Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen and Cookware • Bodyshaping Lingerie • Undergarments and Apparel • Food and Beverages • Π Water Systems • Health and Nutrition • Household Cleaning • Car Care • Personal Care • Cosmetics & Fragrances • Kitchen

Color Your World

(formerly known as Berjaya Holdings (HK) Limited)

(Stock Code: 288)

Annual Report 2010

EXPERIENCE ENJOY

A Unique Way of Doing Business

Cosway's unique business model is empowering consumers, energizing communities and enriching people's lives all around the world.

Amazing yet Affordable Products

We work with the best researchers, suppliers and manufacturers from around the world to bring you an ever-growing range of top quality products at unbelievable prices.

ENGAGE

In Risk-Free Entrepreneurship

Use our platform to run a smart, risk-free business without boundaries or limitations. If you want to work in your local community, you can apply for one of our FREE STORES!

Contents
2 3 6 8 9 12 16 28 31 40 64 65 66 67 70 72 74 76 193 195 Corporate Profile Corporate Information Milestones Financial and Operation Highlights Geographical Information Chairman’s Statement Management Discussion and Analysis Biographical Details of Directors Corporate Governance Report Report of the Directors Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Statement of Financial Position Notes to Financial Statements Five Year Financial Summary Particulars of Properties

2

Cosway Corporation Limited Annual Report 2010

Corporate Profile

Cosway Corporation Limited (“Cosway”) is a hybrid consumer marketing company that blends the best features of a global network marketing system with the convenience and reach of a wide retail chain. The business began in 1979 as Cosway (M) Sdn. Bhd. (“Cosway M”), a multi level marketing (“MLM”) company, and was acquired by Berjaya Group in 1994. In December 2009, Berjaya Holdings (HK) Limited (a subsidiary of the Berjaya Group) completed the acquisition of Cosway M and eCosway.com Sdn. Bhd. (“eCosway”) and subsequently changed its name to Cosway Corporation Limited. Co sway cu r r e n t l y m a rket s ove r 1, 9 0 0 c o n s u mer products solely through our in house brands. The core product categories comprise of health and nutritional supplements, personal care products, water filtration systems, cosmetics and fragrances, skincare, body shaping lingerie, home and car care and food and beverage. Unlike typical MLM companies, Cosway sources almost all of its products from independent manufacturers, leading researchers and ingredient suppliers and as such, the Group is able to capitalise on the advanced technological and scientific innovations of the global manufacturing and research community.

Cosways’ products are available at 1,480 exclusive stores located at hypermarkets, high density residential developments, major shopping malls and housing areas throughout Asia and Australia. Growth has also seen an impetus with the recent introduction of our “Free Store” concept, which allows entrepreneurial Cosway members to manage company-owned outlets (hence “free” to the members). These store operators profit from both a commission on sales and with the network marketing system, operators also benefit from multiple levels of commission through sales generated by a hierarchy of members whom they recruit. We are presently operating in nine countries which are grouped as follows: • Malaysia, Singapore and Brunei • Hong Kong, Macau and Taiwan • Other Countries, consisting of Thailand, South Korea, Indonesia and Australia Members are also able to conveniently shop and recruit online through our eCosway website (www.eCosway.com), while useful corporate information is also available on the website for investors and the public.

Cosway Corporation Limited Annual Report 2010

3

Corporate Information

Directors
Executive Directors
Mr. Chuah Choong Heong (Chairman and Chief Executive Officer) Mr. Tan Yeong Sheik, Rayvin

Auditors
Ernst & Young Certified Public Accountants

Principal Bankers
Malayan Banking Berhad AmBank (M) Berhad OCBC Bank (M) Berhad Asian Finance Bank Berhad DBS Bank (Hong Kong) Limited CITIC Bank International Limited

Non-Executive Directors
Mr. Chan Kien Sing Mr. Tan Thiam Chai Ms. Tan Ee Ling

Independent Non-Executive Directors
Mr. Wong Ying Wai, Wilfred Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose

Registered Office
Unit 1701, 17th Floor, Austin Plaza 83, Austin Road Jordan, Kowloon Hong Kong

Company Secretary
Mr. Wong Man Hong

Share Registrars
Tricor Secretaries Limited 26th Floor, Tesbury Centre 28 Queen’s Road East Wanchai, Hong Kong

Authorised Representatives
Mr. Tan Yeong Sheik, Rayvin Ms. Tan Ee Ling

Audit Committee
Mr. Wong Ying Wai, Wilfred Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose

Stock Code
HKEX: 00288

Website www.coswaycorp.com Remuneration Committee
Mr. Wong Ying Wai, Wilfred Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose

Pamper your skin with the all-new Caviar Deluxe from Beautycode Switzerland. Contains unprecedented concentration of nutritive caviar extract to turn back time and give you a more youthful and radiant complexion. Now, Caviar Deluxe combines the nutritive age-defying properties of caviar extract with 3 other patented powerful ingredients including Biocell™ SOD, Pepha®-Tight and Lactil®, to provide phenomenal results in a shorter time.

Personal Care

The Ultimate Anti-Ageing Solution
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6

Cosway Corporation Limited Annual Report 2010

Milestones

2001 Cosway M goes Global in 2001 with the launch of eCosway.com 1979 Cosway (M) Sdn. Bhd. (“Cosway M”) was founded in Malaysia

1995 Our 1st Redemption Centre opened its doors

1994 Cosway M becomes a subsidiary of the Berjaya Group

1997 We moved into our new corporate headquarters, Wisma Cosway

Cosway Corporation Limited Annual Report 2010

7

Milestones

2009 Cosway M was injected into Cosway Corporation Limited in December 2009 which is listed on HKEX

2006 Successfully launched into Taiwan in 2005 and Hong Kong in 2006

2008 1st Free Franchise Store was launched in Siu Sai Wan, Hong Kong

8

Cosway Corporation Limited Annual Report 2010

Financial and Operation Highlights

2010 HK$’000 Revenue Gross profit Profit for the year Total assets Shareholders’ equity 2,329,278 976,325 222,225 1,747,877 649,463

2009 HK$’000 1,726,896 669,974 135,851 955,844 458,339

Increase in percentage (%) 34.9% 45.7% 63.6% 82.9% 41.7%

Compound Annual Growth Rate on Revenue
HK$ million

Compound Annual Growth Rate on Profit
HK$ million

30.05%
2006-2010
1,727 1,324 1,005 814

51.52%
2006-2010
136 110 68

222

2,329

42

2006 2007

2008 2009

2010

2006 2007

2008 2009

2010

Sales by Products

Sales by Geographical Regions

Home Care

17%

9%and Beverage Food 30%
Personal Care

39%

7% 54%
Malaysia, Singapore and Brunei

Other Countries

27%

Hong Kong, Macau and Taiwan

Health Care

17%
Others

Cosway Corporation Limited Annual Report 2010

9

Geographical Information

No. of Outlets Malaysia Hong Kong and Macau Taiwan Korea Thailand Australia Others 715 94 304 107 115 77 68 1,480

Combines two potent natural antioxidants proven by numerous studies worldwide to work synergistically to effectively fight free radicals and offer extensive natural health benefits.

Health Care

ASTA Pycnogenol
• • • • • • • • •

Nature's super antioxidants for well-being, youthfulness & longevity
Great for those who: want to be more flexible want to have a better complexion and healthier, more youthful skin have frequent sun exposure and want to maintain healthy, fair skin are under tremendous stress and often stay up late at night wish to strengthen their body’s immune system have physiological problem lack focus and concentration wish to have a longer life smoke and drink alcohol

12

Cosway Corporation Limited Annual Report 2010

Chairman’s Statement

On behalf of the Board of Directors of Cosway Corporation Limited, I am pleased to present the Annual Report and Financial Statements for the financial year ended 30 April 2010. The year 2009/2010 was a challenging time for most companies, including the direct selling and retail industry as a declining economy and higher unemployment resulted in lower disposable income for consumers. While this was true for the period, I am pleased to report that the Group achieved a record revenue for the year and solidified its position as a leading consumer marketing company within the region.

Financial Results

“

“

A total of 624 new Cosway outlets were opened throughout the year

For the year ended 30 April 2010, the Group achieved a revenue of HK$2.3 billion through the sales of health and nutritional supplements, personal care products, cosmetics and fragrances, skincare, body shaping lingerie, home and car care, food and beverages, water systems, and others. This represents a growth of 35% versus the same period in 2009 and subsequently, a 63% increase in our net income. This was mainly achieved through our key markets in Malaysia, Hong Kong and Taiwan as well as our new up and coming markets in Thailand, Korea, and Australia. A total of 624 new Cosway outlets were opened throughout the year in the various countries the Group operates in and these stores were financed entirely by internally generated funds. Our membership base also recorded a significant increase of 35% for the financial year and is poised to rise further with the large number of key leaders/members joining Cosway from other companies. This is a continuing testament to the new “Blue Ocean” strategy adopted by the Group in recent years.

Our “Blue Ocean”* Strategy
When Cosway M was established in 1979, it started out as a simple multi level marketing (“MLM”) company. In time, our business model evolved to encompass unique features that differentiated the company from others within the industry. These include a Redemption Program with attractive items that are available below market cost or even for free with the use of loyalty points, an aggressive and frequent promotions program that is uncommon for a MLM business and a “No Breakaway” compensation plan that allowed members to recruit globally. While all this set the Group apart, it did not break new ground until the latest evolution in our business model: the hybrid free franchise stores or ‘Free Stores’. The hybrid model merges the best qualities of the MLM and retail business models. Cosway outlets are now commonly available at high traffic flow areas such as hypermarkets, high density residential developments, major shopping malls and
* “Blue Ocean Strategy” W. Chan Kim and Renée Mauborgne, Harvard Business School Press, 2005

Cosway Corporation Limited Annual Report 2010

13

Chairman’s Statement

housing areas and cater not only to MLM members but walk in customers and the general public. The competitive pricing of Cosway’s merchandise and diverse range of over 1,900 products appeals to all types of consumers and has helped to broaden Cosway’s customer base tremendously. Recruitment has also been remarkable as a high percentage of walk in customers convert into members after sampling our products’ quality and affordability for themselves. This is all coupled with the ‘word of mouth’ and ‘push’ factor of MLM that allows us to introduce unique items to the market that requires extensive explanation and cannot be successfully marketed through normal retail models, adding further to our membership base with the launch of every such product. Furthermore, as this is a business that thrives on members who recruit more members, Cosway’s ‘Free Stores’ are not manned by the usual unmotivated employees of a retail chain. The operating rights of ‘Free Stores’ are offered to top performing members who only commit their time and a deposit but have no other financial risk as all costs are borne by the Group. Their motivation levels are unlike any employee as they hope to capture every customer as a member and grow their network further, hence receiving regular and larger commissions as time goes by. Cosway has essentially created a chain store model with an enterprising entrepreneur in every outlet.

63% increase in net income

Conclusion
Given our unique business model and solid track record, I am confident that the Group will continue to expand regionally and globally at a daunting pace and I am very confident of achieving our goal in becoming a globally recognised leader in both the MLM and retail industry. This is best exemplified by our planned entry into the two enormous consumer markets of the USA and Japan in financial year 2011. Of course, all this would not have been possible if not for our loyal members, dedicated employees and supportive shareholders. I would like to take this opportunity to thank our many members who have been through thick and thin with the Group and who are responsible for our outstanding results. Similarly, Cosway is staffed with countless dedicated employees who have grown up with the company and we would not be where we are today if not for them. Last but not least, I would like to thank our supportive shareholders who shared our dreams and believed in our abilities to make them happen. I believe that the trust from our members, employees and shareholders will not be in vain and that they will all be richly rewarded in the years to come.

Chuah Choong Heong
Chairman

Hydrogen water from your tap! Modern science has now found a way to create hydrogen water from domestic water supplies. How? With a unique table-top water treatment system, one that infuses your water with abundant hydrogen. Negatively-charged hydrogen ions (H-) are excellent antioxidants because they readily “donate” their electrons to stabilise free radicals. Since free radicals are one of the major causes of ageing and getting rid of them is crucial for staying healthy, hydrogen-rich water is therefore incredibly valuable for fighting age-related, degenerative diseases.

Water System

Alkaline Hydrogen Water Filtration System
The Exciting New Breakthrough for Healthier Drinking Water!
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16

Cosway Corporation Limited Annual Report 2010

Management discussion and analysis

The following management discussion and analysis should be read in conjunction with the audited financial statements of the Company for the year ended 30 April 2010.

Summary of Financial Results
Net sales for the year ended 30 April 2010 recorded an increase of 35% to HK$2.329 billion as compared to HK$1.727 billion for the same period in 2009. The increase was primarily due to carefully strategised recruitment activities which led to an increased number of members and “Free Stores” being opened during the period under review. The Group’s Net Income was unfavourably impacted by the Group’s first time adoption of HK (IFRIC)-Int 13 – Customer Loyalty Programmes for the year ended 30 April 2010, resulting in a deferment of recognition to subsequent years of HK$10 million to the Group’s net income as opposed to a gain of HK$1 million for the same period in 2009. Net Income was further reduced by interest costs of HK$14 million relating to the Irredeemable Convertible Unsecured Loan Securities (“ICULS”) issued by the Company on 8 December 2009 as partial consideration of the acquisition of 100% equity interest in Cosway M and 40% equity interest in eCosway (“Cosway Group”). Despite the impact arising from the above, the Group is pleased to report that Net Income for the year ended 30 April 2010 increased 63% to HK$222 million as compared to HK$136 million for the same period in 2009. The increase was primarily driven by the introduction of higher margin products, better economies of scale on sourcing and supplier pricing, more effective cost management; and the fair value gains arising from the revaluation of certain investment properties.

Results of Operations
Year Ended 30 April 2010 compared to Year Ended 30 April 2009

a)

Sales by Business Segment
30 April 2010 30 April 2009 HK$’mil 1,720 7 1,727 % 99.6% 0.4% 100% % increase in sales % 34.8% 57.1% 34.9%

Direct Selling/Retailing Others Total

HK$’mil 2,318 11 2,329

% 99.5% 0.5% 100%

The bulk of the revenue is generated by the Direct Selling/Retailing of consumers goods, which are the principal activities of the Group.

Cosway Corporation Limited Annual Report 2010

17

Management discussion and analysis

b)

Direct Selling/Retailing by Region
30 April 2010 30 April 2009 % 54% 39% 7% 100% HK$’mil 919 768 33 1,720 % 53% 45% 2% 100% % increase in sales % 36.8% 17.6% 378.8% 34.8%

Malaysia, Singapore and Brunei Hong Kong, Macau and Taiwan Other Countries Total

HK$’mil 1,257 903 158 2,318

Malaysia, Singapore and Brunei
The Malaysia, Singapore and Brunei markets continued to enjoy a healthy growth in sales and market share principally through the expansion of our ‘Free Store’ concept, growth in membership and new product launches. In the Malaysian market, where Cosway has been present for the last 31 years, sales increased by an impressive 37% versus the same period in 2009. The Management believes this is an important example that the new business model, which effectively combines network marketing and retail selling, is capable of generating immense sales in both existing and future markets. The Malaysia, Singapore and Brunei region reported total revenue of HK$1.3 billion for the financial year 2010, increasing by HK$338 million (equivalent to a growth of 37%) as compared to the same period in 2009. Meanwhile, operating profit rose by 33% from HK$90 million for the year ended 30 April 2009 to HK$120 million for the same period in 2010. In view of the additional marketing efforts and aggressive opening of new “Free Stores”, selling and distribution costs increased for the 2010 financial year, accounting for the difference in growth between sales and operating profit. Nevertheless, Management believes that incremental sales from new stores will contribute positively in the coming financial year, leading to a normalisation of selling and distribution costs as a percentage of sales.

18

Cosway Corporation Limited Annual Report 2010

Management discussion and analysis

Hong Kong, Macau and Taiwan
The Hong Kong, Macau and Taiwan region reported total revenue of HK$903 million for the year ended 30 April 2010. Total revenue increased HK$135 million or 18% for the year ended 30 April 2010 as compared to the same period in 2009. Operating profit increased 37% to HK$78 million for the year ended 30 April 2010 compared to the same period in 2009 of HK$57 million. The increase in operating profit for the region is a result of expanded product lines with higher margin products and better cost management via economies of scale. For Hong Kong and Macau, which comprise the bulk of this region’s sales, total revenue increased 18% or HK$84 million, resulting in total revenue of HK$546 million for the year ended 30 April 2010. Operating profit improved by 34% to arrive at HK$59 million compared to HK$44 million as of 30 April 2009. In the coming year, further emphasis will be placed on networking activities throughout the year given the positive results in recent months with the strong recruitment of top leaders from competing companies into Cosway. Taiwan’s revenue improved by 17% to HK$357 million versus 30 April 2009 sales of HK$306 million. Operating profit improved by 46% to arrive at HK$19 million compared to HK$13 million in 30 April 2009. Once again, this was primarily due to the introduction of higher margin products and better cost management.

Other Countries
South Korea and Thailand represent the majority of Other Countries in terms of revenue, with a combined revenue of HK$113 million for the year ended 30 April 2010 against HK$4 million for the year ended 30 April 2009. This represents a more than 27 fold increase in sales and is reflective of the steep growth in new countries. The substantial improvements in these two markets are mainly due to the success of the new hybrid business model and the introduction of a wider range of products. South Korea is an example of a country with strict import controls but where the Group has successfully introduced 304 unique items to the market and is projected to grow, thanks to improvements made in the product registration process by Cosway employees.

Cosway Corporation Limited Annual Report 2010

19

Management discussion and analysis

Sales by Product Category
Year 2010 CATEGORIES Personal Care Health Care Home Care Food & Beverage Others TOTAL % 30 27 17 9 17 100 Year 2009 % 29 24 17 9 21 100

The overall sales mix for the Group has been fairly consistent with previous years. Personal Care was the largest category with a 30% share of the Group’s sales. This is due to the wide range of products covered under this category, namely skin care, face and body care, colour cosmetics, hair care and fragrances. Skin care sales in turn made up 20% of the total Personal Care category for the financial year. Among the bestsellers for the category are Beautycode Switzerland Cell Lift Advance, the Caviar Deluxe skin care range (for lifting and anti-ageing) and the Bioglo Goat’s Milk with Pomegranate personal care range. In addition to this, new products launched in the financial year are showing promising sales. This includes L’élan Vital Organic Skin Care, a certified organic facial care line created from the world’s finest botanicals and natural ingredients, as well as Xylin Multi-Action Nano Silver Toothbrush with antibacterial nanosilver proven to kill 99.9% of germs and offers superior brushing performance. Health Care sales also increased its composition to overall sales from 24% to 27% for financial year 2010. This bodes well for the Company as both Personal Care and Health Care have the highest margins among the various product categories. Among the bestselling Health Care products launched this year are Nn Asta Pycnogenol, Nn SUPA EPA and Oriyen Bio N-zymes.

20

Cosway Corporation Limited Annual Report 2010

Management discussion and analysis

Nn Asta Pycnogenol (for anti-ageing and general wellness) combines two of the most potent antioxidants – Pycnogenol ® (the only researched French maritime pine bark extract from Horphag Research Ltd., Switzerland) and Astaxanthin-rich Haematococcus. Nn SUPA EPA, on the other hand, is a molecularly distilled and super concentrated Omega-3 supplement from deep sea fish oil that promotes a healthy heart, mind and body. Oriyen Bio N-zymes is a highly bio-available enzyme concentrate made from fermented fruits, herbs, mushrooms and vegetables to help supplement the body’s daily enzyme requirement. Hexagon Water Filtration System sales have also improved quite significantly compared to the previous year. In line with our new product development strategy, a new Hexagon Alkaline Hydrogen Water Filtration System is slated to be launched in the early part of financial year 2011. This new system will produce antioxidantrich alkaline hydrogen water and will be competitively priced versus other similar products. Product sales were also strongly supported by Cosway’s exciting promotions like monthly special discounts and ‘Buy 2, Get 1 Free’ offers. Additional Redemption Coupons and Rewards Points were offered that enabled members to redeem great products like innovative kitchenware, branded perfumes, watches, toys and many other items for extremely low prices or even for free. This offer alone drives a steady stream of sales to our stores each month. For example, in Australia, Hong Kong and Taiwan, the Ceramic Bowl Set under this program received an overwhelming response and helped to increase sales further in those respective markets.

Sales Outlets
As at 30 April 2010 Stockists TOTAL 620 Free Stores 860 TOTAL 1,480 As at 30 April 2009 Stockists 822 Free Stores 236 TOTAL 1,058

The Group’s total number of stores increased tremendously to a total of 1,480 stores, mainly due to the “Free Store” concept introduced two years ago. Following on from this success, Management plans to continue with the store expansion program for the 2011 financial year.

Cosway Corporation Limited Annual Report 2010

21

Management discussion and analysis

Out of the Group’s 624 new “Free Stores” opened during the year, 309 of these new stores were opened in the Malaysia and Singapore region. The new store locations were carefully selected to allow greater market penetration as well as greater geographical coverage. In Malaysia, stores that are at least 1,000 square feet in size or bigger, include redemption centres where attractive redemption products are displayed in the stores to generate a more vibrant shopping environment and hence, more shopping excitement. The factors above contributed to the growth of the Group in its respective markets.

2,329
Revenue million (HK$)

Revenue
The year under review saw the strengthening of the Group’s position as a major global direct selling company as we registered a higher revenue and gross profit of HK$2.329 billion and HK$976 million compared to HK$1.727 billion and HK$670 million last year, respectively, in the face of very challenging economic conditions. In most countries, the Group’s financial performance was correlated with the notable pace and quantity of store openings as well as our ongoing recruitment drives. Strong demand for store operatorship rights continued to be propelled by Cosway’s revolutionary business model and extensive product range. As a result of this and our recruitment drives, we secured a global member base of over 870,000 people, who have now become part of our diverse and expansive marketing force.

976
Gross Profit million (HK$)

Gross Profit
The Group’s gross margin climbed to 42% for the year ended 30 April 2010 as compared to 39% in 2009 (the gross margin for 2009 has been adjusted to conform to the adoption of HK (IFRIC)-Int 13). This increase was primarily due to the favourable impact of our growing economies of scale to obtain better pricing from suppliers and has been a continuous trend for the last 5 years. Cosway’s allencompassing range of 1,900 consumer products and our robust product cycle management strategy reduced the Group’s risk of overdependence on any one product or category. This is one of our key strengths that differentiate us from our competitors in the industry. The Group’s growing international presence and sales track record has also enabled us to take advantage of external expertise for product research and development (R&D) and to partner with leading researchers and manufacturers, thus strengthening our position in the consumer segment.

22

Cosway Corporation Limited Annual Report 2010

Management discussion and analysis

Finance Costs
Finance costs have increased by HK$17 million to HK$19 million for the year ended 30 April 2010 as compared to HK$2 million for the same period in 2009. The increase included the interest costs of HK$14 million related to the Irredeemable Convertible Unsecured Loan Securities (“ICULS”) issued by the Company on 8 December 2009, for the acquisition of the Cosway Group; and higher average debt balance for the year ended 30 April 2010 as compared to the same period in 2009.

Income Taxes
Income taxes were HK$61 million for the year ended 30 April 2010, as compared to HK$43 million for the same period in 2009. As a percentage of profit before taxation, the effective income tax rate was 22% for the year ended 30 April 2010, as compared to 24% for the same period in 2009. The decrease in the effective income tax rate for the year under review, was primarily due to higher profit contribution from a tax exempted subsidiary.

Future Prospects
For the coming financial year, Management is confident of the continued growth of the business through the expansion of the hybrid business model. Existing countries are expected to continue contributing positively to the Group’s growth as new stores are opened to further improve the convenience and reach of our retail chain. In addition to this, Management plans to enter new markets such as the USA and Japan in financial year 2011. Other new markets such as New Zealand, China and Britain are in the pipeline for the near future. Management is confident that entry into these new markets will propel the Group to record sales, given the fact that just two of these new markets, the USA and Japan, account for over 40% of the global direct selling market. In comparison, Cosway’s existing markets combined accounts for only 10% of the global direct selling market. On product sourcing and development, Management is always looking to develop and introduce products with innovative performance features, benefits and designs. In the pipeline are the expansion of existing ranges of our organic food and beverages; natural skin and body care products; and eco-friendly household and car care products. Furthermore, new product lines such as apparel, shoes and handbags are being progressively introduced to expand our product offering and to attract a wider audience.

Cosway Corporation Limited Annual Report 2010

23

Management discussion and analysis

With regards to marketing communications, Management plans to continue with its proven formula of consistent communication with its members through direct mail and attractive promotional offers. However, more emphasis will be given in the coming year to brand management within the Group and enhancing the image of the retail stores and the Company as a whole.

