Analysis of Financial Aspects of Hong Kong Construction Companies

This project provides a detailed financial analysis of four Hong Kong construction companies: CK Infrastructure Holdings, Gammon Construction, Goodman Interlink, and Tapbo Civil Engineering Co Limited. The analysis covers each company's legal status, types of work, finance and equity structure, and legal requirements for company dissolution. The project also explores inward investment strategies, including various sources of finance such as term loans, purchase and leaseback, SBA loans, leveraged buyouts, and lines of credit. It examines the cost of borrowings and strategies for managing finance, emphasizing due diligence, risk identification, and the use of retained earnings or financial institutions for investment. The project concludes with a discussion on planning funds for working capital and special reserves, highlighting the importance of financial planning for investment and growth.

A Hong Kong Continuous Professional Education Centre
Project on the Construction Company
Part -1
Company -1
Legal Status: CK Infrastructure Holdings; public limited company
Types of work carried out: Infrastructure providing company engage in providing infrastructure in
terms of electricity distribution, gas distribution, investment in the water, power plants, energy from
waste plant and oil transmission.
Finance and equity: Company has balanced their financial position and has its finance from banks
other financial institutions. Company has its equity prospects as well. The company equity shares are
been increasing every year due to higher retained earnings.
Legal requirements for company dissolution: The legal requirement of the company to get dissolve is
not active as of now as there is no mitigation factors to attract the same. The company is working
progressing each year and the company is able to mitigate their current liabilities and able to fulfill
the return required from the shareholders and there is no stage that shows that the company is
going to fraudulent to the debt taken from the financial institutions. The company has been able to
mitigate the financial risks like currency risk, interest rate risk, credit risk and liquidity risk. So, as the
company has able to work with the risks so the competitive working scenario has been changed. The
official requirement of the dissolution is as follows:
- the company has not operated and there is no business since last 3 months when the
company has been register;
- Creditors has filed case about the litigation of the company;
- Losses for more than 5 years and there is going concern effect
- Shareholders files the case of deregistration and company court has approved the same;
- Before deregistration it is been complied that whether there is any obligation which has not
been filled by the company, or the company needs to auction their assets;
- Once the assets are been auction and all the liabilities are been paid off then the company
repay the funds to the shareholders on the amount brought by them
- Once the shares are been repaid to the extend of the amount remaining the court of
company obtains a notice of no objection from all the stakeholders and then dissolve the
company.
Since the company is working on the fine tune so the company need not to follow the process of
dissolution as of now.

Company -2
Gammon Construction
Legal Status: Private Limited company
Types of work: Construction and engineering contract company, which involved in various projects in
china and Southeast Asia.
Finance and Equity:
Company has been financed by equity and loan as well. The debt equity ratio has been balanced.
Company-3
Goodman Interlink
Legal Status: limited liability partnership Company
Types of work: the company is engaged in providing industrial and logistics requirement. The total
size of the company is 225177 sqm. This is known to be the fourth largest development company in
the field of warehousing. The features provided in their sites are parking, security and many other
services which run 24-7. This is the major achievement of the company in terms if building the
martials for the warehousing purpose.
Finance and Equity:
The company is involved in the equity and financing events. There are funding activities with the
equity fund of the company. it helps the company to raise the capital for their construction works.
The higher standard works of the company has been able to raise HK5 million in the total amount of
profit for the period of 2018. The global consumption of the company is going to be increased by 23
trillion by 2030. The total asset under management of the company is 34.6bn.
Legal requirements for company dissolution:
The company debt equity ratio is 0.35, which means the company is been able to repay their long
terms debts with the retained profit of the company. Further, the current ratio of the company is
also potential enough to repay their current assets and raise long term planning. Therefore, the
winding up or solvent condition is going to arise fur the company. This is being revealed in the Z
score test of the company performed in the annual report. So, the legal requirement for company
dissolution is to shows:
 The business is being formed to earn the profit. It could nit indulge in the nonprofit activities
or charitable activities.
 The central government has right t reside the investigation of the company. This is being
performed for the company by the central government personnel.
 The filing fir the limited liability is being dine with the e filing process.
 The partners who are designated for the legal compliance takes the actions of the legal
activities
 Common seal is applied for the business and its uses it as a separate legal entity to record
the business transactions of the company.
The growth has been marked in the work in progress of the company. It has managed to keep
the record if the several developments. The company has developed 3.5 billion HK of profit from

