autonomous Region, Mainland China. colleagues supported and participated in the event with their family members. Charitable Donations and Community Services Hong Chi Association Regional Flag Day In addition to sponsoring green initiatives, the Group also On 13 May 2006, the Group supported the Regional Flag Day supports many charitable community programmes by making of the Hong Chi Association to raise funds for local people corporate donations and encouraging employee contributions with mental handicaps. During the day, the Logistics Network to a number of charitable organizations. The Group’s staff Division offered free logistics support for the collection and members have also volunteered to take part in various distribution of 3,145 flag bags and other materials to more than meaningful charity projects. 100 locations, including schools, community centres, service units, companies, organizations and banks. The Association As a result of these ongoing efforts, the Group has been runs 71 service units serving some 6,000 people ranging from awarded the Caring Company logo by the Hong Kong Council pre-schoolers to the elderly. of Social Service from 2003/04 to 2006/07, a title honouring companies in the private sector which demonstrate good corporate citizenship.

MTR Hong kong race walking 2006

ANNUAL REPORT 2006 49 Corporate Social Responsibility Report (Continued)

Metro Broadcasting Charity Cup Dress Special Day, Community Chest On 28 May 2006, the Kerry Logistics soccer team participated The Dress Special Day has always been a meaningful and in the 2nd Metro Broadcasting Charity Cup (新城公益金慈善 enjoyable event for our staff. It was held on 29 September 2006 足球王), an event co-organized by Metro Broadcasting and the and, as in previous years, staff members of the Group dressed Community Chest to raise funds for local people in need. down in casual wear for the purpose of helping other people. Funds raised by the Dress Special Day were allocated by the Blood Donations at Community Chest to family and child welfare services. Enterprise Square and Enterprise Square Three Blood donations were carried out at the Group’s commercial Sowers Action Challenging 12 Hours properties in Kowloon Bay, at Enterprise Square and Enterprise On 15 October 2006, the Group participated in a 10-kilometre Square Three, during the period from 3 to 7 July 2006 where marathon, known as “Sowers Action Challenging 12 Hours”, a total of 64 generous supporters donated blood for those in organized by Sowers Action. This fund-raising activity helped need. support Sowers Action’s continued efforts towards providing elementary education in the remote mountainous areas of House Building Project with Mainland China. Habitat For Humanity China In August 2006, a team of 14 colleagues volunteered to Skip Lunch Day, Community Chest participate in a project to help build homes at a village in the On 1 December 2006, 66 colleagues of the Group participated Chonghua City of Guangzhou, Mainland China. The Group also in the Skip Lunch Day, one of the Community Chest’s fund- sponsored the required building materials. This project was raising programmes. By skipping their regular lunch and organized by Habitat For Humanity China, who collaborates donating their lunch money, our colleagues were able to with people of all backgrounds, races and religions to build support the “Services for Street Sleepers and Cage Residents” houses for local families in need of decent homes. The homes programme. were built with no profit added and no interest charged.

metro broadcasting charity cup

50 KERRY PROPERTIES LIMITED Run-up Two IFC Charity Race, Community Chest The Group also made donations in support of The Run-up Two IFC Charity Race 2006 event held on 3 December 2006. Funds raised were allocated towards the “Services for the Physically Disabled” programme supported by the Community Chest.

Christmas Donations by Kerry Lake Egret Nature Park Kerry Lake Egret Nature Park staged a Christmas Carnival during the Christmas season of 2006 and the 2007 New Year holidays, and donated 20% of the income generated to the H.K.S.K.H. Wong Tai Sin District Elderly Community Centre in support of its elderly services.

Corporate and Employee Contribution Programme, Community Chest The Group is a regular supporter of this major annual fund- raising programme organized by the Community Chest. In addition to corporate donations, staff members of the Group also actively contributed to the programme through employee donations.

Blood donations

HOUSE BUILDING PROJECT

ANNUAL REPORT 2006 51 2006 Awards and Citations

The Group has been greatly encouraged by the Storage Company of the Year commendations received during the year from professional KEAS was honoured as “Storage Company of the Year” at the and industry associations for our efforts in upholding a high first Lloyd’s FTB Asia China Logistics Summit and Awards held standard of corporate governance, and in contributing to in June 2006 in Beijing, Mainland China. Lloyd’s FTB Asia is a sustainable development by balancing the economic, social major industry publication which focuses on supply chain and and environmental needs of the communities in which we logistics trends in Asia. operate.

This prestigious award was presented to KEAS in recognition Top AgentS Award – CATHAY PACIFIC of its strengths and achievements in the logistics sector. It Kerry Freight (Hong Kong) Limited (“KFHK”) received “Top represents a remarkable milestone for KEAS as it benchmarks Agents Award” from Cathay Pacific in April 2006. KFHK has KEAS alongside world-leading global counterparts. been working with Cathay Pacific since 2003. 16 Advanced Enterprises in Accelerating 2006 Best Landscape Award a Circular Economy from Shenzhen The Group’s luxury residential developments in Mid-Levels Municipality - Tavistock, Tavistock II and Aigburth - won the order of In August 2006, Kerry Real Estate Management (Shenzhen) Merit in the “2006 Best Landscape Award” presented by the Ltd. was named one of the “16 Advanced Enterprises in Leisure & Cultural Services Department (“LCSD”) in May 2006. Accelerating a Circular Economy” (十六家推進循環經濟發展 This competition is one of the various community activities 先進企業) by the Lowu People’s Government (羅湖區人民政 organized by LCSD to raise awareness of the desirability and 府), Shenzhen Municipality, for its environmentally friendly need for a greener environment. The co-organizers include the and energy-saving measures. Home Affairs Department, Buildings Department, Hong Kong Institute of Landscape Architects, Institute of Horticulture (H.K.) and the Hong Kong Institute of Architects.

Top agentS LLOYD’S FTB Asia award – china logistics cathay summit and pacific awards

2006 Best landscape award

52 KERRY PROPERTIES LIMITED Prime Awards for Corporate Social 2006 Best Annual ReportS Award: Responsibility 2006 Citation for Achievement in Corporate The Company was named a winner of the “Prime Awards for Governance Disclosure Corporate Social Responsibility 2006”, a campaign organized The Company received the “Citation for Achievement in in August 2006 by Prime Magazine and supported by the Hong Corporate Governance Disclosure” awarded by the Hong Kong Institute of Directors. This award gives due recognition Kong Management Association in its “2006 Best Annual to the Group’s achievements in the field of corporate social Reports Awards” announced in November 2006. The Best responsibility. Annual Reports Awards is an annual competition organized by the Hong Kong Management Association to encourage the publication of accurate, informative, well-presented and With the support of our colleagues, we will continue, as a timely annual reports. We are further encouraged by this responsible corporate citizen, to participate in community award because the annual report is a vital tool for effectively services through employee involvement, donations and communicating the Company’s business and philosophy to sponsorships of fund-raising activities by charitable the widest audience. organizations.

Our 2005 Annual Report was commended in particular for Hygiene Control System Certification the informative and detailed analysis of the Group’s business In August 2006, Kerry Property Management Services Limited operations and for the financial review, including analysis of was awarded the Hygiene Control System Certification from past results and discussions of future prospects. the Hong Kong Quality Assurance Agency for the hygiene- management systems implemented in the clubhouses at Branksome Crest, Tavistock, Tavistock II and Aigburth. This certification represents the Group’s ongoing commitment to provide the most healthy environment possible for residents and clubhouse users in its high-end residential portfolio.

Top AgentS Award – ORIENT THAI AIRLINES KFHK received another “Top Agents Award” from Orient Thai Airlines in August 2006. KFHK has been working with Orient Thai Airlines since 2003.

Prime awards

HKMA 2006 Best Annual ReportS Award

Top agentS award – orient thai airlines

ANNUAL REPORT 2006 53 CORPORATE GOVERNANCE REPORT

Corporate Governance Statement The Company has always recognized the importance of shareholders’ transparency and accountability. It is the belief of the Board that shareholders can maximize their benefits from good corporate governance. Prior to the issuance of Code on Corporate Governance Practices (the “Code”) by The Stock Exchange of Hong Kong Limited, the Company has taken the initiative to disclose its corporate governance practices in the annual reports and accounts commencing from the financial year ended 31 December 2000. Essentially, the Code adopts a two-tier approach: (a) code provisions; and (b) recommended best practices, and requires the inclusion of a corporate governance report in a listed issuer’s annual report. As far as the Code is concerned, the Company complies with all aspect of the code provisions except for the one regarding the separation of roles of chairman and chief executive officer which, in the Company’s opinion, would not be appropriate for adoption by the Company with further explanations as set out below.

The following sections set out how the principles under the Code have been complied with by the Company during the financial year ended 31 December 2006.

Focus and Principles Corporate Governance Practices 1. Directors 1.1 The Board 1. The Board is responsible for the leadership and control of the Company and oversees the Group’s businesses, strategic directions and financial performance. It sets the Company’s values and standards and ensures that its obligations to the Company’s shareholders are understood and met. To this end, it assumes responsibility for strategy formulation, corporate governance and performance monitoring. The management was delegated authority and responsibility by the Board for the management of the Group within the control and authority framework set by the Board. In addition, the Board has also delegated various responsibilities to the Remuneration Committee, the Audit Committee and the Finance Committee. Further details of these committees are set out in this annual report.

2. The Board has four scheduled meetings a year and meets more frequently as and when required. During the financial year ended 31 December 2006, the Board held four meetings and the attendance record, on a named basis, is set out in the table on page 67 of this annual report. Proposed Board meeting dates for a financial year are agreed in the final Board meeting of the preceding year.

3. Board minutes kept by the Company Secretary are sent to the Directors for records and are open for inspection by the Directors.

4. The Company has arranged appropriate insurance cover for the Directors.

54 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 1.2 Division of Responsibilities 1. The Board has appointed a Chairman who has executive responsibilities and who provides leadership to the Board in terms of establishing policies and business directions. The Chairman ensures that the Board works effectively and discharges its responsibilities, and that all key and appropriate issues are discussed by the Board in a timely manner. The Board also comprises Independent Non-executive Directors who bring strong independent judgement, knowledge and experience to the Board’s deliberations. Apart from their appointments as Independent Non-executive Directors, none of them has any form of service contract with the Company or any of its subsidiaries. The Board also comprises a Non-executive Director who brings financial and accounting knowledge and experience to the Board. In addition, each Executive Director is delegated individual responsibility to oversee and monitor the operations of a specific business unit, and to implement the strategies and policies set by the Board. As noted below, the majority of the Audit Committee members and the Remuneration Committee members are Independent Non-executive Directors. This structure ensures that the independence of views and opinions expressed by the Directors at the Audit Committee and Remuneration Committee meetings.

2. Acting as the Chairman of the Board, Mr Ang Keng Lam leads the Board and ensures all Directors are properly briefed on issues to be discussed at Board meetings.

3. After due consideration, the Board proposed not to comply with the code provision requiring the separation of the role of Chairman and Chief Executive Officer for reason that each Executive Director of the Company is delegated individual responsibility to oversee and monitor the operations of a specific business unit, and to implement the strategies and policies set by the Board. The Company’s Chairman also ensures that the Board works effectively and discharges its responsibilities, and that all key and appropriate issues are discussed by the Board in a timely manner. In addition, the Company’s Independent Non-executive Directors bring along strong independence element to the Board’s deliberation.

4. Accordingly, the Board operates in a functional manner with clearly defined objectives, strategies and responsibilities. Therefore, the Board considers that the separate appointment of Chairman and Chief Executive Officer is not necessary.

ANNUAL REPORT 2006 55 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices 1.3 Board Composition 1. The Board currently comprises four Executive Directors, three Independent Non- executive Directors and one Non-executive Director.

2. The Executive Directors are Messrs Ang Keng Lam (Chairman), Wong Siu Kong (Deputy Chairman and Managing Director), Ho Shut Kan and Ma Wing Kai, William and the Independent Non-executive Directors are Messrs William Winship Flanz, Lau Ling Fai, Herald and Christopher Roger Moss, O.B.E. Mr Tse Kai Chi is the Non-executive Director. The Board members have no financial, business, family or other material/relevant relationships with each other. Such balanced board composition, coupled with the strong independent element, is over and above the recommended practice under the Code for the Board to have at least one-third in number of its Board members comprising Independent Non-executive Directors. The biographies of the Directors are set out on pages 73 and 74 of this annual report, which demonstrate a diversity of skills, expertise, experience and qualifications.

3. Mr Lau Ling Fai, Herald, who was formerly a partner of PricewaterhouseCoopers (the external auditor of the Company) until his retirement on 30 June 2001, became an Independent Non-executive Director of the Company on 1 December 2003 which was a date falling on two years after his retirement from PricewaterhouseCoopers.

4. The Company has received annual confirmation of independence from the three Independent Non-executive Directors in accordance with Rule 3.13 of the Listing Rules. The Board has assessed their independence and concluded that all the Independent Non-executive Directors are independent within the definition of the Listing Rules.

1.4 Directors’ Appointment, 1. In 2005, formal appointment letters have been signed with each Non-executive Director Re-election and Removal of the Company. Under the appointment letters, the Non-executive Directors will be appointed for a period of three years from the date of his appointment/last re-election.

2. Pursuant to the Company’s Bye-laws, each Director shall retire from office no later than the third annual general meeting of the Company after he was last elected or re-elected (i.e. the term of appointment of each Director is effectively three years) and each Director appointed to fill a casual vacancy or as an additional Director is subject to re-election at the next annual general meeting following his appointment.

3. The Company has not established a nomination committee. New Directors are sought mainly through referrals or internal promotion. In evaluating whether an appointee is suitable to act as a Director of the Company, the Board of Directors will review the independence, experience and skills of the appointee as well as personal ethics, integrity and time commitment of the appointee. Appointment of a new Director requires the unanimous approval of the Board members.

56 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 1.5 Responsibilities of Directors 1. The Directors are continually updated with legal and regulatory developments, business and market changes and development of the Company to facilitate them in discharging their responsibilities.

2. The Independent Non-executive Directors take an active role in Board meetings, contribute to the development of strategies and policies and make sound judgement in various aspects. They will take lead when potential conflicts of interest arise. They are also members of various Board committees and devote sufficient amount of time and attention to the affairs of the Company. Their attendance record, on a named basis, during the financial year ended 31 December 2006 is set out in the table on page 67 of this annual report.

3. The Board has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules as the code for securities transactions by Directors of the Company (the “Securities Dealing Code”). The Directors have confirmed compliance with the required standards set out in the Securities Dealing Code throughout the financial year ended 31 December 2006 and for the period up to the latest practicable date prior to the publication of this annual report.

1.6 Supply of and Access 1. All Directors receive a regular supply of information about the business activities, financial to Information highlights and operations review of the Group so that they are up-to-date and are well- informed prior to participation in Board meetings.

2. The Board members are supplied with comprehensive board papers and relevant materials within a reasonable period of time in advance of the intended meeting date (in any event no less than 3 days before the date of the meeting), including business and financial reports covering the Group’s principal business activities.

3. To facilitate the decision-making process, the Directors are free to have access to the management for enquiries and to obtain further information, when required.

4. All Directors have unrestricted access to the advice and services of the Company Secretary, who ensures that the Board receives appropriate and timely information for its decision-making and that Board procedures are being followed. The Directors can obtain independent professional advice at the Company’s expense.

ANNUAL REPORT 2006 57 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices 2. Remuneration of Directors 2.1 Remuneration Committee 1. The Company established the Remuneration Committee in February 1997 with the Independent Non-executive Directors constituting the majority of the committee. The chairman of the Remuneration Committee is the Chairman of the Board and the other members comprise the Deputy Chairman of the Board and all the three Independent Non-executive Directors of the Company. The list of members of the Remuneration Committee can be found in the section headed “Corporate Information & Key Dates” of this annual report.

2. The terms of reference of the Remuneration Committee are published in the Company’s website www.kerryprops.com.

3. The Remuneration Committee has primary responsibility for making recommendations for approval by the Board with respect to matters relating to the remuneration of the Executive Directors of the Company. The major responsibilities of the Remuneration Committee are:–

i) to make recommendations on the Company’s policies and structure for all the remuneration of the Executive Directors;

ii) to propose the specific remuneration packages of the Executive Directors, and to make recommendations on the remuneration of the Non-executive Directors for the Board’s approval;

iii) to review and propose performance-based remuneration for Executive Directors by reference to corporate goals and objectives resolved by the Board from time to time; and

iv) to administer and make determinations with regard to the Company’s share option scheme.

4. The Remuneration Committee met twice during the financial year ended 31 December 2006 and the attendance record, on a named basis, is set out in the table on page 69 of this annual report. Details of the work performed by the Remuneration Committee during the year are set out in the “Remuneration Committee Report” on page 71 of this annual report.

5. When the remuneration package of an individual Director is under review, such Director will abstain from voting.

6. During the year, the Board approved all the recommendations of the Remuneration Committee.

58 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 2.2 Remuneration package 1. The remuneration for the Executive Directors comprises basic salary, discretionary for Executive Directors bonus, pensions and share options.

2. Salaries are reviewed annually. Salary increases are made where the Remuneration Committee believes that adjustments are appropriate to reflect the performance, contribution and increased responsibilities of each Executive Director and/or by reference to market/sector trends.

3. In addition to basic salary, Executive Directors and employees of the Company and its subsidiaries are eligible to receive a discretionary bonus taking into consideration factors such as market conditions as well as corporate and individual performances.

4. As part of the compensation of the Executive Directors and in order to attract, retain and motivate executives and key employees serving any members of the Group or other persons contributing to the Group, the Company has adopted the 1997 Share Option Scheme (which was terminated on 17 April 2002 in respect of grant of further options) and the 2002 Share Option Scheme. Such incentive schemes enable the eligible persons to obtain an ownership interest in the Company and thus will motivate them to optimize their contributions to the Group.

5. Details of the amount of Directors’ emoluments during the financial year ended 31 December 2006 are set out in note 12(b) to the financial statements of this annual report. Details of the 1997 Share Option Scheme and the 2002 Share Option Scheme by the Company are set out in the Directors’ Report and note 33 to the financial statements of this annual report.

ANNUAL REPORT 2006 59 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices 3. Accountability and Audit 3.1 Financial Reporting 1. The Board is responsible for the preparation of the financial statements. In preparing the financial statements, the generally accepted accounting standards in Hong Kong have been adopted, appropriate accounting policies have been used and applied consistently, and reasonable and prudent judgements and estimates have been made. The external auditor has a primary responsibility for auditing and reporting on the financial statements and the Auditor’s Report to the shareholders is included in this annual report.

2. Towards the end of 2006, the Board has reviewed the financial projections of the Group in respect of the five financial years ending 31 December 2011. On the basis of this review, the Board is not aware of any material uncertainties relating to events or conditions which may cast significant doubt over the Group’s ability to continue as a going concern. Accordingly, the Board has continued to adopt the going concern basis in preparing the financial statements.

3.2 Internal Controls 1. The Board is responsible for maintaining an adequate system of internal controls within the Group and for reviewing their effectiveness. The system of internal control is designed to facilitate effective and efficient operations, to safeguard assets and to ensure the quality of internal and external reporting and compliance with applicable laws and regulations. In devising internal controls, the Group has given regard to the nature and extent of the Group’s business, operational and financial risks, the likelihood of crystallization of such risks and the costs of implementing the relevant internal controls. The internal controls are designed to manage, but not eliminate, the risk of failure to achieve business objective and can only provide reasonable, and not absolute, assurance against the risks of material misstatement, fraud or losses.

2. During the year ended 31 December 2006, the Board, through the Audit Committee, has reviewed the risks and evaluated the internal control framework that operates within the Group and considered that the system of internal controls in operation in the Group is effective.

3. More details on the Group’s internal control framework and the Board’s process to evaluate the Group’s system of internal controls is set out in the section headed “Internal Controls” on page 72 of this annual report.

60 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 3.3 Audit Committee 1. The Audit Committee of the Board was established in December 1998 and currently comprises two Independent Non-executive Directors and the Non-executive Director of the Company, who among themselves possess a wealth of financial and accounting experience in the accounting profession, finance and commercial sectors. The list of members of the Audit Committee can be found in the section headed “Corporate Information & Key Dates” of this annual report.

2. The terms of reference of the Audit Committee are published in the Company’s website www.kerryprops.com.

3. The major responsibilities of the Audit Committee are:

i) to make recommendations with respect to the appointment, reappointment and removal of the Company’s external auditor, and to evaluate its independence and objectivity and the effectiveness of the audit process;

ii) to review and monitor the interim and annual consolidated financial statements, reports and accounts of the Company, and to review significant and judgemental financial reporting issues contained therein;

iii) to review the Company’s financial controls, internal controls and risk management systems; and

iv) to discuss with the management the system of internal controls, and to ensure that the management has discharged its duties and responsibilities in implementing an effective internal control system.

4. The Audit Committee met four times during the financial year ended 31 December 2006 and the attendance record, on a named basis, is set out in the table on page 68 of this annual report. Details of the work performed by the Audit Committee during the year are set out in the “Audit Committee Report” on page 70 of this annual report.

ANNUAL REPORT 2006 61 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices 3.4 Auditor’s Remuneration During the financial year ended 31 December 2006, the fees paid/payable to the auditor in respect of audit and non-audit services provided by the auditor to the Group were as follows:–

Nature of services Amount HK$’000 Audit services 9,257 Non-audit services (i) Tax services 951 (ii) Other services 265

4. Delegation by the Board 4.1 Management Functions The day-to-day running of the Company is delegated to the management, with divisional heads responsible for different aspects of the Group’s businesses.

4.2 Board Committees In addition to delegating specific responsibilities to the Audit Committee (see paragraph 3.3 above) and the Remuneration Committee (see paragraph 2 above), the Board established the Finance Committee in August 1996 with delegated authority for reviewing and approving certain financial matters of the Group. Currently, the Finance Committee comprises the Chairman, the Deputy Chairman and an Executive Director of the Company, and it deals with matters such as the investment of surplus funds, undertakings, determination and approval of investment acquisitions and disposals with amounts not exceeding HK$1 billion, arrangement of banking facilities and approval of guarantees and indemnities within designated limits.

4.3 Executive Committee The Executive Committee of the Board meets once a month and operates as a general management committee. The Executive Committee meets to discuss the corporate and development strategies of the Company. The members of the Executive Committee comprise the four Executive Directors of the Company.

62 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 5. Communication with Shareholders 5.1 Investor Relations Communication channels In order to develop and maintain a continuing investors’ relationship programme with the Company’s shareholders, the Company has established various channels of communication with its shareholders:–

i) Shareholders can raise any comments on the performance and future directions of the Company with the Directors at the annual general meeting.

ii) Press and analysts’ conferences are held twice a year in relation to the interim and final results announcements, at which the Executive Directors are available to answer questions regarding the Group’s operational and financial performances.

iii) The Company also avails itself of opportunities to communicate and explain its strategies to shareholders and the investor community, through active participation at investors’ conferences and regular meetings with financial analysts, fund managers and potential investors. In particular, the Company participated in a number of roadshows and investors’ conferences organized by various investment banks during 2006, as a move to enhance the Group’s relationship with the investor community and its understanding of the Group’s operations and developments.

Set out below are the roadshows and investors’ conferences in which the Group had participated during the year ended 31 December 2006:–

Date Event Organiser Venue March 2006 Asian Investment Credit Suisse Hong Kong Conference 2006 August 2006 Investors’ presentations Goldman Sachs Singapore/ (in connection with Hong Kong the issuance of US$420 million Fixed Rate Notes) November 2006 Morgan Stanley Asia Morgan Stanley Singapore Pacific Summit

The Group plans to continue to enhance its investors’ relationship by participating in future roadshows and conferences.

iv) The Company’s website at www.kerryprops.com contains important corporate information, biographical details of Directors and senior management, organization structure, annual and interim reports, major historical developments with comprehensive and user-friendly information about the Group, as well as announcements and circulars issued by the Company in order to enable the Company’s shareholders and the investor community to have timely access to updated information about the Group.

v) Shareholders and members of the investor community are welcome to raise enquiries through our Corporate Communications Department, whose contact details are available in the Company’s website www.kerryprops.com and as stated in the section headed “Corporate Information & Key Dates” of this annual report.

ANNUAL REPORT 2006 63 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices General meetings 1. The general meeting provides a forum for the Board to communicate with the shareholders of the Company. Shareholders holding not less than one-tenth of the paid-up capital of the Company may deposit a requisition to convene a special general meeting and state the purpose therefor at the Company’s registered office in Bermuda at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.

2. To facilitate enforcement of shareholders’ rights, significant issues are dealt with under separate resolutions at general meetings.

3. The Board is available at annual general meetings to answer questions raised by shareholders or other parties. The chairman of the Company’s independent board committee (if any) is also present to answer questions at any general meeting which is convened to approve a connected transaction or any other transaction that is subject to independent shareholders’ approval.

4. The 2006 annual general meeting of the Company was held on 3 May 2006 at Atrium Room, Level 39, Island Shangri-La Hotel, Pacific Place II, Supreme Court Road, Central, Hong Kong. The following resolutions were passed at the meeting:–

(a) To adopt the audited financial statements and the reports of the directors and the auditor for the financial year ended 31 December 2005;

(b) To declare a final dividend for the financial year ended 31 December 2005;

(c) To re-elect Messrs. Ang Keng Lam, Wong Siu Kong, Ho Shut Kan and Tse Kai Chi, the retiring Directors;

(d) To fix Directors’ fees;

(e) To re-appoint PricewaterhouseCoopers as auditor and to authorise the Directors of the Company to fix its remuneration;

(f) (i) To grant a general mandate to the Directors of the Company to allot, issue and deal with additional shares not exceeding 20% of the issued share capital of the Company as at the date of passing the resolution;

(ii) To grant a general mandate to the Directors of the Company to repurchase shares in the share capital of the Company not exceeding 10% of the issued share capital of the Company as at the date of passing the resolution;

(iii) To extend, conditional upon the above resolution No. (f)(ii) being duly passed, the general mandate to allot shares by adding aggregate nominal amount of the repurchased shares to the 20% general mandate; and

(g) To approve the amendments to the Bye-laws of the Company.

64 KERRY PROPERTIES LIMITED Focus and Principles Corporate Governance Practices 5. Voting by poll – Procedures and requirements

The Company follows the requirements under the new Listing Rules (which became effective on 31 March 2004) by disclosing in its circulars convening a general meeting the procedures for and the rights of shareholders to demand a poll in compliance with Rule 13.39(4).

In accordance with Bye-law 70 of the Company’s Bye-laws, a resolution put to the vote of a general meeting shall be decided on a show of hands, but a poll may be demanded (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll):–

(i) by the Chairman of the meeting; or

(ii) by at least three shareholders present in person or by duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting; or

(iii) by any shareholder or shareholders present in person or by duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or

(iv) by any shareholder or shareholders present in person or by duly authorised corporate representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

In addition, according to Bye-law 70A of the Company’s Bye-laws, notwithstanding any other provisions of the Company’s Bye-laws:–

(a) if the aggregate proxies held by (i) the Chairman of a particular meeting, and (ii) the Directors, account for 5% or more of the total voting rights at that meeting, and

(b) if on a show of hands in respect of any resolution, the shareholders at the meeting vote in the opposite manner to that instructed in the proxies referred to in (a) above,

the Chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

ANNUAL REPORT 2006 65 CORPORATE GOVERNANCE REPORT (Continued)

Focus and Principles Corporate Governance Practices 5.2 Shareholder Information An analysis of the shareholders of the Company as at 31 December 2006 based on the registers of members of the Company is as follows:–

(Bermuda principal and Hong Kong branch registers) As at 31 December 2006 Shareholders Shares of HK$1 each Number of Shares Held Number % of total Number % of total 1-500 61 18.26% 12,938 0.00% 501-2,000 100 29.94% 127,819 0.01% 2,001-5,000 59 17.66% 208,279 0.02% 5,001-20,000 55 16.47% 600,278 0.05% 20,001-50,000 18 5.39% 584,272 0.05% 50,001-100,000 6 1.80% 392,822 0.03% 100,001-200,000 9 2.69% 1,244,783 0.10% 200,001-500,000 7 2.09% 2,221,236 0.18% 500,001-1,000,000 4 1.20% 2,908,356 0.23% 1,000,001-2,000,000 5 1.50% 6,913,848 0.56% 2,000,001-5,000,000 4 1.20% 12,503,976 1.01% Over 5,000,000 6 1.80% 1,210,570,775 97.76% 334 100% 1,238,289,382 100% Geographical Distribution (a) Asia Hong Kong 289 86.52% 745,334,888 60.19% Malaysia 15 4.49% 6,540,481 0.53% Singapore 13 3.89% 890,337 0.07% Thailand 3 0.90% 485,291,009 39.19% Philippines 1 0.30% 19,648 0.00% PRC 4 1.20% 86,346 0.01% Indonesia 1 0.30% 63,539 0.01% United Arab Emirates 1 0.30% 14,279 0.00% (b) Australasia Australia 3 0.90% 18,128 0.00% (c) Europe Isle of Man, British Isles 1 0.30% 14,279 0.00% United Kingdom 1 0.30% 108 0.00% (d) America Canada 1 0.30% 15,340 0.00% United States of America 1 0.30% 1,000 0.00% 334 100% 1,238,289,382 100%

5.3 Other Relevant Information Key corporate dates for the financial year ending 31 December 2007 and the Company’s market capitalization as at 31 December 2006 are set out in the sections headed “Corporate Information & Key Dates” and “Financial Highlights” of this annual report, respectively.