Liquidity and Financial Resources
The Group generally finances its operations with internally generated cash flow as well as banking facilities provided by its bankers. As at 30 April 2010, the total cash and cash equivalents was approximately HK$135 million (2009: HK$92 million). As at 30 April 2010, the Group has pledged fixed deposits of HK$1 million (2009: HK$0.4 million) to secure general banking facilities granted to the Group. The current ratio of the Group was recorded as 1.3 times (2009: 1.5 times) and this was mainly due to an increase in bank borrowings concurrent with the Group’s expansion plans in existing and new markets. As at 30 April 2010, the interestbearing bank loans and other borrowings of the Group repayable within one year and after one year were HK$157 million and HK$9 million respectively (2009: HK$58 million and HK$ Nil respectively). The Group’s gearing ratio, which is interest-bearing bank borrowings less cash and cash equivalents (“Net Debt”) divided by the equity attributable to equity holders of the Company plus Net Debt, was approximately 4.5% as at 30 April 2010.

Exposure to Fluctuations in Exchange Rates
With regards to foreign exchange risk, the Group’s businesses are predominantly located in Malaysia and Asia Pacific regions. All transactions are conducted in the currency of the various countries of the Group’s operations. In addition, purchases are primarily locally sourced and the distribution of inventory is managed in a centralised manner. Therefore, fluctuations of exchange rates of the major regions that the Group operates in against other foreign currencies are not expected to have a significant impact on the Group’s results.

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Cosway Corporation Limited Annual Report 2010

Management discussion and analysis

Capital Structure
The Company carried out the following capital reorganisation during the year ended 30 April 2010 as a result of the substantial acquisition of Cosway Group. Details of the transaction were set out in the Company’s circular to the shareholders dated 30 October 2009: (a) the authorised share capital was increased from HK$250,000,000 to HK$4,000,000,000 by the creation of an additional 18,750,000,000 shares of HK$0.20 each; (b) issuance and allotment of 890,683,666 shares of HK$0.20 each per share as partial consideration for the acquisition of the Cosway Group; (c) issuance of ICULS in a principal amount of HK$2,190,000,000 as partial consideration for the acquisition of the Cosway Group; and (d) issuance and allotment of 180,000,000 shares of HK$0.20 each per share pursuant to the Loan Capitalisation Agreement between the Company and Berjaya Group (Cayman) Limited (“BGCL”), a substantial shareholder of the Company. The aforesaid shares issuance was deemed as full and final settlement of HK$36,000,000 being part of the amount due to BGCL. On 2 April 2010, certain ICULS holders (the “ICULS Holders”) elected to convert the ICULS in the principal amount of HK$60,000,000, in aggregate, into new shares of HK$0.20 each per share. As a result of the conversion, the Company allotted and issued 300,000,000 new shares to the ICULS Holders on 13 April 2010.

Material Acquisition, Disposals and Significant Investment
On 1 May 2009, the Group acquired a 90% equity interest in Golden Works (M) Sdn. Bhd. (“GWSB”), a company incorporated in Malaysia and engaged in property investment, for a total cash consideration of RM19.5 million (approximately HK$47.5 million). On 8 June 2009, the Group acquired the remaining 10% equity interest in GWSB for a total cash consideration of RM2.2 million (approximately HK$6 million).

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25

Management discussion and analysis

Other than the acquisition of GWSB and the acquisition of Cosway Group as detailed in the Company’s circular to the shareholders dated 30 October 2009, the Group had no other material acquisitions, disposals and significant investment during the year ended 30 April 2010.

Pledged of Assets
As at 30 April 2010, investment properties, freehold land and leasehold land with a net book value of HK$195 million, HK$9 million and HK$6 million (2009: Nil, HK$5 million and HK$7 million) respectively, were pledged to secure banking facilities for the Group.

Contingent Liabilities
Details of the contingent liabilities are set out in note 40 to the financial statements.

Employees and Remuneration Policy
The Group had a total of approximately 1,200 employees as at 30 April 2010. The remuneration policy of the Group is to ensure that the overall remunerations are fair and competitive in order to motivate and retain existing employees and at the same time to attract prospective employees. The remuneration policy has been formulated after having taken into account local practices in various geographical locations in which the Group and its associates are operating. These remuneration packages comprise basic salaries, allowances, retirement schemes, service bonuses, fixed bonuses, performance-based incentives and share options, where appropriate.

Event after the reporting period
On 6 May 2010, 17,625,000 share options were granted to eligible directors and employees of the Group.

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28

Cosway Corporation Limited Annual Report 2010

Biographical Details of Directors

Executive Directors
Mr. Chuah Choong Heong, aged 65, is the founder of Cosway (M) Sdn. Bhd. and is currently the managing director of Cosway (M) Sdn. Bhd. and a director of eCosway.com Sdn. Bhd.. Both Cosway (M) Sdn. Bhd. and eCosway.com Sdn. Bhd. became our wholly-owned subsidiaries in 2009. Mr. Chuah is also currently the Chief Executive Officer of Cosway Corporation Berhad, chairman of Singer (Malaysia) Sdn. Bhd. and holds directorship in various other subsidiaries of Berjaya Corporation Berhad, a substantial shareholder of the Company. Prior to that, he was the General Development Manager of Sterling Drugs (M) Sdn. Bhd. and General Sales Manager of Warner Lambert (M) Sdn. Bhd. He holds a Diploma in Marketing from Australia and has vast experience in the marketing of pharmaceuticals and consumer products. Mr. Tan Yeong Sheik, Rayvin, aged 31, joined the Group in 2009. He graduated with a Bachelor of Science (First Class Hons) degree in Accounting and Finance from the London School of Economics, United Kingdom, in 2000. During his vocational training as a research intern with Jardine Fleming and Merrill Lynch & Co./Smith Zain Securities, he gained extensive experience in the field of research covering the various sectors of property, commodities, telecommunications and transport. He joined Berjaya Group Berhad and its subsidiaries in May 2001 and was subsequently appointed to the position of Executive Director in May 2002. Currently, he is an Executive Director of Berjaya Corporation Berhad as well as in Berjaya Sports Toto Berhad.

Non-executive Directors
Mr. Chan Kien Sing, aged 54, joined the Group in 1993. He is a member of the Malaysian Institute of Certified Public Accountants and Malaysian Institute of Accountants. Mr. Chan joined Berjaya Group Berhad in 1989 as General Manager, Investment. In 2005, he was appointed as Group Executive Director to the Board of Berjaya Corporation Berhad. He is an Executive Director of Berjaya Corporation Berhad, Berjaya Sports Toto Berhad and Berjaya Media Berhad and he is a Director of Berjaya Assets Berhad and Berjaya Retail Berhad (companies listed on Bursa Malaysia Securities Berhad). He is also a director of various subsidiaries under the Berjaya Corporation Berhad group of companies in Malaysia and in several foreign based companies in Hong Kong, United States of America, Cayman Islands, Singapore and the Republic of Seychelles. Mr. Tan Thiam Chai, aged 51, joined the Group in 2009, He graduated with a Diploma in Commerce (Financial Accounting) from Kolej Tuanku Abdul Rahman and also completed The Association of Chartered Certified Accountants (UK) professional course in 1981. He is a Fellow member of the Association of Chartered Certified Accountants (UK) since 1990 and also a member of the Malaysian Institute of Accountants. He started work with an accounting firm in Kuala Lumpur for about 2 years and thereafter served in various Finance and Accounting positions with the Hong Leong Group of Companies in Malaysia as well as in Hong Kong for about 8 years. He joined Berjaya Corporation Berhad

Cosway Corporation Limited Annual Report 2010

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Biographical Details of Directors

and its subsidiaries in early 1991 as a Finance Manager of an operating subsidiary and was promoted to Operation Manager later that year. In 1992, he was transferred to the Corporate Head Office of Berjaya Group Berhad to head the Group Internal Audit function and subsequently in 1993, he was promoted to oversee the Group Accounting function of Berjaya Group Berhad. Currently, he is the Chief Financial Officer of Berjaya Corporation Berhad and is heading the Group Accounts & Budgets Division of Berjaya Corporation Berhad and its subsidiaries. He is also an Executive Director of Berjaya Land Berhad and Berjaya Assets Berhad and a director of Magni-Tech Industries Berhad (listed on Bursa Malaysia Securities Berhad) as well as Taiga Building Products Ltd (listed on Toronto Stock Exchange, Canada). He is also a Director of Berjaya Food Berhad, Berjaya Capital Berhad and Cosway Corporation Berhad and holds directorships in several other private limited companies. Ms. Tan Ee Ling, aged 39, joined the Group in 1993. She graduated from University of Essex, UK with a First Class honours degree in Accounting and Financial Management. Having worked in an accounting firm, she continued her studies and obtained a Master’s degree in Business Administration (Finance) from University of Nottingham, UK. She is also the Senior Finance Manager of Cosway (HK) Limited.

Independent Non-executive Directors
Mr. Wong Ying Wai, Wilfred, aged 57, is the Executive Deputy Chairman of Hsin Chong Construction Group Limited and Synergis Holdings Limited, two main board Hong Kong listed companies in construction and property management businesses respectively. He is also the Independent Non-executive Director of Xinyi Glass Holdings Limited, a main board Hong Kong listed company. He is also the Executive Chairman of Singapore-based Pacific Star Group, one of Asia’s fastest growing real estate investment houses. Mr. Wong is responsible for formulating and overseeing the business strategies of the Pacific Star Group in the mainland China, Hong Kong and Macau. Mr. Wong is also the nonexecutive Chairman of Yangtze China Investment Co. Ltd, a company whose shares are listed on the London AIM and which makes direct investments in growth businesses in the mainland China. Mr. Wong joined the Administrative Officer grade of the Hong Kong Government in 1975 and served in a number of key positions responsible for the planning, organizing of various community and public services and formulation of policies until 1992. Since then, Mr. Wong has held senior management positions in a number of Hong Kong listed companies in the property development and construction business sectors including K. Wah International Holdings Limited, Henderson China Holdings Limited and the Shui On Group. Mr. Wong started his public service career on a national level when he was appointed by the Central People’s Government a member of The Basic Law Consultative Committee (1985-1990). He was subsequently appointed by the National People’s Congress as a member of the Preliminary Working Committee for the Hong Kong SAR Preparatory Committee in 1993 and a member of the Hong Kong SAR Preparatory Committee in 1995, which was responsible for the transitional policies and arrangements relating to the establishment of the HKSAR Government.

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Cosway Corporation Limited Annual Report 2010

Biographical Details of Directors

Currently, Mr. Wong is a Deputy to the Eleventh National People’s Congress of the PRC, after having been elected three times in the last ten years. He is also a member of the Commission on Strategic Development of the HKSAR Government. Mr. Wong’s public service continues through his participation in a number of councils and committees in Hong Kong. He is the Chairman of the Court and Council of the Hong Kong Baptist University; Chairman of Hong Kong International Film Festival Society Limited; Chairman of the Business and Professionals Federation of Hong Kong; a Board Member of HKSAR Airport Authority, Tourism Board and Hong Kong Film Development Council. For his distinguished public service, Mr. Wong was awarded the Silver Bauhinia Star Medal by the Hong Kong SAR Government in 2007. He was educated at Harvard University (MPA), Oxford University, University of Hong Kong (BSoc.Sc.) and Chinese University of Hong Kong. Mr. Leou Thiam Lai, aged 54, joined the Group in 2004 as an Independent Non-executive Director. He is currently a partner of Leou & Associates, Chartered Accountants, Malaysia. Mr. Leou studied at the Tunku Abdul Rahman College, Kuala Lumpur. Upon graduation, in June 1980, he began his career in a Chartered Accountants firm and subsequently, was the Group Accountant of a public listed company in 1987. He started a risk management agency and, in 1988 upon the approval of his Audit Licence by the Treasury, he started Leou & Associates, a Chartered Accountants Firm. Mr. Leou is a Chartered Accountant of the Malaysian Institute of Accountants, he is also a fellow member of The Association of Chartered Certified Accountants, as well as a fellow member of the Chartered Tax Institute of Malaysia (formerly known as Malaysia Institute of Taxation). At present, Mr. Leou also sits on the Board of DeGem Berhad, United Bintang Berhad, I-Power Berhad, Ramunia Holdings Berhad and Nextnation Communication Berhad. Ms. Deng Xiao Lan, Rose, aged 47, is the president of DengShi Group Limited. Ms. Deng serves as the Permanent Honorary Chairman of the Hong Kong Friendly Alliance and the Woman’s Association of Hong Kong and is also serving as a Political Advisor of Sichuan Province. Ms. Deng graduated with a Bachelor’s degree from Jinan University in the Mainland China.

Cosway Corporation Limited Annual Report 2010

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Corporate Governance Report

Corporate Governance Practices
The board of directors of the Company (the “Board”) is of the view that corporate governance is vital to the continued success of the Company and has therefore adopted various measures to ensure that a high standard of corporate governance is upheld. With effect from 1 January 2005, the Company has applied the principal and complied with the code provisions in the Code on Corporate Governance Practices (the “Code”) of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) save and except certain deviations as more specifically described below. The current practices will be reviewed and updated regularly so that the latest development in corporate governance can be followed and observed.

Directors
Directors’ Securities Transactions
The Company has adopted the code of conduct regarding directors’ securities transactions as set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) of the Listing Rules. Having made specific enquiry of all directors, they all have confirmed that they have complied with the required standard as set out in the Model Code throughout the year.

Board of Directors The Board comprises:
Executive Directors : Mr. Chuah Choong Heong (Chairman and Chief Executive Officer) Mr. Tan Yeong Sheik, Rayvin Non-executive Directors : Mr. Chan Kien Sing Mr. Tan Thiam Chai Ms. Tan Ee Ling Independent Non-executive Directors : Mr. Wong Ying Wai, Wilfred Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose (appointed on 9 April 2010) (appointed on 17 March 2010) (appointed on 17 March 2010)

Each independent non-executive director has given an annual confirmation of his/her independence to the Company, and the Company considers them to be independent under Rule 3.13 of the Listing Rules.

32

Cosway Corporation Limited Annual Report 2010

Corporate Governance Report

During the financial year ended 30 April 2010, two Board meetings were held and the attendance of each director is set out as follows: Number of Board meetings attended Name of director Mr. Chuah Choong Heong (appointed on 17 March 2010) Mr. Tan Yeong Sheik, Rayvin Mr. Chan Kien Sing Mr. Tan Thiam Chai Ms. Tan Ee Ling Mr. Wong Ying Wai, Wilfred (appointed on 17 March 2010) Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose (appointed on 9 April 2010) Mr. Chin Chee Seng, Derek (resigned on 17 March 2010) Ms. Cheng Chi Fan, Vivienne (resigned on 17 March 2010) Mr. Wong Man Hong (resigned on 17 March 2010) Dato’ Lee Ah Hoe (resigned on 17 March 2010) Mr. Tan Tee Yong (resigned on 9 April 2010) The Board is responsible for the types of decision relating to the following aspects: – – – – formulation of operational and strategic direction of the Company; monitoring the financial performance of the Company; overseeing the performance of the management; ensuring a prudent and effective framework of internal control is in place to enable risks to be assessed and managed; and – setting the Company’s values and standards. in the financial year ended 30 April 2010 1/2 2/2 2/2 2/2 2/2 1/2 2/2 0/2 1/2 1/2 0/2 1/2 1/2

while daily operation and administration are delegated to the management. The Directors come from diverse business and professional backgrounds rendering valuable expertise and experience for promoting the best interests of the Group and its shareholders as a whole by taking care of the interests of all the shareholders and that issues are considered in a more objective manner.

Cosway Corporation Limited Annual Report 2010

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Corporate Governance Report

During the financial year ended 30 April 2010, two Board meetings were held. The agenda accompanying board papers are sent to all directors at least 3 days before the date of every Board meeting in order to allow sufficient time for the directors to review the documents. Minutes of every Board meeting are circulated to all directors for their perusal and comments. Although board meetings are not held quarterly, the Board has its own systems to circulate documents and proposals to the Board members to enable them to express their comments and opinions and make informed decisions on matters to be passed by written resolutions. Draft written resolutions will be circulated to collect comments from Board members before the formal written resolutions are circulated for signatures. The business operations were under management and supervision of the executive directors and senior management who had from time to time held meetings to discuss and resolve all material business and management issues. Every Board member has full access to the advice and services of the company secretary with a view to ensuring that all applicable rules and regulations are followed and they are also entitled to have full access to Board papers and related materials so that they are able to make an informed decision and to discharge their duties and responsibilities.

Chairman and Chief Executive
Mr. Chuah Choong Heong (“Mr. Chuah”) is the chairman and chief executive officer of the Company who is the founder of Cosway (M) Sdn. Bhd. and is currently the managing director of Cosway (M) Sdn. Bhd. and a director of eCosway. com Sdn. Bhd.. Both Cosway (M) Sdn. Bhd. and eCosway.com Sdn. Bhd. became the wholly-owned subsidiaries of the Company in 2009. Mr. Chuah has vast experience in the marketing of pharmaceuticals and consumer products which is beneficial and of great value to the overall development of the Company. Though Mr. Chuah is the chairman and chief executive officer of the Company, the Board considers that this structure will not impair the balance of power and authority between the Board and the management of the Company nor impair the effective operation of the Group since Mr. Chuah has exercised sufficient delegation in the daily operation of the Group’s business as chief executive officer while being responsible for the effective operation of the Board as chairman of the Board. The balance of power and authority is ensured by the operations of the Board, which comprises experienced and high calibre individuals and meets to discuss issues affecting operations of the Company. The Board believes that this structure is conducive to strong and consistent leadership, enabling the Company to make and implement decisions promptly and efficiently. The Board has full confidence in Mr. Chuah and believes that his appointment to the posts of chairman and chief executive officer is beneficial to the business prospects of the Company. Mr. Chan Kien Sing who was the chairman of the Company on the date of the 2009 annual general meeting was unable to attend the 2009 annual general meeting because of other business commitment.

34

Cosway Corporation Limited Annual Report 2010

Corporate Governance Report

Appointment and Re-election of Directors
None of the directors (including executive, non-executive director or independent non-executive directors) entered into a service contract with the Company during the financial year. They are appointed subject to retirement by rotation and re-election at the annual general meetings of the Company in accordance with the provision of the articles of association of the Company (the “Articles of Association”). Three directors were newly-appointed by the Board and three existing directors were re-designated as non-executive directors during the financial year. All of them were not appointed for a specific term during the year but are also subject to retirement by rotation and re-election at least once every three years at the annual general meetings of the Company in accordance with the Articles of Association. Pursuant to Article 115 of the Articles of Association, the newly-appointed directors will retire at the coming annual general meeting of the Company but they will be eligible to stand for re-election at the same meeting. On 29 June 2010, each independent non-executive director had entered into an appointment letter with the Company for an appointment term from 1 July 2010 to 30 June 2012.

Remuneration of Directors and Senior Management
Remuneration Committee
The remuneration committee of the Company (the “Remuneration Committee”) was established on 17 October 2005 comprising the three independent non-executive directors. Mr. Wong Ying Wai, Wilfred is the chairman of the Remuneration Committee. According to the terms of reference of the Remuneration Committee, its major roles and functions are as follows: (1) To make recommendations to the Board on the policy of the Company and structure for all remuneration of directors and senior management of the Company and on the establishment of a formal and transparent procedure for developing policy on such remuneration. (2) To have the delegated responsibility to determine the specific remuneration package for all executive directors and senior management, including benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment, and make recommendations to the Board of the remuneration of non-executive directors. The Committee should consider factors such as salaries paid by comparable companies, time commitment and responsibilities of the directors, employment conditions elsewhere in the Group and desirability of performance-based remunerations.

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Corporate Governance Report

(3)

To review and approve performance-based remuneration by reference to corporate goals and objectives resolved by the Board from time to time.

(4)

To review and approve the compensation payable to executive directors and senior management in connection with any loss or termination of their office or appointment to ensure that such compensation is determined in accordance with relevant contractual terms and that such compensation is otherwise fair and not excessive for the Company.

(5)

To review and approve compensation arrangement relating to dismissal or removal of directors for misconduct to ensure that such arrangements are determined in accordance with relevant contractual terms and that any compensation payment is otherwise reasonable and appropriate.

(6)

To ensure that no director or any of his associate is involved in deciding his own remuneration.

Meeting of the Remuneration Committee shall be held at least once a year. During the financial year, no meeting has been held while written resolutions have been passed by the committee to approve the remuneration package of the directors and no change has been proposed to the remuneration policies for the Group. No director or any his/her associates was involved in deciding his/her own remuneration. Details of the directors’ emolument are set out in note 8 to the financial statements.

Accountability and Audit
Financial Reporting
The management provides such explanation and information to the Board so as to enable the Board to make an informed assessment of the financial and other information put before the Board for approval. The directors acknowledge their responsibility to prepare the financial statements that give a true and fair view of the state of affairs of the Group. The Board was not aware of any material uncertainties relating to events or conditions that might cast significant doubt upon the Group’s ability to continue as a going concern and the Board has prepared the financial statements on a going concern basis. The Board is of the opinion that the resources for and qualifications of staff of the Company’s accounting and financial reporting function are adequate and sufficient. The responsibility of the external auditors is to form an independent opinion, based on their audit, on those consolidated financial statements prepared by the Board and to report their opinion solely to the shareholders of the Company, as a body, and for no other purpose. A statement by the auditors about their reporting responsibility is set out on page 64 of this Annual Report.

36

Cosway Corporation Limited Annual Report 2010

Corporate Governance Report

Internal Control and Risk Management
The Board has overall responsibility for the system of internal controls of the Group. The Board has conducted a review of, and is satisfied with the effectiveness of the system of internal controls of the Group. Their responsibilities include: – Approval of annual budgets for each operating company covering strategy, financial and business performance, key risks and opportunities. – – Monitoring the compliance with applicable laws and regulations, and also with corporate governance policies. Monitoring the quality, timeliness, and content of internal and external reporting.

The Board reviews the effectiveness of the material internal controls of the Group. The Board is satisfied that, based on information furnished to it and on its own observations, the present internal controls of the Group are satisfactory.

Audit Committee
The audit committee of the Company (the “Audit Committee”) was established on 15 December 2000 now comprising three independent non-executive directors. One member has appropriate professional qualifications in accounting and related financial management expertise. No member of the Audit Committee is a member of the former or existing auditors of the Company. Mr. Wong Ying Wai, Wilfred is the chairman of the Audit Committee. The existing terms of the reference of the Audit Committee, its major role and functions are, amongst others, as follows: 1. To review the half year and annual financial statements before submission to the Board, focusing particularly on: (i) (ii) (iii) (iv) (v) (vi) any changes in accounting policies and practices; major judgemental areas; significant adjustments resulting from the audit; the going concern assumption; compliance with accounting standards; and compliance with stock exchange and legal requirements;

Cosway Corporation Limited Annual Report 2010

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Corporate Governance Report

2. 3. 4.

To review the external auditor’s management letter and management’s response; To consider the major findings of internal investigation and management’s response; and To consider other topics, as defined by the Board

Two meetings were held in the financial year. The attendance of each member is set out as follows: Number of meetings attended in Name of director Mr. Wong Ying Wai, Wilfred (appointed on 17 March 2010) Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose (appointed on 9 April 2010) Dato’ Lee Ah Hoe (resigned on 17 March 2010) Mr. Tan Tee Yong (resigned on 9 April 2010) the financial year ended 30 April 2010 0/2 2/2 0/2 2/2 2/2

At the meetings held during the year, in performing its duties in accordance with its terms of reference, the Audit Committee had reviewed the financial reports and the connected continuing transactions for the year ended 30 April 2009 and six months ended 31 October 2009.

Auditors’ Remuneration
During the financial year ended 30 April 2010, the remuneration paid to the Company’s auditors, Ernst & Young, is set out as follows: Services rendered Audit services Non-audit services Fees payable (HK$’000) 4,731 54 4,785

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40

Cosway Corporation Limited Annual Report 2010

Report of the Directors

The directors present their report and the audited financial statements of the Company and the Group for the year ended 30 April 2010.

Change of company name
Pursuant to a special resolution passed at the extraordinary general meeting of the Company held on 23 November 2009 and approved by the Registrars of Companies of Hong Kong, the name of the Company was changed from Berjaya Holdings (HK) Limited to Cosway Corporation Limited on 11 December 2009. The Chinese name of the Company was changed from ( ) to .

Principal activities
The principal activities of the Company are property investment and investment holding. The principal activities of the subsidiaries consist of direct sales of consumer products, property investment and investment holding.

Results and dividends
The Group’s profit for the year ended 30 April 2010 and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 65 to 192. The directors recommend the payment of a final dividend of HK1.5 cents per ordinary share in respect of the year to shareholders on the register of members on 30 September 2010.

Summary financial information
A summary of the published results and assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the audited financial statements and restated as appropriate, is set out on pages 193 to 194. This summary does not form part of the audited financial statements.

