China Qinfa Group Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make 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.

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

If you have sold or transferred all your shares in China Qinfa Group Limited, you should at once hand this circular to the purchaser, transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

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(Incorporated in the Cayman Islands with limited liability) (Stock code: 866)

MAJOR TRANSACTION CONSTRUCTION OF TWO 82,000 DWT BULK CARRIERS

26 July 2010

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
THE SHIPBUILDING CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
FINANCING FOR THE CONSTRUCTION OF THE VESSELS . . . . . . . . . . . . .	8
REASONS FOR ENTERING INTO THE SHIPBUILDING CONTRACTS . . . . .	9
FINANCIAL EFFECT ON THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
FINANCIAL AND TRADING PROSPECTS OF THE GROUP . . . . . . . . . . . . . .	9
INFORMATION ON THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
INFORMATION ON THE BUYERS AND THE COMPANY . . . . . . . . . . . . . . . .	10
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . .	I-1
1. SUMMARY OF FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .	I-1
2. AUDITED FINANCIAL INFORMATION FOR
THE YEAR ENDED 31 DECEMBER 2009 . . . . . . . . . . . . . . . . . . . . . . .	I-2
3. STATEMENT OF INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-54
4. WORKING CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-54
5. MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-54
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
RESPONSIBILITY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
DISCLOSURE OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-3
MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-3
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-9
DOCUMENTS AVAILABLE FOR PUBLIC INSPECTION IN HONG KONG . . .	II-9

– i –

DEFINITIONS

In this circular, the following expressions shall have the following meanings unless the context indicates otherwise:–

“associates” has the meaning ascribed to it under the Listing Rules;
“Board” means the board of Directors;
“Business Day” means any day except a Saturday or a Sunday or other public holiday in New York;
“Buyer” means each of Harbour Well and Merit Sino, and collectively the Buyers;
“China” or “PRC” means the People’s Republic of China which excludes, for the purpose of this circular, the Hong Kong Special Administrative Region of the PRC, the Macau Special Administrative Region of the PRC and Taiwan;
“China Shipbuilding” means (China Shipbuilding Trading Company, Limited*), a limited liability company established under the laws of the PRC and an Independent Third Party;
“Company” means China Qinfa Group Limited ( ) (Stock code: 00866), a company incorporated
under the laws of the Cayman Islands with limited liability with all of its Shares listed on the Stock Exchange;
“Construction”
means the construction of the Vessels pursuant to the terms and conditions of the Shipbuilding Contracts;
“CSSC Guangzhou Longxue”
means (CSSC Guangzhou Longxue Shipbuilding Co., Ltd.*), a limited liability company established under the laws of the PRC and an Independent Third Party;
“Directors”
mean the directors of the Company;
“DWT”
means deadweight tonnage, a measure of how much weight a ship is carrying;
“First Shipbuilding Contract”
means the shipbuilding contract dated 15 May 2010 and entered into between Harbour Well and the Sellers for the construction of the First Vessel;

– 1 –

DEFINITIONS

“First Vessel” means the 82,000 DWT bulk carrier to be constructed by the Sellers pursuant to the terms and conditions of the First Shipbuilding Contract;
“Fortune Pearl” means Fortune Pearl International Limited, a company incorporated in the British Virgin Islands and holds approximately 57.16% of the issued share capital of the Company;
“Global Offering” means the initial public offering of the Shares as defined in the Prospectus;
“Group” means the Company and its subsidiaries;
“Harbour Well” means Harbour Well Limited, a limited liability company incorporated on 12 March 2010 under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company;
“HK$” means Hong Kong dollar(s).
“Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China;
“Independent Third Party(ies)”
means third party(ies) who is/are independent of the Company, the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates as defined in the Listing Rules;
“Latest Practicable Date” means 20 July 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;
“Listing Rules”
means The Rules Governing the Listing of Securities on the Main Board of the Stock Exchange;
“Merit Sino”
means Merit Sino International Limited ( ), a limited liability company incorporated on
6 April 2010 under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company;
“Mr. XU” means Mr. XU Jihua ( ), the chairman of the Group and an executive Director;
“Prospectus”
means the prospectus of the Company dated 19 June 2009;

– 2 –

DEFINITIONS

“Refund Guarantee”
means the irrevocable guarantee issued by the Sellers’ bank to each Buyer for the refund to the relevant Buyer of an amount up to US$24.15 million (equivalent to approximately HK$188.4 million), representing the first to the fourth installments of the consideration under the relevant Shipbuilding Contract, if and when the same or any part thereof becomes repayable to the relevant Buyer by the Sellers in accordance with the terms of the relevant Shipbuilding Contract;
“RMB”
means Renminbi, the lawful currency of China;
“Second Shipbuilding Contract” means the shipbuilding contract dated 15 May 2010 and entered into between Merit Sino and the Sellers for the construction of the Second Vessel;
“Second Vessel” means the 82,000 DWT bulk carrier to be constructed by the Sellers pursuant to the terms and conditions of the Second Shipbuilding Contract;
“Sellers”
mean China Shipbuilding and CSSC Guangzhou Longxue;
“SFO”
means the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“Share(s)” means the share(s) of HK$0.10 each in the capital of the Company (or of such nominal amount as shall result from a subdivision, consolidation, reclassification or reconstruction of the share capital of the Company from time to time);
“Shareholder(s)” means the holder(s) of the Share(s);
“Shipbuilding Contract”
means each of the First Shipbuilding Contract and the Second Shipbuilding Contract, and collectively the Shipbuilding Contracts;
“Stock Exchange” means The Stock Exchange of Hong Kong Limited;
“US$”
means United States dollars, the lawful currency of the United States of America;
“Vessel”
means each of the First Vessel and the Second Vessel, and collectively the Vessels; and

“%”

means per cent.

– 3 –

DEFINITIONS

English translation for identification only.

Unless otherwise specified, translations of US$ into HK$ in this circular are based on the rates of HK$7.8 = US$1.0. No representation is made that any amounts in US$ and HK$ can be or could have been converted at the relevant dates at the above rates or any other rates at all.

– 4 –

LETTER FROM THE BOARD

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CHINA QINFA GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 866)

Executive Directors:– Registered office:– Mr. XU Jihua (Chairman) Cricket Square Ms. WANG Jianfei (Chief Executive Officer) Hutchins Drive Ms. LIU Xiaomei P.O. Box 2681 Mr. WENG Li Grand Cayman KY1-1111 Cayman Islands

Independent non-executive Directors:– Mr. HUANG Guosheng Mr. LAU Sik Yuen

Principal place of business in Hong Kong:– Room 1303, 13th Floor, MassMutual Tower No. 38 Gloucester Road Wanchai Hong Kong

26 July 2010

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTION CONSTRUCTION OF TWO 82,000 DWT BULK CARRIERS

Reference is made to the Company’s announcement dated 15 May 2010 that on even date, Harbour Well entered into the First Shipbuilding Contract as the Buyer with the Sellers for the construction of the First Vessel at the consideration of US$34.5 million (equivalent to approximately HK$269.1 million), and on the same date, Merit Sino entered into the Second Shipbuilding Contract as the Buyer with the Sellers for the construction of the Second Vessel at the consideration of US$34.5 million (equivalent to approximately HK$269.1 million). The aggregate consideration pursuant to the Shipbuilding Contracts is US$69.0 million (equivalent to approximately HK$538.2 million), and will be funded partly by bank borrowings and partly by internal financial resources of the Group. The consideration payable by the Group will not affect the use of the net proceeds from the Global Offering.

The Construction, aggregated with the transactions set forth in the Company’s announcements dated 30 October 2009 and 15 December 2009, respectively, pursuant to Rule 14.22 of the Listing Rules, constitutes a major transaction (as such term is defined under the Listing Rules) for the Company as one or more of the applicable percentage ratios (as defined under the Listing Rules) exceed 25% but do not exceed 75%, and is subject to

– 5 –

LETTER FROM THE BOARD

approval by the Shareholders. Since no Shareholder would be required to abstain from voting if the Company were to convene a general meeting for the approval of the Construction, written Shareholders’ approval may be accepted in lieu of holding a general meeting pursuant to Rule 14.44 of the Listing Rules. Fortune Pearl, a Shareholder holding 593 million Shares and approximately 57.16% of the issued share capital of the Company, has given its written approval on the Construction. Accordingly, no extraordinary general meeting of the Company will be convened for the purpose of approving the Construction. Fortune Pearl is wholly-owned by Mr. XU. Mr. XU is also the sole director of Fortune Pearl.