66 KERRY PROPERTIES LIMITED ATTENDANCE RECORD AT BOARD MEETINGS during the financial year ended 31 December 2006

Date of Board Meeting Name of Director 24 March 8 June 15 September 8 December

EXECUTIVE

Ang Keng Lam Y Y Y Y

Wong Siu Kong Y Y Y Y

Ho Shut Kan Y Y Y Y

Ma Wing Kai, William Y Y Y Y

TOTAL 4 4 4 4

PRESENT 4 (100%) 4 (100%) 4 (100%) 4 (100%)

AVERAGE FOR THE YEAR 100%

INDEPENDENT NON-EXECUTIVE

William Winship Flanz Y Y Y Y

Lau Ling Fai, Herald Y Y Y Y

Christopher Roger Moss, O.B.E. Y Y Y Y

TOTAL 3 3 3 3

PRESENT 3 (100%) 3 (100%) 3 (100%) 3 (100%)

AVERAGE FOR THE YEAR 100%

NON-EXECUTIVE

Tse Kai Chi Y Y Y Y

TOTAL 1 1 1 1

PRESENT 1 (100%) 1 (100%) 1 (100%) 1 (100%)

AVERAGE FOR THE YEAR 100%

OVERALL

TOTAL 8 8 8 8

PRESENT 8 (100%) 8 (100%) 8 (100%) 8 (100%)

AVERAGE FOR THE YEAR 100%

Y = Attendance

ANNUAL REPORT 2006 67 CORPORATE GOVERNANCE REPORT (Continued)

ATTENDANCE RECORD AT AUDIT COMMITTEE MEETINGS during the financial year ended 31 December 2006

Date of Audit Committee Meeting Name of Director 17 March 5 June 7 September 30 November

INDEPENDENT NON-EXECUTIVE

Lau Ling Fai, Herald Y Y Y Y

Christopher Roger Moss, O.B.E. Y Y Y Y

TOTAL 2 2 2 2

PRESENT 2 (100%) 2 (100%) 2 (100%) 2 (100%)

AVERAGE FOR THE YEAR 100%

NON-EXECUTIVE

Tse Kai Chi Y Y Y Y

TOTAL 1 1 1 1

PRESENT 1 (100%) 1 (100%) 1 (100%) 1 (100%)

AVERAGE FOR THE YEAR 100%

OVERALL

TOTAL 3 3 3 3

PRESENT 3 (100%) 3 (100%) 3 (100%) 3 (100%)

AVERAGE FOR THE YEAR 100%

Y = Attendance

68 KERRY PROPERTIES LIMITED ATTENDANCE RECORD AT REMUNERATION COMMITTEE MEETINGS during the financial year ended 31 December 2006

Date of Remuneration Committee Meeting Name of Director 16 January 24 March

EXECUTIVE

Ang Keng Lam Y Y

Wong Siu Kong N Y

TOTAL 2 2

PRESENT 1 (50%) 2 (100%)

AVERAGE FOR THE YEAR 75%

INDEPENDENT NON-EXECUTIVE

William Winship Flanz Y Y

Lau Ling Fai, Herald Y Y

Christopher Roger Moss, O.B.E. Y Y

TOTAL 3 3

PRESENT 3 (100%) 3 (100%)

AVERAGE FOR THE YEAR 100%

OVERALL

TOTAL 5 5

PRESENT 4 (80%) 5 (100%)

AVERAGE FOR THE YEAR 90%

Y = Attendance N = No attendance

ANNUAL REPORT 2006 69 AUDIT COMMITTEE REPORT

The Audit Committee of the Board has been established since (v) The Audit Committee recommended to the Board December 1998 and comprises three Non-executive Directors, regarding the appointment and remuneration of the two of whom are independent. external auditor.

The Audit Committee operates pursuant to written terms (vi) The Audit Committee reviewed and approved the internal of reference that is available on the Company’s website at audit programme, reviewed the internal audit reports and www.kerryprops.com. In general, the Audit Committee discussed any significant issues with the internal audit is responsible for assisting the Board in discharging its team and the Group’s senior management. responsibilities in monitoring the integrity of the Group’s financial reporting process, the financial statements and (vii) The Audit Committee reviewed the independence of reports of the Company, the effectiveness of the Group’s the internal audit function and the level of support and system of internal controls, the performance of the Group’s co-operation given by the Group’s management to internal audit function, as well as arrangements with external the internal audit team, as well as the resources of the auditor. internal audit team when undertaking its duties and responsibilities. In discharging its responsibilities, set out below is a summary of the work performed by the Audit Committee during the (viii) The Audit Committee reviewed the adequacy and financial year ended 31 December 2006:– effectiveness of the Group’s systems of internal controls, through a review of the work undertaken by the Group’s (i) The Audit Committee reviewed the draft annual and internal and external auditor, written representations by interim financial statements and the draft results the senior management of each of the Group’s business announcements of the Company, focusing on main areas divisions and discussions with the Board. of judgement, consistency of and changes in accounting policies and adequacy of information disclosure prior to During the financial year ended 31 December 2006, the Audit recommending them to the Board for approval. Committee met four times and the Audit Committee also conducted meetings with the Group’s senior management, the (ii) The Audit Committee reviewed, in conjunction with external auditor and the internal audit team from time to time. the external auditor, the developments of accounting Minutes of the Audit Committee Meetings are documented standards and assessed their potential impacts on the and circulated to the Board for information. The Audit Group’s financial statements. Committee also reports and presents its findings and makes recommendations for consideration and discussion at Board meetings. (iii) The Audit Committee assessed the independence of the Company’s external auditor, prior to formally engaging the external auditor to carry out the audit for the Company’s On 15 March 2007, the Audit Committee also reviewed the financial statements for the year ended 31 December financial statements of the Group for the year ended 31 2006. December 2006 prior to recommending them to the Board for approval. (iv) Prior to the actual commencement of the audit, the Audit Committee discussed the proposed scope of work and MEMBERS OF THE AUDIT COMMITTEE approach of the audit with the external auditor. Upon Christopher Roger MOSS, O.B.E. (Chairman) completion of the audit, the Audit Committee reviewed LAU Ling Fai, Herald the results of the external audit, and discussed with the external auditor on any significant findings and audit TSE Kai Chi issues. Hong Kong, 22 March 2007

70 KERRY PROPERTIES LIMITED REMUNERATION COMMITTEE REPORT

The Remuneration Committee of the Board was established (ii) The Remuneration Committee reviewed and in February 1997 and comprises the Chairman, the Deputy recommended to the Board for approval the payment of Chairman, and all three Independent Non-executive Directors bonuses to Executive Directors of the Company, which of the Board. amounted to HK$37,850,000 in respect of the financial year ended 31 December 2005.

The Remuneration Committee operates pursuant to written terms of reference that is published at the Company’s website (iii) The Remuneration Committee also considered and gave www.kerryprops.com. The primary responsibilities of the regard to the proposed remuneration packages of the Remuneration Committee are, inter alia, the recommendations Executive Directors, and proposed that no share options on the Company’s policies and structure for all the were granted to the Executive Directors in respect of their remuneration of the Executive Directors, the proposal of the services for the financial year ended 31 December 2005. specific remuneration packages of the Executive Directors and the recommendation on the remuneration of the Non- MEMBERS OF THE REMUNERATION COMMITTEE executive Directors for the Board’s approval. The Remuneration ANG Keng Lam (Chairman) Committee also administers and makes determinations with respect to the Company’s share option scheme. WONG Siu Kong William Winship FLANZ

During the financial year ended 31 December 2006, LAU Ling Fai, Herald the Remuneration Committee met twice with all its Christopher Roger MOSS, O.B.E. recommendations approved by the Board. The Remuneration Committee performed the following work:– Hong Kong, 22 March 2007

(i) The Remuneration Committee reviewed the salaries, housing allowances and pension contributions of the Executive Directors for the financial year ended 31 December 2006, prior to recommending them to the Board for approval.

ANNUAL REPORT 2006 71

INTERNAL CONTROLS

The Board is responsible for maintaining and reviewing the control responsibilities within each business unit of the Group. effectiveness of the Group’s system of internal controls. The Certain specific matters are reserved for the Board’s decision internal controls are designed to meet the Group’s particular and are not delegated. These include, amongst others, the needs and to minimize the risks to which the Group is exposed, approval of annual and interim results, annual budgets, capital and are designed to manage rather than eliminate the risks to structure, declaration of dividends, material acquisitions, achieve business objective and can only provide reasonable disposals and capital expenditure, Board structure and its and not absolute assurance against misstatements or losses. composition and succession. The Group’s internal control framework covers (i) the setting of objectives, budgets and targets; (ii) the establishment of regular In order to better review and evaluate the adequacy and reporting of financial information, in particular, the tracking of effectiveness of the Group’s existing system of internal controls, deviations between actual performances and budgets/targets; an internal self-assessment and certification process was (iii) the delegation of authority; and (iv) the establishment of formulated during the financial year ended 31 December 2006. clear lines of accountability. Under this process, each division of the Group was requested to assess the effectiveness of their fundamental operating Strategies and objectives of the Group as a whole are controls over all aspects of their operations, financial controls, determined by the Board. Budgets are prepared annually and risk management controls and contingency measures. Each financial projections of the Group over a period of the next division of the Group then submitted to the Audit Committee a five years are also prepared and reviewed by the Board. In written report on the adequacy and effectiveness of its internal implementing these strategies and achieving these objectives, controls, which were discussed at the Audit Committee each Executive Director has specific responsibilities for Meeting of 7 September 2006. monitoring the conduct and operations of individual business units within the Group. This includes the review and approval In addition to the above, the Board also monitors its internal of business strategies and plans, the setting of business-related controls through a programme of internal audits. The internal performance targets as well as the design and implementation audit team reviews the major operational, financial and risk of internal controls. management controls of the Group on a continuing basis, and aims to cover all major operations of the Group on a rotational Monthly financial information is provided to the Executive basis. The scope of review and the audit programme of the Directors. Variance analysis between actual performances and internal audit team, which are formulated based on a risk targets are prepared and documented in the Board paper, assessment approach and focuses on areas with relatively for discussions at Board Meetings with explanations noted higher perceived risks, are approved by the Audit Committee at for any material variances and deviations between actual the end of the preceding financial year in conjunction with the performances and budgets/targets. This helps the Board and Company’s senior management. During its visits, the internal the Group’s management to monitor the Group’s business audit team will also verify the responses as noted in the self- operations and to plan on a prudent and timely basis. Other assessment exercise and ensure that appropriate controls are in regular and ad hoc reports will also be prepared for the Board place and any deficiencies or irregularities (if any) are rectified. and its various committees, to ensure that the Directors are supplied with all the requested information in a timely and The internal audit function reports directly to the Audit appropriate manner. Committee. Accordingly, regular internal audit reports are circulated to the Audit Committee members, the Chief Financial To allow for delegation of authority as well as to enhance Officer and the external auditor for their review in accordance segregation of duties and accountability, a clear organizational with the approved internal audit programme. structure exists which details different levels of authority and

72 KERRY PROPERTIES LIMITED DIRECTORS AND SENIOR MANAGEMENT Seated (from left to right): Mr ANG Keng Lam, Mr WONG Siu Kong Standing (from left to right): Mr TSE Kai Chi, Mr LAU Ling Fai, Herald, Mr HO Shut Kan, Mr MA Wing Kai, William, Mr Christopher Roger MOSS, O.B.E., Mr William Winship FLANZ

Executive Directors Mr WONG Siu Kong, aged 55, is the Deputy Chairman of Mr ANG Keng Lam, aged 60, is the Chairman of the Board. the Board and the Managing Director of the Company. Mr Prior to his election as the Chairman of the Board on 1 August Wong has been an Executive Director of the Company since 2003, Mr Ang was the Deputy Chairman of the Board and a May 1996. Prior to his election as the Deputy Chairman of the Joint Managing Director of the Company from August 1999 Board and the Managing Director of the Company on 1 August to July 2003 and from May 1996 to July 2003, respectively. 2003, he was a Joint Managing Director of the Company Mr Ang is also a director of Kerry Holdings Limited, the from June 1999 to July 2003. Mr Wong is a director of Kerry immediate holding company of the Company. In addition, Holdings Limited, the immediate holding company of the Mr Ang is the chairman of China World Trade Center Co., Ltd. Company and a director of Kuok (Singapore) Limited. He is also which is listed on the Shanghai Stock Exchange and a non- a director of China World Trade Center Co., Ltd. which is listed executive director of Allgreen Properties Limited which is on the Shanghai Stock Exchange. In addition, Mr Wong is the listed on the Singapore Exchange Securities Trading Limited. chairman and the managing director of Hong Kong Shanghai He is also a member of the National Committee of the Chinese Development Co Ltd. and the chairman of a number of the People’s Political Consultative Conference and the chairman Group’s companies in the PRC. He joined the Kuok Group in of a number of the Group’s companies in the PRC. Mr Ang 1991 with responsibilities for the Group’s developments in has been a senior executive of the Kuok Group since 1976 Shanghai, Shenzhen and a number of other regions in the PRC. and has been responsible for the planning and development Mr Wong was educated in the PRC. of many Kuok Group projects, including in Hong Kong and the China World Trade Center in Beijing. He attended the University of Western Australia, where he gained his Bachelor’s degree in Civil Engineering and the University of Toronto, where he obtained a Master’s degree in Business Administration. Mr Ang also attended and completed the International Advanced Management Program at Harvard Business School in November 1998.

ANNUAL REPORT 2006 73 DIRECTORS AND SENIOR MANAGEMENT (Continued)

Mr HO Shut Kan, aged 58, has been an Executive Director of Mr LAU Ling Fai, Herald, aged 66, has been an Independent the Company since May 1998. Mr Ho is an executive director Non-executive Director of the Company since December 2003. of Kerry Properties (H.K.) Limited, the principal Hong Kong Mr Lau has been practising as a certified public accountant in property company of the Group. He is also a director of EDSA Hong Kong for over 30 years and has extensive experience in Properties Holdings Inc., which is listed on the Philippines auditing, finance, taxation and management. He was a partner Stock Exchange. He is responsible for the Group’s property in PricewaterhouseCoopers, Hong Kong until his retirement developments and infrastructure investments. on 30 June 2001. He is an independent non-executive director of each of Fairwood Holdings Limited and Wheelock Properties Limited, and an independent director of China Mr MA Wing Kai, William, aged 45, has been an Executive World Trade Center Co., Ltd. which is listed on the Shanghai Director of the Company since March 2004. Mr Ma is the Stock Exchange. Mr Lau is a Fellow of each of The Institute of deputy chairman and a joint managing director of Kerry Chartered Accountants in England and Wales and the Hong Logistics Network Limited, the divisional holding company of Kong Institute of Certified Public Accountants. the logistics, freight and warehouse businesses of the Group. He joined Kerry Properties (H.K.) Limited, the principal Hong Kong property company of the Group, in September 1990 Mr Christopher Roger MOSS, O.B.E., aged 70, has been an and was transferred to the logistics, freight and warehouse Independent Non-executive Director of the Company since division of the Group in June 1999. Mr Ma holds a Bachelor of May 1996. Mr Moss is also an independent non-executive Science (Management Sciences) degree from the University of director of Fittec International Group Limited, which is listed Lancaster in the United Kingdom. In September 2000, Mr Ma on the Main Board of the . Mr Moss also completed an executive education program, “Managing was the finance director of Mass Transit Railway Corporation, the Supply Chain”, at Harvard Business School. which position he held from 1984 until his retirement in 1996. Subsequently, he was an international advisor to Goldman Independent Non-executive Directors Sachs (Asia) L.L.C. until November 2002. He was previously the finance director of British Airways. Mr Moss is a Chartered Mr William Winship FLANZ, aged 62, has been an Accountant and a graduate of Cambridge University in the Independent Non-executive Director of the Company since United Kingdom. September 2004. Mr Flanz is a private investor, and serves as advisor to Sterling Enterprises Limited, senior advisor to Baring Private Equity Asia, Limited, and senior advisor to JW Childs, Non-executive Director LLC. Mr Flanz also serves as an independent non-executive Mr TSE Kai Chi, aged 43, has been a Non-executive Director of director of Integrated Distribution Services Group Limited. Mr the Company since September 2005. Mr Tse is a senior finance Flanz began his career with Chase Manhattan Bank N.A., where executive and currently heads the accounting function of he served as country manager for Japan, area director for the Kerry Holdings Limited, the holding company of the Company. Middle East and North Africa, and was later appointed area Mr Tse is a graduate of the London School of Economics and director, responsible for all of Chase’s activities in Asia Pacific. Political Science, University of London, and he is qualified as He was a founding partner of Prudential Asia Investments a Chartered Accountant and Associate Corporate Treasurer Limited, and subsequently a member of the Management in England. He has over 20 years of experience in accounting Committee of Investcorp International Limited, and then and finance and worked in the audit and banking industry chairman and chief executive officer of Gucci Group, N.V. prior to joining the Kerry Group in 1994. From 2001 to 2004, before returning to Hong Kong to become the chief executive Mr Tse served as the group financial controller of SCMP Group officer of Sterling Enterprises Limited, a Hong Kong based Limited. investment company. He graduated from New York University with a Bachelor of Arts Degree in Economics. He also holds an MBA from the University of Michigan.

74 KERRY PROPERTIES LIMITED SENIOR MANAGEMENT Ms FENG Ying, aged 49, is an executive director of Kerry Property Division Development (China) Limited. Ms Feng is responsible for the investment and operation of the Group’s property development Mr CHAN Wai Ming, William, aged 52, is a director of projects in, among others, Shenzhen and Fuzhou. She has over Kerry Development (China) Limited and Kerry Properties 20 years of experience in business development and project Development Management (Shanghai) Co., Ltd., a subsidiary management. Ms Feng holds a Bachelor of Science degree providing real estate management services to the Company. in Mechanical Engineering from the Shanghai Jiao Tong Mr Chan has over 30 years of experience in project and estate University. management in both private and public sectors, and over 10 years of which were in China projects. Mr Chan is a Fellow Member of both the Royal Institution of Chartered Surveyors Mr TAM Sing Ki, aged 52, has been an executive director and the Hong Kong Institute of Surveyors and a Registered Real of Kerry Properties (H.K.) Limited since 1998. Mr Tam is also a Estate Appraiser in China. Mr Chan holds a Master of Science director of Kerry Real Estate Agency Limited, Kerry Property degree in International Real Estate from the Hong Kong Management Services Limited and Kerry Project Management Polytechnic University. (H.K.) Limited. His principal responsibility is land acquisitions and project management for the Group. Mr Tam holds a Bachelor of Science degree and a Master’s degree in Business Mr CHAU Sung Lim, Sunny, aged 41, has been a director Administration from the University of Hong Kong. He is a Fellow and the general manager of Kerry Properties Development Member of both the Royal Institution of Chartered Surveyors Management (Shanghai) Co., Ltd., the Group’s management and the Hong Kong Institute of Surveyors. company in Shanghai, since 1996 and 1998, respectively. He is responsible for the operation of the Group’s property development projects in Shanghai. Mr Chau holds a Bachelor Mr WOO Shan-chen, Wilfred, aged 49, is an executive of Arts (Honours) degree in Economics and Administrative director of Kerry Properties (China) Limited. He is also a director Studies from the University of Winnipeg in Canada. of Beijing Jia Ao Real Estate Development Co., Ltd. and an executive director of Beijing Kerry Centre Hotel Co., Ltd., both of which are the Company’s subsidiaries with major investments Mr CHU Ip Pui, aged 58, is an executive director of Kerry in Beijing. Before joining the Group, he had audit and financial Property Management Services Limited, a subsidiary providing planning experience in Canada and Hong Kong with a leading property management services to the Group. Mr Chu has international accounting firm. He holds a Bachelor of Commerce over 30 years of experience in various aspects of the property degree in Accounting and Management Information Systems business. Since joining the Group in 2000, Mr Chu’s principal from the University of British Columbia, Vancouver, Canada and responsibility is the marketing and management of the Group’s is a Chartered Accountant in Canada. property portfolio in Hong Kong. Mr Chu holds a Master’s degree in Business Administration from the University of Macau. Mr YEUNG Pak Hin, Albert, aged 54, is an executive director of Kerry Properties (H.K.) Limited. Mr Yeung is responsible for the property management for the Group. Mr Yeung has over 20 years of experience in project management and cost control. Mr Yeung has been appointed as a member of Review Panel of Highways Department under Land (Miscellaneous Provisions) Ordinance since 2004. He was also a member of the Advisory Committee on Building Services Engineering of the Hong Kong Polytechnic University. Mr Yeung is a graduate of the University of Manchester.

ANNUAL REPORT 2006 75 DIRECTORS AND SENIOR MANAGEMENT (Continued)

Logistics Network Division Corporate Services Division Mr LUI Kim Ming, Jesse, aged 47, is the executive director Mr WONG Wing Kee, Christopher, aged 44, is the Chief of Kerry Logistics Network Limited (“KLN”), a wholly-owned Financial Officer of the Company. Mr Wong was trained and subsidiary of the Company. Mr Lui joined the company in 1992. qualified as a Chartered Accountant with Price Waterhouse, Prior to joining the company, Mr Lui was a director of sales London, England. Prior to joining the Company in 2004, Mr and marketing with a multinational logistics company. Mr Lui Wong had about 6 years of experience in accounting and has over 20 years of experience in logistics field. Mr Lui has auditing in the United Kingdom and Hong Kong and about participated in the Group’s development of new warehouse 11 years of experience in investment banking and corporate facilities and held various positions in marketing and business finance in Hong Kong. Mr Wong is a graduate of the London development. He holds a diploma in Management Studies School of Economics and Political Science, University of from the Hong Kong Polytechnic University/the Hong Kong London, England, and holds a Bachelor of Science (Economics) Management Association. degree in Accounting and Finance.

Mr TAN Kai Whatt, Robert, aged 50, joined KLN in 2004. Ms LI Siu Ching, Liz, aged 40, is the Company Secretary. Ms Mr Tan is currently a director in charge of the South East Li is a solicitor qualified in Hong Kong and also an associate Asia logistics operation of the Group and is responsible for member of both the Institute of Chartered Secretaries and the development and expansion of KLN’s network in South Administrators and The Hong Kong Institute of Companies and South East Asia areas, including Singapore, Malaysia, Secretaries. Ms Li has over 10 years’ experience in the Indonesia, Thailand, Vietnam, Cambodia, India, Bangladesh company secretarial field before she joined the Company and the Philippines. Mr Tan gained his Master’s degree from in 2005. Ms Li holds a Degree of Bachelor of Law from the the Asia Institute of Management in 2003 and has over 12 years University of London and a Master of Laws from the University of experience in the shipping and logistics industries. of Northumbria at Newcastle, England.

Mr Gary WILCOCK, aged 45, joined KLN in 2002 and is currently the managing director of Kerry Logistics (UK) Limited (formerly known as Trident International Limited). Mr Wilcock joined Trident International Limited as a management trainee in 1982 and had since then been taking a number of senior management roles in the company prior to its acquisition by KLN in 2002. He has 25 years of experience in the logistics industry in particular the trade between UK and Asia.

Mr WONG Wai Shing, Vincent, aged 59, has been a director of KLN since 2001 and a joint managing director since 2004. He has over 30 years of experience in the transport industry. Prior to joining KLN, he was the chief executive of a multinational transportation company involved in shipping agency, ship management, feeder services, cargo terminals, freight forwarding and contract logistics. Mr Wong received his Bachelor degree with honour from the University of Hong Kong. He is a member of the Institute of Chartered Shipbrokers, a fellow member of the Chartered Institute of Logistics and Transport and a member of the Logistics Development Council of the HKSAR Government.

76 KERRY PROPERTIES LIMITED REPORT OF THE DIRECTORS

The Directors submit their report together with the audited financial statements for the year ended 31 December 2006.

PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS The principal activity of the Company is investment holding.

The principal activities of the Company’s subsidiaries and associated companies comprise the following:

(i) property development, investment and management in Hong Kong, the People’s Republic of China (the “PRC”) and the Asia Pacific region;

(ii) logistics, freight and warehouse ownership and operations;

(iii) infrastructure-related investments in Hong Kong and the PRC; and

(iv) hotel ownership in Hong Kong, and hotel ownership and operations in the PRC.

An analysis of the Group’s turnover and contribution to operating profit for the year by principal activities and markets is set out in note 5 to the financial statements.

RESULTS AND APPROPRIATIONS The results of the Group for the year are set out in the consolidated income statement on page 94.

Particulars of dividends proposed and paid during the year are set out in note 10 to the financial statements.

RESERVES The movements in reserves of the Group and the Company during the year are set out in notes 34 and 35 to the financial statements.

DONATIONS Charitable donations made by the Group during the year amounted to HK$419,000.

PROPERTY, PLANT AND EQUIPMENT Particulars of the movements in property, plant and equipment of the Group and the Company during the year are set out in note 13 to the financial statements.

INVESTMENT, HOTEL AND DEVELOPMENT PROPERTIES Particulars of investment, hotel and development properties of the Group are set out on pages 36 to 47.

SHARE CAPITAL The movements in the share capital of the Company during the year are set out in note 32 to the financial statements.

BONDS Details of the bonds of the Group are set out in notes 28 and 29 to the financial statements.

CAPITALISED INTEREST The amounts of interest capitalised by the Group during the year are set out in notes 6 and 7 to the financial statements.

ANNUAL REPORT 2006 77 REPORT OF THE DIRECTORS (Continued)

SUBSIDIARIES Particulars of the Company’s subsidiaries as at 31 December 2006 are set out in note 43 to the financial statements.

ASSOCIATED COMPANIES Particulars of the Group’s associated companies as at 31 December 2006 are set out in note 44 to the financial statements.

PARTICULARS OF BANK LOANS AND OTHER BORROWINGS Particulars of bank loans and other borrowings of the Group and the Company as at 31 December 2006 are set out in notes 27 and 40 to the financial statements.

TEN-YEAR FINANCIAL SUMMARY The results, assets and liabilities of the Group for the last ten financial years are summarized on page 172.

DIRECTORS The Directors who held office during the year and up to the date of this report were:

Mr ANG Keng Lam (Chairman)@ Mr WONG Siu Kong (Deputy Chairman and Managing Director)@ Mr HO Shut Kan@ Mr MA Wing Kai, William@ Mr William Winship FLANZ* Mr LAU Ling Fai, Herald* Mr Christopher Roger MOSS, O.B.E.* Mr TSE Kai Chi#

@ Executive Directors * Independent Non-executive Directors # Non-executive Director

Messrs. Ma Wing Kai, William, Lau Ling Fai, Herald and Christopher Roger Moss, O.B.E. are due to retire from the Board by rotation in accordance with Bye-law 99(A) of the Company’s Bye-laws at the forthcoming Annual General Meeting. Mr Moss has decided not to stand for re-election. The other retiring Directors, being eligible, all offer themselves for re-election. The Board would like to take this opportunity to record a special note of thanks and appreciation to Mr Moss for his contribution and advice during his tenure as a Director of the Company.

BIOGRAPHY OF DIRECTORS AND SENIOR MANAGEMENT Biography of Directors and senior management are set out on pages 73 to 76.

78 KERRY PROPERTIES LIMITED DIRECTORS’ INTERESTS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2006, the interests of the Directors in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) (the “Associated Corporations”) as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) were as follows:

(i) The Company Number of Number of underlying ordinary ordinary shares shares held under Approximate % Name of Director (Personal interests) equity derivatives Total of shareholding 7 Mr ANG Keng Lam 209,0001 3,585,2383 3,794,238 0.31 Mr WONG Siu Kong – 1,000,0003 1,000,000 0.08 Mr HO Shut Kan – 490,0003 490,000 0.04 Mr MA Wing Kai, William 10,3511 1,099,4803 1,109,831 0.09

(ii) Associated Corporations Number of underlying ordinary Number of ordinary shares shares held Name of Associated Name of Personal Family Corporate Other under equity Approximate % Corporation Director interests interests interests interests derivatives Total of shareholding EDSA Properties Holding Inc. Mr HO Shut Kan 1,570 1 ––––1,570 0.00

Kerry Group Limited Mr ANG Keng Lam – 7,050,000 4 – 8,000,000 2 5,540,716 5 20,590,716 1.43 8 Mr WONG Siu Kong ––6,254,300 6 – 4,617,263 5 10,871,563 0.75 8 Mr HO Shut Kan 1,688,452 1 ––––1,688,452 0.12 8 Mr MA Wing Kai, 1,010,620 1 ––––1,010,620 0.07 8 William Mr TSE Kai Chi 400,000 1 ––––400,000 0.03 8

Kerry Siam Seaport Limited Mr ANG Keng Lam 1 1 ––––1 0.00 Mr MA Wing Kai, 1 1 ––––1 0.00 William

Notes: 1. This represents interests held by the relevant Director as beneficial owner.

2. This represents interests held by the relevant Director through a discretionary trust of which the relevant Director is a contingent beneficiary.

3. This represents interests in options held by the relevant Director as a beneficial owner to subscribe for the relevant underlying ordinary shares in respect of the option shares granted by the Company under the 1997 and 2002 Share Option Schemes, details of which are set out in the section headed “Share Options” of this report.

4. This represents interests held by the relevant Director and his spouse through a discretionary trust of which the relevant Director and his spouse are contingent beneficiaries.

5. This represents interests in options held by the relevant Director as a beneficial owner to subscribe for the relevant underlying ordinary shares in respect of the option shares granted by Kerry Group Limited, details of which are set out in the section headed ”Directors’ Rights to Acquire Shares or Debentures” below.

6. This represents interests held by the relevant Director through his controlled corporation(s).

7. The percentage has been adjusted based on the total number of ordinary shares of the Company in issue as at 31 December 2006 (i.e. 1,238,289,382 ordinary shares).

8. The percentage has been adjusted based on the total number of ordinary shares of Kerry Group Limited in issue as at 31 December 2006 (i.e. 1,442,552,967 ordinary shares).

All the interests disclosed in sections (i) and (ii) above represent long positions in the shares of the Company or the Associated Corporations.

ANNUAL REPORT 2006 79 REPORT OF THE DIRECTORS (Continued)

DIRECTORS’ INTERESTS IN SHARES, UNDERLYING SHARES AND DEBENTURES (Continued) Save as aforesaid, as at 31 December 2006, none of the Directors had any other interests or short positions in the shares, underlying shares or debentures of the Company or any of its Associated Corporations which had been entered in the register kept by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

DIRECTORS’ INTERESTS IN CONTRACTS No contracts of significance in relation to the Group’s business to which the Company, its subsidiaries, its fellow subsidiaries or its holding companies was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES (i) The Company As at 31 December 2006, the number of outstanding option shares granted by the Company under the 1997 and 2002 Share Option Schemes to the Directors to subscribe for shares of the Company, 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 is set out in the section headed “Share Options” of this report.

(ii) Associated Corporation Pursuant to a share option scheme adopted by Kerry Group Limited (“KGL”), the ultimate holding company of the Company, on 17 November 1999, the directors of KGL granted option shares in favour of the following Directors to subscribe for shares in KGL, with respective exercise price per option share of the unexercised options and the respective number of option shares exercisable adjusted with effect from 27 January 2006, and which remain outstanding as at 31 December 2006, are set out as follows:

Exercise price Number of option Name of Director Date of grant Exercise period HK$ shares of KGL Mr ANG Keng Lam 04/05/2000 04/11/2000 – 03/05/2007 4.54 5,540,716 Mr WONG Siu Kong 04/05/2000 04/11/2000 – 03/05/2007 4.54 4,617,263

Apart from the aforesaid, at no time during the year ended 31 December 2006 was the Company, its subsidiaries, its fellow subsidiaries or its holding companies a party to any arrangement to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

80 KERRY PROPERTIES LIMITED SUBSTANTIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY As at 31 December 2006, the interests of those persons (other than the Directors) in the shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

Number of Approximate % Name Capacity in which ordinary shares were held ordinary shares 1 of shareholding 2 Kerry Group Limited Interest of controlled corporations 702,917,379 56.77

Kerry Holdings Limited Interest of controlled corporations 702,917,379 56.77

Caninco Investments Limited Beneficial owner 303,891,879 24.54

Darmex Holdings Limited Beneficial owner 250,024,187 20.19

Moslane Limited Beneficial owner 86,150,350 6.96

Notes: 1. Caninco Investments Limited (“Caninco”), Darmex Holdings Limited (“Darmex”) and Moslane Limited (“Moslane”) are wholly-owned subsidiaries of Kerry Holdings Limited (“KHL”). KHL itself is a wholly-owned subsidiary of KGL and, accordingly, the shares in which Caninco, Darmex and Moslane are shown to be interested are also included in the shares in which KHL and KGL are shown to be interested.

2. The percentage has been adjusted based on the total number of ordinary shares of the Company in issue as at 31 December 2006 (i.e. 1,238,289,382 ordinary shares).

All the interests disclosed under this section represent long positions in the shares of the Company.

Apart from the aforesaid, as at 31 December 2006, the Company had not been notified of any interests and short positions in the shares and underlying shares of the Company which had been recorded in the register required to be kept under Section 336 of the SFO.