Property, plant and equipment and investment properties
Details of movements in the property, plant and equipment, and investment properties of the Company and the Group during the year are set out in notes 14 and 15 to the financial statements, respectively. Further details of the Group’s investment properties are set out on pages 195 to 196 of the annual report.

Cosway Corporation Limited Annual Report 2010

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Report of the Directors

Share capital and irredeemable convertible unsecured loan securities
Details of movements in the Company’s share capital and irredeemable convertible unsecured loan securities during the year are set out in notes 36 and 35 to the financial statements.

Purchase, redemption or sale of listed securities of the Company
Neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities during the year.

Reserves
Details of movements in the reserves of the Company and the Group during the year are set out in note 37 to the financial statements and in the consolidated statement of changes in equity, respectively.

Distributable reserves
At 30 April 2010, the Company’s reserves available for distribution, calculated in accordance with the provisions of Section 79B of the Hong Kong Companies Ordinance, amounted to HK$61,342,000.

Major customers and suppliers
Sales to the Group’s five largest customers accounted for less than 30% of the total sales for the year and purchases from the Group’s five largest suppliers accounted for less than 30% of the total purchases for the year.

42

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Directors
The directors of the Company during the year were:

Executive Directors
Mr. Chuah Choong Heong (Chairman and Chief Executive Officer) Mr. Tan Yeong Sheik, Rayvin Mr. Chin Chee Seng, Derek Mr. Wong Man Hong Ms. Cheng Chi Fan, Vivienne (resigned on 17 March 2010) (resigned on 17 March 2010) (resigned on 17 March 2010) (appointed on 17 March 2010)

Non-Executive Directors
Mr. Chan Kien Sing Mr. Tan Thiam Chai Ms. Tan Ee Ling

Independent Non-Executive Directors
Mr. Wong Ying Wai, Wilfred Mr. Leou Thiam Lai Ms. Deng Xiao Lan, Rose Dato’ Lee Ah Hoe Mr. Tan Tee Yong (appointed on 9 April 2010) (resigned on 17 March 2010) (resigned on 9 April 2010) (appointed on 17 March 2010)

Mr. Chuah Choong Heong, Mr. Wong Ying Wai, Wilfred and Ms. Deng Xiao Lan, Rose who were appointed by the Board of Directors during the year, will retire at the forthcoming annual general meeting of the Company in accordance with article 115 of the Company’s articles of association, but they will be eligible to stand for re-election at the same meeting. Ms. Tan Ee Ling and Mr. Leou Thiam Lai will also retire by rotation at the forthcoming annual general meeting of the Company in pursuant to articles 110 and 111 of the Company’s articles of association and will offer themselves for reelection at the forthcoming annual general meeting. The Company has received annual confirmations of independence from Mr. Wong Ying Wai, Wilfred, Mr. Leou Thiam Lai and Ms. Deng Xiao Lan, Rose and still considers them to be independent.

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Report of the Directors

Directors’ biographies
Biographical details of the directors of the Company are set out on pages 28 to 30 of the annual report.

Directors’ service contracts
Each of Independent Non-Executive Directors is currently appointed by the Company under an appointment letter for a term of two years effective from 1 July 2010 which can be terminated by either party giving to the other party not less than 90 days’ prior notice. Apart from the foregoing, no director proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

Directors’ remuneration
The directors’ fees are subject to shareholders’ approval at general meetings. Other emoluments are determined by the Company’s board of directors with reference to directors’ duties, responsibilities and performance and the results of the Group.

Directors’ interests in contracts
Save as disclosed in note 44 to the financial statements, no director had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company or any of its subsidiaries was a party during the year.

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.

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Cosway Corporation Limited Annual Report 2010

Report of the Directors

Directors’ interests and short positions in shares, underlying shares and debentures of the Company or any associated corporation
As at 30 April 2010, the interests of the directors, chief executives and their associates in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”)) as recorded in the register maintained 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 for Securities Transactions by Directors of the Listed Companies (the “Model Code”) in the Listing Rules were as follows:–

(i)

Long positions in shares and underlying shares of the Company
Number of underlying shares upon Number of Name of director Tan Yeong Sheik, Rayvin (Note) Chan Kien Sing Tan Thiam Chai Leou Thiam Lai
*

Approximate percentage of Total interest 449,594,972 23,844 113,729 150,000 shareholding 22.92% 0.00% 0.01% 0.01%

conversion of the ICULS* 437,408,000 23,844 113,729 150,000

Capacity Beneficial Owner Beneficial Owner Beneficial Owner Beneficial Owner

shares held 12,186,972 – – –

ICULS refers to a 10-year one to three and a half per cent. (1-3.5%) irredeemable convertible unsecured loan securities issued by the Company and listed by way of selectively marketed securities (Stock Code: 4314) on the Stock Exchange with conversion rights to convert them into shares and the conversion price is HK$0.20 per share.

Note: Mr. Tan Yeong Sheik, Rayvin, held a total of 449,594,972 shares including 437,408,000 underlying shares which could be issued by conversion of the ICULS.

Cosway Corporation Limited Annual Report 2010

45

Report of the Directors

(ii)

Long positions in shares and underlying shares of associated corporation
(1) Berjaya Corporation Berhad (“BCorp”)
Number of underlying shares under Number of Name of director Tan Yeong Sheik, Rayvin Chan Kien Sing Leou Thiam Lai Tan Thiam Chai Capacity Beneficial Owner Beneficial Owner Beneficial Owner Beneficial Owner/ interests of spouse shares held 316,000 47,688 300,000 227,458 (Note) derivative interest held – – – – Total interest 316,000 47,688 300,000 227,458 Approximate percentage of shareholding 0.01% 0.00% 0.01% 0.01%

Note: Of these shares, 104,164 shares were held by Ms. Lim Beng Poh, the spouse of Mr. Tan Thiam Chai, and were deemed to be interested by Mr. Tan Thiam Chai.

(2)

Berjaya Land Berhad
Number of underlying shares under Number of Name of director Tan Thiam Chai Capacity Beneficial Owner shares held 10,000 derivative interest held – Total interest 10,000 Approximate percentage of shareholding 0.00%

(3)

Berjaya Sports Toto Berhad
Number of underlying shares under Number of Name of director Chan Kien Sing Tan Yeong Sheik, Rayvin Tan Thiam Chai Capacity Beneficial Owner Beneficial Owner Beneficial Owner/ interests of spouse
Note: Of these shares, 65,000 shares were held by Ms. Lim Beng Poh, the spouse of Mr. Tan Thiam Chai, and were deemed to be interested by Mr. Tan Thiam Chai.

Approximate percentage of Total interest 3,428 165,000 228,543 shareholding 0.00% 0.01% 0.02%

derivative interest held – – –

shares held 3,428 165,000 228,543 (Note)

46

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Save as disclosed above, as at 30 April 2010, none of the Directors and chief executive of the Company had or were deemed to have any interest or short position in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which has been recorded in the register maintained by the Company pursuant to section 352 of the SFO or which has been notified to the Company pursuant to the Model Code of the Listing Rules.

Directors’ rights to acquire shares or debentures
Save as disclosed in the section “Directors’ interests and short positions in shares, underlying shares and debentures of the Company or any associated corporation” above and in the section “Share option scheme” below, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any director or their respective spouses or minor children, or were any such rights exercised by them; or was the Company or any of its subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate.

Interests of substantial shareholders and short positions in the shares, underlying shares of the Company
The register of substantial shareholders maintained under Section 336 of the SFO shows that as at 30 April 2010, the Company had been notified of the following interests of the substantial shareholders and short positions in the shares or underlying shares of the Company, being 5% or more of the issued share capital of the Company. These interests are in addition to those disclosed above in respect of the Directors.

Long positions in shares and underlying shares
Number of underlying shares upon conversion of the ICULS * 7,848,838,487 6,378,535,261 6,245,884,686 558,559,081 330,898,807 37,719,520

Name of shareholders Vincent, Tan Chee Yioun (“TSVT”) (Note 1-2) Berjaya Corporation Berhad (“BCorp”) (Note 2) Cosway Corporation Berhad (Note 3) United Industrial Services Ltd (Note 4) Wan Ming Sun (“Mr. Wan”) (Note 5) Berjaya Capital Berhad (Note 6)

Capacity and nature of interest Interests through controlled corporations/Beneficial Owner Interests through controlled corporations Interests through controlled corporations/Beneficial owner Interests through controlled corporation Beneficial owner Interests through controlled corporations

Number of shares held 1,443,631,192 1,429,317,966 958,607,387 65,556,447 38,836,626 85,915,201

Total interest 9,292,469,679 7,807,853,227 7,204,492,073 624,115,528 369,735,433 123,634,721

Approximate percentage of shareholding 473.69% 398.01% 367.25% 31.81% 18.85% 6.30%

Cosway Corporation Limited Annual Report 2010

47

Report of the Directors

*

ICULS refers to a 10-year one to three and a half per cent. (1-3.5%) irredeemable convertible unsecured loan securities issued by the Company and listed by way of selectively marketed securities (Stock Code: 4314) on the Stock Exchange with conversion rights to convert them into shares and the conversion price is HK$0.20 per share.

Notes: 1. TSVT directly and indirectly controlled approximately 47.77% of the total issued share capital of BCorp as at 30 April 2010. TSVT was deemed to be interested in an aggregate of 9,292,469,679 shares held by BCorp and TSVT himself among which 7,848,838,487 were underlying shares held in form of ICULS which could be converted into ordinary shares. BCorp held a total of 7,807,853,227 shares through Berjaya Group Berhad, Berjaya Group (Cayman) Limited, Berjaya Leisure (Cayman) Limited, Cosway Corporation Berhad, Berjaya Capital Berhad and Berjaya Hills Berhad including 6,378,535,261 underlying shares which could be issued upon conversion of the ICULS. Cosway Corporation Berhad held a total of 7,204,492,073 shares directly and indirectly through its controlled corporations (Biofield Sdn. Bhd. and Singer Malaysia Sdn. Bhd.) including 6,245,884,686 underlying shares which could be issued upon conversion of the ICULS. United Industrial Services Ltd held a total of 624,115,528 shares through its controlled corporation including 558,559,081 underlying shares which could be issued upon conversion of the ICULS. Mr. Wan held 369,735,433 shares among which 330,898,807 were underlying shares held in form of ICULS which could be converted into ordinary shares. Berjaya Capital Berhad held a total of 123,634,721 shares through Prime Credit Leasing Sdn. Bhd., Berjaya Sompo Insurance Berhad, Inter-Pacific Capital Sdn. Bhd. and Inter-Pacific Securities Sdn. Bhd. including 37,719,520 underlying shares which could be issued upon conversion of the ICULS.

2.

3.

4. 5. 6.

Save as disclosed above, as at 30 April 2010, the Company had not been notified of any person’s interests or short positions in the shares or underlying shares of the Company, which are required to be recorded in the register required to be kept under Section 336 of Part XV of the SFO.

48

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Share option scheme
Pursuant to an ordinary resolution of the shareholders of the Company dated 23 November 2009, a share option scheme (the “Scheme”) was approved and adopted for the purpose of providing incentives and rewards to eligible participants, including executive directors, non-executive directors, independent non-executive directors, employees and any shareholder of any member of the Group for their contribution to the Group. The Scheme became effective on 29 January 2010 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. The total number of shares in respect of which share options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point of time, without prior approval from the Company’s shareholders and/or specially indentified by the Board. The shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Scheme and any other share option schemes of the Company at any time shall not exceed 30% of the shares in issue from time to time. The number of shares issued and to be issued in respect of which share options granted and may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point of time, without prior approval from the Company’s shareholders. Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting. The offer of a grant of share options may be accepted within 7 business days from the date of offer, upon payment of a consideration of HK$1 in total by the grantee. The exercise price shall not be less than the higher of (i) the closing price of the shares of the Company as stated in the Stock Exchange’s daily quotations sheet on the date of grant; (ii) the average of the closing prices of the Shares of the Company as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares of the Company. As at 30 April 2010, no options have been granted under the Scheme.

Directors’ interest in competing business
None of the directors is interested in any business apart from the Group’s business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

Cosway Corporation Limited Annual Report 2010

49

Report of the Directors

Continuing connected transactions
During the year ended 30 April 2010, the Group entered into the following connected transactions including continuing connected transactions (“CCT”) within the meaning of Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”). Description of the agreements and transactions is set out in the Company’s announcement dated 13 October 2009, Company’s circular dated 30 October 2009 and the Company’s announcement dated 25 May 2010 (collectively refer as to the “Documents”). Capitalised terms used in this section shall have the same meanings as those defined in the Documents, unless the context requires otherwise.

Part A: Continued Connected Transactions under the Listing Rules
I) the following Exempted CCTs and Exempted New CCTs are continuing connected transactions which are subject to reporting and announcement requirements but are exempted from the independent shareholders’ approval requirements: Caps for Agreement Title (A) (a) date Contracting parties Subject of transaction year ended 30 April 2010 2010 Transaction amounts

Exempted Master Supply of Services Agreement UMobile Telecom Services Agreement (Note 1) 13 Oct 2009 – the Company – UMobile supply of telecom services by UMobile Group to the Group RM74,000 (equivalent to approximately HK$165,000) RM226,000 (equivalent to approximately HK$508,000)

50

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Caps for Agreement Title (B) (a) date Exempted Master Leasing Agreements BCorp First Master Leasing Agreement in relation to rental receivables by the Group (b) BLand First Master Leasing 13 Oct 2009 Agreement in relation to rental receivables by the Group (c) BToto Master Leasing Agreement in relation to rental receivables by the Group (d) UMobile Master Leasing Agreement in relation to rental receivables by the Group (Note 1) 13 Oct 2009 – the Company – UMobile 13 Oct 2009 – the Company – BToto – the Company – BLand 13 Oct 2009 – the Company – BCorp leasing of the Cosway Premises by the Group to BCorp Group leasing of the Cosway Premises by the Group to BLand Group leasing of the Cosway Premises by the Group to BToto Group leasing of the Cosway Premises by the Group to UMobile RM2,000 (equivalent to approximately HK$5,000) RM100,000 (equivalent to approximately HK$234,000) RM6,000 (equivalent to approximately HK$13,000) RM24,000 (equivalent to approximately HK$53,000) Contracting parties Subject of transaction year ended 30 April 2010

2010 Transaction amounts

RM1,550 (equivalent to approximately HK$4,000) RM96,000 (equivalent to approximately HK$217,000) RM4,000 (equivalent to approximately HK$8,000) RM34,200 (equivalent to approximately HK$83,000)

Cosway Corporation Limited Annual Report 2010

51

Report of the Directors

2010 Agreement Title (C) (a) date Exempted New CCT Agreements (Note 2) BCorp Third Master Supply of Goods Agreement 25 May 2010 – the Company – BCorp supply of Consumer Products by BCorp Group to the Group (b) Singer Master Supply of Goods Agreement 25 May 2010 – the Company – Singer supply of Consumer Products by Singer to the Group (c) TT Master Supply of Goods Agreement 25 May 2010 – the Company – TT supply of Consumer Products by TT to the Group (d) BCorp Logistics Services Agreement 25 May 2010 – the Company – BCorp supply of Logistics Services by BCorp Group to the Group RM2,881,000 (equivalent to approximately HK$6,492,000) RM697,000 (equivalent to approximately HK$1,571,000) RM262,000 (equivalent to approximately HK$590,000) RM551,000 (equivalent to approximately HK1,242,000)
Note 1: Due to a lack of sufficient historical transaction amounts for the Company’s estimation, the Company has underestimated the Caps for the year ended 30 April 2010. The 2010 Transaction Amounts for the UMobile Telecom Services Agreement and the UMobile Master Leasing Agreement has exceeded the Caps for the financial year. Details of which were disclosed in the Company’s announcement dated 25 May 2010. Note 2: Although agreements under Exempted New CCT Agreements section were entered on 25 May 2010, there were historical transaction amounts of such continuing connected transactions during the year ended 30 April 2010.

Contracting parties

Subject of transaction

Transaction amounts

52

Cosway Corporation Limited Annual Report 2010

Report of the Directors

II)

the following Non-Exempted CCTs are continuing connected transactions which are subject to reporting and announcement and the independent shareholders’ approval requirements: Caps for Agreement Title (A) (a) date Non-Exempted Master Leasing Agreements BCorp Second Master Leasing Agreement in relation to rental payables by the Group (b) BLand Second Master Leasing Agreement in relation to rental payables by the Group (c) BAssets Master Leasing Agreement in relation to rental payables by the Group (d) 7-Eleven Master Leasing Agreement in relation to rental payables by the Group 13 Oct 2009 – the Company – 7-Eleven 13 Oct 2009 – the Company – BAssets 13 Oct 2009 – the Company – BLand 13 Oct 2009 – the Company – BCorp leasing of the BCorp Premises by the Group from BCorp Group leasing of the BLand Premises by the Group from BLand Group leasing of the BAssets Premises by the Group from BAssets Group leasing of the 7-Eleven Premises by the Group from 7-Eleven Group RM50,000 (equivalent to approximately HK$111,000) RM140,000 (equivalent to approximately HK$312,000) RM400,000 (equivalent to approximately HK$891,000) RM500,000 (equivalent to approximately HK$1,114,000) RM46,000 (equivalent to approximately HK$104,000) RM126,000 (equivalent to approximately HK$283,000) RM336,000 (equivalent to approximately HK$757,000) RM480,000 (equivalent to approximately HK$1,082,000) Contracting parties Subject of transaction year ended 30 April 2010 2010 Transaction amounts

Cosway Corporation Limited Annual Report 2010

53

Report of the Directors

Caps for Agreement Title (B) (a) date Contracting parties Subject of transaction year ended 30 April 2010

2010 Transaction amounts

Non-Exempted Master Supply of Goods Agreements BCorp First Master Supply of Goods Agreement 13 Oct 2009 – the Company – BCorp supply of Cleaning Products by the Group to BCorp Group RM320,000 (equivalent to approximately HK$713,000) RM900,000 (equivalent to approximately RM1,100,000 (equivalent to approximately HK$2,451,000) RM16,000 (equivalent to approximately HK$36,000) RM20,000 (equivalent to approximately HK$45,000) RM163,000 (equivalent to approximately HK$363,000) RM410,000 (equivalent to approximately HK$913,000) RM11,000 (equivalent to approximately HK$25,000) RM55,000 (equivalent to approximately HK$123,000) RM196,000 (equivalent to approximately HK$442,000) RM35,000 (equivalent to approximately HK78,000) RM183,000 (equivalent to approximately RM768,000 (equivalent to approximately HK$1,731,000) Nil

(b)

BCorp Second Master Supply of Goods Agreement

13 Oct 2009

– the Company – BCorp

supply of Garments by BCorp Group to the Group

HK$2,005,000) HK$413,000) (c) BLand Master Supply of Goods Agreement 13 Oct 2009 – the Company – BLand supply of Cleaning Products by the Group to BLand Group (d) BAssets Master Supply of Goods Agreement 13 Oct 2009 – the Company – BAssets supply of Cleaning Products by the Group to BAssets Group (e) Dijaya Master Supply of Goods Agreement 13 Oct 2009 – the Company – Dijaya supply of Cleaning Products by the Group to Dijaya Group (f) UMobile Master Supply of Goods Agreement 13 Oct 2009 – the Company – UMobile supply of Telecom Equipment by UMobile Group to the Group (g) 7-Eleven Master Supply of Goods Agreement 13 Oct 2009 – the Company – 7-Eleven supply of Chemical Products by the Group to the 7-Eleven Group

54

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Caps for Agreement Title (C) (a) date Contracting Parties Subject of transaction year ended 30 April 2010

2010 Transaction amounts

Non-Exempted Master Supply of Services Agreements BMedia Advertising Services Agreement 13 Oct 2009 – the Company – BMedia supply of Advertising Services by BMedia Group to the Group RM1,230,000 (equivalent to approximately HK$2,740,000) RM960,000 (equivalent to approximately HK$2,139,000) RM200,000 approximately HK$446,000) RM2,500,000 approximately HK$5,570,000) RM200,000 approximately HK$446,000) RM2,500,000 approximately HK$5,570,000) RM418,000 (equivalent to approximately HK$941,000) RM960,000 (equivalent to approximately HK$2,163,000) RM150,000 (equivalent to approximately HK$338,000) RM2,393,000 (equivalent to approximately HK$5,392,000) RM162,000 (equivalent to approximately HK$365,000) RM1,537,000 (equivalent to approximately HK$3,464,000) RM180,000 (equivalent to approximately HK$405,000)

(b)

BLand Aircraft Agreement

13 Oct 2009

– the Company – BLand

leasing of Aircraft from BLand Group by the Group

(c)

BCorp Mailing Services Agreement

13 Oct 2009

– the Company – BCorp

supply of Mailing to the Group

Services by BCorp Group (equivalent to

(d)

BCorp Printing Services Agreement

13 Oct 2009

– the Company – BCorp

supply of Printing to the Group

Services by BCorp Group (equivalent to

(e)

BCorp Courier Services Agreement

13 Oct 2009

– the Company – BCorp

supply of Courier to the Group

Services by BCorp Group (equivalent to

(f)

BCorp Insurance Services Agreement

13 Oct 2009

– the Company – BCorp

supply of Insurance to the Group

Services by BCorp Group (equivalent to

(g)

BLand Guard Services Agreement

13 Oct 2009

– the Company – BLand

supply of Guard Services RM180,000 by BLand Group to the Group (equivalent to approximately HK$401,000)

Cosway Corporation Limited Annual Report 2010

55

Report of the Directors

Connected Relationship of the Parties in the above Transactions
BCorp is a controlling shareholder of the Company and hence BCorp is a connected person of the Company pursuant to the Listing Rules. BLand is an indirect subsidiary of BCorp and hence a connected person of the Company pursuant to the Listing Rules. BToto is an indirect subsidiary of BCorp and hence a connected person of the Company pursuant to the Listing Rules. BAssets is an associate of TSVT and an associated company of BCorp and hence a connected person of the Company pursuant to the Listing Rules. BMedia is an indirect subsidiary of BCorp and hence a connected person of the Company pursuant to the Listing Rules. UMobile is a company in which TSVT, a connected person of the Company, is a major shareholder. Hence, UMobile is a connected person of the Company pursuant to the Listing Rules. Dijaya is a company in which Tan Sri Dato’ Danny Tan Chee Sing (a brother of TSVT, a connected person of the Company) is a major shareholder. Hence, Dijaya is a connected person of the Company pursuant to the Listing Rules. TT is a wholly-owned subsidiary of TT Resources Berhad, a company where Tan Sri Dato’ Danny Tan Chee Sing (a brother of TSVT, a connected person of the Company) is a major shareholder. Hence, TT is a connected person of the Company pursuant to the Listing Rules. 7-Eleven is a company in which TSVT, a connected person of the Company, is a major shareholder and hence, 7-Eleven is a connected person of the Company pursuant to the Listing Rules. Singer is a wholly-owned subsidiary of Cosway Corp and hence a connected person of the Company pursuant to the Listing Rules.

56

Cosway Corporation Limited Annual Report 2010

Report of the Directors

Reasons for and Benefits of the Transactions
Prior to the completion of the Acquisition, the Cosway Group had various arrangements (“Arrangements”) with a number of entities affiliated with BCorp, being connected persons, including (i) the leasing of Cosway Premises to the relevant connected persons, (ii) the renting of premises from the relevant connected persons, (iii) supply of Goods to/ from the relevant connected persons, and (iv) supply of Services from the relevant connected persons, all of which fall within the ordinary and usual course of business of the Cosway Group. Upon completion of the Acquisition, the Cosway Group would become subsidiaries of the Company. The Group intends to continue with the relevant services after the Acquisition which constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules. Announcements dated 13 October 2009 and 25 May 2010, and a circular dated 30 October 2009 respectively containing details of the abovementioned continuing connected transactions have been published to the shareholders. The Non-Exempted CCTs were duly approved by the Independent Shareholders of the Company at an extraordinary general meeting held on 23 November 2009. Pursuant to Rule 14A.38 of the Listing Rules, the auditors have confirmed that the continuing connected transactions contemplated under Part A entered into by the Group for the year ended 30 April 2010:– (i) (ii) (iii) (iv) have received the approval of the Company’s board of directors; those transactions involving provision of goods or services by the Group are in accordance with the price policies of the Group; have been entered into in accordance with the terms of the relevant agreements governing such transactions; and have not exceeded the annual cap disclosed in the relevant announcement/circular of the Company except UMobile Telecom Services Agreement and U Mobile Master Leasing Agreement (Details of which is disclosed in Note 1 of Part A. I.). The Directors (including the independent non-executive directors) have reviewed and confirmed the continuing connected transactions contemplated under Part A of this section have been entered into: (i) (ii) (iii) in the ordinary and usual course of business of the Group; on an arm’s length basis; 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 Group than terms available to or from (as appropriate) independent third parties; and (iv) in accordance with the relevant agreement governing such transactions on terms that are fair and reasonable and in the interests of the shareholders of the Group as a whole.

