China Everbright Limited - Proxy Solicitation & Information Statement 2007

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your licensed securities dealer or other institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shougang Concord Century Holdings Limited, you should at once hand this circular and the accompanying forms of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The circular is for information only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, makes no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 103)

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR THE WHITEWASH WAIVER

AND

(3) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

Independent financial adviser to the Independent Board Committee

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A letter from the board of directors of Shougang Concord Century Holdings Limited is set out on pages 5 to 14 of this circular. A letter from the independent board committee of Shougang Concord Century Holdings Limited containing its advice to the independent shareholders of Shougang Concord Century Holdings Limited in connection with the subscription of new shares in Shougang Concord Century Holdings Limited by a substantial shareholder and the application for the whitewash waiver is set out on page 15 of this circular. A letter from VC Capital Limited, the independent financial adviser to the independent board committee of Shougang Concord Century Holdings Limited, containing its advice to the independent board committee and the independent shareholders of Shougang Concord Century Holdings Limited in connection with the subscription of new shares in Shougang Concord Century Holdings Limited by a substantial shareholder and the application for the whitewash waiver is set out on pages 16 to 28 of this circular.

A notice convening the extraordinary general meeting of Shougang Concord Century Holdings Limited to be held on 10 January 2008 are set out on pages 100 to 101 of this circular. Whether or not you are able to attend the extraordinary general meeting, you are strongly urged to complete and sign the enclosed form of proxy, in accordance with the instructions printed thereon, and to lodge them with the share registrars of Shougang Concord Century Holdings Limited, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting of Shougang Concord Century Holdings Limited or any adjourned meeting should you so wish.

21 December 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from VC Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I – Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Appendix II – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87
Notice of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100

DEFINITIONS

In this document, the following expressions have the following meanings unless the context requires otherwise:

the announcement dated 30 November 2007 issued by the Company containing, inter alia , details of the First Subscription, the Second Subscription, the proposed increase in authorised share capital and the Whitewash Waiver

“Announcement” the announcement dated 30 November 2007 issued by the Company containing, inter alia , details of the First Subscription, the Second Subscription, the proposed increase in authorised share capital and the Whitewash Waiver “associate(s)” has the meaning ascribed thereto under the Listing Rules

“Board” the board of Directors

“Business Day” any day (excluding a Saturday) on which banks in Hong Kong are opened for business throughout their normal business hours

“Company” Shougang Concord Century Holdings Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange
“Concert Parties” Shougang International and parties acting in concert with it (including Shougang Holding)
“connected person(s) has the meaning ascribed thereto under the Listing Rules “Director(s)” the director(s) of the Company

“Executive” the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any delegate of the Executive Director

“EGM” the extraordinary general meeting of the Company to be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Thursday, 10 January 2008 at 10:30 a.m., the notice of which is set out on pages 100 to 101 of this circular, or any adjournment thereof

“First Subscription” the subscription of 400,000,000 new Shares by Shougang International pursuant to the First Subscription Agreement

“First Subscription Agreement” the subscription agreement dated 29 November 2007 between Shougang International and the Company under which 400,000,000 new Shares shall be issued and allotted to Shougang International at the price of HK$1.03 per Share

“First Subscription Shares” 400,000,000 new Shares to be subscribed by Shougang International pursuant to the First Subscription Agreement

DEFINITIONS

“General Mandate”

“Group”
“HK$”
“Hong Kong”
“Independent Board Committee”
“Independent Shareholder(s)”
“JESC”
“Latest Practicable Date”
“LKSFL”
“Listing Committee”
“Listing Rules”
“Placing”
“Placing Agent”
“Placing Agreement”

general mandate granted to the Directors pursuant to the resolution passed by the Shareholders at its annual general meeting held on 6 June 2007 which authorised the Directors to issue up to 255,213,311 new Shares prior to the Company’s next annual general meeting

the Company and its subsidiaries

Hong Kong dollars, the lawful currency of Hong Kong

the Hong Kong Special Administrative Region of the PRC

the independent board committee of the Company comprising Messrs. Yip Kin Man, Raymond, Law, Yui Lun and Chan Chung Chun, all independent non-executive Directors, which has been established in connection with the First Subscription and the Whitewash Waiver
Shareholders (other than Shougang International, its concert parties and its associates, including Shougang Holding) who are not required to abstain from voting on the resolution to be proposed at the EGM to approve the First Subscription Agreement and the Whitewash Waiver under the Listing Rules and the Takeovers Code
Jiaxing Eastern Steel Cord Co., Ltd., an indirect wholly-owned subsidiary of the Company
18 December 2007, being the latest practicable date prior to the issue of this circular for ascertaining certain information contained herein

Li Ka Shing Foundation Limited

the Listing Committee of the Stock Exchange

the Rules Governing the Listing of Securities on the Stock Exchange
the placing of 100,000,000 new Shares at HK$1.03 per Placing Share pursuant to the Placing Agreement dated 29 November 2007

CITIC Securities Corporation Finance (HK) Limited

the placing agreement dated 29 November 2007 between the Company and the Placing Agent in respect of the Placing

DEFINITIONS

“Placing Shares” 100,000,000 new Shares were placed pursuant to the Placing “PRC” the People’s Republic of China (excluding Hong Kong for the purpose of this circular) “Second Subscription” the subscription of 100,000,000 new Shares by LKSFL pursuant to the Second Subscription Agreement

“Second Subscription Agreement” the subscription agreement dated 29 November 2007 between the Company and LKSFL under which 100,000,000 new Shares shall be issued and allotted to LKSFL at the price of HK$1.03 per Share
“Second Subscription Shares” 100,000,000 new Shares to be subscribed by LKSFL pursuant to the Second Subscription Agreement
“SFC” the Securities and Futures Commission “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended from time to time
“Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)” registered holders of Shares
“Shougang Holding” Shougang Holding (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability
“Shougang International” Shougang Concord International Enterprises Company Limited (Stock Code: 697), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange
“Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscriptions” the First Subscription and the Second Subscription “Subscription Price” HK$1.03 per Share “Subscription Shares” the First Subscription Shares and the Second Subscription Shares “substantial shareholder(s)” has the meaning ascribed thereto under the Listing Rules “Takeovers Code” The Code on Takeovers and Mergers

DEFINITIONS

“Whitewash Waiver”

a waiver from the Executive (as defined in the Takeovers Code) pursuant to Note 1 on the Dispensations from Rule 26 of the Takeovers Code in respect of the obligations of the Concert Parties to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by the Concert Parties which would otherwise arise as a result of completion of the First Subscription Agreement

“%” per cent.

LETTER FROM THE BOARD

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Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 103)

Directors: Cao Zhong (Chairman) Li Shaofeng (Managing Director) Tong Yihui (Deputy Managing Director) Leung Shun Sang, Tony Tang Cornor Kwok Kau (Deputy Managing Director) Geert Johan Roelens Yip Kin Man, Raymond Law, Yui Lun Chan Chung Chun*

Registered office: 5th Floor, Bank of East Asia Harbour View Centre 51-57 Gloucester Road Wanchai Hong Kong

Independent non-executive Director

To the Shareholders

21 December 2007

Dear Sir or Madam,

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR THE WHITEWASH WAIVER

AND

(3) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

It was announced on 30 November 2007 that, among others, the Company entered into the First Subscription Agreement on 29 November 2007. Pursuant to the First Subscription Agreement, the Company has conditionally agreed to issue and Shougang International has conditionally agreed to subscribe for the First Subscription Shares at the price of HK$1.03 per Share. It was also announced on 30 November 2007 that the Second Subscription Agreement was entered into on 29 November 2007, pursuant to which the Company has conditionally agreed to issue and LKSFL has conditionally agreed to subscribe for the Second Subscription Shares at the price of HK$1.03 per Share. The Second Subscription Shares will be issued under the General Mandate.

LETTER FROM THE BOARD

Shougang International is a substantial Shareholder. Accordingly, the First Subscription constitutes a connected transaction for the Company under the Listing Rules. Completion of the First Subscription Agreement is subject to, amongst other things, the approval by the Independent Shareholders at the EGM.

APPLICATION FOR WHITEWASH WAIVER

As at the Latest Practicable Date, Shougang International holds approximately 20.71% of the issued share capital of the Company. Assuming no further Shares will be issued by the Company prior to the completion of the First Subscription, upon completion of the First Subscription Agreement, Shougang International’s interest in the Company will increase from 20.71% to 38.48% and the interests held by the Concert Parties will increase from 32.93% to 47.97% of the issued share capital of the Company as enlarged by the First Subscription Shares. Immediately after completion of the First Subscription and the Second Subscription, assuming no further Shares will be issued by the Company prior to completion of the First Subscription and the Second Subscription, Shougang International’s interest in the Company will increase from 20.71% to 36.44% and the interests held by the Concert Parties will increase from 32.93% to 45.42% of the issued share capital of the Company as enlarged by the First Subscription Shares and the Second Subscription Shares. The Concert Parties will, in the absence of the Whitewash Waiver, be obliged to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code as a result of the completion of the First Subscription. Shougang International has applied to the SFC for the Whitewash Waiver pursuant to Note 1 of the Notes on Dispensation from Rule 26 of the Takeovers Code on the basis that, among other things, the acquisition of Shares by Shougang International pursuant to the First Subscription Agreement is a cash subscription and the Whitewash Waiver shall be subject to the approval by the Independent Shareholders at the EGM on a vote taken by way of a poll whereby Shougang International, its associates and concert parties, including Shougang Holding, will abstain from voting.

There is no dealings in the securities of the Company by the Concert Parties during the six months prior to the date of the Announcement and up to and including the Latest Practicable Date.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

The Directors also propose to increase the Company’s authorised share capital from HK$200,000,000 to HK$500,000,000 to be dividend into 5,000,000,000 Shares, by the creation of an additional 3,000,000,000 unissued Shares. The increase in the authorised share capital of the Company is conditional upon the passing of an ordinary resolution by the Shareholders at the EGM and no Shareholder is required to abstain from voting for such resolution.

The purpose of this circular is to provide further information on (i) the First Subscription and the application for the Whitewash Waiver, the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the First Subscription and the Whitewash Waiver, the advice of VC Capital Limited in respect of the First Subscription and the Whitewash Waiver, additional information as required under the Takeovers Code and the Listing Rules; (ii) the proposed increase in authorised share capital of the Company and (iii) the notice of the EGM to approve the First Subscription and the granting of the Whitewash Waiver by the Executive and the proposed increase in authorised share capital of the Company.

LETTER FROM THE BOARD

The Independent Board Committee comprising Messrs. Yip Kin Man, Raymond, Law, Yui Lun and Chan Chung Chun, all independent non-executive Directors, has been established in connection with the First Subscription and the Whitewash Waiver. Mr. Leung Shun Sang, Tony, a non-executive Director of the Company, is also a non-executive director of Shougang International and is therefore not considered to be independent and has been excluded from the Independent Board Committee of the Company for the purpose of the First Subscription and the Whitewash Waiver.

VC Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee in this respect and the appointment of which has been approved by the Independent Board Committee.

A notice of the EGM is set out on pages 100 to 101 of this circular. The letter from the Independent Board Committee containing its recommendation to the Independent Shareholders in connection with the First Subscription and the Whitewash Waiver is set out on page 15 of this circular. The letter from VC Capital Limited containing its advice to the Independent Board Committee in connection with the First Subscription and the Whitewash Waiver is set out on pages 16 to 28 of this circular.

THE FIRST SUBSCRIPTION AGREEMENT

The principal terms and conditions of the First Subscription Agreement were arrived at after arm’s length negotiation between the parties involved and are summarised below:

Parties (1) The Company as the issuer. (2) Shougang International as the subscriber.

Shougang International is a substantial shareholder of the Company, holding approximately 20.71% of the issued share capital of the Company as at the Latest Practicable Date.

Number of Shares 400,000,000 Shares, representing (i) approximately 28.89% of the to be issued existing issued share capital of the Company; (ii) approximately 22.42% of the issued share capital of the Company as enlarged by the First Subscription; and (iii) approximately 21.23% of the issued share capital of the Company as enlarged by the First Subscription and the Second Subscription, assuming the outstanding share options of the Company are not exercised.

Application will be made to the Stock Exchange for the granting of the listing of, and permission to deal in, the First Subscription Shares.

LETTER FROM THE BOARD

Subscription Price

HK$1.03 per Subscription Share. The aggregate Subscription Price of HK$412,000,000 shall be payable in cash upon completion of the First Subscription Agreement.

The Subscription Price was agreed after arm’s length negotiations with reference primarily to the average closing price of the Shares for the last five trading days before the First Subscription Agreement and represents (i) a discount of approximately 6.36% to the closing price of HK$1.10 per Share as quoted on the Stock Exchange on 28 November 2007, being the last trading day of the Shares immediately prior to the issue of the Announcement; (ii) a discount of approximately 6.02% to the average closing price of approximately HK$1.096 per Share as quoted on the Stock Exchange for the last five trading days immediately before the date of the First Subscription Agreement; and (iii) a discount of approximately 2.83% to the closing price of HK$1.06 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Ranking

Conditions precedent

The First Subscription Shares, when fully paid, will rank pari passu in all respects with the Shares in issue at the time of issue and allotment of the First Subscription Shares.

Completion of the First Subscription Agreement is conditional upon:

the approval by the Independent Shareholders of the First Subscription Agreement, the Whitewash Waiver and the transactions contemplated thereunder having been obtained at the EGM;
the grant of the Whitewash Waiver by the Executive;
the Listing Committee of the Stock Exchange granting its approval to the listing of, and permission to deal in, the First Subscription Shares; and
the approval by the independent shareholders of Shougang International of the First Subscription Agreement and the transactions contemplated thereunder having been obtained at the extraordinary general meeting of Shougang International.

LETTER FROM THE BOARD

The above conditions cannot be waived by the parties to the First Subscription Agreement. If the above conditions are not fulfilled on or before 31 March 2008 (or such other date as may be agreed between the parties in writing), then the First Subscription Agreement and all rights and obligations of the parties thereunder will cease and terminate.

Expected completion date

The third business day immediately after the date upon which the Company advises Shougang International that the conditions precedent set out above shall have been satisfied (or such other date as may be agreed in writing between the Company and Shougang International) in writing.

EFFECT OF SHAREHOLDING OF THE COMPANY UPON COMPLETION

The following table shows the shareholding structures of the Company as at the Latest Practicable Date and (a) upon completion of the First Subscription; (b) upon completion of the First Subscription and the Second Subscription; and (c) upon completion of the First Subscription, the Second Subscription and assuming all the share options of the Company outstanding as at the Latest Practicable Date have been exercised:

Shougang International_(Note 1) Shougang Holding(Note 2)_ Sub-total of Shougang International and its concert parties:	No. of Shares held as at the Latest Practicable Date 286,655,179 169,228,000 455,883,179	No. of Shares held immediately after completion of the First Subscription before completion of the Second Subscription and assuming the Approximately outstanding share % options of the of the issued Company are share capital not exercised 20.71 686,655,179 12.22 169,228,000 32.93 855,883,179	No. of Shares held immediately after the First Subscription and the Second Subscription and assuming Approximately the outstanding % share options of the issued of the Company share capital are not exercised 38.48 686,655,179 9.49 169,228,000 47.97 855,883,179	No. of Shares held immediately after completion of the First Subscription and the Second Subscription and the outstanding Approximately share options % of the of the issued Company are share capital fully exercised 36.44 686,655,179 8.98 169,228,000 45.42 855,883,179	Approximately % of the issued share capital 32.66 8.05
					40.71

LETTER FROM THE BOARD

No. of Shares held as at the Latest Practicable Date Directors Cao Zhong – Li Shaofeng – Tong Yihui – Leung Shun Sang, Tony – Tang Cornor Kwok Kau_(Note 3) 2,496,000 Yip Kin Man, Raymond – Law, Yui Lun – Sub-total: 2,496,000 NV Bekaert SA (“Bekaert”) 250,000,000 LKSFL(Note 4)_ – Other public shareholders 675,967,377 Total 1,384,346,556	No. of Shares held immediately after completion of the First Subscription before completion of the Second Subscription and assuming the outstanding Approximately share options % of the of the issued Company are share capital not exercised – – – – – – – – 0.18 2,496,000 – – – – 0.18 2,496,000 18.06 250,000,000 – – 48.83 675,967,377 100.00 1,784,346,556	No. of Shares held immediately after the First Subscription and the Second Subscription and assuming the outstanding Approximately share options % of the of the issued Company are share capital not exercised – – – – – – – – 0.14 2,496,000 – – – – 0.14 2,496,000 14.01 250,000,000 – 100,000,000 37.88 675,967,377 100.00 1,884,346,556	Approximately % of the issued share capital – – – – 0.13 – – 0.13 13.27 5.30 35.88 100.00	No. of Shares held immediately after completion of the First Subscription and the Second Subscription and the outstanding share options of the Company are fully exercised 65,002,000 38,266,000 45,920,000 12,244,000 3,496,000 1,016,000 1,016,000 166,960,000 250,000,000 100,000,000 729,447,377 2,102,290,556	Approximately % of the issued share capital 3.09 1.82 2.18 0.58 0.17 0.05 0.05
					7.94
					11.90
					4.76 34.69
					100.00

Note: (1) Such shareholding includes the Shares held by Shougang International through its wholly-owned subsidiaries.
(2) Such shareholding includes the Shares held by Shougang Holding and its associates but excludes the Shares held by Shougang International through its wholly-owned subsidiaries. Such shareholding includes 155,358,000 Shares held by the wholly-owned subsidiaries of Shougang Holding and 13,870,000 Shares held by a wholly-owned subsidiary of Shougang Concord Grand (Group) Limited which in turn is held as to approximately 42.6% by Shougang Holding.
(3) Those Shares are beneficially owned by Tang Cornor Kwok Kau and in which of 200,000 Shares are also jointly owned by his wife. Since Mr. Tang is the Deputy Managing Director of the Company, to avoid any potential conflict of interest, Mr. Tang will abstain from voting on the resolution in relation to the First Subscription and the Whitewash Waiver to be proposed at the EGM.
(4) LKSFL is/will be a public shareholder of the Company upon completion of the Subscriptions.

LETTER FROM THE BOARD

FUND-RAISING EXERCISE BY THE COMPANY DURING THE PAST 12 MONTHS

The Company has issued and allotted 250,000,000 new Shares to NV Bekaert SA (“ Bekaert ”) at the subscription price at HK$0.65 per Share pursuant to the subscription agreement dated 22 September 2006 as supplemented by a supplemental agreement dated 27 September 2006 (the “ Bekaert Subscription ”). The subscription agreement was completed on 15 December 2006. The gross proceeds obtained from the Bekaert Subscription were in the amount of HK$162,500,000. The net proceeds of approximately HK$161,000,000, after deducting the payment of all costs and expenses relating to such subscription, were used entirely for direct and indirect expansion of the existing steel cord business of JESC with the aim of increasing its annual production capacity to the range of between 60,000 tons and 80,000 tons. The Company currently indirectly holds 100% of the equity interest in JESC. There is no change of the intended use of the proceeds outlined above.

On 29 November 2007, the Company entered into the Placing Agreement with the Placing Agent pursuant to which 60,000,000 Shares have been placed to Keywise Greater China Opportunities Master Fund and 40,000,000 Shares have been placed to the funds under management by Value Partners Limited at the price of HK$1.03 per Placing Share. The Placing Shares have been issued under the General Mandate and completed on 11 December 2007.

REASONS FOR THE FIRST SUBSCRIPTION AND THE USE OF PROCEEDS

The Company intends to apply the net proceeds of the First Subscription of approximately HK$410,000,000 for expediting the progress of the expansion of production capacity of steel cord business of the Group, reducing finance cost and for general working capital of the Group and that approximately HK$125,000,000 is intended to be applied for repayment of an existing bank loan, approximately HK$180,000,000 is intended to be applied towards the expansion of an additional 30,000 tonnes to the Group’s annual production capacity of steel cord and the balance of approximately HK$310,500,000 as general working capital. The Directors believe that the First Subscription is in the interests of the Company and its Shareholders as a whole, represent a good opportunity for the Company to raise capital and broaden its Shareholders and capital base. Besides, they also strengthen the financial position of the Company.

IMPLICATION UNDER THE LISTING RULES AND TAKEOVERS CODE

As at the Latest Practicable Date, Shougang International was interested in approximately 20.71% of the existing issued share capital of the Company. Accordingly, Shougang International is a connected person of the Company and the First Subscription will constitute a connected transaction for the Company under the Listing Rules. Completion of the First Subscription Agreement is subject to, among other things, approval of the Independent Shareholders and the approval of the Whitewash Waiver at the EGM and grant of Whitewash Waiver by the Executive.

LETTER FROM THE BOARD

The First Subscription will trigger a mandatory general offer required to be made by Shougang International and/or the Concert Parties under Rule 26 of the Takeovers Code, for all the Shares other than those already owned by Shougang International and/or the Concert Parties. Shougang International has made an application to the Executive to apply for the Whitewash Waiver. The Executive has indicated that it will grant the Whitewash Waiver subject to the approval by the Independent Shareholders on votes taken by way of a poll. Shougang International, its associates and concert parties, including Shougang Holding, will abstain from voting at the EGM in this respect. Should the Whitewash Waiver be granted, the Concert Parties will not be required to make a general offer upon the completion of the First Subscription.

