Interim Report 2005 中期報告 - Dynasty Fine Wines ... · Bank of Bermuda (Cayman) Limited PO BOX 513GT, Strathvale House North Church Street, George Town Grand Cayman, Cayman

www.dynasty-wines.com

Interim Report 2005中期報告

02 Corporate Profile

03 Financial Highlights

04 Corporate Information

06 Product Portfolio

08 Management Discussion and Analysis

15 Interim Dividend

15 Closure of Register of Members

16 Share Option Scheme

16 Directors’ Interests and Short Positions in

the Shares, Underlying Shares and

Debentures of the Company

18 Substantial Shareholders’ Interests and

Short Positions in the Shares

and Underlying Shares of the Company

19 Purchase, Sale or Redemption of Shares

of the Company

19 Compliance with the Model Code for

Securities Transactions by Directors

20 Corporate Governance

21 Financial Section

Dynasty is a leading premier wine producer with a dominant presence in the PRC wine

market. Our brand name, ‘‘Dynasty’’, was recognised as a well-known trademark by the State

Administration for Industry and Commerce of the PRC. For seven of the eight years between

1997 and 2004, Dynasty was granted ‘‘The Certificate of Best Selling Grape Wines’’ in the

PRC by the China Industry and Enterprise Information Centre.

Dynasty has inherited the fine traditions and state-of-the-art expertise in wine making from

Remy Cointreau, one of the world’s leading wine and spirits operators and our second largest

shareholder ever since Dynasty’s inception. From grape growing, harvesting, to every single

step of wine making, Dynasty believes in quality. The entire production process is under

stringent quality control to ensure the high standards of our products. In recognition of our

high standards, we were accredited with certificates of ISO 9002 in 1996, ISO 14001 in 2000

and ISO 9001 : 2000 in 2002.

Dynasty has a diversified product portfolio, catering to various price segments and consumer

tastes and preferences. We now make and sell over 50 types of wine products in four main

categories, namely red wines, white wines, sparkling wines and brandy.

Over the years, Dynasty has sustained a strong financial performance and generated excellent

returns for its shareholders. On 26 January 2005, Dynasty was successfully listed on the Main

Board of The Stock Exchange of Hong Kong Limited with the stock code 828. Subsequently,

Dynasty has been added to the Hang Seng China-Affiliated Corporations Index (HSCCI) as a

constituent stock, effective from 5 September 2005. Having strong support from our major

shareholders — Tianjin Development Holdings Ltd. (882) and Remy Cointreau, Dynasty keeps

on providing all consumer strata high quality and ‘‘excellent value for money’’ wines. With

enhanced facilities and continual marketing efforts, Dynasty is well positioned to capture the

robust growth potential of the Chinese wine market. We will build a stronger Dynasty for the

future of all our stakeholders.

02Dynasty Fine Wines Group LimitedInterim Report 2005

Corporate Profile

For the six months ended 30 June

(unaudited)

2005 2004 Changes

HK$’000 HK$’000

Turnover 511,610 445,379 +14.9%

Gross Profit 263,520 243,386 +8.3%

Profit attributable to equity holders

of the Company 116,936 101,218 +15.5%

2005 2004

Changes in

percentage point

Gross margin 51.5% 54.6% -3.1%

Net profit margin 22.9% 22.7% +0.2%

Dynasty Fine Wines Group LimitedInterim Report 2005 03

Financial Highlights

Board of DirectorsExecutive Directors

Mr. HE Xiuheng

Mr. GAO Xiaode

Mr. NIE Jiansheng(&)

Mr. BAI Zhisheng

Mr. CHEN Naiming

Non-Executive Directors

Mr. HERIARD-DUBREUIL Francois

Mr. WANG Guanghao

Mr. CHEUNG Wai Ying, Benny

Mr. ZHANG Wenlin

Mr. WONG Ching Chung(&)

Mr. ROBERT Luc

Independent Non-Executive Directors

Mr. LAI Ming, Joseph(#)(&)

Mr. HUI Ho Ming, Herbert(#)(&)

Mr. CHAU Ka Wah, Arthur(#)(&)

# Audit committee members& Remuneration committee members

Company SecretaryMr. YEUNG Chi Tat

Authorised RepresentativesMr. NIE Jiansheng

Mr. YEUNG Chi Tat

Legal AdvisorsHong Kong

Preston Gates & Ellis

Cayman

Conyers Dill & Pearman, Cayman

The People’s Republic of China

Global Law Office

AuditorsPricewaterhouseCoopers

Registered OfficeCentury Yard, Cricket Square

Hutchins Drive

P.O. Box 2681GT

Grand Cayman

Cayman Islands


Corporate Information

Principal Place of BusinessHong Kong Office

Unit 1408, Two Pacific Place

88 Queensway, Admiralty

Hong Kong

Tianjin Office

Xing Dian Road, Bei Chen District

Tianjin City, PRC

Principal Share Registrar andTransfer Office

Bank of Bermuda (Cayman) Limited

PO BOX 513GT, Strathvale House

North Church Street, George Town

Grand Cayman, Cayman Islands

British West Indies

Hong Kong Branch ShareRegistrar and Transfer Office

Tricor Investor Services Limited

G/F, Bank of East Asia Harbour View Centre

56 Gloucester Road

Wanchai, Hong Kong

Principal BankersIndustrial and Commercial Bank of China

Commercial Bank

Bank of China

The Hongkong & Shanghai Banking

Corporation

CITIC Ka Wah Bank

Rabobank

China Merchants Bank

Investor Relations ConsultantStrategic Financial Relations (China) Limited

Compliance AdvisorDeloitte & Touche Corporate Finance Limited

Stock Code828

Company Websitehttp://www.dynasty-wines.com



Product Portfolio


Results

The Board of Directors (‘‘Directors’’) of Dynasty Fine Wines Group Limited (‘‘the Company’’) is

pleased to report a steady growth in the unaudited results of the Company and its

subsidiaries (‘‘the Group’’) for the first half of 2005. These interim results have been reviewed

by the Company’s Audit Committee and the Company’s auditors, PricewaterhouseCoopers. All

of the Audit Committee members are independent non-executive Directors, including the

Chairman of the Audit Committee.

Our turnover was HK$512 million (2004 — HK$445 million), increased by 14.9% and our

profit attributable to equity holders of the Company was HK$117 million (2004 — HK$101

million), increased by 15.5% during the period under review.

Earnings per share of the Company (‘‘Share’’) was HK9.8 cents per Share based on the

weighted average number of 1,195,856,354 Shares in issue during the period (2004 —

HK11.2 cents per Share on a pro forma basis as if 900,000,000 Shares were outstanding since

1 January 2004). As there was no dilutive potential ordinary Share outstanding as at 30 June

2005, dilutive earnings per Share are not presented.

The satisfactory financial results in the first half of 2005 were mainly attributable to the

growth in sales volume and the relatively stable distribution costs and general and

administrative expenses. As a reflection of the good performance and generally positive

outlook, the Directors have resolved to pay an interim dividend of HK3.7 cents per Share.