Cosway Corporation Limited Annual Report 2010

57

Report of the Directors

Connected transactions
Part B: Connected Transactions under the Listing Rules
The Company has entered into the following connected transactions during the financial year:

I.

On 13 October 2009, the Company entered into the following SP Agreements to acquire 100% of the Cosway Group (comprising 100% equity interest in Cosway M (including 60% equity interest already held by Cosway M in eCosway) and 40% equity interest in eCosway).

(i)

The First Cosway M Agreement
Parties: Cosway Corp, an indirect wholly owned subsidiary of BCorp, as the vendor The Company, as the purchaser BCorp is the controlling shareholder of the Company. Hence, Cosway Corp as a wholly-owned subsidiary of BCorp is a connected person of the Company pursuant to the Listing Rules. Assets transferred: 130,028,260 shares in Cosway M, representing approximately 83.89% of the issued share capital of Cosway M. Consideration The consideration of RM838,892,000 (representing approximately HK$1,869,076,504) was satisfied, as to: (a) (b) (c) RM44.7 million, by cash; HK$125,083,565, by the issue of 625,417,825 First Tranche Consideration Shares at a price of HK$0.20 per First Tranche Consideration Share; and HK$1,644.4 million, by the issue of the ICULS in a principal amount of HK$1,644.4 million.

58

Cosway Corporation Limited Annual Report 2010

Report of the Directors

(ii)

The Second Cosway M Agreement
Parties: Biofield, a wholly owned subsidiary of Cosway Corp, as the vendor The Company, as the purchaser Biofield is an indirect subsidiary of BCorp and a connected person of the Company pursuant to the Listing Rules. Assets transferred: 9,471,740 shares in Cosway M, representing approximately 6.11% of the issued share capital of Cosway M. Consideration The aggregate consideration of RM61,108,000 (representing approximately HK$136,150,454) was satisfied on a non-cash basis, as to: (a) (b) HK$23,150,454 by the issue of 115,752,272 Second Tranche Consideration Shares at a price of HK$0.20 per Second Tranche Consideration Share; and HK$113.0 million by the issue of the ICULS in a principal amount of HK$113.0 million.

(iii) The Third Cosway M Agreement
Parties: Madison, as the vendor The Company, as the purchaser Madison and the ultimate beneficial owner of the Madison are third parties independent of the Company. Though Madison is an independent third party to the Company, information of The Third Cosway M Agreement was included herein for shareholders’ information as the completion of the First Cosway M Agreement, the Second Cosway M Agreement and the Third Cosway M Agreement are conditional upon each other. Assets transferred: 15,500,000 shares in Cosway M, representing 10% of the issued share capital in Cosway M. Consideration The aggregate consideration of RM100,000,000 (representing approximately HK$222,802,995) was satisfied on a non-cash basis, as to: (a) (b) HK$23,402,995 by the issue of an aggregate of 117,014,977 Third Tranche Consideration Shares at a price of HK$0.20 per Third Tranche Consideration Share; and HK$199.4 million by the issue of the ICULS in a principal amount of HK$199.4 million.

Cosway Corporation Limited Annual Report 2010

59

Report of the Directors

(iv)

The eCosway Agreement
Parties: The eCosway Vendors, as the vendors The Company, as the purchaser The eCosway Vendors including Prime Credit Leasing Sdn. Bhd., Berjaya Sompo Insurance Berhad, InterPacific Securities Sdn. Bhd., Berjaya Hills Berhad (which were subsidiaries of BCorp and hence connected persons of the Company pursuant to the Listing Rules), TSVT and Mr. Rayvin Tan Yeong Sheik. TSVT is the controlling shareholder of BCorp and a connected person of the Company pursuant to the Listing Rules. Mr. Rayvin Tan Yeong Sheik being an executive director of the Company and BCorp, and the son of TSVT is also a connected person of the Company under the Listing Rules. Assets transferred: 2,000,000 shares in eCosway, representing 40% of its equity interest. Consideration: The aggregate consideration of RM107,583,706 (representing approximately HK$239,699,718) was satisfied on a non-cash basis, as to: (a) (b) HK$6,499,718.40 by the issue of an aggregate of 32,498,592 eCosway Consideration Shares at a price of HK$0.20 per eCosway Consideration Share; and HK$233.2 million by the issue of the ICULS in a principal amount of HK$233.2 million.

Upon completion of the Acquisition, Cosway M and eCosway became wholly owned subsidiaries of the Company. The Board decided to enter into the above acquisitions so that the Company can enter into a direct selling business which can provide an additional source of stable cash flows for the Group.

60

Cosway Corporation Limited Annual Report 2010

Report of the Directors

II.

The Loan Capitalisation Agreement
On 13 October 2009, the Company entered into a loan capitalisation agreement with BCayman (the then existing controlling shareholder of the Company), pursuant to which the Company and BCayman conditionally agreed that the Company should allot to BCayman 180,000,000 Capitalisation Shares at an issue price of HK$0.20 per Capitalisation Share and BCayman shall accept such Capitalisation Shares in satisfaction of HK$36 million being part of the Indebtedness. Its purpose is to capitalise HK$36 million of the Indebtedness owed by the Group to BCayman into share capital in order to avoid unnecessary cash outflow from the Company and strengthen the financial position of the Group for its continuous development of business. BCayman as the controlling shareholder of the Company at that time was a connected person of the Company under the Listing Rules. An announcement and a circular dated 13 October 2009 and 30 October 2009 respectively containing details of the abovementioned connected transactions have been published and dispatched to the Shareholders. The abovementioned connected transactions described in Part I and Part II were duly approved by shareholders at an extraordinary general meeting held on 23 November 2009. All of the above connected transactions were completed on 8 December 2009.

III.

Sale of Vehicles
The Group had entered into transactions in relation to sale of Toyota vehicles by Roda Indah to the Group of RM1,466,000 (equivalent to approximately HK$3,303,000) for the year ended 30 April 2010. Roda Indah is a company in which TSVT, a connected person of the Company, owns a major interest. Roda Indah is therefore a connected person under the Listing Rules. The consideration for the above transactions had been arrived at after arm’s length negotiation between the Group and Roda Indah with reference to the prevailing market prices of the vehicles and were satisfied in cash. Accordingly, the Directors (including the independent non-executive Directors) considered that the terms of such connected transactions were on normal commercial terms, fair and reasonable and were in the interests of the Group and shareholders as a whole. The details of the aforesaid transactions was set out in the Company’s announcement dated 25 May 2010.

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61

Report of the Directors

Sufficiency of public float
Based on information that is publicly available to the Company and within the knowledge of the directors, at least 25% of the Company’s total issued share capital was held by the public as at the date of this report.

Event after the reporting period
Details of the significant event after the reporting period of the Group are set out in note 48 to the financial statements.

Corporate governance
The Company has complied with the code provisions of the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules throughout the financial year ended 30 April 2010 with certain deviations. Details of the corporate governance matters are set out in the Corporate Governance Report of this annual report.

Auditors
Ernst & Young were appointed by the Directors to fill the casual vacancy caused by the resignation of PricewaterhouseCoopers as auditors of the Company in year 2009. There have been no other changes of auditors in the past three years. Ernst & Young retire and a resolution for their reappointment as auditors of the Company will be proposed at the forthcoming annual general meeting. ON BEHALF OF THE BOARD

Chuah Choong Heong Chairman Hong Kong 19 August 2010

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64

Cosway Corporation Limited Annual Report 2010

Independent Auditors’ Report

TO THE SHAREHOLDERS OF COSWAY CORPORATION LIMITED (Incorporated in Hong Kong with limited liability) We have audited the financial statements of Cosway Corporation Limited set out on pages 65 to 192, which comprise the consolidated and company statements of financial position as at 30 April 2010, and the consolidated income statement, the consolidation statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility 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 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.

Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, in accordance with Section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. 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 auditors’ judgement, 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 auditors consider internal control relevant to the entity’s 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 entity’s internal control. 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.

Opinion
In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 30 April 2010 and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

Ernst & Young Certified Public Accountants Hong Kong 19 August 2010

Cosway Corporation Limited Annual Report 2010

65

Consolidated Income Statement
Year ended 30 April 2010

Notes

2010 HK$’000

2009 HK$’000 (Restated) 1,726,896 (1,056,922) 669,974 13,946 (225,889) (255,906) (20,573) (1,208) (1,871) 80 178,553 (42,702) 135,851

REVENUE Cost of sales Gross profit Other income Selling and distribution expenses General and administrative expenses Other expenses Fair value gains/(losses) on investment properties Finance costs Share of profits and losses of associates PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Attributable to: Owners of the parent Minority interests

5

2,329,278 (1,352,953) 976,325

5

6

15,166 (347,972) (332,797) (17,964) 9,010 (19,031) 373 283,110 (60,885) 222,225

7 10

11

211,756 10,469 222,225

120,937 14,914 135,851

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic and diluted

13 HK$0.04 HK$0.14

Details of the dividends proposed for the year and paid in the prior year are disclosed in note 12 to the financial statements.

66

Cosway Corporation Limited Annual Report 2010

Consolidated Statement of Comprehensive Income
Year ended 30 April 2010

2010 Note HK$’000

2009 HK$’000 (Restated)

PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Share of other comprehensive income of associates Exchange differences on translation of foreign operations OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR Attributable to: Owners of the parent Minority interests 11

222,225

135,851

(2,542) 70,102

– (46,812) (46,812) 89,039

67,560

289,785

276,842 12,943

77,436 11,603 89,039

289,785

Cosway Corporation Limited Annual Report 2010

67

Consolidated Statement of Financial Position

30 April 2010

30 April 2010 Notes HK$’000

30 April 2009 HK$’000 (Restated)

1 May 2008 HK$’000 (Restated)

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land lease payments Goodwill Interests in associates Available-for-sale investments Deposits Deferred tax assets Total non-current assets CURRENT ASSETS Inventories Trade receivables Tax recoverable Prepayments, deposits and other receivables Due from the ultimate holding company Due from a former intermediate holding company Due from the former immediate holding company Due from fellow subsidiaries Pledged deposits Cash and cash equivalents 24 25 25 25 26 27 27 22 23 581,889 79,562 1,867 66,456 – – – 1,529 1,069 135,212 402,138 78,172 – 38,841 1,137 731 34,173 1,287 395 92,275 649,149 22,677 671,826 258,206 26,069 – 36,661 1,261 – 888 1,462 466 123,161 448,174 – 448,174 14 15 16 17 19 20 24 21 225,389 264,519 9,431 317,395 10,392 475 45,167 7,525 119,500 114,990 8,576 9,741 109 243 28,336 2,523 284,018 127,134 130,586 9,870 10,953 181 278 7,505 3,142 289,649

880,293

867,584 Asset classified as held for sale Total current assets 28 –

867,584

68

Cosway Corporation Limited Annual Report 2010

Consolidated Statement of Financial Position
30 April 2010

30 April 2010 Notes HK$’000

30 April 2009 HK$’000 (Restated)

1 May 2008 HK$’000 (Restated)

CURRENT LIABILITIES Trade payables Other payables and accruals Defined benefit obligations Deferred revenue Interest-bearing bank and other borrowings Due to the former immediate holding company Due to associates Due to fellow subsidiaries Tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Defined benefit obligations Interest-bearing bank and other borrowings Loan from a shareholder Irredeemable convertible unsecured loan securities Deferred tax liabilities Other payables Total non-current liabilities Net assets 31 32 34 35 21 30 1,353 8,756 11,840 391,831 19,502 275 985 35 – – 2,834 – 3,854 496,253 950 561 – – 3,582 – 5,093 416,191 32 25 19 26 29 30 31 260,515 121,906 41 66,500 157,283 – 2,262 1,040 43,139 230,991 85,659 52 49,466 58,384 11 2,328 788 28,058 455,737 216,089 500,107 168,767 62,520 – 52,341 8,245 – 2,952 913 20,801 316,539 131,635 421,284

652,686

214,898

1,095,191

433,557

661,634

Cosway Corporation Limited Annual Report 2010

69

Consolidated Statement of Financial Position
30 April 2010

30 April 2010 Notes HK$’000

30 April 2009 HK$’000 (Restated)

1 May 2008 HK$’000 (Restated)

EQUITY Equity attributable to owners of the parent Issued capital Equity component of irredeemable convertible unsecured loan securities Reserves 35 37(a) 1,752,505 (1,656,442) – 125,478 458,339 37,914 496,253 – 56,300 389,161 27,030 416,191 36(a) 553,400 332,861 332,861

649,463 Minority interests 12,171

Total equity

661,634

Details of the dividends proposed for the year and paid in the prior year are disclosed in note 12 to the financial statements.

CHUAH CHOONG HEONG Director

TAN YEONG SHEIK, RAYVIN Director

70

Cosway Corporation Limited Annual Report 2010

Consolidated Statement of Changes in Equity
Year ended 30 April 2010

Attributable to owners of the parent Equity component of irredeemable convertible unsecured loan securities HK$’000

Issued capital HK$’000 As restated At 1 May 2009 As previously reported Prior year adjustments (note 2.2) As restated Total comprehensive income for the year Acquisition of subsidiaries (note 36) Acquisition of minority interests (note 36) Issue of irredeemable convertible unsecured loan securities Loan capitalisation (note 36) Conversion of irredeemable convertible unsecured loan securities (note 36) Dividends paid to minority shareholders At 30 April 2010

Exchange fluctuation reserve HK$’000

Capital reserve HK$’000

Availablefor-sale investment revaluation reserve HK$’000

Reverse acquisition reserve HK$’000

Retained profits HK$’000

Total HK$’000

Minority interests HK$’000

Total equity HK$’000

332,861 – 332,861

(42,554) 314 (42,240)

2,984 – 2,984

– – –

– – –

– – –

171,394 (6,660) 164,734

464,685 (6,346) 458,339

37,914 – 37,914

502,599 (6,346) 496,253

– 118,039 6,500 – 36,000

67,628 – – – –

– – – – –

(2,542) – – – –

– (2,058,762) – – –

– – – 1,801,721 –

211,756 – – – –

276,842 (1,940,723) 6,500 1,801,721 36,000

12,943 10,199 (48,154) – –

289,785 (1,930,524) (41,654) 1,801,721 36,000

60,000 – 553,400

– – 25,388*

– – 2,984*

– –

– –

(49,216) – 1,752,505

– – 376,490*

10,784 – 649,463

– (731) 12,171

10,784 (731) 661,634

(2,542)* (2,058,762)*

*

These reserve accounts comprise the consolidated negative reserves of HK$1,656,442,000 (2009: positive reserves of HK$125,478,000; 2008: positive reserves of HK$56,300,000) in the consolidated statement of financial position.

Cosway Corporation Limited Annual Report 2010

71

Consolidated Statement of Changes in Equity
Year ended 30 April 2010

Attributable to owners of the parent Exchange Issued fluctuation capital HK$’000 As restated At 1 May 2008 As previously reported Prior year adjustments (note 2.2) As restated Total comprehensive income for the year Dividends paid to minority shareholders Interim 2009 dividends (note 12) At 30 April 2009 – – 332,861 – – (42,240)* – – 2,984* – (8,258) 164,734* – (8,258) 458,339 (719) – 37,914 (719) (8,258) 496,253 – (43,501) – 120,937 77,436 11,603 89,039 – 332,861 (576) 1,261* – 2,984* (7,690) 52,055* (8,266) 389,161 – 27,030 (8,266) 416,191 332,861 1,837 2,984 59,745 397,427 27,030 424,457 reserve HK$’000 Capital reserve HK$’000 Retained profits HK$’000 Total HK$’000 Minority interests HK$’000 Total equity HK$’000

72

Cosway Corporation Limited Annual Report 2010

Consolidated Statement of Cash Flows
Year ended 30 April 2010

Notes

2010 HK$’000

2009 HK$’000 (Restated)

CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash paid for other operating expenses Cash generated from operations Income tax paid Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of items of property, plant and equipment Proceeds from disposal items of property, plant and equipment Proceeds from disposal of asset held for sale Acquisition of subsidiaries Acquisition of minority interests Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Dividend paid Dividend paid to minority shareholders Decrease/(increase) in an amount due from the ultimate holding company Decrease/(increase) in an amount due from a former intermediate holding company Changes in balance with the former immediate holding company Changes in balances with fellow subsidiaries Decrease in amounts due to associates New loan from a shareholder New bank loans Repayment of bank loans Capital element of hire purchase rental payment Net cash flows from/(used in) financing activities

2,532,523 (1,555,051) (771,159) 206,313 (51,217) 155,096

1,623,735 (1,142,614) (422,792) 58,329 (32,290) 26,039

14

38

1,155 (126,243) 1,044 22,677 (147,493) (6,924) (255,784)

821 (56,112) 1,369 – (295) – (54,217)

(4,695) – (731) 1,276 820 38,327 71 (350) 11,137 96,809 (526) (28) 142,110

(1,871) (8,258) (719) (15) (731) (33,372) (11) (298) – 23,234 (7,291) (43) (29,375)

Cosway Corporation Limited Annual Report 2010

73

Consolidated Statement of Cash Flows
Year ended 30 April 2010

Notes

2010 HK$’000

2009 HK$’000 (Restated) (57,553) (8,092) 123,627 57,982

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Effect on foreign exchange rate changes, net Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Non-pledged time deposits with original maturity of less than three months when acquired Cash and cash equivalents as stated in the statement of financial position Deposits with original maturity of less than three months when accepted, pledged as security for bank guarantees Bank overdrafts Cash and cash equivalents as stated in the statement of cash flows

41,422 7,888 57,982 107,292

27 27

127,446 7,766

84,122 8,153

135,212 27 32 1,069 (28,989) 107,292

92,275 395 (34,688) 57,982

74

Cosway Corporation Limited Annual Report 2010

Statement of Financial Position
30 April 2010

2010 Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in subsidiaries Interest in an associate Available-for-sale investments Total non-current assets CURRENT ASSETS Trade receivables Prepayments, deposits and other receivables Dividend receivable Cash and cash equivalents Total current assets CURRENT LIABILITIES Other payables and accruals Due to a former related company Due to subsidiaries Interest-bearing bank borrowings Tax payable Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES 30 26 18 32 3,260 – 4,786 180 1,400 27 23 24 29 362 70,303 412 14 15 18 19 20 255 68,852 2,489,599 8,200 200 HK$’000

2009 HK$’000

292 49,392 – 8,200 200 58,084

2,567,106

9 305 – 88 402

71,106

630 118 1,288 180 – 2,216 (1,814) 56,270

9,626

61,480

2,628,586

Cosway Corporation Limited Annual Report 2010

75

Statement of Financial Position
30 April 2010

2010 Notes NON-CURRENT LIABILITIES Other payables Interest-bearing bank borrowings Loan from a shareholder Irredeemable convertible unsecured loan securities Total non-current liabilities Net assets EQUITY Issued capital Equity component of irredeemable convertible unsecured loan securities Reserves Total equity 35 37(b) 1,752,505 73,624 36(b) 392,346 30 32 34 35 275 6,165 11,840 391,831 HK$’000

2009 HK$’000

259 6,345 28,895 – 35,499 20,771

410,111

2,218,475

118,210 – (97,439) 20,771

2,218,475

Details of the dividend proposed for the year are disclosed in note 12 to the financial statements.

CHUAH CHOONG HEONG Director

TAN YEONG SHEIK, RAYVIN Director

76

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

1.

Corporate information
Cosway Corporation Limited is a limited liability company incorporated in Hong Kong. The registered office of the Company is located at Unit 1701, 17/F, Austin Plaza, 83 Austin Road, Jordan, Kowloon, Hong Kong. During the year, the principal activities of the Company and its subsidiaries (collectively referred to as the “Group”) consisted of direct selling of household, personal care, healthcare and other consumer products and property investment. In the opinion of the directors, the ultimate holding company of the Company is Berjaya Corporation Berhad (“B Corp”), which is incorporated in Malaysia and is listed on the Main Market of Bursa Malaysia Securities Berhad.

2.1 Basis of preparation
These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties and certain available-for-sale investments, which have been measured at fair value. Non-current assets held for sale are stated at the lower of their carrying amounts and fair values less costs to sell, as further explained in note 2.4. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

Reverse acquisition
On 13 October 2009, the Company entered into agreements with Cosway Corporation Berhad (“Cosway Corp”), Biofield Sdn. Bhd. (“Biofield”), an indirect subsidiary of Cosway Corp, and Madison County LLC, an independent third party, (collectively the “Cosway M Vendors”) for the acquisition of 83.89%, 6.11% and 10% equity interests, respectively, in Cosway (M) Sdn. Bhd. (“Cosway M”) and its subsidiaries (collectively the “Cosway M Group”), at the consideration of Ringgit Malaysia (“RM”) 1,000,000,000, equivalent to HK$2,230,399,000, in aggregate (the “Acquisition”). Cosway M Group is engaged in the direct sales of consumer products, property investment and investment holding. On the same date, the Company entered into another agreement with Prime Credit Leasing Sdn. Bhd., Berjaya Sompo Insurance Berhad, Inter-Pacific Securities Sdn. Bhd., Berjaya Hills Berhad, Tan Sri Dato’ Seri Vincent Tan Chee Yioun and Rayvin Tan Yeong Sheik (collectively the “eCosway Vendors”) for the acquisition from eCosway Vendors of an aggregate 40% equity interest in eCosway.com Sdn. Bhd. (“eCosway”), a 60%-owned subsidiary of Cosway M, at an aggregate consideration of RM107,584,000, equivalent to HK$239,700,000. eCosway is principally engaged in the direct selling business with online shopping portal.

Cosway Corporation Limited Annual Report 2010

77

Notes to Financial Statements
30 April 2010

2.1 Basis of preparation (continued)
Reverse acquisition (continued)
The consideration for the Acquisition of RM1,000,000,000, equivalent to HK$2,230,399,000 was satisfied by (a) the issuance of 858,185,074 ordinary shares of the Company of HK$0.20 per share; (b) issuance of irredeemable convertible unsecured loan securities (“ICULS”) with principal amount of HK$1,956,800,000 and (c) cash of RM44,700,000, equivalent to HK$101,962,000 upon completion. The consideration for the acquisition of the 40% equity interests of eCosway was satisfied by (a) the issuance of 32,498,592 ordinary shares of the Company of HK$0.20 per share and (b) issuance of ICULS with principal amount of HK$233,200,000. The above acquisitions of equity interests in Cosway M Group and eCosway were completed on 8 December 2009. Details of the acquisitions of Cosway M Group and eCosway are set out in the Company’s circular dated 30 October 2009. Under general accepted accounting principles in Hong Kong, the Acquisition constitutes a reverse acquisition from an accounting perspective since Cosway Corp has become the controlling shareholder of the Company after the Acquisition. For accounting purposes, Cosway M is regarded as the acquirer while the Company and its subsidiaries before the Acquisition (collectively the “CCL Group”) are deemed to have been acquired by Cosway M. As a result, these consolidated financial statements have been prepared as a continuation of the consolidated financial statements of the Cosway M Group which has a financial year end date of 30 April, and accordingly: (i) the assets and liabilities of the Cosway M Group are recognised and measured in these consolidated financial statements at their historical carrying values prior to the Acquisition; (ii) the retained profits and other reserve balances of Cosway M Group prior to the Acquisition are retained in the equity balances in these consolidated financial statements;

78

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.1 Basis of preparation (continued)
Reverse acquisition (continued)
(iii) the amount recognised as issued capital of the Group in these consolidated financial statements, which represents the share capital in the consolidated statement of financial position of the Group, is the sum of the issued share capital of Cosway M (the legal subsidiary), Cosway M Group’s deemed cost of acquisition of the CCL Group, and the subsequent issue of new shares of the Company upon completion of the Acquisition (note 36). However, the equity structure, being the number and type of shares issued, reflects the equity structure of the Company (the legal parent) including the new shares issued in effecting the Acquisition; and (iv) the comparative information presented in these consolidated financial statements is that of the Cosway M Group.

Basis of consolidation
The consolidated financial statements include the financial statements of the Group for the year ended 30 April 2010. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full. Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries. Acquisitions of minority interests are accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill.

Cosway Corporation Limited Annual Report 2010

79

Notes to Financial Statements
30 April 2010

2.2 Changes in accounting policy and disclosures
The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. HKFRS 1 and HKAS 27 Amendments HKFRS 2 Amendments HKFRS 7 Amendments HKFRS 8 HKFRS 8 Amendment* HKAS 1 (Revised) HKAS 18 Amendment* HKAS 23 (Revised) HKAS 32 and HKAS 1 Amendments HK(IFRIC)-Int 9 and HKAS 39 Amendments HK(IFRIC)-Int 13 HK(IFRIC)-Int 15 HK(IFRIC)-Int 16 HK(IFRIC)-Int 18 Improvements to HKFRSs (October 2008)**
* ** Included in Improvements to HKFRSs 2009 (as issued in May 2009). The Group adopted all the improvements to HKFRSs issued in October 2008 except for the amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Plan to sell the controlling interest in a subsidiary, which are effective for annual periods beginning on or after 1 July 2009.

Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS 27 Consolidated and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to HKFRS 2 Share-based Payment – Vesting Conditions and Cancellations Amendments to HKFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments Operating Segments Amendment to HKFRS 8 Operating Segments: Disclosures – Information about segment assets (early adopted) Presentation of Financial Statements Amendment to Appendix to HKAS 18 Revenue – Determining whether an entity is acting as a principal or as an agent Borrowing Costs Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives and HKAS 39 Financial Instruments: Recognition and Measurement – Embedded Derivatives Customer Loyalty Programmes Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Transfers of Assets from Customers (adopted from 1 July 2009) Amendments to a number of HKFRSs

80

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.2 Changes in accounting policy and disclosures (continued)
Other than as further explained below regarding the impact of HKAS 1 (Revised), HKFRS 8, HKFRS 8 Amendment, HKFRS 7 Amendments and HK(IFRIC)-Int 13, the adoption of these new and revised HKFRSs has had no significant financial effect on these financial statements and there have been no significant changes to the accounting policies applied in these financial statements.

(a)

HKAS 1 (Revised) Presentation of Financial Statements
HKAS 1 (Revised) introduces changes in the presentation and disclosures of financial statements. The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, this standard introduces the statement of comprehensive income, with all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Group has elected to present two statements.

(b)

HKFRS 8 Operating Segments and Amendment to HKFRS 8 Operating Segments: Disclosures – Information about segment assets
HKFRS 8, which replaces HKAS 14 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group operates, and revenue from the Group’s major customers. The Group concluded that the operating segments determined in accordance with HKFRS 8 are the same as the business segments previously identified under HKAS 14. These revised disclosures are shown in note 4 to the financial statements. The Group has early adopted in these financial statements the Amendment to HKFRS 8 issued in Improvements to HKFRSs 2009 which clarifies that segment assets need only to be reported when those assets are included in measures that are used by the chief operating decision maker.

Cosway Corporation Limited Annual Report 2010

81

Notes to Financial Statements
30 April 2010

2.2 Changes in accounting policy and disclosures (continued)
(c) Amendments to HKFRS 7 Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments
The HKFRS 7 Amendments require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by sources of inputs using a three-level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance is now required for level 3 fair value measurements, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity measurement. The fair value measurement disclosures are presented in note 46 to the financial statements while the revised liquidity risk disclosures are presented in note 47 to the financial statements.

(d)

HK(IFRIC)-Int 13 Customer Loyalty Programmes
HK(IFRIC)-Int 13 requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted. The consideration received in the sales transaction is allocated between the loyalty award credits and the other components of the sale. The amount allocated to the loyalty award credits is determined by reference to their fair values and is deferred until the awards are redeemed or the liability is otherwise extinguished. The financial impact of this interpretation, which has been applied retrospectively, upon initial application is summarised below: Effect of adopting HK(IFRIC)-Int 13 2010 HK$’000 Effect on consolidated income statement for the year: Increase in revenue Increase in cost of sales Decrease in selling and distribution expenses Decrease/(increase) in income tax expenses 3,380 (44,270) 27,835 3,264 (9,791) 8,343 (38,183) 31,213 (343) 1,030 2009 HK$’000

82

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.2 Changes in accounting policy and disclosures (continued)
(d) HK(IFRIC)-Int 13 Customer Loyalty Programmes (continued)
Effect of adopting HK(IFRIC)-Int 13 2010 HK$’000 Increase/(decrease) in basic and diluted earnings per share (HK cents) Effect on equity at the beginning of the year: Decrease in retained profits Increase/(decrease) in exchange fluctuation reserve (6,660) 314 (6,346) (7,690) (576) (8,266) (0.18) 0.12 2009 HK$’000

Effect on consolidated statement of financial position at the end of the reporting period: Increase in deferred tax assets Decrease in other payables Increase in deferred revenue Decrease in retained profits Decrease/(increase) in exchange fluctuation reserve 5,899 42,901 (66,500) 16,451 1,249 – 2,115 41,005 (49,466) 6,660 (314) –

Cosway Corporation Limited Annual Report 2010

83

Notes to Financial Statements
30 April 2010

2.3 Issued but not yet effective Hong Kong Financial Reporting Standards
The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. HKFRS 1 (Revised) HKFRS 1 Amendments HKFRS 1 Amendment First-time Adoption of Hong Kong Financial Reporting Standards1 Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards – Additional Exemptions for First-time Adopters2 Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards – Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters 4 HKFRS 2 Amendments HKFRS 3 (Revised) HKFRS 9 HKAS 24 (Revised) HKAS 27 (Revised) HKAS 32 Amendment HKAS 39 Amendment HK(IFRIC)-Int 14 Amendments HK(IFRIC)-Int 17 HK(IFRIC)-Int 19 Amendments to HKFRS 5 included in Improvements to HKFRSs issued in October 2008 HK Interpretation 4 (Revised in December 2009) Leases – Determination of the Length of Lease Term in respect of Hong Kong Land Leases2 Amendments to HKFRS 2 Share-based Payment – Group Cash-settled Share-based Payment Transactions2 Business Combinations1 Financial Instruments6 Related Party Disclosures5 Consolidated and Separate Financial Statements1 Amendment to HKAS 32 Financial Instruments: Presentation – Classification of Rights Issues 3 Amendment to HKAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items1 Amendments to HK(IFRIC)-Int 14 Prepayments of a Minimum Funding Requirement5 Distributions of Non-cash Assets to Owners 1 Extinguishing Financial Liabilities with Equity Instruments 4 Amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Plan to sell the controlling interest in a subsidiary1

84

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.3 Issued but not yet effective Hong Kong Financial Reporting Standards (continued)
Apart from the above, the HKICPA has issued Improvements to HKFRSs 2009 and Improvements to HKFRSs 2010 which set out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. Under the Improvements to HKFRSs 2009, the amendments to HKFRS 2, HKAS 38, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16 are effective for annual periods beginning on or after 1 July 2009 while the amendments to HKFRS 5, HKFRS 8, HKAS 1, HKAS 7, HKAS 17, HKAS 36 and HKAS 39 are effective for annual periods beginning on or after 1 January 2010 although there are separate transitional provisions for each standard or interpretation. Under the Improvements to HKFRSs 2010, the amendments to HKFRS 3 and HKAS 27 are effective for annual periods beginning on or after 1 July 2010 while the amendments to HKFRS 1, HKFRS 7, HKAS 1, HKAS 34 and HK(IFRIC)-Int 13 are effective for annual periods beginning on or after 1 January 2011 although there are separate transitional provisions for each standard or interpretation.
1 2 3 4 5 6

Effective for annual periods beginning on or after 1 July 2009 Effective for annual periods beginning on or after 1 January 2010 Effective for annual periods beginning on or after 1 February 2010 Effective for annual periods beginning on or after 1 July 2010 Effective for annual periods beginning on or after 1 January 2011 Effective for annual periods beginning on or after 1 January 2013

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, the Group considers that these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

2.4 Summary of significant accounting policies
Subsidiaries
A subsidiary is an entity in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors; or over which the Company has a contractual right to exercise a dominant influence with respect to that entity’s financial and operating policies. The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Cosway Corporation Limited Annual Report 2010

85

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Associates
An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Group’s interests in associates are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interests in associates, except where unrealised losses provide evidence of an impairment of the asset transferred. The results of the associate are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interest in an associate is treated as a non-current asset and is stated at cost less any impairment losses.

Goodwill
Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill on acquisitions for which the agreement date is on or after 1 January 2005
Goodwill arising on acquisition is recognised in the consolidated statement of financial position as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 30 April. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

86

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Goodwill (continued)
Goodwill on acquisitions for which the agreement date is on or after 1 January 2005 (continued)
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cashgenerating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Goodwill previously eliminated against consolidated retained profits
Prior to the adoption of the HKICPA’s Statement of Standard Accounting Practice 30 “Business Combinations” (“SSAP 30”) in 2001, goodwill arising on acquisition was eliminated against consolidated retained profits in the year of acquisition. On the adoption of HKFRS 3, such goodwill remains eliminated against consolidated retained profits and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired.

Impairment of non-financial assets other than goodwill
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets, investment properties, goodwill and asset classified as held for sale), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises in those expense categories consistent with the function of the impaired asset, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Cosway Corporation Limited Annual Report 2010

87

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Impairment of non-financial assets other than goodwill (continued)
An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties
A party is considered to be related to the Group if: (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (b) (c) (d) (e) (f) the party is an associate; the party is a jointly-controlled entity; the party is a member of the key management personnel of the Group or any of its parent; the party is a close member of the family of any individual referred to in (a) or (d); the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party is a post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.

88

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5, as further explained in the accounting policy for “Non-current assets held for sale”. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation. Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Freehold land Buildings Plant and machinery Office and computer equipment Furniture and fittings Renovation works Motor vehicles Not depreciated Over the shorter of the lease term of leasehold land and 2% 25% 20% to 33% 10% to 20% Over the shorter of the lease terms and 33% 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Cosway Corporation Limited Annual Report 2010

89

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Investment properties
Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets and its sale must be highly probable. Non-current assets (other than investment properties, deferred tax assets and financial assets) classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment and intangible assets classified as held for sale are not depreciated or amortised.

Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms. Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

90

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Leases (continued)
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases are charged to the income statement on the straight-line basis over the lease terms. Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

Investments and other financial assets
Initial recognition and measurement
Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. The Group’s financial assets include cash and cash equivalents, pledged deposits, trade and other receivables, deposits, amounts due from group companies, and available-for-sale investments.

Cosway Corporation Limited Annual Report 2010

91

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Investments and other financial assets (continued)
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The loss arising from impairment is recognised in the income statement in other operating expenses.

Available-for-sale financial investments
Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment valuation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the income statement in other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss is recognised in the income statement and removed from the available-for-sale investment valuation reserve. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

92

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Investments and other financial assets (continued)
Available-for-sale financial investments (continued)
The Group evaluates its available-for-sale financial assets whether the ability and intention to sell them in the near term are still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intent to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or to maturity. The reclassification to the held-tomaturity category is permitted only when the entity has the ability and intent to hold until the maturity date of the financial asset. For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • • the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough agreement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Cosway Corporation Limited Annual Report 2010

93

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Derecognition of financial assets (continued)
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets
The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

94

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Impairment of financial assets (continued)
Financial assets carried at amortised cost (continued)
The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the income statement.

Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is removed from other comprehensive income and recognised in the income statement.

Cosway Corporation Limited Annual Report 2010

95

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Impairment of financial assets (continued)
Available-for-sale financial investments (continued)
In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. The determination of what is “significant” or “prolonged” requires judgement. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement – is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement. Increase in their fair value after impairment are recognised directly in other comprehensive income.

Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, a loan from a shareholder, amounts due to group companies and associates, ICULS and interest-bearing bank and other borrowings.

96

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Financial liabilities (continued)
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement.

Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation.

Irredeemable convertible unsecured loan securities
The component of ICULS that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On issuance of ICULS, the fair value of the liability component is the present value of the future interest payments to the ICULS holders. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the ICULS based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

Cosway Corporation Limited Annual Report 2010

97

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Fair value of financial instruments
The fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and other valuation models.

Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis, and in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management. For the purpose of the statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

98

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: • where the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries and an associate, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except: • where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries and an associate, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Cosway Corporation Limited Annual Report 2010

99

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Income tax (continued)
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; (b) (c) from the rendering of services, when the services have been rendered; membership fee income, for the entrance fee, when no significant uncertainty as to its collectability exists; (d) membership fee income, for the membership benefits, on a time proportion basis over the membership period; (e) (f) rental income, on a time proportion basis over the lease terms; and interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

100

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with borrowing of funds.

Dividends
Final dividend distribution to the shareholders of the Company is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the shareholders of the Company. Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Employee benefits
Defined contribution plans
Defined contribution plans include post-employment benefit plans under which the Group pays fixed contributions into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Such contributions are recognised as an expense in the income statement as incurred. As required by law, companies in Malaysia make such contributions to the Employees Provident Fund. Some of the Group’s foreign subsidiaries and branches also make contributions to their respective countries’ statutory pension schemes.

Cosway Corporation Limited Annual Report 2010

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Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Employee benefits (continued)
Defined contribution plans (continued)
The Company and the Group’s subsidiaries which operate in Hong Kong operate defined contribution Mandatory Provident Fund retirement benefit schemes (the “MPF Schemes”) under the Mandatory Provident Fund Schemes Ordinance for all of their employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Schemes. The assets of the MPF Schemes are held separately from those of the Group in independently administered funds. The Group’s employer contributions vest fully with the employees when contributed into the MPF Schemes. The employees of the Group’s Taiwan branch (the “Taiwan Branch”) participate in a central pension scheme (the “Taiwan Scheme”) operated by the local government. The Taiwan Branch is required to contribute a specific amount and deposit these amounts into individual pension accounts at the Bureau of Labour Insurance, pursuant to the local pension regulations in Taiwan. The contributions are charged to the income statement, as they become payable in accordance with the rules of the Taiwan Scheme.

Defined benefit plans
The Group’s net obligations in respect of defined benefit plans for certain subsidiaries are calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods and is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is the market yield at the end of the reporting period on high quality corporate bonds or government bonds. The calculation is performed by an actuary using the projected unit credit method. Past service cost is recognised in the income statement to the extent that the benefits are already vested. When the benefits of a plan have improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. In calculating the Group’s obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the income statement over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised.

102

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Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Employee benefits (continued)
Defined benefit plans (continued)
Where the calculation results in a benefit to the Group, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

Customer loyalty programme
The Group operates a customer loyalty programme which allows customers to accumulate redemption coupons when they purchase products from the Group. The redemption coupons can then be used to purchase a selection of products at discounted price or redeem products free. The consideration received is allocated between the products sold and the redemption coupons issued, with the consideration allocated to the redemption coupons being equal to their fair value. Fair value is determined by applying statistical techniques. The fair value of the redemption coupons issued is deferred and recognised as revenue when the redemption coupons are redeemed.

Foreign currencies
These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Cosway Corporation Limited Annual Report 2010

103

Notes to Financial Statements
30 April 2010

2.4 Summary of significant accounting policies (continued)
Foreign currencies (continued)
The functional currencies of certain overseas subsidiaries and associates are currencies other than the Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the end of the reporting period and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

3.

Significant accounting judgements and estimates
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

104

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

3.

Significant accounting judgements and estimates (continued)
Judgements (continued)
Classification between investment properties and owner-occupied properties
The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. 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. Where the Group uses only an insignificant portion of a property, the whole property is an investment property stated at fair value. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, 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.

Estimation of fair value of investment properties
In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including: (a) current prices in an active market for properties of a different nature, condition or location or subject to different leases or other contracts, adjusted to reflect those differences; (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by 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.

Cosway Corporation Limited Annual Report 2010

105

Notes to Financial Statements
30 April 2010

3.

Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Estimation of fair value of investment properties (continued)
The principal assumptions for the Group’s estimation of the fair value include those related to current market rents for similar properties in the same location and condition, appropriate discount rates, expected future market rents and future maintenance costs. Particulars of the investment properties held by the Group are set out in note 15 to the financial statements. The carrying amount of investment properties at 30 April 2010 was HK$264,519,000 (2009: HK$114,990,000).

Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Deferred tax assets have not been recognised in respect of certain losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised. The carrying amount of deferred tax assets at 30 April 2010 was HK$7,525,000 (2009: HK$2,523,000).

Estimation of useful lives of items of property, plant and equipment
Management estimates the useful lives of items of property, plant and equipment when acquired based on the period over which the items of property, plant and equipment are expected to be available for use to the Group. The useful lives of items of property, plant and equipment are reviewed, and adjusted if appropriate, at the end of the reporting period. The carrying value of property, plant and equipment at 30 April 2010 was HK$225,389,000 (2009: HK$119,500,000). Further details are included in note 14 to the financial statements.

Impairment test of items of property, plant and equipment
Management estimates the recoverable amount of items of property, plant and equipment when an indication of impairment exists. This requires an estimation of the value in use of the cash-generating units. Estimating the value in use requires management to make an estimate of the expected future cash flows from the cashgenerating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

106

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Notes to Financial Statements
30 April 2010

3.

Significant accounting judgements and estimates (continued)
Estimation uncertainty (continued)
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 30 April 2010 was HK$317,395,000 (2009: HK$9,741,000). Further details are included in note 17 to the financial statements.

Customer loyalty programmes
The Group operates a customer loyalty programme which allows customers to accumulate redemption coupons when they purchase products from the Group. Management estimates the fair value of the redemption coupons issued and such fair value is reviewed regularly, and adjusted if appropriate.

4.

Operating segment information
For management purposes, the Group is organised into business units based on their products and services and has two reportable operating segments as follows: (a) the direct selling/retailing segment is engaged in direct selling of household, personal care, healthcare and other consumer products; and (b) the property investment segment is engaged in investment in prime office space for rental income potential. Management monitors the results of its operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit before tax. The adjusted profit before tax is measured consistently with the Group’s profit before tax except that interest income, finance costs, share of profits and losses of associates as well as head office and corporate income and expenses are excluded from such measurement. Segment assets exclude interests in associates, available-for-sale investments, goodwill, deferred tax assets, tax recoverable and certain other receivables as these assets are managed on a group basis.

Cosway Corporation Limited Annual Report 2010

107

Notes to Financial Statements
30 April 2010

4.

Operating segment information (continued)
Segment liabilities exclude interest-bearing bank and other borrowings, ICULS, loan from a shareholder, tax payables and deferred tax liabilities as these liabilities are managed on a group basis. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices. Direct selling/Retailing Year ended 30 April 2010 HK$’000 2009 HK$’000 (Restated) Segment revenue Sales to external customers Intersegment sales 2,318,137 – 2,318,137 Reconciliation: Elimination of intersegment sales Revenue Segment results Reconciliation: Interest income Unallocated gains Finance costs Share of profits and losses of associates Profit before tax 373 283,110 80 178,553 1,155 14,011 (19,031) 821 13,125 (1,871) 277,515 162,199 9,087 4,199 (3,670) 2,329,278 (2,828) 1,726,896 166,398 1,720,229 – 1,720,229 11,141 3,670 14,811 6,667 2,828 9,495 2,329,278 3,670 2,332,948 1,726,896 2,828 1,729,724 Property investment 2010 HK$’000 2009 HK$’000 (Restated) Total 2010 HK$’000 2009 HK$’000 (Restated)

286,602

108

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Notes to Financial Statements
30 April 2010

4.

Operating segment information (continued)
Direct selling/Retailing Year ended 30 April 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Segment assets Reconciliation: Interests in associates Corporate and unallocated assets Total assets Segment liabilities Reconciliation: Corporate and unallocated liabilities Total liabilities 632,351 1,086,243 89,311 459,591 33,189 321,632 445,622 365,916 284,594 8,270 4,364 3,849 10,392 334,034 1,747,877 109 17,102 955,844 370,280 181 26,233 737,823 288,443 1,130,356 815,093 1 May 2008 HK$’000 (Restated) 585,051 273,095 Property investment 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) 123,540 1 May 2008 HK$’000 (Restated) 126,358 1,403,451 30 April 2010 HK$’000 Total 30 April 2009 HK$’000 (Restated) 938,633 1 May 2008 HK$’000 (Restated) 711,409

453,892

Cosway Corporation Limited Annual Report 2010

109

Notes to Financial Statements
30 April 2010

4.

Operating segment information (continued)
Direct selling/Retailing Year ended 30 April 2010 HK$’000 2009 HK$’000 (Restated) Other segment information: Depreciation Recognition of prepaid land lease payments Capital expenditure* Impairment/(reversal of impairment) of other receivables Fair value losses/(gains) on investment properties
*

Property investment 2010 HK$’000 2009 HK$’000 (Restated)

Total 2010 HK$’000 2009 HK$’000 (Restated)

31,509 178 126,255

21,134 175 56,019

132 – 126,434

118 – 93

31,641 178 252,689

21,252 175 56,112

(3,956) –

2,113 –

– (9,010)

– 1,208

(3,956) (9,010)

2,113 1,208

Capital expenditure consists of additions to property, plant and equipment and investment properties, including assets from the acquisition of subsidiaries.

110

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

4.

Operating segment information (continued)
Geographical information
(a) Revenue from external customers
2010 HK$’000 2009 HK$’000 (Restated) Malaysia, Singapore and Brunei Hong Kong, Macau and Taiwan Other countries 1,268,329 903,241 157,708 2,329,278 925,949 767,780 33,167 1,726,896

The revenue information above is based on the location of the customers.

(b)

Non-current assets
30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Malaysia, Singapore and Brunei Hong Kong, Macau and Taiwan Other countries 668,747 118,768 84,778 872,293 194,615 46,568 40,069 281,252 1 May 2008 HK$’000 (Restated) 233,486 21,340 31,403 286,229

The non-current asset information above is based on the location of assets and excludes available-for-sale investments and deferred tax assets.

Cosway Corporation Limited Annual Report 2010

111

Notes to Financial Statements
30 April 2010

5.

Revenue and other income
Revenue, which is also the Group’s turnover, represents the invoiced value of goods sold, net of discounts and returns; the value of services rendered; and gross rental income received and receivable from investment properties during the year. An analysis of revenue and other income is as follows: 2010 HK$’000 2009 HK$’000 (Restated) Revenue Sale of goods Membership fee income Gross rental income 2,277,442 40,695 11,141 2,329,278 Other income Interest income Others 1,155 14,011 15,166 821 13,125 13,946 1,552,299 167,930 6,667 1,726,896

6.

Finance costs
Group 2010 HK$’000 2009 HK$’000 (Restated) Interest on bank loans, overdrafts and other loans wholly repayable within five years Interest on ICULS 4,695 14,336 19,031 1,871 – 1,871

112

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

7.

Profit before tax
The Group’s profit before tax is arrived at after charging/(crediting): 2010 HK$’000 2009 HK$’000 (Restated) 727,947 1,235 175 21,252 44,662 226 251 45,139

Notes

Cost of inventories sold Auditors’ remuneration Recognition of prepaid land lease payments Depreciation Minimum lease payments under operating leases on: Land and buildings Contingent rents of retail shops Plant and machinery

16 14

1,010,030 2,075 178 31,641 67,084 196 419 67,699

Employee benefit expenses (including directors’ remuneration (note 8)): Wages, salaries, allowances and benefits in kind Defined contribution scheme Defined benefit scheme (note 31) Pension scheme contributions

144,187 8,790 216 9,006 153,193

109,635 6,642 197 6,839 116,474 (6,667) 2,986 (3,681) 2,169 (1,840) 2,113 282 29 1,208

Gross rental income on investment properties Less: Outgoing expenses Net rental income Loss on disposal of items of property, plant and equipment Impairment/(reversal of impairment) of trade receivables, net Impairment/(reversal of impairment) of other receivables Impairment of items of property, plant and equipment Impairment of prepaid land lease payments, net Change in fair value of investment properties

(11,141) 5,750 (5,391) 105 2,539 (3,956) – – (9,010)

23 24 14 16 15

Cosway Corporation Limited Annual Report 2010

113

Notes to Financial Statements
30 April 2010

7.

Profit before tax (continued)
The Group’s profit before tax is arrived at after charging/(crediting): (continued) 2010 HK$’000 2009 HK$’000 (Restated) Write-down of inventories to net realisable value Withholding tax on royalty income Foreign exchange differences, net 6,005 2,999 8,618 6,220 1,217 3,687

8.

Directors’ remuneration
Details of directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, are as follows: Group 2010 HK$’000 Fees Other emoluments: Salaries, allowances and benefits in kind Discretionary performance related bonuses* Pension scheme contributions 1,143 371 144 1,658 2,580
* Two executive directors of the Company are entitled to bonus payments which are determined based on their performance during the year.

922

114

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

8.

Directors’ remuneration (continued)
The figures presented above represent the remuneration paid/payable to the directors of the Company for the year ended 30 April 2010. There was no remuneration paid by the Group to the Company’s directors in the prior year as the Company was consolidated into the Group from the current year only.

(a)

Independent non-executive directors
The fees paid to independent non-executive directors during the year were as follows: 2010 Notes Wong Ying Wai, Wilfred Leou Thiam Lai Deng Xiao Lan, Rose Dato’ Lee Ah Hoe Tan Tee Yong (i) (ii) (ii) (i) HK$’000 – 80 – 80 80 240
Notes: (i) (ii) Wong Ying Wai, Wilfred and Deng Xiao Lan, Rose were appointed as independent non-executive directors of the Company on 17 March 2010 and 9 April 2010, respectively. Dato’ Lee Ah Hoe and Tan Tee Yong resigned as independent non-executive directors of the Company on 17 March 2010 and 9 April 2010, respectively.