FUTURE INTENTIONS

Shougang International intends to maintain the existing businesses of the Group upon successful completion of the First Subscription Agreement. Shougang International does not intend to introduce any major changes to the existing operation and management structure of the Group, or to discontinue the employment of any employees of the Group, or to redeploy any material fixed assets of the Group, as a result of the completion of the First Subscription Agreement. Accordingly, there will be no material change to the existing businesses and employment of the existing employees of the Group as a result of the completion of the First Subscription Agreement.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company was HK$200,000,000 divided into 2,000,000,000 Shares, of which 1,384,346,556 Shares have been issued and fully paid or credited as fully paid. In order to provide the Group with flexibility in its future expansion and growth by means of issuing new Shares and fund-raising activities as the Directors may consider appropriate from time to time, the Directors propose to increase the authorised share capital of the Company to HK$500,000,000 divided into 5,000,000,000 Shares by the creation of an additional 3,000,000,000 unissued Shares.

An ordinary resolution in respect of the proposed increase in the authorised share capital of the Company will be put to the Shareholders for their approval in the EGM by show of hands, subject to the articles of association of the Company. No Shareholder is required to abstain from voting for such resolution.

Save as disclosed in this circular, the Directors have no present intention to issue any part of the unissued Shares as a result of the increase in the authorised share capital of the Company.

LETTER FROM THE BOARD

INFORMATION OF THE GROUP

The Company and its subsidiaries are principally engaged in the manufacturing of steel cords and trading and processing of copper and brass products. The consolidated financial information of the Company for the two financial years ended 31 December 2005 and 2006 and for the six months ended 30 June 2007 are summarised as follows:

	Six months ended	Year ended	Year ended
	30 June 2007	31 December 2006	31 December 2005
	(Unaudited)	(Audited)	(Audited)
	HK$’000	HK$’000	HK$’000
Revenue	343,967	678,923	592,889
Profit before taxation	27,970	83,283	68,218
Profit after taxation	24,004	76,031	62,228
Net assets at period/year end	1,002,685	957,354	693,753

INFORMATION OF SHOUGANG INTERNATIONAL

Shougang International is a company incorporated in Hong Kong and whose shares are listed on the main board of the Stock Exchange. The principal business of Shougang International is manufacturing, sale and trading of steel products, shipping operations and electricity generation. Shougang International is held as to approximately 40.70% by Shougang Holding which in turn, through its associates, holds an aggregate of 32.93% (including the 20.71% held by Shougang International) of the issued share capital of the Company at the Latest Practicable Date. Shougang International has no intention to transfer, charge or pledge any of the First Subscription Shares to any other persons.

EGM

A notice convening the EGM is set out on pages 100 to 101 of this circular. At the EGM, ordinary resolutions will be proposed to the Shareholders to consider and if thought fit, approve the increase in the authorised share capital of the Company and to the Independent Shareholders to consider and, if thought fit, approve the First Subscription and the Whitewash Waiver, where votes of the Independent Shareholders will be taken on a poll.

The result of voting taken on a poll at the EGM will be announced by the Company in accordance with the Listing Rules.

Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrars, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as practicable and in any event, not less than 48 hours before the time appointed for the holding of the EGM. Delivery of a form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so desire.

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL

Pursuant to articles 58 and 59 of the articles of association of the Company, a resolution put to the vote of a general meeting of the Shareholders shall be decided on a show of hands unless before, or on the declaration of the result of, the show of hands a poll is duly demanded. Subject to the provisions of the Companies Ordinance, a poll may be demanded:

(a) by the chairman; or
(b) by not less than five members having the right to vote at the meeting; or
(c) by a member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or
(d) a member or members holding shares conferring a right to vote on the resolution on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid on all the shares conferring the right.

Unless a poll is duly demanded, a declaration by the chairman that a resolution has been carried or carried unanimously, or by a particular majority, or lost, or not carried by a particular majority, and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution.

Notwithstanding the above, the resolutions (save for the proposal of increase in authorised share capital) to be proposed at the EGM will be voted by way of a poll.

RECOMMENDATION

The Independent Board Committee, having considered the terms of the First Subscription and the transactions contemplated thereunder, and the Whitewash Waiver and having taken into account the opinion of VC Capital Limited on the First Subscription and the transactions contemplated thereunder, and the Whitewash Waiver, in particular the factors and reasons considered by VC Capital Limited in arriving at its advice thereon as set out in the letter of advice from VC Capital Limited on pages 16 to 28 of this circular, considers that the terms of the First Subscription and the transactions contemplated thereunder, and the Whitewash Waiver taken as a whole are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve and give effect to the First Subscription and the transactions contemplated thereunder, and the Whitewash Waiver at the EGM. The letter from the Independent Board Committee is set out on page 15 of this circular.

Your attention is also drawn to the additional information set out in the appendix to this circular.

Yours faithfully, For and on behalf of the Board

Shougang Concord Century Holdings Limited Cao Zhong Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 103)

21 December 2007

To the Independent Shareholders

Dear Sir or Madam,

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR WHITEWASH WAIVER

We refer to the circular dated 21 December 2007 of the Company (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings herein unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to consider and to advise the Independent Shareholders as to whether, in our opinion, the terms of the First Subscription Agreement in relation to the First Subscription and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

VC Capital Limited, the independent financial adviser, has been appointed to advise the Independent Board Committee with respect to the First Subscription and the Whitewash Waiver.

We wish to draw your attention to the “Letter from the Board” set out on pages 5 to 14 of the Circular which contains, inter alia, information of the First Subscription and the Whitewash Waiver as well as the “Letter from VC Capital Limited” set out on pages 16 to 28 of the Circular which contains its advice in respect of the First Subscription and the Whitewash Waiver.

Having taken into account the opinion of VC Capital Limited and, in particular, the factors, reasons and recommendations as set out in its letter on pages 16 to 28 of the Circular, we consider that the terms of the First Subscription and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Shareholders and the Company as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to approve the First Subscription and the Whitewash Waiver.

Yours faithfully,

For and on behalf of the Independent Board Committee Yip Kin Man, Raymond Law, Yui Lun Chan Chung Chun Independent non-executive Director

LETTER FROM VC CAPITAL LIMITED

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from VC Capital Limited prepared for incorporation in this circular.

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21 December 2007

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER AND APPLICATION FOR THE WHITEWASH WAIVER

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the First Subscription and the Whitewash Waiver, details of which are set out in the letter from the Board as contained in the circular of the Company dated 21 December 2007 (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

It was announced by the Company on 30 November 2007 that the Company had entered into the First Subscription Agreement with Shougang International on 29 November 2007, pursuant to which the Company had conditionally agreed to issue, and Shougang International had conditionally agreed to subscribe for, a total of 400,000,000 new Shares at the price of HK$1.03 per Share. As Shougang International is a substantial Shareholder and therefore a connected person of the Company for the purpose of the Listing Rules, the First Subscription constitutes a connected transaction for the Company under the Listing Rules. Completion of the First Subscription Agreement is subject to, among other things, approval of the First Subscription Agreement, the Whitewash Waiver and the transactions contemplated thereunder by the Independent Shareholders by way of poll at the EGM and the grant of the Whitewash Waiver by the Executive.

As at the Latest Practicable Date, the interest of Shougang International in the Company was 286,655,179 Shares, representing approximately 20.71% of the issued share capital of the Company, and the interests of the Concert Parties in the Company was 455,883,179 Shares, representing approximately 32.93% of the issued share capital of the Company. Assuming no further Shares will be issued by the Company prior to the completion of the First Subscription, upon completion of the First Subscription Agreement, Shougang International’s interest in the Company will increase to 686,655,179 Shares, representing approximately 38.48% of the issued share capital of the Company as enlarged by the issue

LETTER FROM VC CAPITAL LIMITED

of the First Subscription Shares, and the interests held by the Concert Parties will increase to 855,883,179 Shares, representing approximately 47.97% of the issued share capital of the Company as enlarged by the issue of the First Subscription Shares. The Concert Parties would, in the absence of the Whitewash Waiver, be obliged to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code as a result of the completion of the First Subscription. Shougang International has applied to the SFC for the Whitewash Waiver pursuant to Note 1 of the Notes on Dispensation from Rule 26 of the Takeovers Code on the basis that, among other things, the acquisition of the First Subscription Shares by Shougang International pursuant to the First Subscription Agreement is a cash subscription and the Whitewash Waiver shall be subject to the approval by the Independent Shareholders at the EGM on a vote taken by way of a poll whereby Shougang International, its associates and concert parties, including Shougang Holding, will abstain from voting.

The Independent Board Committee, comprising all the independent non-executive Directors who are considered independent in respect of the First Subscription and the Whitewash Waiver, namely Mr. Yip Kin Man, Raymond, Mr. Law, Yui Lun and Mr. Chan Chung Chun, has been formed to advise the Independent Shareholders on the First Subscription and the Whitewash Waiver.

In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion as to whether the terms of the First Subscription Agreement and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, and whether the entering into of the First Subscription Agreement and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole.

VC Capital Limited (“ VC Capital ”) is not associated with the Company and its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them and, accordingly, is considered eligible to give independent advice on the terms of the First Subscription Agreement and the Whitewash Waiver. Apart from normal professional fees payable to us in connection with this engagement, no arrangement exists whereby VC Capital will receive any fees or benefits from the Company or its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them.

In formulating our opinion, we have relied on the information and facts supplied and the opinions expressed by the executive Directors and the senior management of the Group. We have also assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were prepared or made and will continue to be so up to the date of the EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations made to us by the executive Directors and senior management of the Group. We have also been advised by the executive Directors that no material facts have been omitted from the Circular and the information provided to us.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have not, however, conducted any independent investigation into the business and affairs or the future prospects of the Group, nor have we carried out any independent verification of the information supplied.

LETTER FROM VC CAPITAL LIMITED

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms of the First Subscription Agreement and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and whether the entering into of the First Subscription Agreement and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole, we have taken into account the following principal factors and reasons:

A. Reasons for and benefits of the First Subscription

1. Reasons for the First Subscription and use of proceeds

As stated in the letter from the Board in the Circular, the net proceeds of the First Subscription, together with the Placing and the Second Subscription, are estimated to be about HK$615,500,000 (the “ Net Proceeds ”). The net proceeds from the First Subscription alone amount to approximately HK$410,000,000.

The Company is a company listed on the Main Board of the Stock Exchange. The principal businesses of the Group comprise manufacturing of steel cords and processing and trading of copper and brass products.

It is stated that the Company intends to use the Net Proceeds for expediting the progress of the expansion of production capacity of the Group’s steel cord business, for reducing finance cost and as general working capital of the Group. We further understand that approximately HK$125,000,000 is intended to be applied for repayment of an existing bank loan, approximately HK$180,000,000 is intended to be applied towards the expansion of an additional 30,000 tonnes to the Group’s annual production capacity of steel cord and the balance of approximately HK$310,500,000 as general working capital.

The Net Proceeds in the sum of approximately HK$180,000,000 would be used in the expansion of an additional 30,000 tonnes to the Group’s annual steel cord production capacity, which is in line with the business and strategy of the Group. As stated in the interim report of the Company for the six months ended 30 June 2007 (the “ Interim Report ”), the Group has been operating in the very competitive steel cord market. Such expansion would enable the Group to strengthen its production capacity and hence be able to tap on market opportunities and improve its overall competitiveness in the industry.

Moreover, it is intended that approximately HK$125,000,000 will be applied towards repayment of an existing bank loan. Following such repayment, the Group’s gearing ratio (being total liabilities divided by total assets) is expected to decrease from approximately 20.0% as at 30 June 2007 to approximately 10.1%. Such repayment is also expected to incur a savings in interest expense of approximately HK$6.5 million per annum, which represents approximately 36.5% of the Group’s interest costs for the year ended 31 December 2006 of approximately HK$17.8 million. We, therefore, concur with the Directors’ view that the First Subscription is in the interests of the Company and its Shareholders as a whole.

LETTER FROM VC CAPITAL LIMITED

B. Basis of the Subscription Price

As stated in the letter from the Board in the Circular, the Subscription Price of HK$1.03 per Subscription Share was arrived at after arm’s length negotiations with reference primarily to the average closing price of the Shares for the last five trading days before the First Subscription Agreement, and represents:

(i) a discount of approximately 6.36% to the closing price of HK$1.10 per Share as quoted on the Stock Exchange on 28 November 2007 (the “ Last Trading Day ”), being the last trading day of the Shares immediately prior to the entering into of the First Subscription Agreement;
(ii) a discount of approximately 6.02% to the average closing price of approximately HK$1.096 per Share as quoted on the Stock Exchange for the last five trading days immediately before the date of the First Subscription Agreement; and
(iii) a discount of approximately 2.83% to the closing price of HK$1.06 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

1. Comparison of the Subscription Price with the Placing Price

As stated in the letter from the Board in the Circular, the Subscription Price of HK$1.03 per Subscription Share is the same as the Placing Price at which 60,000,000 new Shares and 40,000,000 new Shares have been placed to Keywise Greater China Opportunities Master Fund and funds under management by Value Partners Limited, all of which being independent third parties, on the same date, which was arrived at after arm’s length negotiations.

2. Comparable Subscriptions

As the Subscription Price is equal to the Placing Price at which new Shares were placed to independent third parties, we consider that it is appropriate to compare the Subscription Price under the First Subscription Agreement with the subscription prices of recent transactions involving the subscription by or placing to independent third parties of shares issued by companies listed on the Main Board of the Stock Exchange. As such, we have identified, to the best of our knowledge, the following 22 recent transactions involving such subscriptions or placements (the “ Comparable Independent Subscriptions ”) for comparison purposes as shown in Table 1 below. These Comparable Independent Subscriptions are placings to or subscriptions of shares in about the past 6 months by independent third parties of shares issued by Main Board listed companies which are either engaged in the metals industry similar to that of the Company, or of a market capitalization (between HK$1.0 billion to HK$2.0 billion) similar to that of the Company (being about HK$1.5 billion). We consider that taking the Comparable Independent Subscriptions from the past 6-month period is appropriate as such period reflects the overall market sentiment in the second half of 2007, during which the First Subscription Agreement was entered into. The Comparable Independent Subscriptions are an exhaustive list of placings to and subscriptions of shares by independent third parties identified by us, to our best effort, in our research through published information based on the above criteria.

LETTER FROM VC CAPITAL LIMITED

Table 1: The Comparable Independent Subscriptions

			Market		Premium/	Premium/
			Capitalisation		(Discount)	(Discount) to
			as at 14		to the	5-day Average
	Stock	Core	December 2007	Announcement	Closing Price	Closing Price
Company	Code	Business(es)	(HK$million)	Date	%	%
		Steel trading,
		distribution,
		manufacturing
Burwill Holdings Limited	24	and processing	1,145.5	4-Jun-2007	(11.24)	(1.70)
		Investment
		holding,
		provision
		of finance,
		property and
		treasury
ITC Corporation Limited	372	investment	1,513.1	18-Jun-2007	(8.60)	(11.30)
		Engineering
		systems
		contracting
Linfair Holdings Limited	462	and support	1,323.0	20-Jun-2007	(32.20)	(17.36)
		Design and
China Rise International		manufacture of
Holdings Limited		electrical
(formerly Anex		appliances
International Holdings		(to be changed to
Limited)	723	magnesite mining)	1,017.8	25-Jun-2007	(12.28)	(18.30)
		Manufacture, sale,
		retailing,
		distribution
Hembley International		of apparel
Holdings Limited	3989	and accessories	1,243.6	3-Jul-2007	(4.67)	1.18
		Trading of
		electronic
		products and
		securities
		investment
		(to expand
GR Vietnam Holdings		to retail
Limited (formerly		business in
139 Holdings Limited)	139	Vietnam)	1,071.4	11-Jul-2007	(12.50)	(12.57)

LETTER FROM VC CAPITAL LIMITED

			Market		Premium/	Premium/
			Capitalisation		(Discount)	(Discount) to
			as at 14		to the	5-day Average
	Stock	Core	December 2007	Announcement	Closing Price	Closing Price
Company	Code	Business(es)	(HK$million)	Date	%	%
		Manufacture,
		sale, research,
		development
China Flavors and Fragrances		of flavours and
Company Limited	3318	fragrances	1,453.2	12-Jul-2007	(9.57)	(5.80)
		Manufacture
		and sale
		of accessories for
		photographical,
		electrical
		and multi-media
Mascotte Holdings Limited	136	products	1,486.8	17-Jul-2007	(10.00)	(14.12)
		Trading of hardware
		and software and
Sunny Global Holdings		provision of
Limited	1094	IT services	1,348.9	18-Jul-2007	(17.54)	(2.49)
		Manufacture
		and sale
Hop Fung Group Holdings		of corrugated
Limited	2320	paper products	1,302.9	19-Jul-2007	(7.31)	(1.39)
		Provision of
		financial services
Goldbond Group Holdings		and property
Limited	172	investment	1,523.4	20-Jul-2007	(5.60)	(5.90)
Oriental Watch Holdings
Limited	398	Watch trading	1,120.6	20-Jul-2007	(18.45)	(5.66)
		Property
		investment and
Chuang’s China Investments		development
Limited	298	in the PRC	1,530.6	24-Jul-2007	(7.60)	0.55

LETTER FROM VC CAPITAL LIMITED

			Market		Premium/	Premium/
			Capitalisation		(Discount)	(Discount) to
			as at 14		to the	5-day Average
	Stock	Core	December 2007	Announcement	Closing Price	Closing Price
Company	Code	Business(es)	(HK$million)	Date	%	%
		Trading of
		securities,
		property
		investment
		and trading,
		holding of vessel
Hanny Holdings Limited	275	for sand mining	1,117.2	27-Aug-2007	(7.89)	(1.69)
		Property
		development
		and investment,
Vantage International		building
(Holdings) Limited	15	construction	1,113.3	30-Aug-2007	(14.81)	(14.81)
		Design,
		manufacture
		and sale
Shandong Molong Petroleum		of petroleum
Machinery Company		extraction
Limited	568	machinery	1,748.6	5-Sep-2007	(5.56)	(2.30)
		Manufacture
		of paints
		and trading in
Greenfield Chemical		petrochemical
Holdings Limited	582	products	1,080.0	24-Sep-2007	(14.09)	(14.30)
		Trading and
China Pipe Group Ltd.		distribution of
(formerly World Trade		water pipes
Bun Kee Limited)	380	and fittings	1,077.8	4-Oct-2007	(11.76)	(13.04)
		Manufacture
		and sale of
		agricultural and
First Tractor Company		construction
Limited	38	machineries	1,849.2	10-Oct-2007	(3.90)	(4.45)
Northern International		Property
Holdings Limited	736	investment	1,111.1	10-Oct-2007	(18.90)	(6.50)

LETTER FROM VC CAPITAL LIMITED

			Market		Premium/		Premium/
			Capitalisation		(Discount)	(Discount) to
			as at 14		to the	5-day Average
	Stock	Core	December 2007	Announcement	Closing Price	Closing Price
Company	Code	Business(es)	(HK$million)	Date	%		%
		Property
		development
Grand Field Group		and sale
Holdings Limited	115	in the PRC	1,081.5	18-Oct-2007	(15.10)		(14.10)
		Provision of
Emperor Capital Group		financial
Limited	717	services	1,075.1	19-Nov-2007	(19.17)		(19.44)
Median					(11.50)		(6.20)
Simple Average					(12.22)		(8.43)
Minimium					(32.20)		(19.44)
Maximum					(3.90)		1.18
The Company	103			30-Nov-2007	(6.36)		(6.02)

Source: The respective announcements and circulars in connection with the Comparable Independent Subscriptions from the website of Hong Kong Exchanges and Clearing Limited

As illustrated in Table 1 above, we note that the premium/discount of the respective subscription or placing prices to the respective closing prices quoted on the respective last trading days of the Comparable Independent Subscriptions range from a discount of approximately 32.20% to a discount of approximately 3.90%, with a median of an approximately 11.50% discount. The premium/discount of the respective subscription or placing prices to the respective 5-day average closing price up to and including the respective last trading days of the Comparable Independent Subscriptions range from a discount of approximately 19.44% to a premium of approximately 1.18%, with a median of an approximately 6.20% discount. We note that the discount of approximately 6.36% of the Subscription Price to the closing price per Share on the Last Trading Day and the discount of approximately 6.02% of the Subscription Price to the average closing price per Share of the last five trading days up to and including the Last Trading Day are within the range of the discounts of the Comparable Independent Subscriptions. We also note that these two discounts are less than the median of the respective discounts of the Comparable Independent Subscriptions.

As the Comparable Independent Subscriptions reflect the pricing which the market found acceptable of placing/subscription exercises of companies with similar market capitalization as that of the Company, we consider that the pricing of the Comparable Independent Subscriptions can be used to assess the fairness and reasonableness of the Subscription Price. As the discounts of the Subscription Price to the respective closing prices as stated above fall within the respective range of discounts of the Comparable Independent Subscriptions, and that such discounts are less than the median of the respective discounts of the Comparable Independent Subscriptions, we

LETTER FROM VC CAPITAL LIMITED

consider that the discounts of the Subscription Price to the latest closing price and the 5-day average closing price are not excessive and that the Subscription Price is fair and reasonable.