The purpose of this circular is to give you further details of the Construction in accordance with the Listing Rules.

THE SHIPBUILDING CONTRACTS

The following table sets forth the common detailed terms of each Shipbuilding Contract:–

Date: 15 May 2010 Parties: Sellers: China Shipbuilding and CSSC Guangzhou Longxue Buyer: Harbour Well for the First Shipbuilding Contract, and Merit Sino for the Second Shipbuilding Contract.

To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, each of China Shipbuilding and CSSC Guangzhou Longxue and their respective ultimate beneficial owners is an Independent Third Party.

Consideration:

The consideration under each Shipbuilding Contract is US$34.5 million (equivalent to approximately HK$269.1 million), subject to adjustment in accordance with the terms thereof.

The Directors confirm that the amount of consideration was determined after arm’s length negotiation between the parties with reference to the current market price for the construction of a similar vessel in China.

– 6 –

LETTER FROM THE BOARD

Reduction of the consideration Pursuant to each Shipbuilding Contract, the or cancellation of the relevant consideration may be adjusted or the relevant Buyer Shipbuilding Contract: may cancel the relevant Shipbuilding Contract in the following situations:–

if the relevant Vessel cannot be delivered to the relevant Buyer for more than a certain period after the agreed delivery date;
the full operating speed of the relevant Vessel is less than the agreed and the designed speed of the relevant Vessel by a certain amount;
the level of fuel consumption of the relevant Vessel exceeds the agreed and the designed fuel consumption of the relevant Vessel by a certain percentage; or
the actual DWT of the relevant Vessel is less than the agreed and the designed DWT of the relevant Vessel by a certain figure.

If the relevant Buyer cancels the relevant Shipbuilding Contract in accordance with the terms thereof, the Sellers shall refund the full amount of all sums paid by the relevant Buyer under the relevant Shipbuilding Contract together with interest at the agreed rate from the respective payment date(s) to the date of remittance.

Payment schedule:

Each Buyer shall pay the relevant consideration according to the following schedule:–

First installment – 10% of the consideration, i.e. US$3.45 million (equivalent to approximately HK$26.9 million) has been paid;
Second installment – 20% of the consideration, i.e. US$6.9 million (equivalent to approximately HK$53.8 million), shall be paid within five Business Days after the commencement of construction of the relevant Vessel;
Third installment – 20% of the consideration, i.e. US$6.9 million (equivalent to approximately HK$53.8 million), shall be paid within five Business Days after keel-laying of the first section of the relevant Vessel;

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LETTER FROM THE BOARD

Fourth installment – 20% of the consideration, i.e. US$6.9 million (equivalent to approximately HK$53.8 million), shall be paid within five Business Days after launching of the relevant Vessel; and
Fifth installment – 30% of the consideration, i.e. US$10.35 million (equivalent to approximately HK$80.7 million), subject to any adjustment thereto in accordance with the terms of relevant Shipbuilding Contract, shall be paid concurrently with delivery of the relevant Vessel.
Time and place of delivery of The First Vessel shall be delivered on or before 31 the Vessels: March 2012 and the Second Vessel shall be delivered on or before 30 September 2012, both at Guangzhou, China.

Refund Guarantee:

The Sellers have delivered to each Buyer the relevant Refund Guarantee pursuant to which the Sellers’ banker guarantees the refund of the amount paid by the relevant Buyer to the Sellers in the event the relevant Shipbuilding Contract is cancelled in accordance with its terms and the Sellers fail to refund to the relevant Buyer.

Guarantee by the Company:

Upon signing of the relevant Shipbuilding Contract, the relevant Buyer has provided to the Sellers an irrevocable and unconditional letter of guarantee issued by the Company in favour of the Sellers to guarantee the relevant Buyer’s payment obligation for the second installment of the consideration for the construction of the relevant Vessel.

FINANCING FOR THE CONSTRUCTION OF THE VESSELS

The Group intends to arrange for bank borrowings to finance the payment of about 70% of the aggregate consideration under the Shipbuilding Contracts, while the remaining portion of the consideration shall be funded by internal financial resources of the Group. The consideration payable by the Group will not affect the use of the net proceeds from the Global Offering.

– 8 –

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE SHIPBUILDING CONTRACTS

The Group has been working on improving the overall efficiency of its fleet by constructing new vessels and in this regard, has commissioned the construction of two vessels under similar terms and conditions as set forth in the Company’s announcements dated 30 October 2009 and 15 December 2009, respectively. The Construction is therefore consistent with the Group’s medium-term strategy. The Directors consider that it is a suitable time for construction of two vessels as the current construction cost has reduced to approximately 50% as compared with the highest level in 2008. Based on the analysis of historical data, the Directors consider that the current vessel construction cost is reasonable. Besides, the Group plans to dispose of one of its existing old vessels within 2010, although no concrete plan or agreement has been reached yet.

As the Group’s trading volume continues to increase, the addition of two vessels to the Group’s fleet will enhance the Group’s ability to control its ship transportation cost and mitigate the risks faced by the Group on the fluctuations in the ship transportation cost.

The Directors (including the independent non-executive Directors) are of the view that the terms and conditions of the Shipbuilding Contracts are fair and reasonable and negotiated on an arm’s length basis upon normal commercial terms. Having considered the terms and conditions of the Shipbuilding Contracts and the benefits that may be obtained from the Construction, the Directors (including the independent non-executive Directors) further confirm that the Construction is in the interest of the Group and the Shareholders as a whole.

FINANCIAL EFFECT ON THE GROUP

The Group’s assets and liabilities will increase as a result of the scheduled payment of installments and gradual drawdown of the loan to finance the payment. During the construction period of the Vessels, interest cost and other relevant fee and expenses will be capitalized which shall not cause any negative impact on the earnings of the Group. The revenue base of the Group’s shipping business can be strengthened after the delivery of the Vessels and therefore the Group’s earnings shall increase accordingly.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The continued economic growth and the rapid industrialization and urbanization of China have increased the demand for energy, especially coal-fired electricity, in the PRC. For the three months ended 31 March 2010, the Group achieved a trading volume of coal of approximately 3 million tonnes which was approximately 10 times the trading volume in the same period last year. The Group ordered two 82,000 DWT dry bulk carriers from the Sellers in October and December 2009, respectively, at a total cost of approximately HK$ 550 million. As the Group’s trading volume continues to increase, the expansion and enhancement of the Group’s fleet will strengthen the Group’s ability to control the cost of ship transportation and mitigate the risks of ship transportation costs fluctuation faced by the Group.

– 9 –

LETTER FROM THE BOARD

The Group has been planning to modernize the age and model of the Group’s vessels in order to improve operational efficiency and increase ship transportation capacity, and thus the Construction is in line with such plan and consistent with the Group’s medium-term strategy.

With the stabilisation of the international economic condition and the continuous economic growth in China, the Directors believe that the level of domestic production and domestic consumption in China will increase steadily. These will stimulate the demand for electricity and thermal coal as the principal raw materials for power generation. The Directors are optimistic that the coal trading business of the Group will improve and further advance during 2010. Based on the current orders on hand and the latest business trends, the Directors anticipate that the Group’s trading volume of coal and iron ore in 2010 will significantly exceed that in 2009.

INFORMATION ON THE SELLERS

China Shipbuilding was established under the laws of the PRC as a limited liability company on 13 August 1982 with a registered capital of RMB195 million, and its principal business is the import and export business and trading of vessels.

CSSC Guangzhou Longxue was established under the laws of the PRC as a limited liability company on 25 May 2006 with a registered capital of RMB2.72 billion, and its principal business is technical design, building and repairing of ships; technical design, manufacturing and repairing of electric machinery, ordinary machinery and steel structures; wholesale and retail trade (excluding provisions for control of national policy, the franchise project); import and export of goods and technology (excluding ones prohibited by the PRC government).

INFORMATION ON THE BUYERS AND THE COMPANY

Harbour Well is a limited liability company established in the British Virgin Islands on 12 March 2010 and is a wholly-owned subsidiary of the Company. Merit Sino is a limited liability company established in the British Virgin Islands on 6 April 2010 and is a wholly-owned subsidiary of the Company. Each of Harbour Well and Merit Sino is a special purpose vehicle incorporated for the acquisition of the relevant Vessel.