Cosway Corporation Limited Annual Report 2010

115

Notes to Financial Statements
30 April 2010

8.

Directors’ remuneration (continued)
(b) Executive directors and non-executive directors
Salaries, Discretionary allowances and benefits Fees Notes 2010 Executive directors: Chuah Choong Heong Tan Yeong Sheik, Rayvin Cheng Chi Fan, Vivienne Chin Chee Seng, Derek Wong Man Hong (ii) (ii) (ii) (i) – 580 – – 102 682 Non-executive directors: Chan Kien Sing Tan Thiam Chai Tan Ee Ling (iii) (iii) (iii) – – – – 682
Notes: (i) (ii) (iii) Chuah Choong Heong was appointed as the Chairman and the Chief Executive Officer of the Company on 17 March 2010. Cheng Chi Fan, Vivienne, Chin Chee Seng, Derek and Wong Man Hong resigned as executive directors of the Company on 17 March 2010. Chan Kien Sing, Tan Thiam Chai and Tan Ee Ling were re-designated from executive directors to non-executive directors of the Company on 17 March 2010.

performance related HK$’000

Pension scheme Total HK$’000 HK$’000

in kind HK$’000

bonuses contributions

HK$’000

850 5 – – – 855

– 300 – – – 300

102 12 – – 1 115

952 897 – – 103 1,952

– – 288 288 1,143

– – 71 71 371

– – 29 29 144

– – 388 388 2,340

There was no arrangement under which a director waived or agreed to waive any remuneration during the year (2009: Nil).

116

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

9.

Five highest paid employees
The five highest paid employees during the year included two (2009: Nil) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining three (2009: five) nondirector, highest paid employees for the year are as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) Salaries, allowances and benefits in kind Discretionary performance related bonuses Pension scheme contributions 2,462 437 202 3,101 7,539 2,247 906 10,692

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows: Number of employees 2010 2009 (Restated) Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000 1 1 1 – – 3 4 – – – 1 5

Cosway Corporation Limited Annual Report 2010

117

Notes to Financial Statements
30 April 2010

10. Income tax
Hong Kong profits tax has been provided at the rate of 16.5% (2009: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries or jurisdictions in which the Group operates. 2010 HK$’000 2009 HK$’000 (Restated) Group: Current – Hong Kong Charge for the year Overprovision in prior years Current – Malaysia Charge for the year Underprovision/(overprovision) in prior years Current – Elsewhere Charge for the year Underprovision in prior years Deferred (note 21) Total tax charge for the year 7,455 86 2,000 60,885 5,019 315 (113) 42,702 38,391 1,208 29,500 (100) 11,770 (25) 8,081 –

A subsidiary of the Group, eCosway, has obtained approval from the Multimedia Development Corporation (“MDeC”) as a Multimedia Super Corridor (“MSC”) company and has been granted Pioneer Status with full income tax exemption under the Promotion of Investments Act, 1986 in Malaysia for an extended period of 5 years commencing 4 October 2007.

118

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

10. Income tax (continued)
A reconciliation of the tax expense applicable to profit before tax at the statutory rates for the jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate is as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) Profit before tax Taxation at Hong Kong statutory tax rate of 16.5% (2009: 16.5%) Different tax rates in other countries Income not subject to tax Expenses not deductible for tax Tax exempt under MSC status Tax losses not recognised Adjustment in respect of current tax of previous periods Others Tax charge at the Group’s effective rate of 21.5% (2009: 23.9%) 283,110 178,553 29,461 10,264 (376) 2,811 (8,740) 8,971 215 96 42,702

46,713 10,656 6,743 7,740 (12,233) 249 1,269 (252) 60,885

The share of tax attributable to an associate amounting to HK$129,000 (2009: HK$11,000) is included in “share of profits and losses of associates” on the face of the consolidated income statement.

Cosway Corporation Limited Annual Report 2010

119

Notes to Financial Statements
30 April 2010

11. Profit attributable to owners of the parent
The profit attributable to owners is dealt with in the financial statements of the Company to the extent of post acquisition profit of HK$157,541,000 for the year ended 30 April 2010 (2009: Nil).

12. Dividends
2010 HK$’000 2009 HK$’000 (Restated) First interim dividend – Nil (2009: RM1.20 sen) per ordinary share Second interim dividend – Nil (2009: RM1.20 sen) per ordinary share – – – 4,129 4,129 8,258

The directors proposed a final dividend of HK1.5 cents (2009: Nil) per share. The estimated total final dividends based on the number of issued shares of 1,961,731,641 at 30 April 2010, is approximately HK$29,426,000. The proposed dividend is not reflected as dividend payable in the financial statements but will be reflected as an appropriation of retained earnings for the year ending 30 April 2011. The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting. The dividends disclosed for the year ended 30 April 2009 represented interim dividends paid by a subsidiary, namely Cosway M, to its previous owner, namely Cosway Corp, out of its retained profits.

120

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

13. Earnings per share attributable to ordinary equity holders of the parent
Under the reverse acquisition method of accounting, the 858,185,074 ordinary shares, in aggregate, issued by the Company to effect the Acquisition described in note 2.1 above are deemed to be issued on 1 May 2008 for the purpose of calculating the earnings per share. The calculation of basic and diluted earnings per share is based on the following data: 2010 HK$’000 2009 HK$’000 (Restated) Earnings Profit attributable to ordinary equity holders of the parent, used in the basic and diluted earnings per share calculation 211,756 120,937

2010 Number of shares (in thousand)

2009 Number of shares (in thousand) (Restated)

Shares Weighted average number of ordinary shares (inclusive of mandatorily convertible instruments issued during the year) for the purpose of calculating basic and diluted earnings per share calculation 5,495,200 858,185

Cosway Corporation Limited Annual Report 2010

121

Notes to Financial Statements
30 April 2010

14. Property, plant and equipment
Group Freehold land HK$’000 30 April 2010 At 30 April 2009 and 1 May 2009: Cost Accumulated depreciation and impairment Net carrying amount At 1 May 2009, net of accumulated depreciation and impairment Additions Acquisition of subsidiaries (note 38) Disposals Depreciation provided during the year Exchange realignment At 30 April 2010, net of accumulated depreciation and impairment At 30April 2010: Cost Accumulated depreciation and impairment Net carrying amount Plant and machinery HK$’000 Office and computer equipment HK$’000 Furniture and fittings HK$’000 Renovation works HK$’000 Motor vehicles HK$’000

Buildings HK$’000

Total HK$’000

27,572 (5,182) 22,390

34,423 (10,783) 23,640

5,071 (3,850) 1,221

59,480 (41,538) 17,942

11,542 (7,250) 4,292

78,059 (45,231) 32,828

24,107 (6,920) 17,187

240,254 (120,754) 119,500

22,390 3,752 – – – 4,091

23,640 1,307 – – (791) 3,639

1,221 131 – – (358) 120

17,942 32,473 144 (487) (8,596) 1,161

4,292 1,955 – (17) (994) 178

32,828 79,419 151 (129) (18,186) 1,177

17,187 7,206 – (516) (2,716) 1,775

119,500 126,243 295 (1,149) (31,641) 12,141

30,233

27,795

1,114

42,637

5,414

95,260

22,936

225,389

36,047 (5,814) 30,233

41,161 (13,366) 27,795

5,935 (4,821) 1,114

98,529 (55,892) 42,637

14,792 (9,378) 5,414

165,796 (70,536) 95,260

34,065 (11,129) 22,936

396,325 (170,936) 225,389

122

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Notes to Financial Statements
30 April 2010

14. Property, plant and equipment (continued)
Group (continued) Freehold land HK$’000 30 April 2009 (as restated) At 1 May 2008: Cost Accumulated depreciation and impairment Net carrying amount At 1 May 2008, net of accumulated depreciation and impairment Additions Disposals Impairment Depreciation provided during the year Exchange realignment Asset included in asset held for sale (note 28) At 30 April 2009, net of accumulated depreciation and impairment At 30April 2009: Cost Accumulated depreciation and impairment Net carrying amount Plant and machinery HK$’000 Office and computer equipment HK$’000 Furniture and fittings HK$’000 Renovation works HK$’000 Motor vehicles HK$’000

Buildings HK$’000

Total HK$’000

58,113 (5,509) 52,604

40,136 (11,756) 28,380

5,802 (4,665) 1,137

54,041 (40,894) 13,147

10,419 (7,523) 2,896

53,363 (38,806) 14,557

21,682 (7,269) 14,413

243,556 (116,422) 127,134

52,604 – – (282) – (7,255) (22,677)

28,380 – – – (728) (4,012) –

1,137 540 – – (337) (119) –

13,147 12,196 (460) – (5,679) (1,262) –

2,896 2,771 (327) – (713) (335) –

14,557 32,971 (1,721) – (11,451) (1,528) –

14,413 7,634 (981) – (2,344) (1,535) –

127,134 56,112 (3,489) (282) (21,252) (16,046) (22,677)

22,390

23,640

1,221

17,942

4,292

32,828

17,187

119,500

27,572 (5,182) 22,390

34,423 (10,783) 23,640

5,071 (3,850) 1,221

59,480 (41,538) 17,942

11,542 (7,250) 4,292

78,059 (45,231) 32,828

24,107 (6,920) 17,187

240,254 (120,754) 119,500

Cosway Corporation Limited Annual Report 2010

123

Notes to Financial Statements
30 April 2010

14. Property, plant and equipment (continued)
Company Renovation works HK$’000 30 April 2010 At 30 April 2009 and at 1 May 2009: Cost Accumulated depreciation Net carrying amount At 1 May 2009, net of accumulated depreciation Additions Depreciation provided during the year At 30 April 2010, net of accumulated depreciation At 30 April 2010: Cost Accumulated depreciation Net carrying amount 178 (42) 136 391 (272) 119 569 (314) 255 178 (9) 169 373 (250) 123 551 (259) 292 Furniture and fittings HK$’000 Total HK$’000

169 – (33) 136

123 18 (22) 119

292 18 (55) 255

124

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

14. Property, plant and equipment (continued)
Company (continued) Renovation works HK$’000 30 April 2009 At 30 April 2008 and at 1 May 2008: Cost Accumulated depreciation Net carrying amount At 1 May 2008, net of accumulated depreciation Additions Depreciation provided during the year At 30 April 2009, net of accumulated depreciation At 30 April 2009: Cost Accumulated depreciation Net carrying amount 178 (9) 169 373 (250) 123 551 (259) 292 – – – – 178 (9) 169 357 (231) 126 126 16 (19) 123 357 (231) 126 126 194 (28) 292 Furniture and fittings HK$’000 Total HK$’000

The net carrying amount of the Group’s property, plant and equipment held under hire purchase contracts included in the total amounts of plant and machinery at 30 April 2010 amounted to HK$39,000 (2009: HK$63,000). At 30 April 2010, certain of the Group’s freehold land and buildings with net book values of approximately HK$8,784,000 (2009: HK$5,063,000) were pledged to secure general banking facilities granted to the Group (note 32(b)(ii)). The Group’s freehold land are situated in Malaysia and Taiwan.

Cosway Corporation Limited Annual Report 2010

125

Notes to Financial Statements
30 April 2010

15. Investment properties
Group 2010 HK$’000 2009 HK$’000 (Restated) Carrying amount at beginning of year Additions from acquisition of subsidiaries (note 38) Net profit/(loss) from a fair value adjustment Exchange realignment Carrying amount at end of year 114,990 126,151 9,010 14,368 264,519 130,586 – (1,208) (14,388) 114,990

Company 2010 HK$’000 Carrying amount at beginning of year Net profit/(loss) from a fair value adjustment Carrying amount at end of year 49,392 19,460 68,852 2009 HK$’000 63,968 (14,576) 49,392

126

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

15. Investment properties (continued)
Analysis by type and location: Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Malaysia Freehold Taiwan Freehold Hong Kong Long term leases Medium term leases Mainland China Long term leases 969 264,519 – 114,990 – 130,586 60,083 7,800 – – – – 1,142 1,065 1,266 194,525 113,925 129,320 1 May 2008 HK$’000 (Restated)

Company 2010 HK$’000 Hong Kong Long term leases Medium term leases Mainland China Long term leases 969 68,852 904 49,392 60,083 7,800 42,388 6,100 2009 HK$’000

Cosway Corporation Limited Annual Report 2010

127

Notes to Financial Statements
30 April 2010

15. Investment properties (continued)
The Group’s investment properties situated in Malaysia were revalued on 30 April 2010 by Hartanah Consultants, independent professionally qualified valuers, at HK$194,525,000 on an open market, existing use basis. The Group’ investment properties situated in Taiwan were revalued on 30 April 2010 by Vigers Appraisal & Consulting Limited, independently professionally qualified valuers, at HK$1,142,000 on an open market, existing use basis. The Group’s and the Company’s investment properties situated in Hong Kong and Mainland China were revalued on 30 April 2010 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, at HK$68,852,000 on an open market, existing use basis. The investment properties are leased to third parties under operating leases, further summary details of which are included in note 41 to the financial statements. At 30 April 2010, the Group’s and the Company’s investment properties with a value of HK$195,484,000 (2009: Nil) and HK$65,233,000 (2009: HK$46,787,000), respectively, were pledged to secure general banking facilities granted to the Group and the Company (note 32(b)(i)). At 30 April 2009, the Group’s investment properties with a value of HK$113,925,000 was pledged to secure general banking facilities granted to the former immediate holding company (note 40(b)). Further particulars of the Group’s investment properties are included on pages 195 to 196.

128

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

16. Prepaid land lease payments
Group 2010 HK$’000 2009 HK$’000 (Restated) Carrying amount at beginning of year Recognised during the year Impairment Exchange realignment Carrying amount at end of year Current portion included in prepayments, deposits and other receivables (note 24) Non-current portion (187) 9,431 (171) 8,576 8,747 (178) – 1,049 9,618 10,060 (175) (29) (1,109) 8,747

The Group’s prepaid land lease payments are situated in Malaysia and are held under the following lease terms: Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Long term leases Medium term leases 2,743 6,875 9,618 2,474 6,273 8,747 1 May 2008 HK$’000 (Restated) 2,808 7,252 10,060

At 30 April 2010, certain of the Group’s leasehold land with net book value of HK$5,509,000 (2009: HK$7,259,000) were pledged to secure general banking facilities granted to the Group (note 32(b)(iii)).

Cosway Corporation Limited Annual Report 2010

129

Notes to Financial Statements
30 April 2010

17.

Goodwill
Group HK$’000 As restated Cost and net carrying amount at 1 May 2008 Exchange realignment Cost and carrying amount at 30 April 2009 and 1 May 2009 Acquisition of subsidiaries (note 38(a), (b)) Acquisition of minority interests Exchange realignment Cost and net carrying amount at 30 April 2010 10,953 (1,212) 9,741 106,934 199,532 1,188 317,395

The goodwill arising from business combination amounting to HK$317,395,000 is allocated to the direct selling/ retailing business cash-generating unit, which is a reportable segment, for impairment testing. The recoverable amount of the direct selling/retailing cash-generating unit has been determined based on a value-in-use calculation using cash flow projections based on financial budgets approved by management covering a five-year period. The cash flow projections are discounted using the weighted average cost of capital of 12%.

(a)

Key assumptions used in value-in-use calculation
The following describes each key assumption on which management has based its cash flow projections to undertake the impairment testing of goodwill.

(i)

Budgeted gross margin
The budgeted gross margin of 20% used is based on the average gross margin achieved in the year immediately before the budgeted year and increased for expected efficiency improvements.

(ii)

Growth rate
The weighted average growth rate used to extrapolate the cash flows beyond the five-year period is 5% which is consistent with the long-term average growth rate for the industry.

130

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

17.

Goodwill (continued)
(a) Key assumptions used in value-in-use calculation (continued)
(iii) Discount rate
The discount rate of 12% used is pre-tax and reflect specific risks relating to the industry.

(b)

Sensitivity to changes in assumptions
The management believes that changes in any of the above key assumptions would not cause the carrying value of the unit to materially differ from its recoverable amount.

18. Interests in subsidiaries
Company 2010 HK$’000 Unlisted shares, at cost Impairment# 2,491,704 (2,105) 2,489,599 Due from subsidiaries Impairment
#

2009 HK$’000 2,105 (2,105) – 6,219 (6,219) – (1,288) (1,288)

6,569 (6,569) –

Due to subsidiaries

(4,786) 2,484,813

#

An impairment was recognised for investments in subsidiaries and amounts due from subsidiaries because these subsidiaries of the Company have been making losses.

The amounts due from and to subsidiaries included in the Company’s current assets and current liabilities are unsecured, interest-free and repayable on demand.

Cosway Corporation Limited Annual Report 2010

131

Notes to Financial Statements
30 April 2010

18. Interests in subsidiaries (continued)
Particulars of principal subsidiaries are as follows: Percentage Place of incorporation/ registration Name Notes (i) and operations Nominal value of issued/ registered share capital of equity attributable to the Company Direct Indirect Principal activities

Cosway M

Malaysia

RM155,000,000

100

–

Direct selling of consumer, household and skin care products

Rank Distributors Sdn. Bhd. Kimia Suchi Sdn. Bhd.

(ii)

Malaysia

RM150,000

–

100

Trading of health care products

(ii)

Malaysia

RM1,500,000

–

82

Investment holding, contract manufacturing and trading of industrial and household cleaning products

Cosway (Cayman) Limited Juara Budi Sdn. Bhd. eCosway.com Sdn. Bhd.

(ii)

Cayman Islands

US$3,000,000

–

100

Investment holding

(ii) (iii)

Malaysia Malaysia

RM2 RM5,000,000

– 40

100 60

Investment holding Internet-based direct selling of consumer products

eCosway Pty. Ltd.*

(ii)

Australia

Australian Dollar (“AUD”) 3,500,000

–

100

Direct selling of consumer, household and skin care products

132

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

18. Interests in subsidiaries (continued)
Percentage Place of incorporation/ registration Name Notes (ii) and operations Nominal value of issued/ registered share capital of equity attributable to the Company Direct Indirect Principal activities

Cosway (HK) Limited

Hong Kong

HK$2,000,002

–

100

Direct selling of consumer, household and skin care products

Stephens Properties Sdn. Bhd. Kimia Suchi Marketing Sdn. Bhd. Cosway (Thailand) Company Limited* Cosway (Macau) Company Limited*

(ii)

Malaysia

RM18,280,000

–

100

Investment holding and property investment

(ii)

Malaysia

RM2

–

100

Trading of industrial cleaning products

(ii)

Thailand

Thai Baht (“THB”) 100,000,000

–

100

Direct selling and trading of consumer products

(ii)

Macau

Macau Pataca (“MOP”) 100,000

–

100

Direct selling of consumer, household and skin care products

Vmart Corp (HK) Limited eCosway Korea Inc.*

(ii)

Hong Kong

HK$2,000,000

–

100

Investment holding

(ii)

Korea

Korean Won (“KRW”) 3,155,000,000

–

100

Direct selling of consumer, household and skin care products

(i) (ii)

During the year, the Company acquired the entire equity interest in Cosway M through the Acquisition as detailed in note 2.1 to the financial statements. These subsidiaries are indirectly held by the Company through its direct interest in Cosway M.

Cosway Corporation Limited Annual Report 2010

133

Notes to Financial Statements
30 April 2010

18. Interests in subsidiaries (continued)
(iii) Upon the completion of the transactions as detailed in note 2.1 to the financial statements, the Company directly held a 40% equity interest in eCosway and indirectly held a 60% equity interest in eCosway through Cosway M, a whollyowned subsidiary of the Company. Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

*

The directors are of the opinion that a complete list of the particulars of all subsidiaries would be of excessive length and therefore, the above list contains only the particulars of subsidiaries which principally affected the results for the year or formed a substantial portion of the net assets of the Group.

19. Interests in associates
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Unlisted shares, at cost Share of net assets – 10,392 10,392 – 109 109 1 May 2008 HK$’000 (Restated) – 181 181 8,200 – 8,200 8,200 – 8,200 Company 30 April 2010 HK$’000 30 April 2009 HK$’000

134

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

19. Interests in associates (continued)
Particulars of the associates are as follows: Percentage of ownership Particulars of issued Name Note (i) shares held Place of incorporation/ registration interest attributable to the Group Principal activities

Coswin (M) Sdn. Bhd.

Ordinary share of RM1 each

Malaysia

40

Trading of consumer products

Greenland Timber Industries (Private) Limited*
(i) *

Ordinary share of Singapore dollar 1.4 each

Singapore

20

Investment holding

This associate is indirectly held by the Company through its direct interest in Cosway M. Not audited by Ernst & Young Hong Kong or other member firm of the Ernst & Young global network.

As disclosed in the consolidated statement of financial position, the Group has an outstanding balance due to its associates of HK$2,262,000 (2009: HK$2,328,000) as at the end of the reporting period. These balances are unsecured, interest-free and are repayable on demand. The above table includes the associates of the Group which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

Cosway Corporation Limited Annual Report 2010

135

Notes to Financial Statements
30 April 2010

19. Interests in associates (continued)
The following table illustrates the summarised financial information of the Group’s associates extracted from their management accounts: 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Assets Liabilities 77,825 (26,004) 2,832 (2,437) 1 May 2008 HK$’000 (Restated) 3,116 (2,525)

2010 HK$’000

2009 HK$’000 (Restated)

Revenue Profit for the year

8,180 3,685

1,603 115

136

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

20. Available-for-sale investments
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Malaysian listed equity investments, at fair value Club membership, at cost Club debenture, at fair value 19 256 200 475 15 228 – 243 1 May 2008 HK$’000 (Restated) 22 256 – 278

Company 2010 HK$’000 Club debenture, at fair value 200 2009 HK$’000 200

The above listed investments consist of investments in equity securities which were designated as availablefor-sale financial assets and have no fixed maturity date or coupon rate. The fair values of the listed equity investments are based on quoted market prices. The club membership was stated at cost because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair values cannot be measured reliably. The Group does not intend to dispose of them in the near future. The fair value of the club debenture is based on its open market price.