We consider that as different valuation approaches may be used for companies in different industries, given the diversity of the business(es) of the companies in Table 1 above, it would not be meaningful to compare the premium/discount of the Subscription Price to the net asset value (“NAV”) per Share with those of the Comparable Independent Subscriptions.

C. Financial impact of the First Subscription

1. Effect on NAV

As stated in the Interim Report, the NAV of the Group was approximately HK$1,002,685,000. On the basis of 1,384,346,556 Shares in issue as at the Latest Practicable Date, the NAV per Share as at the Latest Practicable Date was approximately HK$0.72 per Share. As the Subscription Shares will be issued at a premium of approximately 43.1% to the NAV per Share, the First Subscription is expected to have a positive effect on the NAV of the Group on a per Share basis and thus is beneficial to the Independent Shareholders.

2. Effect on working capital

As stated in the letter from the Board in the Circular, the Net Proceeds are estimated to be about HK$615,500,000. The net proceeds from the First Subscription alone amount to approximately HK$410,000,000. As such, immediately after the First Subscription, the cash level of the Group will be increased and hence it is expected to have a positive effect on the working capital of the Group.

3. Effect on gearing

As discussed above, the Company may use part of the Net Proceeds in the amount of approximately HK$125,000,000 for repayment of an existing bank loan. Following such repayment, the Group’s gearing ratio (being total liabilities divided by total assets) is expected to decrease from approximately 20.0% as at 30 June 2007 to approximately 10.1%. Therefore, there will be a positive effect on gearing. Such repayment is also expected to incur a savings in interest expense of approximately HK$6.5 million per annum, which represents approximately 36.5% of the Group’s interest costs for the year ended 31 December 2006 of approximately HK$17.8 million.

In view of the positive effect of the First Subscription on the NAV, the working capital and the gearing of the Group, we consider that the First Subscription will have a positive financial effect to the Group.

LETTER FROM VC CAPITAL LIMITED

D. Alternative means of fund-raising

The Directors have considered alternative means of fund-raising, such as equity financing by way of a rights issue or an open offer, or debt financing by way of bank borrowings. Nevertheless, as:

(i) a rights issue or an open offer would take a longer time to complete, which would expose the Company to greater market risks in view of the current volatile market and increase the uncertainty in fund-raising;
(ii) debt financing such as bank borrowings would cause the Group to incur additional interest expenses and would result in adverse effect on the gearing position of the Group,

the Directors consider that given the circumstances, the First Subscription would be the most beneficial fund-raising method for the Company.

LETTER FROM VC CAPITAL LIMITED

E. Dilution effect of the First Subscription on the shareholdings of the Independent Shareholders

Table 2 below shows the shareholding structure of the Company as at the Latest Practicable Date and immediately upon completion of the First Subscription, assuming that the outstanding share options of the Company are not exercised:

Table 2: Shareholding structure of the Company

Shougang International_(Note 1) Shougang Holding(Note 2) Sub-total of Shougang International and its concert parties: Tang Cornor Kwok Kau, a Director(Note 3) NV Bekaert SA(Note 4) Other public Shareholders(Note 5)_ Total	No. of Shares held immediately after completion of the First Subscription but before completion of the Second Subscription and assuming the No. of Shares outstanding share held as at Approximate % of options of the the Latest the issued Company are Practicable Date share capital not exercised 286,655,179 20.71 686,655,179 169,228,000 12.22 169,228,000 455,883,179 32.93 855,883,179 2,496,000 0.18 2,496,000 250,000,000 18.06 250,000,000 675,967,377 48.83 675,967,377 1,384,346,556 100.00 1,784,346,556	Approximate % of the issued share capital 38.48 9.49
		47.97
		0.14 14.01 37.88
		100.00

Notes:

(1) Such shareholding includes the Shares held by Shougang International through its wholly-owned subsidiaries.

(2) Such shareholding includes the Shares held by Shougang Holding and its associates but excludes the Shares held by Shougang International through its wholly-owned subsidiaries. Such shareholding includes 155,358,000 Shares held by the wholly-owned subsidiaries of Shougang Holding and 13,870,000 Shares held by a wholly-owned subsidiary of Shougang Concord Grand (Group) Limited which in turn is held as to approximately 42.6% by Shougang Holding.

LETTER FROM VC CAPITAL LIMITED

(3) Those Shares are beneficially owned by Tang Cornor Kwok Kau and of which 200,000 Shares are also jointly owned by his wife. Mr. Tang will abstain from voting on the resolutions in relation to the First Subscription Agreement and the Whitewash Waiver to be proposed at the EGM.
(4) NV Bekaert SA has been a business partner of the Group which became a substantial Shareholder by way of subscription of 250 million Shares pursuant to two agreements dated 22 and 27 September 2006 respectively, details of which are contained in the circular of the Company dated 18 October 2006.
(5) The other public Shareholders include Keywise Greater China Opportunities Master Fund and funds under management by Value Partners Limited, who have been placed 100,000,000 new Shares on the same date as the First Subscription Agreement.

As illustrated above, the shareholding of the Independent Shareholders upon completion of the First Subscription will be diluted from approximately 48.83% to approximately 37.88%. Nevertheless, having considered that: (i) the Net Proceeds will be used to expand the production capacity of the Group’s steel cord business, to repay an existing bank loan which will reduce the Group’s interest expense and improve its liability position, and as general working capital in line with the strategy of the Group, which is beneficial to the business of the Group as a whole; (ii) Shougang International will be subscribing for new Shares at the Subscription Price which is at a premium of about 43.1% to the NAV per Share, which will improve the NAV per Share immediately upon completion of the First Subscription thereby benefiting the Independent Shareholders; and (iii) the First Subscription is a more efficient way to raise funds for the Group than the other alternatives as discussed above, we consider that the dilution effect on the shareholdings of the Independent Shareholders are acceptable so far as the Independent Shareholders are concerned.

F. Whitewash Waiver

Assuming no further Shares will be issued by the Company prior to the completion of the First Subscription, upon completion of the First Subscription Agreement, Shougang International’s interest in the Company will increase from 20.71% to 38.48% and the interests held by the Concert Parties will increase from 32.93% to 47.97% of the issued share capital of the Company as enlarged by the issue of the First Subscription Shares. The Concert Parties would, in the absence of the Whitewash Waiver, be obliged to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code as a result of the completion of the First Subscription. Shougang International has applied to the Executive for the Whitewash Waiver pursuant to Note 1 of the Notes on Dispensation from Rule 26 of the Takeovers Code on the basis that, among other things, the acquisition of the First Subscription Shares by Shougang International pursuant to the First Subscription Agreement is a cash subscription and the Whitewash Waiver shall be subject to the approval by the Independent Shareholders at the EGM on a vote taken by way of a poll whereby Shougang International, its associates and concert parties, including Shougang Holding, will abstain from voting.

The Independent Shareholders should note that should the First Subscription proceed, the First Subscription will not result in any change in the control of the Company. It is also stated in the letter from the Board that Shougang International intends to maintain the existing businesses of the Group upon successful completion of the First Subscription Agreement, and does not intend to introduce any major changes to the existing operation and management structure of the Group, or to discontinue the employment of any employees of the Group, or to redeploy any material fixed assets of the Group, as a result of the completion of the First Subscription Agreement. Hence, the increase in shareholding interest of the Concert Parties in the Company as a result of the First Subscription will not cause any material change to the control or operations of the Group.

LETTER FROM VC CAPITAL LIMITED

Shareholders should be aware of the fact that the First Subscription is conditional upon, amongst others, the granting of the Whitewash Waiver by the Executive and the passing of the relevant resolution by the Independent Shareholders at the EGM approving the Whitewash Waiver. As such, the approval of the Whitewash Waiver by the Independent Shareholders is a pre-requisite for the First Subscription to proceed and for the Company and its Shareholders to enjoy the benefits of the First Subscription, as stipulated above. Accordingly, we consider that it would be in the interest of the Independent Shareholders to vote in favour of the Whitewash Waiver.

RECOMMENDATION

Having considered the above-mentioned principal factors and reasons, we consider that the terms of the First Subscription Agreement are on normal commercial terms, that the terms of the First Subscription Agreement and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned, and that the entering into of the First Subscription Agreement and the Whitewash Waiver are in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed to approve the First Subscription Agreement and the Whitewash Waiver at the EGM.

Yours faithfully, For and on behalf of VC Capital Limited Philip Chau Keith Lou Managing Director Director

FINANCIAL INFORMATION

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and (a) upon completion of the First Subscription (assuming the Second Subscription is yet to be completed); and (b) upon completion of the First Subscription and the Second Subscription were and will be as follows:

Authorised as at the Latest Practicable Date: 2,000,000,000 Shares Issued and to be issued and fully paid: 1,384,346,556 Shares in issue as at the Latest Practicable Date 400,000,000 new Shares to be allotted and issued upon completion of the First Subscription 1,784,346,556 Shares in issue upon completion of the First Subscription 100,000,000 new Shares to be allotted and issued upon the completion of the Second Subscription 1,884,346,556 Shares in issue upon completion of the First Subscription and the Second Subscription 108,280,000 Share that have been issued since 31 December 2006, the date of the last financial year end of the Company	HK$’000 200,000

	138,435

	40,000
	178,435

	10,000
	188,435

	10,828

All of the Shares currently in issue rank pari passu in all respects with each other, including, in particular, as to dividends, voting rights and capital. No part of the share capital of the Company is listed or dealt in any other stock exchange other than the Stock Exchange and no application has been made or is currently proposed or sought for the shares to be listed or dealt in any other stock exchange. 100,000,000 Placing Shares have been issued since the date of the Announcement and up to the Latest Practicable Date. All of the new Shares to be allotted and issued upon completion of the First Subscription and the Second Subscription will rank pari passu in all respects with the Shares in issue as at the date when the Subscriptions Shares are issued.

There were a total of 217,944,000 share options of the Company outstanding as at the Latest Practicable Date which were granted to directors, employees of the Company and other eligible participants under the share option scheme of the Company dated 7 June 2002. These share options can be exercised into 217,944,000 Shares in aggregate. A total of 130,816,000 of these 217,944,000 share options were held by parties acting in concert with Shougang Holding or Shougang International, further details of which are set out in the section headed “Disclosure of Interest” in Appendix II to this circular.

Save as set out herein, there were no other options, warrants or convertible securities of the Company outstanding as at the Latest Practicable Date.

FINANCIAL INFORMATION

APPENDIX I

2. AUDITED FINANCIAL INFORMATION

(a) Summary of audited financial results for the three years ended 31 December 2006

The following is a summary of the audited consolidated income statement of the Group for the three years ended 31 December 2006, as extracted from the respective annual reports of the Company:

		Year ended 31 December	Year ended 31 December	Year ended 31 December
	2006	2005		2004
	HK$’000	HK$’000		HK$’000
Revenue	678,923	592,889		427,864
Cost of sales	(553,269)	(497,034)		(315,215)
Gross profit	125,654	95,855		112,649
Other operating income	9,185	8,328		5,758
Distribution and selling costs	(6,133)	(3,748)		(2,011)
Administrative expenses	(38,374)	(33,556)		(29,660)
Other operating expenses	–	–		(2,379)
Fair value changes on derivative
financial instruments	340	(46)		–
Exceptional items:
(Allowance for) recovery of bad
and doubtful debts	(1,824)	1,939		(3,244)
Dilution loss on share reform of an
associate	(6,858)	–		–
Gain on disposal of subsidiaries	–	–		76,651
Loss on disposal of interests
in a jointly controlled entity	–	–		(9,410)
Finance costs	(18,904)	(14,468)		(4,463)
Share of results of jointly controlled entities	10,245	9,133		6,765
Share of result of an associate	9,952	4,781		3,854
Profit before taxation	83,283	68,218		154,510
Income tax expenses	(7,252)	(5,990)		(5,986)
Profit for the year attributable
to shareholders of the Company	76,031	62,228		148,524

Dividends paid	–	15,391		40,702

Basic earnings per share	HK7.33 cents	HK6.06 cents	HK14.57 cents

Dividend per share	–	HK1.50 cents		HK4.00 cents

There were no extraordinary items and minority interests recorded for the three years ended 31 December 2006. Further, there were no qualifications contained in the auditors’ report of the Company in respect of the last three financial years ended 31 December 2006.

FINANCIAL INFORMATION

APPENDIX I

(b) Latest audited financial statements

The following is an extract of the audited financial statements of the Group for the latest financial year ended 31 December 2006 audited by Deloitte Touche Tohmatsu:

Consolidated Income Statement

For the Year Ended 31 December 2006

Notes Revenue 5 Cost of sales Gross profit Other operating income Distribution and selling costs Administrative expenses Fair value changes on derivative financial instruments (Allowance for) recovery of bad and doubtful debts Dilution loss on share reform of an associate 7 Finance costs 8 Share of result of a jointly controlled entity Share of result of an associate Profit before taxation 9 Income tax expenses 10 Profit for the year Dividends 12 Earnings per share 13 Basic Diluted	2006 HK$’000 678,923 (553,269) 125,654 9,185 (6,133) (38,374) 340 (1,824) (6,858) (18,904) 10,245 9,952 83,283 (7,252) 76,031 – HK7.33 cents HK6.93 cents	2005 HK$’000 592,889 (497,034) 95,855 8,328 (3,748) (33,556) (46) 1,939 – (14,468) 9,133 4,781 68,218 (5,990) 62,228 15,391 HK6.06 cents HK5.84 cents

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

At 31 December 2006

Notes Non-current assets Investment properties 14 Property, plant and equipment 15 Prepaid lease payments 16 Interests in a jointly controlled entity 18 Interests in an associate 19 Goodwill 20 Club memberships 22 Available-for-sale investment 23 Current assets Inventories 24 Trade receivables 25 Bills receivable 25 Prepayments, deposits and other receivables Prepaid lease payments 16 Amount due from a related company 26 Derivative financial instruments 34 Pledged bank deposits 28 Bank balances and cash 28 Asset classified as held for sale 29 Current liabilities Trade payables 30 Other payables and accruals Derivative financial instruments 34 Tax payable Amount due to a related company 26 Bank borrowings – due within one year 32 Net current assets Total assets less current liabilities	2006 HK$’000 12,220 447,294 7,489 54,452 49,148 41,672 675 – 612,950 87,831 177,996 186,272 14,438 441 4,295 294 3,000 297,566 772,133 – 772,133 9,920 16,791 – 86 34,837 238,499 300,133 472,000 1,084,950	2005 HK$’000 10,340 458,085 7,658 49,025 48,234 41,672 675 –
		615,689
		84,160 140,172 71,448 10,808 426 1,497 – 3,000 37,378
		348,889 2,637
		351,526
		9,284 17,878 46 668 – 200,415
		228,291
		123,235
		738,924

APPENDIX I

FINANCIAL INFORMATION

Notes Non-current liabilities Bank borrowings – due after one year 32 Other payable Deferred tax liabilities 33 Capital and reserves Share capital 35 Reserves	2006 HK$’000 124,476 1,528 1,592 127,596 957,354 127,607 829,747 957,354	2005 HK$’000 42,598 1,638 935
		45,171
		693,753

		102,607 591,146
		693,753

FINANCIAL INFORMATION

APPENDIX I

Balance Sheet

At 31 December 2006

Notes Non-current assets Property, plant and equipment Investments in subsidiaries 17 Advances to subsidiaries 17 Club memberships 22 Current assets Other receivables Amounts due from subsidiaries 31 Derivative financial instruments 34 Pledged bank deposits 28 Bank balances and cash 28 Current liabilities Other payables and accruals Derivative financial instruments 34 Amounts due to a subsidiary 31 Bank borrowings – due within one year 32 Net current liabilities Total assets less current liabilities Non-current liability Bank borrowings – due after one year 32 Capital and reserves Share capital 35 Reserves 36	2006 HK$’000 – 365,649 415,593 315 781,557 1,250 22,000 294 3,000 38,990 65,534 1,390 – 31,728 49,429 82,547 (17,013) 764,544 124,476 640,068 127,607 512,461 640,068	2005 HK$’000 – 191,267 330,918 315 522,500 211 10,000 – 3,000 1,151 14,362 229 46 24,780 31,750 56,805 (42,443) 480,057 33,905 446,152 102,607 343,545 446,152

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Changes in Equity

For the Year Ended 31 December 2006

At 1 January 2005 Surplus on revaluation Recognition of deferred tax liability on revaluation of properties Translation adjustments: – subsidiaries – jointly controlled entity – associate Net gain recognised directly in equity Profit for the year Total recognised income for the year Dividend paid Transfer At 31 December 2005 At 1 January 2006 Surplus on revaluation Recognition of deferred tax liability on revaluation of properties Translation adjustments: – subsidiaries – jointly controlled entity – associate Net gain recognised directly in equity Profit for the year Release of deferred tax liability upon disposal of a property Release of property revaluation reserve upon disposal of a property Reversal in relation to share reform of an associate Total recognised income for the year Issue of shares Share issue expenses Transfer At 31 December 2006	Share capital HK$’000 102,607 – – – – – – – – – – 102,607 102,607 – – – – – – – – – – – 25,000 – – 127,607	Share premium HK$’000 287,024 – – – – – – – – – – 287,024 287,024 – – – – – – – – – – – 137,500 (1,089) – 423,435	Capital Property Capital redemption revaluation Translation reserve reserve reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) 32,659 1,013 304 5,128 – – 628 – – – (75) – – – – 10,220 – – – 1,021 – – – 880 – – 553 12,121 – – – – – – 553 12,121 – – – – – – – – 32,659 1,013 857 17,249 32,659 1,013 857 17,249 – – 3,628 – – – (472) – – – – 19,499 – – – 1,838 – – – 1,602 – – 3,156 22,939 – – – – – – 64 – – – (367) – – – – – – – 2,853 22,939 – – – – – – – – – – – – 32,659 1,013 3,710 40,188	PRC reserve funds HK$’000 (Note 2) 26,174 – – – – – – – – – 1,524 27,698 27,698 – – – – – – – – – (521) (521) – – 18,059 45,236	Retained profits HK$’000 179,333 – – – – – – 62,228 62,228 (15,391) (1,524) 224,646 224,646 – – – – – – 76,031 – 367 521 76,919 – – (18,059) 283,506	Total HK$’000 634,242
						628 (75) 10,220 1,021 880
						12,674
						62,228
						74,902
						(15,391) –
						693,753

						693,753
						3,628 (472) 19,499 1,838 1,602
						26,095
						76,031 64 – –
						102,190
						162,500 (1,089) –
						957,354

FINANCIAL INFORMATION

APPENDIX I

Note 1: The capital reserve comprises the following:
Approximately HK$23,990,000 relates to an assignment of shareholder’s loan at a nominal consideration of HK$1 during the corporate re-organisation of the Group for the purpose of the listing in 1992.
Approximately HK$6,749,000 relates to the share of surplus on revaluation by an associate in 1995 for the purpose of listing on Shanghai Stock Exchange in 1996.
The remaining balance of approximately HK$1,920,000 relates to bonus shares issued by an associate in 2001.
Note 2: In accordance with the articles of association of the subsidiaries, jointly controlled entity and associate registered or incorporated in the People’s Republic of China (the “PRC”) and the relevant PRC laws and regulations, these subsidiaries, jointly controlled entity and associate are required to transfer at least 10% of their profit after taxation, which is determined in accordance with the PRC accounting rules and regulations, to a statutory reserve fund (including the general reserve fund and enterprise expansion fund, where appropriate). Transfer to this reserve fund is subject to the approval of the board of directors, and is discretionary when the balance of such fund has reached 50% of the registered capital of the respective company. Statutory reserve fund can only be used to offset accumulated losses or to increase capital.

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

For the Year Ended 31 December 2006

OPERATING ACTIVITIES Profit before taxation Adjustments for: Depreciation Amortisation of prepaid lease payments Increase in fair value of investment properties Surplus on revaluation of leasehold land and buildings, net Loss on disposal of property, plant and equipment Gain on disposal of property held for sale Interest income Allowance for inventories Allowance for (recovery of) bad and doubtful debts Finance costs Share of result of a jointly controlled entity Share of result of an associate Dilution loss on share reform of an associate Foreign exchange gains Operating cash flows before movements in working capital (Increase) decrease in inventories Increase in trade and bills receivables (Increase) decrease in prepayments, deposits and other receivables (Increase) decrease in derivative financial instruments (Increase) decrease in amount due from a related company Increase (decrease) in trade payables (Decrease) increase in other payables and accruals Cash (used in) generated from operations Interest received Interest paid Interest paid on finance lease payments PRC taxes paid PRC tax refunded NET CASH (USED IN) FROM OPERATING ACTIVITIES	2006 HK$’000 83,283 40,092 432 (2,810) (140) 167 (339) (2,018) 267 1,824 18,904 (10,245) (9,952) 6,858 – 126,323 (1,962) (148,230) (3,923) (340) (2,798) 523 (1,479) (31,886) 2,018 (17,849) – (7,847) 200 (55,364)	2005 HK$’000 68,218 38,794 421 (2,695) (337) 299 – (275) – (1,939) 14,468 (9,133) (4,781) – (3,058) 99,982 145 (36,177) 2,345 46 621 (101) 3,589 70,450 275 (13,682) (6) (5,397) – 51,640

FINANCIAL INFORMATION

APPENDIX I

INVESTING ACTIVITIES Dividends received from a jointly controlled entity Dividend received from an associate Proceeds from disposal of property, plant and equipment Proceed from disposal of property held for sale Purchase of property, plant and equipment Decrease in pledged bank deposits NET CASH FROM INVESTING ACTIVITIES FINANCING ACTIVITIES New bank loans raised Trust receipt loans raised Bank advances for discounted bills Proceeds on issue of ordinary shares Advance from a related company Repayment of trust receipt loans Repayment of bank loans Repayment of bank advances for discounted bills Share issue expenses paid Dividend paid Repayment of obligations under finance lease NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF THE YEAR, Bank balances and cash	2006 HK$’000 6,656 3,782 62 2,976 (9,707) – 3,769 314,162 295,806 189,284 162,500 34,837 (320,016) (218,234) (145,939) (1,089) – – 311,311 259,716 37,378 472 297,566	2005 HK$’000 6,012 3,047 81 – (8,455) 1,000 1,685 131,913 290,684 – – – (290,240) (166,398) – – (15,391) (206) (49,638) 3,687 33,255 436 37,378

FINANCIAL INFORMATION

APPENDIX I

Notes to the Financial Statements

For the Year Ended 31 December 2006

1. GENERAL

The Company is a public limited company incorporated in Hong Kong. The shares of the Company are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section of the annual report.