Management Discussion and Analysis

Our turnover surged by 14.9% to HK$512

million and profit attributable to equity

holders of the Company by 15.5% to

HK$117 million

Financial review

Turnover

Turnover for the six months ended 30 June 2005 increased by 14.9% to HK$512 million, from

HK$445 million in the first half of 2004 as a result of increase in sales volume. This increase

was attributable to the sales and marketing effort and the organic growth of the overall grape

wine market in the PRC.

The Group’s average ex-factory sales prices during the period under review for red and white

wine products had been relatively stable compared to 2004 yearly average price of HK$20.8

per bottle (750ml). The average ex-factory sales prices of the Group’s red wine products are,

however, in general higher than the Group’s white wine products. Based on consumers in the

PRC having a prevalent preference in favour of red wine products, the Group is able to set

higher prices for its red wine products.

Cost of sales

The following table sets forth the major components of our cost of sales for the period under

review:

For the six months ended

30 June

2005 2004

% %

Cost of raw materials

. Grapes and grape juice 38.4 35.1

. Yeast and additives 1.8 1.5

. Packaging materials 27.4 29.2

. Others 1.8 1.8

Total cost of raw materials 69.4 67.6

Manufacturing overheads 10.1 10.4

Consumption tax 20.5 22.0

Total cost of sales 100.0 100.0

The major raw materials required by the Group in producing wine products are grapes, grape

juice, yeast and additives and packaging materials. During the period under review, the cost

of grapes and grape juice accounted for approximately 38.4% of the Group’s total cost of

sales, an increase of 3.3 percentage points from approximately 35.1% in the corresponding


period in 2004 and was due to the unfavorable demand and supply situation of grapes or

grape juice. The average cost of packaging materials was relatively stable during the period

under review as compared with the preceding period.

Manufacturing overheads consist primarily of depreciation or rental of fixed assets, supplies,

utilities, repair and maintenance expenses, salaries and related personnel expenses for the

production and related departments and other incidental expenses for production. During the

period, manufacturing overheads did not fluctuate significantly as a percentage of turnover.

Gross profit margin

During the period under review, the gross margin was calculated based on cost of sales

inclusive of consumption tax over gross invoiced sales. Overall gross profit margin reached

51.5% in the first half of 2005, a decline of 3.1 percentage points from 54.6% in the

corresponding period in 2004 and was primarily due to higher purchase cost of grape juice as

compared to the first half of 2004. The gross margin of red wine products and white wine

products were 51.9% and 42.3% respectively (2004 — 55.4.% and 43.4% respectively). The

higher gross margin of the red wine products was attributable to their higher sales prices.

Distribution costs

Distribution costs include principally advertising and market promotion expenses,

transportation and delivery charges in connection with the sales of wine products, salaries

and related personnel expenses for the sales and marketing department and other incidental

expenses. During the period under review, distribution costs decreased and accounted for

approximately 15.9% (2004 — 18.9%) of the Group’s turnover. In particular, advertising and

market promotion expenses accounted for approximately 8.6% (2004 — 12.0%) of the

Group’s turnover. The decrease in percentage reflected that turnover outgrew the effect of

incurring more advertising and market promotion expenses during the period. We expect

advertising and market promotion expenses to increase in line with the growth in turnover of

the Group in the foreseeable future so as to allow the Group to maintain consumer awareness

of our brand name — ‘‘Dynasty’’, to increase the market share and also to facilitate the

launch of new products.

General and administrative expenses

General and administrative expenses consist primarily of salaries

and related personnel expenses for administrative, finance and

human resources departments, provision for doubtful debts and

write off for obsolete inventories, depreciation and amortisation

expense and other incidental administrative expenses.

During the period under review, general and administrative

expenses remained relatively stable and accounted for

approximately 5.7% (2004 — 4.7%) of the Group’s turnover.



Taxation expense

Under the current laws of the Cayman Islands and the British Virgin Islands (‘‘BVI’’), neither

the Company nor its subsidiaries incorporated in BVI is subject to tax on its income or capital

gains. In addition, payment of dividends by them is not subject to withholding tax in those

jurisdictions.

Pursuant to the relevant income tax rules and regulations of the PRC, the applicable tax rate

for Sino-French Joint-Venture Dynasty Winery Limited, our major operating subsidiary, and for

Tianjin Tianyang Grape Extracting Co. Ltd, another subsidiary of the Group, is 24%, being the

preferential income tax rate for foreign investment production enterprises established in a

coastal economic development zone. The applicable rate for Shandong Yu Huang Grape Wine

Co., Ltd., another subsidiary of the Group, is 30%. During the period under review, the

effective tax rate of the Group was slightly lowered to approximately 26.6% (2004 —

27.6%).

Cash flow

In the first half of 2005, the Group’s source of cash flow was mainly from its financing

activities. The Group’s cash has principally been applied to pay the consideration for

acquisition of Smiling East Resources Limited (‘‘Smiling East’’), 2004 special dividends to

shareholders and listing expenses.

The decrease in cash inflow from operating activities from HK$102.0 million in 2004 to

HK$52.4 million in 2005 was primarily attributable to the effects of the changes in working

capital, mainly other payables and accruals.

Net cash used in investing activities was primarily attributable to the acquisition of Smiling

East pursuant to the plan disclosed in the prospectus dated 17 January 2005 and amounting

to approximately HK$47.0 million (2004 — HK$Nil).

Net cash inflow in financing activities was primarily attributable to the net proceeds from the

placing and public offer approximately HK$724 million (2004 — HK$Nil) and offset by the

payment of dividends to shareholders of approximately HK$78.7 million (2004 — HK$Nil).


Financial management and treasury policy

As at 30 June 2005, except for the net proceeds from the placing and public offer, the

Group’s revenues, expenses, assets and liabilities are substantially denominated in RMB.

Accordingly, the Group does not anticipate significant exposure to foreign currency

fluctuation. The Group has maintained sufficient financial resources and is in a net cash

position, thus we are exposed to minimal financial risk on interest rate fluctuation.

As at the date of this report, almost all of our cash and bank balances are denominated either

in RMB, Hong Kong dollars or United States dollars. The net proceeds from the placing and

public offer that were not already used for the intended purposes have been placed on short

term deposits with authorised financial institutions in Hong Kong. The Group has established

an investment policy with the objective of monitoring the investments of the Group’s

uncommitted funds to ensure the achievement of the highest practicable return on the

investments with priority on capital preservation and liquidity.

Liquidity and financial resources

The Group’s cash balances as at 30 June 2005 amounted to HK$853 million and net cash

inflow from operating activities are ample enough to satisfy the working capital requirement

for the business operations and capital expenditures. No bank debts were recorded and the

gearing of the Group was net cash as at 30 June 2005, reflecting the sound capital structure

of the Group. New investment will be funded by the Group’s internal resources.

Capital structure

Upon the completion of the placing and public offer, the net proceeds from our listing further

strengthen our capital structure and we expect our cash to be sufficient for meeting our

operating and capital expenditure requirements in the foreseeable future.

The market capitalisation of the Company as at 30 June 2005 was approximately HK$3,424

million.

Capital commitments, contingencies and charges on assets

The Group has made capital expenditure commitments mainly for machineries of

approximately HK$144.6 million which are authorised but not contracted for and

approximately HK$7.2 million which are contracted but not provided for in the financial

statements as at 30 June 2005. These commitments, mainly related to the expansion of the

Group’s production capacity, are expected to be paid within one year. The funding of such

capital commitments will be out of the proceeds of the new issue as stated in the prospectus.