The Company is an investment holding company with its shares listed on the Stock Exchange. The Group is principally engaged in the coal operation business involving purchase and sales, filtering, storage, blending, shipping and transportation of coal.

– 10 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board XU Jihua Chairman

– 11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

A summary of the published results and of the assets and liabilities of the Group for the three years ended 31 December 2009, as extracted from the 2009 annual report of the Company and the Prospectus, is set forth below:–

Results

Turnover
Gross profit
Results from operating activities
Profits before income tax
Income tax expenses
Profit for the year
Coal trading volume (’000 tonnes)
Assets and Liabilities
Total assets
Total liabilities
Total equity

For the year ended 31 December
2009
2008
2007
RMB’000
RMB’000
RMB’000
3,926,993
4,192,484
3,664,632
425,655
559,916
571,394
257,621
443,876
278,508
227,564
395,299
248,316
(98,061)
(64,609)
(41,065)
129,503
330,690
207,251
6,825
6,274
8,023
As at 31 December
2009
2008
2007
RMB’000
RMB’000
RMB’000
4,160,706
2,085,482
1,909,923
(2,783,419) (1,350,527) (1,274,795)
1,377,287
734,955
635,128

Notes:

The Company was incorporated in the Cayman Islands on 4 March 2008 and became the holding company of the Group with effect from 12 June 2009 upon the completion of the Reorganisation as set out in the prospectus of the Company dated 19 June 2009 (the “Prospectus”).
The results for the two years ended 31 December 2008 and assets and liabilities of the Group as at 31 December 2008 and 2007 have been prepared on a combined basis to reflect the results of the Group as if the group structure at the time when the Shares were listed on the Stock Exchange had been in existence throughout the years concerned. The figures for the two years ended 31 December 2008 have been extracted from the Prospectus.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2009

Set forth below are the audited financial statements of the Group for the year ended 31 December 2009 together with the notes therein as extracted from the 2009 annual report of the Company. References to page number in this section are to the page numbers of such annual report of the Company.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

Note Turnover 5 Cost of sales Gross profit Other income 6 Distribution expenses Administrative expenses Other expenses Results from operating activities Finance income Finance costs Net finance costs 7(a) Profit before income tax Income tax expense 8 Profit for the year Other comprehensive income Exchange differences on translation of financial statements of overseas subsidiaries Net change in fair value of available-for-sale financial assets 12(b) Other comprehensive income for the year (after tax and reclassification adjustment) 12(a)	2009 RMB’000 3,926,993 (3,501,338) 425,655 15,195 (100,025) (80,267) (2,937) 257,621 ------------ 13,234 (43,291) (30,057) ------------ ----------------------- 227,564 (98,061) 129,503 (46) 12,918 12,872 ------------ -----------------------	2008 RMB’000 4,192,484 (3,632,568) 559,916 101,203 (155,850) (59,579) (1,814) 443,876 ------------ 15,733 (64,310) (48,577) ------------ ----------------------- 395,299 (64,609) 330,690 (24,666) (86,205) (110,871) ------------ -----------------------

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Total comprehensive income for the year Profit attributable to: Equity shareholders of the Company Profit for the year Total comprehensive income attributable to: Equity shareholders of the Company Total comprehensive income for the year Earnings per share Basic earnings per share (RMB) 13(a) Diluted earnings per share (RMB) 13(b)	2009 RMB’000 142,375 129,503 129,503 142,375 142,375 0.15 0.15	2008 RMB’000 219,819

		330,690
		330,690

		219,819
		219,819

		0.44

		N/A

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Financial Position

At 31 December 2009

Note Non-current assets Property, plant and equipment 14 Lease prepayments 15 Other investments 16 Deferred tax assets 17 Current assets Inventories 19 Trade and other receivables 20 Pledged deposits 21 Cash and cash equivalents 22 Current liabilities Loans and borrowings 23 Trade and other payables 25 Current taxation Net current assets Total assets less current liabilities Non-current liabilities Loans and borrowings 23 Net assets Capital and reserves Share capital 26(b) Reserves 26(c) Total equity attributable to equity shareholders of the Company Total equity	2009 RMB’000 996,231 6,053 30,390 6,561 1,039,235 ------------ 358,124 1,349,832 1,037,328 376,187 3,121,471 ------------ (2,013,813) (370,104) (167,578) (2,551,495) ------------ ----------------------- 569,976 ------------ ----------------------- 1,609,211 (231,924) 1,377,287 91,474 1,285,813 1,377,287 ------------ ----------------------- 1,377,287	2008 RMB’000 927,683 6,193 – 11,411 945,287 ------------ 77,713 375,558 485,425 201,499 1,140,195 ------------ (907,266) (123,995) (57,658) (1,088,919) ------------ ----------------------- 51,276 ------------ ----------------------- 996,563 (261,608) 734,955 – 734,955 734,955 ------------ ----------------------- 734,955

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Statement of Financial Position

At 31 December 2009

Note Non-current assets Investment in subsidiaries 18 Current assets Trade and other receivables 20 Cash and cash equivalents 22 Current liabilities Trade and other payables 25 Net current assets Net assets Capital and reserves Share capital 26(b) Reserves 26(c) Total equity	2009 RMB’000 658,807 ------------ 800,599 1,324 801,923 ------------ (219,528) ------------ ----------------------- 582,395 ------------ ----------------------- 1,241,202 91,474 1,149,728 1,241,202	2008 RMB’000 – ------------ – –
		– ------------ – ------------ ----------------------- – ------------ ----------------------- –

		– –
		–

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

			Attributable	to equity shar	eholders of the	Company
Share capital RMB’000 – - - - - - - – - - - - - - – – – - - - - - - ------------------------ – - - - - - - – – – – – - - - - - - ------------------------ –	Capital reserve 26(c)(i) RMB’000 127,181 - - - - - - – - - - - - - – – – - - - - - - ------------------------ – - - - - - - 349 (31,499) – – (31,150) - - - - - - ------------------------ 96,031	Share premium RMB’000 – - - - - - - – - - - - - - – – – - - - - - - ------------------------ – - - - - - - – – – – – - - - - - - ------------------------ –	Merger reserve 26(c)(iii) RMB’000 – - - - - - - – - - - - - - – – – - - - - - - ------------------------ – - - - - - - – 31,499 – – 31,499 - - - - - - ------------------------ 31,499	Reserves RMB’000 112,274 - - - - - - – - - - - - - – – – - - - - - - ------------------------ – - - - - - - – – 185,004 – 185,004 - - - - - - ------------------------ 297,278	Fair value reserve RMB’000 86,205 - - - - - - – - - - - - - – (86,205) (86,205) - - - - - - ------------------------ (86,205) - - - - - - – – – – – - - - - - - ------------------------ –	Exchange reserve Share-based compensation reserve RMB’000 RMB’000 (28,148) – - - - - - - - - - - - - – – - - - - - - - - - - - - (24,666) – – – (24,666) – - - - - - - ------------------------ - - - - - - ------------------------ (24,666) – - - - - - - - - - - - - – – – – – – – – – – - - - - - - ------------------------ - - - - - - ------------------------ (52,814) –	Retained earnings RMB’000 337,616 - - - - - - 330,690 - - - - - - – – – - - - - - - ------------------------ 330,690 - - - - - - – – (185,004) (120,341) (305,345) - - - - - - ------------------------ 362,961	Total RMB’000 635,128 - - - - - - 330,690 - - - - - - (24,666) (86,205)
								(110,871) - - - - - - ------------------------ 219,819 - - - - - - 349 – – (120,341)
								(119,992) - - - - - - ------------------------ 734,955