The functional currency of the Company is Renminbi. For the convenience of the financial statements users because the Company is listed in Hong Kong, the results and financial position of the Group are expressed in Hong Kong dollar, the presentation currency for the consolidated financial statements.

During the year, the Group was principally involved in the manufacturing of steel cords and processing and trading of copper and brass products.

2. APPLICATION OF NEW HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)/CHANGES IN ACCOUNTING POLICIES

In the current year, the Group and the Company have applied, for the first time, a number of new standard, amendments and interpretations (the “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants, which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new standards, amendment, and interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards, amendment or interpretations will have no material impact on the results and financial position of the Group.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HKFRS 8 Operating Segments[2] HK(IFRIC) – INT 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[3] HK(IFRIC) – INT 8 Scope of HKFRS 2[4] HK(IFRIC) – INT 9 Reassessment of Embedded Derivatives[5] HK(IFRIC) – INT 10 Interim Financial Reporting and Impairment[6] HK(IFRIC) – INT 11 HKFRS 2 – Group and Treasury Share Transactions[7] HK(IFRIC) – INT 12 Service Concession Arrangements[8]

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 January 2009

3 Effective for annual periods beginning on or after 1 March 2006

4 Effective for annual periods beginning on or after 1 May 2006
5 Effective for annual periods beginning on or after 1 June 2006
6 Effective for annual periods beginning on or after 1 November 2006

7 Effective for annual periods beginning on or after 1 March 2007

8 Effective for annual periods beginning on or after 1 January 2008

FINANCIAL INFORMATION

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Goodwill

Goodwill arising on acquisition prior to 1 January 2005

Goodwill arising on an acquisition of a subsidiary for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

For previously capitalised goodwill, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash-generating unit to which the goodwill relates may be impaired.

Goodwill arising on acquisition on or after 1 January 2005

Goodwill arising on an acquisition of a subsidiary for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the balance sheet.

FINANCIAL INFORMATION

APPENDIX I

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Interests in jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the jointly controlled entities, less any identified impairment loss. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

When a group entity transacts with a jointly controlled entity of the Group, unrealised profits or losses are eliminated to the extent of the Group’s interest in the jointly controlled entity, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognised.

Interests in associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of net assets of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

FINANCIAL INFORMATION

APPENDIX I

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the item is derecognised.

Property, plant and equipment

Property, plant and equipment are stated at cost or fair value less subsequent accumulated depreciation and accumulated impairment loss.

Leasehold land and buildings are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation less any subsequent accumulated depreciation and any subsequent impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on revaluation of leasehold land and buildings is credited to the property revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the consolidated income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it exceeds the balance, if any, on the property revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits.

Construction in progress represents buildings and plant and machinery under construction, which is stated at cost less any recognised impairment losses, and is not depreciated. Cost comprises the direct costs of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is provided to write off the cost or fair values of items of property, plant and equipment other than construction in progress, over their estimated useful lives and after taking into account of their estimated residual values, using the straight-line method, at the following rates per annum:

Leasehold land and buildings	Over the estimated useful life of 25 to 50 years
Leasehold improvements	18% – 20%
Plant and machinery	4% – 20%
Furniture, fixtures and equipment	9% – 20%
Motor vehicles	11% – 20%

An investment property is transferred to property, plant and equipment when it is evidenced by the commencement of owner-occupation. The fair value, at the date of transfer, which is the deemed cost of the property for subsequent accounting is in accordance with HKAS 16 Property, Plant and Equipment . The property interest held under an operating lease which was previously classified as investment property under the fair value model continues to be accounted for as a finance lease after the transfer.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

Club memberships

Club memberships are stated at cost less any identified impairment loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method for steel cord and first-in, first-out method for copper and brass products and in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads.

FINANCIAL INFORMATION

APPENDIX I

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

Sales of goods are recognised when the goods are delivered and title has been passed.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income is recognised when the shareholder’s right to receive payment has been established.

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Non-current assets classified as held for sale are measured at the lower of the asset’s previous carrying amount and fair value less costs to sell.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

FINANCIAL INFORMATION

APPENDIX I

The Group as lessee

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, leasehold land which title is not expected to pass to the lessee by the end of the lease term is classified as an operating lease unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is classified as a finance lease.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in which they are incurred.

Retirement benefits costs

Payments to state-managed retirement benefits schemes and the Mandatory Provident Fund Scheme are charged as an expense when employees have rendered services entitled them to the contribution.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into available-for-sale financial assets and loans and receivables and the accounting policies adopted in respect of each category of financial assets are set out below. The Company’s financial assets are loans and receivables.

FINANCIAL INFORMATION

APPENDIX I

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables, including advances to subsidiaries, trade and bills receivables and other receivables, amount due from a related company, pledged bank deposits and bank balances are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including trade payables, other payables and accruals, bank borrowings, amount due to a related company and amounts due to subsidiaries, are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Derivatives of the Group do not qualify for hedge accounting thus they are deemed as financial assets held for trading or financial liabilities held for trading. Changes in fair values of such derivatives are recognised directly in profit or loss.

FINANCIAL INFORMATION

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration is recognised in profit or loss.

Equity-settled share-based payment transactions

Share options granted to employees

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period with a corresponding increase in equity (share options reserve).

At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates, if any, is recognised in profit or loss, with a corresponding adjustment to share options reserve.

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to retained profits.

In relation to share options granted before 1 January 2005, the Group chooses not to apply HKFRS 2 Share-based Payments with respect to share options granted after 7 November 2002 and vested before 1 January 2005, no amount has been recognised in the consolidated financial statements in respect of these equity-settled sharedbased payments.

Impairment losses (other than goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately unless the relevant asset is carried at a revalued amount under another standard in which case the impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other standard.

FINANCIAL INFORMATION

APPENDIX I

4. FINANCIAL INSTRUMENTS

a. Financial risk management objectives and policies

The Group’s major financial instruments include bank borrowings, trade receivables, bills receivable, other receivables, trade payables, other payables and bank balances. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Fair value interest rate risk

The Group’s fair value interest rate risk relates to fixed-rate bank deposits (see note 28 for details) and fixed-rate borrowings (see note 32 for details of these borrowings). The management will consider hedging significant fair value interest rate exposure should the need arise.

Cash flow interest rate risk

The Group’s cash flow interest rate risk primarily relates to variable-rate bank balances and bank borrowings. It is the Group’s policy to minimise its exposures to cash flow interest rate risk for borrowings by hedging should the need arise. As at 31 December 2006, the Group entered into some interest rate swaps to partially hedge its cash flow interest rate risk (see note 34 for details).

Credit risk

As at 31 December 2006, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees issued by the Group and the Company arising from:

the carrying amount of the respective recognised financial assets as stated in the consolidated balance sheet; and
the amount of contingent liabilities disclosed in note 39.

As at 31 December 2006, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure to discharge an obligation by the counterparties and financial guarantees issued by the Company arising from:

the carrying amount of the respective recognised financial assets as stated in the Company’s balance sheet; and
the amount of contingent liabilities disclosed in note 39.

In order to minimise the credit risk, the management of the Group and the Company have delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group and the Company review the recoverable amount of each individual debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The credit risk of liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The Group’s concentration of credit risk by geographical locations is mainly the People’s Republic of China (the “PRC”) which accounted for 59% of the revenue for the year ended 31 December 2006.

The Company’s concentration of credit risk is on advances to subsidiaries.

FINANCIAL INFORMATION

APPENDIX I

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As at 31 December 2006, the Group have available undrawn borrowing facilities of approximately HK$297,018,000 (2005: HK$307,908,000).

b. Fair value

The fair value of financial assets and financial liabilities are determined as follows:
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions; and
the fair values of derivative instruments are quoted by financial institution which was determined with reference to estimated cash flows with appropriate yield curve for equivalent instruments at balance sheet date.

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values.

5. REVENUE

Revenue represents the amounts received and receivable for goods sold by the Group to outside customers, less returns and trade discounts, and gross rental income during the year.

An analysis of the Group’s revenue is as follows:

Sales of goods Manufacturing of steel cords Processing and trading of copper and brass products Others (trading of metal and metal ore) Rental income	2006 HK$’000 393,726 283,695 679 678,100 823 678,923	2005 HK$’000 411,865 164,620 15,849
		592,334 555
		592,889

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Segment information is presented by way of two segment formats (a) on a primary segment reporting basis, by business segment; and (b) on a secondary segment reporting basis, by geographical segment.

(a) Business segments

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

(i) the steel cord segment comprises the manufacturing of steel cords; and
(ii) the copper and brass products segment comprises the processing and trading of copper and brass products.

FINANCIAL INFORMATION

APPENDIX I

Other operation mainly comprises property investment and trading of metal and metal ore.

Segment information about these businesses is presented below:

For the year ended 31 December 2006

Segment revenue External sales Result Segment result Unallocated income Unallocated expenses Dilution loss on share reform of an associate Finance costs Share of result of a jointly controlled entity Share of result of an associate Profit before taxation Income tax expenses Profit for the year OTHER INFORMATION Capital expenditure Depreciation Allowance for bad and doubtful debts Allowance for inventories Loss on disposal of property, plant and equipment Gain on disposal of property held for sale At 31 December 2006 BALANCE SHEET Assets Segment assets Interests in a jointly controlled entity Interests in an associate Goodwill Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Steel cord HK$’000 393,726 65,668 Steel cord HK$’000 9,072 38,302 1,223 – 70 – 1,013,438 41,672 14,960	Copper and brass products HK$’000 283,695 39,823 Copper and brass products HK$’000 219 1,094 601 267 5 – 123,738 – 7,003	Others Consolidated HK$’000 HK$’000 1,502 678,923 3,306 108,797 3,368 (23,317) (6,858) (18,904) 10,245 9,952 83,283 (7,252) 76,031 Others Consolidated HK$’000 HK$’000 416 9,707 696 40,092 – 1,824 – 267 92 167 339 339 30,689 1,167,865 54,452 49,148 – 41,672 71,946 1,385,083 778 22,741 404,988 427,729

FINANCIAL INFORMATION

APPENDIX I

For the year ended 31 December 2005 (restated)

Segment revenue External sales Result Segment result Unallocated income Unallocated expenses Finance costs Share of result of a jointly controlled entity Share of result of an associate Profit before taxation Income tax expenses Profit for the year OTHER INFORMATION Capital expenditure Depreciation (Recovery of) allowance for bad and doubtful debts Loss on disposal of property, plant and equipment At 31 December 2005 (restated) BALANCE SHEET Assets Segment assets Interests in a jointly controlled entity Interests in an associate Goodwill Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Steel cord HK$’000 411,865 77,743 Steel cord HK$’000 7,138 36,948 (2,042) 297 688,292 41,672 10,945	Copper and brass products HK$’000 164,620 7,665 Copper and brass products HK$’000 66 1,153 103 1 80,174 – 7,949	Others Consolidated HK$’000 HK$’000 16,404 592,889 3,146 88,554 296 (20,078) (14,468) 9,133 4,781 68,218 (5,990) 62,228 Others Consolidated HK$’000 HK$’000 1,251 8,455 693 38,794 – (1,939) 1 299 16,550 785,016 49,025 48,234 – 41,672 43,268 967,215 2,206 21,100 252,362 273,462

FINANCIAL INFORMATION

APPENDIX I

(b) Geographical segments

In determining the Group’s geographical segments, revenues are attributed to the segment based on the location of the customers, and assets are attributed to the segment based on the location of the assets.

Segment revenue: Sales to external customers Gross rental income Other segment information: Segment assets Interests in a jointly controlled entity Interests in an associate Capital expenditure	Hong Kong 2006 2005 HK$’000 HK$’000 261,924 67,203 455 450 262,379 67,653 123,105 65,631 – – – – 131 1,189	Other regions in the PRC 2006 2005 HK$’000 HK$’000 400,489 521,178 368 105 400,857 521,283 1,044,760 719,385 54,452 49,025 49,148 48,234 9,576 7,266	Others 2006 2005 HK$’000 HK$’000 15,687 3,953 – – 15,687 3,953 – – – – – – – –	Consolidated 2006 2005 HK$’000 HK$’000 678,100 592,334 823 555 678,923 592,889 1,167,865 785,016 54,452 49,025 49,148 48,234 9,707 8,455	Consolidated 2006 2005 HK$’000 HK$’000 678,100 592,334 823 555 678,923 592,889 1,167,865 785,016 54,452 49,025 49,148 48,234 9,707 8,455
					592,889

					785,016 49,025 48,234 8,455

7. DILUTION LOSS ON SHARE REFORM OF AN ASSOCIATE

The completion of the share reform plan for the conversion of the non-freely transferable shares of Xinhua Metal Products Co., Ltd. (“Xinhua Metal”), an associate of the Group, into shares freely transferable on the Shanghai Stock Exchange (the “Share Reform Plan”) took place during the year. Under the Share Reform Plan, the nonfreely transferable shareholders of Xinhua Metal, including a wholly-owned subsidiary of the Company, would offer holders of freely transferable share of Xinhua Metal 3.3 non-freely transferable shares for every 10 freely transferable shares held by such holders, in exchange for the consent by the holders of freely transferable share of Xinhua Metal to the conversion of all non-freely transferable shares into freely transferable shares of Xinhua Metal. Followed by the completion of the Share Reform Plan, the Group’s equity interest in Xinhua Metal was diluted from approximately 16.75% to 14.49%. A loss on share reform of approximately HK$6,858,000 was recognised during the year.

8. FINANCE COSTS

FINANCE COSTS
Interest on bank and other borrowings wholly repayable within five years Amortisation of borrowing costs Interest on finance leases Total borrowing costs	THE GROUP 2006 2005 HK$’000 HK$’000 17,849 13,682 1,055 780 – 6 18,904 14,468
		14,468

FINANCIAL INFORMATION

APPENDIX I

9. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging
(crediting):
Cost of inventories recognised as an expense
Staff costs, including directors’ remuneration_(note 11):
– Salaries, wages and other benefits
– Retirement benefit scheme contributions
Total staff costs
Allowance for inventories
Depreciation
Auditors’ remuneration
Amortisation of prepaid lease payments
(included in “Cost of sales”)
Foreign exchange gains, net
Loss on disposal of property, plant and equipment
Gain on disposal of property held for sale
Increase in fair value of investment properties
Surplus on revaluation of leasehold land and buildings, net
Gross rental income
Less: direct operating expenses for investment
property that generates rental income
Net rental income
Interest income
Share of tax of a jointly controlled entity (included in
“Share of result of a jointly controlled entity”)
Share of tax of an associate
(included in “Share of result of an associate”)
10.
INCOME TAX EXPENSES
Current tax:
Hong Kong
Other regions in the PRC
Underprovision in prior years:
Hong Kong
Other regions in the PRC
Deferred taxation(note 33)_:
Current year
Taxation attributable to the Company and its subsidiaries

THE GROUP
2006
2005
HK$’000
HK$’000
553,269
497,034
36,512
34,075
1,941
1,652
38,453
35,727
267
–
40,092
38,794
630
530
432
421
(3,710)
(4,575)
167
299
(339)
–
(2,810)
(2,695)
(140)
(337)
(823)
(555)
85
72
(738)
(483)
(2,018)
(275)
1,913
1,700
1,901
1,563
THE GROUP
2006
2005
HK$’000
HK$’000
1,773
–
5,216
5,114
6,989
5,114
1
–
29
–
30
–
233
876
7,252
5,990

FINANCIAL INFORMATION

APPENDIX I

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the year. The charge for the year to Hong Kong Profits Tax has been relieved by approximately HK$2,901,000 as a result of tax losses brought forward from previous years.

No tax is payable on the profit for the year ended 31 December 2005 arising in Hong Kong since the assessable profit was wholly absorbed by tax losses brought forward.

Pursuant to the relevant laws and regulations in the PRC, operations of the Group in Zhejiang and Shanghai in the PRC have qualified for tax concessions in the form of reduced income tax rate to 15%. Besides, a subsidiary of the Group operating in the PRC is exempted from PRC income tax for two years starting from its first profitmaking year, followed by a 50% reduction of PRC income tax for the next three years, which was expired in the year ended 31 December 2005. Accordingly, the PRC income tax has been provided taking into account of these tax concessions.

The charge for the year can be reconciled to the profit per the income statement as follows:

Profit before taxation Tax at the applicable PRC income tax rate of 15% (2005: 15%)(Note 1) Tax effect of expenses not deductible in determining taxable profit Tax effect of income not taxable in determining taxable profit Tax effect of tax losses not recognised Tax effect of recognition of deferred tax assets previously not recognised Tax effect on utilisation of tax losses previously not recognised Tax effect on deferred tax assets not recognised Tax credit on qualified plant and machineries acquired_(Note 2)_ Tax effect on share of result of a jointly controlled entity Tax effect on share of result of an associate Effect of tax exemptions and concessions granted to subsidiaries Effect of different tax rates in other jurisdictions Underprovision in respect of prior year Others Tax expense for the year	2006 HK$’000 % 83,283 12,492 15.00 1,771 2.13 (472) (0.57) 3,213 3.86 – – (2,295) (2.76) 57 0.07 (3,664) (4.40) (1,537) (1.85) (1,492) (1.79) (1,166) (1.40) 285 0.34 30 0.04 30 0.04 7,252 8.71	2005 HK$’000 % 68,218 10,233 15.00 1,665 2.44 (159) (0.23) 2,145 3.14 (33) (0.05) (977) (1.43) – – – – (1,370) (2.01) (717) (1.05) (4,915) (7.20) 44 0.06 – – 74 0.11 5,990 8.78

Note:

The tax rate in the jurisdiction where the operation of the Group is substantially based is used.
Pursuant to approval from documents numbers 2004 No. 360, 362 and 515, 2005 No. 461 and 2006 No. 227 issued by the Jiaxing State Tax Bureau, a subsidiary of the Company can enjoy the tax credit of approximately RMB7,777,000 against its enterprise income tax for purchasing the plant and machineries. The Company recognised approximately RMB3,687,000 (2005: Nil), equivalent to HK$3,664,000 (2005: Nil), during the year ended 31 December 2006.

In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group’s leasehold land and buildings has been charged directly to equity (see note 33).

FINANCIAL INFORMATION

APPENDIX I

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the nine (2005: ten) directors were as follows:

For the year ended 31 December 2006

Fees Other emoluments Salaries and other benefits Retirement benefit scheme contributions Discretionary bonus_(Note)_ Total emoluments	Cao Zhong HK$’000 – – – 525 525	Li Shaofeng HK$’000 – 2,080 124 525 2,729	Leung Tong Shun Sang, Yihui Tony HK$’000 HK$’000 – 120 1,786 – 97 – 260 – 2,143 120	Tang Cornor Kwok Kau HK$’000 – 1,690 97 260 2,047	Geert Johan Roelens HK$’000 5 – – – 5	Yip Kin Man, Raymond HK$’000 150 – – – 150	Law, Yui Lun HK$’000 150 – – – 150	Chu, Kwok Tsu Gilbert HK$’000 150 – – – 150	Total HK$’000 575 5,556 318 1,570
									8,019

For the year ended 31 December 2005

Cao Zhong HK$’000 Fees – Other emoluments Salaries and other benefits – Retirement benefit scheme contributions – Discretionary bonus_(Note)_ 500 Total emoluments 500	Li Shaofeng HK$’000 – 1,950 120 450 2,520	Leung Tong Shun Sang, Yihui Tony HK$’000 HK$’000 – – 1,560 – 88 – 195 – 1,843 –	Tang Cornor Kwok Kau HK$’000 – 1,690 98 275 2,063	Yip Kin Man, Raymond HK$’000 125 – – – 125	Law, Yui Lun HK$’000 75 – – – 75	Chu, Kwok Tsu Gilbert HK$’000 25 – – – 25	Chen Siu Min, Kelvin HK$’000 63 – – – 63	Hui, Hung Stephen HK$’000 100 – – – 100	Total HK$’000 388 5,200 306 1,420
									7,314

Note: The discretionary bonus is determined having regard to individual performance, the Group’s performance and profitability, remuneration benchmark in the industry and prevailing market condition.