PUBLIC FLOAT Based on the information that is publicly available to the Company as at the date of this report and within the knowledge of the Directors, there was a sufficiency of public float of the Company’s securities as required under the rules governing the listing of securities on the Stock Exchange (the “Listing Rules”).

PRE-EMPTIVE RIGHTS There is no provision for pre-emptive rights under the Company’s Bye-laws or the laws in Bermuda.

STAFF As at 31 December 2006, the Company and its subsidiaries had 8,251 employees. Salaries of employees are maintained at competitive levels while bonuses are granted on a discretionary basis. Other employee benefits include provident fund, insurance, medical cover, subsidized educational and training programs as well as a share option scheme.

ANNUAL REPORT 2006 81 REPORT OF THE DIRECTORS (Continued)

SHARE OPTIONS On 17 April 2002, the shareholders of the Company approved the termination (to the effect that no further options shall be offered) of the executive share option scheme adopted by the Company on 27 March 1997 (the “1997 Share Option Scheme”) and the adoption of a new share option scheme (the “2002 Share Option Scheme”).

As at 31 December 2006, a total of 11,796,416 option shares were outstanding which comprised 4,983,916 option shares and 6,812,500 option shares granted under the 1997 Share Option Scheme and the 2002 Share Option Scheme, respectively.

The following is a summary of the principal terms of these two share option schemes (for the 1997 Share Option Scheme, only those terms applying to the outstanding option shares are set out).

(i) 1997 Share Option Scheme The 1997 Share Option Scheme was designed to give Executive Directors, managers or other employees holding an executive, managerial, supervisory or similar position in the Company or any of its subsidiaries an interest in preserving and maximising shareholder value in the longer term, to enable the Company to attract and retain individuals with experience and ability and to reward individuals for expected future performance.

The period within which an option may be exercised was determined by the Board of Directors of the Company in its absolute discretion, save that no option might be exercised later than 10 years from the date on which the option was granted. Subject to the provisions of the 1997 Share Option Scheme, the Board might at its discretion when offering the grant of an option impose any conditions in relation thereto including the achievement of operating or financial targets, the satisfactory performance by the grantee or the time or period when the right to exercise the option in respect of all or some of the option shares would vest. The amount paid on acceptance of an option was HK$1. The subscription price for any particular outstanding option was determined by the Board of Directors of the Company in its absolute discretion subject to the compliance with the requirements for share option schemes under the Listing Rules.

The 1997 Share Option Scheme was terminated on 17 April 2002 such that thereafter no further options should be offered but the options which had been granted during its life should continue to be valid and exercisable in accordance with their terms of issue and in all other respects its provisions should remain in full force and effect.

82 KERRY PROPERTIES LIMITED SHARE OPTIONS (Continued) (ii) 2002 Share Option Scheme The 2002 Share Option Scheme is designed to motivate executives and key employees in the service of any member of the Group and other persons who may make a contribution to the Group to optimise their future contributions to the Group and enable the Group to attract and retain individuals with experience and ability and to reward them for their past contributions.

The maximum number of shares of the Company (the “Shares”) which may be issued upon exercise of all options to be granted under the 2002 Share Option Scheme (and under any other scheme of the Company) shall not in aggregate exceed 10% of the Shares in issue as at the date of the adoption of the 2002 Share Option Scheme (the “Scheme Mandate Limit”) provided that the Company may at any time as the Board of Directors of the Company may think fit seek approval from its shareholders to refresh the Scheme Mandate Limit, save that the maximum number of Shares which may be issued upon exercise of all options to be granted under the 2002 Share Option Scheme (and under any other scheme of the Company) shall not exceed 10% of the Shares in issue as at the date of approval by the shareholders of the Company in general meeting where such limit is refreshed. Options previously granted under the 2002 Share Option Scheme and any other scheme of the Company (including those outstanding, cancelled, and lapsed in accordance with the terms of the 2002 Share Option Scheme or any other scheme of the Company or exercised options under the said schemes) shall not be counted for the purpose of calculating the limit as refreshed. Notwithstanding aforesaid in this paragraph, the maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2002 Share Option Scheme (and under any other scheme of the Company) shall not exceed 30% of the Shares in issue from time to time. As at 31 December 2006, a total of 64,994,403 Shares (representing approximately 5.25% of the existing issued share capital of the Company) are available for issue under the 2002 Share Option Scheme. The maximum entitlement of each participant under the 2002 Share Option Scheme is 1% of the Shares in issue from time to time.

The period within which an option may be exercised will be determined by the Board of Directors of the Company in its absolute discretion, save that no option may be exercised later than 10 years from the date on which the option is granted. Subject to the provisions of the 2002 Share Option Scheme, the Board may in its absolute discretion when offering the grant of an option impose any conditions in relation thereto including the achievement of operating or financial targets, the satisfactory performance by the grantee or the time or period when the right to exercise the option in respect of all or some of the option shares shall vest. The amount payable on acceptance of an option is HK$1.

The subscription price in respect of any particular option under the 2002 Share Option Scheme shall be such price as the Board may in its absolute discretion determine at the time of grant of the relevant option but the subscription price shall not be less than whichever is the highest of (a) the nominal value of a Share; (b) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date of the Board resolution approving the grant of options; and (c) the average of the closing prices of the Shares as stated in the Stock Exchange’s daily quotations sheet for the five business days immediately preceding the date of the Board resolution approving the grant of options.

The 2002 Share Option Scheme will expire on 16 April 2012.

ANNUAL REPORT 2006 83 REPORT OF THE DIRECTORS (Continued)

SHARE OPTIONS (Continued) Movements of the option shares, which were granted under the 1997 Share Option Scheme, during the year ended 31 December 2006 are listed below in accordance with rule 17.07 of the Listing Rules:

Transfer Transfer Number of Number of from other to other option shares Number of option shares category category exercised option shares Exercise held as at during during during held as at price Category Date of Grant Tranche 01/01/2006 the year the year the year 1 31/12/2006 HK$ Exercise Period 1. Directors Mr ANG Keng Lam 11/04/1997 N/A 1,759,380 ––(1,759,380) – 14.92 11/04/1999 – 26/03/2007 27/11/1999 I 428,630 ––(428,630) – 9.64 27/05/2000 – 26/03/2007 27/11/1999 II 428,629 ––(428,629) – 9.64 27/05/2001 – 26/03/2007 01/06/2000 I 350,000 –– –350,000 6.70 01/06/2001 – 31/05/2010 01/06/2000 II 350,000 –– –350,000 6.70 01/06/2002 – 31/05/2010 01/06/2000 III 348,743 –– –348,743 6.70 01/06/2003 – 31/05/2010 16/04/2002 I 518,248 –– –518,248 6.85 16/04/2003 – 15/04/2012 16/04/2002 II 518,247 –– –518,247 6.85 16/04/2004 – 15/04/2012

Mr WONG Siu Kong 11/04/1997 N/A 1,172,919 ––(1,172,919) – 14.92 11/04/1999 – 26/03/2007 27/11/1999 I 214,314 ––(214,314) – 9.64 27/05/2000 – 26/03/2007 27/11/1999 II 214,314 ––(214,314) – 9.64 27/05/2001 – 26/03/2007 16/04/2002 II 218,247 ––(218,247) – 6.85 16/04/2004 – 15/04/2012

Mr HO Shut Kan 11/04/1997 N/A 321,044 ––(321,044) – 14.92 11/04/1999 – 26/03/2007

Mr MA Wing Kai, 11/04/1997 N/A 234,582 ––(165,000) 69,582 14.92 11/04/1999 – 26/03/2007 William 27/11/1999 I 133,946 ––(133,946) – 9.64 27/05/2000 – 26/03/2007 27/11/1999 II 133,945 ––(133,945) – 9.64 27/05/2001 – 26/03/2007 02/03/2001 I 36,000 –– –36,000 11.59 02/03/2002 – 01/03/2011 02/03/2001 II 36,000 –– –36,000 11.59 02/03/2003 – 01/03/2011 02/03/2001 III 33,520 –– –33,520 11.59 02/03/2004 – 01/03/2011 16/04/2002 I 62,189 –– –62,189 6.85 16/04/2003 – 15/04/2012 16/04/2002 II 62,189 –– –62,189 6.85 16/04/2004 – 15/04/2012

2. Continuous 11/04/1997 N/A 1,990,360 181,874 – (1,768,488) 403,746 14.92 11/04/1999 – 26/03/2007 Contract 27/11/1999 I 436,855 ––(429,043) 7,812 9.64 27/05/2000 – 26/03/2007 Employees 27/11/1999 II 508,673 ––(452,193) 56,480 9.64 27/05/2001 – 26/03/2007 01/06/2000 I 104,000 ––(25,000) 79,000 6.70 01/06/2001 – 31/05/2010 01/06/2000 II 146,564 ––(25,000) 121,564 6.70 01/06/2002 – 31/05/2010 01/06/2000 III 168,309 ––(10,000) 158,309 6.70 01/06/2003 – 31/05/2010 02/03/2001 I 148,000 ––(15,000) 133,000 11.59 02/03/2002 – 01/03/2011 02/03/2001 II 148,000 ––(7,000) 141,000 11.59 02/03/2003 – 01/03/2011 02/03/2001 III 126,076 –– –126,076 11.59 02/03/2004 – 01/03/2011 16/04/2002 I 288,077 ––(81,822) 206,255 6.85 16/04/2003 – 15/04/2012 16/04/2002 II 288,076 ––(51,822) 236,254 6.85 16/04/2004 – 15/04/2012

3. Others 11/04/1997 N/A 3,753,341 – (181,874) (2,839,164) 732,303 14.92 11/04/1999 – 26/03/2007 27/11/1999 I 503,638 ––(503,638) – 9.64 27/05/2000 – 26/03/2007 27/11/1999 II 503,637 ––(503,637) – 9.64 27/05/2001 – 26/03/2007 01/06/2000 I 45,000 –– –45,000 6.70 01/06/2001 – 31/05/2010 01/06/2000 II 45,000 –– –45,000 6.70 01/06/2002 – 31/05/2010 01/06/2000 III 44,088 –– –44,088 6.70 01/06/2003 – 31/05/2010 02/03/2001 I 22,000 –– –22,000 11.59 02/03/2002 – 01/03/2011 02/03/2001 II 22,000 –– –22,000 11.59 02/03/2003 – 01/03/2011 02/03/2001 III 19,311 –– –19,311 11.59 02/03/2004 – 01/03/2011 Total: 16,886,091 181,874 (181,874) (11,902,175) 4,983,916

Notes: 1. The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$28.46.

2. During the year, no option shares were granted/granted for adjustment, cancelled or lapsed under the 1997 Share Option Scheme.

84 KERRY PROPERTIES LIMITED SHARE OPTIONS (Continued) Movements of the option shares, which were granted under the 2002 Share Option Scheme, during the year ended 31 December 2006 are listed below in accordance with rule 17.07 of the Listing Rules:

Number of Number of option shares Number of Number of option shares exercised option shares option shares Exercise held as at during lapsed during held as at price Category Date of Grant Tranche 01/01/2006 the year 1 the year 31/12/2006 HK$ Exercise Period 1. Directors Mr ANG Keng Lam 17/03/2005 I 750,000 ––750,000 18.74 17/03/2006 – 16/03/2015 17/03/2005 II 750,000 ––750,000 18.74 17/03/2007 – 16/03/2015

Mr WONG Siu Kong 17/03/2005 I 750,000 (500,000) – 250,000 18.74 17/03/2006 – 16/03/2015 17/03/2005 II 750,000 ––750,000 18.74 17/03/2007 – 16/03/2015

Mr HO Shut Kan 17/03/2005 I 400,000 (310,000) – 90,000 18.74 17/03/2006 – 16/03/2015 17/03/2005 II 400,000 ––400,000 18.74 17/03/2007 – 16/03/2015

Mr MA Wing Kai, William 17/03/2005 I 400,000 ––400,000 18.74 17/03/2006 – 16/03/2015 17/03/2005 II 400,000 ––400,000 18.74 17/03/2007 – 16/03/2015

2. Continuous Contract 17/03/2005 I 1,970,000 (717,500) (92,500) 1,160,000 18.74 17/03/2006 – 16/03/2015 Employees 17/03/2005 II 1,970,000 – (107,500) 1,862,500 18.74 17/03/2007 – 16/03/2015

Total: 8,540,000 (1,527,500) (200,000) 6,812,500

Notes: 1. The weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised was HK$28.46.

2. During the year, no option shares were transferred to/from other category, granted/granted for adjustment or cancelled under the 2002 Share Option Scheme.

SERVICE CONTRACTS There is no service contract, which is not determinable by the Company within one year without payment of compensation (other than statutory compensation), in respect of any Director proposed for re-election at the forthcoming Annual General Meeting of the Company.

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

MAJOR CUSTOMERS AND SUPPLIERS The percentages of the five largest customers combined and the five largest suppliers combined are less than 30% of the Group’s total turnover and purchases, respectively.

ANNUAL REPORT 2006 85 REPORT OF THE DIRECTORS (Continued)

DIRECTOR’S INTERESTS IN COMPETING BUSINESS Pursuant to Rule 8.10 of the Listing Rules, the Company disclosed below that during the year ended 31 December 2006 and up to the date of this report, the following Directors were considered to have interests in the following businesses (“Excluded Businesses”), being businesses which competed or were likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses in which (a) the Group was interested and (b) the Directors’ only interests were as directors appointed to represent the interests of the Group.

Mr Ang Keng Lam was a director of and had interests in shares in Allgreen Properties Limited (“Allgreen”), the businesses of which consisted of property investment and development, project and property management and leasing of office premises, retail space and serviced apartments in Singapore. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the property businesses of the Group, it is likely that these Excluded Businesses may compete with the property businesses of the Group in the Asia Pacific region. Allgreen was listed on the Singapore Exchange Securities Trading Limited as at the date of this report.

Messrs Ang Keng Lam and Wong Siu Kong were directors of and had interests in shares in the Shangri-La Asia Limited (“SA”) group of companies, the businesses of which consisted of hotel ownership and operation. The Directors believe that as the size of that part of these Excluded Businesses in Beijing, where the Group has hotel businesses, is not insignificant when compared with the hotel business of the Group in Beijing, it is likely that these Excluded Businesses may compete with the hotel business of the Group in Beijing. SA was listed on the Stock Exchange as at the date of this report.

Messrs Ang Keng Lam and Wong Siu Kong were directors of (but did not have any interests in shares in) the China World Trade Center Ltd. group of companies, the businesses of which consisted of property investment and development and hotel ownership and operation in the PRC. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the property and hotel businesses of the Group in the PRC, it is likely that these Excluded Businesses may compete with the property and hotel businesses of the Group in the PRC.

Mr Wong Siu Kong was a director of and had interests in shares in Kuok (Singapore) Limited (“KSL”). One of the activities of the KSL group of companies consisted of ownership and operation of warehouses in Malaysia. The Directors believe that as the size of these Excluded Businesses is not insignificant when compared with the warehouse businesses of the Group in the South East Asian market, it is likely that these Excluded Businesses may compete with the warehouse businesses of the Group in the South East Asian market.

The Executive Directors were directors of and/or had interests in shares in the Kerry Group Limited group of companies, the businesses of which consisted of property investment and development, hotel ownership and operation, warehouse ownership and operation, port terminal ownership and operation and freight operations. The size of these Excluded Businesses is considered to be insignificant when compared with similar businesses of the Group. On this basis, the Directors do not consider any competition between these Excluded Businesses as specified under this paragraph and similar businesses of the Group to be significant.

The Excluded Businesses are operated and managed by companies (and in the case of Allgreen, and SA, by publicly listed companies) with independent management and administration. On this basis, the Directors believe that the Group is capable of carrying on its businesses independently of the Excluded Businesses and at arm’s length from the Excluded Businesses.

The Directors, including those interested in the Excluded Businesses, will, as and when required under the Bye-laws of the Company, abstain from voting on any resolution of the Board in respect of any contract, arrangement or proposal in which he or any of his associates has a material interest.

86 KERRY PROPERTIES LIMITED CONNECTED TRANSACTIONS (I) On 1 June 2006, the Company and Shangri-La Asia Limited (“SA”) jointly announced that Kerry (Tianjin) Ltd (“Party A”), Kerry Properties (Tianjin) Ltd. (“Party B”) and Allgreen Properties (Tianjin) Pte. Ltd. (“Party C”) had entered into a share transfer agreement (the “Share Transfer Agreement”) and a joint venture contract (the “JV Contract”) (collectively, the “Contracts”), both dated 1 June 2006, to undertake a property development project in Hedong District, Tianjin, PRC through 天津嘉里房地產開發有限公司 (Tianjin Kerry Real Estate Development Co., Ltd.) (“JVCO”). The scope of business of JVCO is to undertake the development, construction, operation and management of the hotel and composite complex within a plot of land located at Liuwei Road, Hedong District, Tianjin, PRC with an area of approximately 86,164 sq.m.

Pursuant to the Share Transfer Agreement, (a) Party A will transfer its 49% interest in the registered capital of JVCO to Party B at a consideration of RMB313,137,850 (HK$304,017,330) together with the proportionate shareholders’ loans at a consideration of US$6,215,155.49 (HK$48,167,455); and (b) Party A will transfer its 31% interest in the registered capital of JVCO to Party C at a consideration of RMB198,107,619 (HK$192,337,494) together with the proportionate shareholders’ loans at a consideration of US$3,932,037.15 (HK$30,473,288). Following the completion of the Share Transfer Agreement, JVCO will be owned by Party A, Party B and Party C in the proportions of 20%, 49% and 31%, respectively. According to the JV Contract, the maximum contribution of Party B to JVCO is expected to be RMB2,450,000,000 (HK$2,378,640,777).

Party A, Party B and Party C are wholly-owned subsidiaries of SA, the Company and Allgreen Properties Limited (“AG”), respectively. Kerry Holdings Limited (“KHL”) is the controlling shareholder of the Company under the Listing Rules. SA is an associate of KHL under the Listing Rules and is therefore a connected person of the Company. The controlling shareholder of AG, Kuok (Singapore) Limited, owns 100% of a substantial shareholder of a non-wholly owned subsidiary of the Company. Therefore, AG is a connected person of the Company at the subsidiaries’ level. Accordingly, the entering into of the Contracts constitutes connected transactions for the Company under the Listing Rules. The Contracts and the transactions contemplated thereunder were approved by the independent shareholders of the Company at a special general meeting held on 30 August 2006.

(II) On 4 July 2006, the Company announced that the Company had granted proportionate several guarantees (“Guarantees”) on 30 June 2006 in favour of 中糧財務有限責任公司 (COFCO Finance Corporation Limited) (“COFCO Finance”) to guarantee the repayment of 15% of the facilities provided by COFCO Finance to 北京中糧廣場發展有 限公司 (Beijing COFCO Plaza Development Co., Ltd.) (“Beijing COFCO”) under two loan agreements dated 10 September 2003 and 31 January 2005, respectively. The amounts guaranteed by the Company in respect of the two facilities will not exceed RMB27,420,000 (HK$26,621,000) and RMB39,180,000 (HK$38,039,000), respectively.

Beijing COFCO is beneficially owned as to 40% by 中國糧油食品 (集團) 有限公司 (China National Cereals, Oils & Foodstuffs Corporation) (“COFCO CN”) and as to 60% by Top Spring Development (Beijing) Limited (“Top Spring”). Top Spring is beneficially owned as to 75% by COFCO (Hong Kong) Limited (a wholly-owned subsidiary of COFCO CN) and as to 25% by a wholly-owned subsidiary of the Company. Another indirect wholly-owned subsidiary of COFCO CN is a substantial shareholder of a 65% owned subsidiary of the Company. Beijing COFCO is a subsidiary of COFCO CN. Therefore, Beijing COFCO is regarded as a connected person of the Company. Accordingly, the granting of the Guarantees constitutes connected transactions for the Company under the Listing Rules.

ANNUAL REPORT 2006 87 REPORT OF THE DIRECTORS (Continued)

CONNECTED TRANSACTIONS (Continued) (III) On 10 August 2006, the Company and SA jointly announced that they had entered into several guarantees on 9 August 2006 in favour of Bank of China, Beijing Branch (the “Bank”) to guarantee the repayment of the facility provided by the Bank to 北京嘉奧房地產開發有限公司 (Beijing Jia Ao Real Estate Development Co., Ltd.) (“Beijing Jia Ao”) under a loan agreement dated 9 August 2006. The amount guaranteed by the Company is 71.25% of the monies owed by Beijing Jia Ao to the Bank in respect of the facility, being in the sum of up to US$30,637,500 (HK$237,440,625).

Beijing Jia Ao is owned as to 95% by Kerry Beijing (Guang Hua) Ltd (which is in turn owned indirectly as to 75% by the Company and 25% by SA) and 5% by 北京北奧有限公司 (Beijing Bei Ao Inc.). As Beijing Jia Ao is a non wholly- owned subsidiary of the Company where SA (a connected person of the Company as explained in (I) above) is entitled to exercise 23.75% of the voting power at any general meeting of Beijing Jia Ao, Beijing Jia Ao is a connected person of the Company under the Listing Rules. Accordingly, the granting of the guarantee by the Company for the benefit of Beijing Jia Ao constitutes a connected transaction for the Company.

(IV) On 13 September 2006, the Company announced that Whole Grace Limited (“WGL”), an indirect wholly-owned subsidiary of the Company, had entered into a sale and purchase agreement (the “Sale and Purchase Agreement”) with KHL on 8 September 2006 whereby KHL agreed to acquire from WGL 60% of the entire equity interest in Able Time Group Limited (“Able Time”) together with the same proportion of the shareholder’s loans. Following the completion of the Sale and Purchase Agreement, Able Time will be owned by WGL and KHL in the proportions of 40% and 60%, respectively. According to the shareholders’ agreement between WGL and KHL, the maximum commitment of WGL to Able Time and its wholly-owned subsidiary, Ubagan Limited (“Ubagan”) is expected to be HK$1,480,000,000.

The scope of business of Able Time is to invest in Ubagan and the scope of business of Ubagan is solely to acquire the property at Nos. 863-865 King’s Road, Hong Kong (the “Property”) and to undertake the construction and re- development of the Property into a Grade A office development.

WGL is an indirect wholly-owned subsidiary of the Company and KHL is the controlling shareholder of the Company. Under the Listing Rules, KHL is regarded as a connected person of the Company. Accordingly, the entering into of the Sale and Purchase Agreement and the Shareholders’ Agreement constitutes a connected transaction for the Company under the Listing Rules. The Sale and Purchase Agreement and the shareholders’ agreement and the transactions contemplated thereunder were approved by the independent shareholders of the Company at a special general meeting held on 24 October 2006.

88 KERRY PROPERTIES LIMITED CONNECTED TRANSACTIONS (Continued) (V) On 27 September 2006, the Company and SA jointly announced that Instant Vision Holdings Limited (“IVH”), Seanoble Assets Limited (“SAL”) and KHL had entered into a sale and purchase agreement (the “Agreement”) on 26 September 2006 in respect of the formation of a joint venture for acquisition through Expert Vision Holdings Limited (“Expert Vision”) of the property located at No. 508 Queen’s Road West, Hong Kong with a total gross floor area of approximately 125,000 square feet at the acquisition cost of HK$588,380,000.

Pursuant to the Agreement, IVH agreed to transfer (a) 30% of the entire equity interest in Expert Vision to SAL together with the proportionate shareholders’ loans at an aggregate sum of HK$18,262,595.17; and (b) 40% of the entire equity interest in Expert Vision to KHL together with the proportionate shareholders’ loans at an aggregate sum of HK$24,350,126.88. Following the completion of the Agreement, Expert Vision will be owned by IVH, SAL and KHL in the proportions of 30%, 30% and 40%, respectively. According to the shareholders’ agreement between IVH, SAL and KHL, the maximum funding commitment of IVH to Expert Vision and its wholly-owned subsidiary is expected to be HK$201,000,000.

IVH is an indirect wholly-owned subsidiary of the Company and SAL is a direct wholly-owned subsidiary of SA. KHL is the controlling shareholder of each of the Company and SA. Under the Listing Rules, SAL and KHL are regarded as connected persons of the Company. Accordingly, the entering into of the Agreement and the shareholders’ agreement constitutes connected transactions for the Company under the Listing Rules.

(VI) On 30 January 2007, the Company announced that Wing Tak Cheung Limited (the “Vendor”) (through its agent, Kerry Real Estate Agency Limited) had entered into two memoranda for sale, both dated 29 January 2007, with Ace Rate Investments Limited (“ARIL”) and Jumbo Hub Limited (“JHL”) (collectively, the “Purchasers”) pursuant to which the Vendor agreed to sell and the Purchasers agreed to purchase the following property units (the “Property Units”) at the development known as “15 Homantin Hill”:

(1) ARIL would purchase Property Unit 39A together with Car-parking Space no. 15 on Car-park Level 2 at the consideration of HK$45,416,000; and

(2) JHL would purchase Property Unit 39B together with Car-parking Space no. 16 on Car-park Level 2 at the consideration of HK$36,338,000.

The Vendor is an indirect wholly-owned subsidiary of the Company and the Purchasers are indirect 79.17%-owned subsidiaries of KHL. KHL is the controlling shareholder of the Company. Under the Listing Rules, the Purchasers are regarded as connected persons of the Company. Accordingly, the sales of the Property Units by the Vendor to the Purchasers constituted connected transactions for the Company under the Listing Rules.

Note: In this section, for illustrative purposes and in accordance with the relevant circulars previously issued by the Company in relation to the relevant transactions, amounts denominated in RMB have been converted into HK$ at the rate of RMB1.03=HK$1.00 and US$1.00=HK$7.75.

ANNUAL REPORT 2006 89 REPORT OF THE DIRECTORS (Continued)

CONTINUING CONNECTED TRANSACTIONS As set out in the previous annual reports of the Company and an announcement dated 30 May 2006, Shangri-La International Hotel Management Limited (“SLIM”), being an indirect wholly-owned subsidiary of SA, and its fellow subsidiaries (wholly-owned subsidiaries of the SA group (the “SA Group”)) are currently providing hotel management, marketing, communication and reservation services (the “Hotel Management Services”) to The Kerry Centre Hotel in Beijing, PRC pursuant to the hotel management, marketing and related agreements (the “Hotel Management Agreements”) entered into between Beijing Kerry Centre Hotel Co., Ltd. (“BKCH”) and SLIM on 30 June 1998 (as modified by an addendum dated 26 January 2004). The Hotel Management Agreements were entered for 20 years ending on 27 August 2019, with an option to renew for 10 years which is exercisable by mutual agreement of both parties.

BKCH is the owner of The Kerry Centre Hotel, Beijing. BKCH is owned as to 95% by Kerry Beijing (Guang Hua) Ltd. (“KBGH”) and 5% by an independent third party. KBGH is owned as to 75% by the Group and 25% by the SA Group. SLIM is indirectly wholly-owned by SA. SA is an associate of KHL (which is a substantial shareholder of the Company) and is therefore a connected person of the Company. Accordingly, the provision of the Hotel Management Services by SLIM to BKCH is treated as continuing connected transactions of the Company under the Listing Rules.

During the remaining tenure of the Hotel Management Agreements, the annual aggregate fees payable by the Group pursuant to the Hotel Management Agreements for each of the financial years of the Company ending 31 December 2019 are not expected to exceed HK$75,000,000 (the “Cap”). The fees paid by the Group under the Hotel Management Agreements for the year ended 31 December 2006 amount to HK$20,702,000, which is within the Cap.

The continuing connected transactions mentioned above have been reviewed by the Independent Non-Executive Directors of the Company who have confirmed that the transactions have been entered into:

1. in the ordinary and usual course of business of the Company;

2. either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to or from (as appropriate) independent third parties; and

3. in accordance with the relevant agreements governing the transactions on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.

The auditor of the Company has provided a letter to the Company’s board of directors confirming that the continuing connected transactions:

1. have received the approval of the Company’s board of directors;

2. have been conducted on terms in accordance with the terms of the relevant agreements governing the transactions; and

3. have not exceeded the relevant annual cap as disclosed in the relevant press announcement.

90 KERRY PROPERTIES LIMITED CONTINUING DISCLOSURE REQUIREMENTS UNDER RULE 13.22 OF THE LISTING RULES Financial Assistance and Guarantees to Affiliated Companies As at 31 December 2006, the financial assistance given to, and guarantees given for facilities granted to, affiliated companies (as defined in the Listing Rules) together in aggregate continue to exceed 8% under the assets ratio test as defined under the Listing Rules. In accordance with Rule 13.22 of the Listing Rules, the combined balance sheet of and the Group’s attributable interest in these affiliated companies as at the latest practicable dates (being the dates to which the latest accounts of these affiliated companies were prepared) are set out as follows:

The Group’s Combined attributable interest HK$ million HK$ million

Non-current assets 29,222 9,168

Current assets 2,729 907

Current liabilities (2,874) (836)

Net current (liabilities)/assets (145) 71

Total assets less current liabilities 29,077 9,239

Non-current liabilities (22,047) (7,120)

Net assets 7,030 2,119

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities during the year.

AUDITOR The financial statements have been audited by PricewaterhouseCoopers who retires and, being eligible, offers itself for re-appointment.