– I-6 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Attributable	to equity shar	eholders of the	Company
Share capital RMB’000 – - - - - - - - - - – - - - - - - - - - – – – - - - - - - - - - ------------------------- – - - - - - - - - - 88 66,039 22,042 3,305 – – – – 91,474 - - - - - - - - - ------------------------- 91,474	Capital reserve RMB’000 96,031 - - - - - - - - - – - - - - - - - - - – – – - - - - - - - - - ------------------------- – - - - - - - - - - (96,031) – – – – – – – (96,031) - - - - - - - - - ------------------------- –	Share premium RMB’000 – - - - - - - - - - – - - - - - - - - - – – – - - - - - - - - - ------------------------- – - - - - - - - - - – (66,039) 533,429 79,987 (52,744) – – – 494,633 - - - - - - - - - ------------------------- 494,633	Merger reserve 26(c)(iii) RMB’000 31,499 - - - - - - - - - – - - - - - - - - - – – – - - - - - - - - - ------------------------- – - - - - - - - - - 95,943 – – – – – – – 95,943 - - - - - - - - - ------------------------- 127,442	Reserves RMB’000 297,278 - - - - - - - - - – - - - - - - - - - – – – - - - - - - - - - ------------------------- – - - - - - - - - - – – – – – 9,416 – – 9,416 - - - - - - - - - ------------------------- 306,694	Fair value reserve RMB’000 – - - - - - - - - - – - - - - - - - - - – 12,918 12,918 - - - - - - - - - ------------------------- 12,918 - - - - - - - - - – – – – – – – – – - - - - - - - - - ------------------------- 12,918	Exchange reserve Share-based compensation reserve RMB’000 RMB’000 (52,814) – - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - (46) – – – (46) – - - - - - - - - - ------------------------- - - - - - - - - - ------------------------- (46) – - - - - - - - - - - - - - - - - - - – – – – – – – – – – – – – 2,090 – – – 2,090 - - - - - - - - - ------------------------- - - - - - - - - - ------------------------- (52,860) 2,090	Retained earnings RMB’000 362,961 - - - - - - - - - 129,503 - - - - - - - - - – – – - - - - - - - - - ------------------------- 129,503 - - - - - - - - - – – – – – (9,416) – (88,152) (97,568) - - - - - - - - - ------------------------- 394,896	Total RMB’000 734,955 - - - - - - - - - 129,503 - - - - - - - - - (46) 12,918
								12,872 - - - - - - - - - ------------------------- 142,375 - - - - - - - - - – – 555,471 83,292 (52,744) – 2,090 (88,152)
								499,957 - - - - - - - - - ------------------------- 1,377,287

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

Note Operating activities Cash (used in)/generated from operations 22(b) Interest paid Tax paid: – PRC Income Tax refund/(paid) 8(c) Net cash (used in)/generated from operating activities Investing activities Interest received Proceeds from sale of property, plant and equipment Proceeds from sale of investments Acquisition of property, plant and equipment Acquisition of other investments Prepayment for investments Net cash used in investing activities Financing activities Proceeds from issue of share capital, net of issuing expenses Capital injection Proceeds from loans and borrowings Repayment of loans and borrowings Change in pledged deposits Dividends paid Net cash generated from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 22(a) Effect of foreign exchange rate changes Cash and cash equivalents at 31 December 22(a)	2009 RMB’000 (412,466) (49,753) 16,709 (445,510) ------------ 11,049 4,906 – (197,749) (8,278) (169,320) (359,392) ------------ 586,019 – 4,518,745 (3,441,533) (551,903) (133,856) 977,472 ------------ ----------------------- 172,570 201,499 2,118 376,187	2008 RMB’000 738,170 (64,678) (121,513) 551,979 ------------ 8,282 654 110,885 (456,703) – – (336,882) ------------ – 349 2,748,544 (2,508,876) (339,684) – (99,667) ------------ ----------------------- 115,430 85,060 1,009 201,499

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

1 COMPANY BACKGROUND AND BASIS OF PREPARATION

1.1 General information and the basis of presentation

China Qinfa Group Limited (the “Company”) was incorporated in the Cayman Islands on 4 March 2008 as an exempted company with limited liability under the Companies Law (2007 Revision) of the Cayman Islands.

Pursuant to a reorganisation (the “Reorganisation”) of the Company and its subsidiaries (collectively referred to as the “Group”) which was completed on 12 June 2009 to rationalise the Group’s structure in preparation for the public offering (as defined in the prospectus of the Company dated 19 June 2009 (the “Prospectus”)) of the Company’s shares on the Main Board of The Stock Exchange of Hong Kong Limited (“The Stock Exchange”), the Company became the holding company of the subsidiaries now comprising the Group. Details of the Reorganisation are set out in the Prospectus. The Company’s shares have been listed on the Main Board of The Stock Exchange since 3 July 2009.

Since all entities which took part in the Reorganisation were under common control of a group of ultimate equity shareholders, the Group is regarded as a continuing entity resulting from the reorganisation of entities under common control. These financial statements have been prepared on the basis that the current group structure had been in existence at the beginning of the earliest year presented. Accordingly, the consolidated results of the Group for the years ended 31 December 2008 and 2009 include the results of the Company and its subsidiaries with effect from 1 January 2008 or, if later, since their respective dates of incorporation as if the current group structure had been in existence throughout the two years presented. The consolidated statements of financial position of the Group as at 31 December 2008 and 31 December 2009 have been prepared as if the current group structure had been in existence as at the respective dates. All material intra-group transactions and balances have been eliminated on consolidation.

1.2 Basis of preparation

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IAS”) and related Interpretations, promulgated by the International Accounting Standards Board (“IASB”), and the disclosure requirements of the Hong Kong Companies Ordinance. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). A summary of the significant accounting policies adopted by the Group is set out below.

The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group and the Company. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of measurement

These financial statements are presented in Renminbi (“RMB”), which is rounded to the nearest thousand. They have been prepared on the historical cost basis except that the available-for-sale financial assets are measured at fair value.

(c) Use of estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are described as follows:

(i) Impairment losses on trade and other receivables

Impairment losses for trade and other receivables are assessed and provided based on management’s regular review of ageing analysis and evaluation of collectability. A considerable level of judgement is exercised by the management when assessing the credit worthiness and past collection history of each individual customer. Any increase or decrease in the impairment losses for bad and doubtful debts would affect the consolidated statement of comprehensive income in future years.

(ii) Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual values. The management periodically reviews changes in technology and industry conditions, asset retirement activity and residual values to determine adjustments to estimated remaining useful lives and depreciation rates. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in depreciable lives and therefore depreciation expenses in future periods.

(iii) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of distributing and selling products of similar nature. It could change significantly as a result of competitor’s actions in response to severe industry cycles or other changes in market condition. Management will reassess the estimations at each reporting date.

(iv) Recognition of income taxes and deferred tax assets

Determining income tax provision involves judgement on the future tax treatment of certain transactions. The management carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislations.

Deferred tax assets are recognised in respect of temporary deductible differences. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised, management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(v) Fair value of available-for-sale financial assets

The fair values of available-for-sale financial assets are measured using quoted prices in active markets. If information on current or recent market prices of available-for-sale financial assets is not available, the fair values of available-for-sale financial assets are determined using valuation techniques.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operation policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see Note 2(g)).

(b) Foreign currency

(i) Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the entity (the “functional currency”). The financial statements are presented in RMB (the “presentation currency”).

(ii) Foreign currency transactions

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the reporting date. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.

(iii) Financial statements of foreign operations

The results of foreign operations are translated into RMB at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Assets and liabilities are translated into RMB at the closing foreign exchange rates at the reporting date. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Financial instruments

(i) Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables and available-for-sale financial assets.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables.

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of other categories. The Group’s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see Note 2(g)) and foreign currency differences (see Note 2(b)) on available-for-sale equity securities, are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

(ii) Non-derivative financial liabilities

The Group initially recognises financial liabilities on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

The Group has the following non-derivative financial liabilities: loans and borrowings and trade and other payables.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

(iii) Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of buildings, vessels, plant and equipment and other properties are measured at cost less accumulated depreciation and impairment losses (see Note 2(g)).

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs (see Note 2(o)). Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

Cost incurred in replacing or renewing the separate assets in vessels (dry-docking costs) are capitalised and depreciated on a straight-line basis over the estimated period until the next dry-docking.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substitute for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

No depreciation is provided for assets under construction until such time as the relevant assets are completed and available for intended use. Assets under construction are transferred to relevant categories of property, plant and equipment upon the completion of their respective construction.

The estimated useful lives for the current and comparative periods are as follows:

Plant and buildings 10-20 years Machinery 4-20 years

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Electronic and other equipment 3-10 years Motor vehicles 5-10 years Vessels 10-15 years

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

(iv) Disposal

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or loss.

(e) Lease prepayments

Lease prepayments represent cost of land use rights paid to the PRC’s governmental authorities. Lease prepayments are carried at cost less accumulated amortisation and impairment losses (see Note 2(g)). Amortisation is charged to profit or loss on a straight-line basis over the respective periods of the rights.

(f) Inventories

Inventories are measured at the lower of cost and net realisable value.

The cost of inventories is calculated using the weighted average cost formula and comprises expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(g) Impairment of assets

(i) Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Impairment losses on available-for-sale equity securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.

Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(iii) Interim financial reporting and impairment

Under the Listing Rules, the Group is required to prepare an interim financial report in compliance with IAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year.

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment losses recognised in an interim period in respect of available-for-sale equity securities are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates. Consequently, if the fair value of an available-for-sale equity security increases in the remainder of the annual period, or in any other period subsequently, the increase is recognised in other comprehensive income and not profit or loss.

(h) Employee benefits

(i) Short-term employee benefits

Salaries, annual bonuses, paid annual leave and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Defined contribution retirement plan

Obligation for contribution to local government defined contribution retirement scheme pursuant to the relevant labour rules and regulations in the PRC and the Hong Kong Mandatory Provident Fund Scheme Ordinance are recognised as an expense in profit or loss as incurred.

(iii) Share-based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using the Binomial Model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the options, the total estimated fair value of the options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options that is expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the capital reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of options that vest (with a corresponding adjustment to the capital reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. The equity amount is recognised in the capital reserve until either the option is exercised (when it is transferred to the share premium account) or the option expires (when it is released directly to retained profits).

(i) Provisions and contingent liabilities

Provisions are recognised when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(j) Revenue

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Sales of goods

Revenue from the sales of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts, volume rebates and value added tax. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised.

(ii) Income from charter hire

Income from time charter, which is of operating lease in nature, is recognised on a straight-line basis over the period of each charter.

Income from voyage charter is recognised on a percentage-of-completion basis, which is determined on the time proportion method of each individual voyage.

(iii) Government grants

Government grants are recognised initially as deferred income at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.

(k) Operating lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

(l) Finance income and costs

Finance income comprises interest income and foreign currency gains. Interest income is recognised as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expenses on borrowings, bank charges and foreign currency losses. All borrowing costs are recognised in profit or loss or capitalised using the effective interest method.

Foreign currency gains and losses are reported on a net basis.

(m) Income tax expense

Income tax expense comprises current tax and movements in deferred tax assets and liabilities. Income tax expense is recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity in which case the relevant amounts are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purpose and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax assets can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each reporting date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously, or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same tax authority on either:
the same taxable entity, or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(n) Dividends

Dividends are recognised as a liability in the period in which they are declared.

(o) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(p) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

(q) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(r)

Related parties

For the purposes of these financial statements, parties are considered to be related to the Group if:

(i) The party has the ability, directly or indirectly through one or more intermediaries, to control the Group or exercise significant influence over the Group in making financial and operating policy decisions, or has joint control over the Group;
(ii) The Group and the party are subject to common control;
(iii) The party is an associate of the Group or a jointly controlled entity in which the Group is a venturer;
(iv) The party is a member of key management personnel of the Group or the Group’s parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) The party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi) The party is a post-employment benefit plan which is for the benefit of employees of the Group or of any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

3 CHANGES IN ACCOUNTING POLICIES

The IASB has issued one new IFRS, a number of amendments to IFRSs and new Interpretations that are first effective for the current accounting period of the Group and the Company. Of these, the following developments are relevant to the Group’s financial statements:

IFRS 8, Operating segments
IAS 1 (revised 2007), Presentation of financial statements
Amendments to IFRS 7, Financial instruments: Disclosures – improving disclosures about financial instruments

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Improvements to IFRSs (2008)
IAS 23 (revised 2007), Borrowing costs

The amendments to IAS 23 and Improvements to IFRSs (2008) had no material impact on the Group’s financial statements as the amendments and interpretations were consistent with policies already adopted by the Group. The impact of the remainder of these developments on these financial statements is as follows:

As at 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the Chief Executive Officer (the “CEO”), who is the Group’s chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 Operating segments. Previously operating segments were determined and presented in accordance with IAS 14 Segment Reporting. The new accounting policy in respect of segment operating disclosures is presented as follows.

Comparative segment information has been re-presented in conformity with the transitional requirements of IFRS 8. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that related to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total costs incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

Corresponding amounts have been provided on a basis consistent with the revised segment information. In making the disclosure in respect of reliance on major customers (see Note 5) the Group has early adopted the amendment to paragraph 34 of IFRS 8, such that it applies judgement in determining whether a government (including government agencies and similar bodies whether local, national or international) and entities known to the Group to be under the control of that government are considered to be a single customer.

The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as at 1 January 2009. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. This presentation has been applied in these financial statements as at and for the year ended 31 December 2009. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented.
As a result of the adoption of the amendments to IFRS 7, the financial statements include expanded disclosures in Note 27(f) about the fair value measurement of the Group’s financial instruments, categorising these fair value measurements into a three-level fair value hierarchy according to the extent to which they are based on observable market data. The Group has taken advantage of the transitional provisions set out in the amendments to IFRS 7, under which comparative information for the newly required disclosures about the fair value measurements of financial instruments has not been provided.

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4 SEGMENT REPORTING

(a) Segment results, assets and liabilities

The Group has three reportable segments, as sales of coal, sales of iron ore and shipping transportation, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the CEO reviews internal management reports on a monthly basis.

For the purposes of assessing segment performance and allocating resources between segments, the CEO monitors the results, assets and liabilities attributable to each reportable segment on the following basis:

The measure used for reporting segment profit is adjusted profit before net finance costs and taxes. Items not specifically attributable to individual segments, such as gain from disposal of available-for-sale financial assets, unallocated head office and corporate administration costs are further adjusted.

Segment assets include all tangible, intangible assets and current assets with the exception of investments in financial assets, deferred tax assets and other corporate assets. Segment liabilities include trade and other payables attributable to activities of the individual segments and loans and borrowings managed directly by the segments.

Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments.

Turnover from external customers Inter-segment turnover Reportable segment turnover Reportable segment profit/(loss) before income tax Depreciation and amortisation for the year Reportable segment assets Reportable segment liabilities	Sales of Coal 2009 2008 RMB’000 RMB’000 3,361,403 4,050,170 – – 3,361,403 4,050,170 255,648 299,496 5,911 5,424 3,442,403 1,521,885 (2,592,010) (853,931)	Sales of Iron Ore 2009 2008 RMB’000 RMB’000 506,845 – – – 506,845 – 34,076 – – – 16,864 – – –	Shipping Transportation 2009 2008 RMB’000 RMB’000 58,745 142,314 148,036 68,289 206,781 210,603 (25,553) 52,813 70,364 32,474 1,138,966 957,546 (1,060,935) (843,382)	Total 2009 2008 RMB’000 RMB’000 3,926,993 4,192,484 148,036 68,289 4,075,029 4,260,773 264,171 352,309 76,275 37,898 4,598,233 2,479,431 (3,652,945) (1,697,313)	Total 2009 2008 RMB’000 RMB’000 3,926,993 4,192,484 148,036 68,289 4,075,029 4,260,773 264,171 352,309 76,275 37,898 4,598,233 2,479,431 (3,652,945) (1,697,313)
					4,260,773

					352,309 37,898 2,479,431 (1,697,313)

– I-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Reconciliations of reportable segment turnover, profit or loss, assets and liabilities

Turnover

Reportable segment turnover Elimination of inter-segment turnover Consolidated turnover Profit Reportable segment profit before income tax Elimination of inter-segment loss Unallocated head office and corporate (expenses)/income Net finance costs Consolidated profit before income tax	2009 RMB’000 4,075,029 (148,036) 3,926,993 2009 RMB’000 264,171 249 (6,799) (30,057) 227,564	2008 RMB’000 4,260,773 (68,289) 4,192,484 2008 RMB’000 352,309 3,770 87,797 (48,577) 395,299

Assets

Reportable segment assets Elimination of inter-segment receivables and inventories Elimination of receivables from head office Deferred tax assets Unallocated assets Consolidated total assets	2009 RMB’000 4,598,233 (256,563) (219,502) 6,561 31,977 4,160,706	2008 RMB’000 2,479,431 (405,554) – 11,411 194 2,085,482

Liabilities

Reportable segment liabilities Elimination of inter-segment payables Elimination of payables to head office Current tax liabilities Unallocated liabilities Consolidated total liabilities	2009 RMB’000 3,652,945 (255,469) (790,855) 167,578 9,220 2,783,419	2008 RMB’000 1,697,313 (404,444) – 57,658 – 1,350,527

(c) Geographic information

The Group’s total assets are primarily dominated by the assets handling its coal, iron ore and shipping businesses. The coal and iron ore are sold primarily to the PRC domestic customers and therefore related assets and liabilities are almost all located in the PRC. The vessels are primarily utilised across

– I-22 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

geographical market for shipping transportation throughout the world. As a result, the directors consider that it is not meaningful to allocate the Group’s assets and their related capital expenditure to specific geographical segments. Accordingly, geographical segment information is only presented for turnover, which is based on the geographical location of customers.