No director waived any emoluments in the years ended 31 December 2006 and 2005.

(b) Employees’ emoluments

The emoluments of the five highest paid individuals, excluding directors, for the year are as follows:

Salaries and other benefits Retirement benefit scheme contributions Discretionary bonus	2006 HK$’000 3,190 60 614 3,864	2005 HK$’000 2,921 60 304
		3,285

Their emoluments were within the following bands:

	Number of employees	Number of employees
	2006	2005
HK$Nil to HK$1,000,000	4	5
HK$1,000,001 to HK$1,500,000	1	–

FINANCIAL INFORMATION

APPENDIX I

12. DIVIDENDS

	2006	2005
	HK$’000	HK$’000
No dividend was paid for the year ended
31 December 2006 while a final dividend of
HK1.5 cents per share was paid for the
year ended 31 December 2005	–	15,391

The final dividend of HK1.0 cent (2005: Nil) per share has been proposed by the directors and is subject to approval by the shareholders of the Company in the forthcoming annual general meeting.

13. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

14.

Earnings Profit for the year for the purpose of calculation of basic and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Share options Weighted average number of ordinary shares for the purposes of diluted earnings per share INVESTMENT PROPERTIES At 1 January 2005 Transfer to property, plant and equipment at fair value Increase in fair value, net At 1 January 2006 Transfer to property, plant and equipment at fair value Increase in fair value At 31 December 2006	THE GROUP 2006 2005 HK$’000 HK$’000 76,031 62,228 THE GROUP 2006 2005 1,037,710,392 1,026,066,556 58,949,314 38,706,181 1,096,659,706 1,064,772,737 THE GROUP HK$’000 8,966 (1,321) 2,695 10,340 (930) 2,810 12,220	THE GROUP 2006 2005 HK$’000 HK$’000 76,031 62,228 THE GROUP 2006 2005 1,037,710,392 1,026,066,556 58,949,314 38,706,181 1,096,659,706 1,064,772,737 THE GROUP HK$’000 8,966 (1,321) 2,695 10,340 (930) 2,810 12,220
		1,064,772,737

		THE GROUP HK$’000 8,966 (1,321) 2,695
		10,340 (930) 2,810
		12,220

The fair value of the Group’s investment properties at 31 December 2006 has been arrived at on the basis of valuation carried out by Messrs. Vigers International Property Consultant (“Vigers International”), an independent professional valuer not connected with the Group. Vigers International is a member of Institute of Valuers and has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations.

FINANCIAL INFORMATION

APPENDIX I

The valuation, which conforms to International Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties.

The carrying amount of investment properties comprises land and buildings in Hong Kong and other regions in the PRC as follows:

Long-term lease in Hong Kong Medium-term lease in other regions in the PRC	THE GROUP 2006 2005 HK$’000 HK$’000 8,650 7,760 3,570 2,580 12,220 10,340	THE GROUP 2006 2005 HK$’000 HK$’000 8,650 7,760 3,570 2,580 12,220 10,340
		10,340

All investment properties are rented out under operating leases.

15. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST OR VALUATION At 1 January 2005 Exchange realignment Additions Reclassification Transfer from investment properties Transfer to asset held for sale Disposals Surplus on revaluation, net At 31 December 2005 and 1 January 2006 Exchange realignment Additions Reclassification Transfer from investment properties Disposals Surplus on revaluation, net At 31 December 2006 Comprising: At cost At valuation	Leasehold land and Leasehold buildings improvements HK$’000 HK$’000 61,871 2,140 1,036 6 3 9 1,854 – 1,321 – (2,700) – – – (2,206) – 61,179 2,155 1,867 10 – 72 – – 930 – – (141) 284 – 64,260 2,096 – 2,096 64,260 – 64,260 2,096	Plant and machinery HK$’000 560,355 11,158 2,226 1,008 – – (710) – 574,037 20,375 606 6,242 – (32) – 601,228 601,228 – 601,228	Furniture, fixtures and equipment HK$’000 4,593 53 795 – – – (19) – 5,422 117 276 – – (530) – 5,285 5,285 – 5,285	Motor vehicles HK$’000 6,940 72 1,612 – – – – – 8,624 148 542 – – (323) – 8,991 8,991 – 8,991	Construction in progress HK$’000 435 8 3,810 (2,862) – – – – 1,391 50 8,211 (6,242) – – – 3,410 3,410 – 3,410	Total HK$’000 636,334 12,333 8,455 – 1,321 (2,700) (729) (2,206)
						652,808 22,567 9,707 – 930 (1,026) 284
						685,270
						621,010 64,260
						685,270

APPENDIX I

FINANCIAL INFORMATION

Leasehold land and Leasehold buildings improvements HK$’000 HK$’000 ACCUMULATED DEPRECIATION At 1 January 2005 – 1,083 Exchange realignment 34 1 Provided for the year 3,200 236 Eliminated on disposals – – Eliminated on revaluation (3,171) – Transfer to asset held for sale (63) – At 31 December 2005 and 1 January 2006 – 1,320 Exchange realignment 68 4 Provided for the year 3,416 219 Eliminated on disposals – (63) Eliminated on revaluation (3,484) – At 31 December 2006 – 1,480 NET BOOK VALUE At 31 December 2006 64,260 616 At 31 December 2005 61,179 835 The carrying amount of leasehold land and buildings comprises: Land in Hong Kong: Long-term leases Medium-term leases Land in other regions in the PRC: Long-term lease Medium-term lease	Plant and machinery HK$’000 147,384 3,276 34,166 (333) – – 184,493 7,199 35,088 (19) – 226,761 374,467 389,544	Furniture, fixtures and equipment HK$’000 2,690 34 527 (16) – – 3,235 73 637 (478) – 3,467 1,818 2,187	Furniture, fixtures and equipment HK$’000 2,690 34 527 (16) – – 3,235 73 637 (478) – 3,467 1,818 2,187	Motor Construction vehicles in progress HK$’000 HK$’000 4,964 – 46 – 665 – – – – – – – 5,675 – 98 – 732 – (237) – – – 6,268 – 2,723 3,410 2,949 1,391 THE GROUP 2006 HK$’000 1,180 5,700 2,450 54,930 64,260	Motor Construction vehicles in progress HK$’000 HK$’000 4,964 – 46 – 665 – – – – – – – 5,675 – 98 – 732 – (237) – – – 6,268 – 2,723 3,410 2,949 1,391 THE GROUP 2006 HK$’000 1,180 5,700 2,450 54,930 64,260	Total HK$’000 156,121 3,391 38,794 (349) (3,171) (63)
						194,723 7,442 40,092 (797) (3,484)
						237,976
						447,294

						458,085

						2005 HK$’000 – 5,699 1,960 53,520
						61,179

All leasehold land and buildings of the Group were valued at 31 December 2006 by Vigers International on an open market value basis. Vigers International is not connected with the Group.

If the leasehold land and buildings had not been revalued, they would have been included in these financial statements at historical cost less accumulated depreciation of approximately HK$63,007,000 (2005: HK$64,736,000).

FINANCIAL INFORMATION

APPENDIX I

16. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Medium-term prepaid lease payments located in the PRC Analysed for reporting purposes as: Current asset Non-current asset	THE GROUP 2006 2005 HK$’000 HK$’000 7,930 8,084 441 426 7,489 7,658 7,930 8,084	THE GROUP 2006 2005 HK$’000 HK$’000 7,930 8,084 441 426 7,489 7,658 7,930 8,084

		426 7,658
		8,084

17. INVESTMENT IN SUBSIDIARIES/ADVANCES TO SUBSIDIARIES

Unlisted shares, at cost Capital contributions Advances to subsidiaries	THE COMPANY 2006 2005 HK$’000 HK$’000 15,182 15,182 350,467 176,085 365,649 191,267 415,593 330,918	THE COMPANY 2006 2005 HK$’000 HK$’000 15,182 15,182 350,467 176,085 365,649 191,267 415,593 330,918
		191,267

		330,918

Capital contributions represent imputed interest on interest-free advances to subsidiaries.

Except for the balances with a subsidiary of HK$15,372,000 (2005: HK$15,372,000) which bears interest at the London Interbank Offered Rate (“LIBOR”) plus 3% (2005: LIBOR plus 3%) per annum and with a subsidiary of HK$9,587,000 (2005: HK$9,587,000) which bears interest at Hong Kong Dollar Prime Rate (2005: 2%) per annum, the remaining balances are interest free. In the opinion of the directors, the Company will not demand repayment within one year from the balance sheet date and are therefore considered as non-current. Such interestfree loans are measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. As at 31 December 2006, the effective interest rate used was 7.75% (2005: 7.75%), being the prevailing market borrowing rate of interest for a similar instrument.

Details of the Company’s principal subsidiaries at 31 December 2006 are set out in note 43.

18. INTERESTS IN A JOINTLY CONTROLLED ENTITY

Cost of investment in a jointly controlled entity Share of post-acquisition profits and reserves, net of dividend received	THE GROUP 2006 2005 HK$’000 HK$’000 19,500 19,500 34,952 29,525 54,452 49,025	THE GROUP 2006 2005 HK$’000 HK$’000 19,500 19,500 34,952 29,525 54,452 49,025
		49,025

FINANCIAL INFORMATION

APPENDIX I

The summarised financial information in respect of the Group’s jointly controlled entity which is accounted for using the equity method is set out below:

Current assets Non-current assets Current liabilities Income Expenses	THE GROUP 2006 2005 HK$’000 HK$’000 71,070 63,953 19,860 20,501 (36,478) (35,429) 114,712 117,995 (104,467) (108,862)	THE GROUP 2006 2005 HK$’000 HK$’000 71,070 63,953 19,860 20,501 (36,478) (35,429) 114,712 117,995 (104,467) (108,862)

		20,501

		(35,429)

		117,995

		(108,862)

Particulars of the Group’s jointly controlled entity is set out in note 44.

19. INTERESTS IN AN ASSOCIATE

Cost of investment Share of post-acquisition profits and reserves, net of dividend received Fair value of listed investments	THE GROUP 2006 2005 HK$’000 HK$’000 5,282 5,282 43,866 42,952 49,148 48,234 112,875 N/A	THE GROUP 2006 2005 HK$’000 HK$’000 5,282 5,282 43,866 42,952 49,148 48,234 112,875 N/A
		48,234

		N/A

The cost of investment represents the Group’s 14.49% (2005: 16.75%) interest in Xinhua Metal, a company listed on the Shanghai Stock Exchange. During the year, Xinhua Metal implemented a share reform plan, details of which are outlined in note 7.

Under the Share Reform Plan, the shares of Xinhua Metal held by the Group will be subject to a lock-up period of 12 months (”Lock-up Period”) upon such shares becoming freely transferable shares. The Group undertakes not to sell the number of shares in Xinhua Metal in exceed of (i) 5% of its entire issued share capital for 12 months; and (ii) 10% of its entire issued share capital for 24 months, after the Lock-up Period. Following the 24 months after the Lock-Up period, the Group will be able to dispose its shareholding in Xinhua Metal free from any restriction.

The fair value of the listed investments is based on the price quoted on the Shanghai Stock Exchange.

FINANCIAL INFORMATION

APPENDIX I

The summarised financial information in respect of the Group’s associate is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of an associate Revenue Profit for the year Group’s share of result of an associate for the year	THE GROUP 2006 2005 HK$’000 HK$’000 653,289 606,307 (314,104) (318,343) 339,185 287,964 49,148 48,234 980,112 785,576 63,905 28,542 9,952 4,781

Particulars of the Group’s associate is set out in note 45.

20. GOODWILL

The carrying amount of goodwill at the balance sheet date is approximately HK$41,672,000 (2005: HK$41,672,000).

Particulars regarding impairment testing on goodwill are disclosed in note 21.

21. IMPAIRMENT TESTING ON GOODWILL

As explained in note 6, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill set out in note 20 have been allocated to a subsidiary in steel cord segment, Jiaxing Eastern Steel Cord Co., Ltd..

During the year ended 31 December 2006, management of the Group determines that there are no impairments of any of its cash-generating units (“CGU”) containing goodwill.

The recoverable amount of the above CGU have been determined on the basis of value in use calculations. The recoverable amounts are based on certain key assumptions. The value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 7.6%. The cashflow of the CGU beyond the 5-year period is extrapolated for further thirteen years using zero growth rate. Cash flow projections during the budget period for the CGU are based on the expected gross revenue and gross margins during the budget period. Budgeted gross revenue and gross margins have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of the above CGU inclusive of goodwill to exceed the recoverable amount of the above CGU.

22. CLUB MEMBERSHIPS

Club memberships, at cost Less: Impairment losses	THE GROUP 2006 2005 HK$’000 HK$’000 2,010 2,010 (1,335) (1,335) 675 675	THE COMPANY 2006 2005 HK$’000 HK$’000 820 820 (505) (505) 315 315

FINANCIAL INFORMATION

APPENDIX I

23. AVAILABLE-FOR-SALE INVESTMENT

Unlisted equity investment, at cost Less: Impairment losses	THE GROUP 2006 2005 HK$’000 HK$’000 1,123 1,123 (1,123) (1,123) – –	THE GROUP 2006 2005 HK$’000 HK$’000 1,123 1,123 (1,123) (1,123) – –
		–

The above unlisted investment represents investment in unlisted equity securities issued by a private entity incorporated in the PRC which were fully impaired in prior years.

24. INVENTORIES

Raw materials Work in progress Finished goods	THE GROUP 2006 2005 HK$’000 HK$’000 34,599 36,340 11,656 10,620 41,576 37,200 87,831 84,160	THE GROUP 2006 2005 HK$’000 HK$’000 34,599 36,340 11,656 10,620 41,576 37,200 87,831 84,160
		84,160

25. TRADE RECEIVABLES/BILLS RECEIVABLE

Trade receivables Less: accumulated impairment Bill receivables	THE GROUP 2006 2005 HK$’000 HK$’000 183,302 143,528 (5,306) (3,356) 177,996 140,172 186,272 71,448 364,268 211,620	THE GROUP 2006 2005 HK$’000 HK$’000 183,302 143,528 (5,306) (3,356) 177,996 140,172 186,272 71,448 364,268 211,620
		140,172 71,448
		211,620

Included in bills receivable, HK$44,272,000 (2005: Nil) was discounted to banks.

The Group normally allows credit periods of 30 – 120 days to its trade customers.

An aged analysis of trade and bills receivable as at the balance sheet date is as follows:

0 – 90 days 91 – 180 days Over 180 days	THE GROUP 2006 2005 HK$’000 HK$’000 249,344 181,710 106,378 29,910 8,546 – 364,268 211,620	THE GROUP 2006 2005 HK$’000 HK$’000 249,344 181,710 106,378 29,910 8,546 – 364,268 211,620
		211,620

FINANCIAL INFORMATION

APPENDIX I

26. AMOUNT DUE FROM (TO) A RELATED COMPANY

The amount due from Shougang Concord Technology Holdings Limited (“Shougang TECH”) and its subsidiaries (collectively “Shougang TECH Group”) is trading nature, unsecured, non-interest bearing and repayable on demand. The aging as at the balance sheet date is within 180 days.

The amount due to Shougang Holding (Hong Kong) Limited (“Shougang HK”) is unsecured, non-interest bearing and repayable on demand.

Shougang HK is a substantial shareholder of both Shougang TECH and the Company.

27. PLEDGE OF ASSETS

At the balance sheet date, the following assets were pledged to secure certain bank borrowings as set out in note 32.

(i) the Group’s investment properties amounting to HK$3,570,000 (2005: HK$2,580,000) and certain of the leasehold land and buildings with an aggregate net book value of HK$43,934,000 (2005: HK$42,486,000);
(ii) the Group’s prepaid lease payments with a net book value of HK$7,280,000 (2005: HK$8,084,000);
(iii) the Group’s bills receivable amounting to HK$44,272,000 (2005: Nil);
(iv) the bank deposits of the Group and the Company amounting to HK$3,000,000 (2005: HK$3,000,000); and
(v) the Company’s shares in certain subsidiaries.

As at 31 December 2005, the Group’s plant and equipment with an aggregate net book values of approximately HK$136,956,000 were pledged. No plant and equipment were pledged at 31 December 2006.

28. Pledged Bank Deposits/bank balances and cash

The Group

Bank balances carry interest at market rates which range from 0.5% to 3.7% per annum. The pledged bank deposits, which pledged to banks to secure short-term banking facilities granted to the Group therefore classified as current, carried fixed interest rate which range from 2.875% to 3.58% per annum.

The Company

Bank balances carry interest at market rates which range from 1.9% to 3.0% per annum. The pledged bank deposits carry fixed interest rate which range from 2.875% to 3.58% per annum.

29. ASSET CLASSIFIED AS HELD FOR SALE

On 17 November 2005, the directors resolved to dispose one of the Group’s properties of the others segment. Agreement has been signed before 31 December 2005 and the transaction was completed on 5 January 2006 at a gain of approximately HK$339,000. The asset which was expected to be sold within twelve months, has been classified as a disposal asset held for sale and presented separately in the balance sheet at 31 December 2005.

FINANCIAL INFORMATION

APPENDIX I

30. TRADE PAYABLES

An aged analysis of trade payables as at the balance sheet date is as follows:

0 – 90 days 91 – 180 days Over 180 days	THE GROUP 2006 2005 HK$’000 HK$’000 8,861 9,172 555 87 504 25 9,920 9,284	THE GROUP 2006 2005 HK$’000 HK$’000 8,861 9,172 555 87 504 25 9,920 9,284
		9,284

31. AMOUNTS DUE FROM (TO) SUBSIDIARIES

The amounts due from (to) subsidiaries are unsecured, interest free and have no fixed repayment terms.

32. BANK BORROWINGS

Trust receipt loans Bank loans Discounted bills with recourse Secured Unsecured The above amounts are repayable as follows: Within one year In the second year Less: Amount due for settlement within one year (shown under current liabilities) Amount due for settlement after one year	THE GROUP 2006 2005 HK$’000 HK$’000 55,382 79,592 263,321 163,421 44,272 – 362,975 243,013 271,200 185,948 91,775 57,065 362,975 243,013 THE GROUP 2006 2005 HK$’000 HK$’000 238,499 200,415 124,476 42,598 362,975 243,013 (238,499) (200,415) 124,476 42,598	THE COMPANY 2006 2005 HK$’000 HK$’000 – 7,384 173,905 58,271 – – 173,905 65,655 173,905 65,655 – – 173,905 65,655 THE COMPANY 2006 2005 HK$’000 HK$’000 49,429 31,750 124,476 33,905 173,905 65,655 (49,429) (31,750) 124,476 33,905	THE COMPANY 2006 2005 HK$’000 HK$’000 – 7,384 173,905 58,271 – – 173,905 65,655 173,905 65,655 – – 173,905 65,655 THE COMPANY 2006 2005 HK$’000 HK$’000 49,429 31,750 124,476 33,905 173,905 65,655 (49,429) (31,750) 124,476 33,905
			65,655 (31,750)
			33,905

Bank loans include approximately HK$113,946,000 (2005: 105,150,000) fixed-rate borrowings and expose the Group to fair value interest rate risk. The fixed-rate borrowings are repayable within one year. The remaining bank loans are variable-rate borrowings thus exposing the Group to cash flow interest rate risk.

FINANCIAL INFORMATION

APPENDIX I

The range of effective interest rates (which are also equal to contractual interest rates) on the Group’s borrowings are as follows:

	2006	2005
Effective interest rate per annum:
Fixed-rate borrowings	4.3% – 4.9%	2.1% – 5.0%
Variable-rate borrowings	6.2% – 7.9%	3.8% – 7.4%

The Group’s borrowings that are denominated in currencies other than the functional currency of the relevant group entities are set out below:

				HK$’000
As at	31	December	2006	26,742
As at	31	December	2005	150,649

During the year, the Group obtained new loans in the amount of HK$314,162,000 (2005: HK$131,913,000). These fixed-rate borrowings and variable-rate borrowings bear interest at market rates ranging from 5.02% to 5.58% per annum and from 5.46% to 6.56% per annum, respectively, and will be fully repayable within two years.

33. DEFERRED TAX

The following are the major deferred tax liabilities (assets) recognised by the Group and movements thereon during the year and prior reporting period:

Accelerated tax THE GROUP depreciation HK$’000 At 1 January 2005 528 Charge (credit) to income statement for the year 552 Charge to equity for the year – At 31 December 2005 and 1 January 2006 1,080 Exchange realignment 17 Charge (credit) to income statement for the year 267 Charge to equity for the year – At 31 December 2006 1,364	Allowance for bad and doubtful debts HK$’000 (728) 294 – (434) (14) (253) – (701)	Allowance for inventories HK$’000 (44) 14 – (30) (1) (1) – (32)	Revaluation of properties HK$’000 461 310 75 846 14 172 408 1,440	Tax loss HK$’000 (124) (334) – (458) – (66) – (524)	Others HK$’000 (109) 40 – (69) – 114 – 45	Total HK$’000 (16 876 75
						935 16 233 408
						1,592

At the balance sheet date, the Group has unused tax losses of approximately HK$73,586,000 (2005: HK$67,088,000) available for offset against future profits. A deferred tax asset has been recognised in respect of approximately HK$2,994,000 (2005: HK$2,617,000) of such losses. No deferred tax asset has been recognised in respect of the remaining approximately HK$70,592,000 (2005: HK$64,471,000) due to the unpredictability of future profit streams. The losses may be carried forward indefinitely.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$5,715,000 (2005: HK$3,557,000). A deferred tax asset has been recognised in respect of approximately HK$4,880,000 (2005: HK$3,104,000) of such losses. No deferred tax asset has been recognised in respect of the remaining approximately HK$835,000 (2005: HK$453,000) as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

The Company had no significant deferred taxation for the year or at the balance sheet date.