its 75 projects. This being earned from all over the world. It is being highest in the last five years
for the company. there is development in the gearing ratio. This will keep the company free
from the fear of dissolution. the percentage of the gearing ration in 23.9 percent. it has seen
remarkable achievements under 5 years. It helps the company to maintain the liquidity position
of the company. The working capital requirement of the company is met properly.
Company 4
Tapbo Civil Engineering Co Limited
Legal Status: sole proprietor
The company is being registered with the registration number GBC 12/2001. It is involved in building
decoration, renovation and construction process. The registration of the company as sole proprietor
will expire on 2020 July 11. Recently the company has contract for the run projects in Hong Kong. It
will have three runway projects. The trading is done solely by the company. It does not have any
particular listed company as a partnership company.
Types of work: The company is not designated as fictious under the legal declarations. It has
managed to maintain the proportion if the separate legal entity for the business. It holds the
position of the limited liability partnership and manages its works accordingly. It follows the LLP act
formed in 2008. The business and the partners have separate legal entity. Port works and site
formation are the major construction parts of the company. it has legal recipient sites where they
work.
Finance and Equity:
The revenue of the company for the period of 2017 was 50152524 HK dollars. The earning per share
of the company fir the same period is 118.85. this is being better than the earning of the 2016. The
company uses the debt fund to collect most of the capital. This is being seen in the financial
statement that borrowing of the company is more than the owners fund. Notes payable and
deferred tax liabilities are found to be in major condition. The equity position of the company is not
better than the borrow mg. The company is managing its capital by the use of the debt fund.
Legal requirements for company dissolution:
The dissolution of the company is not in the near future. This is because the profit earned by the
company is enough to maintain the going concern concept of the business. However, at the time of
the dissolution the company need to consider the following:
 It could be closed by the business if it has lost the control over the companies.
 This provides freedom to the sole traders to close their company at any point of time and for
any reason
 The records need to be maintained for the purpose of tax filing. The dissolving assets are
and other realization aspects need to be disclosed.
 Cancellation of the license need to be done in accordance with the registered location.
 Tax liability for the current year need to be possessed by the company. It is necessary to
notify the local or state tax authorities.
 Need to keep the final record of the tax firms. This will help to save the trader from being in
circle of accrued interest and creating extra burden ion business.
Thus, it is required for the business to have control over the business activities to save them from
the dissolution case. It will help the business to continue for a long period of time. The company has

managed to earn the required profit. Development and civil engineering department of the company
is performing better and it will help to m maintain the growing profit. Sorting, handling, receiving is
done for the marine disposal.
Part-2
For the inward investment the company have various sources of finance available, but the source
depends on how the target company gets the funds into their bags. Some of the options that they
can be given are:
1. Funds repayment by banks funds i.e. in cash;
2. Offer the investment as an Letter of Credit, where the target company will gets the funds
after few day of purchase;
3. Offer property on the shares bought;
4. Give shares in the existing company so that the company which is been target will become
part of the owned company;
Source of finance:
1. Term Loan from the bank
2. Purchase and lease back
3. SBA Loan;
4. Leveraged buyout;
5. Line of credit
Cost of Borrowings:
1. Usually the Term loan from the bank offers the market rate + Libor, the Libor rate is
applicable in case of loan in terms of USD but if the loan is in local currency then the funds
can be available at the local market rate which may be range from 10 to 15% rate.
2. Purchase and lease back, is the way where the company purchase one company and give the
control to the same company management so that they can run the business. For the said
financing the company charge lease interest from the company which can be financed at
the rate lower than the bank loans
3. SBA loan: Usually the rates for SBA loans lies from 7.5% to 10.25%
4. Leveraged buyout: This is the process where the private equity team buyout the obligation
of the company and on the progress of the things the company takes the returns into the
accounts.
5. Line of Credit: This facility is usually facilitates on the basis of rates that is available in the
market. So, the credit facility is given at a rate of minimum margin or at the flat rate. Usually,
it is available at a rate of 2% p.a. But the funds are usually small and one have to open
couple of Line of credit so to facilitate the investment.
Strategy for managing finance:
All the companies mentioned above have a good market so there is no solvency for the company.
For the purpose of investment the company should do the due diligence of the company and if the
company is likely to take over the company then the company should identify the risk of investment,
if the existing working capital of the company is funded enough then the company can invest via
their own retained earning funds. If the risk is involved in terms of investment of financing then the
company should involve the funds of the financial institutions so that the company's working capital
should not be effected.