On behalf of the Board Ang Keng Lam Chairman Hong Kong, 22 March 2007

ANNUAL REPORT 2006 91 AUDITOR’S REPORT

羅兵咸永道會計師事務所 PricewaterhouseCoopers 22nd Floor, Prince’s Building Central, Hong Kong Telephone: (852) 2289 8888 Facsimile: (852) 2810 9888 AUDITOR’S REPORT TO THE SHAREHOLDERS OF KERRY PROPERTIES LIMITED (incorporated in Bermuda with limited liability)

We have audited the financial statements of Kerry Properties Limited (the “Company”) set out on pages 94 to 171 which comprise the consolidated and company balance sheets as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

RESPONSIBILITY OF THE AUDITOR Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgment of the auditor, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

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

92 KERRY PROPERTIES LIMITED OPINION In our opinion, the financial statements give a true and fair view of the state of affairs of the Group and the Company as at 31 December 2006 and of the profit and cash flows of the Group for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 22 March 2007

ANNUAL REPORT 2006 93 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2006

2006 2005 Note HK$’000 HK$’000

Turnover 5 10,193,117 8,008,824

Cost of sales (1,716,054) (555,226)

Direct operating expenses (5,685,063) (5,180,624)

Gross profit 2,792,000 2,272,974

Other income 144,983 158,428

Administrative expenses (647,020) (525,720)

2,289,963 1,905,682

Change in fair value of investment properties 2,318,701 1,546,669

Revaluation deficit on buildings – (4,499)

Dividend income from an available-for-sale investment 1,357,884 –

Impairment loss on available-for-sale investments (197,941) –

Profit arising from the disposal of property interest held by an available-for-sale investment 1,159,943 –

Operating profit before finance costs 6 5,768,607 3,447,852

Finance costs 7 (380,663) (201,679)

Operating profit 5,387,944 3,246,173

Share of results of associated companies 450,917 510,105

Profit before taxation 5,838,861 3,756,278

Taxation 8 (889,531) (494,199)

Profit for the year 4,949,330 3,262,079

Profit attributable to:

Company’s shareholders 4,688,950 3,066,863

Minority interests 260,380 195,216

4,949,330 3,262,079

Dividends 10 1,053,462 851,753

Earnings per share

– Basic 11 HK$3.83 HK$2.53

– Diluted 11 HK$3.60 HK$2.43

94 KERRY PROPERTIES LIMITED CONSOLIDATED BALANCE SHEET As at 31 December 2006

2006 2005 Note HK$’000 HK$’000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 13 2,441,200 2,127,365 Investment properties 14 21,642,166 20,510,591 Leasehold land and land use rights 15 338,409 325,326 Properties under development 16 12,400,243 7,855,171 Associated companies 18 5,992,070 6,331,909 Derivative financial instruments 19 2,687 11,663 Available-for-sale investments 20 1,388,508 1,431,639 Long-term receivables 21 63,588 102,503 Goodwill 22 266,645 244,061 44,535,516 38,940,228 Current assets Stock of completed properties held for sale 23 1,188,101 248,557 Properties under development for sale – 608,878 Accounts receivable, prepayments and deposits 21 3,598,205 2,796,880 Tax recoverable 125,707 33,840 Tax reserve certificates 21,790 12,188 Listed securities at fair value through profit or loss 24 198,318 25,868 Pledged bank deposits 25, 40 47,263 32,514 Cash and bank balances 25 2,691,358 2,531,746 7,870,742 6,290,471 Current liabilities Accounts payable, deposits received and accrued charges 26 2,557,769 2,502,615 Taxation 302,397 109,860 Short-term bank loans and current portion of long-term bank loans 27 803,428 1,016,983 Unsecured bank overdrafts 25 6,690 318 3,670,284 3,629,776 Net current assets 4,200,458 2,660,695 Total assets less current liabilities 48,735,974 41,600,923

Non-current liabilities Long-term bank loans 27 6,351,145 8,317,403 Convertible bonds 28 2,536,256 2,413,095 Fixed rate bonds 29 3,243,330 – Amounts due to minority shareholders 30 2,336,341 1,835,789 Derivative financial instruments 19 107,005 39,678 Deferred taxation 31 2,704,817 2,097,083 17,278,894 14,703,048 ASSETS LESS LIABILITIES 31,457,080 26,897,875

EQUITY Capital and reserves attributable to the Company’s shareholders Share capital 32 1,238,289 1,216,579 Share premium 34 4,315,270 3,918,838 Other reserves 35 9,548,836 9,699,847 Retained profits 13,417,641 9,777,277 Proposed final dividend 10 804,888 608,289 29,324,924 25,220,830 Minority interests 2,132,156 1,677,045 TOTAL EQUITY 31,457,080 26,897,875

On behalf of the Board

Ang Keng Lam Wong Siu Kong Director Director

ANNUAL REPORT 2006 95 BALANCE SHEET As at 31 December 2006

2006 2005 Note HK$’000 HK$’000

ASSETS AND LIABILITIES Non-current assets

Property, plant and equipment 13 2,207 2,267 Subsidiaries 17 27,479,950 31,263,289 Derivative financial instruments 19 2,687 11,663 27,484,844 31,277,219

Current assets

Dividends receivable 1,000,000 700,000 Accounts receivable, prepayments and deposits 16,582 7,627 Tax recoverable 183 – Cash and bank balances 25 232,871 8,266 1,249,636 715,893

Current liabilities Accounts payable and accrued charges 73,692 53,249 Short-term bank loans and current portion of long-term bank loans 27 150,000 450,000 223,692 503,249

Net current assets 1,025,944 212,644

Total assets less current liabilities 28,510,788 31,489,863 Non-current liabilities Long-term bank loans 27 3,750,000 7,380,000 Derivative financial instruments 19 107,005 39,678

3,857,005 7,419,678

ASSETS LESS LIABILITIES 24,653,783 24,070,185

EQUITY Capital and reserves attributable to the Company’s shareholders

Share capital 32 1,238,289 1,216,579 Share premium 34 4,315,270 3,918,838 Other reserves 35 17,981,985 17,973,304 Retained profits 313,351 353,175 Proposed final dividend 10 804,888 608,289

TOTAL EQUITY 24,653,783 24,070,185

On behalf of the Board

Ang Keng Lam Wong Siu Kong Director Director

96 KERRY PROPERTIES LIMITED CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2006

2006 2005 Note HK$’000 HK$’000

Operating activities

Net cash generated from operations 36(a) 146,725 712,532 Interest paid (430,504) (267,193) Hong Kong profits tax paid (75,783) (112,249) PRC and overseas income tax paid (157,275) (127,778) Net cash (used in)/generated from operating activities (516,837) 205,312

Investing activities

Additions of property, plant and equipment (203,964) (119,605) Additions of investment properties (68,906) (14,421) Additions of properties under development (2,646,086) (4,249,585) Purchase of leasehold land and land use rights – (1,583) Purchase of subsidiaries 36(c) (1,014,201) (182,770) Purchase of additional interest in subsidiaries (5,198) (89,403) Disposal of subsidiaries 36(d) 8,825 – Additional investments in associated companies (526,797) – Repayment of loans from/(additional loans to) associated companies 1,146,873 (1,518,485) Decrease in available-for-sale investments – 2,951 Decrease in long-term receivables 40,487 78,086 Interest received 76,768 101,758 Dividends received from associated companies 282,586 283,321 Dividends received from listed and unlisted investments 590,831 13,936 Repayment of loans from/(additional loans to) investee companies 1,086 (93) Proceeds from sale of property, plant and equipment 45,946 15,187 Proceeds from sale of investment properties 2,143,370 464,502 Proceeds from sale of listed investments 23,655 – Net cash used in investing activities (104,725) (5,216,204)

Net cash outflows before financing (621,562) (5,010,892) Financing activities

Proceeds from issue of shares 184,624 43,272 Proceeds from issue of convertible bonds, net of direct issue costs – 2,469,895 Proceeds from issue of fixed rate bonds, net of direct issue costs 3,239,800 – Repayment of bank loans (13,869,402) (682,826) Drawdown of bank loans 11,651,494 3,869,306 Dividends paid (631,966) (704,102) Capital injection from minority shareholders 196,844 320,684 Dividends paid to minority shareholders in subsidiaries (70,675) (20,409) Increase in loans from minority shareholders 88,832 45,257 Net cash generated from financing 789,551 5,341,077

Increase in cash and cash equivalents 167,989 330,185 Cash and cash equivalents at 1 January 2,563,942 2,233,757

Cash and cash equivalents at 31 December 25 2,731,931 2,563,942

ANNUAL REPORT 2006 97 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2006

Attributable to shareholders of the Company Share Share Other Retained Proposed Minority Total capital premium reserves profits dividend Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Balance as at 1 January 2005 1,211,116 3,857,220 9,228,041 7,562,989 484,447 22,343,813 945,120 23,288,933 Fair value gain on leasehold buildings, port facilities and freehold land and buildings ––108,741 ––108,741 – 108,741 Deferred tax charged to revaluation reserves ––(46,452) ––(46,452) – (46,452) Fair value gain on available-for-sale investments ––207,337 ––207,337 – 207,337 Fair value gain on derivative financial instruments ––13,189 ––13,189 – 13,189 Exchange differences arising on translation of the financial statements of the PRC and overseas subsidiaries and associated companies ––16,041 ––16,041 – 16,041

Net income recognised directly in equity ––298,856 ––298,856 – 298,856 Profit for the year –––3,066,863 – 3,066,863 195,216 3,262,079

Total recognised income and expense for the year ended 31 December 2005 ––298,856 3,066,863 – 3,365,719 195,216 3,560,935

Issue of share capital 5,463 61,618 –––67,081 – 67,081 Issue of convertible bonds ––143,501 ––143,501 – 143,501 Issue of share options ––28,627 ––28,627 – 28,627 Dividends paid –––(243,464) (484,447) (727,911) (83,404) (811,315) 2005 proposed final dividend –––(608,289) 608,289 ––– Transfer ––822 (822) –––– Share of deferred tax ––––––(14,520) (14,520) Share of revaluation reserves ––––––38,412 38,412 Purchase of subsidiaries ––––––328,202 328,202 Purchase of additional interest in subsidiaries ––––––(67,217) (67,217) Capital injection from minority shareholders ––––––320,684 320,684 Exchange adjustments ––––––14,552 14,552

5,463 61,618 172,950 (852,575) 123,842 (488,702) 536,709 48,007

Balance as at 31 December 2005 1,216,579 3,918,838 9,699,847 9,777,277 608,289 25,220,830 1,677,045 26,897,875

98 KERRY PROPERTIES LIMITED Attributable to shareholders of the Company Share Share Other Retained Proposed Minority Total capital premium reserves profits dividend Total interests equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Balance as at 1 January 2006 1,216,579 3,918,838 9,699,847 9,777,277 608,289 25,220,830 1,677,045 26,897,875 Fair value gain on leasehold buildings, port facilities and freehold land and buildings ––115,001 ––115,001 – 115,001 Deferred tax charged to revaluation reserves ––(32,324) ––(32,324) – (32,324) Realisation on available-for-sale investments ––(568,347) ––(568,347) – (568,347) Fair value gain on available-for-sale investments ––93,044 ––93,044 – 93,044 Fair value loss on derivative financial instruments ––(1,290) ––(1,290) – (1,290) Exchange differences arising on translation of the financial statements of the PRC and overseas subsidiaries and associated companies ––239,100 ––239,100 – 239,100

Net expense recognised directly in equity ––(154,816) ––(154,816) – (154,816) Profit for the year –––4,688,950 – 4,688,950 260,380 4,949,330

Total recognised income and expense for the year ended 31 December 2006 ––(154,816) 4,688,950 – 4,534,134 260,380 4,794,514

Issue of share capital 21,710 387,811 –––409,521 – 409,521 Issue of share options ––17,302 ––17,302 – 17,302 Dividends paid –––(248,574) (608,289) (856,863) (70,675) (927,538) 2006 proposed final dividend –––(804,888) 804,888 ––– Transfer – 8,621 (13,497) 4,876 –––– Share of deferred tax ––––––(9,830) (9,830) Share of revaluation reserves ––––––34,909 34,909 Purchase of subsidiaries ––––––1,530 1,530 Purchase of additional interest in a subsidiary ––––––(3,210) (3,210) Capital injection from minority shareholders ––––––196,844 196,844 Exchange adjustments ––––––45,163 45,163

21,710 396,432 3,805 (1,048,586) 196,599 (430,040) 194,731 (235,309)

Balance as at 31 December 2006 1,238,289 4,315,270 9,548,836 13,417,641 804,888 29,324,924 2,132,156 31,457,080

ANNUAL REPORT 2006 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION The Company is a limited liability company incorporated in Bermuda. The address of its registered office is Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.

The Company has its primary listing on The Stock Exchange of Hong Kong Limited.

The principal activities of the Company’s subsidiaries and associated companies comprise the following:

(i) property development, investment and management in Hong Kong, the PRC and the Asia Pacific region;

(ii) logistics, freight and warehouse ownership and operations;

(iii) infrastructure-related investments in Hong Kong and the PRC; and

(iv) hotel ownership in Hong Kong, and hotel ownership and operations in the PRC.

These consolidated financial statements have been approved for issue by the Board of Directors on 22 March 2007.

2 PRINCIPAL ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation The consolidated financial statements of Kerry Properties Limited have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) under the historical cost convention, as modified by the revaluation of certain buildings, port facilities, freehold land, available-for-sale investments, financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss and investment properties, which are carried at fair value.

The preparation of financial statements in accordance with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies of the Group. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4.

In 2006, the Group has applied the new standards, amendments and interpretations issued by the HKICPA that are effective for the accounting periods beginning on or after 1 January 2006. However, the adoption of these new standards does not have any significant effect on the results and financial position of the Group.

100 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (a) Basis of preparation (Continued) The following standards and interpretations to existing standards have been published that are mandatory for the accounting periods of the Group beginning on or after 1 January 2007 (unless otherwise stated) that the Group has not early adopted:

– Amendment to HKAS 1 ‘Presentation of Financial Statements – Capital Disclosures’; – HKFRS 7 ‘Financial Instruments: Disclosures’; – HKFRS 8 ‘Operating Segments’ (effective from 1 January 2009); – HK(IFRIC) – Int 8 ‘Scope of HKFRS 2’; – HK(IFRIC) – Int 9 ‘Reassessment of Embedded Derivatives’; and – HK(IFRIC) – Int 10 ‘Interim Financial Reporting and Impairment’.

The Group has already commenced an assessment of the impact of these new standards and interpretations but is not yet in a position to state whether they would have a significant impact on its results of operations and financial position.

(b) Consolidation The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to 31 December.

(i) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another equity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (see note 2(i)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

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.

ANNUAL REPORT 2006 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (b) Consolidation (Continued) (ii) Transactions with minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the consolidated income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

(iii) Associated companies Associated companies are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated companies are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associated companies includes goodwill (net of any accumulated impairment loss) identified on acquisition (see note 2(i)).

The Group’s share of its associated companies post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associated company.

Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group.

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) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

(d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

102 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (d) Foreign currency translation (Continued) (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Changes in the fair value of monetary securities denominated in foreign currency classified as available-for- sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences are recognised in the income statement, and other changes in carrying amount are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in the income statement as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the fair value reserve in equity.

(iii) Group Companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

– assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

– income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

– all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is disposed of or sold, exchange differences that were recorded in equity are recognised in the consolidated income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

ANNUAL REPORT 2006 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (e) Property, plant and equipment Properties comprise mainly hotel properties, warehouses and logistics centres, staff quarters, freehold land and buildings and port facilities. Properties, except for staff quarters, are shown at fair value, based on periodic, but at least annual, valuations by external independent valuers, less subsequent depreciation. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Staff quarters are stated at cost less aggregate depreciation and accumulated impairment losses. Cost represents the purchase price of the staff quarters and other costs incurred to bring them into existing use. All other property, plant and equipment are stated at historical cost less aggregate depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of properties are credited to other reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against other reserves directly in equity; all other decreases are expensed in the income statement.

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate cost or revalued amounts less their residual values over their estimated useful lives. The principal annual rates used for this purpose are:

Properties other than freehold land and port facilities Over their expected remaining useful lives ranging from 7 to 48 years Port facilities 2.5% Leasehold improvements 7% to 33% Warehouse operating equipment 7% to 33% Motor vehicles, furniture, fixtures and office equipment 5% to 33%

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

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see note 2(j)).

The gain or loss on disposal of properties is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the income statement. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained profits and is shown as a movement in reserves.

The gain or loss on disposal of all other property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognised in the income statement.

104 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (f) Investment properties Property that is held for long term rental yields or for capital appreciation or both, and that is not occupied by the companies in the Group, is classified as investment property.

Investment property comprises land held under operating leases and buildings held under finance leases.

Land held under operating leases are classified and accounted for as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are reviewed annually by external valuers. Investment property that is being redeveloped for continuing use as investment property, or for which the market has become less active continues to be measured at fair value.

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions.

The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are recognised as a liability, including finance lease liabilities in respect of land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed in the income statement during the financial period in which they are incurred.

Changes in fair values are recognised in the income statement.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as property under development and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.

If an item of property, plant and equipment becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of transfer is recognised in equity as a revaluation of property, plant and equipment under HKAS 16. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the income statement.

ANNUAL REPORT 2006 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (g) Properties under development Properties under development are investments in freehold land, leasehold land and buildings on which construction work and development have not been completed. Properties under development comprise prepayments for leasehold land and land use rights that are measured at amortised cost less accumulated impairment losses, and a component in respect of the building that is stated at cost less accumulated impairment losses. Cost comprises construction costs and amounts capitalised in respect of amortisation of leasehold land prepayments and borrowing costs incurred in the acquisition of qualifying assets during the construction period and up to the date of completion of construction. On completion, the properties are reclassified to investment properties, property, plant and equipment or completed properties held for sale at the then carrying amount. The prepayments for leasehold land and land use rights in relation to the property, plant and equipment are reclassified to leasehold land and land use rights and are accounted for as operating leases. Any difference between the fair value of the investment property and its carrying amount at the date of reclassification is recognised in the income statement. Properties under development for sale represent properties under development which are due to be completed within one year and are intended for sale.

(h) Completed properties held for sale Completed properties held for sale are initially measured at the carrying amount of the property at the date of reclassification from properties under development. Subsequently, the prepaid leasehold land component is measured at amortised cost less accumulated impairment losses; the building component is carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less selling expenses.

(i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or associated company at the date of acquisition. Goodwill on acquisitions of subsidiaries is recognised separately as a non-current asset. Goodwill on acquisitions of associated companies is included in investments in associated companies and is tested annually for impairment as part of the overall balance. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in each country in which it operates.

(j) Impairment of non-financial assets Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

106 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (k) Investments The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets.

(ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as long term receivables and accounts receivable in the balance sheet.

(iii) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available- for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.

Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within other income or expenses, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available- for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in the income statement; translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.

ANNUAL REPORT 2006 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (k) Investments (Continued) Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group established fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of long-term receivables and accounts receivable is described in note 2(l).

(l) Long-term receivables and accounts receivable Long-term receivables and accounts receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within administrative expenses. When a receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income statement.

(m) Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); (2) hedges of a particular risk associated with a recognised asset or liability or highly probable forecast transactions (cash flow hedges); or (3) hedges of net investments in foreign operations.

108 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Derivative financial instruments and hedging activities (Continued) The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments are disclosed in note 19. Movements on the hedging reserve in shareholders’ equity are shown in note 35. The full fair value of a hedging derivative is classified as a non- current asset or liability when the remaining maturity of the hedge item is more than 12 months. Trading derivatives are classified as a current asset or liability.

(i) Fair value hedge Changes in fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the income statement over the period to maturity.

(ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within finance costs.

When a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

ANNUAL REPORT 2006 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Derivative financial instruments and hedging activities (Continued) (iii) Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of or sold.

(iv) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value of these derivatives instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

(n) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown as a separate current liability in the balance sheet.

(o) Accounts payable Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(p) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bond. The remainder of the proceeds is allocated to the conversion option. This is recognised in shareholders’ equity.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(q) Deferred income tax Deferred income tax is provided for in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

110 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (q) Deferred income tax (Continued) Deferred income 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 income tax is provided on temporary difference arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(r) Employee benefits (i) Retirement benefit cost The Group operates defined contribution plans and pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due.

(ii) Share-based compensation The Group has granted options under two share option schemes. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(iii) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

(iv) Bonus plans The Group recognises a liability and an expense for bonuses when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of such obligation can be made.

ANNUAL REPORT 2006 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2 PRINCIPAL ACCOUNTING POLICIES (Continued) (s) 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 the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

(t) Financial guarantees A financial guarantee (a kind of insurance contract) is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument. The Group does not recognise liabilities for financial guarantees at inception, but perform a liability adequacy test at each reporting date by comparing its carrying amount of the net liability regarding the financial guarantee with its present legal or constructive obligation amount. If the carrying amount of the net liability is less than its present legal or constructive obligation amount, the entire difference is recognised in the income statement immediately.

(u) Revenue and profit recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(i) Revenue from sales of properties is recognised upon execution of binding sales agreement or completion of development, whichever is the later.

(ii) Rental revenue and other revenues incidental to the letting of properties are recognised on a straight-line basis over the periods of the respective leases.

(iii) Revenue from provision of logistics services, including freight forwarding services, is recognised when services are rendered.

(iv) Revenue from general storage and other ancillary services is recognised when the services are rendered. Revenue from leased storage is recognised on a straight-line basis over the periods of the respective leases.

112 KERRY PROPERTIES LIMITED 2 PRINCIPAL ACCOUNTING POLICIES (Continued) (u) Revenue and profit recognition (Continued) (v) Income on development consultancy and project management is recognised on a pro-rata basis according to the progress of the projects.

(vi) Income from property management is recognised when services are rendered.

(vii) Hotel revenue from rooms rental, food and beverage sales and other ancillary services is recognised when the services are rendered.

(viii) Dividend income is recognised when the right to receive payment is established.

(ix) Interest income is recognised on a time proportion basis, using the effective interest method.

(v) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The up-front prepayments made for leasehold land and land use rights are amortised on a straight-line basis over the period of the lease except where the property is classified as an investment property or where there is impairment, the impairment is expensed in the income statement. The amortisation of leasehold land and land use rights is capitalised as part of the costs of the property when the leasehold land is under development.

(w) Borrowing costs Borrowing costs are accounted for on the accrual basis and charged to the income statement in the year in which they are incurred, except for costs related to funding of the construction and acquisition of properties under development which are capitalised as part of the cost of that asset during the construction period and up to the date of completion of construction.

(x) Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are declared by the Directors in the case of interim dividends or approved by the Company’s shareholders in the case of final dividends.

(y) 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 resource 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 financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it 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.

Contingent assets are not recognised but are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

ANNUAL REPORT 2006 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3 FINANCIAL RISK MANAGEMENT (a) Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest-rate risk, price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to manage certain risk exposures.

Risk management is carried out by the Group’s management under the supervision of the Finance Committee. The Group’s management identifies, evaluates and manages significant financial risks in the Group’s individual operating units. The Board provides guidance for overall risk management.

(i) Market risk

(I) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the Group entities’ functional currency. The Group has entered into cross currency swap contracts to manage its exposure to foreign exchange risk from recognised liabilities. Nevertheless, the cross currency swaps were not accounted for as hedging instruments as the conditions for hedging accounting were not met during the year.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations in the other countries is managed primarily through borrowings denominated in the relevant foreign currencies.

(II) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk.

The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly monthly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Nevertheless, the interest rate swaps were not accounted for as hedging instruments as the conditions for hedge accounting were not met during the year.

(III) Price risk The Group is exposed to equity securities price risk because investments held by the Group are classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or loss. The Group is not exposed to commodity price risk.

114 KERRY PROPERTIES LIMITED 3 FINANCIAL RISK MANAGEMENT (Continued) (a) Financial risk factors (Continued) (ii) Credit risk The carrying amounts of bank balances and cash, accounts receivable and long-term receivables represent the Group’s exposure to credit risk in relation to financial assets.

There is no concentration of credit risk with respect to accounts receivable from third party customers as the Group has a large number of customers which are internationally dispersed. The Group limits its exposure to credit risk through performing credit reviews and monitoring the financial strength of its major customers and generally does not require collateral on trade receivables.

(iii) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims to maintain flexibility in funding by keeping committed credit lines available.

(b) Fair value estimation The fair value of financial instruments traded in active markets (such as listed securities at fair value through profit or loss and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

The carrying values less impairment provision of accounts receivable and payable are a reasonable approximation of their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

ANNUAL REPORT 2006 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2(i). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

Useful lives of property, plant & equipment The Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of the property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovation. Management will change the depreciation charge where useful lives are different from the previously estimated lives. It will also write-off or write down technically obsolete or non-strategic assets that have been abandoned or sold.

Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Estimate of fair value of investment properties The valuation of investment properties is performed in accordance with the ‘Valuation Standards on Valuation of Properties’ published by the Hong Kong Institute of Surveyors and the ‘International Valuation Standards’ published by the International Valuation Standards Committee. The valuation is reviewed annually by qualified valuers by considering the information from a variety of sources including:

(i) current prices in an active market for properties of different nature, condition or location, adjusted to reflect those differences;

(ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

(iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

116 KERRY PROPERTIES LIMITED 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (Continued) Estimate of fair value of investment properties (Continued) If information on current or recent prices of investment properties is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date.

The principal assumptions underlying management’s estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data, and actual transactions by the Group and those reported by the market.

The expected future market rentals are determined on the basis of current market rentals for similar properties in the same location and condition.

Fair value of derivatives and other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date.

(b) Critical judgements in applying the entity’s accounting policies Distinction between investment properties and owner-occupied properties The Group determines whether a property qualifies as investment property. In making its judgement, the Group considers whether the property generates cash flows largely independently of the other assets. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions can be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making its judgement.

Impairment of available-for-sale financial assets The Group follows the guidance of HKAS 39 to determine when an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

ANNUAL REPORT 2006 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5 PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (a) The principal activities of the Group are disclosed in note 1. Revenues recognised during the year are as follows:

2006 2005 HK$’000 HK$’000 Turnover

Proceeds from sale of properties – completed properties – PRC 13,980 112,863 – Hong Kong 503,734 635,080 517,714 747,943 – investment properties – PRC 59,172 36,582 – Hong Kong 2,284,156 427,920 2,343,328 464,502 2,861,042 1,212,445 Rental income 962,801 893,434 Hotel revenue 354,915 320,615 Storage and services income – warehouse 427,772 399,435 – logistics 5,543,018 5,141,772 5,970,790 5,541,207 Project, property management and others 43,569 41,123 10,193,117 8,008,824

(b) An analysis of the Group’s turnover and contribution to operating profit for the year by principal activities and markets is as follows:

Turnover Operating profit 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 Principal activities: Property rental – PRC 578,195 541,412 403,004 428,227 – Hong Kong 384,606 352,022 85,622 134,995 962,801 893,434 488,626 563,222 Property sales – PRC 73,152 149,445 2,589 37,090 – Hong Kong 2,442,890 1,063,000 1,913,998 516,393 – Warehouses 345,000 – 179,451 – 2,861,042 1,212,445 2,096,038 553,483

Hotel operations 354,915 320,615 124,906 111,023

Logistics and warehouse operations – warehouse 427,772 399,435 208,348 200,249 – logistics 5,543,018 5,141,772 195,317 201,565 5,970,790 5,541,207 403,665 401,814

Infrastructure – – (10,775) (4,159)

Project, property management and others 43,569 41,123 (33,217) 78,620 10,193,117 8,008,824 3,069,243 1,704,003 Change in fair value of investment properties – – 2,318,701 1,546,669

Revaluation deficit on buildings – – – (4,499) 10,193,117 8,008,824 5,387,944 3,246,173 Principal markets: PRC 4,033,860 3,958,804 1,660,521 813,883 Hong Kong 4,708,333 2,780,724 3,685,689 2,368,465 United Kingdom 808,668 691,981 36,879 20,102 Others 642,256 577,315 4,855 43,723 10,193,117 8,008,824 5,387,944 3,246,173

118 KERRY PROPERTIES LIMITED 5 PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (Continued) (c) Primary reporting format – business segments

2006 PRC Hong Kong Overseas Logistics and Property Property Property Warehouse Infrastructure Others Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Turnover 1,006,262 2,827,496 – 6,315,790 – 43,569 – 10,193,117 Inter-segment revenue 434 ––––53,056 (53,490) – Inter-segment interest income –––––553,115 (553,115) – 1,006,696 2,827,496 – 6,315,790 – 649,740 (606,605) 10,193,117 Results Segment results before change in fair value of properties 567,337 1,037,060 (7,660) 635,838 (10,411) 529,490 (553,115) 2,198,539 Change in fair value of properties 1,013,654 710,555 – 594,492 –––2,318,701 Segment results 1,580,991 1,747,615 (7,660) 1,230,330 (10,411) 529,490 (553,115) 4,517,240 Dividend income – 1,364,736 8,301 ––31 – 1,373,068 Interest income 10,092 20,416 1 13,409 7,039 25,283 – 76,240 Interest expenses (46,930) (224,651) – (66,131) (7,403) (588,663) 553,115 (380,663) Impairment loss on available-for-sale investments – (197,941) –––––(197,941) Operating profit/(loss) 1,544,153 2,710,175 642 1,177,608 (10,775) (33,859) – 5,387,944 Share of results of associated companies 36,980 114,912 35,585 223,134 40,306 ––450,917 Profit before taxation 1,581,133 2,825,087 36,227 1,400,742 29,531 (33,859) – 5,838,861 Taxation (560,784) (142,439) – (185,726) – (582) – (889,531) Profit for the year 1,020,349 2,682,648 36,227 1,215,016 29,531 (34,441) – 4,949,330 Profit attributable to: Company’s shareholders 807,153 2,675,562 36,227 1,173,036 31,420 (34,448) – 4,688,950 Minority interests 213,196 7,086 – 41,980 (1,889) 7 – 260,380 1,020,349 2,682,648 36,227 1,215,016 29,531 (34,441) – 4,949,330

2005 PRC Hong Kong Overseas Logistics and Property Property Property Warehouse Infrastructure Others Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Turnover 1,011,472 1,415,022 – 5,541,207 – 41,123 – 8,008,824 Inter-segment revenue 450 ––––32,504 (32,954) – Inter-segment interest income –––––285,758 (285,758) – 1,011,922 1,415,022 – 5,541,207 – 359,385 (318,712) 8,008,824 Results Segment results before change in fair value of properties 594,251 773,359 (3,627) 459,002 (3,998) 256,881 (285,758) 1,790,110 Change in fair value of properties 161,885 716,293 – 663,992 –––1,542,170 Segment results 756,136 1,489,652 (3,627) 1,122,994 (3,998) 256,881 (285,758) 3,332,280 Dividend income – 6,922 7,014 ––––13,936 Interest income 23,347 17,230 28 4,644 5,607 50,780 – 101,636 Interest expenses (41,258) (146,123) – (61,832) (5,768) (232,456) 285,758 (201,679) Operating profit/(loss) 738,225 1,367,681 3,415 1,065,806 (4,159) 75,205 – 3,246,173 Share of results of associated companies 10,942 176,839 64,676 215,336 42,312 ––510,105 Profit before taxation 749,167 1,544,520 68,091 1,281,142 38,153 75,205 – 3,756,278 Taxation (227,258) (102,898) – (162,864) – (1,179) – (494,199) Profit for the year 521,909 1,441,622 68,091 1,118,278 38,153 74,026 – 3,262,079 Profit attributable to: Company’s shareholders 372,020 1,429,102 68,091 1,085,152 38,473 74,025 – 3,066,863 Minority interests 149,889 12,520 – 33,126 (320) 1 – 195,216 521,909 1,441,622 68,091 1,118,278 38,153 74,026 – 3,262,079 ANNUAL REPORT 2006 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5 PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (Continued) (c) Primary reporting format – business segments (Continued)

2006 PRC Hong Kong Overseas Logistics and Property Property Property Warehouse Infrastructure Others Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment assets 15,531,371 20,233,133 571 8,469,718 445,672 20,379,587 (20,443,775) 44,616,277 Associated companies 792,212 2,951,952 954,694 716,355 576,857 ––5,992,070 Available-for-sale investments 470 631,186 749,513 7,339 –––1,388,508 Long-term receivables – 63,588 –––––63,588 Tax recoverable 87,930 ––3,398 – 34,379 – 125,707 Tax reserve certificates –––––21,790 – 21,790 Listed securities at fair value through profit or loss – 198,168 150 ––––198,318 Total assets 16,411,983 24,078,027 1,704,928 9,196,810 1,022,529 20,435,756 (20,443,775) 52,406,258

Segment liabilities 5,060,804 15,387,704 30,564 4,201,458 520,831 10,848,037 (20,443,775) 15,605,623 Taxation and deferred taxation 1,876,057 675,058 6,397 443,012 – 6,690 – 3,007,214 Amounts due to minority shareholders 1,198,202 1,014,624 – 117,886 4,702 927 – 2,336,341 Total liabilities 8,135,063 17,077,386 36,961 4,762,356 525,533 10,855,654 (20,443,775) 20,949,178

Capital expenditure 2,488,984 1,136,609 – 399,117 – 960 – 4,025,670 Impairment loss on available-for-sale investments – 197,941 –––––197,941 Depreciation and amortisation 29,161 923 – 127,947 – 3,006 – 161,037

2005 PRC Hong Kong Overseas Logistics and Property Property Property Warehouse Infrastructure Others Eliminations Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Segment assets 12,595,155 16,886,961 2,733 7,191,452 498,677 21,558,147 (21,440,373) 37,292,752 Associated companies 230,197 3,924,448 899,593 728,112 549,559 ––6,331,909 Available-for-sale investments 470 752,276 667,842 11,051 –––1,431,639 Long-term receivables – 102,503 –––––102,503 Tax recoverable 5,194 ––88 – 28,558 – 33,840 Tax reserve certificates –––––12,188 – 12,188 Listed securities at fair value through profit or loss – 3,868 70 ––21,930 – 25,868 Total assets 12,831,016 21,670,056 1,570,238 7,930,703 1,048,236 21,620,823 (21,440,373) 45,230,699

Segment liabilities 3,392,158 15,082,133 30,284 4,393,409 555,872 12,276,609 (21,440,373) 14,290,092 Taxation and deferred taxation 1,320,543 570,759 15,432 293,469 – 6,740 – 2,206,943 Amounts due to minority shareholders 1,156,550 590,572 – 62,968 24,772 927 – 1,835,789 Total liabilities 5,869,251 16,243,464 45,716 4,749,846 580,644 12,284,276 (21,440,373) 18,332,824

Capital expenditure 884,155 4,219,405 – 208,643 – 1,856 – 5,314,059 Depreciation and amortisation 26,224 886 – 116,238 – 3,146 – 146,494

120 KERRY PROPERTIES LIMITED 5 PRINCIPAL ACTIVITIES AND SEGMENTAL ANALYSIS OF OPERATIONS (Continued) (d) Secondary reporting format – geographical segments

2006 Segment Segment Segment Capital revenue results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

PRC 4,033,860 1,706,334 18,037,647 2,563,413 Hong Kong 4,708,333 2,769,253 25,224,097 1,197,663 United Kingdom 808,668 35,308 302,018 11,016 Others 642,256 6,345 1,052,515 253,578 10,193,117 4,517,240 44,616,277 4,025,670

2005 Segment Segment Segment Capital revenue results assets expenditure HK$’000 HK$’000 HK$’000 HK$’000

PRC 3,958,804 845,929 14,903,510 1,002,307 Hong Kong 2,780,724 2,422,332 21,457,059 4,234,144 United Kingdom 691,981 19,791 266,049 14,131 Others 577,315 44,228 666,134 63,477 8,008,824 3,332,280 37,292,752 5,314,059

6 OPERATING PROFIT BEFORE FINANCE COSTS Group 2006 2005 HK$’000 HK$’000 Operating profit before finance costs is stated after crediting and charging the following:

Crediting Gross rental income from investment properties – PRC 578,195 541,412 – Hong Kong 384,606 352,022 962,801 893,434 Less: outgoings in respect of investment properties – PRC (64,833) (58,574) – Hong Kong (26,367) (26,928) (91,200) (85,502) Net rental income from investment properties – PRC 513,362 482,838 – Hong Kong 358,239 325,094 871,601 807,932 Dividend income from – listed investments 113 282 – unlisted investments 1,372,955 13,654 1,373,068 13,936

Interest income 76,768 101,758 Less: amount capitalised in properties under development (528) (122) 76,240 101,636 Gain on sale of investment properties 783,019 180,257 Exchange gains, net 37,172 45,891

Charging Cost of sale of completed properties 155,745 270,981 Logistics operating costs 4,407,979 4,120,622 Auditors’ remuneration 9,257 6,169 Non-audit service fees paid and payable to auditor 951 3,379 Depreciation of property, plant and equipment and amortisation of leasehold land and land use rights 161,037 146,494 Operating lease charges – land and buildings 57,559 36,854 – vessels 57,994 87,043 Impairment loss on available-for-sale investments 197,941 –

ANNUAL REPORT 2006 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7 FINANCE COSTS Group 2006 2005 HK$’000 HK$’000 Interest expense: – bank borrowings: bank loans and overdrafts 387,712 214,730 – convertible bonds wholly repayable within five years (note 28) 123,161 86,701 – fixed rate bonds (note 29) 74,258 – – derivative financial instruments 13,977 41,382 – others 21,952 11,082 Total finance cost incurred 621,060 353,895 Less: Amount capitalised in properties under development (316,558) (98,350) 304,502 255,545 Fair value loss/(gain) on derivative financial instruments 76,161 (53,866) Total finance costs expensed during the year 380,663 201,679

8 TAXATION Hong Kong profits tax has been provided at the rate of 17.5% (2005: 17.5%) on the estimated assessable profit for the year. Income tax on PRC and overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the PRC and the overseas countries in which the Group operates, respectively.