As at 30 June 2005, none of the Group’s assets were charged or subject to any encumbrance

and the Group had no material contingent liabilities.



Use of proceeds

The Company was successfully listed on the Main Board of The Stock Exchange of Hong Kong

Limited (the ‘‘Stock Exchange’’) on 26 January 2005. Upon the completion of the placing and

public offer, we issued a total of 345,000,000 new shares, including the shares issued upon

the exercise of the over-allotment option. The net proceeds raised from the placing and public

offer amounted to approximately HK$724 million. The satisfactory results of the placing and

public offer reflected the confidence of investors in the prospects of our business as well as in

the grape wine industry of the People’s Republic of China (the ‘‘PRC’’). The planned usage of

proceeds was as follows:

Use

Usage as

announced

Actual

progress

HK$ million HK$ million

Expansion of existing production facilities 200 61

Establishment of new production facilities 160 —

Expansion of sales and distribution network 20 —

Acquisition of Smiling East 47 47

Other acquisition opportunities and general working capital 297 1

Total 724 109

To cope with the Group’s long term development and to crystallise our business plan as set

out in our prospectus dated 17 January 2005, we are planning to build a new production

facility in Tianjin to further boost our production capacity. Moreover, we are in discussion

with certain companies in complementary wine business, which we consider as possible

targets of acquisition in the future. As at the date of this report, no agreement was entered

into between the Group and other parties in this regard.

We have placed the unutilised net proceeds in short term bank deposits.

Business review

Sales analysis

During the period under review, the Group experienced satisfactory growth in sales volume.

The number of bottles of wine sold increased from approximately 20.8 million in the first half

of 2004 to approximately 24.9 million in the first half of 2005, whilst the average ex-factory


sale price remained relatively stable. The primary revenue sources of the Group continued to

be red wine product sales which accounted for approximately 95.1% of the Group’s turnover

for the period (2004 — 94.2%). Dynasty Dry Red, the prototype of our mass market product,

remained as the Group’s best selling wine product, accounting for approximately 49.6% of

the Group’s turnover (2004 — 50.4%).

During the period under review, we sold our products in all provinces and autonomous

regions and four municipalities directly under the central government of the PRC. Huadong

region, or Eastern region of the PRC, still remained as our primary market. In addition to the

primary market, we are expanding the sales of our products in other markets, such as

Guangdong, Jiangxi, Hunan and Hubei, etc., in the PRC as well as to enhance our marketing

and promotion efforts in other coastal provinces in order to increase market share in those

markets. Overseas sales remained insignificant at 0.2% (2004 — 0.1%) of our turnover during

the period as the domestic market was our primary focus.

We produce over 50 products under the ‘‘Dynasty’’ brand name to meet different consumer

demands in the PRC grape wine market and focus on medium to high end segments. With a

diversified and high quality product portfolio, we believe we will be able to attract higher end

consumers by introducing premium higher end products. During the period under review,

sales of premium wine products, such as Dynasty Dry Red Wine-Aged in Oak Barrels and Dry

Red and Dry White Wine-Seven-Year Reserve that were launched in 2003, saw encouraging

growth. Although sales of these products made up an insignificant contribution to our

turnover during the period, we believe these products will become an increasingly significant

source of our future growth.

Supplies of grapes or grape juice

The production and quality of wine products is highly dependent upon sufficient supply of

quality grapes or grape juice. We currently have over 10 major grape juice suppliers, mainly

located in Tianjin, Shandong, Hebei and Ningxia, with whom we have had long term

relationships. To ensure reliable and solid supplies of quality grapes and grape juice to meet

the needs of the growing business and our expected increasing demand generated from the

production capacity expansion plan, we are working with our

grape growing partners on enlarging their vineyards to increase

harvests and also identify new suppliers who can meet our

quality requirements. Such measures will enable us to secure

grape supplies and lower the risk of our production being

interrupted by effects of weather, affecting the quality of our

grapes or grape juice. We will also explore opportunities of

acquiring grape juice suppliers in the PRC or overseas.

Production capacity

The progress of production capacity expansion from 30,000

tonnes (equivalent to approximately 40.0 million bottles) to

50,000 tonnes (equivalent to approximately 66.7 million bottles)

per annum is in accordance with our schedule and is expected to

be completed around mid-2006. The management will put all its



efforts into ensuring the timely, or even early, completion of the plan. During the period, we

commenced a feasibility study on the establishment of a new production facility and identified

an appropriate site in Tianjin for that purpose. The new production facility, expected to be

completed by the end of 2008, will further increase our production capacity to 70,000 tonnes

(equivalent to approximately 93.3 million bottles) per annum.

Employees

The Group employed 386 staff (including Directors) in Hong Kong and the PRC. The increase

in manpower occurred mainly due to the acquisition of Smiling East. Total salaries and related

costs incurred for the six months ended 30 June 2005 amounted to HK$26.2 million. The

Group offers competitive remuneration packages commensurate with industry level and

provides various fringe benefits, including trainings, medical, insurance coverage as well as

retirement benefits to all employees in Hong Kong and in the PRC.

The Company also adopted a share option scheme on 6 December 2004 for the purposes of

providing incentives and rewards to eligible participants who have contributed to the success

of our operations. As at 30 June 2005, 23,100,000 share options were granted under the

scheme.

Prospects

Successful listing on the Main Board in January 2005 was a historical milestone of the Group.

Our financial position have since benefited significantly, laying the foundation for our further

growth in the industry. Looking ahead, we will continue to capitalise on the robust market

demand of grape wine products in the PRC in order to maximise business growth in the

future. By leveraging the advantages of the Group in a wide range of areas, such as our

reputable brand name, comprehensive product and market knowledge and extensive

distribution network, further upgrading our product mix and pursuing appropriate capacity

expansion strategies, we will further consolidate and strengthen our leading position in the

PRC and generate greater value for our shareholders in the years ahead.

Interim Dividend

The Directors are pleased to declare an interim dividend of HK3.7 cents per Share. The interimdividend will be paid to shareholders whose names appear on the Register of Members onWednesday, 19 October 2005. The interim dividend will be paid on Wednesday, 2 November2005.

Closure of Register of Members

The Register of Members of the Company will be closed from Monday, 17 October 2005 toWednesday, 19 October 2005, both days inclusive, during which period no share transfer willbe effected. In order to qualify for the interim dividend, all transfers accompanied by therelevant share certificates must be lodged with the Company’s branch share registrar in Hong


Kong, Tricor Investor Services Limited, Ground Floor, Bank of East Asia Harbour View Centre,56 Gloucester Road, Wanchai, Hong Kong, for registration of not later than 4 : 30 pm onFriday, 14 October 2005.