The facilities mentioned above should be reviewed for the investment. Usually the target company is
interested to take the money against the capital hold, but if there is no retained earning the
company should repay via the term loan, where the bank will repay the funds of capital to the target
company and then the source company will repay the installment as per the repayment schedules.
The company needs to plan the funds as the requirement of working capital and also as a part of the
special reserve. If the special reserve of the company is not so specific then the company can plan to
invest those funds into the new company and the company should get change to get returns into the
same. Also, the company have various other parameters under which the company needs to analyze
the system where and how to invest. The finance of the company is strong when the leading
company have good net worth, sufficient working capital, current ratio is higher than the standard.
So, all these situation are feasible then the company can invest their funds in to other companies
and after that also the company can find their finance in a viable situation. So, it is always better to
invest their funds if the current situation of the company is viable.
Specific Project:
Contract price - £118,000 Time allowed for work - 9 months Interim certificates - monthly (In these
calculations 30 days are allowed as delays are experienced) Period for honoring Interim certificates
- 14 days Retentions to be at rate of -10% Estimated profit - £23,600 (20% of total contract) Limit of
retention fund - £5,900 (5% of total contract)
It is necessary to distinguish between cost of labour (two-thirds) and cost of materials (one-third).
The builder is able to secure 1 month’s credit from merchant who supplies the materials.
Solution:
In the vary case the retention rate given is 10%, which states that the total price will be £11,800, and
the time allowed for work is 9 months which means that the company have less than a year. and the
profit is realizable in one year itself.
In the given scenario it seems that the loan from bank will be more expensive so it is better to take
pay from the own resources. The total amount required will be:
1. Contract price: £118,000,
2. The estimated profit £23,600 (20% of CP) is to be removed from contract price
3. Therefore the estimated cost is (£118,000-£23,600 ) = £94400.
4. The average monthly cost is (£94400/9) = £10489.
5. The estimated material cost on monthly basis is (1/3)= £3489
6. The estimated labour cost on monthly basis is (2/3)= £7000
7. It is estimated to receive for pay after two months
8. The cash requirement for 1 months for material cost (£3489X2) = £3489.
9. The cash requirement for 2 month for labour cost (£7000 X2)= £14000
10. The total finance required (3489+14000+3489) = £ 20798. It includes one month merchent5
credit.
11. Therefore, total amount required at the time of first payment is £20798
12. In the next stage it is required the finance to reach the first payment that is £ 17489
13. The limit of retention fund is 5% of contract price that is £ 5900.
14. Therefore minimum resource required at the time of second payment is £ 23389.

Part-3
Corporate Governance:
Kone's Corporate Governance:
Company complies with the Finnish Corporate Governance Code 2015 and various of the codes
suggested. The company has its major shareholder who holds 62% of the total voting rights so the
main shareholder is serving as either chairman or member of the board of directors. Further the
administrative bodies and officers has also a huge power to make a great decision. The officers
decides the matters in the board of meetings and then take the things into the shareholders meeting
where the vote are been done for each matter.
On the financial statement the shareholder on the annual general meeting approve the consolidated
financial statements. On the other internal control system the board has ratified the principles of
internal control, risk management and internal auditing which needs to be followed within the
group. This will be followed in each company, each division and each section, so that the things
should be reported in terms of MIS. The company is been lead by the CEO and further there are
divisional managers who are reporting to the company. The company has also initiated various
committees where the company deals with the separate matters and specific to it. In addition to this
the company has its own nomination committee which is responsible to nominee the rotary
directors and to add the new directors for the company. The directors in terms of executive and non-
executive can be appointed via Nomination committee. These directors are been appointed by the
process so framed by the company. Nomination committee is also responsible to appoint other key
management employees of the companies, which will be under the working parameters of the
boards and the division under which the employee has been appointed.