Land appreciation tax in the PRC is levied on properties developed by the Group for sale, at progressive rates ranging from 30% to 60% on the appreciation of land value, which under the applicable regulations is calculated based on the proceeds of sales of properties less deductible expenditures including land costs, borrowing costs and all property development expenditures.

The amount of taxation (charged)/credited to the consolidated income statement represents:

Group 2006 2005 HK$’000 HK$’000 PRC taxation – Current (217,922) (127,991) – Over/(under)provision in prior years 734 (217) – Deferred (363,613) (109,707) (580,801) (237,915) Hong Kong profits tax – Current (81,769) (84,473) – Overprovision in prior years 101 25,260 – Deferred (205,450) (178,584) (287,118) (237,797) Overseas taxation – Current (21,160) (18,515) – Deferred (452) 28 (21,612) (18,487) (889,531) (494,199)

The Group’s share of associated companies’ taxation for the year of HK$57,881,000 (2005: HK$45,419,000) is included in the consolidated income statement under share of results of associated companies.

122 KERRY PROPERTIES LIMITED 8 TAXATION (Continued) The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate of Hong Kong as follows:

2006 2005 HK$’000 HK$’000

Profit before taxation 5,838,861 3,756,278 Less: Share of results of associated companies (450,917) (510,105) 5,387,944 3,246,173

Calculated at Hong Kong profits tax rate of 17.5% (2005: 17.5%) 942,890 568,081 Tax effect of different taxation rates in other countries 258,175 114,748 Utilisation of previously unrecognised tax losses (37,155) (30,354) Tax effect of net income/expenses that are not taxable/deductible in determining taxable profit (420,925) (135,792) Tax loss not recognised 65,919 2,560 Tax effect of profit re-investment in the PRC (40,846) – Overprovision of taxation in prior years (835) (25,044) 767,223 494,199 Land appreciation tax 162,513 – Tax effect of deduction of land appreciation tax (40,205) – Taxation charge 889,531 494,199

9 PROFIT ATTRIBUTABLE TO SHAREHOLDERS The profit attributable to shareholders dealt with in the financial statements of the Company is HK$1,013,639,000 (2005: HK$705,904,000).

10 DIVIDENDS Company 2006 2005 HK$’000 HK$’000

Interim, paid, of HK$0.20 (2005: HK$0.20) per ordinary share (note (a)) 245,440 243,464 Final, proposed, of HK$0.65 (2005: HK$0.50) per ordinary share (note (b)) 804,888 608,289 Additional prior year final dividend arising from the increase in number of ordinary shares in issue on the related record date 3,134 – 1,053,462 851,753

(a) Amounts shown in respect of the interim dividend for the year ended 31 December 2006 reflect the cash dividend of HK$0.20 (2005: HK$0.20) per ordinary share. A scrip dividend alternative to the interim dividend was also offered, with the result that only approximately HK$50,868,000 (2005: HK$233,716,000) of the interim dividend was paid in cash.

(b) At a meeting held on 22 March 2007, the directors proposed a final dividend of HK$0.65 per ordinary share. This proposed dividend is not reflected as a dividend payable in these financial statements.

The proposed final dividend for the year ended 31 December 2006, as referred to above, is calculated on the basis of 1,238,289,382 ordinary shares in issue as at 31 December 2006, and at a final dividend of HK$0.65 per ordinary share. The actual amount of final dividend payable in respect of the year ended 31 December 2006 will be subject to the actual number of ordinary shares in issue on the record date, which is expected to be on or about 3 May 2007.

ANNUAL REPORT 2006 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11 EARNINGS PER SHARE Basic Basic earnings per share is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

2006 2005

Weighted average number of shares in issue 1,224,938,512 1,213,558,181

Including the effect of the change in fair value of investment properties and buildings and the related deferred taxation:

2006 2005 HK$’000 HK$’000

Profit attributable to shareholders 4,688,950 3,066,863

Basic earnings per share HK$3.83 HK$2.53

Excluding the effect of the change in fair value of investment properties and buildings and the related deferred taxation:

2006 2005 HK$’000 HK$’000

Profit attributable to shareholders 2,944,327 1,759,560

Basic earnings per share HK$2.40 HK$1.45

Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares: convertible bonds and share options. The convertible bonds are assumed to have been converted into ordinary shares and the net profit is adjusted to eliminate the interest expense less the tax effect. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

2006 2005

Weighted average number of shares in issue 1,224,938,512 1,213,558,181 Adjustment for convertible bonds 96,320,554 70,723,038 Adjustment for share options 8,708,293 7,060,260 Weighted average number of shares for the purpose of calculating diluted earnings per share 1,329,967,359 1,291,341,479

Including the effect of the change in fair value of investment properties and buildings and the related deferred taxation:

2006 2005 HK$’000 HK$’000

Profit attributable to shareholders 4,688,950 3,066,863 Adjustment for finance cost on convertible bonds 101,608 65,435 Profit used to determine diluted earnings per share 4,790,558 3,132,298

Diluted earnings per share HK$3.60 HK$2.43

124 KERRY PROPERTIES LIMITED 11 EARNINGS PER SHARE (Continued) Diluted (Continued) Excluding the effect of the change in fair value of investment properties and buildings and the related deferred taxation:

2006 2005 HK$’000 HK$’000

Profit attributable to shareholders 2,944,327 1,759,560 Adjustment for finance cost on convertible bonds 101,608 65,435 Profit used to determine diluted earnings per share 3,045,935 1,824,995

Diluted earnings per share HK$2.29 HK$1.41

12 EMPLOYEE BENEFIT EXPENSE

Group 2006 2005 HK$’000 HK$’000

Staff costs, including directors’ emoluments 910,496 753,102 Share options granted to directors and employees 17,302 28,627 Pension costs – defined contribution plans (note a) 66,058 56,503 993,856 838,232

(a) Pensions – defined contribution plans Pursuant to the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) (the “MPF Ordinance”), companies within the Group in Hong Kong have enrolled all employees in Hong Kong aged between 18 and 65 into a mandatory provident fund scheme (the “MPF Scheme”) from 1 December 2000.

The MPF Scheme is a master trust scheme established under a trust arrangement and governed by laws in Hong Kong. The assets of the MPF Scheme are held separately from the assets of the employer, the trustees and other service providers. Contributions are made to the MPF Scheme by the employers at 5% of the employees’ relevant income as defined in the MPF Ordinance up to a maximum of HK$1,000 per employee per month (the “MPF Contribution”). The employees also contribute a corresponding amount to the MPF Scheme if their relevant income is HK$5,000 per month or more. The MPF Contributions are fully and immediately vested in the employees as accrued benefits once they are paid to the approved trustees of the MPF Scheme. Investment income or profit derived from the investment of accrued benefits (after taking into account any loss arising from such investment) is also immediately vested in the employees.

Certain companies within the Group are also participants of the Kerry Trading Co. Limited – Provident Fund Scheme (the “Fund”) which is a defined contribution scheme as defined in the Occupational Retirement Schemes Ordinance (Chapter 426 of the Laws of Hong Kong). The Fund is for certain salaried persons (the “Fund Members”) under the employment of the companies participating in the Fund. The assets of the Fund are managed by the trustees of the Fund. Contributions are made to the Fund by companies participating in the Fund at 10% of the Fund Members’ monthly basic salaries up to a maximum of HK$5,000 per Fund Member per month (the “Basic Contribution”) less the MPF Contribution if the Basic Contribution is higher than the MPF Contribution. Fund Members are entitled to 100% of the employers’ contributions to the Fund plus investment earnings upon leaving employment after completing ten years of service or more, or upon retirement after attaining the retirement age after any number of years of service, or upon retirement due to ill health. Fund Members are also entitled to the employers’ contributions to the Fund plus investment earnings calculated at a reduced scale of between 20% and 90% after completing a period of service of at least two but less than ten years. The unvested benefits of employees terminating employment forfeited in accordance with the terms of the Fund can be utilised by the companies participating in the Fund to reduce future contributions. During the year, forfeited contributions totaling HK$1,119,000 (2005: HK$890,000) were utilised leaving HK$313,000 (2005: HK$309,000) available at the year end to reduce future contributions.

ANNUAL REPORT 2006 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12 EMPLOYEE BENEFIT EXPENSE (Continued) (a) Pensions – defined contribution plans (Continued) The Group also made defined contributions to pension plans as required by the relevant municipality or provincial governments in the PRC. The rates of contributions for the relevant periods ranged from 10% to 23% of the staff’s salary. For overseas subsidiaries, the Group made contributions to defined contribution pension schemes in accordance with the schemes set up by the overseas subsidiaries and/or under statutory requirements.

(b) Directors’ and senior management’s emoluments The remuneration of the Directors for the year ended 31 December 2006 is set out below:

Employer’s Other contribution Discretionary benefits to pension Name of Director Fees Salary bonuses (note) scheme Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Mr ANG Keng Lam – 3,254 24,570 3,120 60 31,004 Mr WONG Siu Kong – 4,320 25,000 3,120 60 32,500 Mr HO Shut Kan – 2,400 7,050 1,664 60 11,174 Mr MA Wing Kai, William – 2,400 7,050 1,664 60 11,174 Mr William Winship FLANZ 250 ––––250 Mr LAU Ling Fai, Herald 250 ––––250 Mr Christopher Roger MOSS, O.B.E. 250 ––––250 Mr TSE Kai Chi 250 ––––250

The remuneration of the Directors for the year ended 31 December 2005 is set out below:

Employer’s Other contribution Discretionary benefits to pension Name of Director Fees Salary bonuses (note) scheme Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Mr ANG Keng Lam – 2,894 14,780 5,125 60 22,859 Mr WONG Siu Kong – 3,960 15,000 5,125 60 24,145 Mr HO Shut Kan – 2,280 4,035 2,733 60 9,108 Mr MA Wing Kai, William – 2,280 4,035 2,733 60 9,108 Mr William Winship FLANZ 350 ––––350 Mr LAU Ling Fai, Herald 350 ––––350 Mr Christopher Roger MOSS, O.B.E. 350 ––––350 Mr TSE Kai Chi 83 ––––83

Note:

Other benefits represent fair value of share options granted to the relevant director which was charged to the income statement in accordance with HKFRS 2.

126 KERRY PROPERTIES LIMITED 12 EMPLOYEE BENEFIT EXPENSE (Continued) (c) Five highest paid individuals The five individuals whose emoluments were the highest in the Group for the year include four (2005: four) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the five highest paid individuals during the year are as follows:

2006 2005 HK$’000 HK$’000

Basic salaries, housing allowances, share options, other allowances and benefits in kind 25,558 31,562 Discretionary bonuses 67,720 40,385 Pension contributions 300 300 93,578 72,247

The emoluments fell within the following bands:

Number of individuals 2006 2005 Emolument bands HK$7,000,001 – HK$7,500,000 – 1 HK$7,500,001 – HK$8,000,000 1 – HK$9,000,001 – HK$9,500,000 – 2 HK$11,000,001 – HK$11,500,000 2 – HK$22,500,001 – HK$23,000,000 – 1 HK$24,000,001 – HK$24,500,000 – 1 HK$31,000,001 – HK$31,500,000 1 – HK$32,000,001 – HK$32,500,000 1 – 5 5

ANNUAL REPORT 2006 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 PROPERTY, PLANT AND EQUIPMENT

Group Motor vehicles, furniture, Warehouses Freehold Warehouse fixtures Hotel and logistics Staff land and Port Leasehold operating and office property centres quarters buildings facilities improvements equipment equipment Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Cost or valuation At 1 January 2005 748,410 567,538 46,573 251,224 115,488 10,950 426,044 491,472 2,657,699 Additions, at cost 4,292 13,932 508 948 – 229 29,347 70,349 119,605 Acquisition of subsidiaries –––2,004 ––74 3,432 5,510 Adjustment on revaluation 64,409 9,439 – 18,749 1,702 –––94,299 Disposals ––(12,286) –––(37,993) (84,831) (135,110) Reclassification/transfer – (25,456) – (90) ––(75,174) 75,263 (25,457) Exchange adjustment – 5,190 1,061 (14,454) (6,566) 96 (7,685) (4,098) (26,456) At 31 December 2005 817,111 570,643 35,856 258,381 110,624 11,275 334,613 551,587 2,690,090

At cost ––35,856 ––11,275 334,613 551,587 933,331 At professional valuation 817,111 570,643 – 258,381 110,624 –––1,756,759 At 31 December 2005 817,111 570,643 35,856 258,381 110,624 11,275 334,613 551,587 2,690,090

Aggregate depreciation and accumulated impairment losses At 1 January 2005 ––11,289 ––8,813 242,445 320,251 582,798 Charge for the year 18,818 21,377 1,355 4,716 3,533 1,214 29,688 58,334 139,035 Acquisition of subsidiaries ––––––50 2,476 2,526 Adjustment on revaluation (18,818) (21,453) – (4,622) (3,461) –––(48,354) Disposals ––(6,445) –––(34,176) (67,892) (108,513) Reclassification/transfer ––––––(42,194) 42,194 – Exchange adjustment – 76 275 (94) (72) 74 (3,675) (1,351) (4,767) At 31 December 2005 ––6,474 ––10,101 192,138 354,012 562,725

Net book value as at 31 December 2005 817,111 570,643 29,382 258,381 110,624 1,174 142,475 197,575 2,127,365

128 KERRY PROPERTIES LIMITED 13 PROPERTY, PLANT AND EQUIPMENT (Continued)

Group Motor vehicles, furniture, Warehouses Freehold Warehouse fixtures Hotel and logistics Staff land and Port Leasehold operating and office property centres quarters buildings facilities improvements equipment equipment Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Cost or valuation At 1 January 2006 817,111 570,643 35,856 258,381 110,624 11,275 334,613 551,587 2,690,090 Additions, at cost 11,546 16,375 877 13,140 – 771 29,303 131,952 203,964 Acquisition of subsidiaries – 3,000 ––––3,818 5,161 11,979 Adjustment on revaluation 65,919 16,414 – 19,750 (7,022) –––95,061 Disposals – (11,391) (5,231) (1,376) – (502) (10,466) (37,622) (66,588) Reclassification/transfer – 31,367 – 29,889 –––4,410 65,666 Exchange adjustment – 10,104 1,271 34,176 15,385 152 19,036 25,502 105,626 At 31 December 2006 894,576 636,512 32,773 353,960 118,987 11,696 376,304 680,990 3,105,798

At cost ––32,773 ––11,696 376,304 680,990 1,101,763 At professional valuation 894,576 636,512 – 353,960 118,987 –––2,004,035 At 31 December 2006 894,576 636,512 32,773 353,960 118,987 11,696 376,304 680,990 3,105,798

Aggregate depreciation and accumulated impairment losses At 1 January 2006 ––6,474 ––10,101 192,138 354,012 562,725 Charge for the year 21,247 25,010 1,159 5,274 3,763 926 33,079 62,317 152,775 Acquisition of subsidiaries ––––––858 1,907 2,765 Adjustment on revaluation (21,247) (24,393) – (5,267) (3,942) –––(54,849) Disposals – (772) (68) (249) – (502) (6,784) (19,287) (27,662) Exchange adjustment – 155 250 242 179 148 10,317 17,553 28,844 At 31 December 2006 ––7,815 ––10,673 229,608 416,502 664,598

Net book value as at 31 December 2006 894,576 636,512 24,958 353,960 118,987 1,023 146,696 264,488 2,441,200

(a) As at 31 December 2006, property, plant and equipment and port facilities with an aggregate net book value of HK$274,341,000 (2005: HK$233,421,000) and HK$118,987,000 (2005: HK$110,624,000), respectively, were pledged as security for bank loan facilities granted to the Group (note 40).

(b) Hotel property, warehouses and logistics centres in the PRC and Hong Kong were valued by DTZ Debenham Tie Leung Limited and Savills Valuation and Professional Services Limited. Freehold land and buildings and port facilities in Thailand were valued by DTZ Debenham Tie Leung Limited while freehold land and buildings in Australia were valued by Rushton Group. They are independent professional valuers and the valuation was on an open market value basis as at 31 December 2006.

(c) The carrying amount of the warehouses and logistics centres would have been HK$379,579,000 (2005: HK$348,013,000) had they been stated in the financial statements at cost less aggregate depreciation and accumulated impairment losses.

(d) The carrying amount of freehold land and buildings and port facilities would have been HK$238,397,000 (2005: HK$178,119,000) and HK$109,415,000 (2005: HK$99,516,000), respectively, had they been stated in the financial statements at cost less aggregate depreciation and accumulated impairment losses.

(e) The carrying amount of the hotel property would have been HK$724,183,000 (2005: HK$733,885,000) had they been stated in the financial statements at cost less aggregate depreciation and accumulated impairment losses.

ANNUAL REPORT 2006 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13 PROPERTY, PLANT AND EQUIPMENT (Continued)

Company Motor vehicles, furniture, fixtures Leasehold and office improvements equipment Total HK$’000 HK$’000 HK$’000 Cost At 1 January 2005 423 3,087 3,510 Additions, at cost 9 1,611 1,620 Disposals – (1,342) (1,342) At 31 December 2005 432 3,356 3,788 Aggregate depreciation At 1 January 2005 151 2,033 2,184 Charge for the year 65 469 534 Disposals – (1,197) (1,197) At 31 December 2005 216 1,305 1,521 Net book value As at 31 December 2005 216 2,051 2,267

Company Motor vehicles, furniture, fixtures Leasehold and office improvements equipment Total HK$’000 HK$’000 HK$’000 Cost At 1 January 2006 432 3,356 3,788 Additions, at cost 7 602 609 At 31 December 2006 439 3,958 4,397 Aggregate depreciation At 1 January 2006 216 1,305 1,521 Charge for the year 66 603 669 At 31 December 2006 282 1,908 2,190 Net book value As at 31 December 2006 157 2,050 2,207

130 KERRY PROPERTIES LIMITED 14 INVESTMENT PROPERTIES Group 2006 2005 HK$’000 HK$’000

At 1 January 20,510,591 19,105,540 Additions 68,906 14,421 Increase in fair value 2,318,701 1,546,669 Disposals (1,560,309) (284,245) Transfer 299,653 125,256 Exchange adjustment 4,624 2,950 At 31 December 21,642,166 20,510,591

(a) As at 31 December 2006, no investment properties were pledged as security for bank loan facilities. As at 31 December 2005, investment properties amounting to HK$96,722,000 were pledged as security for bank loan facilities granted to the Group (note 40).

(b) All investment properties were valued by DTZ Debenham Tie Leung Limited and Savills Valuation and Professional Services Limited. They are independent professional valuers and the valuation was on an open market value basis as at 31 December 2006.

(c) The Group’s interest in investment properties at their net book values are analysed as follows:

2006 2005 HK$’000 HK$’000 In Hong Kong held on: Leases of over 50 years 8,438,765 8,539,432 Leases of between 10 to 50 years 5,058,565 5,154,168 Outside Hong Kong, held on: Leases of over 50 years 840,200 68,500 Leases of between 10 to 50 years 7,304,636 6,748,491 21,642,166 20,510,591

15 LEASEHOLD LAND AND LAND USE RIGHTS The Group’s interests in leasehold land and land use rights represent prepaid operating lease payments and their net book values are analysed as follows:

2006 2005 HK$’000 HK$’000 In Hong Kong, held on: Leases of between 10 to 50 years 78,250 80,335 Outside Hong Kong, held on: Leases of between 10 to 50 years 260,159 244,991 338,409 325,326

2006 2005 HK$’000 HK$’000

At 1 January 325,326 392,215 Additions – 1,583 Amortisation (8,337) (7,535) Transfer 16,969 (63,710) Exchange adjustment 4,451 2,773 338,409 325,326

As at 31 December 2006, no leasehold land and land use rights were pledged as security for bank loan facilities. As at 31 December 2005, leasehold land and land use rights amounting to HK$6,373,000 was pledged as security for bank loan facilities granted to the Group (note 40).

ANNUAL REPORT 2006 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16 PROPERTIES UNDER DEVELOPMENT The Group’s interest in properties under development at their net book values are analysed as follows:

2006 2005 HK$’000 HK$’000 In Hong Kong, held on: Leases of over 50 years 2,101,687 595,192 Leases of between 10 to 50 years 5,258,868 4,236,675 Outside Hong Kong, held on: Leases of over 50 years – 691,755 Leases of between 10 to 50 years 4,868,900 2,281,000 Freehold land and buildings 170,788 50,549 12,400,243 7,855,171

2006 2005 HK$’000 HK$’000

At 1 January 7,855,171 2,804,657 Additions during the year 3,743,586 4,312,434 Acquisition of subsidiaries 1,415,297 863,032 Transfer (737,240) (177,569) Exchange adjustment 123,429 52,617 At 31 December 12,400,243 7,855,171

As at 31 December 2006, properties under development amounting to HK$170,788,000 (2005: HK$47,162,000) was pledged as security for bank loan facilities granted to the Group (note 40).

17 SUBSIDIARIES

Company 2006 2005 HK$’000 HK$’000

Unlisted shares, at cost (note (a)) 18,643,700 18,643,700 Amounts due from subsidiaries (note (b)) 8,836,250 12,619,589 27,479,950 31,263,289

(a) Details of subsidiaries are set out in note 43 to the financial statements.

(b) The amounts due from subsidiaries are unsecured, not repayable within twelve months from the balance sheet date and interest-free except for an amount of HK$5,882,389,000 (2005: HK$9,852,528,000) which bears interest at prevailing market rates.

132 KERRY PROPERTIES LIMITED 18 ASSOCIATED COMPANIES

Group 2006 2005 HK$’000 HK$’000

Share of net assets (note a) 2,119,023 1,369,155 Amounts due from associated companies (note b) 3,928,807 5,012,888 Amounts due to associated companies (note c) (55,760) (50,134) 5,992,070 6,331,909

(a) Details of associated companies are set out in note 44 to the financial statements.

(b) The amounts due from associated companies are unsecured, not repayable within twelve months from the balance sheet date and interest-free except for amounts totalling HK$1,152,865,000 (2005: HK$2,608,226,000) which bear interest at prevailing market rates.

(c) The amounts due to associated companies are unsecured, interest-free and not repayable within twelve months from the balance sheet date.

(d) The summarised financial information of associated companies is as follows:

2006 2005 HK$’000 HK$’000

Aggregate attributable amounts of total assets 10,075,269 8,776,618 Aggregate attributable amounts of total liabilities 7,956,246 7,407,463 Aggregate attributable amounts of total revenue 1,051,938 1,206,214 Aggregate attributable amounts of net profit after tax 450,917 510,105

19 DERIVATIVE FINANCIAL INSTRUMENTS

Group and Company 2006 2005 Assets Liabilities Assets Liabilities HK$’000 HK$’000 HK$’000 HK$’000

Cross currency swap contracts, at fair value (note a) – 24,484 –– Interest rate swap contracts, at fair value (note b) 2,687 82,521 11,663 39,678 2,687 107,005 11,663 39,678

(a) The principal amounts under the outstanding cross currency swap contracts at 31 December 2006 amounting to US$417,000,000 has been exchanged at inception and will be re-exchanged on expiry date at an average exchange rate of US$1 to HK$7.78 (approximate). Under these contracts, the fixed interest rates ranging from 5.64% to 5.75% per annum on the exchanged Hong Kong dollar principal amounts would be paid and the fixed interest rate at 6.375% per annum on the original US dollar principal amounts would be received.

(b) The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2006 were HK$5,800,000,000 (2005: HK$5,800,000,000).

At 31 December 2006, the fixed interest rates ranged from 3.65% to 4.70% (2005: 3.65% to 4.70%) per annum.

ANNUAL REPORT 2006 133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

20 AVAILABLE-FOR-SALE INVESTMENTS

Group 2006 2005 HK$’000 HK$’000

Listed securities, at fair value 431,634 – Unlisted securities, at fair value 956,874 1,431,639 1,388,508 1,431,639

Market value of listed securities in Hong Kong 431,634 –

21 LONG-TERM RECEIVABLES AND ACCOUNTS RECEIVABLE, PREPAYMENTS AND DEPOSITS

Group 2006 2005 HK$’000 HK$’000

Trade receivables (note (a)) 2,102,061 918,080 Land deposits and related costs 863,940 1,390,255 Second mortgage loans receivable 65,852 106,339 Others 629,940 484,709 3,661,793 2,899,383 Less: long-term receivables (note (b)) (63,588) (102,503) Current portion 3,598,205 2,796,880

The carrying amounts of long-term receivables and accounts receivable, prepayments and deposits approximate the fair value of these balances.

(a) The Group maintains defined credit policies and applies credit policies appropriate to the particular business circumstances of the Group. At 31 December 2006 and 2005, the ageing analysis of the trade receivables of the Group were as follows:

2006 2005 HK$’000 HK$’000

Below 1 month 1,636,354 459,297 Between 1 month and 3 months 274,310 361,819 Over 3 months 191,397 96,964 2,102,061 918,080

There is no concentration of credit risk with respect to trade receivables, as the Group has a large number of customers.

(b) The amount represents non-current portion of second mortgage loans to buyers of certain properties developed by the Group.

134 KERRY PROPERTIES LIMITED 22 GOODWILL

Group 2006 2005 HK$’000 HK$’000

At 1 January 244,061 185,737 Arising from purchase of subsidiaries 23,555 39,759 Arising from purchase of additional interest in subsidiaries – 21,590 Impairment (971) – Exchange adjustment – (3,025) At 31 December 266,645 244,061

Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to country of operation and business segment.

A segment-level summary of the goodwill allocation is presented below:

2006 2005 Logistics Logistics and and Warehouse Warehouse HK$’000 HK$’000

PRC 136,946 135,133 Hong Kong 11,040 2,580 United Kingdom 71,253 71,253 Others 47,406 35,095 266,645 244,061

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below:

Key assumptions used for value-in-use calculations

Logistics and Warehouse United PRC Hong Kong Kingdom Others Gross margin 5% 2% 5%-12% 0%-32% Growth rate 2% 2% 2% 2% Discount rate 10% 10% 10% 10%

These assumptions have been used for the analysis of each CGU within the business segment.

Management determined budgeted gross margin and growth rates based on past performance and its expectations of the market development. The discount rates used are pre-tax and reflect specific risks relating to the relevant segments.

ANNUAL REPORT 2006 135 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

23 STOCK OF COMPLETED PROPERTIES HELD FOR SALE

Group 2006 2005 HK$’000 HK$’000

Leasehold land and land use rights 506,085 51,582 Other development costs 682,016 196,975 1,188,101 248,557

24 LISTED SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Group 2006 2005 HK$’000 HK$’000 Listed securities: – Hong Kong 198,168 25,798 – Malaysia 150 70 Market value of listed securities 198,318 25,868

25 CASH AND CASH EQUIVALENTS

Group Company 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000

Cash at bank and in hand 1,377,020 1,400,397 5,495 3,955 Short-term bank deposits 1,361,601 1,163,863 227,376 4,311 2,738,621 2,564,260 232,871 8,266

The effective interest rate on short-term bank deposits was 3.93% (2005: 3.53%) per annum; these deposits have an average maturity of less than 1 month.