FINANCIAL INFORMATION

APPENDIX I

34. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps Major terms of the interest rate swaps are as follows: Notional amount HK$60,000,000 HK$40,000,000	2006 2005 HK$’000 HK$’000 294 (46) Maturity 17 June 2008 15 December 2008	2005 HK$’000 (46)

For interest rate swap with contract sum of HK$60,000,000, interest rate will swap from Hong Kong Interbank Offered Rate (“HIBOR”) to 3.48% if the three months HIBOR is equal to or less than 4.12% in each fixing date or interest rate will swap to three months HIBOR less 0.64% if the three months HIBOR is greater than 4.12% in each fixing date.

For interest rate swap with contract sum of HK$40,000,000, interest rate will swap from HIBOR to 3.58% if the three months HIBOR is equal to or less than 4.28% in each fixing date or interest rate will swap to three months HIBOR less 0.70% if the three months HIBOR is greater than 4.28%.

The above derivatives are not designated as hedging instruments.

35. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: At 1 January and at 31 December Issued and fully paid: At 1 January Issue on subscription of new shares_(note)_ At 31 December	Number of shares ’000 2,000,000 1,026,067 250,000 1,276,067	2006 Nominal value HK$’000 200,000 102,607 25,000 127,607	2005 Number Nominal of shares value ’000 HK$’000 2,000,000 200,000 1,026,067 102,607 – – 1,026,067 102,607	2005 Number Nominal of shares value ’000 HK$’000 2,000,000 200,000 1,026,067 102,607 – – 1,026,067 102,607

				102,607 –
				102,607

Note: In order to finance the expansion plan of its subsidiary, Jiaxing Eastern Steel Cord Co., Ltd., the Company entered into a subscription agreement and a supplemental agreement on 22 and 27 September 2006, respectively pursuant to which the Company issued and allotted 250,000,000 ordinary shares of HK$0.10 each in the Company at a cash price of HK$0.65 per share to NV Bekaert SA. The new shares ranked pari passu with existing shares in all respects.

FINANCIAL INFORMATION

APPENDIX I

36. RESERVES

THE COMPANY At 1 January 2005 Profit for the year Dividend paid At 31 December 2005 and 1 January 2006 Issue of shares Share issue expenses Profit for the year At 31 December 2006	Share premium HK$’000 287,024 – – 287,024 137,500 (1.089) – 423,435	Capital reserve HK$’000 23,990 – – 23,990 – – – 23,990	Capital redemption reserve HK$’000 1,013 – – 1,013 – – – 1,013	Retained profits HK$’000 16,837 30,072 (15,391) 31,518 – – 32,505 64,023	Total HK$’000 328,864 30,072 (15,391)
					343,545 137,500 (1,089) 32,505
					512,461

The capital reserve of the Company represents the benefit of acquiring a shareholder’s loan at a nominal consideration of HK$1 upon the acquisition of a subsidiary in previous years.

37. OPERATING LEASES

The Group as lessee

	THE GROUP	THE GROUP
	2006	2005
	HK$’000	HK$’000
Minimum lease payments under operating leases
in respect of land and buildings during the year	1,960	1,489

The Group leases certain of its offices, factory premises and staff quarters under operating lease arrangements. Leases are negotiated for terms of one to seven years.

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	THE GROUP 2006 2005 HK$’000 HK$’000 942 422 4,778 220 2,886 – 8,606 642	THE GROUP 2006 2005 HK$’000 HK$’000 942 422 4,778 220 2,886 – 8,606 642
		642

The Group as lessor

Property rental income earned during the year was HK$823,000 (2005: HK$555,000). The Group leases its investment properties under operating lease arrangements, with leases negotiated for an average term of two years.

FINANCIAL INFORMATION

APPENDIX I

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	THE GROUP 2006 2005 HK$’000 HK$’000 513 537 425 338 938 875	THE GROUP 2006 2005 HK$’000 HK$’000 513 537 425 338 938 875
		875

The Company had no commitment under operating leases in both years.

38. CAPITAL COMMITMENTS

Commitments in respect of the acquisition of property, plant and equipment – contracted for but not provided in the financial statements – authorised but not contracted for	THE GROUP 2006 2005 HK$’000 HK$’000 25,174 194 375,633 – 400,807 194	THE GROUP 2006 2005 HK$’000 HK$’000 25,174 194 375,633 – 400,807 194
		194

The Company did not have any significant commitments in both years.

39. CONTINGENT LIABILITIES

Guarantees given to banks in respect of banking facilities utilised by subsidiaries Guarantee for bank loans utilised by a jointly controlled entity	THE GROUP 2006 2005 HK$’000 HK$’000 – – 7,465 10,935 7,465 10,935	THE COMPANY 2006 2005 HK$’000 HK$’000 156,633 116,419 – – 156,633 116,419	THE COMPANY 2006 2005 HK$’000 HK$’000 156,633 116,419 – – 156,633 116,419
			116,419

40. RETIREMENT BENEFIT SCHEMES

The Group operates a Mandatory Provident Fund Scheme (the “MPF Scheme”) for all qualifying employees who are eligible to participate in the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes 5% of the relevant payroll costs to the MPF Scheme, which contribution is matched by employees.

The employees of the Group’s subsidiaries which operate in the PRC are required to participate in a retirement scheme or other similar defined contribution provident fund operated by the local municipal government. These PRC subsidiaries are required to contribute 20% to 23% of its payroll costs to the scheme/fund. The contributions are charged to the income statement as they become payable in accordance with the rules of the scheme/fund.

FINANCIAL INFORMATION

APPENDIX I

41. SHARE-BASED PAYMENT TRANSACTIONS

A share option scheme (the “2002 Scheme”) was adopted by the shareholders of the Company at the annual general meeting held on 7 June 2002. Under the 2002 Scheme, the board of directors (the “Board”) of the Company shall, subject to and in accordance with the provisions of the 2002 Scheme and The Rules Governing the Listing of Securities on the Stock Exchange, grant share options to any eligible participant to subscribe for shares in the capital of the Company.

The Company operates the 2002 Scheme for the purpose of providing incentives and rewards to eligible participants for their contributions to the Group or potential contribution to the Group. Eligible participants of the 2002 Scheme include any director (including executive and independent non-executive), executive, officer, employee or shareholder of the Company or any of the subsidiaries or any of the associates or any of the jointly controlled entity and any supplier, customer, consultant, adviser, agent, partner or business associate who will contribute or has contributed to the Group. The 2002 Scheme became effective on 7 June 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the 2002 Scheme is 102,222,600 shares which represented approximately 8.01% of the issued share capital of the company as at the date of approval of this annual report. The maximum number of shares issuable under the share options to each eligible participant in the 2002 Scheme within any 12-month period is limited to 1% of the issued share capital of the Company in issue under the 2002 Scheme. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

The offer of a grant of share options may be accepted within 60 days from the date of the offer, upon payment of a nominal consideration of HK$1 by the grantee. An option may be exercised under the 2002 Scheme at any time within 10 years from the date of grant of the options or may be determined by the Board at its absolute discretion. The minimum period for which an option must be held before it can be exercised will be determined by the Board at its discretion.

The exercise price per share in relation to an option shall be a price to be determined by the Board and shall be no less than the highest of (a) the official closing price of the shares of the Company as stated in the daily quotation sheets issued by the Stock Exchange on the date on which the option is offered to an eligible participant, which must be a business day; or (b) the official average closing price of the shares of the Company as stated in the daily quotation sheets issued by the Stock Exchange for the 5 business days immediately preceding the date of offer of option to an eligible participant; or (c) the nominal value of shares of the Company on the date of offer of option to an eligible participant.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meeting.

FINANCIAL INFORMATION

APPENDIX I

The following table discloses details of the Company’s share options held by eligible participants and movements in such holdings in relation to the 2002 Scheme during the year:

Grantees Directors of The Company Employees other than directors of the Company All other eligible participants Grantees Directors of The Company Employees other than directors of the Company All other eligible participants		Number of share options for 2006 Cancelled Exercise At during At price 1.1.2006 the year 31.12.2006 Date of grant Exercise period per share (Note a) HK$ 27,930,000 – 27,930,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 3,060,000 – 3,060,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 68,882,000 – 68,882,000 25.6.2003 25.6.2003 – 24.6.2013 0.365 5,974,000 – 5,974,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 57,350,000 – 57,350,000 2.10.2003 2.10.2003 – 1.10.2013 0.780 163,196,000 – 163,196,000 27,500,000 (4,000,000) 23,500,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 (Note b) 7,652,000 – 7,652,000 23.8.2002 23.8.2002 – 12.4.2008 0.295 (Note c) 9,948,000 – 9,948,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 20,660,000 – 20,660,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 38,260,000 – 38,260,000 228,956,000 (4,000,000) 224,956,000 Number of share options for 2005 Cancelled Exercise At during At price 1.1.2005 the year 31.12.2005 Date of grant Exercise period per share (Note a) HK$ 27,930,000 – 27,930,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 3,060,000 – 3,060,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 68,882,000 – 68,882,000 25.6.2003 25.6.2003 – 24.6.2013 0.365 5,974,000 – 5,974,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 57,350,000 – 57,350,000 2.10.2003 2.10.2003 – 1.10.2013 0.780 163,196,000 – 163,196,000 27,500,000 – 27,500,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 7,652,000 – 7,652,000 23.8.2002 23.8.2002 – 12.4.2006 0.295 (Note c) 9,948,000 – 9,948,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 20,660,000 – 20,660,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 38,260,000 – 38,260,000 228,956,000 – 228,956,000	Number of share options for 2006 Cancelled Exercise At during At price 1.1.2006 the year 31.12.2006 Date of grant Exercise period per share (Note a) HK$ 27,930,000 – 27,930,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 3,060,000 – 3,060,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 68,882,000 – 68,882,000 25.6.2003 25.6.2003 – 24.6.2013 0.365 5,974,000 – 5,974,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 57,350,000 – 57,350,000 2.10.2003 2.10.2003 – 1.10.2013 0.780 163,196,000 – 163,196,000 27,500,000 (4,000,000) 23,500,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 (Note b) 7,652,000 – 7,652,000 23.8.2002 23.8.2002 – 12.4.2008 0.295 (Note c) 9,948,000 – 9,948,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 20,660,000 – 20,660,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 38,260,000 – 38,260,000 228,956,000 (4,000,000) 224,956,000 Number of share options for 2005 Cancelled Exercise At during At price 1.1.2005 the year 31.12.2005 Date of grant Exercise period per share (Note a) HK$ 27,930,000 – 27,930,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 3,060,000 – 3,060,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 68,882,000 – 68,882,000 25.6.2003 25.6.2003 – 24.6.2013 0.365 5,974,000 – 5,974,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 57,350,000 – 57,350,000 2.10.2003 2.10.2003 – 1.10.2013 0.780 163,196,000 – 163,196,000 27,500,000 – 27,500,000 25.8.2003 25.8.2003 – 24.8.2013 0.740 7,652,000 – 7,652,000 23.8.2002 23.8.2002 – 12.4.2006 0.295 (Note c) 9,948,000 – 9,948,000 23.8.2002 23.8.2002 – 22.8.2012 0.295 20,660,000 – 20,660,000 12.3.2003 12.3.2003 – 11.3.2013 0.325 38,260,000 – 38,260,000 228,956,000 – 228,956,000

		At 1.1.2005 27,930,000 3,060,000 68,882,000 5,974,000 57,350,000 163,196,000 27,500,000 7,652,000 9,948,000 20,660,000 38,260,000 228,956,000	Cancelled during the year – – – – – – – – – – – –

FINANCIAL INFORMATION

APPENDIX I

Notes:

a. The vesting period of the share options is from the date of grant to the end of the exercise period. The share option is fully vested on grant date.
b. The 4,000,000 options, were held by an employee of the Group who resigned on 25 December 2006, which were cancelled during the year.
c. The 7,652,000 outstanding options were held by Ms. Xu Xianghua (“Ms. Xu”) who resigned as director of the Company on 13 April 2004 and the exercise period were changed from 23/8/2002 – 22/8/2012 to 23/8/2002 – 12/4/2006 by the approval of the board of directors on 8 April 2004. In view of the great contribution provided by Ms. Xu during her tenure of her service for the Company, the exercise period was further extended to 12/4/2008 by the approval of the board of directors on 12 April 2006.

42. RELATED PARTY TRANSACTIONS

Trading transactions/balances

In addition to balances detailed in note 26 to the financial statements, during the year, the Group had the following material transactions with Shougang HK and its subsidiaries (collectively the “Shougang HK Group”) and Shougang TECH Group and a jointly controlled entity.

	2006	2005
	HK$’000	HK$’000
Consultancy fees paid to Shougang HK Group	960	960
Interest paid to Shougang HK Group	965	–
Rental expenses paid to Shougang HK Group	1,522	1,080
Sales to Shougang TECH Group	9,554	4,154
Corporate guarantees given to a jointly controlled entity	7,465	10,935

Compensation of key management personnel

The key management of the Group comprises all directors of the Company, details of their emoluments and sharebased payment transactions are disclosed in notes 11 and 41. The emoluments of the directors of the Company are decided by the remuneration committee having regard to individual’s performance, the Group’s performance and profitability, remuneration benchmark in the industry and prevailing market condition.

43. PRINCIPAL SUBSIDIARIES

Particulars of the principal subsidiaries at 31 December 2006 are as follows:

	Place of	Nominal value of
	incorporation/	issued and	Attributable
	registration	paid-up capital/	equity interest
Name of subsidiary	and operation	registered capital	of the Group		Principal activities
			2006	2005
Bigland Investment Limited	Hong Kong/	2 ordinary shares	100%	100%	Property investment
	PRC	of HK$1 each
Eastern Century Metal	Hong Kong	1,000,000 ordinary	100%	100%	Trading of metals and
Products Limited		shares of HK$1 each
investment holding
Everwinner Investments	Hong Kong	1,000,000 ordinary	100%	100%	Investment holding
Limited		shares of HK$1 each

FINANCIAL INFORMATION

APPENDIX I

	Place of	Nominal value of
	incorporation/	issued and	Attributable
	registration	paid-up capital/	equity	interest
Name of subsidiary	and operation	registered capital	of the	Group	Principal activities
			2006	2005
Fair Win Development	Hong Kong/	500,000 ordinary	100%	100%	Property investment
Limited	PRC	shares of HK$1 each
Heroland Investment Limited	Hong Kong	2 ordinary shares	100%	100%	Property investment
		of HK$1 each
Hing Cheong Metals (China	Hong Kong	1,000,000 ordinary	100%*	100%*	Processing and trading
& Hong Kong) Limited		shares of HK$1 each			of copper and brass
					products
Jiaxing Eastern Steel Cord	PRC	US$70,000,000	100%	100%	Manufacturing of
Co., Ltd.#					steel cord
嘉興東方鋼簾線有限公司
Meta International Limited	Hong Kong/	2 ordinary shares	100%*	100%*	Processing and trading
	PRC	of HK$1 each			of copper and brass
					products
Online Investments Limited	British Virgin	31,000,000 ordinary	100%	100%	Investment holding
	Islands/	shares of US$1 each
	Hong Kong

A wholly foreign owned enterprise.

Directly held by the Company.

The above table lists the subsidiaries of the Company 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 subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had any loan capital and issued any debt securities subsisting at the end of the year or at any time during the year.

44. PARTICULARS OF THE JOINTLY CONTROLLED ENTITY

Particulars of the jointly controlled entity as at 31 December 2006 are as follows:

					Percentage	Percentage
		Place of		Percentage	of voting	of profit
		registration		of equity	power	and loss
	Business	and	Registered	attributable	attributable	attributable	Principal
Name	structure	operation	capital	to the Group	to the Group	to the Group	activities
Shanghai Shenjia	Incorporated	PRC	US$10,000,000	25%	33%	25%	Manufacturing
Metal Products							of pre-stressed
Co., Ltd.							concrete strands
上海申佳金屬制品							and wires
有限公司

FINANCIAL INFORMATION

APPENDIX I

45. PARTICULARS OF THE ASSOCIATE

Particulars of the associate at 31 December 2006 are as follows:

		Place of		Percentage of
	Business	registration	Issued and	equity attributable	Principal
Name	structure	and operation	paid-up capital	to the Group	activities
				2006 2005
Xinhua Metal Products	Incorporated	PRC	193,220,374 shares	14.49% 16.75%	Manufacturing
Co., Ltd.(Note)			of RMB1 each		of pre-stressed
新華金屬制品股份					concrete strands
有限公司					and wires

Note:

Xinhua Metal Products Co., Ltd. (“Xinhua Metal”) is listed on the Shanghai Stock Exchange in the PRC. The shares in Xinhua Metal held by the Group are legal person shares and are not tradable on any stock exchange. The completion of the share reform plan for the conversion of the non-freely transferable shares of Xinhua Metal into shares freely transferable on the Shanghai Stock Exchange in the PRC (the “Share Reform Plan”) took place during the year. Under the Share Reform Plan, the non-freely transferable shareholders of Xinhua Metal, including a wholly-owned subsidiary of the Company, would offer holders of freely transferable share of Xinhua Metal 3.3 non-freely transferable shares for every 10 freely transferable shares held by such holders, in exchange for the consent by the holders of freely transferable share of Xinhua Metal to the conversion of all non-freely transferable shares into freely transferable shares of Xinhua Metal. Followed by the completion of the Share Reform Plan, the Group’s equity interest in Xinhua Metal was diluted from approximately 16.75% to 14.49%. Pursuant to the memorandum of association of Xinhua Metal, the Group is entitled to its equity share in the profits and losses and the net assets upon its cessation. Since the Group has one representative in the board of directors of Xinhua Metal, the Group is in a position to exercise significant influence over Xinhua Metal. Accordingly, Xinhua Metal has been accounted for as an associate.

FINANCIAL INFORMATION

APPENDIX I

3. UNAUDITED CONSOLIDATED INTERIM RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2007

Set out below is a summary of the unaudited condensed consolidated income statement, condensed consolidated balance sheet, condensed consolidated cash flows statement and notes to the financial statements of the Group as extracted from the interim report of the Company for the six months ended 30 June 2007 which was published on 21 September 2007.