There are Audit committee which are responsible to conduct the internal, statutory and compliance
audit. All the auditors will be entertained by the audit committee to the extend the queries,
recommendations and suggestion of the company are been on the operational ground, but if the
things are on the strategic ground then the audit committee have to refer their points to the board
of directors. The BOD will take the notes of the point and present the things in the shareholders
meetings and on the resolution passed, the BOD will approach the auditors to take final note on the
same. The Audit committee will be responsible to conduct all the workings and refer the MIS to the
company.
Adding to this, there is a Risk management committee, who will be responsible to access to the risk
of the company, which will can be identified, monitored and find the new control techniques for the
company. Further to this, the committee will be accessing these risk whether it will impact the
companies potential market or it will just be a part of the normal risk. If the things are significant
then the message will be forwarded to the BOD who will further determine the risk and return and
take the necessary action against the same.
Also, the Kone Limited have their own matrix, where the BOD will be the head of all the division,
Further to the BOD there are executing committee members who will be accessing the workings of
various operational staffs and divisional managers. So, these managers will inform their working to
the Executing committee. The strategic part is still to be decided by the BOD after the confirmation
from the shareholder resolution but most of the time the operational decision can be taken by the
divisional managers themselves.
Kone limited, have different organizational plans for the personal training and development of the
employees, who will be learning the new ideas and process of the working at the factory. As been a
construction company, the employee should learn about the companies working at different sites
and the projects, so these learning experience and training will help them to familier with their jobs
Board of Directors
Executing Committee
Operations team
Corporate Legal Internal Audit Human Resource Administration

and build good knowledge for the workings so done by the employees. So, the trainings are been
done frequently by the company so that the company staffs will flow the working area.
The company operates as per the company laws so the leadership style is as per the organization
structure. As per the organizational structure the leadership styles are been designed.
CK Infrastructure Holdings
The corporate governance is been followed as per the provisions of the Corporate Governance Code
and rules so associates. Company board has been composed and working as per the requirement of
the board and the compliances. The composition of the board consists:
1) Chairman of the company who is responsible to deal and decide the major decision of the
company including the operating and the expansion issues.
2) Non Executive Directors: Who are responsible for the decision making in the board and give
decision for the company;
3) Executing Directors: There are 8 executing directors who are working within the company as
an part of the operation and dealing with the changes of the company.
4) Independent Non-executive directors: There are 7 independent non executing directors who
are not part of the daily operations but still advice the company on the changes.
There are couple of committee which elects the Key management persons of the company along
with the operations staffs who will be engaged in taking decision for the company. There is a
nomination committee which will be held by couple of directors and will be responsible for rotation
of the directors and appointment of the new directors and also other key management personals.
There is Audit committee which will be responsible to comment on the management accounts and
adhere the internal and statutory audit for the company. All the comments and recommendation
form the auditors needs to be replied by the audit committee and the major chunks are been
reported to the board of the company.
Other division is the Risk Management and Internal Control:
The board oversees the overall group risk and internal control of the company. If the risk and control
are not tight enough then the committee makes a new policy to detect, control and execute that
risk.
A good corporate governance also elect an company secretary who will be responsible to deal with
the company affairs in terms of the legal laws and the compliances in relate to the company. Further
the company should files multiple of returns with the governance and revenue authorities, so these
returns are been filed on deadline or not.
Matrix organization:
Board of Directors
Executing Committe
Operations team