Cash and cash equivalents include the following for the purposes of the consolidated cash flow statement:

Group 2006 2005 HK$’000 HK$’000

Pledged bank deposits 47,263 32,514 Cash and bank balances 2,691,358 2,531,746 2,738,621 2,564,260 Unsecured bank overdrafts (6,690) (318) 2,731,931 2,563,942

136 KERRY PROPERTIES LIMITED 26 ACCOUNTS PAYABLE, DEPOSITS RECEIVED AND ACCRUED CHARGES Group 2006 2005 HK$’000 HK$’000

Trade payables 613,640 559,472 Construction costs payable 598,531 436,646 Rental and sales deposits 368,575 356,736 Amount due to a related company – 323,294 Others 977,023 826,467 2,557,769 2,502,615

The ageing analysis of trade payables of the Group as at 31 December 2006 was as follows:

2006 2005 HK$’000 HK$’000

Below 1 month 404,326 326,336 Between 1 month and 3 months 117,889 117,952 Over 3 months 91,425 115,184 613,640 559,472

27 BANK LOANS Group Company 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 Non-current Bank loans – unsecured 6,095,233 8,194,489 3,750,000 7,380,000 – secured (note 40) 255,912 122,914 – – 6,351,145 8,317,403 3,750,000 7,380,000 Current Bank loans – unsecured 757,655 892,492 150,000 450,000 – secured (note 40) 45,773 124,491 – – 803,428 1,016,983 150,000 450,000 Total bank loans 7,154,573 9,334,386 3,900,000 7,830,000

The maturity of bank loans is as follows:

Group Company 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000

Within 1 year 803,428 1,016,983 150,000 450,000 Between 1 and 2 years 384,535 4,213,695 – 3,830,000 Between 2 and 5 years 5,492,566 4,100,871 3,750,000 3,550,000 Wholly repayable within 5 years 6,680,529 9,331,549 3,900,000 7,830,000 Over 5 years 474,044 2,837 – – 7,154,573 9,334,386 3,900,000 7,830,000

The effective annual interest rates of the major bank borrowings at the balance sheet date were as follows:

2006 2005 HK$ US$ RMB HK$ US$ RMB Bank loans 4.24% 5.92% 5.02% 4.40% 4.74% 5.41%

The carrying amounts of all bank loans approximate their fair value.

ANNUAL REPORT 2006 137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

27 BANK LOANS (Continued) The carrying amounts of the bank loans are denominated in the following currencies:

Group Company 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000

Hong Kong dollar 6,001,991 8,480,000 3,900,000 7,830,000 US dollar 653,039 469,443 – – Renminbi 164,228 201,865 – – Other currencies 335,315 183,078 – – 7,154,573 9,334,386 3,900,000 7,830,000

28 CONVERTIBLE BONDS On 8 April 2005, Wise Insight Finance Limited, a wholly-owned subsidiary of the Company, issued an aggregate principal amount of HK$2,500,000,000 zero-coupon guaranteed convertible bonds which are due in April 2010 at a redemption price of 119.354% of the principal amount. The bonds are guaranteed by the Company as to repayments, and are convertible into ordinary shares of HK$1 per share in the Company at an initial conversion price of HK$25.955 per share.

The conversion price is subject to adjustment in certain events set out in the Trust Deed dated 8 April 2005. During the year, there had been no conversion of the convertible bonds into shares of the Company by the bondholders and no redemption of the convertible bonds by Wise Insight Finance Limited.

The fair values of the liability component and the equity component were determined upon the issuance of the convertible bonds.

The fair value of the liability component was calculated using a market interest rate for a bond with the same tenure but with no conversion features. The residual amount, representing the value of the equity component, is credited to a convertible bonds reserve under equity attributable to the Company’s shareholders.

The convertible bonds recognised in the consolidated balance sheet are calculated as follows:

HK$’000

Face value of convertible bonds issued on 8 April 2005 2,500,000 Less: equity component (145,250) Liability component on initial recognition at 8 April 2005 2,354,750 Direct issue costs attributable to liability component (28,356) 2,326,394 Add: imputed finance cost in 2005 86,701 Liability component at 31 December 2005 2,413,095 Add: imputed finance cost in 2006 (note 7) 123,161 Liability component at 31 December 2006 2,536,256

The fair value of the liability component of the convertible bonds at 31 December 2006 amounted to approximately HK$2,570,700,000. The fair value is calculated using cash flows discounted at a rate based on the borrowing rate of 4.6925% per annum.

Imputed finance cost on the bonds is calculated using the effective interest method by applying the effective interest rate of 5.1% per annum to the liability component.

138 KERRY PROPERTIES LIMITED 29 FIXED RATE BONDS On 25 August 2006, Gain Silver Finance Limited, a wholly-owned subsidiary of the Company, issued fixed rate bonds in the aggregate principal amount of US$420,000,000. The fixed rate bonds are guaranteed by the Company as to repayment, and carry a coupon rate of 6.375% per annum and have a maturity term of 10 years.

The fixed rate bonds are listed on the Singapore Exchange Securities Trading Limited. The market value of the fixed rate bonds as at 31 December 2006 was HK$3,292,330,000.

30 AMOUNTS DUE TO MINORITY SHAREHOLDERS – GROUP The amounts due to minority shareholders represent proportionate funding from the minority shareholders of joint venture projects including an amount of approximately HK$312,821,000 (2005: HK$393,883,000) due to a subsidiary of Shangri-La Asia Limited, a related company whose shares are listed on the Stock Exchange of Hong Kong. These loans are unsecured, subordinated to the bank loans of the relevant subsidiaries, have no fixed terms of repayment, and interest-free except for an amount of HK$395,969,000 (2005: HK$114,270,000) which bears interest at prevailing market rates.

31 DEFERRED TAXATION

Group 2006 2005 HK$’000 HK$’000

At 1 January 2,097,083 1,746,997 Purchase of subsidiaries (note 36 (b)) 41 (16) Deferred taxation charged to income statement 569,515 288,263 Deferred taxation charged directly to reserves 32,324 46,452 Deferred taxation charged directly to minority interests 9,830 14,520 Transfer (to)/from taxation (4,276) 109 Exchange adjustment 300 758 At 31 December 2,704,817 2,097,083

Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group has unrecognised tax losses of HK$1,760,496,000 (2005: HK$1,475,545,000) to be carried forward for offset against future taxable income.

The movement in deferred tax assets and liabilities during the year was as follows:

Group Accelerated depreciation Revaluation allowances Tax losses Total HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 1,737,805 175,278 (166,086) 1,746,997 Purchase of subsidiaries – (16) – (16) Deferred taxation charged/(credited) to income statement 237,939 56,081 (5,757) 288,263 Deferred taxation charged directly to reserves 46,452 ––46,452 Deferred taxation charged directly to minority interests 14,520 ––14,520 Transfer from taxation – 109 – 109 Exchange adjustment – 758 – 758 At 31 December 2005 2,036,716 232,210 (171,843) 2,097,083

ANNUAL REPORT 2006 139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

31 DEFERRED TAXATION (Continued)

Group Accelerated depreciation Revaluation allowances Tax losses Total HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2006 2,036,716 232,210 (171,843) 2,097,083 Purchase of subsidiaries – 41 – 41 Deferred taxation charged to income statement 496,225 20,056 53,234 569,515 Deferred taxation charged directly to reserves 32,324 ––32,324 Deferred taxation charged directly to minority interests 9,830 ––9,830 Transfer to taxation – (4,276) – (4,276) Reclassification (61,983) 61,983 –– Exchange adjustment – 300 – 300 At 31 December 2006 2,513,112 310,314 (118,609) 2,704,817

32 SHARE CAPITAL

Authorised Ordinary shares of HK$1 each No. of shares HK$’000

At 31 December 2005 and 2006 10,000,000,000 10,000,000

Issued and fully paid Ordinary shares of HK$1 each 2006 2005 No. of shares HK$’000 No. of shares HK$’000

At 1 January 1,216,578,922 1,216,579 1,211,116,330 1,211,116 Issue of scrip dividend shares (notes (a) and (b)) 8,280,785 8,281 1,313,052 1,313 Issue of new shares as a result of exercise of share options (note (c)) 13,429,675 13,429 4,149,540 4,150 At 31 December 1,238,289,382 1,238,289 1,216,578,922 1,216,579

(a) On 3 May 2006, the Company approved a final dividend on its issued ordinary shares for the year ended 31 December 2005. The Company offered to its shareholders a scrip dividend alternative under which the shareholders could elect to receive new ordinary shares in lieu of a cash dividend. A total of 1,061,069 ordinary shares of HK$1 each were issued on 9 June 2006 under this scheme.

(b) On 6 October 2006, the Company declared an interim dividend on its issued ordinary shares for the year ended 31 December 2006. The Company offered to its shareholders a scrip dividend alternative under which the shareholders could elect to receive new ordinary shares in lieu of a cash dividend. A total of 7,219,716 ordinary shares of HK$1 each were issued on 14 November 2006 under this scheme.

(c) During the year, a total of 13,429,675 option shares were exercised at exercise prices of HK$14.92, HK$9.64, HK$6.70, HK$11.59, HK$6.85 and HK$18.74, respectively, per share. Details of movements in share options during the year are set out in note 33.

(d) Proceeds received in respect of the shares issued following the exercise of the share options were used as additional working capital for the Group.

140 KERRY PROPERTIES LIMITED 33 SHARE OPTIONS (a) 1997 Share Option Scheme Under the 1997 Share Option Scheme, the directors of the Company were authorised, at their discretion, to invite executive directors and key employees of the Company or its subsidiaries to subscribe for shares in the Company subject to terms and conditions stipulated therein. The exercise price for any particular option was determined by the Board of Directors of the Company in its absolute discretion subject to the compliance with the requirements for share option schemes under the Listing Rules.

The 1997 Share Option Scheme was terminated on 17 April 2002 such that no further options shall be offered but the options which had been granted during its life shall continue to be valid and exercisable in accordance with their terms of issue and in all other respects its provisions shall remain in full force and effect.

Details of the movement of the share options under the 1997 Share Option Scheme are as follows:

2006 2005 Weighted Weighted average exercise average exercise price in HK$ price in HK$ per share Number per share Number

At 1 January 11.99 16,886,091 11.68 21,035,631 Exercised during the year (note (i)) 13.11 (11,902,175) 10.43 (4,149,540) At 31 December (note (ii)) 4,983,916 16,886,091

As at 31 December 2006, all the outstanding share options granted under the 1997 Share Option Scheme were exercisable. There were a total of 11,902,175 share options exercised during the year (2005: 4,149,540) and that the weighted average exercise price was HK$13.11 each (2005: HK$10.43 each). The related weighted average share price at the time of exercise was HK$28.35 (2005: HK$19.21).

(i) Details of share options exercised:

Exercise price per share Number of share options (HK$) 2006 2005

14.92 8,025,995 1,473,336 9.64 3,442,289 482,970 6.70 60,000 340,579 11.59 22,000 350,328 6.85 351,891 1,502,327 11,902,175 4,149,540

Total amount of proceeds received from the exercise of share options was HK$155,998,945 (2005: HK$43,271,124).

ANNUAL REPORT 2006 141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

33 SHARE OPTIONS (Continued) (a) 1997 Share Option Scheme (Continued) (ii) Terms of share options at the balance sheet date were as follows:

Exercise price per share Number of share options Expiry date (HK$) 2006 2005

26 March 2007 14.92 1,205,631 9,231,626 26 March 2007 9.64 64,292 3,506,581 31 May 2010 6.70 1,541,704 1,601,704 1 March 2011 11.59 568,907 590,907 15 April 2012 6.85 1,603,382 1,955,273 4,983,916 16,886,091

(iii) No share options were granted/granted for adjustment, lapsed or cancelled during the year (2005: Nil).

(b) 2002 Share Option Scheme The 2002 Share Option Scheme was adopted by the Company on 17 April 2002. Under the 2002 Share Option Scheme, the directors of the Company may, at their discretion, grant options to executives and key employees in the service of any member of the Group and other persons who may make a contribution to the Group subject to terms and conditions stipulated therein. The exercise price for any particular option shall be such price as the board of directors of the Company may in its absolute discretion determine at the time of grant of the relevant option subject to the compliance with the requirements for share option schemes under the Listing Rules.

Details of the movement of the share options under the 2002 Share Option Scheme are as follows:

2006 2005 Exercise Exercise price in HK$ price in HK$ per share Number per share Number

At 1 January 18.74 8,540,000 –– Granted during the year ––18.74 8,540,000 Exercised during the year (note (i)) 18.74 (1,527,500) –– Lapsed during the year 18.74 (200,000) –– At 31 December (note (ii)) 6,812,500 8,540,000

As at 31 December 2006, there were a total of 6,812,500 outstanding share options granted under the 2002 Share Option Scheme, of which 2,650,000 were exercisable whilst 4,162,500 will be exercisable from 16 March 2007. There were a total of 1,527,500 share options exercised during the year (2005: Nil) and that the exercise price was HK$18.74 each (2005: N/A). The related weighted average share price at the time of exercise was HK$30.49 (2005: N/A).

142 KERRY PROPERTIES LIMITED 33 SHARE OPTIONS (Continued) (b) 2002 Share Option Scheme (Continued) (i) Details of share options exercised:

Exercise price per share Number of share options (HK$) 2006 2005

18.74 1,527,500 Nil

Total amount of proceeds received from the exercise of share options was HK$28,625,350 (2005: Nil).

(ii) Terms of share options at the balance sheet date were as follows:

Exercise price per share Number of share options Expiry date (HK$) 2006 2005

16 March 2015 18.74 6,812,500 8,540,000

(iii) During the year, no share options were granted (2005: 8,540,000) or granted for adjustment (2005: Nil) or cancelled (2005: Nil). There were a total of 200,000 share options lapsed (2005: Nil).

34 SHARE PREMIUM

2006 2005 HK$’000 HK$’000

At 1 January 3,918,838 3,857,220 Arising from scrip dividend (notes 32(a) and (b)) 216,616 22,496 Arising from exercise of share options (note 32(c)) 171,195 39,122 Transfer from share option reserve (note 35(f)) 8,621 – At 31 December 4,315,270 3,918,838

ANNUAL REPORT 2006 143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 OTHER RESERVES

Group Freehold Available- Hotel Other land and for-sale property properties buildings investments Convertible revaluation revaluation revaluation revaluation bonds Hedging Others reserve reserve reserve reserve reserve reserve (note (a)) Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 29,444 414,097 26,455 877,577 – (11,244) 7,891,712 9,228,041 On revaluation of properties (note (b)) 59,300 34,398 15,043 ––––108,741 Fair value gain on available-for-sale investments (note (c)) –––207,337 –––207,337 Provision of share options expense ––––––28,627 28,627 Transfer from retained profits ––––––822 822 Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies ––(1,641) –––17,682 16,041 Deferred taxation charged directly to reserves (25,711) (15,870) (4,871) ––––(46,452) Convertible bonds – equity component ––––143,501 ––143,501 Cash flow hedge –––––13,189 – 13,189 At 31 December 2005 63,033 432,625 34,986 1,084,914 143,501 1,945 7,938,843 9,699,847

At 1 January 2006 63,033 432,625 34,986 1,084,914 143,501 1,945 7,938,843 9,699,847 On revaluation of properties (note (b)) 62,106 32,369 20,526 ––––115,001 Fair value gain on available-for-sale investments (note (c)) –––93,044 –––93,044 Realisation on available-for-sale investments –––(568,347) –––(568,347) Provision of share options expense ––––––17,302 17,302 Transfer to share premium ––––––(8,621) (8,621) Transfer to retained profits – (1,605) ––––(3,271) (4,876) Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies ––––––239,100 239,100 Deferred taxation charged directly to reserves (19,778) (6,224) (6,322) ––––(32,324) Cash flow hedge –––––(1,290) – (1,290) At 31 December 2006 105,361 457,165 49,190 609,611 143,501 655 8,183,353 9,548,836

144 KERRY PROPERTIES LIMITED 35 OTHER RESERVES (Continued) (a) Others

Group Enterprise expansion and general Capital Capital Share Exchange reserve redemption reserve options fluctuation funds reserve (note (d)) reserve reserve (note (e)) (note (g)) Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 7,975,089 – (119,826) 28,581 7,868 7,891,712 Provision of share options expense – 28,627 –––28,627 Transfer from retained profits –––822 – 822 Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies ––17,682 ––17,682 At 31 December 2005 7,975,089 28,627 (102,144) 29,403 7,868 7,938,843

At 1 January 2006 7,975,089 28,627 (102,144) 29,403 7,868 7,938,843 Provision of share options expense – 17,302 –––17,302 Transfer to share premium – (8,621) –––(8,621) Transfer to retained profits –––(3,271) – (3,271) Exchange differences arising from investments in the PRC and overseas subsidiaries/associated companies ––238,858 242 – 239,100 At 31 December 2006 7,975,089 37,308 136,714 26,374 7,868 8,183,353

(b) These represent surplus arising from revaluation of properties at the balance sheet date. The accounting policies in respect of revaluation of properties are set out in notes 2(e) and 2(f).

(c) This represents surplus arising from valuation of the Group’s available-for-sale investments at the balance sheet date. The accounting policy in respect of valuation of available-for-sale investments is set out in note 2(k).

(d) Capital reserve of the Group arose from the Group’s reorganisation in preparation for its listing on the Stock Exchange of Hong Kong in August 1996, adjusted by the excess or deficit of the fair values of the net assets of subsidiaries and associated companies subsequently acquired over the cost of investment at the date of acquisition before 1 January 2001.

(e) Enterprise expansion and general reserve funds are set up by subsidiaries and associated companies established and operating in the PRC. According to the PRC Foreign Enterprise Accounting Standards, upon approval, the enterprise expansion reserve fund may be used for increasing capital while the general reserve fund may be used for making up losses and increasing capital.

ANNUAL REPORT 2006 145 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

35 OTHER RESERVES (Continued) (f) Other reserves of the Company

Capital Convertible Share redemption Contributed bonds options reserves surplus reserve reserve (note (g)) Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2005 17,793,308 ––7,868 17,801,176 Convertible bonds – equity component – 143,501 ––143,501 Provision of share options expense ––28,627 – 28,627 At 31 December 2005 17,793,308 143,501 28,627 7,868 17,973,304

At 1 January 2006 17,793,308 143,501 28,627 7,868 17,973,304 Provision of share options expense ––17,302 – 17,302 Transfer to share premium (note 34) ––(8,621) – (8,621) At 31 December 2006 17,793,308 143,501 37,308 7,868 17,981,985

(i) The contributed surplus of the Company arose when the Company issued shares in exchange for the shares of companies being acquired, and represents the difference between the nominal value of the Company’s shares issued and the value of net assets of the companies acquired. Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus is distributable to the shareholders. At Group level, the contributed surplus is reclassified into its components of reserves of the underlying subsidiaries.

(ii) As at 31 December 2006, the reserves of the Company available for distribution amounted to approximately HK$18,919,415,000 (2005: HK$18,762,640,000).

(g) The capital redemption reserve arose from the purchase of the Company’s shares for cancellation during 1998 and 2002 and represents a transfer from the Company’s retained profits equivalent to the nominal value of the shares purchased for cancellation.

146 KERRY PROPERTIES LIMITED 36 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before taxation to net cash generated from operations

Group 2006 2005 HK$’000 HK$’000

Profit before taxation 5,838,861 3,756,278 Depreciation and amortisation 161,037 146,494 Dividend income from listed and unlisted investments (1,373,068) (13,936) Impairment loss on available-for-sale investments 197,941 – Finance costs 380,663 201,679 Interest income (76,240) (101,636) (Gain)/loss on sale of property, plant and equipment (7,020) 11,410 Gain on sale of investment properties (783,019) (180,257) Gain on sale of subsidiaries (9,675) – Gain on sale of listed securities at fair value through profit or loss (669) – Loss/(gain) on valuation of listed securities at fair value through profit or loss 4,528 (1,657) Impairment of goodwill 971 – Change in fair value of investment properties and revaluation deficit on buildings (2,318,701) (1,542,170) Share of results of associated companies (450,917) (510,105) Operating profit before working capital changes 1,564,692 1,766,100 Increase in stock of completed properties held for sale, properties under development for sale, and accounts receivable, prepayments and deposits (1,702,691) (407,924) Increase/(decrease) in accounts payable, deposits received and accrued charges 284,724 (645,644) Net cash generated from operations 146,725 712,532

(b) Purchase of subsidiaries (i) Hong Kong Property On 31 August 2006, the Group acquired 71% of the share capital of Champrich Investments Limited, which holds various properties located at 20 Shan Kwong Road and 1-5 Village Terrace, Happy Valley through various wholly-owned subsidiaries. These properties were acquired for redevelopment purpose. The acquired business did not generate any significant revenue, profit or loss during the year ended 31 December 2006.

On 24 November 2006, the Group acquired 80% of the share capital of Rink Management Group Limited, which will operate the ice rink at MegaBox when it opens around June 2007. The acquired business did not generate any significant revenue, profit or loss during the year ended 31 December 2006.

(ii) Logistics Network Effective from 1 January 2006, Shanghai Kerry CHJ Logistics Limited became a 97% subsidiary of the Group as a result of the acquisition of an additional 47% interest in the company. The acquired business contributed revenues of HK$19,740,000 and net profit of HK$378,000 to the Group for the year ended 31 December 2006.

On 2 March 2006, the Group acquired the entire share capital of Wah Cheong Company, Limited, a food distribution company in Hong Kong. The acquired business contributed revenues of HK$87,236,000 and net loss of HK$564,000 to the Group for the period from acquisition up to 31 December 2006. If the acquisition had occurred on 1 January 2006, the revenues and loss attributable to the Group would have been HK$90,872,000 and HK$909,000, respectively.

On 1 October 2006, the Group acquired 51% of Reliable Freight Forwarders Private Limited (subsequently renamed as Kerry Reliable Logistics Private Limited), a freight forwarding company operating in India. The acquired business contributed revenues of HK$28,195,000 and net profit of HK$133,000 to the Group for the period from acquisition up to 31 December 2006. If the acquisition had occurred on 1 January 2006, the revenues and profit attributable to the Group would have been HK$126,528,000 and HK$1,078,000 respectively.

ANNUAL REPORT 2006 147 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

36 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued) (b) Purchase of subsidiaries (Continued) (iii) Details of net assets acquired and goodwill are as follows:

2006 2005 Hong Kong Property Logistics Total HK$’000 HK$’000 HK$’000 HK$’000 Net assets acquired: Property, plant and equipment – 9,214 9,214 2,984 Properties under development 1,415,297 – 1,415,297 863,032 Accounts and other receivables 581 58,225 58,806 614,902 Cash and bank balances 522 33,618 34,140 19,015 Accounts and other payables (160) (74,510) (74,670) (709,827) Tax recoverable – 77 77 385 Bank overdrafts – (511) (511) – Taxation – (204) (204) – Deferred taxation – (41) (41) 16 1,416,240 25,868 1,442,108 790,507 Less: Minority interests and loans (410,619) (2,095) (412,714) (328,202) 1,005,621 23,773 1,029,394 462,305 Goodwill – 23,555 23,555 39,759 1,005,621 47,328 1,052,949 502,064 Interest originally held by the Group as an associated company – (5,119) (5,119) – 1,005,621 42,209 1,047,830 502,064

Satisfied by: Cash 1,005,621 42,209 1,047,830 201,785 Accounts payable ––– 300,279 1,005,621 42,209 1,047,830 502,064

The fair value of net assets acquired of each subsidiary approximates to their book value at the respective dates of acquisition.

(c) Analysis of the net cash outflow in respect of the purchase of subsidiaries

2006 2005 HK$’000 HK$’000

Cash consideration 1,047,830 201,785 Cash and bank balances acquired (34,140) (19,015) Bank overdrafts acquired 511 – Net cash outflow in respect of the purchase of subsidiaries 1,014,201 182,770

148 KERRY PROPERTIES LIMITED 36 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (Continued) (d) Analysis of the net cash inflow in respect of the disposal of subsidiaries

2006 2005 HK$’000 HK$’000

Net assets disposed of: Accounts receivable, prepayments and deposits 156,624 – Cash and bank balances 830 – Accounts payable, deposits received and accrued charges (157,484) – (30) – Interest in associated companies 10 – (20) – Gain on disposal of subsidiaries 9,675 – Total consideration 9,655 –

Cash consideration 9,655 – Cash and bank balances disposed of (830) – Net cash inflow in respect of the disposal of subsidiaries 8,825 –

(e) Non-cash transactions In May 2006, Throng Limited, an available-for-sale financial asset, disposed of its entire interest in Citibank Plaza by way of participation in the global offering of Champion Real Estate Investment Trust (the “Champion REIT”). Subsequent to this transaction, Throng Limited declared a dividend to its shareholders and the Group’s share of this dividend amounted to HK$1,357,884,000. Part of such dividend was distributed to the Group by 114,796,151 units of Champion REIT.

In December 2006, the Group disposed of its interests in three floors of Citibank Tower to Champion REIT. The consideration was partly settled by 50,880,000 units of Champion REIT.

37 RELATED PARTY TRANSACTIONS The following transactions were carried out with related parties during the year:

(a) Purchases of services

2006 2005 HK$’000 HK$’000

Marketing, consultancy and administrative management fees expense (note) 20,702 18,423

Note: This represents payment of services fee to Shangri-La International Hotel Management Limited, a subsidiary of Shangri-La Asia Limited (“SA”), a related company of the Group, which provided marketing, consultancy and administrative management services to a member of the Group. The service fees payable during the year were determined at either a fixed amount or a certain percentage of the gross operating revenue of the relevant company in accordance with the agreement for the provision of the above services.

(b) Key management compensation

2006 2005 HK$’000 HK$’000

Salaries and other short-term benefits 76,044 49,264 Share-based payments 9,568 15,716 Post-employment benefits 240 240 85,852 65,220

ANNUAL REPORT 2006 149 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

37 RELATED PARTY TRANSACTIONS (Continued) (c) Year-end balances

2006 2005 HK$’000 HK$’000 Receivables from related parties: Associated companies (note 18) 3,928,807 5,012,888 Payables to related parties: Subsidiaries of SA – included under accounts payable, deposits received and accrued charges (note 26) – 323,294 – included under amounts due to minority shareholders (note 30) 312,821 393,883 Associated companies (note 18) 55,760 50,134

(d) Guarantees for banking and other facilities of certain associated companies The Group has executed guarantees for banking and other facilities granted to certain associated companies. The utilised amount of such facilities covered by the Group’s guarantees which also represented the financial exposure of the Group as at 31 December 2006 amounted to approximately HK$1,633,214,000 (2005: HK$102,473,000). The total amount of such facilities covered by the Group’s guarantees as at 31 December 2006 amounted to approximately HK$1,662,218,000 (2005: HK$112,573,000). The above-mentioned amounts are also reflected in the guarantees given by the Group for banking and other facilities disclosed in note 39(a).

(e) Other related party transactions (i) On 1 June 2006, Kerry (Tianjin) Ltd (“Party A”), Kerry Properties (Tianjin) Ltd. (“Party B”) and Allgreen Properties (Tianjin) Pte. Ltd. (“Party C”) entered into a share transfer agreement (the “Share Transfer Agreement”) and a joint venture contract (the “JV Contract”) to undertake a property development project in Hedong District, Tianjin, PRC through 天津嘉里房地產開發有限公司 (Tianjin Kerry Real Estate Development Co., Ltd.) (“JVCO”). The scope of business of JVCO is to undertake the development, construction, operation and management of the hotel and composite complex within a plot of land located at Liuwei Road, Hedong District, Tianjin, PRC with an area of approximately 86,164 sq.m.

Pursuant to the Share Transfer Agreement, (a) Party A will transfer its 49% interest in the registered capital of JVCO to Party B at a consideration of RMB313,137,850 (HK$304,017,330) together with the proportionate shareholders’ loans at a consideration of US$6,215,155.49 (HK$48,167,455); and (b) Party A will transfer its 31% interest in the registered capital of JVCO to Party C at a consideration of RMB198,107,619 (HK$192,337,494) together with the proportionate shareholders’ loans at a consideration of US$3,932,037.15 (HK$30,473,288). Following the completion of the Share Transfer Agreement, JVCO will be owned by Party A, Party B and Party C in the proportions of 20%, 49% and 31%, respectively. According to the JV Contract, the maximum contribution of Party B to JVCO is expected to be RMB2,450,000,000 (HK$2,378,640,777).

Party A and Party C are wholly-owned subsidiaries of SA and Allgreen Properties Limited (“AG”), respectively. Both SA and AG are related companies of the Company. Party B is a wholly-owned subsidiary of the Company.

150 KERRY PROPERTIES LIMITED 37 RELATED PARTY TRANSACTIONS (Continued) (e) Other related party transactions (Continued) (ii) On 8 September 2006, Whole Grace Limited (“WGL”), a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement (the “Sale and Purchase Agreement”) with Kerry Holdings Limited (“KHL”), immediate holding company of the Company, whereby KHL agreed to acquire from WGL 60% of the entire equity interest in Able Time Group Limited (“Able Time”) together with the same proportion of the shareholder’s loans. The consideration for the sale and purchase was approximately HK$54,381,000. Following the completion of the Sale and Purchase Agreement on 31 October 2006, Able Time was owned by WGL and KHL in the proportions of 40% and 60%, respectively. According to the shareholders’ agreement between WGL and KHL, the maximum commitment of WGL to Able Time and its wholly-owned subsidiary, Ubagan Limited (“Ubagan”) is expected to be HK$1,480,000,000.

The scope of business of Able Time is to invest in Ubagan and the scope of business of Ubagan is solely to acquire the property at Nos. 863-865 King’s Road, Hong Kong (the “Property”) and to undertake the construction and re-development of the Property into a Grade A office development.

(iii) On 26 September 2006, Instant Vision Holdings Limited (“IVH”), Seanoble Assets Limited (“SAL”) and KHL entered into a sale and purchase agreement (the “Agreement”) in respect of the formation of a joint venture for acquisition through Expert Vision Holdings Limited (“Expert Vision”) of the property located at No. 508 Queen’s Road West, Hong Kong with a total gross floor area of approximately 125,000 square feet at the acquisition cost of HK$588,380,000.

Pursuant to the Agreement, IVH agreed to transfer (a) 30% of the entire equity interest in Expert Vision to SAL together with the proportionate shareholders’ loans at an aggregate sum of HK$18,262,595.17; and (b) 40% of the entire equity interest in Expert Vision to KHL together with the proportionate shareholders’ loans at an aggregate sum of HK$24,350,126.88. Following the completion of the Agreement on 29 September 2006, Expert Vision was owned by IVH, SAL and KHL in the proportions of 30%, 30% and 40%, respectively. According to the shareholders’ agreement between IVH, SAL and KHL, the maximum funding commitment of IVH to Expert Vision and its wholly-owned subsidiary is expected to be HK$201,000,000.

IVH is a wholly-owned subsidiary of the Company and SAL is a wholly-owned subsidiary of SA.