Share Option Scheme

Details of the Company’s Share Option Scheme are set out in the published annual report ofthe Company for the year ended 31 December 2004. Share options are granted to Directors,other than the independent non-executive directors, and employees of the Group to provideincentive and/or reward for their contribution to, and continuing efforts to promote theinterest of the Group. Details of the share options granted, exercised, lapsed and cancelledunder the Scheme during the period and outstanding as at 30 June 2005 are as follows:

Granted ExercisedLapsed/

Cancelled

Outstandingoptions held

at 30 June2005

Approximatepercentage ofissued share

capital of theCompany

Executive directors:Mr. He Xiuheng 2,300,000 — — 2,300,000 0.19%Mr. Gao Xiaode 2,100,000 — — 2,100,000 0.17%Mr. Nie Jiansheng 1,950,000 — — 1,950,000 0.16%Mr. Bai Zhisheng 1,100,000 — — 1,100,000 0.09%Mr. Chen Naiming 1,950,000 — — 1,950,000 0.16%

Non-executive directors:Mr. Heriard-Dubreuil

Francois 1,200,000 — — 1,200,000 0.10%Mr. Wang Guanghao 900,000 — — 900,000 0.07%Mr. Cheung Wai Ying,

Benny 900,000 — — 900,000 0.07%Mr. Zhang Wenlin 900,000 — — 900,000 0.07%Mr. Wong Ching Chung 900,000 — — 900,000 0.07%Mr. Robert Luc 900,000 — — 900,000 0.07%

Other employees 8,000,000 — — 8,000,000 0.64%

Total 23,100,000 — — 23,100,000 1.86%

All of the above share options were granted on 27 January 2005, with an exercise price of

HK$3.00 and are exercisable from 17 August 2005 to 26 January 2015.

Directors’ Interests and Short Positions in the Shares, UnderlyingShares and Debentures of the Company

As at 30 June 2005, the interests and short positions of the Directors, chief executives and

their respective associates of the Company in the shares, underlying shares and debentures of

the Company or its associated corporation (within the meaning of Part XV of the Securities

and Futures Ordinance (‘‘SFO’’)) which require notification pursuant to Divisions 7 and 8 of

Part XV of the SFO or which were required to be recorded in the register required to be kept


under Section 352 of SFO or as otherwise notified to the Company and the Stock Exchange

pursuant to the Model Code for Securities Transactions by Directors of Listed Companies,

were as follows:

(a) Long position in Shares

Name Capacity

Number of

Shares

interested

Approximate

percentage of

issued share

capital of the

Company

Mr. Cheung Wai Ying, Benny Corporate

interest

45,000,000

(Note)

3.6%

Note: Inttra Limited directly owns 45,000,000 Shares or 3.6% of the issued share capital of the Company. The

entire issued share capital of Inttra Limited is owned by Mr. Cheung Wai Ying, Benny and his spouse. By

virtue of the SFO, Mr. Cheung Wai Ying, Benny is deemed to be interested in the Shares held by Inttra

Limited.

(b) Rights to acquire Shares

The interests of the Directors in the share options of the Company as beneficial owner

are set out in the section headed ‘‘Share Option Scheme’’ above.

Except as set out above, as at 30 June 2005, none of the Directors and chief executives

and their respective associates has any interest or short positions in the shares,

underlying shares and debentures of the Company or its associated corporation (within

the meaning of Part XV of the SFO) which require notification pursuant to Divisions 7

and 8 of Part XV of the SFO or which were required to be recorded in the register

required to be kept under Section 352 of the SFO or as otherwise notified to the

Company and the Stock Exchange pursuant to the Model Code for Securities

Transactions by Directors of Listed companies.


Substantial Shareholders’ Interests and Short Positions in the Sharesand Underlying Shares of the Company

As at 30 June 2005, so far as was known to the Directors or chief executive of the Company,

the interests or short positions of every person, other than a Director or chief executive of the

Company which would fall to be disclosed to the Company under the provisions of Divisions 2

and 3 of Part XV of the SFO, in the shares and underlying shares of the Company as recorded

in the register required to be kept by the Company under Section 336 of the SFO are as

follows:

Long position in shares

Name Nature of interest

Number of

Shares held

Approximate

percentage of

the Company’s

issued share

capital

Famous Ever Group Limited Beneficial owner 558,000,000 44.82%

Tianjin Development

Holdings Limited (Note 1)

Interest of a controlled

corporation

558,000,000 44.82%

Tianjin Investment Holdings

Limited (Note 2)


corporation

558,000,000 44.82%

Tsinlien Group Company

Limited (Note 3)


corporation

558,000,000 44.82%

Remy Pacifique Limited Beneficial owner 297,000,000 23.86%

Remy Concord Limited

(Note 4)


corporation

297,000,000 23.86%

Remy Cointreau S.A.

(Note 4)


corporation

297,000,000 23.86%

Orpar S.A. (Note 4) Interest of a controlled

corporation

297,000,000 23.86%

Andromede S.A. (Note 4) Interest of a controlled

corporation

297,000,000 23.86%

Notes:

(1) Famous Ever Group Limited is a wholly owned subsidiary of Tianjin Development Holdings Limited (‘‘Tianjin

Development’’). By virtue of the SFO, Tianjin Development is deemed to be interested in the Shares held by

Famous Ever Group Limited.

(2) Tianjin Investment Holdings Limited (‘‘Tianjin Investment’’) owns 63.86% shareholdings in Tianjin Development. By

virtue of the SFO, Tianjin Investment is deemed to be interested in the Shares held by Tianjin Development.


(3) Tianjin Investment is a wholly owned subsidiary of Tsinlien Group Company Limited, the ultimate holding

company of Tianjin Development. By virtue of the SFO, Tsinlien Group Company Limited is deemed to be

interested in the Shares held by Tianjin Investment.

(4) Remy Pacifique Limited is a wholly owned subsidiary of Remy Concord Limited, which is wholly owned by Remy

Cointreau S.A.. Orpar S.A. owns approximately 50.87% of the shareholding in Remy Cointreau S.A. and

Andromede S.A. owns approximately 84.83% of the shareholding in Orpar S.A. By virtue of Part XV of the SFO,

each of Remy Concord Limited, Remy Cointreau S.A., Orpar S.A. and Andromede S.A. is deemed to be interested

in the Shares held by Remy Pacifique Limited.

Saved as disclosed above, as at 30 June 2005, no person, not being a Director or chief

executive of the Company, had interests or short positions in the shares and underlying shares

of the Company as record in the register required to be kept by the Company under Section

336 of the SFO.

Purchase, Sale or Redemption of Shares of the Company

Pursuant to the international underwriting agreement dated 21 January 2005, the Company

granted an option (‘‘Over-allotment Option’’) to the international placing underwriters

exercisable by ABN AMRO Rothschild, to require the Company to allot and issue up to an

aggregate of 45,000,000 additional Shares to cover over-allocation in the international

placing. The exercise price per Share for the Over-allotment Option is HK$2.25. On 1 February

2005, the Over-allotment Option was fully exercised and, as a result, the Company issued

45,000,000 additional Shares.

Except for as disclosed above, since the listing of the Company’s Shares on the Stock

Exchange on 26 January 2005 and up to 30 June 2005, neither the Company nor any of its

subsidiaries purchased, sold or redeemed any of the Company’s Shares.

Compliance with the Model Code for Securities Transactions byDirectors

The Company has adopted procedures governing Directors’ securities transactions in

compliance with the Model Code for Securities Transactions by Directors of Listed Issuers

(the ‘‘Model Code’’) as set out in Appendix 10 of the Listing Rules. Upon enquiry by the

Company, all Directors had confirmed that they had complied with the required standards set

out in the Model Code throughout the six months ended 30 June 2005.