Turnover from external customers

Inside Mainland PRC Outside Mainland PRC Total	2009 RMB’000 3,522,518 404,475 3,926,993	2008 RMB’000 3,986,609 205,875
		4,192,484

5 TURNOVER

The Group is mainly engaged in sales of coal, sales of iron ore and shipping transportation businesses.

Turnover mainly represents the sales of goods and charter hire income.

The amount of each significant category of turnover recognised during the year is as follows:

Sales of coal Sales of iron ore Charter hire income	2009 RMB’000 3,361,403 506,845 58,745 3,926,993	2008 RMB’000 4,050,170 – 142,314
		4,192,484

The Group’s customer base is diversified and includes three customers with whom transactions have exceeded 10% of the Group’s turnover during the year ended 31 December 2009 (2008: two). Turnover from sales of coal and sales of iron ore to these three customers, including sales to entities which are known to the Group to be under common control with these three customers, amounted to approximately RMB613,660,000, RMB426,537,000 and RMB396,026,000 respectively and arose both inside Mainland PRC and outside Mainland PRC.

During the year ended 31 December 2008, turnover arose from sales of coal to the two customers, including sales to entities which are known to the Group to be under common control with these two customers, amounted to approximately RMB1,108,926,000 and RMB1,024,242,000 respectively and arose inside Mainland PRC.

6 OTHER INCOME

Note Government grants (i) Gain from disposal of available-for-sale financial assets (ii) Others	2009 RMB’000 14,254 – 941 15,195	2008 RMB’000 3,230 97,085 888
		101,203

(i) The Group received unconditional grants from local government for the years of 2009 and 2008 as recognition of its development.

– I-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) On 24 July 2008, the Group entered into a share sale agreement with a third party to dispose of the available-for-sale financial assets, which represented the 2.3% equity interests held by the Group in Millennium Coal Pty Ltd located at the Bowen Basin of Australia, at a consideration of 18,126,000 Australian dollars. The gain on such disposal amounted to RMB97,085,000.

7 PROFIT BEFORE TAX

Profit before tax is arrived at after charging/(crediting):

(a) Net finance costs

Interest income Net foreign exchange gain Interest on borrowings Less: interest capitalised into property, plant and equipment* Bank charges Finance costs Net finance costs	2009 RMB’000 (11,532) (1,702) (13,234) - - - - - - - - - - - - 33,413 (437) 32,976 10,315 43,291 ------------ --------------------------------------------- 30,057	2008 RMB’000 (9,838) (5,895)
		(15,733) - - - - - - - - - - - - 66,062 (8,634)
		57,428 6,882
		64,310 ------------ --------------------------------------------- 48,577

The borrowing costs have been capitalised at an annual rate of 3.20% (2008: 5.36%-6.49%).

(b) Staff costs

Wages, salaries and other benefits Contribution to defined contribution plan Equity-settled share-based payment expenses	2009 RMB’000 32,351 698 2,090 35,139	2008 RMB’000 18,740 534 –
		19,274

The Group participates in pension funds organised by the PRC government. According to the respective pension fund regulations, the Group is required to pay annual contributions during the year. The Group remits all the pension fund contributions to the respective social security offices, which are responsible for the payments and liabilities relating to the pension funds. The Group has no obligation for payment of retirement and other post-retirement benefits of employees other than the contributions described above.

The Group also operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Scheme Ordinance for all of its employees employed by the Company in Hong Kong. Contributions are made based on a percentage of the employee’s basic salaries and are charged to the consolidated statement of comprehensive income as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

– I-24 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) Other items

	2009	2008
	RMB’000	RMB’000
Cost of inventories*	3,287,155	3,484,703
Operating lease charges on premises	5,425	4,211
Depreciation for the property, plant and equipment	76,135	37,758
Amortisation of lease prepayments	140	140
Write-down of inventories to net realisable value	–	30,984
Auditors’ remuneration
– audit services	2,234	237
– non-audit services	105	–

Cost of inventories includes RMB1,833,000 (2008: RMB34,176,000) relating to staff costs, depreciation expenses and write-down of inventories to net realisable value, which amounts are also included in the respective total amounts disclosed separately above for each of these types of expenses.

8 INCOME TAX EXPENSE

(a) Income tax expense in the consolidated statement of comprehensive income represents:

Current tax expense – PRC Income Tax Deferred tax – Origination and reversal of temporary differences	2009 RMB’000 93,211 4,850 98,061	2008 RMB’000 71,314 (6,705)
		64,609

(i) Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in the Cayman Islands and the British Virgin Islands.
(ii) No provision for Hong Kong Profits Tax has been made for the subsidiaries located in Hong Kong as these subsidiaries did not have assessable profits subject to Hong Kong Profits Tax during the year (2008: Nil).
(iii) Pursuant to the Corporate Income Tax Law of the PRC, the Group’s PRC subsidiaries are subject to income tax rate of 25%.
(iv) Pursuant to the Corporate Income Tax Law of the PRC, 5% withholding tax is levied on a Hong Kong company in respect of dividend distributions arising from a PRC foreign investment enterprise’s profit earned after 1 January 2008. As at 31 December 2009, temporary withholding tax differences relating to the undistributed profits of PRC subsidiaries amounted to approximately RMB97,012,000 (2008: Nil). Deferred tax liabilities of RMB4,851,000 (2008: Nil) have not been recognised in respect of the tax that would be payable on the distribution of these retained profits as the Company controls the dividend policy of these subsidiaries and it has been determined that it is probable that profits will not be distributed in the foreseeable future.

– I-25 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Reconciliation between income tax expense and accounting profit at applicable tax rate:

Profit before tax Expected tax on profit before tax, calculated at the applicable tax rate Non-taxable income Non-deductible expenses Income tax expense (c) Current taxation in the statement of financial position represents: Balance at beginning of the year Provision for income tax for the year Income tax refunded during the year Income tax paid during the year Balance at the end of the year	2009 RMB’000 227,564 85,536 – 12,525 98,061 2009 RMB’000 57,658 93,211 24,835 (8,126) 167,578	2008 RMB’000 395,299 98,825 (35,098) 882 64,609 2008 RMB’000 107,857 71,314 – (121,513) 57,658

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9 DIRECTORS’ REMUNERATION

Details of directors’ remuneration are as follows:

Name of directors Executive directors Mr. Xu Jihua (“Mr. Xu”) Ms. Wang Jianfei Ms. Liu Xiaomei Mr. Weng Li Independent non-executive directors Mr. Chen Wenjing Mr. Huang Guosheng Mr. Liu Xiyuan Name of directors Executive directors Mr. Xu Ms. Wang Jianfei Ms. Liu Xiaomei Mr. Weng Li	Directors’ fee RMB’000 – – – – – 129 127 256 Directors’ fee RMB’000 – – – – –	Salaries, allowances and benefits in kind RMB’000 793 662 300 462 – – – 2,217 Salaries, allowances and benefits in kind RMB’000 307 302 219 252 1,080	Contri- butions to retirement benefit schemes RMB’000 6 6 6 2 – – – 20 Contri- butions to retirement benefit schemes RMB’000 5 4 4 2 15	Discre- tionary bonuses RMB’000 1,000 1,000 100 500 – – – 2,600 Discre- tionary bonuses RMB’000 – – – – –	Sub-total RMB’000 1,799 1,668 406 964 – 129 127 5,093 Sub-total RMB’000 312 306 223 254 1,095	Share- based payment RMB’000 – – 180 – – – – 180 Share- based payment RMB’000 – – – – –	2009 Total RMB’000 1,799 1,668 586 964 – 129 127
							5,273

							2008 Total RMB’000 312 306 223 254
							1,095

Mr. Chen Wenjing, Mr. Huang Guosheng and Mr. Liu Xiyuan were appointed as independent non-executive directors of the Company on 12 June 2009. Mr. Chen Wenjing agreed to waive all of his remuneration amounted to RMB129,000 in total during the year.

An analysis of directors’ remuneration by the number of directors and remuneration range is as follows:

	2009	2008
	Number of	Number of
	directors	directors
Nil to HKD1,000,000	4	4
HKD1,000,001 to HKD1,500,000	1	–
HKD1,500,001 to HKD2,000,000	1	–
HKD2,000,001 to HKD2,500,000	1	–

– I-27 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

There were no amounts paid during the year (2008: Nil) to the directors in connection with their retirement from employment with the Group, or inducement to join.