Condensed Consolidated Income Statement

For the six months ended 30 June 2007

Notes
Revenue
3
Cost of sales
Gross profit
Other income
Fair value changes on
derivative financial instruments
Distribution and selling costs
Administrative expenses
Recovery of (allowance for) bad
and doubtful debts
Share of profit of a jointly controlled entity
Share of profit of an associate
Finance costs
4
Profit before taxation
Income tax expenses
5
Profit for the period
6
Dividend paid
7
Earnings per share
8
Basic (HK cents)
Diluted (HK cents)

Six months ended 30 June
2007
2006
(Unaudited)
(Unaudited)
HK$’000
HK$’000
343,967
322,593
(296,739)
(253,294)
47,228
69,299
3,140
2,962
442
942
(3,563)
(2,556)
(22,371)
(17,673)
139
(1,956)
5,196
4,507
4,425
3,082
(6,666)
(9,021)
27,970
49,586
(3,966)
(4,879)
24,004
44,707
12,761
–
1.88
4.36
1.82
4.14

FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Balance Sheet

At 30 June 2007

Notes Non-current assets Property, plant and equipment 9 Prepaid lease payments Investment properties 9 Goodwill Interests in a jointly controlled entity Interests in an associate Club memberships Current assets Inventories Trade receivables 10 Bills receivable 10 Prepayments, deposits and other receivables Prepaid lease payments Amount due from a jointly controlled entity 11 Amount due from an associate 11 Amount due from a related company 11 Derivative financial instruments Pledged bank deposits Bank balances and cash	30 June 2007 (Unaudited) HK$’000 458,783 16,622 12,220 41,672 51,978 51,157 675 633,107 96,504 206,992 166,281 11,922 1,008 9,422 3,987 6,029 736 3,000 114,761 620,642	31 December 2006 (Audited) HK$’000 447,294 7,489 12,220 41,672 54,452 49,148 675
		612,950
		87,831 177,996 186,272 14,438 441 – – 4,295 294 3,000 297,566
		772,133

FINANCIAL INFORMATION

APPENDIX I

Notes Current liabilities Trade payables 12 Other payables and accruals Tax payable Amount due to a related company 11 Bank borrowings – due within one year 13 Net current assets Total assets less current liabilities Non-current liabilities Bank borrowings – due after one year 13 Other payable Deferred tax liabilities Capital and reserves Share capital 14 Share premium and reserves Equity attributable to equity holders of the Company Share option reserve of a subsidiary Total equity	30 June 2007 (Unaudited) HK$’000 18,844 16,278 3,626 – 148,061 186,809 433,833 1,066,940 61,979 1,572 704 64,255 1,002,685 128,357 873,488 1,001,845 840 1,002,685	31 December 2006 (Audited) HK$’000 9,920 16,791 86 34,837 238,499
		300,133
		472,000
		1,084,950
		124,476 1,528 1,592
		127,596
		957,354

		127,607 829,747
		957,354 –
		957,354

FINANCIAL INFORMATION

APPENDIX I

Condensed Consolidated Statement Of Changes In Equity

For the six months ended 30 June 2007

Share capital HK$’000 102,607	Share premium HK$’000 287,024	Capital reserve HK$’000 32,659	Capital redemption reserve HK$’000 1,013	Property revaluation reserve HK$’000 857	Translation reserve HK$’000 17,249	PRC reserve funds HK$’000 27,698	Share option reserve HK$’000 –	Retained profits HK$’000 224,646	Total HK$’000 693,753	Equity component of share option reserve of a subsidiary HK$’000 –
– – –	– – –	– – –	– – –	– – –	5,455 537 590	– – –	– – –	– – –	5,455 537 590	– – –
– –	– –	– –	– –	– –	6,582 –	– –	– –	– 44,707	6,582 44,707	– –
–	–	–	–	–	6,582	–	–	44,707	51,289	–
– –	– –	– –	– –	64 (367	– ) –	– –	– –	– 367	64 –	– –
102,607	287,024	32,659	1,013	554	23,831	27,698	–	269,720	745,106	–

127,607	423,435	32,659	1,013	3,710	40,188	45,236	–	283,506	957,354	–
– – –	– – –	– – –	– – –	– – –	23,928 1,752 1,572	– – –	– – –	– – –	23,928 1,752 1,572	– – –
– –	– –	– –	– –	– –	27,252 –	– –	– –	– 24,004	27,252 24,004	– –
–	–	–	–	–	27,252	–	–	24,004	51,256	–
750 – – –	4,795 – – –	– – – –	– – – –	– – – –	– – – –	– – – 5,587	– 451 – –	– – (12,761 (5,587	5,545 451 ) (12,761 ) –	– 840 ) – –
128,357	428,230	32,659	1,013	3,710	67,440	50,823	451	289,162	1,001,845	840

FINANCIAL INFORMATION

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2007

Net cash generated by (used in) operating activities
Net cash (used in) generated by investing activities
Purchase of property, plant and equipment
Addition of prepaid lease payments
Proceeds from disposal of property,
plant and equipment
Other investing cash flows
Net cash (used in) generated by financing activities
Proceeds from issue of shares
New bank borrowings raised
Repayment of bank borrowings
Dividend paid
(Repayment of) loan from a related company
Other financing cash flows
Net (decrease) increase in cash and
cash equivalents
Cash and cash equivalents at 1 January
Effect of foreign exchange rate changes
Cash and cash equivalents at 30 June,
represented by bank balances and cash

Six months ended 30 June
2007
2006
(Unaudited)
(Unaudited)
HK$’000
HK$’000
37,733
(67,392)
(19,655)
(982)
(9,727)
–
10
2,977
–
3,782
(29,372)
5,777
5,550
–
151,182
263,981
(306,888)
(254,515)
(12,761)
–
(34,837)
73,714
(5)
–
(197,759)
83,180
(189,398)
21,565
297,566
37,378
6,593
141
114,761
59,084

FINANCIAL INFORMATION

APPENDIX I

Notes to the Condensed Financial Statements

For the six months ended 30 June 2007

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

2. SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at revalued amounts or fair values, as appropriate.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the annual financial statements of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2006.

In the current period, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the HKICPA, which are effective for the Group’s financial year beginning 1 January 2007. The adoption of these new HKFRSs has had no material effect on the results or financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognised.

The Group has not early applied the following new standards or interpretations that have been issued but are not yet effective.

HKAS 23 (Revised) Borrowing Costs[1] HKFRS 8 Operating Segments[1] HK(IFRIC) – INT 11 HKFRS 2 – Group and Treasury Share Transactions[2] HK(IFRIC) – INT 12 Service Concession Arrangements[3]

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 March 2007

3 Effective for annual periods beginning on or after 1 January 2008

The directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and financial position of the Group.

FINANCIAL INFORMATION

APPENDIX I

3. SEGMENT INFORMATION

Business segments

The Group’s primary format for reporting segment information is business segments.

For the six months ended 30 June 2007

Segment revenue Segment results Unallocated income Unallocated expenses Share of profit of a jointly controlled entity Share of profit of an associate Finance costs Profit before taxation Income tax expenses Profit for the period	Steel cord (Unaudited) HK$’000 200,311 25,266	Copper and brass products (Unaudited) HK$’000 143,163 8,804	Others Consolidated (Unaudited) (Unaudited) HK$’000 HK$’000 493 343,967 272 34,342 2,804 (12,131) 5,196 4,425 (6,666) 27,970 (3,966) 24,004

For the six months ended 30 June 2006

Segment revenue Segment results Unallocated income Unallocated expenses Share of profit of a jointly controlled entity Share of profit of an associate Finance costs Profit before taxation Income tax expenses Profit for the period	Steel cord (Unaudited) HK$’000 198,259 35,417	Copper and brass1 products (Unaudited) HK$’000 123,628 25,894	Others Consolidated (Unaudited) (Unaudited) HK$’000 HK$’000 706 322,593 62 61,373 1,658 (12,013) 4,507 3,082 (9,021) 49,586 (4,879) 44,707

FINANCIAL INFORMATION

APPENDIX I

4. FINANCE COSTS

Interest expense on bank and other borrowings wholly repayable within five years Other finance costs Total borrowing costs Less: amounts capitalised 5. INCOME TAX EXPENSES The charge comprises: Current tax: Hong Kong Other regions in the People’s Republic of China (the “PRC”) Under provision in prior periods: Hong Kong Other regions in the PRC Deferred tax Income tax expense	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 6,988 8,478 592 543 7,580 9,021 (914) – 6,666 9,021 Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 1,106 500 3,773 4,486 4,879 4,986 – 2 5 29 5 31 (918) (138) 3,966 4,879

Hong Kong Profits Tax is calculated at 17.5% (2006: 17.5%) of the estimated assessable profits for the period.

PRC Enterprise Income Tax is calculated at the applicable tax rates on the estimated assessable income for the period based on existing legislation, interpretation and practices in respect thereof. In accordance with the relevant tax rules and regulations in the PRC, certain of the Group’s subsidiaries in the PRC are eligible for certain tax exemptions and concessions.

On 16 March 2007, the PRC Government promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC, which will change the tax rate from 15% to 25% for certain subsidiaries from 1 January 2008. Under the New Law, entities that are currently entitled preferential tax rates may continue to enjoy the tax benefits. As detailed measures concerning the tax incentives have not issued by the State Council, the management of the Group is not yet in a position to assess the impact, if any. The Group will continue to evaluate the impact when more detailed regulations are announced.

FINANCIAL INFORMATION

APPENDIX I

6. PROFIT FOR THE PERIOD

	Six months ended 30 June	Six months ended 30 June
	2007	2006
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Profit for the period is arrived at after charging:
Depreciation of property, plant and equipment	20,761	19,887
Amortisation of prepaid lease payments (included in
“Cost of sales”)	270	214
Share of tax of a jointly controlled entity (included in
“Share of profit of a jointly controlled entity”)	950	834
Share of tax of an associate (included in
“Share of profit of an associate”)	2	1,598
Loss on disposal of property, plant and equipment	514	–
and after crediting:
Net foreign exchange gains	903	2,029
Interest income from bank deposits	2,074	463
Gain on disposal of property, plant and equipment	–	254

7. DIVIDEND

On 29 June 2007, a dividend of HK1 cent (2006: Nil) per share was paid to shareholders of the Company as the final dividend for the year ended 31 December 2006.

The directors do not recommend the payment of interim dividend for the six months ended 30 June 2007 (2006: Nil).

8. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings Profit for the period for the purposes of calculation of basic and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of calculation of basic earnings per share Effect of dilutive potential ordinary shares: Share options Weighted average number of ordinary shares for the purpose of calculation of diluted earnings per share	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 24,004 44,707 Six months ended 30 June 2007 2006 1,276,793,075 1,026,066,556 40,238,603 54,287,289 1,317,031,678 1,080,353,845	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 24,004 44,707 Six months ended 30 June 2007 2006 1,276,793,075 1,026,066,556 40,238,603 54,287,289 1,317,031,678 1,080,353,845
		1,080,353,845

FINANCIAL INFORMATION

APPENDIX I

9. MOVEMENTS IN PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTIES

During the period, the Group spent approximately HK$18,508,000 on the construction of its new manufacturing plant in the PRC in order to expand its production capacities. In addition, the Group also acquired approximately HK$1,147,000 of other property, plant and equipment during the period.

At 30 June 2007, the directors considered the carrying amounts of the Group’s leasehold land and buildings and investment properties, which are carried at revalued amounts and fair value respectively, and estimated that the carrying amounts of these assets did not differ significantly from that which would be determined based on professional valuations at 30 June 2007. Consequently, no gain or loss on changes in fair value has been recognised in the current period.

10. TRADE RECEIVABLES/BILLS RECEIVABLE

The Group normally allows an average credit period of 30 to 120 days to its trade customers.

The following is an aged analysis of trade and bills receivables at the balance sheet date:

0 – 90 days 91 – 180 days Over 180 days	30 June 2007 (Unaudited) HK$’000 279,939 90,188 3,146 373,273	31 December 2006 (Audited) HK$’000 249,344 106,378 8,546
		364,268

11. AMOUNT DUE FROM (TO) RELATED COMPANIES

Notes Amount due from: A jointly controlled entity (a) An associate (a) Subsidiaries of Shougang Concord Technology Holdings Limited (“Shougang TECH”) (b) Amount due to: A subsidiary of Shougang Holding (Hong Kong) Limited (“Shougang HK”) (c)	30 June 2007 (Unaudited) HK$’000 9,422 3,987 6,029 –	31 December 2006 (Audited) HK$’000 – – 4,295

		34,837

Notes:

(a) The amounts represent dividends receivable from a jointly controlled entity and an associate, which have been settled subsequent to the balance sheet date. The amounts are unsecured, non-interest bearing and repayable within one year.

FINANCIAL INFORMATION

APPENDIX I

(b) The amounts are of a trade nature, and are unsecured, non-interest bearing and repayable on demand. The aged analysis of the amounts due from the subsidiaries of Shougang TECH at the balance sheet date is as follows:

0 – 90 days 91 – 180 days Over 180 days	30 June 2007 (Unaudited) HK$’000 1,731 3,812 486 6,029	31 December 2006 (Audited) HK$’000 1,551 2,744 –
		4,295

12. TRADE PAYABLES

The following is an aged analysis of trade payables at the balance sheet date:

0 – 90 days 91 – 180 days Over 180 days	30 June 2007 (Unaudited) HK$’000 17,540 622 682 18,844	31 December 2006 (Audited) HK$’000 8,861 555 504
		9,920

13. BANK BORROWINGS

During the period, the Group obtained new bank borrowings of approximately HK$151,182,000 and repaid bank borrowings of approximately HK$306,888,000. The loans bear interest ranging from 5.69% to 6.97% per annum and are repayable over a period of one to two years.

14. SHARE CAPITAL

Ordinary shares of HK$0.10 each

Authorised: At 1 January 2007 and 30 June 2007 Issued and fully paid: At 1 January 2007 Exercise of share options (7,500,000 ordinary shares of HK$0.10 each) At 30 June 2007	Number of shares ’000 2,000,000 1,276,067 7,500 1,283,567	Share capital HK$’000 200,000

		127,607 750
		128,357

FINANCIAL INFORMATION

APPENDIX I

15. SHARE-BASED PAYMENT

The Company has adopted a share option scheme for directors, employees and other eligible participants of the Group. Details of the outstanding share options during the six months ended 30 June 2007 are as follows:

Outstanding at 1 January 2007 Granted during the period Exercised during the period Outstanding at 30 June 2007	Number of share options 224,956,000 1,268,000 (7,500,000
	218,724,000

The closing price of the Company’s shares on 26 January 2007, being the date on which 1,268,000 share options (the “Company’s Share Options”) were granted, was HK$0.630.

The options vested immediately. The fair value of such options determined at the date of grant using the Binomial Option Pricing Model (the “Binomial Model”) was approximately HK$0.356 per share option.

The following assumptions were used to calculate the fair value of the Company’s Share Options:

	26 January
	2007
Closing price of the Company’s shares at the grant date	HK$0.630
Exercise price	HK$0.656
Contractual life	10 years
Expected volatility	58.332%
Dividend yield	0.6421%
Risk-free interest rate	4.134%

In addition, on 30 April 2007, a subsidiary of the Company, Hing Cheong Metals (China & Hong Kong) Limited (“Hing Cheong”) has entered into an agreement with an employee pursuant to which the employee was granted an option to subscribe for up to 10% equity interest in Hing Cheong’s subsidiary, Rise Boom International Limited (the “Rise Boom Share Option”) in order to recognize his valuable contribution to the Group. The option vested immediately. The fair value of the option determined at the date of grant using the Binomial Model was approximately HK$840,000.

The following assumptions were used to calculate the fair value of the Rise Boom Share Option:

	30 April 2007
Fair value of 10% equity interest of Rise Boom
International Limited (“Rise Boom”) at the grant date	HK$858,000
Exercise price	HK$858,000
Option life	5 years
Expected volatility	60%
Dividend yield	0%
Risk-free interest rate	4.107%

Expected volatility of the Company and Rise Boom were determined by using the historical volatility of the Company’s share price and the share price of other companies in the similar industry, respectively.

The Binomial Model has been used to estimate the fair value of the Company’s Share Options and the Rise Boom Share Option. The variables and assumptions used in computing their fair values are based on the Company’s directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

FINANCIAL INFORMATION

APPENDIX I

16. CAPITAL COMMITMENTS

Commitments in respect of the acquisition of property, plant and equipment – contracted for but not provided in the financial statements – authorised but not contracted for	30 June 2007 (Unaudited) HK$’000 5,102 367,871 372,973	31 December 2006 (Audited) HK$’000 25,174 375,633
		400,807

17. RELATED PARTY TRANSACTIONS

During the period, the Group had the following material transactions with Shougang HK and its subsidiaries (collectively the “Shougang HK Group”), Shougang TECH and its subsidiaries (collectively the “Shougang TECH Group”) and a jointly controlled entity. Shougang HK is a substantial shareholder of the Company and Shougang TECH.

	Six months ended 30 June	Six months ended 30 June
	2007	2006
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Consultancy fees paid to Shougang HK Group	480	480
Sales to the Shougang TECH Group	6,104	4,341
Interest paid/payable to Shougang HK Group	–	440
Rental expenses paid to Shougang HK Group	804	761
Corporate guarantees for bank loans granted
to a jointly controlled entity	7,697	11,050

Compensation of key management personnel

The key management of the Group comprises all executive directors of the Company, details of their emoluments were as follows:

	Six months ended 30 June	Six months ended 30 June
	2007	2006
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Short-term benefit	3,021	3,234

The emoluments of the directors of the Company are decided by the remuneration committee of the Company having regard to individual’s performance, the Group’s performance and profitability, remuneration benchmark in the industry and prevailing market conditions.

FINANCIAL INFORMATION

APPENDIX I

4. MATERIAL CHANGE

The Directors are not aware of any material change in the financial or trading position or outlook of the Group since 31 December 2006, the date to which the latest audited consolidated financial statements of the Group were made up.

5. INDEBTEDNESS

As at the close of business on 31 October 2007, being the latest practicable date for this statement of indebtedness prior to the printing of the circular, the Group had outstanding bank loan of HK$149,312,000 which comprised HK$87,250,000 due within one year and HK$62,062,000 due in the following year and is secured by the shares in certain subsidiaries; and outstanding trust receipt loans of HK$42,406,000 which are due within one year and secured by pledged bank deposits of HK$3,000,000 and the Group’s certain leasehold land and buildings and investment properties with an aggregate net book value of approximately HK$10,949,000, other than that the Group did not have any outstanding bank overdrafts, loans or other similar indebtedness, liabilities under acceptance credits, debentures, mortgage, charges, finance lease commitments, guarantees or other material contingent liabilities.

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENTS

The information (other than those in relation to Shougang Holding and Shougang International) in this circular has been supplied by the Directors. The issue of this circular has been approved by the Directors who jointly and severally accept full responsibility for the accuracy of the information (other than those in relation to Shougang Holding and Shougang International) contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions (other than those in relation to Shougang Holding and Shougang International) expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The information in this document relating to Shougang Holding has been supplied by the directors of Shougang Holding. The issue of this circular has been approved by the directors of Shougang Holding who jointly and severally accept full responsibility for the accuracy of the information in relation to Shougang Holding contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions in relation to Shougang Holding expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The information in this circular relating to Shougang International has been supplied by the directors of Shougang International. The issue of this circular has been approved by the directors of Shougang International who jointly and severally accept full responsibility for the accuracy of the information in relation to Shougang International contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions in relation to Shougang International expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, DEBENTURES OR UNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

(i) As at the Latest Practicable Date, save for the interests of the Director (being Mr. Tang Cornor Kwok Kau) in shares set out under the section “Effect of Shareholding of the Company upon Completion” in the Letter from the Board on pages 9 and 10 of this circular and the share options held by the Directors, details of which are set out under the subsection headed “Share Options” hereunder, none of the Directors had any interests and short positions in the shares, debentures or underlying shares of the Company or any of their associated corporations (within the meaning of Part XV of the SFO) which had to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred therein or which were required, pursuant to the Model Code for Securities by Directors of Listed Issuers and the Takeovers Code.

GENERAL INFORMATION

APPENDIX II

(ii) As at the Latest Practicable Date and save as disclosed in paragraph 2(b) in this appendix below, none of the Concert Parties and the respective directors of Shougang International and Shougang Holding had any interests in the Shares, convertible securities, warrants, options and derivatives of the Company.
(iii) As at the Latest Practicable Date and save as disclosed under the section headed “Effect of Shareholding of the Company upon Completion” in the Letter from the Board on pages 9 and 10 of this circular and section “Disclosure of Interest – (c) Share Options” in Appendix II herein, none of the Company or its subsidiaries or any of their pension funds or the Directors or an adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code (other than principal traders) had any interest in any shares, convertible securities, warrants, options and derivatives of the Company and Shougang International.
(iv) None of the persons as referred to in paragraph 8 in this appendix below has any shareholding interest in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(v) As at the Latest Practicable Date, none of the Shares was owned or controlled by a person who has an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code.
(vi) As at the Latest Practicable Date, none of the Shares was owned or controlled by a person who has an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with any of the Concert Parties.
(vii) As at the Latest Practicable Date, none of the Shares was owned by discretionary fund managers (other than exempt fund managers) connected with the Company.
(viii) None of the persons as referred to in paragraph 8 in this appendix below has any shareholding interest in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

GENERAL INFORMATION

APPENDIX II

(b) PERSONS WHO HAVE AN INTEREST OR SHORT POSITION WHICH IS DISCLOSEABLE UNDER DIVISIONS 2 AND 3 OF PART XV OF THE SFO AND PERSONS WHO ARE SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the following, not being a Director or a chief executive of the Company, had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long positions in Shares or underlying Shares

	Number of	Number of	Total number	Approximately
	Share/underlying	Shares in which	of Shares/	%	Capacity in
	Shares held before	held under the	underlying	of the issued	which interests
Name of Shareholder	the Subscriptions	Subscriptions	Shares held	share capital	are held
Richson Limited (“Richson”)	148,537,939	–	148,537,939	10.73	Beneficial owner
Fair Union Holdings Limited	286,655,179	–	286,655,179	20.71	Beneficial owner
(“Fair Union”)					and interests of
					controlled
					corporations
					(Note 1)
Shougang International	286,655,179	400,000,000	686,655,179	49.60	Beneficial owner
					and interests of
					controlled
					corporations
					(Note 2)
Able Legend Investments	126,984,000	–	126,984,000	9.17	Beneficial owner
Limited (“Able Legend”)
Shougang Holding	455,883,179	400,000,000	855,883,179	61.83	Interests of
					controlled
					corporations
					(Note 3)
Bekaert Holding B.V.	250,000,000	–	250,000,000	18.06	Beneficial owner
(“Bekaert Holding”)					(Note 4)
NV Bekaert SA (“Bekaert”)	250,000,000	–	250,000,000	18.06	Interests of
					controlled
					corporations
					(Note 5)
Li Ka Shing Foundation Limited	–	100,000,000	100,000,000	7.22	Beneficial owner
					(Note 6)

GENERAL INFORMATION

APPENDIX II

Notes:

(1) Fair Union is beneficially interested in 135,721,936 shares and by virtue of the SFO, it is deemed to be interested in the 148,537,939 shares held by Richson and the 2,395,304 shares held by Casula Investments Limited (“Casula”) as Richson and Casula are its wholly owned subsidiaries.
(2) By virtue of the SFO, Shougang International is deemed to be interested in the 135,721,936 shares held by Fair Union, the 148,537,939 shares held by Richson and the 2,395,304 shares held by Casula as Richson and Casula are wholly owned by Fair Union, a wholly owned subsidiary of Shougang International. Shougang International is also deemed to be interested in 400,000,000 shares by entering into the subscription agreement on 29 November 2007.
(3) By virtue of the SFO, Shougang Holding is deemed to be interested in the 126,984,000 shares and the 28,374,000 shares held by Able Legend and Prime Success Investments Limited (“Prime Success”) respectively as Able Legend and Prime Success are its wholly owned subsidiaries and is deemed to be interested in the 13,870,000 shares held by Lyre Terrace Management Limited, a subsidiary of Shougang Concord Grand (Group) Limited (“Shougang Grand”) and Shougang Holding is the controlling shareholder of Shougang Grand. It is also deemed to be interested in the 400,000,000 shares held by Shougang International, 135,721,936 shares held by Fair Union, the 148,537,939 shares held by Richson and the 2,395,304 shares held by Casula as it is the controlling shareholder of Shougang International.
(4) Bekaert Holding is beneficially interested in the 250,000,000 shares.
(5) By virtue of the SFO, Bekaert is deemed to be interested in 250,000,000 shares held by Bekaert Holding, which is a wholly owned subsidiary of Bekaert.
(6) Li Ka Shing Foundation Limited is deemed to be interested in the 100,000,000 shares by entering into the subscription agreement on 29 November 2007.

