Yue Yuen Industrial (Holdings) Limited
(incorporated in Bermuda with limited liabiltiy)

23.	ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR
24.	ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS
25.	OPERATING LEASE COMMITMENTS At the balance sheet date, the Group was committed to make the following rental payments for land and buildings within one year under non-cancellable operating leases which expire: Included in the above are operating lease commitments under a non-cancellable operating lease of approximately US$8.4 million (1997: US$9.0 million) which expires in 2002 payable to related companies, Godalming Industries Limited and its subsidiaries, in which certain directors of the Company, Messrs. Tsai Chi Neng and Choi Kwok Keung have beneficial interests. The Group had no significant operating lease commitments for equipment at the balance sheet date. The Company had no operating lease commitments at the balance sheet date.
26.	CAPITAL COMMITMENTS
27.	CONTINGENT LIABILITIES
28.	RETIREMENT BENEFITS SCHEME The Company and its subsidiaries operating in Hong Kong do not operate retirement schemes covering their local permanent employees. The employees in the overseas subsidiaries are members of the respective state-managed retirement benefits scheme operated by the local governments. The subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme. No forfeited contributions are available to reduce the contribution payable in the future years.
29.	CONNECTED AND RELATED PARTY TRANSACTIONS AND BALANCES During the year, the Group had significant transactions and balances with related parties, some of which are also deemed to be connected parties pursuant to the Rules Governing the Listing of Securities on the Stock Exchange. The transactions with these companies during the year, and balances with them at the balance sheet date, are as follows: Notes: (a) During the year, the Group sold semi-finished shoe products to PCC group representing approximately 3.1% (1997: 4.3%) of the turnover of the Group for the year. In addition, the Group purchased raw materials and shoe-related products from PCC and companies controlled by PCC. These purchases of raw materials and shoe-related products together with the purchase of fuel oil from Rising, which is a 23% owned associated company of PCC and a 50% owned associated company of Godalming (see note (e) for details of Godalming's shareholders), represented approximately 9.2% (1997: 7.4%) of the turnover of the Group for the year. The extent of these connected sales and purchases did not exceed the limit approved by the shareholders of the Company on 11th September, 1996 and 27th March, 1997 respectively. PCC is a company listed on the Taiwan Stock Exchange Corporation and owned directly and indirectly as to approximately 15.2% by two discretionary trusts of which certain directors of the Company, Messrs. Tsai Chi Neng, David N.F. Tsai and Lu Shang Ping, and their respective relatives are discretionary objects and as to approximately 12.4% by relatives of Mr. Tsai Chi Neng. The above transactions were carried out at market price or, where no market price was available, at cost plus a percentage profit mark-up. (b) Pursuant to an ordinary resolution passed in the special general meeting of the Company held on 27th March, 1997, a service agreement dated 22nd February, 1997 entered into between the Company and PCC (the "Services Agreement") was approved by the shareholders of the Company. Pursuant to the Services Agreement, the Company has engaged PCC to provide product design and development, know-how, technical and marketing services and to source raw materials and recruit staff in relation to the production and sale of the Group's products. The services to be provided by PCC may be provided by or through members of the PCC group. But PCC will remain fully liable for the provision of these services. In consideration of the services provided by the PCC group under the Services Agreement, the Company shall reimburse the costs and expenses incurred by PCC and shall also pay to PCC the following fees: (i) in respect of the Group's products developed by the PCC group and sold by the Group, 0.5% of the net invoiced amount of such products; (ii) in respect of materials, machinery and other goods purchased by, shipment arranged for and inspected by the PCC group on behalf of the Group from within Taiwan, 1% of the merchandise cost invoiced to the PCC group; and (iii) in respect of materials, machinery and other goods sourced by PCC group on behalf of the Group in Taiwan or overseas whereby purchases are directly handled by the Group, 0.5% of the cost of merchandise invoiced to the Group. The aggregate of the service fees paid by the Group and the expenses reimbursed to PCC represented approximately 5.0% (1997: 5.1%) of the turnover of the Group for the year and did not exceed the limit approved by the shareholders of the Company on 27th March, 1997. (c) On 29th September, 1998, a wholly-owned subsidiary of the Company, Highmark Services Limited ("Highmark"), entered into an agreement with Bestful Properties Limited ("Bestful"), an indirect wholly-owned subsidiary of PCC, for the disposal of all the rights held by Highmark to Bestful in connection with two plots of land with an aggregate gross site area of approximately 105,334 sq.m. and an industrial complex with a total gross floor area of approximately 6,102 sq.m.. All these properties are situated in Dongguan, the PRC. The consideration for this disposal was US$3,080,000 which was equivalent to the value of these disposed properties valued at 29th September, 1998 by Brooke Hillier Parker Services Limited, an independent firm of chartered surveyors and international property consultants, on an open market value basis. (d) On 3rd June, 1998, a wholly-owned subsidiary of the Company, Nice Best Company Limited, entered into an agreement with Multiform Enterprises Ltd. ("Multiform"), a company which is 35% owned by PCC, for the acquisition from Multiform certain industrial properties with a total gross floor area of approximately 9,196 sq.m. situated in Zhong Shan, the PRC. The consideration for this acquisition was HK$9,050,000 which was equivalent to the value of these acquired properties valued at 21st April, 1998 by Knight Frank, an independent firm of professional property valuers, on an open market value basis. (e) Godalming is owned by Power Point Developments Limited, a company in which a director of the Company, Mr. Choi Kwok Keung, and a discretionary trust, the objects of which include another director of the Company, Mr. Tsai Chi Neng and his relatives, have beneficial interests. The rentals on properties paid to Godalming was based on a tenancy agreement entered into between the Group and subsidiaries of Godalming for a term of 10 years from 1st October, 1992 which may be extended at the option of the Group for a further period of five years. The rent will be revised every two years during the initial term. On exercise of the option to renew for a further term of five years, the rent will also be revised after the first two years of the renewed term. The revised rents are to be at the market rates prevailing at the relevant time as determined by an independent valuer. The prevailing rent is equivalent to the open market rental value at 30th September, 1996 as certified by AA Property Services Limited, an independent firm of professional valuers. (f) The purchase of rubber soles was carried out at cost plus a percentage profit mark-up.
30.	PRINCIPAL SUBSIDIARIES Details of the Company's principal subsidiaries at 30th September, 1998 are as follows: * The principal activities are carried out in the country/place stated. The deferred shares carry no rights to receive notice of or to attend or vote at any general meeting of the respective companies and have practically no rights to dividends or to participate in any distributions on winding up. The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length. None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.
31.	PRINCIPAL ASSOCIATED COMPANIES Details of the Group's principal associated companies which are incorporated in the British Virgin Islands, at 30th September, 1998 are as follows: The above table lists the associated companies of the Group which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other associated companies would, in the opinion of the directors, result in particulars of excessive length.
32.	COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year's presentation.

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