10 INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five highest paid individuals of the Group during the year include three directors of the Company (2008: four), whose remuneration are reflected in the analysis presented above. Details of remuneration paid to the remaining highest paid individuals of the Group are as follows:

Salaries, allowances and benefits in kind Contributions to retirement benefit schemes Discretionary bonuses Share-based payment	2009 RMB’000 1,156 13 588 147 1,904	2008 RMB’000 582 11 – –
		593

The emoluments of the two (2008: one) individuals with the highest emoluments are within the following bands:

	2009	2008
	Number of	Number of
	individuals	individuals
Nil to HKD1,000,000	–	1
HKD1,000,001 to HKD1,500,000	2	–

There were no amounts paid during the year (2008: Nil) to the five highest paid employees in connection with their retirement from employment with the Group, or inducement to join.

11 PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY

The consolidated profit attributable to equity shareholders of the Company includes a loss of RMB5,307,000 (2008: Nil) which has been dealt with in the financial statements of the Company.

12 OTHER COMPREHENSIVE INCOME

(a) Tax effects relating to each component of other comprehensive income:

Exchange differences on translation of financial statements of overseas subsidiaries Net change in fair value of available-for-sale financial assets Other comprehensive income	Before-tax amount RMB’000 (46) 12,918 12,872	2009 Tax (expense)/ benefit RMB’000 – – –	Net-of-tax amount RMB’000 (46) 12,918 12,872	Before-tax amount RMB’000 (24,666) (86,205) (110,871)	2008 Tax (expense)/ benefit RMB’000 – – –	Net-of-tax amount RMB’000 (24,666) (86,205)
						(110,871)

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Reclassification adjustments relating to components of other comprehensive income:

Available-for-sale financial assets

Changes in fair value recognised during the year Reclassification adjustments for amounts transferred to profit or loss: – gain on disposal Net movement in the fair value reserve during the year recognised in other comprehensive income	2009 RMB’000 12,918 – 12,918	2008 RMB’000 – (86,205)
		(86,205)

13 EARNINGS PER SHARE

(a) Basic earnings per share

The calculation of basic earnings per share is based on the profit attributable to equity shareholders of the Company of RMB129,503,000 (2008: RMB330,690,000) and the weighted average of 890,616,000 ordinary shares (2008: 750,000,000 ordinary shares after adjusting for the capitalisation issue in 2009) in issue during the year, calculated as follows:

Weighted average number of ordinary shares

Ordinary shares issued at 1 January Issuance of shares upon the Reorganisation Effect of capitalisation issue (see Note 26(b)(iii)) Effect of shares issued on Initial Public Offering (see Note 26(b)(iv)) Effect of shares issued under the over-allotment option related to the placement (see Note 26(b)(v)) Weighted average number of ordinary shares at 31 December	2009 Number of shares 1 999,999 749,000,000 123,972,000 16,644,000
	890,616,000

The weighted average number of shares in issue during the year ended 31 December 2008 represents the 750,000,000 shares in issue before the listing of shares on The Stock Exchange, as if such shares had been outstanding during the entire year of 2008.

(b) Diluted earnings per share

The calculation of diluted earnings per share for the year ended 31 December 2009 is the same as the calculation of basic earnings per share for this year. The Pre-IPO Share Option Scheme (see Note 24(a)) does not give rise to any dilution effect on the Company’s earnings per share and there were no other dilutive potential ordinary shares in existence during the year. Diluted earnings per share for the year ended 31 December 2008 is not presented as there were no dilutive potential ordinary shares in existence during the year ended 31 December 2008.

– I-29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14 PROPERTY, PLANT AND EQUIPMENT

The Group

Cost At 1 January 2008 Additions Disposals Transfers Exchange difference At 31 December 2008 Additions Disposals Transfers Exchange difference At 31 December 2009 Accumulated depreciation At 1 January 2008 Charge for the year Written back on disposals Exchange difference At 31 December 2008 Charge for the year Written back on disposals Exchange difference At 31 December 2009 Carrying amounts At 31 December 2008 At 31 December 2009	Plant and buildings RMB’000 39,658 1,518 – – – 41,176 – – – – 41,176 - - - - - - - - - (3,005) (1,959) – – (4,964) (2,027) – – (6,991) - - - - - - - - - ---------------------------------- 36,212 34,185	Machinery RMB’000 4,998 1,434 – – – 6,432 384 – – – 6,816 - - - - - - - - - (1,943) (615) – – (2,558) (702) – – (3,260) - - - - - - - - - ---------------------------------- 3,874 3,556	Electronic and other equipment RMB’000 2,398 415 – – – 2,813 323 – – – 3,136 - - - - - - - - - (1,063) (390) – – (1,453) (446) – – (1,899) - - - - - - - - - ---------------------------------- 1,360 1,237	Motor vehicles RMB’000 12,816 6,627 (1,946) – – 17,497 1,791 – – – 19,288 - - - - - - - - - (6,641) (2,325) 1,292 – (7,674) (2,604) – – (10,278) - - - - - - - - - ---------------------------------- 9,823 9,010	Vessels RMB’000 143,599 24,058 – 570,257 (16,459) 721,455 46,450 (5,581) 310,488 (807) 1,072,005 - - - - - - - - - (29,993) (32,469) – 2,453 (60,009) (70,356) 675 105 (129,585) - - - - - - - - - ---------------------------------- 661,446 942,420	Assets under construction RMB’000 392,362 422,651 – (570,257) (29,788) 214,968 101,452 – (310,488) (109) 5,823 - - - - - - - - - – – – – – – – – – - - - - - - - - - ---------------------------------- 214,968 5,823	Total RMB’000 595,831 456,703 (1,946) – (46,247)
							1,004,341 150,400 (5,581) – (916)
							1,148,244 - - - - - - - - - (42,645) (37,758) 1,292 2,453
							(76,658) (76,135) 675 105
							(152,013) - - - - - - - - - ---------------------------------- 927,683

							996,231

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15 LEASE PREPAYMENTS

The Group

RMB’000

Cost At 1 January 2008, and 31 December 2008 and 2009 Accumulated amortisation At 1 January 2008 Charge for the year At 31 December 2008 Charge for the year At 31 December 2009 Carrying amounts At 31 December 2008 At 31 December 2009	6,998 - - - - - - - - - - - - (665) (140)
	(805) (140)
	(945) ------------ --------------------------------------------- 6,193

	6,053

Lease prepayments represent cost of land use rights in respect of land located in the PRC with a lease period of 50 years when granted.

16 OTHER INVESTMENTS

The Group

Available-for-sale financial assets	2009 RMB’000 30,390	2008 RMB’000 –

The available-for-sale financial assets represent the equity interests held by the Group in Tiaro Coal Limited (“Tiaro Coal”), a company incorporated in the State of New South Wales in Australia with its shares listed on the Australian Securities Exchange. The fair value of the available-for-sale financial assets was measured using quoted prices (unadjusted) in active markets.

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17 DEFERRED TAX ASSETS

The Group

Deferred tax assets recognised and the movements of the deferred tax assets during 2009:

Deferred tax assets arising from: Utilisation of write-down of inventories Unrealised profit arising from intra-group transactions elimination	At 1 January 2009 Credited/ (charged) to consolidated statement of comprehensive income RMB’000 RMB’000 7,746 (7,746) 3,665 2,896 11,411 (4,850)	At 31 December 2009 RMB’000 – 6,561
		6,561

Deferred tax assets recognised and the movements of the deferred tax assets during 2008:

Deferred tax assets arising from: Write-down of inventories Taxable losses carried forward Unrealised profit arising from intra-group transactions elimination 18 INVESTMENT IN SUBSIDIARIES Unlisted shares, at cost	At 1 January 2008 Credited/ (charged) to consolidated statement of comprehensive income RMB’000 RMB’000 – 7,746 1,002 (1,002) 3,704 (39) 4,706 6,705 2009 RMB’000 658,807	At 31 December 2008 RMB’000 7,746 – 3,665
		11,411

		2008 RMB’000 –

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Group. The class of shares held is ordinary unless otherwise stated.