(iv) As disclosed in the 2004 and 2005 annual reports, on 13 April 2004, the Group and SA entered into a master agreement in relation to the joint acquisition, ownership and development of five sites in Jingan District, Shanghai, PRC. Following the acquisition of 50.5% equity interest in Shanghai Ji Xiang Properties Co. Ltd in 2005, during the year of 2006, the Group disposed a 48.5% interest in one of the five sites mentioned above which was previously 99%-owned by the Group to Kerry Shanghai (Jingan Nanli) Ltd, a wholly-owned subsidiary of SA, at a consideration of US$12,776,754 (approximately HK$99,235,771).

ANNUAL REPORT 2006 151 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

38 COMMITMENTS (a) At 31 December 2006, the Group had capital commitments in respect of properties under development and property, plant and equipment not provided for in these financial statements as follows:

2006 2005 HK$’000 HK$’000

Contracted but not provided for 4,158,755 4,586,977 Authorised but not contracted for 174,034 137,667 4,332,789 4,724,644

(b) At 31 December 2006, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

2006 2005 HK$’000 HK$’000 Land and buildings: Within one year 73,532 61,844 In the second to fifth year, inclusive 114,334 101,437 Over five years 99,773 88,836 287,639 252,117 Vessels: Within one year 36,674 46,338 In the second to fifth year, inclusive 37,870 110,340 74,544 156,678 362,183 408,795

(c) At 31 December 2006, the Group had future aggregate minimum lease rental receivable under non-cancellable operating leases as follows:

2006 2005 HK$’000 HK$’000 Land and buildings: Within one year 924,882 901,775 In the second to fifth year, inclusive 1,273,007 718,866 Over five years 655,636 473,066 2,853,525 2,093,707

39 CONTINGENT LIABILITIES (a) Guarantees for banking and other facilities

Group Company 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 Guarantees for banking and other facilities of certain subsidiaries, associated companies and investee companies (notes (i) and (ii)) 1,685,232 413,517 4,335,254 1,361,039 Guarantees to certain banks for mortgage facilities granted to first buyers of certain properties in the PRC (note (iii)) 445 48,346 445 3,350 1,685,677 461,863 4,335,699 1,364,389

(i) The Group has executed guarantees for banking and other facilities granted to certain associated companies and investee companies. The utilised amount of such facilities covered by the Group’s guarantees which also represented the financial exposure of the Group as at 31 December 2006 amounted to approximately HK$1,685,232,000 (2005: HK$413,517,000). The total amount of such facilities covered by the Group’s guarantees as at 31 December 2006 amounted to approximately HK$1,714,236,000 (2005: HK$423,617,000).

152 KERRY PROPERTIES LIMITED 39 CONTINGENT LIABILITIES (Continued) (a) Guarantees for banking and other facilities (Continued) (ii) The Company has executed guarantees to banks for facilities granted to certain subsidiaries, associated companies and investee companies. The utilised amount of such facilities covered by the Company’s guarantees which also represented the financial exposure of the Company as at 31 December 2006 amounted to approximately HK$4,335,254,000 (2005: HK$1,361,039,000). The total amount of such facilities covered by the Company’s guarantees as at 31 December 2006 amounted to approximately HK$4,412,057,000 (2005: HK$1,481,614,000).

(iii) The Group and the Company have executed guarantees to certain banks for mortgage facilities granted to first buyers of certain properties developed by the Group in the PRC. The utilised amount of such facilities covered by the Group’s and the Company’s guarantees which also represented the financial exposure of the Group and the Company as at 31 December 2006 amounted to approximately HK$445,000 (2005: HK$48,346,000) and HK$445,000 (2005: HK$3,350,000), respectively. The total amount of such facilities covered by the Group’s and the Company’s guarantees as at 31 December 2006 amounted to approximately HK$445,000 (2005: HK$148,922,000) and HK$445,000 (2005: HK$3,350,000), respectively.

(b) Other guarantees and undertakings (i) A wholly-owned subsidiary of the Company, through its associated company, has a 20% interest in a company which is engaged in the development of a site in the Olympic Mass Transit Railway Station Development. Another wholly-owned subsidiary of the Company, through its associated company, has a 32.5% interest in another company which is engaged in the development of an adjacent site. The companies developing the sites (the “Developers”) were each granted exclusive rights to develop the relevant sites pursuant to separate development agreements (the “Development Agreements”) entered into by each of the Developers and MTR Corporation Limited (“MTRC”).

Pursuant to two deeds of guarantee in relation to each of the above developments, the Company has provided several guarantees in favour of the MTRC for the due and punctual performance and observance by each of the Developers of 20% and 32.5%, respectively, of the Developer’s obligations, liabilities, stipulations, acts and duties under or in connection with the respective Development Agreements and the due and punctual payment of 20% and 32.5%, respectively, of all monies and liabilities due, owing or payable to the MTRC from or by each of the Developers under or in connection with the respective Development Agreements.

In consideration of the MTRC entering into and agreeing to the terms of the sale and purchase agreement (the “S & P Agreement”) and certain trust arrangements (the “Trust Arrangements”) in relation to the sale of an office development developed by the Developer in which the Group has a 20% interest, the Company has agreed to provide several guarantees and indemnities to indemnify MTRC against 20% of all claims, demands, cost, damages, losses, expenses and/or liabilities which MTRC may incur or suffer and which are in any way connected with or resulting from the entering into and/or the observance and/or performance of the S & P Agreement and/or the carrying out by MTRC of the Trust Arrangements. The Company has also guaranteed the payment on demand of 20% of the full amount of such costs, losses, expenses or liabilities.

ANNUAL REPORT 2006 153 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

39 CONTINGENT LIABILITIES (Continued) (b) Other guarantees and undertakings (Continued) (ii) The Group has a 15% effective interest in Western Harbour Tunnel Company Limited (“WHTCL”) which acquired a 30-year franchise from the Government of the Hong Kong Special Administrative Region (the “Government”) to build and operate the Western Harbour Crossing (the “Crossing”). Pursuant to a deed of guarantee dated 2 September 1993 as amended by a deed of novation dated 27 June 1995, a second deed of novation dated 12 October 1998 and a third deed of novation dated 30 May 2000 (the “Guarantee”), the Company together with the other beneficial shareholders of WHTCL have jointly and severally undertaken to the Government that if the aggregate of all costs incurred by WHTCL up to the operating date of the Crossing and all maintenance and repair costs incurred by WHTCL after the operating date of the Crossing but before the issuance of the maintenance certificate exceeds HK$7,534,000,000 then they will pay to WHTCL such excess amount.

Pursuant to a shareholders agreement dated 30 December 1992 as amended by a cross-indemnity deed dated 20 December 1993, a supplemental deed dated 8 September 1994, a second supplemental deed dated 12 October 1998 and a third supplemental deed dated 23 May 2000 in respect of WHTCL, the Company together with the other beneficial shareholders have agreed that in relation to any claim made or asserted under the Guarantee, as between themselves, the total of all liabilities in respect of such claim and of all costs, charges and expenses suffered or incurred by any of them resulting therefrom or attributable thereto shall be shared by them in proportion to their respective ultimate ownership of the issued capital of WHTCL.

(iii) A wholly-owned subsidiary of the Company, through its associated company, has a 40% interest in a company which is engaged in the development of a site at the Hang Hau Mass Transit Railway Station Development (the “Hang Hau Developer”). The Hang Hau Developer was granted exclusive rights to develop the site pursuant to a development agreement (the “Hang Hau Development Agreement”) entered into by the Hang Hau Developer with, amongst others, MTRC.

Pursuant to a deed of guarantee in relation to the above development, the Company has provided several guarantees in favour of MTRC for the due and punctual performance and observance by the Hang Hau Developer of 40% of its obligations, liabilities, stipulations, acts and duties under or in connection with the Hang Hau Development Agreement and the due and punctual payment of 40% of all monies and liabilities due, owing or payable to MTRC from the Hang Hau Developer under or in connection with the Hang Hau Development Agreement.

154 KERRY PROPERTIES LIMITED 39 CONTINGENT LIABILITIES (Continued) (b) Other guarantees and undertakings (Continued) (iv) The Group has 38.2% interest in a company (the “Seller”) which, pursuant to a sale and purchase agreement (the “Mortgage S&P Agreement”), has sold certain loans (the “Loans”) to The Hong Kong Mortgage Corporation Limited (the “HKMC”). Pursuant to a support agreement (the “Support Agreement”) entered into by the Company with, amongst others, the HKMC, the Company has severally undertaken that (i) if the Seller fails to repurchase any Loans in accordance with the Mortgage S&P Agreement, to, or to procure a third party approved by the HKMC to, complete repurchase of such Loans; and (ii) if the Seller fails to pay when due any amount in full in respect of the Loans required to be paid by it to the HKMC, to pay on behalf of the Seller on a several basis an amount equal to 38.2% of the amount that the Seller has failed to pay to the HKMC.

The Company has also severally undertaken with the HKMC that it shall indemnify and keep indemnified the HKMC, its directors, officers and employees and its successors and assignees from and against 38.2% of all liabilities, losses, damages, actions, proceedings, demands, claims, costs and expenses which may be brought against, suffered or incurred by such indemnified person by reason of any breach of the Seller’s undertakings, representations and warranties in the Mortgage S&P Agreement and the Support Agreement or of any breach of the Company’s representations, warranties and undertakings in the Support Agreement.

(v) The Group has a 50% interest in a company (“Party 1”) which owns a piece of land in Cheung Sha Wan while another company (“Party 2”) owns an adjacent piece of land. Party 1 and Party 2 are negotiating the joint redevelopment of the two pieces of land. Prior to the joint redevelopment, the parties need to surrender the existing two pieces of land to the Government in exchange for the grant of a new lot for commercial/ residential development with public car park facilities (the “Proposed Land Exchange”). The Proposed Land Exchange involves the grant of a street and its associated footpaths as part of the new lot and requires the permanent closure of the abovementioned street and its associated footpaths.

Pursuant to an undertaking (the “Undertaking”) dated 6 January 2006, in consideration of the Government entering into and continuing the negotiations with Party 1 and Party 2 on the Proposed Land Exchange, the Company and other parties, including the holding companies of the shareholders of Party 1 and Party 2, have jointly and severally undertaken, covenanted and agreed that they shall indemnify and keep indemnified the Government and any of its officers from and against all and any actions (including judicial reviews), liabilities, demands, claims, expenses, costs and losses arising directly or indirectly out of or in connection with the gazetting of the permanent closure of the abovementioned street and its associated footpaths under the Roads (Works, Use and Compensation) Ordinance and the authorisation of such closure.

Pursuant to a deed of cross indemnity and a collateral deed of cross indemnity, both dated 6 January 2006, the Group’s liabilities under the Undertaking shall be several and shall be determined based on its share of interest in the joint redevelopment.

ANNUAL REPORT 2006 155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

39 CONTINGENT LIABILITIES (Continued) (b) Other guarantees and undertakings (Continued) (vi) A wholly-owned subsidiary of the Company, Wealthy State Investments Limited (“Wealthy State”), has been granted the right to jointly develop a site in Sai Ying Pun, Hong Kong pursuant to a development agreement (the “SYP Development Agreement”) entered into between Wealthy State and the Urban Renewal Authority (“URA”).

Pursuant to a guarantee in relation to the above development, the Company has provided guarantees in favour of URA for the due and punctual performance and fulfilment of all Wealthy State’s obligations under the SYP Development Agreement or arising out of or in connection with the SYP Development Agreement (including Wealthy State’s obligations to make payments under the terms of the SYP Development Agreement).

(c) Litigation Kerry EAS Logistics Limited (“KEAS”) is involved in a legal case in which an airline operator, together with five other plaintiffs, including the insurers of the aircraft, are claiming for damages, costs and interest, against six defendants, including KEAS, on a joint and several basis in relation to the alleged damages amounting to approximately US$65.6 million (equivalent to approximately HK$511.7 million, based on the exchange rate of US$1 = HK$7.8) caused to an aircraft in 2000 in respect of the transportation of certain chemical substance.

The damages sought by the plaintiffs of approximately US$65.6 million represent the market value of the aircraft at the time when the damage occurred less the resale value of the aircraft after repairs. According to the pleadings and the affidavits of the five other plaintiffs, the actual compensation made by them to the airline operator amounted to 15% of the total loss. The remaining 85% of the total loss was compensated by other reinsurers. These reinsurers have not brought any legal action against the six defendants as at the date of this report. Under the PRC laws, the maximum liability of the six defendants under the current legal case is only 15% of the total loss.

Based on the opinion of the legal advisers of the Group, it is unlikely that KEAS will be found liable for the claimed damages and losses. Accordingly, no provision has been made in the financial statements.

Pursuant to the sale and purchase agreement, the vendor of KEAS has undertaken to indemnify the Group in full in respect of all losses, costs, expenses and other responsibilities and liabilities arising in respect of various litigations against KEAS including the abovementioned legal case.

156 KERRY PROPERTIES LIMITED 40 PLEDGE OF ASSETS – GROUP At 31 December 2006, the Group’s total bank loans of HK$7,154,573,000 (2005: HK$9,334,386,000) included an aggregate amount of HK$6,852,888,000 (2005: HK$9,086,981,000) which is unsecured and an aggregate amount of HK$301,685,000 (2005: HK$247,405,000) which is secured. The securities provided for the secured banking facilities available to the Group are as follows:

(i) legal charges over certain properties and port facilities (notes 13 to 16);

(ii) charges on all assets, including bank balances amounting to HK$47,263,000 (2005: HK$32,514,000), of certain subsidiaries; and

(iii) assignments of insurance proceeds of certain properties.

41 EVENTS AFTER THE BALANCE SHEET DATE (a) Issuance of convertible bonds On 22 February 2007, Gainlead International Limited, a wholly-owned subsidiary of the Company, issued convertible bonds in the aggregate principal amount of HK$2,350,000,000. These convertible bonds are zero coupon-based, have a maturity term of 5 years until 22 February 2012 and are convertible into the Company’s ordinary shares at a conversion price of HK$52.65 per share (subject to adjustments).

(b) Conversion of convertible bonds issued in 2005 Subsequent to the balance sheet date and up to 22 March 2007, an aggregate principal amount of HK$756,210,000 of the convertible bonds issued in 2005 has been converted into an aggregate of 29,135,413 ordinary shares of HK$1 each in the Company, representing approximately 30.2% of the entire amount of the aforementioned convertible bonds of HK$2,500,000,000.

42 ULTIMATE HOLDING COMPANY The directors regard Kerry Group Limited, a company incorporated in the Cook Islands, as being the ultimate holding company.

ANNUAL REPORT 2006 157 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES As at 31 December 2006, the Company held interests in the following subsidiaries which are categorized according to the business divisions of the Group, namely, Property Division, Infrastructure Division, Logistics Network Division and Other Divisions as listed below: Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Property Division

Aberporth Resources Limited BVI Investment holding 1 US$1 100% (5) Amble Aim Sdn. Bhd. MAL Investment holding 2 RM1 100% Ansellman Limited BVI Investment holding 1 US$1 100% Auto Plaza Limited HK Investment holding, 4,998 HK$1 100% property investment 2(2) HK$1 and carpark operation Baron Development Limited BVI Investment holding 1 US$1 100% Barriedale Limited BVI Investment holding 10,000 US$1 100% (5)(8) Beihai Kerry Property Development Ltd. PRC Property development RMB9,000,000 – 100% (9) Beijing Jia Ao Real Estate Development PRC Property investment US$77,967,600 – 71.25% Co., Ltd. (9) Beijing Kerry Centre Hotel Co., Ltd. PRC Hotel ownership and operation US$33,000,000 – 71.25% Best Pacific Investments Limited HK Dormant 1 HK$1 71% Bethan Company Limited HK Dormant 2 HK$1 100% Big Sky Resources Limited BVI Investment holding 100 US$1 100% Burgo Inc BVI Dormant 1,000 US$1 100% Calistock Limited BVI Investment holding in HK 1 US$1 100% Capital Rise Investments Limited HK Property development 1 HK$1 71% Cashel Assets Limited BVI Investment holding in HK 1 US$1 100% Chain Base Limited HK Property development 1 HK$1 71% Champrich Investments Limited BVI Investment holding 1,000,000 HK$1 71% Clavering Services Limited BVI Investment holding 1,000 US$1 100% Comphor Company Limited BVI Investment holding 10 US$1 100% Darcey Investments Limited BVI Investment holding 100 US$1 100% Data Giant Holdings Limited BVI Investment holding 1 US$1 100% Denver Rose Investments Limited BVI Investment holding in HK 1 US$1 100% Dragon Wisdom Limited BVI Investment holding 1 US$1 100% Errol Company Ltd. BVI Investment holding 1 US$1 100% Even Wise Limited HK Dormant 1 HK$1 100% Fair Page Limited HK Property leasing 2 HK$1 100% Fair Town Limited HK Property investment 1 HK$1 100% Fortune Mega Investments Limited BVI Investment holding 1 US$1 100% Garden Streams Limited BVI Investment holding 1 US$1 100% Giant Noble Investments Limited BVI Investment holding 1 US$1 100% Glory Cheer Limited SMA Dormant 1 US$1 100% Goldash Holdings Limited BVI Investment holding 1 US$1 100% Golden Concord Properties Limited HK Property investment 1 HK$1 100% Golden Explorer Group Limited BVI Investment holding 1 US$1 100% Grandgain Holdings Limited BVI Investment holding 10,000 US$1 100% Great Bless Limited BVI Investment holding 1 US$1 100% Harvard Developments Limited BVI Dormant 12 US$1 75% Hong Kong Shanghai Development Co Ltd. SMA Investment holding 8,000,000 HK$1 65% Instant Vision Holdings Limited BVI Investment holding 1 US$1 100%

158 KERRY PROPERTIES LIMITED 43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Property Division (Continued)

Interseed Company Limited HK Property trading 2 HK$1 100% Irrewarra Holdings Limited BVI Investment holding 1 US$1 100% Join Sky Investment Limited HK Property development 1 HK$1 71% Julian Holdings Limited BVI Investment holding 1 US$1 100% Kanya Corp. BVI Investment holding 1,000 US$1 100% Kerry Beijing (Guang Hua) Ltd SMA Investment holding 1,000,000 HK$1 75% Kerry Beijing (Shibalidian) SMA Investment holding 1 HK$1 100% Development Ltd. Kerry Beijing (Shibalidian) SMA Dormant 1 HK$1 100% Recreation Club Ltd. Kerry Beijing (Xinyuanli) Housing Ltd. SMA Investment holding 1 US$1 100% (formerly known as Kerry Beijing (Shibalidian) Housing Ltd.) (8) Kerry Cao Jia Yan Properties (Shanghai) PRC Property investment US$13,400,000 – 100% Co., Ltd. (5)(6)(8) Kerry Centre Real Estate (Shenzhen) PRC Property investment HK$142,000,000 – 100% Co. Ltd. Kerry Development (Chengdu) Ltd. SMA Dormant 1 HK$1 100% (formerly known as Kerry Beijing (Shibalidian) Exhibition Centre Ltd.) Kerry Development (China) Limited HK Provision of administrative 1 HK$1 100% support services (5)(8) Kerry Development (Manzhouli) Co., Ltd. PRC Property development US$6,800,000 – 100% (8) Kerry Development (Shanghai) Co., Ltd. PRC Property investment US$40,000,000 – 100% (5)(6)(8) Kerry Development (Shenzhen) Co., Ltd. PRC Property development HK$633,350,000 – 100% Kerry Fuzhou (Gutian) Ltd. SMA Investment holding 6,000,000 HK$1 100% Kerry Guangxi (Beihai) Ltd SMA Investment holding 1,500,000 HK$1 100% Kerry Hangzhou (Hua Feng) Limited BVI Dormant 1 US$1 100% (5)(6)(8) Kerry Huafeng Property Development PRC Property development HK$139,000,000 – 100% (Hangzhou) Co., Ltd. Kerry Properties (Australia) Limited BVI Investment holding 1 HK$1 100% Kerry Properties (China) Limited BVI Investment holding 4,554,642,958 HK$1 100% * Kerry Properties (Chongqing) Ltd. SMA Dormant 1 HK$1 100% Kerry Properties (H.K.) Limited HK Investment holding 1,000 HK$1 100% 200,000,000(2) HK$1 Kerry Properties (Hangzhou) Ltd. SMA Investment holding 85,000,000 HK$1 100% Kerry Properties (Hohhot) Ltd. SMA Dormant 1 HK$1 100% Kerry Properties (Hong Kong) Limited BVI Investment holding 41,317,948 HK$0.01 100% Kerry Properties (Macau) Limited Macau Construction and 1,000,000 MOP1 71% property development Kerry Properties (Manzhouli) Ltd. SMA Investment holding 1 HK$1 100% Kerry Properties (Ningbo) Ltd. SMA Dormant 1 HK$1 100% Kerry Properties (Philippines) Limited BVI Investment holding 1 US$1 100% Kerry Properties (Shenzhen Central SMA Dormant 1 HK$1 100% District) Ltd. (5)(6)(8) Kerry Properties (Shenzhen) Co., Ltd. PRC Property development HK$112,082,975 – 100% Kerry Properties (Sydney) Pty Ltd Australia Investment holding 1 A$1 100% Kerry Properties (Tianjin) Ltd. SMA Investment holding 1 HK$1 100%

ANNUAL REPORT 2006 159 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Property Division (Continued)

Kerry Properties (Xiamen) Ltd. SMA Dormant 1 HK$1 100% (formerly known as Kerry Beijing (Shibalidian) Commercial Ltd.) Kerry Properties (Yangzhou) Ltd. SMA Investment holding 1,000,000 HK$1 100% (5) Kerry Properties Beijing (Shibalidian) BVI Investment holding 1 US$1 100% Holdings Company Limited Kerry Properties Beijing Kerry Centre Ltd. SMA Dormant 1 HK$1 100% Kerry Properties International Limited BVI Investment holding 1 HK$1 100% * Kerry Properties Shenzhen Kerry HK Investment holding 5,000,000 HK$1 100% Centre Limited (5)(8) Kerry Real Estate (Hangzhou) Co. Ltd. PRC Property development US$62,000,000 – 100% (5)(6)(8) Kerry Real Estate (Yangzhou) Co., Ltd. PRC Property development US$11,600,000 – 100% Kerry Residences Limited HK Dormant 2 HK$1 100% Kerry Shanghai (Cao Jia Yan) Ltd. SMA Investment holding 2 US$1 100% Kerry Shanghai (Hongkou) Ltd. SMA Investment holding 6,000,000 HK$1 60% Kerry Shanghai (Jingan Beili) Ltd SMA Investment holding 1,000,000 HK$1 75% Kerry Shanghai Development Ltd SMA Investment holding 1,000,000 HK$1 100% Kerry Shanghai Pudong Investments Ltd. SMA Investment holding 1 HK$1 100% Kildare Limited HK Dormant 2 HK$1 100% Kingsfield Development Limited HK Dormant 1 HK$1 100% Mable Road Company Limited HK Property investment 10 HK$1 100% 10,000(2) HK$1 Madigan Company Limited HK Property trading 2 HK$1 100% Magnifair Company Limited HK Property development 10,000 HK$1 100% Maple Crest Development Limited BVI Investment holding and 120 US$1 75% property trading in HK Marrakesh Limited BVI Investment holding 1 US$1 100% Mazlo Holdings Limited BVI Investment holding 1 US$1 100% MegaBox Development Company Limited HK Property development 2 HK$1 100% MegaBox Management Services Limited HK Property management 2 HK$1 100% (formerly known as Mega Box Retail Management Limited) Merlin Limited SMA Investment holding in PRC 1,000,000 HK$1 100% Mid-Levels Portfolio (Aigburth) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (Aigburth) Limited Cook Islands Property investment in HK 9 US$1 100% Mid-Levels Portfolio (Branksome) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (Branksome) Limited HK Property investment 100 HK$10 100% Mid-Levels Portfolio (Century Tower II) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (Gladdon) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (Gladdon) Limited HK Property investment 100 HK$10 100% Mid-Levels Portfolio (May Tower I) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (May Tower I) Limited HK Dormant 100 HK$1 100% Mid-Levels Portfolio (Tavistock) BVI Investment holding 1 US$1 100% Holdings Limited

160 KERRY PROPERTIES LIMITED 43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Property Division (Continued)

Mid-Levels Portfolio (Tavistock) Limited HK Property investment 100 HK$10 100% Mid-Levels Portfolio (Tregunter BVI Investment holding 100 US$1 100% Towers 1 & 2) Holdings Limited Mid-Levels Portfolio (Tregunter BVI Property investment in HK 1 US$1 100% Towers 1 & 2) Limited Mid-Levels Portfolio (Valverde) BVI Investment holding 1 US$1 100% Holdings Limited Mid-Levels Portfolio (Valverde) Limited HK Property investment and trading 100 HK$10 100% Mid-Levels Portfolio Holdings Limited BVI Investment holding 1 US$1 100% Newick Limited HK Property development 1 HK$1 71% Nite Lites Limited BVI Investment holding 10,000 HK$1 100% NMC 6 Limited BVI Dormant 1 US$1 100% NMC 7 Limited BVI Dormant 1 US$1 100% NMC 8 Limited BVI Dormant 1 US$1 100% NMC 9 Limited BVI Dormant 1 US$1 100% Norbiton Group Limited BVI Investment holding 10,000 HK$1 100% Norminster Limited HK Investment holding 1,000 HK$1 100% Ocean City Investments Limited BVI Investment holding 1 US$1 75% Olsen Holdings Limited BVI Investment holding 1 US$1 100% Panawin Limited HK Property development 1 HK$1 71% Pembrooke Development BVI Investment holding in HK 10,000 HK$1 100% Investments Limited Pettico Limited HK Provision of finance services 2 HK$10 100% Pirton Resources Limited BVI Investment holding 1 US$1 100% Port Destiny Limited HK Dormant 2 HK$1 100% Positive Delight Limited BVI Investment holding 1 US$1 100% Prismatic Limited HK Property development and trading 2 HK$10 100% Purview Assets Limited BVI Investment holding 1 US$1 100% Rayhay Company Limited HK Provision of financial services 2 HK$1 100% (5) Rink Management Group Limited HK Management services 1,000,000 HK$1 80% Rise Fortune Investments Limited SMA Dormant 1 US$1 100% (5)(8) Risenland Development (Fuzhou) Co., Ltd. PRC Property development HK$44,000,000 – 100% Rodder Holdings Limited BVI Investment holding in HK 1 US$1 100% Roving Spirit Limited BVI Investment holding 10,000 HK$1 100% Sageman Limited BVI Investment holding 1 US$1 100% Scene View Limited BVI Investment holding 1 US$1 100% Senworld Investment Limited HK Dormant 2 HK$1 100% (9) Shanghai Gang Hu Properties Co., Ltd. PRC Property investment and US$155,300,000 – 64.35% development (8) Shanghai Ji Xiang Properties Co., Ltd. PRC Property development US$99,000,000 – 51% (5)(6)(8) Shanghai Jin Ci Hou Properties PRC Property development US$102,500,000 – 51% Company Limited (9) Shanghai Kerry Real Estate Development PRC Property investment US$12,000,000 – 55.20% Co., Ltd. (5)(6)(8) Shanghai Ming Cheng Real Estate PRC Property development US$9,000,000 – 51% Development Co., Ltd.