Corporate Governance

The Company recognises its responsibilities to shareholders and aims to protect and enhance

shareholder value through solid corporate governance. Considerable efforts are devoted to

identify and formalise best practices. The Group is committed to ensuring even greater

transparency and quality of disclosures. The Board has been and will continue to uphold the

appropriate standards of corporate governance within the Group, thereby ensuring that all

business is conducted in an honest, ethical and responsible manner.

The Company had complied throughout the half-year ended 30 June 2005 with the Code

Provisions set out in the Code on Corporate Governance Practices contained in Appendix 14

of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

By order of the Board

Mr. He Xiuheng

Chairman

Hong Kong, 13 September 2005


Independent Review Report 22

Condensed Consolidated Income

Statement 23

Condensed Consolidated Balance Sheet 24

Condensed Consolidated Statement

of Changes in Equity 25

Condensed Consolidated Cash Flow

Statement 26

Notes to the Interim Accounts 27

TO THE BOARD OF DIRECTORS OFDYNASTY FINE WINES GROUP LIMITED(incorporated in Cayman Islands with limited liability)

Introduction

We have been instructed by the Company to review the interim financial report set out onpages 23 to 44.

Respective responsibilities of directors and auditors

The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limitedrequire the preparation of an interim financial report to be in compliance with Hong KongAccounting Standard 34 ‘‘Interim Financial Reporting’’ issued by the Hong Kong Institute ofCertified Public Accountants and the relevant provisions thereof. The interim financial reportis the responsibility of, and has been approved by, the directors.

It is our responsibility to form an independent conclusion, based on our review, on the interimfinancial report and to report our conclusion solely to you, as a body, in accordance with ouragreed terms of engagement and for no other purpose. We do not assume responsibilitytowards or accept liability to any other person for the contents of this report.

Review work performed

We conducted our review in accordance with Statement of Auditing Standards 700‘‘Engagements to review interim financial reports’’ issued by the Hong Kong Institute ofCertified Public Accountants. A review consists principally of making enquiries of managementand applying analytical procedures to the interim financial report and based thereon,assessing whether the accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially less in scope than an auditand therefore provides a lower level of assurance than an audit. Accordingly we do notexpress an audit opinion on the interim financial report.

Review conclusion

On the basis of our review which does not constitute an audit, we are not aware of anymaterial modifications that should be made to the interim financial report for the six monthsended 30 June 2005

PricewaterhouseCoopersCertified Public Accountants

Hong Kong, 13 September 2005


Independent Review Report

Unaudited

Six months ended 30 June

2005 2004

Note HK$’000 HK$’000

Turnover 5 511,610 445,379

Cost of sales (248,090) (201,993)

Gross profit 263,520 243,386

Other revenue 5 7,738 2,353

Distribution costs (81,369) (84,058)

General and administrative expenses (29,415) (21,009)

Operating profit 6 160,474 140,672

Finance costs (369) (359)

Profit before taxation 160,105 140,313

Taxation 7 (42,578) (38,784)

Profit after tax for the period 117,527 101,529

Attributable to:

Equity holders of the Company 116,936 101,218

Minority interest 591 311

117,527 101,529

Dividends 8 46,065 —

Earnings per share for profit attributable to the

equity holders of the Company during the period HK cents HK cents

Basic earnings per share 9 9.8 11.2


Condensed Consolidated Income StatementFor the six months ended 30 June 2005

As at

Unaudited

30 June

2005

Audited

31 December

2004


(Restated)

ASSETS

Non-current assets

Fixed assets 10 240,275 189,596

Leasehold land and land use rights 10 18,844 16,860

Goodwill 10 9,421 —

Deferred tax assets 1,212 1,212

269,752 207,668

Current assets

Trade receivables 11 82,895 106,097

Other receivables, deposits and prepayments 28,481 24,598

Inventories 240,357 234,425

Cash and bank balances 852,623 227,898

1,204,356 593,018

Total assets 1,474,108 800,686

EQUITY

Capital and reserves attributable to the

Company’s equity holders:

Share capital 12 124,500 90,000

Reserves 13 1,143,952 330,284

1,268,452 420,284

Minority interest 28,716 3,072

1,297,168 423,356

LIABILITIES

Current liabilities

Trade payables 14 32,153 45,207

Other payables and accruals 122,382 211,761

Amounts due to related companies 8,060 11,994

Amount due to a fellow subsidiary — 1,735

Taxation payable 14,345 18,142

Short-term bank loan 15 — 14,151

Dividend payable — 74,340

176,940 377,330

Total equity and liabilities 1,474,108 800,686


Condensed Consolidated Balance SheetAs at 30 June 2005

Unaudited


2005 2004


Capital and reserves attributable to the

Company’s equity holders

As at 1 January 420,284 465,838

Issue of shares

— Share capital 12 34,500 —

— Share premium 12 689,518 —

Employee share option scheme

— Value of employee services 13 6,610 —

Profit attributable to equity holders of the

Company for the period 13 116,936 101,218

Currency translation differences 13 604 —

Dividends 13 — (74,344)

As at 30 June 1,268,452 492,712

Minority interest

As at 1 January 3,072 2,550

Profit attributable to minority interest for

the period 591 311

Acquisition of subsidiaries 25,053 —

As at 30 June 28,716 2,861

Total equity 1,297,168 495,573


Condensed Consolidated Statement of Changes in EquityFor the six months ended 30 June 2005

Unaudited


2005 2004

HK$’000 HK$’000

Net cash generated from/(used in):

— operating activities 52,392 101,978

— investing activities (59,103) (25,600)

— financing activities 631,436 (359)

Net increase in cash and cash equivalents 624,725 76,019

Cash and cash equivalents at 1 January 227,898 300,166

Cash and cash equivalents at 30 June 852,623 376,185

Analysis of balances of cash and cash equivalents

Bank balances and cash 852,623 376,185


Condensed Consolidated Cash Flow StatementFor the six months ended 30 June 2005

1. Group reorganisation

The Company was incorporated in the Cayman Islands on 29 July 2004 as an exempted

company with limited liability under the Companies Law of the Cayman Islands.

Pursuant to the reorganisation, as disclosed in the Company’s prospectus dated 17

January 2005, prepared for the purpose of listing its shares on the Main Board of The

Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) (‘‘the Reorganisation’’),

the Company became the holding company of Grand Spirit Holdings Limited (‘‘Grand

Spirit’’), Sino-French Joint-Venture Dynasty Winery Ltd. (‘‘Dynasty Winery’’) and

Shandong Yu Huang Grape Wine Co., Ltd (‘‘Yu Huang’’) on 13 January 2005.

The Company together with its subsidiaries are hereafter collectively referred to as the

Group.

The shares of the Company were listed on the Main Board of the Stock Exchange on 26

January 2005.

2. Basis of preparation and accounting policies

These unaudited condensed consolidated accounts are prepared in accordance with

Hong Kong Accounting Standard (‘‘HKAS’’) 34, ‘‘Interim Financial Reporting’’, issued by

the Hong Kong Institute of Certified Public Accountants and Appendix 16 of the Rules

Governing the Listing of Securities (‘‘Listing Rules’’) on the Stock Exchange.