As per the above matrix of the company the Legal team, Audit team, HR and administration
use to report to the operation manager who will be reporting to the executing committee and so
then the final authority is the board of directors who takes the decisions on the activities taken by
the company.
Company use to have multiple training and development program in terms of division wise
or in terms of the employee section who are in need of such training. Company provide such training
so to create the awareness within the staffs and learn new affairs for the company. Such affairs are
to be utilized within the company for their growth and success. Usually, these training are needs to
be done via human resource of the company. They select the idea and training so required and the
population who needs to be involved in such trainings. The development of employees will leads to
the development of the company in long terms, so company is usually involved in providing such
training to the employees.
Leadership Styles:
Company usually works as per the board of directors plan and which has to be supported by
the shareholders resolution. Even if the board of directors plans and decide something for the
business, that needs to be passed from the shareholders in an annual general meeting or any of the
meetings so held for the purpose. So, in terms of the company the leadership style is been designed
as per the compliance of the companies act and this has to be obeyed by the company personal.
Part-4
Strategy for frequent ideas:
1) Skilled or semi-skilled labor:
Management usually decides whether the company or the division required the
manpower as a skilled or semi-skilled. As each division has their own criteria for the
employment. If the management ask for the employee in administration then it should
be skilled employees and thus management plans to hire that manpower after
conducting interviews and selecting the best out of the available. Further the company
make a team of such manpower under one team and work for that division respectively.
The administration is been supported by the semi skilled labors who will work as a
supporting team to the company. In case of the construction company most of the
employees are semi skilled who are responsible to know their work and work under the

supervision of the skilled manpower. The skilled labor will be responsible to take the
actions and directions for the plan so been decided by the board of directors and on the
received on the plan they execute the road map on the ground with the help of the
semi-skilled labor. On time to time company use to reward to these staffs and plans the
events for the company. These staffs also gets the promotions on frequent times so that
they gets motivates and utilize experience.
2) Material ordering, delivery strategies, storage and movement:
The company use to have the procurement team who will be connected with the
production team so that in a phase of the time when the company required the
materials for the company, the production team inform the requirement to the
procurement team and the procurement team orders the stock from the market. The
company handles the procurement plans as company should not order the material
higher or more than the requirement due to balancing of the working capital. Further
once the material is been ordered the company have to handle the logistics who will be
involved in the delivery of such material on the prescribed time. As the company is in the
construction, so CK infrastructure usually have a system where the company needs to
plan their source of material and the delivery should be given on time so that the
company should execute their plan on deadline. Further the storage of the goods should
be taken care of so that the goods should not be misplaced.
15. Plant hire or buy, selection process, setting hire rate:
In the business of construction company sometimes the company needs to engage casual
manpower and sometimes they needs to hire a site so that the company can build the new
construction plan out there. Further there are some of the sites and plants which needs to
be buy so to fix the buildings and new construction platform. CK and Kone both are engaged
in taking the new plant either on rent or buy for their new projects, if the projects are been
ready to build within the time they needs to invest in the selection process, which involves
the selection of the manpower, construction sites and the material requirement. If any of
those items are not been worked out then the company should invent their own process of
selection through other companies who will hire the things for the company.
All this process should be connected to the companies new project as this project will take
the company into success factor.
The hiring rate of the casual employees are usually high for the construction companies as
these companies are used work on temporary employees rather than hiring the permanent
employees. These category will improve the costing of the company and help the company
to reduce the employment. The hire rate of the employees are therefor very high in these
companies.
16. Incentive scheme to increase labour productivity:
Usually there are temporary employees in the companies but still the companies build their
confidence and motivate them by providing them the usual bonus and good incentive
schemes on time to time. These scheme will help the company to boost their employees and
work as a team with the sustainable growth and to work with the compassion within. The
growth of the company is sustainable so, the incentive scheme should be there to motivate
them and ask the employees to work accordingly.
CK construction is engage in providing the annual bonus and giving the shares right to the
employees so that the employees work in the company as the partners instead of thinking as
an employees for the company. Further to this, a scheme which attracts the employees is
the giving good arrangement for new events and parties within the company so that they

will enjoy their attendance in the company. The incentive scheme for Kone also attract the
employees by providing the movement and accommodation plans for the companies. If the
employees gets goods movement from time to time then they will enjoy their job on
rotation and push the working on the required time.
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