Section 31

Financial Risk Management Objectives and Policies

The operations of the Group and of the Company are subject to a variety of financial risks, including interest rate risk, credit risk, liquidity risk and cash flow risk. The Group and the Company have formulated a financial risk management framework whose principal objective is to minimise the

Group’s and the Company’s exposure to risks and/or costs associated with the financing, investing and operating activities of the Group and of the

Company.

Various risk management policies are approved by the Board for observation in the day-to-day operations for the controlling and management of the risks associated with financial instruments.

Interest Rate Risk

The Group and the Company enter into various interest rate risk management transactions fot the purpose of reducing net interest costs and to achieve interest rates within predictable, desired ranges.

Credit Risk

The Group and the Company are exposed to credit risk mainly from trade receivables and cash and cash equivalents.

The Group and the Company extend credit to its customers based upon careful evaluation of the customers’ financial condition.

Management believes that Group’s and the Company’s exposure on credit risk of cash and cash equivalents is limited as it is placed with credit worthy financial institutions.

Liquidity Risk

The Group and the Company practise prudent liquidity risk management to minimise the mismatch of financial assets and liabilities and to maintain sufficient credit facilities for contingent funding requirement of working capital.

Cash Flow Risk

The Group and the Company review their cash flow position regularly to manage their exposure to fluctuations in future cash flows associated with their monetary financial instruments.

Financial Assets

The Group’s and the Company’s principal financial assets are deposits, cash and bank balances, trade and other receivables and equity investments.

The accounting policies applicable to the major financial assets are as disclosed in Note 3.

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Financial Liabilities And Equity Instruments

Debts and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement.

Significant financial liabilities of the Group and of the Company are trade and other payables, bank borrowings and Convertible Unsecured Loan Stocks.

Bank borrowings are recorded at the proceeds received net of direct issue costs.

Finance Charges Are Accounted For On Accrual Basis

Equity instruments are recorded at the proceeds received net of direct issue costs.

Fair Values

The carrying amounts and the estimated fair values of the Group’s and of the Company’s financial instruments as of 31 December 2005 are as follows:

The Group and the Company 2005 2004

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

Note

Financial assets

Short-term investment-quoted shares 20 114,618 110,850 99,935 112,900

Financial

Liabilities

Borrowings-term loan 24

—

—

4,095,694 4,095,694

Convertible

Unsecured Loan

Stocks-liability

Component 25 317,338,460 317,338,460 303,210,004 303,210,004

Cash and cash equivalents, trade and other receivables, trade and other payables and other bank borrowings

The fair value of these financial instruments approximate their carrying amounts due to the short maturities of these instruments.

Equity Investments

The market values of quoted shares as at balance sheet date approximates their fair values.

Term Loan

The fair value of term loan is estimated using discounted cash flow analysis based on current borrowing rates for similar types of borrowing arrangements.

Convertible Unsecured Loan Stocks

The carrying amount of Convertible Unsecured Loan Stocks approximates fair value as the instrument is calculated using a prevailing market interest rate at the date of issuance for a similar convertible loan stocks.

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