The Group resulting from the Reorganisation referred to in Note 1 above is regarded as

a continuity entity. Accordingly, the unaudited condensed consolidated accounts have

been prepared on the merger basis as if the Company had been the holding company of

the companies comprising the Group as if the group structure as at 13 January 2005

had been in existence from the beginning of 1 January 2004. In the opinion of the

Directors, the unaudited condensed accounts prepared on the above basis present more

fairly the results, cash flows and state of affairs of the Group as a whole.

These condensed accounts should be read in conjunction with the 2004 Annual Report.

The accounting policies and methods of computation used in the preparation of these

condensed accounts are consistent with those used in the annual report for the year

ended 31 December 2004, except that upon adoption of the new and revised Hong

Kong Financial Reporting Standards and Hong Kong Accounting Standards (‘‘new

HKFRSs’’) which are effective for accounting periods commencing on or after 1 January

2005, certain of the Group’s accounting policies were changed.


Notes to the Interim Accounts

2. Basis of preparation and accounting policies (Continued)

These interim accounts have been prepared in accordance with those new HKFRSs and

interpretations issued and effective as at the time of preparing this information (July

2005). The new HKFRSs and interpretations that will be applicable at 31 December

2005, including those that will be applicable on an optional basis, are not known with

certainty at the time of preparing this interim financial information.

The changes to the Group’s accounting policies and the effect of adopting these new

policies are set out in Note 3 below.

3. Changes in accounting policies

(a) Effect of adopting new HKFRSs

In 2005, the Group adopted the new HKFRSs below, which are relevant to its

operations. The 2004 comparatives have been restated as appropriate.

HKAS 1 Presentation of Financial Statements

HKAS 2 Inventories

HKAS 7 Cash Flow Statements

HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

HKAS 10 Events after the Balance Sheet Date

HKAS 16 Property, Plant and Equipment

HKAS 17 Leases

HKAS 21 The Effects of Changes in Foreign Exchange Rates

HKAS 23 Borrowing Costs

HKAS 24 Related Party Disclosures

HKAS 27 Consolidated and Separate Financial Statements

HKAS 32 Financial Instruments: Disclosures and Presentation

HKAS 33 Earnings Per Share

HKAS 36 Impairment of Assets

HKAS 39 Financial Instruments: Recognition and Measurement

HKFRS 2 Share-based Payments

HKFRS 3 Business Combinations

Adoption of new HKASs 1, 2, 7, 8, 10, 16, 21, 23, 24, 27 and 33 did not result in

substantial changes to the Group’s accounting policies. Related impact on

presentation of the Group’s financials is summarised below.

— HKAS 1 has affected the presentation of minority interest and other

disclosures.



3. Changes in accounting policies (Continued)

(a) Effect of adopting new HKFRSs (Continued)

— According to HKAS 21, the functional currency of each of the consolidated

entities has been re-evaluated based on guidance to the revised standard.

— HKAS 24 has affected the identification of related parties and some other

related-party disclosures.

Adoption of revised HKAS 17 has resulted in a change in the accounting policy

relating to leasehold land and land use rights. The up-front prepayments made for

the leasehold land and land use rights are now reclassified as operating lease and

expensed in the income statement on a straight-line basis over the period of the

lease or where there is impairment, the impairment is expensed in the income

statement in the year identified. In prior years, the leasehold land was accounted

for at cost less accumulated depreciation and accumulated impairment.

Adoption of HKASs 32 and 39 has resulted in a change in the accounting policy

relating to classification of financial assets at fair value through profit or loss and

available-for-sale financial assets. It has also resulted in the recognition of

derivative financial instruments at fair value and the change in the recognition

and measurement of hedging activities. Up to 2004, no adjustment is necessary

upon adoption of HKASs 32 and 39.

In accordance with the provisions of HKFRS 3 and HKAS 36, goodwill is tested

annually for impairment, and also when there is indication of impairment

commencing from the year ending 31 December 2005. In accordance with

HKFRS 2, cost of share options are expensed in income statement.

All changes in the accounting policies have been made in accordance with the

transition provisions in the respective standards. All standards adopted by the

Group require retrospective application other than HKASs 16, 21, 39 and HKFRSs 2

and 3.



(b) New accounting policies

The accounting policies used for the condensed consolidated accounts for the six

months ended 30 June 2005 are the same as those set out in Note 2 to the 2004

annual report except for the following:

(i) Acquisition of subsidiaries

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.

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.

(ii) Foreign currency translation

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. The functional currency of the Group’s

subsidiaries in PRC is Renminbi.

(iii) Property, plant and equipment

The assets’ residual values and useful lives are reviewed, and adjusted if

appropriate, at each balance sheet date.

(iv) 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 at the date of acquisition. Goodwill on acquisitions of subsidiaries

is included in intangible assets. Goodwill is tested annually for impairment

and carried at cost less accumulated impairment losses. 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.




(b) New accounting policies (Continued)

(v) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation,

which are at least tested annually for impairment are reviewed for

impairment whenever events or changes in circumstances indicate that the

carrying amount may not be recoverable. 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).

(vi) Share capital

Incremental costs directly attributable to the issue of new shares or options

are shown in equity as a deduction, net of tax, from the proceeds.

(vii) Share-based compensation

The Group operates an equity-settled, share-based compensation plan. The

fair value of the employee services received in exchange for the grant of the

options is recognised as an expense. The total amount to be expensed over

the vesting period is determined by reference to the fair value of the options

granted, excluding the impact of any non-market vesting conditions (for

example, profitability and sales growth targets). Non-market vesting

conditions are included in assumptions about the number of options that

are expected to become exercisable. At each balance sheet date, the entity

revises its estimates of the number of options that are expected to become

exercisable. It recognises the impact of the revision of original estimates, if

any, in the income statement, and a corresponding adjustment to equity over

the remaining vesting period.

The proceeds received net of any directly attributable transaction costs are

credited to share capital (nominal value) and share premium when the

options are exercised.

4. Segment information

Manufacturing and sale of wine products is the only business segment of the Group for

the periods ended 30 June 2004 and 2005. All operating assets of the Group for the

periods ended 30 June 2004 and 2005 are located in the PRC. Accordingly, no separate

business and geographic segment information is presented.


5. Turnover and other revenue

The Group is principally engaged in the manufacturing and sale of wine products.