Please refer to the table below under the sub-section headed “Share options” for long positions in the underlying Shares or equity derivatives.

GENERAL INFORMATION

APPENDIX II

(c) Share Options

(i) As at the Latest Practicable Date, there were a total of 217,944,000 share options of the Company outstanding, details of which are summarised in the following table:

Name or
category of participant
Directors
Cao Zhong_(Note 1)
Li Shaofeng(Note 1)
Tong Yihui
Leung Shun Sang, Tony
(Note 1)_
Tang Cornor Kwok Kau
Yip Kin Man, Raymond
Law, Yui Lun
Total

Number of share
options held
Exercise
at the Latest
price per
Practicable Date
Date of grant
Exercise period
share option
(Note 4)
(Note 4)
(HK$)
7,652,000
23/8/2002
23/8/2002 to 22/8/2012
0.295
57,350,000
2/10/20003
2/10/2003 to 1/10/2013
0.780
65,002,000
7,652,000
23/8/2002
23/8/2002 to 22/8/2012
0.295
30,614,000
25/6/2003
25/6/2003 to 24/6/2013
0.365
38,266,000
7,652,000
23/8/2002
23/8/2002 to 22/8/2012
0.295
38,268,000
25/6/2003
25/6/2003 to 24/6/2013
0.365
45,920,000
4,592,000
23/8/2002
23/8/2002 to 22/8/2012
0.295
3,060,000
12/3/2003
12/3/2003 to 11/3/2013
0.325
4,592,000
25/8/2003
25/8/2003 to 24/8/2013
0.740
12,244,000
1,000,000
25/8/2003
25/8/2003 to 24/8/2013
0.740
382,000
23/8/2002
23/8/2002 to 22/8/2012
0.295
382,000
25/8/2003
25/8/2003 to 24/8/2013
0.740
252,000
26/1/2007
26/1/2007 to 25/1/2017
0.656
1,016,000
1,016,000
26/1/2007
26/1/2007 to 25/1/2017
0.656
164,464,000

GENERAL INFORMATION

APPENDIX II

==> picture [398 x 300] intentionally omitted <==

----- Start of picture text -----

Number of share
options held Exercise
Name or at the Latest price per
category of participant Practicable Date Date of grant Exercise period share option
(Note 4) (Note 4) (HK$)
Employees other than
the Directors 15,220,000 25/8/2003 25/8/2003 to 24/8/2013 0.740
In aggregate 15,220,000
All other eligible
participants 7,652,000 23/8/2002 23/8/2002 to 12/4/2008 0.295
9,948,000 (Note 2) 23/8/2002 23/8/2002 to 22/8/2012 0.295
20,660,000 (Note 3) 12/3/2003 12/3/2003 to 11/3/2013 0.325
In aggregate 38,260,000
Notes:
----- End of picture text -----

(1) They are presumed to be parties acting in concert with Shougang Holding and/or Shougang International under the Takeovers Code.
(2) In which 7,652,000 options are presumed to be held by parties acting in concert with Shougang Holding and/or Shougang International under the Takeovers Code.
(3) In which 7,652,000 options are presumed to be held by parties acting in concert with Shougang Holding and/or Shougang International under the Takeovers Code.
(4) The vesting period of the share option is from the date of grant to the end of the exercise period.

During the period beginning 31 May 2007, the date six months prior to the date of the Announcement, and ending on the Latest Practicable Date, save for 8,280,000 options which were exercised by the employees of the Group, there were no options being exercised, cancelled or lapsed.

GENERAL INFORMATION

APPENDIX II

(ii) As at the Latest Practicable Date, there were a total of 127,360,000 share options of Shougang International held by the Directors, details of which are summarised in the following table:

	Options to subscribe
	for shares of				Capacity
	Shougang International				in which
Name of	at the Latest		Exercise	Exercise price	interests
Director	Practicable Date	Date of grant	period	per share option	are held
				(HK$)
Cao Zhong	22,950,000	23/8/2002	23/8/2002 to 22/8/2012	0.295	Beneficial owner
	91,820,000	18/11/2003	18/11/2003 to 17/11/2013	0.410	Beneficial owner
	114,770,000
Leung Shun Sang,	8,000,000	23/8/2002	23/8/2002 to 22/8/2012	0.295	Beneficial owner
Tony	4,590,000	12/3/2003	12/3/2003 to 11/3/2013	0.280	Beneficial owner
	12,590,000
	127,360,000

(d) Dealings in shares and securities

(i) None of the persons as referred to in paragraphs 2(a)(ii), (iii) and (iv) in this appendix above has dealt for value in the Shares during the period beginning 31 May 2007, the date six months prior to the date of the Announcement, and ending on the Latest Practicable Date.
(ii) None of the persons as referred to in paragraph 2(a)(iii) in this appendix above has dealt for value in the Shares or shares in Shougang International during the period beginning 31 May 2007, the date six months prior to the date of the Announcement, and ending on the Latest Practicable Date.
(iii) During the six-month period immediately preceding the Announcement and ending on the Latest Practicable Date, there were no dealings in the shares, share options and other securities of the Company by any of the Concert Parties.

GENERAL INFORMATION

APPENDIX II

(iv) The Company has not dealt for value in the shares in Shougang International during the period beginning 31 May 2007, the date six months prior to the date of the Announcement, and ending on the Latest Practicable Date, nor did it hold any securities in Shougang International as at the Latest Practicable Date.

(e) Others

(i) Save for the First Subscription Agreement and the Second Subscription Agreement, there is no agreement or arrangement exists between any of the Directors and any other person which is conditional or dependent upon the outcome of the First Subscription and the Whitewash Waiver or otherwise connected with the First Subscription and the Whitewash Waiver.
(ii) Save for the First Subscription Agreement and the Second Subscription Agreement, there is no agreement, arrangement or understanding (including any compensation arrangement) exists between the Concert Parties and any of the Directors, recent Directors, Shareholders and recent Shareholders having any connection with or dependence upon the First Subscription and the Whitewash Waiver.
(iii) None of the Directors nor any of the persons as referred to in paragraph 8 in this appendix below has since 31 December 2006, being the date to which the latest published audited financial statements of the Group have been made up, any direct or indirect interests in any assets acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Group.
(iv) None of the Directors was materially interested in any contract or arrangement including any material contract entered into by Shougang International subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.
(v) There is no person who has irrevocably committed themselves to vote for or against the First Subscription or the Whitewash Waiver.
(vi) No benefit will be given to any Director as compensation for loss of office or otherwise in connection with the First Subscription or the Whitewash Waiver.

GENERAL INFORMATION

APPENDIX II

3. COMPETING BUSINESS

As at the Latest Practicable Date, save as disclosed below, none of the Directors or their respective associates had any interest in a business which are considered to compete or likely to compete, either directly or indirectly, with the businesses of the Group:

		Name of entity	Description of
		whose businesses	businesses of the
		are considered to	entity which are
		compete or are likely	considered to
		to compete with the	compete with the	Nature of Director’s
Name	of Director	businesses of the Group	businesses of the Group	interest in the entity
Geert	Johan Roelens	Bekaert Management	Manufacturing	General Manager
		(Shanghai) Co., Ltd.	of steel cord
		Bekaert Hlohovec, a.s.	Manufacturing and	Director
			sale of steel wire
			and /or cord products
		Bekaert Binjiang Steel	Manufacturing and	Director
		Cord Co., Ltd.	sale of steel wire
			and /or cord products
		Bekaert-Shenyang	Manufacturing and.	Director
		Steel Cord Co., Ltd	sale of steel wire
			and /or cord products
		Bekaert (Shandong)	Manufacturing and	Director
		Tire Cord Co., Ltd.	sale of steel wire
			and /or cord products
		Bekaert Shenyang	Manufacturing and	Director
		Advanced Products	sale of steel wire
		Co., Ltd.	and /or cord products
		Bekaert Japan Co., Ltd.	Manufacturing and	Director
			sale of steel wire
			and /or cord products
		China Bekaert Steel	Manufacturing and	Director
		Cord Company Limited	sale of steel wire
			and /or cord products

GENERAL INFORMATION

APPENDIX II

4. MARKET PRICES

(a) The Shares are traded on the Stock Exchange. The table below shows the closing prices of the Shares on the Stock Exchange on (i) the last trading day of each of the six calendar months immediately preceding 30 November 2007, the date of the Announcement; (ii) 28 November, being the last trading day prior to the suspension of trading in the Shares from 9:42 a.m. on 29 November 2007, pending the issue of the Announcement; and (iii) the Latest Practicable Date:

Date	Closing price
	HK$
31 May 2007	0.95
29 June 2007	0.89
31 July 2007	1.19
31 August 2007	1.01
28 September 2007	0.85
31 October 2007	1.31
28 November 2007	1.10
The Latest Practicable Date	1.06

(b) The highest and lowest closing prices of the Shares recorded on the Stock Exchange during the period between 31 May 2007 (being the date six months prior to the date of the Announcement) and the Latest Practicable Date were HK$0.69 on 17 August 2007 and HK$1.45 on 1 November 2007 respectively.

5. MATERIAL CONTRACTS

The following contracts (not being contracts entered into under the ordinary course of business of the Group) have been entered into by the Group within the two years immediately preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

A subscription agreement dated 22 September 2006 entered into between NV Bekaert SV (“Bekaert”) and the Company pursuant to which Bekaert agreed to subscribe 250,000,000 ordinary shares of the Company and a supplemental agreement between the same parties dated 27 September 2006 (“Bekaert Subscription Agreement”).

GENERAL INFORMATION

APPENDIX II

Two Co-operation Agreements, both dated 22 September 2006 (Service Contract and Supply Contract) entered into between Bekaert and JESC pursuant to which Bekaert would provide certain planning and design services and supply certain materials for the manufacture of steel cord for a period of three years from the date of completion of the Bekaert Subscription Agreement.
A sale and purchase contract dated 20 April 2007 entered into by the Company and Bekaert pursuant to which both parties to extend the scope of material and product supply and to provide that both the Group and Bekaert Group their respective materials and/or finished products to each other for a period of three years.
A commercial agency contract dated 20 April 2007 to be entered into by JESC and Bekaert pursuant to which JESC would appoint Bekaert as its exclusive commercial agent for the sale of steel cord for reinforcement of radial tyres for a period of five years.
The First Subscription Agreement.
The Placing Agreement.
The Second Subscription Agreement.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has any existing or proposed service contract with any member of the Group which is not determinable by the Group within 1 year without payment of compensation other than statutory compensation. There is no service contract with the Group or its associated companies in force for the Directors which has more than 12 months to run from the Latest Practicable Date. None of the service agreements of the Directors has been amended or entered into within six months from the date of the Announcement.

7. LITIGATION

As at the Latest Practicable Date, no member of the Group is engaged in any litigation or arbitration of material importance and there is no litigation or claims of material importance known to the Directors to be pending or threatened by or against any member of the Group.

GENERAL INFORMATION

APPENDIX II

8. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this document:

Name

Qualification

VC Capital Limited

a licensed corporation to carry out types 1 (dealing in securities) and 6 (advising on corporate finance) regulated activities for the purposes of the SFO

9. CONSENT

VC Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear.

VC Capital Limited is not beneficially interested in the share capital of any member of the Group nor has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

VC Capital Limited has no direct or indirect interests in any assets which have been, since 31 December 2006 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group.

10. MISCELLANEOUS

(a) The registered office of the Company is at 5th Floor, Bank of East Asia Harbour View Centre, 51-57 Gloucester Road, Wanchai, Hong Kong.
(b) The secretary of the Company is Ms. Chan Lai Yee, a fellow of each of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries. She also holds a Bachelor of Law Degree from the University of London, a Master of Corporate Finance and a Master of Arts in Language and Law.
(c) The qualified accountant of the Company is Mr. Wu Siu Man, a fellow member of the Association of Chartered Certified Accountants and a member of the Hong Kong Institute of Certified Public Accountants.
(d) The share registrars of the Company is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

GENERAL INFORMATION

APPENDIX II

(e) The directors of Shougang Holding are Messrs. Wang Qinghai, Cao Zhong, Chen Zhouping and Li Shaofeng. The directors of Shougang International are Messrs. Wang Qinghai, Cao Zhong, Chen Zhouping, Zhang Wenhui, Luo Zhenyu, Ip Tak Chuen, Edmond, Leung Shun Sang, Tony, Wong Kun Kim, Leung Kai Cheung and Ms. Kan Lai Kuen, Alice.
(f) The registered office of Shougang International is at 7th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(g) The registered office of Shougang Holding is at 7th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(h) As at the Latest Practicable Date, the Company has not been informed and was not aware of any person who has committed to vote for or against the First Subscription Agreement and/ or the Whitewash Waiver.
(i) The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company at 5th Floor, Bank of East Asia Harbour View Centre, 51-57 Gloucester Road, Wanchai, Hong Kong during normal business hours from 9:30 a.m. to 5:30 p.m. on any weekday, except public holidays, and on the websites of the Company (www.shougangcentury.com.hk) and the SFC (www.sfc.hk) between the period from the date of this circular up to and including the date of the EGM.

(a) The memorandum and articles of association of the Company.
(b) The material contracts referred to in the section headed “Material Contracts” in this appendix.
(c) The letter from the Independent Board Committee, the text of which is set out on page 15 of this document.
(d) The letter from VC Capital Limited, the text of which is set out on pages 16 to 28 of this document.
(e) The audited consolidated financial statements for the Group for each of the two years ended 31 December 2006.
(f) The letter of consent as referred to in this appendix.

NOTICE OF EXTRAORDINARY GENERAL MEETING

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Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(Incorporated in Hong Kong with limited liability)

(Stock Code: 103)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Shougang Concord Century Holdings Limited (the “ Company ”) will be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Thursday, 10 January 2008 at 10:30 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as the ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

(1) “ THAT the execution of the subscription agreement (the “Subscription Agreement”) dated 29 November 2007 and entered into between the Company and Shougang Concord International Enterprises Company Limited as subscriber in relation to the subscription (the “First Subscription”) of 400,000,000 shares (“Subscription Shares”) of HK$0.10 each in the share capital of the Company at a price of HK$1.03 per Subscription Share, a copy of which has been produced to the meeting marked “A” and initialed by the chairman of the meeting for identification purpose and the First Subscription and the performance by the Company thereof and the transactions contemplated thereby be and are hereby confirmed, ratified and approved; and that any one or more of the Directors of the Company be and are hereby authorised to sign or execute such other documents or supplemental agreements or deeds on behalf of the Company and to do all such things and take all such actions as he or they may consider necessary or desirable for the purpose of giving effect to the Subscription Agreement and completing the transactions contemplated by the Subscription Agreement with such changes as any such director(s) may consider necessary, desirable or expedient.”
(2) “ THAT conditional upon the ordinary resolution no. 1 contained in the notice of the Extraordinary General Meeting of which this resolution forms part being approved, the waiver for Shougang Concord International Enterprises Company Limited and its parties acting in concert from the obligations which may arise under Rule 26 of the Hong Kong Code on Takeovers and Mergers promulgated by the Securities and Futures Commission to make a general offer for all the shares of the Company not already owned by them as a result of the completion of the First Subscription (as the term is defined in ordinary resolution no.1 contained in the notice of the Extraordinary General Meeting of which this resolution forms part) be and is hereby approved.”

100

NOTICE OF EXTRAORDINARY GENERAL MEETING

(3) “ THAT conditional upon the ordinary resolutions nos. 1 and 2 contained in the notice of the Extraordinary General Meeting of which this resolution forms part being approved and becoming unconditional and effective, the Directors of the Company be and they are hereby authorised to allot and issue 400,000,000 shares of HK$0.10 each in the share capital of the Company to Shougang Concord International Enterprises Company Limited (or to such other person or persons as it may nominate) upon the completion of the First Subscription (as defined in ordinary resolution no. 1 contained in the notice of the Extraordinary General Meeting of which this resolution forms part) pursuant to the terms of the Subscription Agreement (as defined in ordinary resolution no. 1 contained in the notice of the Extraordinary General Meeting of which this resolution forms part).”
(4) “ THAT the authorised share capital of the Company be and is hereby increased form HK$200,000,000 comprising 2,000,000,000 shares of HK$0.10 each to HK$500,000,000 comprising 5,000,000,000 shares of HK$0.10 each by the creation of an additional 3,000,000,000 shares of HK$0.10 each and that each new shares, upon issue, will rank pari passu in all respects with the existing shares of the Company.”

By Order of the Board Shougang Concord Century Holdings Limited Cao Zhong Chairman

Hong Kong, 21 December 2007

Registered office:

5th Floor

Bank of East Asia Harbour View Centre 51-57 Gloucester Road Wanchai Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.
A form of proxy for use at the meeting is enclosed. To be valid, the form of proxy, together with the notarially certified power of attorney or other authority (if any) under which it is signed must be lodged at the Company’s share registrars, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event, not less than 48 hours before the time appointed for holding of the meeting or any adjournment thereof.
Where there are joint holders of any share, any one of such holders may vote at the meeting, either in person or by proxy, in respect of such shares as if he were solely entitled to vote, but if more than one of such joint holders be present at the meeting in person or by proxy, the person so present whose name stands first in the register of member of the Company in respect of such share shall alone be entitled to vote in respect of it.
Completion and return of the form of proxy will not preclude a member from attending the meeting and voting in person at the meeting or any adjourned meeting if he so desires. If a member attends the meeting after having deposited the form of proxy, his form of proxy will be deemed to have been revoked.
The votes to be taken at the meeting for resolutions 1 to 3 will be by way of a poll.

101

AI assistant

China Everbright Limited — Proxy Solicitation & Information Statement 2007

48999_rns_2007-12-20_12298a51-a87b-4eb7-a946-ade52829324d.pdf

Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR THE WHITEWASH WAIVER

AND

(3) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR THE WHITEWASH WAIVER

AND

(3) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

INTRODUCTION

LETTER FROM THE BOARD

APPLICATION FOR WHITEWASH WAIVER

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

LETTER FROM THE BOARD

THE FIRST SUBSCRIPTION AGREEMENT

LETTER FROM THE BOARD

EFFECT OF SHAREHOLDING OF THE COMPANY UPON COMPLETION

LETTER FROM THE BOARD

FUND-RAISING EXERCISE BY THE COMPANY DURING THE PAST 12 MONTHS

REASONS FOR THE FIRST SUBSCRIPTION AND THE USE OF PROCEEDS

IMPLICATION UNDER THE LISTING RULES AND TAKEOVERS CODE

LETTER FROM THE BOARD

FUTURE INTENTIONS

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

INFORMATION OF THE GROUP

INFORMATION OF SHOUGANG INTERNATIONAL

EGM

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

Shougang Concord Century Holdings Limited 首長寶佳集團有限公司

(1) CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER

(2) APPLICATION FOR WHITEWASH WAIVER

CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES BY A SUBSTANTIAL SHAREHOLDER AND APPLICATION FOR THE WHITEWASH WAIVER

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. Reasons for and benefits of the First Subscription

B. Basis of the Subscription Price

2. Comparable Subscriptions

LETTER FROM VC CAPITAL LIMITED

LETTER FROM VC CAPITAL LIMITED

LETTER FROM VC CAPITAL LIMITED

C. Financial impact of the First Subscription

1. Effect on NAV

2. Effect on working capital

3. Effect on gearing

LETTER FROM VC CAPITAL LIMITED

D. Alternative means of fund-raising

E. Dilution effect of the First Subscription on the shareholdings of the Independent Shareholders

Table 2: Shareholding structure of the Company

F. Whitewash Waiver

RECOMMENDATION

1. SHARE CAPITAL

2. AUDITED FINANCIAL INFORMATION

(a) Summary of audited financial results for the three years ended 31 December 2006

(b) Latest audited financial statements

Consolidated Income Statement

Consolidated Balance Sheet

APPENDIX I

FINANCIAL INFORMATION

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

APPENDIX I

Notes to the Financial Statements

1. GENERAL

2. APPLICATION OF NEW HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)/CHANGES IN ACCOUNTING POLICIES

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Business combinations

Goodwill

Investments in subsidiaries

China Everbright Limited Proxy Solicitation & Information Statement 2007