Cosway Corporation Limited Annual Report 2010

137

Notes to Financial Statements
30 April 2010

21. Deferred tax
The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities
Group Depreciation allowance in excess of related As restated deprecation HK$’000 At 1 May 2008 Deferred tax charged/(credited) to the income statement during the year (note 10) Exchange realignment At 30 April 2009 and 1 May 2009 Deferred tax charged to the income statement during the year (note 10) Acquisition of subsidiaries (note 38) Exchange realignment At 30 April 2010 4,155 – 477 5,977 1,908 9,461 400 14,210 976 – (40) (16) 7,039 9,461 837 20,171 160 (120) 1,345 (278) (331) 2,441 (271) 92 (952) (389) (359) 2,834 1,305 Revaluation of investment properties HK$’000 3,050 Other provisions HK$’000 (773) Total HK$’000 3,582

138

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

21. Deferred tax (continued)
The movements in deferred tax liabilities and assets during the year are as follows: (continued)

Deferred tax assets
Group Losses available for offsetting Deferred against future income taxable profits HK$’000 HK$’000

As restated

Other provisions HK$’000

Others HK$’000

Total HK$’000

At 1 May 2008 As previously reported Effect of adopting HK(IFRIC)-Int 13 (note 2.2) As restated Deferred tax credited/(charged) to income statement during the year (note 10) Exchange realignment At 30 April 2009 At 1 May 2009 As previously reported Effect of adopting HK(IFRIC)-Int 13 (note 2.2) As restated Deferred tax credited to income statement during the year (note 10) Exchange realignment At 30 April 2010

239 – 239

– 2,757 2,757

– – –

146 – 146

385 2,757 3,142

40 (27) 252

(343) (299) 2,115

– – –

27 (17) 156

(276) (343) 2,523

252 – 252

– 2,115 2,115

– – –

156 – 156

408 2,115 2,523

980 83 1,315

3,264 520 5,899

669 – 669

126 29 311

5,039 632 8,194

Cosway Corporation Limited Annual Report 2010

139

Notes to Financial Statements
30 April 2010

21. Deferred tax (continued)
For presentation purpose, certain deferred tax assets and liabilities have been offset in the consolidated statement of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes: Group 2010 HK$’000 Net deferred tax assets recognised in the consolidated statement of financial position Net deferred tax liabilities recognised in the consolidated statement of financial position (19,502) 7,525

(11,977)

Deferred tax liabilities
Revaluation of investment Company properties HK$’000 At 1 May 2008 Deferred tax credited to the income statement during the year At 30 April 2009 and 1 May 2009 Deferred tax charged to the income statement during the year At 30 April 2010 4,535 (2,670) 1,865 3,200 5,065

140

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

21. Deferred tax (continued)
Deferred tax assets
Losses available for offsetting against future Company taxable profits HK$’000 At 1 May 2008 Deferred tax credited to the income statement during the year At 30 April 2009 and 1 May 2009 Deferred tax credited to the income statement during the year At 30 April 2010 – 1,865 1,865 3,200 5,065

For presentation purpose, certain deferred tax assets and liabilities have been offset in the statement of financial position. The following is an analysis of the deferred tax balances of the Company for financial reporting purposes: Company 2010 HK$’000 Net deferred tax liabilities recognised in the statement of financial position Net deferred tax assets recognised in the statement of financial position – – – – – 2009 HK$’000

–

Cosway Corporation Limited Annual Report 2010

141

Notes to Financial Statements
30 April 2010

21. Deferred tax (continued)
At the end of the reporting period, the Group and the Company had tax losses of HK$79,114,000 (2009: HK$52,355,000) and HK$19,394,000 (2009: HK$35,978,000), respectively, that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. As at 30 April 2010, the Group also had tax losses arising in the Philippines of HK$239,000 (2009: HK$8,177,000) that will expire in three to five years for offsetting against future taxable profits. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised. There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders. Deferred tax assets have not been recognised in respect of the following items: Group 2010 HK$’000 2009 HK$’000 (Restated) Tax losses Deductible temporary differences 10,591 9,537 70,069 10,658 79,442 – – 35,978 79,353 60,532 2008 HK$’000 (Restated) 68,784 19,394 35,978 Company 2010 HK$’000 2009 HK$’000

89,944

19,394

142

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

22. Inventories
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Raw materials Finished goods 2,644 579,245 581,889 4,030 398,108 402,138 1 May 2008 HK$’000 (Restated) 2,784 255,422 258,206

23. Trade receivables
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Trade receivables Impairment 105,128 (25,566) 79,562 101,942 (23,770) 78,172 1 May 2008 HK$’000 (Restated) 54,993 (28,924) 26,069

Company 2010 HK$’000 Trade receivables 29 2009 HK$’000 9

The Group’s trading credit terms range from 1 day to 90 days. Other credit terms are assessed and approved on a case-by-case basis. The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are regularly reviewed by senior management. In view of the aforementioned, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

Cosway Corporation Limited Annual Report 2010

143

Notes to Financial Statements
30 April 2010

23. Trade receivables (continued)
An aged analysis of trade receivables as at the end of the reporting period, based on the invoice date and net of provisions, is as follows: Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Current 1 to 2 months 2 to 3 months Over 3 months 59,090 1,426 1,852 17,194 47,498 9,705 11,640 9,329 78,172 1 May 2008 HK$’000 (Restated) 20,911 241 1,440 3,477 26,069

79,562

Company 2010 HK$’000 Within 1 month 29 2009 HK$’000 9

144

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

23. Trade receivables (continued)
The movements in provision for impairment of trade receivables are as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) At beginning of year Impairment losses recognised/(reversed), net (note 7) Amount written off as uncollectible Exchange realignment At end of year 23,770 2,539 (738) (5) 28,924 (1,840) (158) (3,156) 23,770

25,566

Included in the above provision for impairment of trade receivables is a provision for individually impaired trade receivables of HK$25,566,000 (2009: HK$23,770,000) with carrying amount before provision of HK$25,566,000 (2009: HK$23,770,000). The individually impaired trade receivables relate to customers that were in default or were delinquent in principal payments and are not expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances. There is no provision for impairment of trade receivables of the Company as at 30 April 2010 and 30 April 2009, and there is no movement in provision for impairment of trade receivables of the Company for the years ended 30 April 2010 and 30 April 2009.

Cosway Corporation Limited Annual Report 2010

145

Notes to Financial Statements
30 April 2010

23. Trade receivables (continued)
The aged analysis of trade receivables that are not considered to be impaired is as follows: Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Neither past due nor impaired Less than 1 month past due 1 to 2 months past due 2 to 3 months past due Over 3 months past due 44,251 14,899 1,336 2,082 16,994 30,295 41,970 1,025 846 4,036 78,172 1 May 2008 HK$’000 (Restated) 15,965 5,729 248 569 3,558 26,069

79,562

Company 2010 HK$’000 Less than one month past due 29 2009 HK$’000 9

Receivables that were neither past due nor impaired relate to customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group and the Company do not hold any collateral or other credit enhancements over these balances.

146

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

24. Prepayments, deposits and other receivables
Group 30 April Note 2010 HK$’000 30 April 2009 HK$’000 (Restated) Prepayments Prepaid land lease payments Deposits Other receivables 16 10,480 187 70,353 75,750 23,359 171 29,974 54,222 107,726 (40,549) 67,177 (28,336) 38,841 1 May 2008 HK$’000 (Restated) 13,096 190 15,797 58,354 87,437 (43,271) 44,166 (7,505) 36,661 146 – 149 67 112 – 158 35 305 – 305 – 305 Company 30 April 2010 HK$’000 30 April 2009 HK$’000

156,770 Impairment (45,147)

362 –

111,623 Less: Deposits classified as non-current assets Current portion (45,167)

362 –

66,456

362

Included in the above provision for impairment of other receivables of the Group is a provision for individually impaired other receivables of HK$45,147,000 (2009: HK$40,549,000) with carrying amounts before impairment of HK$52,337,000 (2009: HK$45,008,000) as at 30 April 2010. The individually impaired other receivables relate to debtors that were in default or were delinquent in principal payments and are not expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances.

Cosway Corporation Limited Annual Report 2010

147

Notes to Financial Statements
30 April 2010

24. Prepayments, deposits and other receivables (continued)
The movements in provision for impairment of other receivables are as follows: Group 2010 HK$’000 At beginning of year Impairment losses recognised/(reversed) (note 7) Exchange realignment At end of year 40,549 (3,956) 8,554 2009 HK$’000 43,271 2,113 (4,835) 40,549

45,147

25. Balances with holding and former holding companies
Except for the amount due to the former immediate holding company of HK$11,000 at 30 April 2009, which was interest-bearing at 1.9% per annum, the balances with holding and former holding companies were unsecured, interest-free and repayable on demand.

26. Balances with fellow subsidiaries/a former related company
Except for amounts due from certain fellow subsidiaries of HK$876,000 (2009: HK$740,000), which bear interest at rates ranging from 7.87% to 8.00% (2009: 6.64% to 6.68%) per annum, the balances with fellow subsidiaries are unsecured, interest-free and repayable on demand. In the prior year, an amount due to a former related company of the Company of HK$118,000 was repayable on the expiry of the lease term in relation to a lease arrangement entered into between the Company and that former related company. The Company’s balance with that former related company was unsecured and interestfree.

148

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

27. Cash and cash equivalents
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Cash and bank balances Time deposits 127,446 8,835 84,122 8,548 92,670 (395) 92,275 1 May 2008 HK$’000 (Restated) 86,120 37,507 123,627 (466) 123,161 412 – 88 – 88 – 88 Company 30 April 2010 HK$’000 30 April 2009 HK$’000

136,281 Less: Pledged time deposits for bank guarantees Cash and cash equivalents (1,069)

412 –

135,212

412

The bank balances are deposited with creditworthy banks with no recent history of default. Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default. As at 30 April 2010, time deposits of HK$1,069,000 (2009: HK$395,000) were pledged to a bank for guarantee in lieu of rental deposits.

Cosway Corporation Limited Annual Report 2010

149

Notes to Financial Statements
30 April 2010

28. Asset held for sale
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Freehold land – 22,677 1 May 2008 HK$’000 (Restated) –

Balance as at 30 April 2009 represented the carrying amount of the freehold land owned by the Group with the intention of disposing of it in the immediate future. The carrying amount of the asset immediately before reclassification was not materially different from its fair value. On 30 March 2009, the Group announced the decision to dispose of the freehold land which was part of the Malaysian segment assets. The Group had decided to dispose of the freehold land because it was no longer relevant to its business needs. As at 30 April 2009, final negotiations for the sale were in progress and the freehold land was classified as an asset held for sale. The freehold land was disposed of on 11 August 2009 at a consideration of HK$22,677,000, with no gain or loss arising from the disposal.

29. Trade payables
An aged analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows: Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Current 1 to 2 months 2 to 3 months Over 3 months 159,703 27,037 8,114 65,661 260,515 132,045 59,666 12,678 26,602 230,991 1 May 2008 HK$’000 (Restated) 93,535 42,759 9,109 23,364 168,767

150

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

29. Trade payables (continued)
The trade payables are non-interest-bearing and are normally settled on 30-day to 90-day terms. The Company had no trade payables at the end of the reporting period (2009: Nil).

30. Other payables and accruals
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Other payables Accruals 78,264 43,917 48,565 37,094 85,659 1 May 2008 HK$’000 (Restated) 32,493 30,027 62,520 653 2,882 510 379 889 Company 30 April 2010 HK$’000 30 April 2009 HK$’000

122,181 Less: Other payables classified as non-current liabilities Current portion (275)

3,535

– 85,659

– 62,520

(275)

(259) 630

121,906

3,260

Other payables are non-interest-bearing. Except for rental deposit payables of the Group and the Company of HK$275,000 (2009: Nil) and HK$275,000 (2009: HK$259,000), respectively, which are included in the category of other payables classified as non-current liabilities, all other payables are expected to be settled within the next twelve months.

Cosway Corporation Limited Annual Report 2010

151

Notes to Financial Statements
30 April 2010

31. Defined benefit obligations
The Group operates an unfunded defined benefit plan for all its qualifying employees in Malaysia. Under the plan, the employees are entitled to lump sum retirement benefits at 75% of the average monthly salary of each full year of service rates on attainment of a retirement age of 55. The actuarial valuations of the plan assets and the present value of the defined benefit obligations were carried out at 30 April 2010 by Mercer Zainal Consulting Sdn. Bhd., a member of the Actuarial Society of Malaysia, using the projected unit credit actuarial valuation method. The principal actuarial assumptions used as at the end of the reporting period were as follows: 30 April 2010 % 30 April 2009 % (Restated) Discount rate Expected rate of salary increases 6.25 6.00 6.25 6.00 1 May 2008 % (Restated) 6.25 6.00

The overall expected rate of return on plan assets is determined based on market expectations prevailing at the end of the reporting period, applicable to the period over which the obligations are to be settled. The total expenses recognised in the consolidated income statement in respect of the plan are as follows: 2010 HK$’000 2009 HK$’000 (Restated) Current service cost Interest cost Amortisation of net loss Net benefit expenses Recognised in administrative expenses 137 77 2 216 216 131 62 4 197 197

152

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

31. Defined benefit obligations (continued)
The movements in the present value of the defined benefit obligations are as follows: 2010 HK$’000 2009 HK$’000 (Restated) At beginning of year Current service cost Interest cost Amortisation of net loss Exchange realignment At end of year 1,037 137 77 2 141 1,394 950 131 62 4 (110) 1,037

30 April 2010 HK$’000

30 April 2009 HK$’000 (Restated)

1 May 2008 HK$’000 (Restated)

Analysed as: Current Non-current: – Later than 1 year but not later than 2 years – Later than 2 years but not later than 5 years – Later than 5 years 102 241 1,010 1,353 1,394 39 230 716 985 1,037 42 66 842 950 950 41 52 –

There are no plan assets as the defined benefit plan is unfunded.

Cosway Corporation Limited Annual Report 2010

153

Notes to Financial Statements
30 April 2010

31. Defined benefit obligations (continued)
A reconciliation of the present value of the defined benefit obligations to the net value of assets and liabilities recognised in the consolidated statement of financial position is as follows: 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Present value of defined benefit obligations Unrecognised net actuarial gains Net liabilities arising from defined benefit obligations 1,548 (154) 1,174 (137) 1,037 1 May 2008 HK$’000 (Restated) 1,108 (158) 950

1,394

A five-year summary of the present value of the defined benefit obligations, the fair value of the plan assets, the deficit in the plan and the experience adjustment arising on plan liabilities is as follows: 2010 HK$’000 2009 HK$’000 (Restated) Present value of defined benefit obligations Deficit in the plan Experience gains on plan liabilities 154 137 159 – 17 1,548 1,548 1,174 1,174 1,108 1,108 713 713 724 724 2008 HK$’000 (Restated) 2007 HK$’000 (Restated) 2006 HK$’000 (Restated)

154

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

32. Interest-bearing bank and other borrowings
Group Effective interest rate (%) Current Bank overdrafts – unsecured Malaysia Banking Institution’s Base Lending Rate (“BLR”) + 1.75 Kuala Lumpur Interbank Offered Rate (“KLIBOR”) + 0.75-1.00 3.24-4.70 2010 Effective interest rate (%) BLR + 1.75 2009 (Restated) HK$’000 28,989 Maturity On demand HK$’000 34,688 Effective interest rate (%) 2008 (Restated) Maturity HK$’000 –

Maturity On demand

Bank loan – unsecured

2010

56,751

KLIBOR + 0.75-1.00

2009

23,234

–

Hire purchase contract payables – secured (note 33) Bank loan – secured

2010-2011

32

3.24-4.70

2009- 2010

28

3.24-4.70

2008-2009

46

Taiwan Reuters Primary Market Commercial paper 90 Days Rate (“TRPMCPR”) + 0.43 Cost of Fund (“COF”) + 2.00 5.00

2011

728

BLR + 2.00

2010

434

BLR + 2.00

2009

8,199

Revolving credit – secured Bank loan – secured

2011 2010

70,603 180 157,283

– – 58,384 3.24-4.70 2010-2011 35 – 3.24-4.70 BLR + 2.00 2009 – 2010 2010

– – 8,245 73 488

Non-current Hire purchase contract payables – secured (note 33) Bank loan – secured Bank loan – secured

3.24-4.70 TRPMCPR + 0.43 5.00

2011 2013 2011 – 2015

7 2,584 6,165 8,756 166,039

35 58,419

561 8,806

Cosway Corporation Limited Annual Report 2010

155

Notes to Financial Statements
30 April 2010

32. Interest-bearing bank and other borrowings (continued)
Company 2010 Effective interest rate (%) Current Bank loan – secured Non-current Bank loan – secured 5.00 2011 – 2015 6,165 5.00 2010 – 2015 6,345 6,525 5.00 2010 180 5.00 2009 180 Maturity HK$’000 Effective interest rate (%) Maturity HK$’000 2009

6,345

156

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

32. Interest-bearing bank and other borrowings (continued)
Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Analysed into: Bank loans and overdrafts repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years 3,124 5,445 – – 58,356 – – 8,687 540 5,445 540 5,625 6,525 157,251 180 58,356 – 8,199 488 180 180 180 180 1 May 2008 HK$’000 (Restated) Company 30 April 2010 HK$’000 30 April 2009 HK$’000

166,000

6,345

Other borrowings repayable: Within one year or on demand In the second year In the third of fifth years, inclusive – 7 63 58,419 – 119 8,806 – 32 7 28 28 46 73 – – – –

39

–

– 6,525

166,039

6,345

Cosway Corporation Limited Annual Report 2010

157

Notes to Financial Statements
30 April 2010

32. Interest-bearing bank and other borrowings (continued)
Notes: (a) (b) The Company’s bank loan is secured, bears interest at the Hong Kong Dollar prime lending rate of CITIC Ka Wah Bank Limited minus 0.5% per annum and is repayable by 194 monthly instalments commencing in October 1999. Certain of the Group’s and the Company’s bank and other borrowings are secured by: (i) the pledge of the Group’s and the Company’s investment properties, which had an aggregate carrying value at the end of the reporting period of approximately HK$195,484,000 (2009: Nil) and HK$65,233,000 (2009: HK$46,787,000), respectively (note 15); the pledge of certain of the Group’s freehold land and buildings, which had an aggregate carrying value at the end of the reporting period of approximately HK$8,784,000 (2009: HK$5,063,000) (note 14); and the pledge of certain of the Group’s leasehold land, which had an aggregate carrying value at the end of the reporting period of approximately HK$5,509,000 (2009: HK$7,259,000) (note 16).

(ii) (iii) (c) (d)

Except for certain bank loans denominated in Hong Kong dollars of HK$6,345,000 (2009: Nil), all bank and other borrowings at the end of the reporting period were denominated in Ringgit Malaysia and New Taiwan dollars. The carrying amounts of borrowings of the Group and the Company approximate to their fair values.

158

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

33. Hire purchase contract payables
The Group leases certain of its plant and machinery for its electronic components business. These leases are classified as finance leases and have remaining lease terms ranging from one to two years. At the end of the reporting period, the total future minimum lease payments under finance leases and their present values were as follows: Group Present value Minimum lease payments 2010 HK$’000 Minimum lease payments 2009 HK$’000 (Restated) Amount payable: Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities (note 32) Non-current portion (note 32) (32) (28) 35 36 10 – 33 33 8 74 (11) 63 32 7 – 28 28 7 63 of minimum lease payments 2010 HK$’000 Present value of minimum lease payments 2009 HK$’000 (Restated)

46

39

(7)

39

7

Cosway Corporation Limited Annual Report 2010

159

Notes to Financial Statements
30 April 2010

34. Loan from a shareholder
The loan from a shareholder is unsecured, bears interest at 3% per annum above the Hong Kong Dollar prime lending rate of the Hongkong and Shanghai Banking Corporation Limited and is not repayable within the next twelve months. The carrying amount of the loan approximates to its fair value. Group 30 April 2010 HK$’000 30 April 2009 HK$’000 (Restated) Loan from a shareholder 11,840 – 1 May 2008 HK$’000 (Restated) – 11,840 28,895 Company 30 April 2010 HK$’000 30 April 2009 HK$’000

160

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

35. Irredeemable convertible unsecured loan securities
On 8 December 2009, the Company issued 10-year ICULS with a principal sum of HK$2,190,000,000. The ICULS are convertible, at the option of the ICULS holders, into ordinary shares at any time until the maturity date on the basis of one ordinary share for every HK$0.20 ICULS held. The ICULS carry interest at a rate of 1% per annum for the first and the second year and 3.5% per annum subsequently; which is payable half-yearly in arrears on 7 June and 7 December. On issuance of ICULS, the fair value of the liability component is the present value of the future interest payments to the ICULS holders discounted at the effective interest rate of 9.61% per annum. The residual amount is assigned as the equity component and is included in shareholders’ equity. On 13 April 2010, a portion of the principal sum of the ICULS of HK$60,000,000 was converted into 300,000,000 ordinary shares of HK$0.20 each of the Company at the conversion price of HK$0.20 per share. As at 30 April 2010, the ICULS with an aggregate principal amount of HK$2,130,000,000 remained outstanding. Upon full conversion, the ICULS shall be converted into 10,650,000,000 ordinary shares of the Company. The ICULS issued during the year have been split as to the liability and equity components, as follows: Group and Company 2010 Liability component of the ICULS HK$’000 Nominal value of ICULS Interest expense Interest paid Conversion of ICULS 388,279 14,336 – (10,784) 391,831 Equity component of the ICULS HK$’000 1,801,721 – – (49,216) 1,752,505 Total HK$’000 2,190,000 14,336 – (60,000) 2,144,336

The fair values of the Group’s and the Company’s ICULS approximate to their carrying amounts at the end of the reporting period.

Cosway Corporation Limited Annual Report 2010

161

Notes to Financial Statements
30 April 2010

36. Share capital
Group Issued capital HK$’000 At 1 May 2008 and 2009 (as restated) Acquisition of subsidiaries Acquisition of minority interests Loan capitalisation Conversion of ICULS At 30 April 2010 332,861 118,039 6,500 36,000 60,000

553,400

(a)

Issued capital of the Group
Due to the application of the reverse acquisition basis of accounting, the issued capital of the Group represents the issued capital of the legal subsidiary, Cosway M, immediately before the acquisition of HK$332,861,000, the deemed cost of acquisition of the CCL Group of HK$118,039,000 (note 38(a)), and the issuances of new shares for the acquisition of minority interests and loan capitalisation as described in note (iii) and note (iv) below of HK$6,500,000 and HK$36,000,000, respectively, and the conversion of the ICULS as described in note (v) below of HK$60,000,000. The equity structure, being the number and type of shares, reflects the equity structure of the legal parent, Cosway Corp.

162

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

36. Share capital (continued)
(b) Share capital of the Company
Number of shares (in thousand) Authorised: Ordinary shares of HK$0.20 each at 1 May 2008 and 1 May 2009 Increase in authorised share capital (note (i)) Ordinary shares of HK$0.20 each at 30 April 2010 Issued and fully paid: Ordinary shares of HK$0.20 each at 1 May 2008 and 1 May 2009 Issue of shares for the Acquisition (note (ii)) Issue of shares for acquisition of minority interests (note (iii)) Loan capitalisation (note (iv)) Conversion of ICULS (note (v)) Ordinary shares of HK$0.20 each at 30 April 2010 32,499 180,000 300,000 1,961,732 6,500 36,000 60,000 392,346 591,048 858,185 118,210 171,636 1,250,000 18,750,000 20,000,000 250,000 3,750,000 4,000,000 Nominal value HK$’000

Cosway Corporation Limited Annual Report 2010

163

Notes to Financial Statements
30 April 2010

36. Share capital (continued)
During the year, the movements in share capital were as follows: (i) Pursuant to an ordinary resolution passed on 23 November 2009, the authorised share capital of the Company was increased from HK$250,000,000 to HK$4,000,000,000 by the creation of 18,750,000,000 additional shares of HK$0.20 each, ranking pari passu in all aspects with the existing shares of the Company. (ii) On 8 December 2009, 858,185,074 ordinary shares of HK$0.20 each were issued at HK$0.20 as part of the consideration of the Acquisition. Details of the Acquisition are set out in note 2.1 to the financial statements. (iii) On 8 December 2009, 32,498,592 ordinary shares of HK$0.20 each were issued at HK$0.20 as part of the consideration of the acquisition of minority interests of eCosway. Details of this acquisition are set out in note 2.1 to the financial statements. (iv) On 8 December 2009, 180,000,000 ordinary shares of HK$0.20 each were issued for settlement of a loan from a shareholder of HK$36,000,000. (v) On 13 April 2010, 300,000,000 ordinary shares of HK$0.20 each were issued upon the conversion of ICULS, amounting to HK$60,000,000, at a conversion price of HK$0.20 each.

164

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

37. Reserves
(a) Group
The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity of the financial statements.

(b)

Company
Retained Share premium account HK$’000 Balance at 1 May 2008 Total comprehensive loss for the year At 30 April 2009 and 1 May 2009 Total comprehensive income for the year At 30 April 2010 12,282 – 12,282 – 12,282 profits/ (accumulated losses) HK$’000 (95,022) (14,699) (109,721) 171,063 61,342 Total HK$’000 (82,740) (14,699) (97,439) 171,063 73,624

Cosway Corporation Limited Annual Report 2010

165

Notes to Financial Statements
30 April 2010

38. Business combinations
(a) As mentioned in note 2.1 above, on 8 December 2009, the Company acquired the Cosway M Group, which is treated as the acquirer for accounting purpose in the business combination under HKFRS 3. Reverse acquisition accounting is adopted to account for the Acquisition, and accordingly these consolidated financial statements have been prepared as a continuation of the consolidated financial statements of the Cosway M Group, and the results of the CCL Group have been consolidated since the completion date of the Acquisition. Details of the net assets of the CCL Group assumed and goodwill arising from the Acquisition are as follows: HK$’000 Purchase consideration: Consideration deemed to have been paid by the Cosway M Group (note (i)) Direct cost relating to the Acquisition 118,039 17,478

Total purchase consideration Less: Fair value of net assets acquired (note (ii)) Goodwill

135,517 (29,204) 106,313

166

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

38. Business combinations (continued)
(a) (continued)
Notes: (i) The fair value of the consideration deemed to have been paid by the Cosway M Group was based on the fair value of the equity instruments deemed to have been issued by the Cosway M Group for the acquisition of the CCL Group. The separately identifiable assets and liabilities of the CCL Group as at the completion date of the Acquisition were as follows: Fair value recognised on acquisition HK$’000 Property, plant and equipment Investment properties Interest in an associate Available-for-sale investment Cash and bank balances Prepayments, deposits and other receivables Interest-bearing bank borrowings Other payables and accruals Loan from a shareholder 278 64,799 7,129 200 255 5,550 (6,420) (902) (36,703) 34,186 Minority interests (4,982) 29,204 HK$’000 Cash consideration Direct cost relating to the Acquisition paid Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the Acquisition (101,962) (8,968) 255 (110,675) Previous carrying amount HK$’000 278 64,799 7,129 200 255 5,550 (6,420) (902) (36,703) 34,186

(ii)

Since its acquisition, the CCL Group contributed a loss of HK$16,185,000 to the consolidated profit for the year ended 30 April 2010. Had the combination taken place at the beginning of the year, the profit of the Group for the year would have been HK$236,131,000.