Revenue recognised during the period is as follows:

Unaudited

Six months ended

30 June

2005 2004

HK$’000 HK$’000

Turnover

Manufacturing and sale of wine products 511,610 445,379

Other revenue

Interest income 7,738 2,353

519,348 447,732

6. Operating profit

Operating profit is stated after charging/(crediting):

Unaudited

Six months ended

30 June

2005 2004

HK$’000 HK$’000

Employee costs include:

— salaries, other allowance and benefits 28,149 25,003

— contributions to retirement benefits scheme 1,657 1,466

— share-based payments 6,610 —

— government subsidy (Note a) (10,202) (5,706)

Total employee costs including directors’ emoluments 26,214 20,763

Depreciation 10,225 8,139

Amortisation 338 418

Loss on disposal of fixed assets — 19

Operating lease rentals in respect of

— storage facilities and plant and machinery 1,698 1,698

— transformation station 1,020 1,020

— office premises 747 —



6. Operating profit (Continued)

Note:

(a) Prior to 2003, one of the Group’s subsidiaries, Dynasty Winery, had been making contributions to an

external special purpose fund which is managed and approved by the PRC joint venture partner of Dynasty

Winery as permitted under the then related PRC regulations. Pursuant to revised regulations issued by the

Tianjin Finance Bureau effective 1 January 2003, Dynasty Winery ceased to make further contributions to

this fund. In addition, these regulations require any remaining balance of the fund at 31 December 2007

to be transferred to Dynasty Winery. The Group’s legal counsel has confirmed that the Group does not

have ownership of this fund which effectively belongs to the PRC government and is to be used only for

the general welfare of Dynasty Winery’s employees. For the period ended 30 June 2005, Dynasty Winery

received HK$10,202,000 (2004 : HK$5,706,000) from the fund.

7. Taxation

Unaudited

Six months ended

30 June

2005 2004

HK$’000 HK$’000

Current taxation:

— PRC income tax 42,578 38,275

— underprovision in previous years — 509

42,578 38,784

No provision for Hong Kong profits tax has been made as the Group has no estimated

assessable profit in Hong Kong.

Provision for PRC income tax has been made at the applicable rate on the estimated

assessable profit for the period. The applicable rate for Dynasty Winery and Tianjin

Tianyang Grape Extracting Co., Limited is 24% for the periods ended 30 June 2004 and

2005, being the preferential rate for foreign investment production enterprises

established in a coastal economic development zone. The applicable rate for Yu

Huang is 30% for the periods ended 30 June 2004 and 2005.


8. Dividends

Unaudited

Six months ended

30 June

2005 2004

HK$’000 HK$’000

Interim dividend proposed of HK3.7 cents per

ordinary share 46,065 —

Note: On 13 September 2005, the directors declared an interim dividend of HK3.7 cents per ordinary share. This

declared dividend is not reflected as a dividend payable in these accounts, but will be reflected as an

appropriation of retained profits for the year ending 31 December 2005.

9. Earnings per share

The calculation of the basic earnings per share is based on the profit attributable to

equity holders of the Company of HK$116,936,000 and the weighted average number

of 1,195,856,354 shares in issue during the period.

The comparative basic earnings per share is calculated based on profit attributable to

equity holders of the Company of HK$101,218,000 and an aggregate of 900,000,000

shares comprising 100 shares issued immediately after incorporation of the Company

and 899,999,900 shares issued upon the Reorganisation, which were deemed to have

been in issue since 1 January 2004.

The exercise of share options would have no material dilutive effect of earnings per

share for the periods ended 30 June 2004 and 2005.

10. Capital expenditure

(a) Acquisitions

During the six months ended 30 June 2005, the Group acquired fixed assets,

leasehold land and land use rights including items through acquisition of

subsidiaries amounting to HK$63,226,000 (six months ended 30 June 2004 :

HK$27,968,000).



10. Capital expenditure (Continued)

(b) Goodwill arising from acquisition of subsidiaries

HK$’000

As at 1 January 2005 —

Acquisition of subsidiaries 9,421

As at 30 June 2005 9,421

11. Trade receivables

In general, the Group grants a credit period of 30 to 90 days to its customers. The aging

analysis of trade receivables is as follows:

Unaudited

30 June

2005

Audited

31 December

2004

HK$’000 HK$’000

Below 30 days 38,666 76,241

30 to 90 days 24,671 21,062

91 to 180 days 17,806 11,819

Over 180 days 5,641 864

86,784 109,986

Less: Provision for doubtful debts (3,889) (3,889)

82,895 106,097


12. Share capital

Number

of shares Share capital Share premium Total

HK$’000 HK$’000 HK$’000

As at 1 January 2004 and 30

June 2004 — — — —

Issue of share on 9 August 2004

(Note b) 1 — — —

Issue of shares on 10 August

2004 (Note c) 99 — — —

Acquisition of subsidiary (Note d) 899,999,900 90,000 — 90,000

Proforma share capital as at 31

December 2004 900,000,000 90,000 — 90,000

Issue of shares (Note e) 345,000,000 34,500 689,518 724,018

As at 30 June 2005 1,245,000,000 124,500 689,518 814,018

Notes:

(a) The total authorised number of ordinary shares is 3,000 million shares (31 December 2004 : 3,000 million

shares) with a par value of HK$0.10 per share (31 December 2004 : HK$0.10 per share). All issued shares

are fully paid.

(b) On 9 August 2004, one new share of HK$0.1 was allotted and issued at par for cash.

(c) On 10 August 2004, an aggregate of 99 new shares of HK$0.1 each was allotted and issued at par for

cash.

(d) The Company issued 899,999,900 shares of HK$0.1 each on 13 January 2005 to acquire for the entire

equity interest of Grand Spirit. Grand Spirit is an investment holding company owning the entire interest

in Dynasty Winery which is established in the PRC and engages in manufacturing and sales of wine

products.

(e) On 1 February 2005, the Company completed its placing and public offering of 345,000,000 shares

whereupon 300,000,000 shares were issued on the Main Board of Stock Exchange on 26 January 2005

and the remaining 45,000,000 shares were issued on 1 February 2005 following the exercise of the over-

allotment option pursuant to the underwriting agreement.



12. Share capital (Continued)

Share options scheme

Pursuant to the resolutions of the shareholders of the Company on 6 December 2004, a

share option scheme (the ‘‘Scheme’’) was approved and adopted.

Under the Scheme, the directors may, at their discretion, grant to any eligible person as

defined under the Scheme to take up options to subscribe for shares of the Company at

a subscription price to be determined by the directors pursuant to the relevant listing

rules. The maximum number of shares issuable upon the exercise of all outstanding

options to be granted under the Scheme must not, in aggregate, exceed 30% of the

total number of shares in issue from time to time. The total number of shares in respect

of which options may be granted under the Scheme and any other share options

schemes of the Company shall not exceed 120 million shares, being 10% of the total

number of shares in issue as at the date of listing of the Company’s shares unless

separate approval is obtained.

On 27 January 2005, 15,100,000 share options were granted to directors, other than

the independent non-executive directors, of the Company and 8,000,000 share options

were granted to employees of the Group. The options are exercisable at a price of HK$3

per share at anytime between 17 August 2005 and 26 January 2015. None of these

share options have been exercised, lapsed or cancelled by the directors or employees

during the period ended 30 June 2005.

The Group has no legal or constructive obligation to repurchase or settle the options in

cash.

Based on the share option valuation report prepared by Vigers Appraisal & Consulting

Limited (‘‘Vigers’’) on 1 September 2005, the fair market value of options granted during

the six months ended 30 June 2005 determined using the Binomial valuation model was

HK$0.38 per option. The significant inputs into the model were share price of HK$3 per

share, at the grant date, exercise price of HK$3 per option, standard deviation of

expected share price returns of 23%, expected life of options of 2 years, expected

dividend paid out rate of 50% and annual risk-free interest rate of 1.478%. According

to the Vigers’ report, the volatility measured at the standard deviation of expected share

price returns is based on statistical analysis of daily share prices over the last several

months since listing on the Stock Exchange.