ANNUAL REPORT 2006 161 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Property Division (Continued)

(9) Shanghai Xin Ci Hou Properties Co., Ltd. PRC Property investment US$60,000,000 – 74.25% Shun On Properties Limited HK Property development 1 HK$1 71% Smart State Holdings Limited BVI Investment holding 1 US$1 100% Spring Capital Holdings Limited BVI Investment holding 1 US$1 100% Taskan Limited HK Property development 2 HK$1 100% Tellson International Limited BVI Investment holding 1 US$1 100% Templepatrick Limited HK Provision of finance service 100 HK$1 100% Travel Aim Investment B.V. Netherlands Investment holding 18,000 EUR0.45 100% Trebanos Investment Company Limited HK Dormant 2 HK$1 100% Viola Developments Limited BVI Investment holding 1 US$1 100% Washers Limited BVI Investment holding 10,000 HK$1 100% Wealthy State Investments Limited HK Property development 1 HK$1 100% Whole Base Investments Limited HK Investment holding 1 HK$1 100% Whole Grace Limited BVI Investment holding 1 US$1 100% Wing Tak Cheung Limited HK Property development and trading 1,000 HK$10 100% Wirabay Limited BVI Provision of trustee services 1 US$1 100% Wiseside Investment Company Limited HK Dormant 2 HK$1 75% Woody Company Limited HK Property investment 2 HK$1 100% Wymer Limited BVI Investment holding 5,000 US$1 100% Ying He Company Limited HK Investment holding 10 HK$1 100% 21,000,000(2) HK$1

Under Infrastructure Division

Kerry-ChemQuest (Beijing) Waste SMA Dormant 1 HK$1 51% Incineration Ltd. Kerry CQ (Changzhou) Waste SMA Investment holding 1 HK$1 51% Incineration Ltd. Kerry CQ (Shanghai) Waste BVI Dormant 1 HK$1 51% Incineration Limited Kerry CQ Environmental BVI Investment holding 100 HK$1 51% Engineering Limited Kerry CQ Waste Incineration Limited BVI Investment holding 100 HK$1 51% Kerry Communications Limited BVI Investment holding 1 US$1 100% Kerry Electricity (Hubei Jingmen) Ltd. SMA Dormant 1 HK$1 100% Kerry Electricity (Jiangxi) Ltd. SMA Investment holding 1 HK$1 100% Kerry Electricity (Zhongshan) Ltd. SMA Dormant 1 HK$1 100% Kerry Electricity Limited BVI Investment holding 1 US$1 100% Kerry Environmental Infrastructure Limited BVI Dormant 1 HK$1 100% Kerry Environmental Limited BVI Investment holding 1 US$1 100% Kerry Infrastructure (PRC) Limited BVI Investment holding 10,000 US$1 100% Kerry Infrastructure Development Limited HK Provision of management services 1 HK$1 100% and administrative support Kerry Infrastructure Limited BVI Investment holding 595,026,381 HK$1 100% * Kerry Telecommunications BVI Investment holding 1 HK$1 100% (Shanghai) Limited Pinewealth Investments Ltd. SMA Investment holding 1 HK$1 100% Silverstone Assets Limited BVI Investment holding in HK 100,000 US$1 100%

162 KERRY PROPERTIES LIMITED 43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Logistics Network Division

Able Plus Holdings Limited BVI Investment holding 1 US$1 100% Asia Air Cargo (Hong Kong) Limited HK Dormant 1 HK$1 100% Balkis Limited BVI Investment holding 10,000 US$1 100% Barrowdale Limited BVI Investment holding 1,000 US$1 100% Beaverton Limited BVI Investment holding 1 US$1 100% (5)(6) Beijing Kerry EAS Real Estate PRC Property management RMB500,000 – 70% Management Limited Belminton Inc. BVI Investment holding 1,000 US$1 100% Busyhigh Limited SMA Investment holding 1 HK$1 100% Capabletech Limited BVI Investment holding 1 US$1 100% Capital Plus Assets Limited BVI Investment holding 1 US$1 100% (5) Charlicks New Guinea Ltd. Papua New Dormant 27,000 PGK2 99.99% Guinea Clever Wise Management Limited BVI Provision of nominee services 1 US$1 70% Cremorne Investments Limited BVI Investment holding 100 US$1 100% Dec Limited BVI Investment holding 10,000 US$1 100% Denleigh Limited BVI Investment holding 1 US$1 100% Eas Cross Border Trucking Limited HK Transportation services 1 HK$1 100% Eas Da Tong International Aircargo HK Investment holding 100,000 HK$1 100% Company Limited Eas Da Tong International Trucking HK Transportation services 1,000,000 HK$1 100% Company Limited Eas Express Services Limited HK Provision of express services 10,000 HK$1 100% Eas International Aircargo Co. Limited HK Provision of freight 10,000 HK$1 100% forwarding services (5)(9) EAS International Logistics (Shanghai) PRC Logistics business US$6,000,000 – 70% Co., Ltd. Eas International Logistics Centre Limited HK Logistics services 50,000,000 HK$1 70% Eas International Shipping Co., Limited HK Provision of freight forwarding 100 HK$1 70% and shipping services 1,000,000(2) HK$1 Eas International Transportation HK Investment holding 100,000 HK$1 70% (HK) Limited (5)(6)(8) Eas Logistics (Shenzhen) Co., Ltd. PRC Warehouse and logistics business US$400,000 – 70% Ever Asset Group Limited BVI Investment holding 1 US$1 100% Evershine Equity Limited BVI Investment holding 1 US$1 100% Fortune Rising Ltd. BVI Investment holding 1 US$1 70% High Success Group Limited BVI Investment holding 10 US$1 70% Intelligain Investments Limited BVI Investment holding 1 US$1 100% Intelliocean Investments Limited BVI Investment holding 1 US$1 100% International Enterprise Co. Limited HK Investment holding 10 HK$1 100% 10,000(2) HK$1 Kerry Cargo Centre Limited HK Warehouse ownership 2 HK$1 100% (5)(9) Kerry Cargo Transportation Co Ltd PRC Provision of transportation HK$9,850,000 – 100% services Kerry Cold Store (Hong Kong) Limited HK Warehouse operation 2 HK$10 100% Kerry D.G. Warehouse (Kowloon Bay) HK Warehouse ownership 20,000,000 HK$1 100% Limited

ANNUAL REPORT 2006 163 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Logistics Network Division (Continued)

Kerry Distribution (Hong Kong) Limited HK Provision of distribution 500,000 HK$1 100% services (5)(6) Kerry Distribution (Thailand) Limited Thailand Provision of distribution 200,000(4) Baht100 71% services (5)(9) Kerry EAS Logistics (Qingdao) Co., Ltd. PRC Logistics business US$200,000 – 70% (5)(6)(9) Kerry EAS Logistics (SHENZHEN) Ltd. PRC Freight forwarding business US$1,000,000 – 70% (5)(8) Kerry EAS Logistics (Xiamen) Co., Ltd. PRC Logistics business US$1,100,000 – 70% (5)(9) Kerry EAS Logistics Limited PRC Freight forwarding and RMB150,000,000 – 70% logistics business (5)(8) Kerry EAS Warehouse (Zhuhai Free PRC Provision of cargo storage HK$1,000,000 – 70% Trade Zone) Ltd. services Kerry Facilities Management HK Building management 2 HK$1 100% (Hong Kong) Limited and guarding Kerry Facilities Management HK Building management 2 HK$1 100% Services Limited and guarding (5)(6)(8) Kerry FFTZ Warehouse (Shenzhen) Ltd. PRC Warehouse and logistics HK$70,000,000 – 51% business (5) Kerry Freight (Australia) Pty Ltd Australia Freight forwarding 2 A$1 100% Kerry Freight (Hong Kong) Limited HK Freight forwarding 100 HK$100 100% 27,500(2) HK$100 (5)(6) Kerry Freight (Korea) Inc. Korea Freight forwarding 100,000 KRW5,000 50.99% (5)(6) Kerry Freight (Taiwan) Limited Taiwan Freight forwarding 2,900,000 TWD10 51% (5)(6) Kerry Freight (Thailand) Limited Thailand Freight forwarding 115,000(4) Baht100 58% Kerry Freight International (Europe) HK Investment holding 1 HK$1 100% Limited Kerry Freight International (Taiwan) BVI Investment holding 1 US$1 100% Limited Kerry Freight International Limited HK Freight forwarding 2 HK$1 100% Kerry Freight Services (China) Limited BVI Investment holding 1 HK$1 100% Kerry Freight Services (Europe) Limited BVI Investment holding 1 US$1 100% (5) Kerry Freight Services (Far East) Pte. Ltd. Singapore Investment holding 1 S$1 100% Kerry Freight Services (HKSAR) Limited BVI Investment holding 1 US$1 100% Kerry Freight Services (Korea) Limited BVI Investment holding 1 HK$1 100% Kerry Freight Services (Philippines) Limited BVI Investment holding 1 US$1 100% Kerry Freight Services (South East Asia) BVI Investment holding 10,000 HK$1 100% Limited (formerly known as Kerry Logistics Services (South East Asia) Limited) Kerry Freight Services (Taiwan) Limited BVI Investment holding 10,000 HK$1 100% Kerry Freight Services (Thailand) Limited BVI Investment holding 1 HK$1 100% Kerry Freight Services (U.K.) Limited BVI Investment holding 1 US$1 100% Kerry Freight Services (USA) Limited BVI Investment holding 1 HK$1 100% Kerry Freight Services Limited BVI Investment holding 1 HK$1 100% (5)(6) Kerry Integrated Logistics (Vietnam) Vietnam Warehouse and logistics services US$2,400,000 – 100% Co., Ltd. (5) Kerry Logistics (Australia) Pty Ltd Australia Operation of logistics business, 1,000,000 A$2 100% rail terminal and container depot Kerry Logistics (Beijing) Ltd. SMA Investment holding 1 US$1 100% (5) Kerry Logistics (Belgium) Belgium International freight forwarding 186 EUR100 100%

164 KERRY PROPERTIES LIMITED 43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Logistics Network Division (Continued)

(5)(6) Kerry Logistics (Cambodia) Pte. Ltd. Cambodia International freight forwarding 1,000 KHR20,000 100% (5) Kerry Logistics (Central Europe) GmbH Germany Investment holding EUR250,000 – 100% Kerry Logistics (China) Limited BVI Investment holding 1 US$1 100% Kerry Logistics (Futian FTZ) Investments Ltd. SMA Investment holding 1 HK$1 100% (5) Kerry Logistics (Germany) GmbH Germany International freight forwarding EUR50,000 – 100% Kerry Logistics (HKSAR) Limited BVI Investment holding 1 US$1 100% Kerry Logistics (Hong Kong) Limited HK Operation of logistics business 10,000,000 HK$1 100% (5) Kerry Logistics (Macau) Limited Macau Logistics services MOP100,000 – 100% (5)(8) Kerry Logistics (Malaysia) Sdn Bhd MAL Logistics and freight forwarding 1,000,000 RM1 67% (5) Kerry Logistics (Netherlands) B.V. The Netherlands International freight forwarding EUR18,000 – 100% (5)(6)(8) Kerry Logistics (Shanghai Waigaoqiao) PRC Operation of logistics business HK$44,000,000 – 100% Co., Ltd. Kerry Logistics (Shenzhen Futian) SMA Investment holding 1 HK$1 100% Investments Ltd. Kerry Logistics (Shenzhen Yantian) Ltd. SMA Investment holding 1 HK$1 100% (5)(6)(8) Kerry Logistics (Shenzhen) Co., Ltd. PRC Operation of logistics business HK$3,300,000 – 100% (5) Kerry Logistics (Singapore) Pte. Ltd. Singapore International sea and 500,000 S$1 67% air forwarding (5) Kerry Logistics (South East Asia) Pte. Ltd. Singapore Investment holding 4,500,000 S$1 67% (5) Kerry Logistics (Switzerland) GmbH Switzerland International freight forwarding CHF20,000 – 100% Kerry Logistics (Taiwan) Investments BVI Investment holding 1 US$1 100% Limited (5)(6) Kerry Logistics (Thailand) Limited Thailand Operation of logistics business 1,600,000(4) Baht100 71% (5)(6)(8) Kerry Logistics (Tianjin) Co., Ltd. PRC Operation of logistics business HK$20,000,000 – 100% Kerry Logistics (Tianjin) Investments Ltd. SMA Investment holding 10,000 HK$1 100% (5) Kerry Logistics (UK) Limited UK Sea and air freight forwarding 20,000 £1 91% Kerry Logistics (Waigaoqiao) Ltd. SMA Investment holding 1 HK$1 100% (5) Kerry Logistics (Western Europe) Belgium Investment holding 186 EUR100 100% (5) Kerry Logistics GmbH Austria International freight forwarding EUR35,000 – 100% Kerry Logistics Holding (Macau) Limited BVI Investment holding 1 HK$1 100% (formerly known as Bestford Resources Limited) (5) Kerry Logistics Holding EU Belgium Investment holding 300 EUR100 100% (5) Kerry Logistics Holdings (Australia) Pty Ltd Australia Investment holding 100 A$1 100% Kerry Logistics Infrastructure Limited BVI Investment holding 10,000 HK$1 100% Kerry Logistics Limited BVI Investment holding 42,430,000 HK$1 100% Kerry Logistics Network Limited Bermuda Investment holding in HK 500,000 HK$1 100% * Kerry Logistics Services (Australia) Limited BVI Investment holding 1 HK$1 100% Kerry Logistics Services (Macau) Limited BVI Investment holding 1 HK$1 100% (formerly known as Kerry Logistics (Macau) Limited) Kerry Logistics Services (Spain) Limited BVI Investment holding 1,000 US$1 100% Kerry Logistics Services (Thailand) Limited BVI Investment holding 1 HK$1 100% Kerry Logistics Services (Vietnam) Limited BVI Investment holding 1 HK$1 100% (formerly known as Kerry Logistics Services (Korea) Limited) Kerry Logistics Services Limited BVI Investment holding 2 US$1 100% Kerry Logistics Shanghai Corporation SMA Investment holding 1 HK$1 100%

ANNUAL REPORT 2006 165 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Logistics Network Division (Continued)

(5) Kerry Records Management Limited UK Documents storage 100 £1 91% Kerry Records Management Services Limited HK Documents storage 2 HK$1 100% (5) Kerry Reliable Logistics Private Limited India Logistics and freight forwarding 10,000 INR10 51% (5)(6) Kerry Siam Seaport Limited Thailand Operating deep-sea wharf and 48,450,000 Baht10 56.65% warehouses Kerry TC Warehouse 1 (Block A) Limited BVI Warehouse ownership in HK 1 US$1 100% Kerry TC Warehouse 1 (Block B) Limited BVI Warehouse ownership in HK 1 US$1 100% Kerry TC Warehouse 2 Limited HK Warehouse ownership 10,000 HK$1 100% Kerry TC Warehouse Holdings Limited BVI Investment holding 10,000,000 HK$1 100% Kerry Warehouse (Chai Wan) Limited HK Warehouse ownership and operation 10,000,000 HK$1 100% Kerry Warehouse (Fanling 1) Limited HK Warehouse ownership and operation 2 HK$1 100% Kerry Warehouse (Fanling 2) Limited HK Dormant 2 HK$1 100% Kerry Warehouse (HKSAR) Limited BVI Investment holding 1 HK$1 100% Kerry Warehouse (Hong Kong) Limited HK Warehouse operation 25,000,000 HK$1 100% Kerry Warehouse (Kwai Chung) Limited HK Warehouse ownership and operation 30,000 HK$1 100% Kerry Warehouse (Shatin) Limited HK Warehouse ownership and operation 10,000,000 HK$1 100% Kerry Warehouse (Sheung Shui) Limited HK Warehouse ownership and operation 5,000,000 HK$1 100% Kerry Warehouse (Tsuen Wan) Limited HK Warehouse ownership and operation 2 HK$1 100% Kerry Warehouse (Yuen Long 1) Limited HK Dormant 2 HK$1 100% Kerry Warehouse Limited BVI Investment holding 1 US$1 100% (5) KerryFlex Supply Chain Solutions Macau Provision of supply chain solutions, MOP100,000 – 100% (Macau) Limited import and export services KerryFlex Supply Chain Solutions Limited HK Provision of supply chain solutions 5,000,000 HK$1 100% services Kimberley Inc. BVI Investment holding 1,000 US$1 100% KLN Container Line Limited BVI Freight forwarding business 1,200,000 HK$1 100% (5)(7) Kuok Pengangkutan Sdn. Bhd. MAL Freight forwarding and logistics 2,500,000 RM1 31.22% La Corte Investments Limited BVI Investment holding 1 US$1 100% Lap Sun Wholesaling Network Limited HK Wholesaling 2 HK$1 100% Longstone Holdings Limited BVI Investment holding 100 US$1 100% Mainco Management Limited HK Building management 10,000 HK$1 100% Nettlefold Limited BVI Investment holding 10,000 US$1 100% Newtonmore Investments Limited BVI Investment holding 1 HK$1 100% Norwarth Investments Limited BVI Provision of management services 1 US$1 100% Omisoka Holdings Limited BVI Investment holding 1 US$1 100% (5) Orion Shipping and Forwarding Limited UK Freight forwarding 20,000 £1 57.79% Pacific Worth Group Limited BVI Investment holding 1 US$1 100% Pan Asia Airlines Investment Limited SMA Dormant 1 US$1 100% Pola Company Limited BVI Investment holding 1,000 US$1 100% Ponnelle Limited BVI Investment holding 1 US$1 100% (5) PT Kerry Logistics (Indonesia) Indonesia Freight forwarding and logistics 50,000 US$1 60.30% Quintoll Limited BVI Investment holding 1 US$1 100% Renmark Limited BVI Investment holding 1 US$1 100% Rightful Investments Limited BVI Investment holding 1 US$1 100% Rocfaith Investments Limited SMA Investment holding 1 US$1 70% Shabu Inc. BVI Investment holding 1 US$1 100%

166 KERRY PROPERTIES LIMITED 43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Logistics Network Division (Continued)

(5)(6)(9) Shanghai Kerry CHJ Logistics Limited PRC Operation of logistics business HK$14,040,000 – 97% (5)(6)(10) Shanghai Song Jiang Eas Logistics Co., Ltd. PRC Provision of transportation RMB2,500,000 – 56% services Sharp Mega Limited BVI Investment holding 1 US$1 100% (5)(6)(9) Shenzhen Kerry Yantian Port Logistics PRC Operation of logistics business RMB88,000,000 – 55% Company Limited Shine Concept Investments Limited BVI Investment holding 1 US$1 100% Sino Galaxy Investment Limited HK Dormant 15,600,000 HK$1 70% Sky Wealth Investments Limited BVI Investment holding 1 US$1 100% Smart Honor Limited BVI Investment holding 1 US$1 100% (5)(6)(10) Suzhou Industrial Park District Kerry PRC Provision of logistics business RMB5,000,000 – 70% Eas Logistics Co., Ltd. (formerly known as Suzhou Industrial Park District Eas International Logistics Co., Ltd.) Terowie Holdings Limited BVI Investment holding 10,000 HK$1 100% (5)(6) Tianjin Kerry Eas Customs Declaration PRC Acting as agent to import and RMB1,500,000 – 70% Limited export goods Time Advantage Holdings Limited BVI Investment holding 1 US$1 70% Top Wise Agents Limited BVI Dormant 1 US$1 100% Torres Investments Limited BVI Investment holding 10,000 HK$1 100% Treasure Lake Limited BVI Investment holding 1 US$1 100% (5) Trident International Limited UK Dormant 1 £1 91% Twindale Limited BVI Investment holding 1 US$1 100% Wah Cheong Company, Limited HK General merchants 150,000 HK$100 99.87% Wise Group Investments Limited SMA Investment holding 1 US$1 70% (5)(6)(10) Wuxi Huatong Warehouse Services Co., Ltd. PRC Warehouse storage services RMB500,000 – 70% (5)(6) Xinjiang Kerry EAS Logistics Limited PRC Logistics business RMB3,000,000 – 70% Yanawa Limited BVI Investment holding 1 US$1 100% Zinnerman Limited BVI Investment holding 1 US$1 100%

Under Other Divisions

Alpine Project Management Ltd. SMA Project management in Asia 1 US$1 100% Architectural Design and Management HK Provision of architectural services 2 HK$1 100% Services Limited (5)(6)(8) Beijing Kerry Datalinks Limited PRC Operation of internet data centre US$2,100,000 – 100% Close Encounters Limited BVI Investment holding 10,000 HK$1 100% Gain Silver Finance Limited BVI Group financing 1 US$1 100% ibe-Datalinks (Beijing) Limited SMA Investment holding 1 HK$1 100% ibe-Tech Investments Limited BVI Investment holding 1 US$1 100% * ISA Investments Limited BVI Investment holding 1 US$1 100% Kerry Corporate Services Limited HK Provision of corporate services 1 HK$1 100% Kerry Estate Management Limited BVI Investment holding 10,000 HK$1 100% * Kerry Overseas Project Management Liberia Project management in Asia 1 US$100 100% Limited (Jia Li Hai Wai Xiang Mu Guan Li Limited) Kerry Project Management (H.K.) Limited HK Project management 300,000 HK$1 100% Kerry Project Services Limited HK Dormant 2 HK$1 100%

ANNUAL REPORT 2006 167 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

43 GROUP STRUCTURE – SUBSIDIARIES (Continued)

Indirect (1) Issued share capital / interest Place of Registered capital held unless incorporation/ Number/ Par value denoted Name establishment Principal activities Amount per share with *

Under Other Divisions (Continued)

(6)(8) Kerry Properties Development PRC Real estate management US$650,000 – 100% Management (Shanghai) Co., Ltd. Kerry Properties Nominees Limited BVI Provision of nominee services 1,000 HK$1 100% Kerry Properties Treasury Limited BVI Investment holding and 4,670,665,187 HK$1 100% * group financing (6)(8) Kerry Property Management (Beijing) PRC Property management and HK$500,000 – 100% Co., Ltd. corporate consultancy services Kerry Property Management HK Property management 20 HK$1 100% Services Limited Kerry Real Estate Agency Limited HK Estate agency 2 HK$1 100% (5)(6)(8) Kerry Real Estate Management PRC Real estate management HK$3,000,000 – 100% (Shenzhen) Ltd. Kerry Real Estate Services (Beijing) Ltd. SMA Dormant 1 HK$1 100% Kerry Real Estate Services (Fuzhou) Ltd. SMA Investment holding 1 HK$1 100% Kerry Real Estate Services (Shanghai) Ltd. SMA Investment holding 1 HK$1 100% Kerry Real Estate Services (Shenzhen) Ltd. SMA Investment holding 1 HK$1 100% Southwark Profits Limited BVI Investment holding 100 US$1 100% Tellico Investment Limited Liberia Investment holding 1 US$1 100% Toccate Company Limited HK Financing 10 HK$1 100% 1,000,000(2) HK$1 Upsmart Investments Limited HK Dormant 2 HK$1 100% Win House/Kai Tai (Joint Venture) HK Provision of construction work 100 HK$1 75% Company Limited Win House Industries Limited HK Investment holding and 1,000,000 HK$1 100% provision of construction work Wing Tsing Financial Services Limited BVI Group financing in HK 1 US$1 100% Wise Insight Finance Limited BVI Group financing in HK 1 US$1 100% (5)(8) Yu Quan Property Management PRC Real estate management HK$500,000 – 100% (Fuzhou) Ltd.

Notes:

(1) all being ordinary shares and fully paid up except otherwise stated (2) non-voting deferred shares (3) preference shares (4) common shares (5) companies not audited by PricewaterhouseCoopers (6) English translation of name only (7) deemed subsidiary (8) wholly foreign-owned enterprise (9) sino-foreign equity joint venture enterprise (10) domestic joint venture enterprise (11) deemed associated company (12) companies having a financial accounting period which is not coterminous with the Group

BVI British Virgin Islands HK Hong Kong MAL Malaysia PHI Philippines PRC The People’s Republic of China SMA Samoa UK United Kingdom

168 KERRY PROPERTIES LIMITED 44 GROUP STRUCTURE – ASSOCIATED COMPANIES As at 31 December 2006, the Company held interests in the following associated companies which are categorized according to the business divisions of the Group, namely, Property Division, Infrastructure Division and Logistics Network Division as listed below:

Place of Interest incorporation/ Class of shares/ held Name establishment Principal activities Registered capital indirectly

Under Property Division

Able Time Group Limited BVI Investment holding Ordinary 40% (5)(12) Ariel Investments Limited HK Investment holding Ordinary 45% Bay Tower Properties Limited BVI Investment holding Ordinary 33.33% (5)(6)(9) Beijing BHL Logistics Limited PRC Land resettlement US$20,000,000 20% (5) Benefit Bright (B.V.I.) Limited BVI Investment holding in HK Ordinary 32.50% (5) Benefit Bright Limited HK Property investment and trading Ordinary 32.50% Brisbane Trading Company Limited HK Investment holding and Ordinary 50% property trading Non-voting deferred (5) Capital Fun Limited HK Provision of nominee services Ordinary 20% (5) Cardiff Investments Limited HK Investment holding Ordinary 30% (5) Cavalcade Holdings Limited BVI Investment holding Ordinary 45% Cheerjoy Development Limited HK Property development Ordinary 35% Cushion Company Limited HK Dormant Ordinary 33.33% EDSA Parking Services, Inc. PHI Carpark operations Common 39.12% EDSA Properties Holdings Inc. PHI Property development, Common 39.12% investment holding and real estate management (5) Enterprico Investment Limited HK Loan financing Ordinary 45% Expert Vision Holdings Limited BVI Investment holding Ordinary 30% Fine Winner Holdings Limited HK Hotel ownership and operation Ordinary 30% (5)(12) Grand Creator Investment (BVI) Limited BVI Investment holding Ordinary 40% (5)(12) Grand Creator Investment Limited HK Property development and trading Ordinary 40% (5)(12) Hang Hau Station (Project HK Project management Ordinary 40% Management) Limited (5) Harvest Sun (B.V.I.) Limited BVI Investment holding in HK Ordinary 20% (5) Harvest Sun Limited HK Property investment and trading Ordinary 20% Hilaire Inc. BVI Investment holding Ordinary 33.33% (5)(12) Jacksons Landing Development Australia Property development Ordinary 25% Pty. Limited (5)(12) Jacksons Landing Estate Australia Property management Ordinary 25% Management Pty Limited (5) Kerry Hung Kai Warehouse HK Warehouse operation Ordinary 50% (Cheung Sha Wan) Limited (5) Kosco Limited BVI Provision of nominee services Ordinary 32.50% (5) Olympian City 1 (Project HK Project management Ordinary 20% Management) Limited (5) Olympian City 1 Management HK Leasing and estate management Ordinary 20% Company Limited (5) Olympian City 2 (Project HK Project management Ordinary 32.50% Management) Limited (5) Olympian City 2 Finance HK Provision of finance services Ordinary 38.20% Company Limited (5) Olympian City 2 Management HK Leasing and estate management Ordinary 32.50% Company Limited Point Perfect Investments Limited BVI Investment holding Ordinary 35% Portstewart Limited HK Provision of finance services Ordinary 50% (5)(12) Reca Limited BVI Provision of nominee services Ordinary 40%

ANNUAL REPORT 2006 169 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

44 GROUP STRUCTURE – ASSOCIATED COMPANIES (Continued)

Place of Interest incorporation/ Class of shares/ held Name establishment Principal activities Registered capital indirectly

Under Property Division (Continued)

(5)(12) Residence Oasis Finance Company Limited HK Provision of finance services Ordinary 40% (5)(6)(9) Shanghai Pudong Kerry City PRC Property development US$163,201,340 40.80% Properties Co., Ltd. Shangri-La Plaza Corporation PHI Operation of shopping mall and Common 30.80% other related activities Preference The Shang Grand Tower Corporation PHI Property development Common 39.12% Preference (12) Time Rank Limited HK Property trading Ordinary 50% (5) Top Spring Development (Beijing) Limited HK Investment holding Ordinary 25% (5) Twin Luck Worldwide Ltd. BVI Investment holding Ordinary 50% Ubagan Limited HK Property development Ordinary 40% (5) Win Chanford Enterprises Limited HK Property investment Ordinary 45% (5) Wolver Hollow Company Limited HK Warehouse ownership Ordinary 50% (5)(12) Wu Wing International Company, Limited HK Property trading and investment Ordinary 45%

Under Infrastructure Division

Adwood Company Limited HK Investment holding Ordinary 30% (5)(9)(11) Hohhot Chunhua KVW Water PRC Water treatment facilities RMB192,329,200 13% Treatment Company Limited ownership and management (5)(9)(11) Hohhot Chunhua VWK Water PRC Water treatment facilities operation RMB14,000,000 19.5% Operation Company Limited and maintenance (11)(12) Hong Kong Transport, Logistics and HK Tunnel management, operation Ordinary 15% Management Company Limited and maintenance (11)(12) Hong Kong Tunnels and Highways HK Tunnel management Ordinary 15% Management Company Limited Kerry CQ JV Environmental BVI Investment holding Ordinary 50% Engineering Limited Kerry CQ Water (Hohhot) Limited BVI Investment holding Ordinary 50% (5)(11) KVW Investment Company Limited HK Investment holding Ordinary 25.5% (5)(11)(12) REDtone Telecommunications HK Investment holding Ordinary 25% (China) Limited (5)(8)(11)(12) REDtone Telecommunications PRC Provision of technical support services US$3,490,000 25% (Shanghai) Limited to telecommunications provider (11)(12) Western Harbour Tunnel Company Limited HK Tunnel operation and management Ordinary 15%

Under Logistics Network Division

(11)(12) Asia Airfreight Services Limited HK Provision of air cargo services Ordinary 15% (11)(12) Asia Airfreight Terminal Company Limited HK Air cargo handling terminal operation Ordinary 15% (9) Chiwan Container Terminal Co., Ltd PRC Port terminal operation US$70,500,000 25% (5)(6)(10) CV Global Logistics (Beijing) Limited PRC Logistics business RMB50,000,000 50% (5)(9) Dalian Hantong Logistics Co., Ltd. PRC Warehousing and container maintenance US$2,720,000 35% (5) Eas System (M) Sdn. Bhd. MAL Dormant Ordinary 34.27% (5) Eas Transportation (M) Sdn. Bhd. MAL Dormant Ordinary 48.30% EPHI Logistics Holdings, Inc. PHI Investment holding Common 40%

170 KERRY PROPERTIES LIMITED 44 GROUP STRUCTURE – ASSOCIATED COMPANIES (Continued)

Place of Interest incorporation/ Class of shares/ held Name establishment Principal activities Registered capital indirectly

Under Logistics Network Division (Continued)

(5)(6)(9) Kerry BHL Logistics Limited PRC Provision of logistics services US$12,000,000 50% (5) Kerry Freight Philippines, Inc. PHI Freight and logistics business Common 20.40% (5) Kerry Salvat Logistics, S.A. Spain Transportation forwarding and Ordinary 50% materials handling (5)(6) Kerry Samyoung Logistics (Korea) Ltd. Korea Provision of logistics services, packing, Ordinary 30.60% loading and unloading services

Notes: (1) all being ordinary shares and fully paid up except otherwise stated (2) non-voting deferred shares (3) preference shares (4) common shares (5) companies not audited by PricewaterhouseCoopers (6) English translation of name only (7) deemed subsidiary (8) wholly foreign-owned enterprise (9) sino-foreign equity joint venture enterprise (10) domestic joint venture enterprise (11) deemed associated company (12) companies having a financial accounting period which is not coterminous with the Group

BVI British Virgin Islands HK Hong Kong MAL Malaysia PHI Philippines PRC The People’s Republic of China SMA Samoa UK United Kingdom

ANNUAL REPORT 2006 171 Ten-Year Financial Summary

The results, assets and liabilities of the Group for the last ten financial years are as follows:

2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Income statement Turnover 10,193,117 8,008,824 5,102,442 4,204,466 5,156,162 5,036,408 3,195,757 2,342,175 2,907,080 3,053,570

Operating profit 5,387,944 3,246,173 1,732,612 436,564 678,896 527,285 790,939 1,046,524 1,210,941 1,702,969 Share of results of associated companies 450,917 510,105 555,503 135,758 108,838 (272,780) 140,917 271,059 113,292 24,920 Profit before taxation 5,838,861 3,756,278 2,288,115 572,322 787,734 254,505 931,856 1,317,583 1,324,233 1,727,889 Taxation (889,531) (494,199) 139,910 (111,192) (175,988) (83,165) (118,840) (66,466) (118,471) (113,021) Profit after taxation 4,949,330 3,262,079 2,428,025 461,130 611,746 171,340 813,016 1,251,117 1,205,762 1,614,868 Minority interests (260,380) (195,216) (156,892) (66,389) (12,075) (23,910) (82,383) (18,515) (2,363) (39,645) Profit attributable to shareholders 4,688,950 3,066,863 2,271,133 394,741 599,671 147,430 730,633 1,232,602 1,203,399 1,575,223

Breakdown of the profit/(loss) attributable to shareholders by division:

PRC Property Division 807,153 372,020 548,303 299,661 237,508 292,647 252,382 36,399 10,999 41,852 Hong Kong Property Division 2,675,562 1,429,102 1,187,302 (212,738) 550 (471,996) 195,977 1,012,553 974,625 1,385,348 Overseas Property Division 36,227 68,091 26,696 26,203 31,940 32,074 23,461 23,381 –– Logistics Network Division 1,173,036 1,085,152 438,297 92,253 158,739 57,037 64,845 89,607 108,006 121,614 Infrastructure Division 31,420 38,473 30,581 149,169 101,484 217,006 86,168 68,380 15,953 7,252 Project, property management and others (34,448) 74,025 39,954 40,193 69,450 20,662 107,800 2,282 93,816 19,157 4,688,950 3,066,863 2,271,133 394,741 599,671 147,430 730,633 1,232,602 1,203,399 1,575,223

Assets and liabilities Fixed assets 36,822,018 30,818,453 24,377,313 20,960,492 20,890,174 21,810,930 25,147,197 25,778,170 23,989,597 29,302,269 Other assets 7,713,498 8,121,775 6,037,107 6,075,000 6,715,815 6,279,364 6,469,887 7,251,190 6,707,699 5,407,201 Net current assets 4,200,458 2,660,695 1,810,600 1,600,726 1,410,103 2,420,182 1,048,190 4,344,098 3,888,902 4,380,894 Total assets less current liabilities 48,735,974 41,600,923 32,225,020 28,636,218 29,016,092 30,510,476 32,665,274 37,373,458 34,586,198 39,090,364 Long-term liabilities and minority interests (19,411,050) (16,380,093) (9,896,036) (8,753,659) (9,219,662) (9,694,317) (9,871,181) (12,437,225) (11,454,050) (11,070,831) Shareholders’ funds 29,324,924 25,220,830 22,328,984 19,882,559 19,796,430 20,816,159 22,794,093 24,936,233 23,132,148 28,019,533

Note: The above figures are based on the latest published accounts.

172 KERRY PROPERTIES LIMITED Stock Code : 683 KERRY PROPERTIES LIMITED ANNUAL REPORT 2006

KERRY PROPERTIES LIMITED 13/F - 14/F, Cityplaza 3, 14 Taikoo Wan Road, Taikoo Shing, Hong Kong Telephone: (852) 2967 2200 (Incorporated in Bermuda with limited liability) Facsimile: (852) 2967 9480 www.kerryprops.com ANNUAL REPORT 2006