Cosway Corporation Limited Annual Report 2010

167

Notes to Financial Statements
30 April 2010

38. Business combinations (continued)
(b) On 1 May 2009, Cosway M acquired a 90% equity interest in Golden Works (M) Sdn. Bhd. (“GWSB”), a company incorporated in Malaysia and engaged in property investment, for a total cash consideration of HK$47,548,000. On 8 June 2009, Cosway M acquired the remaining 10% equity interest in GWSB for a total cash consideration of HK$5,965,000. The relevant sale and purchase agreements were completed on 29 May 2009 and 8 June 2009, respectively. The fair values of the identifiable assets and liabilities of GWSB as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows: Fair value recognised on acquisition HK$’000 Property, plant and equipment Investment properties Trade receivables Prepayments, deposits and other receivables Cash and bank balances Other payables Tax payable Deferred tax liabilities 17 61,352 178 131 1,220 (1,278) (15) (9,461) 52,144 Minority interests (5,217) 46,927 Goodwill Satisfied by: Cash Deposit paid for the acquisition 38,038 9,510 47,548 621 Previous carrying amount HK$’000 17 61,352 178 131 1,220 (1,278) (15) (9,461) 52,144

168

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

38. Business combinations (continued)
(b) (continued) An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of the subsidiary is as follows: HK$’000 Cash consideration Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the acquisition of the subsidiary (36,818) (38,038) 1,220

Since its acquisition, GWSB contributed HK$3,646,000 to the consolidated profit for the year ended 30 April 2010. Had the combination taken place at the beginning of the year, there would have been no material change to the revenue and the consolidated profit of the Group for the year.

Cosway Corporation Limited Annual Report 2010

169

Notes to Financial Statements
30 April 2010

38. Business combinations (continued)
(c) On 12 June 2008, the Group acquired a 100% equity interest in eCosway Korea Inc (“EKI”) at a consideration of Korean Won (“KRW”) 51,500,000 (equivalent to HK$341,000). The fair values of the identifiable assets and liabilities of EKI as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows: Fair value recognised on acquisition HK$’000 Cash and bank balances Prepayments, deposits and other receivables 46 295 341 Satisfied by cash 341 Previous carrying amount HK$’000 46 295 341

An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of the subsidiary is as follows: HK$’000 Cash consideration Cash and bank balances acquired Net outflow of cash and cash equivalents in respect of the acquisition of the subsidiary (295) (341) 46

The contributions by the above subsidiary to the Group’s revenue and consolidated profit for the year ended 30 April 2009 since the acquisition by the Group were insignificant. Had the combination taken place at the beginning of the year ended 30 April 2009, there would have been no material change to the revenue and the consolidated profit of the Group for that year.

170

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

39. Major non-cash transactions
(i) (ii) The Group utilised a deposit of HK$9,510,000 for the acquisition of a subsidiary during the year. Interest expenses paid to a shareholder of HK$318,000 (2009: Nil) was settled through the loan balance with the shareholder.

40. Contingent liabilities
(a) A subsidiary of the Group, namely Cosway (HK) Limited (“CHK”), is currently a respondent in a legal claim brought by a party alleging that CHK breached and repudiated a signed courier service agreement to use certain minimum services from a service provider. The directors, based on the advice from the Group’s legal counsel, believe that CHK has a valid defence against the allegation and, accordingly, have not provided for any claim, other than the related legal and other costs. (b) At the end of the reporting period, contingent liabilities not provided for in the financial statements were as follows: Group 2010 Note HK$’000 2009 HK$’000 (Restated) Guarantee given to a financial institution for credit facilities granted to the former immediate holding company
Note: (i) The banking facilities granted to the former immediate holding company were secured by the pledge of certain of the investment properties of the Group which had aggregate carrying values of HK$113,925,000 as at 30 April 2009. As at 30 April 2009, the banking facilities granted to the former immediate holding company were utilised to the extent of approximately HK$67,769,000.

(i)

–

75,950

Cosway Corporation Limited Annual Report 2010

171

Notes to Financial Statements
30 April 2010

41. Operating lease arrangements
(a) As lessor
The Group and the Company lease their investment properties (note 15) under operating lease arrangements, with leases negotiated for terms ranging from one to three years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. At 30 April 2010, the Group and the Company had total future minimum lease receivables under noncancellable operating leases with its tenants falling due as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) Within one year In the second to fifth years, inclusive 4,167 913 2,834 – 2,834 1,375 368 1,563 646 2,209 Company 2010 HK$’000 2009 HK$’000

5,080

1,743

172

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

41. Operating lease arrangements (continued)
(b) As lessee
The Group and the Company lease certain of its office properties and office equipment under operating lease arrangements. Leases for offices and retail shops are negotiated for terms ranging from one to seven years, and those for office equipment are for terms ranging between two and five years. At 30 April 2010, the Group and the Company had total future minimum lease payments under noncancellable operating leases falling due as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) Within one year In the second to fifth years, inclusive After five years 68,345 42,156 – 52,128 35,705 319 88,152 157 37 – 45 – – 45 Company 2010 HK$’000 2009 HK$’000

110,501

194

The operating lease rentals of certain retail shops are based on the sales of those shops. In the opinion of the directors, as the future sales of those retail shops could not be accurately estimated, the relevant rental commitments have not been included above.

Cosway Corporation Limited Annual Report 2010

173

Notes to Financial Statements
30 April 2010

42. Commitments
In addition to the operating lease commitments detailed in note 41 above, the Group had the following capital commitments at the end of the reporting period: Group 2010 HK$’000 2009 HK$’000 (Restated) Contracted, but not provided for, acquisition of 90% equity interest in a company – 33,904

43. Pledge of assets
Details of the Group’s and the Company’s bank and other borrowings, and credit facilities granted to the former immediate holding company, which are secured by the assets of the Group and the Company, are included in notes 14, 15, 16 and 32 to the financial statements.

44. Related party transactions
(a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year: Group 2010 Notes HK$’000 2009 HK$’000 (Restated) Sales of goods to fellow subsidiaries Leasing of aircraft from a fellow subsidiary Service fees paid to fellow subsidiaries Purchases of goods from fellow subsidiaries Rental expenses paid to related companies (i) (ii) (iii) (iv) (v) 2,221 2,163 12,146 8,062 1,838 2,827 1,074 10,113 4,271 1,874

174

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

44. Related party transactions (continued)
Notes: (i) Pursuant to the supply of goods agreements signed with fellow subsidiaries, the sales of goods were conducted based on normal commercial terms agreed between the relevant parties. (ii) Pursuant to the leasing agreement signed with a fellow subsidiary, the lease of aircrafts was conducted based on normal commercial terms agreed between the relevant parties. (iii) Pursuant to the supply of services agreements signed with fellow subsidiaries, including advertising services, mailing services, printing services, courier services, insurance services, guard services and logistic and transportation services, the arrangements were made based on normal commercial terms agreed between the relevant parties. (iv) Pursuant to the supply of goods agreements signed with fellow subsidiaries, the purchases of goods were conducted based on normal commercial terms agreed between the relevant parties. (v) During the year, the Group leased certain premises from two related companies. The major shareholder of one of the related companies is also the major shareholder of B Corp, the Group’s ultimate holding company and the other related company is an associate of B Corp. Pursuant to the leasing agreements signed with these related companies, the lease of related companies’ premises were conducted based on normal commercial terms agreed between the relevant parties. (b) Other transactions with related parties: As at 30 April 2009, the Group has pledged certain of its investment properties of HK$113,925,000 as collateral to banks in connection with credit facilities granted to the former immediate holding company, as further detailed in note 40(b) to the financial statements.

Cosway Corporation Limited Annual Report 2010

175

Notes to Financial Statements
30 April 2010

44. Related party transactions (continued)
(c) Outstanding balances with related parties: (i) Details of the Group’s balances with holding companies and a shareholder are included in notes 25 and 34 to the financial statements, respectively. (ii) Details of the Group’s balances with fellow subsidiaries and the Company’s balance with a former related company are included in note 26 to the financial statements. (d) Compensation of key management personnel of the Group: 2010 HK$’000 2009 HK$’000 (Restated) Short term employee benefits Post-employment benefits Total compensation paid to key management personnel 2,436 144 8,429 884 9,313

2,580

Further details of directors’ emoluments are included in note 8 to the financial statements.

176

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

45. Financial instruments by category
The carrying amounts of each of the categories of financial instruments at the end of the reporting period are as follows: Group 30 April 2010

Financial assets
Availablefor-sale financial assets HK$’000 475 – – – – – 475

Loans and receivables HK$’000 Available-for-sale investments Trade receivables Financial assets included in prepayments, deposits and other receivables (note 24) Due from fellow subsidiaries Pledged deposits Cash and cash equivalents – 79,562 100,956 1,529 1,069 135,212 318,328

Total HK$’000 475 79,562 100,956 1,529 1,069 135,212 318,803

Financial liabilities
Financial liabilities at amortised cost HK$’000 Trade payables Financial liabilities included in other payables and accruals (note 30) Interest-bearing bank and other borrowings Due to associates Due to fellow subsidiaries Loan from a shareholder ICULS 260,515 78,264 166,039 2,262 1,040 11,840 391,831 911,791

Cosway Corporation Limited Annual Report 2010

177

Notes to Financial Statements
30 April 2010

45. Financial instruments by category (continued)
The carrying amounts of each of the categories of financial instruments at the end of the reporting period are as follows: (continued) Group 30 April 2009

Financial assets
Loans and receivables HK$’000 (Restated) Available-for-sale investments Trade receivables Financial assets included in prepayments, deposits and other receivables (note 24) Due from the ultimate holding company Due from a former intermediate holding company Due from the former immediate holding company Due from fellow subsidiaries Pledged deposits Cash and cash equivalents – 78,172 43,647 1,137 731 34,173 1,287 395 92,275 251,817 Availablefor-sale financial assets HK$’000 (Restated) 243 – – – – – – – – 243

Total HK$’000 (Restated) 243 78,172 43,647 1,137 731 34,173 1,287 395 92,275 252,060

Financial liabilities
Financial liabilities at amortised cost HK$’000 (Restated) Trade payables Financial liabilities included in other payables and accruals (note 30) Interest-bearing bank and other borrowings Due to the former immediate holding company Due to associates Due to fellow subsidiaries 230,991 48,565 58,419 11 2,328 788 341,102

178

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

45. Financial instruments by category (continued)
The carrying amounts of each of the categories of financial instruments at the end of the reporting period are as follows: (continued) Group 1 May 2008

Financial assets
Loans and receivables HK$’000 (Restated) Available-for-sale investments Trade receivables Financial assets included in prepayments, deposits and other receivables (note 24) Due from the ultimate holding company Due from the former immediate holding company Due from fellow subsidiaries Pledged deposits Cash and cash equivalents – 26,069 30,880 1,261 888 1,462 466 123,161 184,187 Availablefor-sale financial assets HK$’000 (Restated) 278 – – – – – – – 278

Total HK$’000 (Restated) 278 26,069 30,880 1,261 888 1,462 466 123,161 184,465

Financial liabilities
Financial liabilities at amortised cost HK$’000 (Restated) Trade payables Financial liabilities included in other payables and accruals (note 30) Interest-bearing bank and other borrowings Due to associates Due to fellow subsidiaries 168,767 32,493 8,806 2,952 913 213,931

Cosway Corporation Limited Annual Report 2010

179

Notes to Financial Statements
30 April 2010

45. Financial instruments by category (continued)
The carrying amounts of each of the categories of financial instruments at the end of the reporting period are as follows: (continued) Company 30 April 2010

Financial assets
AvailableLoans and receivables HK$’000 Available-for-sale investments Trade receivables Dividend receivable Financial assets included in prepayments, deposits and other receivables (note 24) Cash and cash equivalents 216 412 70,960 – – 200 216 412 71,160 – 29 70,303 for-sale financial assets HK$’000 200 – – Total HK$’000 200 29 70,303

Financial liabilities
Financial liabilities at amortised cost HK$’000 Financial liabilities included in other payables and accruals (note 30) Due to subsidiaries Interest-bearing bank borrowings Loan from a shareholder ICULS 653 4,786 6,345 11,840 391,831 415,455

180

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

45. Financial instruments by category (continued)
The carrying amounts of each of the categories of financial instruments at the end of the reporting period are as follows: (continued) Company 30 April 2009

Financial assets

Loans and receivables HK$’000 Available-for-sale investments Trade receivables Financial assets included in prepayments, deposits and other receivables (note 24) Cash and cash equivalents – 9 193 88 290

Availablefor-sale financial assets HK$’000 200 – – – 200

Total HK$’000 200 9 193 88 490

Financial liabilities
Financial liabilities at amortised cost HK$’000 Financial liabilities included in other payables and accruals (note 30) Due to a former related company Due to subsidiaries Interest-bearing bank borrowings Loan from a shareholder 510 118 1,288 6,525 28,895 37,336

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181

Notes to Financial Statements
30 April 2010

46. Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: fair values measured based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: fair values measured based on valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: fair values measured based on valuation techniques for which any inputs which have a significant effect on the recorded fair value are not based on observable market data (unobservable inputs) As at 30 April 2010, the Group held the following financial instruments measured at fair value:

Assets measured at fair value as at 30 April 2010:
Level 1 HK$’000 Level 2 HK$’000 Level 3 HK$’000 Total HK$’000

Available-for-sale investments: Equity investments Debt investments 19 200 – – – – 19 200

219

–

–

219

During the year ended 30 April 2010, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.

182

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Notes to Financial Statements
30 April 2010

46. Fair value hierarchy (continued)
As at 30 April 2010, the Company held the following financial instruments measured at fair value:

Assets measured at fair value as at 30 April 2010:
Level 1 HK$’000 Level 2 HK$’000 Level 3 HK$’000 Total HK$’000

Available-for-sale investments

200

–

–

200

During the year ended 30 April 2010, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.

47.

Financial risk management objectives and policies
The Group’s principal financial instruments, comprise interest-bearing bank and other borrowings, ICULS, cash and bank balances and balances with group companies. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The main risk arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below:

Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with a floating interest rate. The Group’s interest rate risk arises primarily from interest-bearing borrowings. The Group manages its interest rate exposure by maintaining a mix of fixed and floating rate borrowings. The Group reviews its debt portfolio, taking into account the investment holding period and nature of its assets. This strategy allows it to capitalise on cheaper funding in a low interest rate environment and achieve a certain level of protection against rate hikes.

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183

Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Interest rate risk (continued)
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s and the Company’s profit before tax (through the impact on floating rate borrowings) and the Group’s and the Company’s equity. Group Increase/ (decrease) in Increase/ (decrease) in HK$’000 Increase/ (decrease) in equity* HK$’000

basis points profit before tax

2010 Ringgit Malaysia Hong Kong dollar Ringgit Malaysia Hong Kong dollar 2009 (As restated) Ringgit Malaysia Ringgit Malaysia
* Excluding retained profits

100 100 (100) (100)

(1,563) (182) 1,563 182

– – – –

100 (100)

(584) 584

– –

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Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Interest rate risk (continued)
Company Increase/ (decrease) in Increase/ (decrease) in HK$’000 Increase/ (decrease) in equity* HK$’000

basis points profit before tax

2010 Hong Kong dollar Hong Kong dollar 2009 Hong Kong dollar Hong Kong dollar
* Excluding retained profits

100 (100)

(182) 182

– –

100 (100)

(354) 354

– –

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185

Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Foreign currency risk
The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency. The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity. There is no impact on the Company’s equity.

Increase/ Changes in exchange rates % (decrease) in profit before tax HK$’000

Increase/ (decrease) in equity* HK$’000

2010 If Hong Kong dollar weakens against United States Dollar If Hong Kong dollar weakens against New Taiwan Dollar If Hong Kong dollar weakens against Brunei Dollar If Hong Kong dollar weakens against Singapore Dollar If Hong Kong dollar weakens against Renminbi If Hong Kong dollar weakens against Indonesian Rupiah If Hong Kong dollar weakens against Swiss Franc If Hong Kong dollar strengthens against United States Dollar If Hong Kong dollar strengthens against New Taiwan Dollar If Hong Kong dollar strengthens against Brunei Dollar If Hong Kong dollar strengthens against Singapore Dollar If Hong Kong dollar strengthens against Renminbi If Hong Kong dollar strengthens against Indonesian Rupiah If Hong Kong dollar strengthens against Swiss Franc 5 5 5 5 5 5 5 5 5 5 5 5 5 5 (471) (77) 134 250 10 473 (23) 471 77 (134) (250) (10) (473) 23 – – – – – – – – – – – – – –

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Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Foreign currency risk (continued)
Increase/ Changes in exchange rates % 2009 (As restated) If Hong Kong dollar weakens against United States Dollar If Hong Kong dollar weakens against New Taiwan Dollar If Hong Kong dollar weakens against Brunei Dollar If Hong Kong dollar weakens against Singapore Dollar If Hong Kong dollar weakens against Renminbi If Hong Kong dollar weakens against Indonesian Rupiah If Hong Kong dollar weakens against Swiss Franc If Hong Kong dollar strengthens against United States Dollar If Hong Kong dollar strengthens against New Taiwan Dollar If Hong Kong dollar strengthens against Brunei Dollar If Hong Kong dollar strengthens against Singapore Dollar If Hong Kong dollar strengthens against Renminbi If Hong Kong dollar strengthens against Indonesian Rupiah If Hong Kong dollar strengthens against Swiss Franc
* Excluding retained profits

Increase/ (decrease) in equity* HK$’000

(decrease) in profit before tax HK$’000

5 5 5 5 5 5 5 5 5 5 5 5 5 5

(365) (238) 92 183 15 223 (97) 365 238 (92) (183) (15) (223) 97

– – – – – – – – – – – – – –

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187

Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Credit risk
The Group trades only with recognised and creditworthy customers. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. The Group was also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in note 40(b) to the financial statements. Since the Group trades only with recognised and creditworthy customers, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different sectors and industries. Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 23 to the financial statements.

Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of interest-bearing bank and other borrowings.

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Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, was as follows: Group 2010 More than 1 year but Within On demand HK$’000 1 year HK$’000 less than 5 years HK$’000 Over 5 years HK$’000 Total HK$’000

Trade payables Financial liabilities included in other payables and accruals (note 30) Interest-bearing bank and other borrowings Due to associates Due to fellow subsidiaries Loan from a shareholder ICULS

–

260,515

–

–

260,515

– – 2,262 1,040 – –

78,264 157,635 – – – 21,300

– 3,383 – – 11,840 267,138

– 5,445 – – – 341,688

78,264 166,463 2,262 1,040 11,840 630,126

3,302

517,714

282,361

347,133

1,150,510

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189

Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Liquidity risk (continued)
2009 More than 1 year but Within On demand HK$’000 (Restated) Trade payables Financial liabilities included in other payables and accruals (note 30) Interest-bearing bank and other borrowings Due to associates Due to fellow subsidiaries Due to the former immediate holding Company Guarantee given to a financial institution for credit facilities granted to the former immediate holding company 67,769 70,896 – 339,583 – 35 – – 67,769 410,514 11 – – – 11 – 2,328 788 60,027 – – 35 – – – – – 60,062 2,328 788 – 48,565 – – 48,565 – 1 year HK$’000 (Restated) 230,991 less than 5 years HK$’000 (Restated) – Over 5 years HK$’000 (Restated) – Total HK$’000 (Restated) 230,991

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Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The maturity profile of the Company’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, was as follows: Company 2010 More than 1 year but Within On demand HK$’000 1 year HK$’000 less than 5 years HK$’000 Over 5 years HK$’000 Total HK$’000

Interest-bearing bank borrowings Other payables (note 30) Due to subsidiaries Loan from a shareholder ICULS

– – 4,786 – –

180 378 – – 21,300

720 275 – 11,840 267,138

5,445 – – – 341,688

6,345 653 4,786 11,840 630,126

4,786

21,858

279,973 2009 More than 1 year but

347,133

653,750

Within On demand HK$’000 Interest-bearing bank borrowings Other payables (note 30) Due to subsidiaries Due to a former related company Loan from a shareholder – – 1,288 118 – 1,406 1 year HK$’000 180 251 – – – 431

less than 5 years HK$’000 720 259 – – 28,895 29,874

Over 5 years HK$’000 5,625 – – – – 5,625 Total HK$’000 6,525 510 1,288 118 28,895 37,336

Cosway Corporation Limited Annual Report 2010

191

Notes to Financial Statements
30 April 2010

47.

Financial risk management objectives and policies (continued)
Capital management
The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 30 April 2010 and 2009. The Group monitors capital using a gearing ratio, which is net debt divided by the equity attributable to owners of the parent plus net debt. Net debt includes interest-bearing bank borrowings less cash and cash equivalents. The gearing ratios as at the end of the reporting periods were as follows: Group 2010 HK$’000 2009 HK$’000 (Restated) Interest-bearing bank borrowings Less: Cash and cash equivalents Net debt Equity attributable to owners of the parent Capital and net debt Gearing ratio 166,000 (135,212) 58,356 (92,275) (33,919) 458,339 424,420 N/A

30,788

649,463

680,251

4.5%

192

Cosway Corporation Limited Annual Report 2010

Notes to Financial Statements
30 April 2010

48. Event after the reporting period
On 6 May 2010, 17,625,000 share options were granted to certain directors and employees of the Group.

49. Comparative amounts
As further explained in notes 2.1 and 2.2 to the financial statements, due to the application of reverse acquisition accounting and adoption of new and revised HKFRSs during the current year, the comparative amounts and presentation of certain items and balances in the financial statements have been reclassified and restated to comply with the current year’s presentation and accounting treatment.

50. Approval of the financial statements
The financial statements were approved and authorised for issue by the board of directors on 19 August 2010.

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193

Five Year Financial Summary

A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial years, as extracted from financial statements and restated as appropriate, is set out below.

Results
Year ended 30 April 2010 HK$’000 2009 HK$’000 (Restated) REVENUE PROFIT BEFORE TAX Tax PROFIT FOR THE YEAR Attributable to: Owners of the parent Minority interests 211,756 10,469 222,225 120,937 14,914 135,851 102,134 8,335 110,469 63,303 4,849 68,152 38,502 3,655 42,157 2,329,278 1,726,896 178,553 (42,702) 135,851 2008 HK$’000 (Restated) 1,324,375 151,202 (40,733) 110,469 2007 HK$’000 (Restated) 1,005,533 94,123 (25,971) 68,152 2006 HK$’000 (Restated) 814,325 66,850 (24,693) 42,157

283,110 (60,885) 222,225

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Cosway Corporation Limited Annual Report 2010

Five Year Financial Summary

Assets, liabilities and minority interests
As at 30 April 2010 HK$’000 2009 HK$’000 (Restated) TOTAL ASSETS TOTAL LIABILITIES MINORITY INTERESTS 1,747,877 (1,086,243) (12,171) 649,463 955,844 (459,591) (37,914) 458,339 2008 HK$’000 (Restated) 737,823 (321,632) (27,030) 389,161 2007 HK$’000 (Restated) 612,796 (313,585) (17,717) 281,494 2006 HK$’000 (Restated) 478,326 (223,154) (12,740) 242,432

Cosway Corporation Limited Annual Report 2010

195

Particulars of Properties
30 April 2010

INVESTMENT PROPERTIES
Attributable interest Location Hong Kong Units 726, 728, 729, 731, 735, 736, 739, 740, 741, 742, 743, 744, 745, 747, 748, 749, 750, 751, 753, 754, 755, 756 and 757 on 7/F., Star House, 3 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong Units 1 and 2, 17/F., and car parking space No. L5 on Lower G/F., Wah Sing Industrial Building, 12-14 Wah Sing Street, Kwai Chung, New Territories, Hong Kong Units 83 and 84, 2/F., Houston Centre, 63 Mody Road, Tsimshatsui, Kowloon, Hong Kong Mainland China Unit 803, Block C and car parking space No. 10, Xiagang Garden, 32 Xiagang New Village, Siming District, Xiamen, Fujian Province, the People’s Republic of China Residential Long term lease 100% Commercial Long term lease 100% Industrial Medium term lease 100% Commercial Long term lease 100% Use Tenure of the Group

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Particulars of Properties
30 April 2010

INVESTMENT PROPERTIES (continued)
Attributable interest Location Malaysia 130 strata shop lots located on ground, first and second floor of Wisma Cosway, No. 88, Jalan Raja Chulan, Kuala Lumpur, Malaysia 67 strata shop lots located on ground, first, second and third floors, 70 strata office units, 7 apartment units, 52 storerooms and 421 car park spaces of Wisma Cosway, No. 88, Jalan Raja Chulan, Kuala Lumpur, Malaysia Taiwan No. 1067 Shanshuinan Section, Magong City, Penghu County, Taiwan Industrial Freehold 100% Commercial Freehold 100% Commercial Freehold 100% Use Tenure of the Group