13. Reserves

Unaudited

Share

premium

Merger

reserve

(Note)

Employee

share-based

compensation

reserve Reserve fund

Enterprise

expansion

reserve

Exchange

reserve

Retained

profits Total

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

As at 1 January

2004 — 74,519 — 38,124 87,420 — 175,775 375,838

Profit attributable

to equity

holders of the

Company for

the period — — — — — — 101,218 101,218

Dividends — — — — — — (74,344) (74,344)

As at 30 June

2004 — 74,519 — 38,124 87,420 — 202,649 402,712

As at 1 January

2005 — 74,519 — 44,911 94,045 — 116,809 330,284

Issue of shares 689,518 — — — — — — 689,518

Profit attributable

to equity

holders of the

Company for

the period — — — — — — 116,936 116,936

Transfer — — — 146 146 — (292) —

Share-based

payments — — 6,610 — — — — 6,610

Currency

translation

differences — — — — — 604 — 604

As at 30 June

2005 689,518 74,519 6,610 45,057 94,191 604 233,453 1,143,952

Note: The merger reserve of the Group represents the difference between the nominal value of the shares of the

subsidiaries that had been acquired and the nominal value of the Company’s shares issued in exchange therefore

pursuant to the Reorganisation.



14. Trade payables

The aging analysis of the trade payables is as follows:

Unaudited

30 June

2005

Audited

31 December

2004

HK$’000 HK$’000

Below 30 days 29,977 41,574

30 to 90 days — 337

91 to 180 days — 1,871

Over 180 days 2,176 1,425

32,153 45,207

15. Short-term bank loan

The short-term bank loan in 2004 of HK$14.2 million was secured by certain of the

Group’s properties in Tianjin and the security was released in October 2004.


16. Operating lease commitments

At 30 June 2005, the Group had total future aggregate minimum lease payments under

non-cancellable operating leases as follows:

Unaudited

30 June

2005

Audited

31 December

2004

HK$’000 HK$’000

Storage facilities and plant and machinery

— Not later than one year 1,698 3,396

Transformation station


— Later than one year but not later than five years 2,206 3,226

4,244 5,264

Office premises


— Later than one year but not later than five years 1,901 2,613

3,326 4,038



17. Capital commitments

Capital expenditure commitments relate to intended purchase of fixed assets and

production facilities:

Unaudited

30 June

2005

Audited

31 December

2004

HK$’000 HK$’000

Authorised but not contracted for 144,570 13,592

Contracted but not provided for 7,161 8,222

151,731 21,814

18. Business combination

On 10 January 2005, the Company entered into a conditional agreement with Tianjin

Development Holdings Limited (‘‘Tianjin Development’’), the intermediate holding

company, to acquire the entire share capital and to assume the shareholder’s loan of

Smiling East Resources Limited (‘‘Smiling East’’) for a consideration of HK$47 million, the

terms and conditions of the acquisition have been fulfilled and the transaction was

completed on 23 February 2005. Smiling East holds 60% equity interest in Tianjin

Tianyang Grape Extracting Co. Ltd (‘‘Tianyang’’) which engages in manufacturing of

unprocessed wines and is a supplier to Dynasty Winery.

The acquired business contributed net profit of HK$878,000 to the Group for the period

from 23 February 2005 to 30 June 2005.

The details of the net assets acquired and goodwill are as follows:

HK$’000

Cash consideration 47,000

Less: Assumption of shareholder’s loan 37,407

9,593

Less: Fair value of net assets acquired 172

Goodwill 9,421

The goodwill is attributable to the significant synergies expected to arise after the

Group’s acquisition of Smiling East.


19. Related party transactions

The following is a summary of significant related party transactions during the period

which in the opinion of the directors are carried out in the normal course of the Group’s

business:

Unaudited

Six months ended

30 June

2005 2004

HK$’000 HK$’000

(a) Purchase of goods and services

Tianjin Heavenly Palace Winery Co., Ltd

(‘‘Heavenly Palace’’)

Rental paid (Note i) 1,698 1,698

Ning Xia Heavenly Palace Yuma Winery

Co., Ltd (‘‘Yuma’’)

Purchase of unprocessed wine 24,705 17,131

Tianyang

Purchase of unprocessed wine (Note ii) 2,655 5,747

(b) Acquisition of interest in subsidiaries from:

Tianjin Development (Note 18) 47,000 —

(c) Key management compensation

Salaries and other short-term employee benefits 4,838 72

Other long-term benefits 147 —

Share-based payments 6,610 —

11,595 72



19. Related party transactions (Continued)

As at

Unaudited

30 June

2005

Audited

31 December

2004

(d) Period end balances arising from purchase of

goods and services

Tianyang (Note ii) — 5,618

Heavenly Palace is a subsidiary of Tianjin Development. Yuma is an associate of Heavenly

Palace.

Notes:

(i) Rental for storage facilities and plant and machinery was paid at contracted terms of HK$283,000 per

month. The rental period is three years commencing from 1 January 2003.

(ii) As detailed in Note 18, Tianyang became a subsidiary of the Group after the acquisition of Smiling East on

23 February 2005 and ceased to be a fellow subsidiary of the Group. Total purchase from Tianyang during

the period from 1 January 2005 to 23 February 2005 amounted to HK$2,655,000.

20. Financial risk management

The Group’s activities expose it to a variety of financial risks, including the effects of

changes in foreign currency exchange rates, credit risk and cash flow interest rates risk.

(a) Financial risk factors

(i) Foreign exchange risk

The Group mainly operates in the PRC with most of the transactions settled

in Renminbi and did not have significant exposure to foreign exchange risk

for the periods ended 30 June 2004 and 2005.


20. Financial risk management (Continued)

(a) Financial risk factors (Continued)

(ii) Credit risk

The Group has no significant concentrations of credit risk. The carrying

amount of trade receivables included in the consolidated balance sheets

represented the Group’s maximum exposure to credit risk in relation to its

financial assets. The Group has policies in place to ensure that sales of

products are made to customers with an appropriate credit history and the

Group performs periodic credit evaluations of its customers. The Group’s

historical experience in collection of trade and other receivables falls within

the recorded allowances and the Directors are of the opinion that adequate

provision for uncollectible trade receivables has been made in the

consolidated accounts.

(iii) 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 exposure to changes in interest rates is mainly

attributable to its short-term borrowings. As at 30 June 2005, the Group’s

short-term bank loan was fully repaid. The Group did not use any interest

rate swaps to hedge its exposure to interest rate risk during the period

ended 30 June 2005.

(b) Fair value estimation

The carrying amounts of the Group’s financial assets including cash and cash

equivalents, time deposits, trade receivables, other receivables, deposits and

prepayments; and financial liabilities including trade payables, short-term

borrowings, other payables and accruals, approximate their fair values due to

their short maturities.

21. Comparative figures

Comparative figures have been translated into Hong Kong dollars to conform with the

current period’s presentation.

22. Approval of interim financial reports

The interim financial reports were approved by the Board on 13 September 2005.



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Interim Report 2005中期報告

Interim Report 2005 中期報告 - Dynasty Fine Wines ... · Bank of Bermuda (Cayman) Limited PO BOX 513GT, Strathvale House North Church Street, George Town Grand Cayman, Cayman

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