– I-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Name of company
Place of
establishment/
incorporation
Qinfa Investment Limited
(“Qinfa Investment”)
British Virgin
Islands
Perpetual Goodluck Limited
(“Perpetual”)
Hong Kong
Liberal City Limited
(“Liberal”)
Hong Kong
Hong Kong Qinfa Shipping
Limited (“Qinfa Shipping”)
Hong Kong
Hong Kong Qinfa Trading
Limited (“Qinfa Trading”)
Hong Kong
Hong Kong Qinfa
International Trading
Limited (“Qinfa
International”)
Hong Kong
Super Grace Enterprises
Limited (“Super Grace”)
British Virgin
Islands
Zhuhai Qinfa Logistics Co.,
Ltd. (“Qinfa Logistics”)
The PRC
Datong Xiejiazhuang Jinfa
Trading and Transportation
Co., Ltd. (“Datong Jinfa”)
The PRC
Yangyuan Guotong Coal
Trading and Transportation
Co., Ltd. (“Yangyuan
Guotong”)
The PRC
Zhuhai Qinfa Trading Co.,
Ltd. (“Zhuhai Qinfa
Trading”)
The PRC
Zhuhai Qinfa Shipping Co.,
Ltd. (“Zhuhai Qinfa
Shipping”)
The PRC
Qinhuangdao Development
Zone Qinfa Trading Co.,
Ltd. (“Qinhuangdao
Trading”)
The PRC
Zhuhai Qinfa Resource
Development Co., Ltd.
(“Zhuhai Resource”)
The PRC
Bright Rock Holdings Limited
(“Bright Rock”)
British Virgin
Islands
Oriental Wise Group Limited
(“Oriental Wise”)
British Virgin
Islands
Qinfa Chartering Limited
(“Qinfa Chartering”)
British Virgin
Islands
Qinfa Shipping Group Limited
(“Qinfa Shipping Group”)
British Virgin
Islands
Baotou Danghui Materials
Trading Co., Ltd. (“Baotou
Danghui”)
The PRC
Ordos Jinfa Materials Co.,
Ltd. (“Ordos Jinfa”)
The PRC

Proportion of ownership interest
Group’s
effective
interest
Held by the
Company
Held by a
subsidiary
Issued and fully
paid-up/
registered
capital
Principal activities
100%
100%
–
USD4,801/
USD50,000
Investment holding
100%
–
100%
HKD1,000/
HKD1,000
Goods transport and
logistics, and
charter hire
100%
–
100%
HKD1,000/
HKD1,000
Goods transport and
logistics, and
charter hire
100%
–
100%
HKD10,000/
HKD10,000
Goods transport and
logistics, and
charter hire
100%
–
100%
HKD30,000,000/
HKD30,000,000
Sales of coal and
investment holding
100%
–
100%
HKD10,000/
HKD10,000
Sales of iron ore
100%
–
100%
USD50,000/
USD50,000
Goods transport and
logistics, and
charter hire
100%
–
100%
HKD20,000,000/
HKD20,000,000
Warehousing and
transportation
service
100%
–
100%
RMB8,000,000/
RMB8,000,000
Sales of coal
100%
–
100%
RMB10,000,000/
RMB10,000,000
Sales of coal
100%
–
100%
RMB5,000,000/
RMB5,000,000
Sales of coal
100%
–
100%
RMB5,000,000/
RMB5,000,000
Goods transport and
logistics, and
charter hire
100%
–
100%
RMB68,000,000/
RMB68,000,000
Sales of coal
100%
–
100%
RMB1,000,000/
RMB1,000,000
Not yetcommenced
operation
100%
–
100%
USD1/
USD50,000
Investment holding
100%
–
100%
USD1/
USD50,000
Goods transport and
logistics, and
charter hire
100%
–
100%
USD1/
USD50,000
Goods transport and
logistics, and
charter hire
100%
–
100%
USD1/
USD50,000
Goods transport and
logistics, and
charter hire
100%
–
100%
RMB10,000,000/
RMB10,000,000
Sales of coal
100%
–
100%
RMB10,000,000/
RMB10,000,000
Investment holding

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19 INVENTORIES

The Group

Finished goods Goods in transit Fuel	2009 RMB’000 244,622 103,247 10,255 358,124	2008 RMB’000 57,450 8,022 12,241
		77,713

The inventories as at 31 December 2009 were stated at cost (31 December 2008: Provision of RMB30,984,000 was made against those inventories with net realisable value lower than carrying value).

20 TRADE AND OTHER RECEIVABLES

Trade debtors and bills receivable (see Note (i)) Prepayment for investments (see Note (ii)) Deposits and prepayments Amount due from subsidiaries Other non-trade receivables	The Group 2009 2008 RMB’000 RMB’000 565,451 200,643 169,320 – 556,358 134,141 – – 58,703 40,774 1,349,832 375,558	The Company 2009 2008 RMB’000 RMB’000 – – – – – – 800,551 – 48 – 800,599 –	The Company 2009 2008 RMB’000 RMB’000 – – – – – – 800,551 – 48 – 800,599 –
			–

All of the trade and other receivables are expected to be recovered within one year. The Group’s exposure to credit and currency risks related to trade and other receivables is disclosed in Note 27.

(i) Trade debtors and bills receivable included bank acceptance bills of RMB41,687,000 as at 31 December 2009 (31 December 2008: RMB4,900,000), which have been discounted to banks.

An ageing analysis of trade debtors and bills receivable (net of impairment for bad and doubtful debts) of the Group is as follows:

Within 1 month Over 1 month but less than 3 months Over 3 months but less than 6 months	The Group 2009 2008 RMB’000 RMB’000 501,197 157,816 42,693 33,173 21,561 9,654 565,451 200,643	The Group 2009 2008 RMB’000 RMB’000 501,197 157,816 42,693 33,173 21,561 9,654 565,451 200,643
		200,643

Credit terms granted to customers ranged from 0 to 30 days depending on the customer’s relationship with the Group, their creditworthiness and settlement record.

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Prepayment for investments includes:
1) Prepayment for the acquisition of Shanxi Hun Yuan Rui Feng Coal Company Limited (“Ruifeng Coal”)

On 17 August 2009, Datong Jinfa, a subsidiary of the Company, entered into an equity interest transfer agreement (the “Equity Transfer Agreement”) with, amongst others, Shanxi Ruifeng Pharmaceutical Group Co., Ltd. (“Shanxi Ruifeng”), which held a 87.88% equity interest in Ruifeng Coal. Pursuant to the Equity Transfer Agreement, Shanxi Ruifeng agreed to sell its entire interest in Ruifeng Coal to Datong Jinfa at a consideration of RMB130,000,000.

As at 31 December 2009, Datong Jinfa had paid RMB108,120,000 of the total consideration, and the required closing matters relating to the acquisition have not yet been completed.

2) Prepayment for the acquisition of Ordos Bayin Mengke Nayuan Coal Co., Ltd. (“Nayuan Coal”)

On 30 December 2009, Ordos Jinfa, a subsidiary of the Company, entered into an Acquisition and Debt Restructuring Agreement (the “Agreement”) with Ordos Bayin Mengke Investment Group Co., Ltd. and other individual investors of Ordos Bayin Mengke Nayuan Coal (collectively referred to as the “Vendors”). Pursuant to the Agreement, the Vendors agreed to sell their 60% equity interest in Ordos Bayin Mengke Nayuan Coal to Ordos Jinfa at a consideration of RMB857,300,000.

As at 31 December 2009, Ordos Jinfa had paid RMB61,200,000 of the total consideration, and the required closing matters relating to the acquisition have not yet been completed.

21 PLEDGED DEPOSITS

Bank deposits of RMB1,037,328,000 as at 31 December 2009 (31 December 2008: RMB485,425,000) were pledged to banks to secure certain of the Group’s bank facilities (see Note 23).

22 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise:

Deposits with banks within three months’ maturity Cash at banks and on hand	The Group 2009 2008 RMB’000 RMB’000 21,472 32,368 354,715 169,131 376,187 201,499	The Company 2009 2008 RMB’000 RMB’000 – – 1,324 – 1,324 –	The Company 2009 2008 RMB’000 RMB’000 – – 1,324 – 1,324 –
			–

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Reconciliation of profit before taxation to cash (used in)/generated from operations:

Note Profit before income tax Adjustment for: Depreciation for property, plant and equipment 7(c) Amortisation of lease prepayments 7(c) Net finance costs 7(a) Gain from disposal of available-for-sale financial assets 6 Equity-settled share-based payment expenses 7(b) Changes in working capital: Change in inventories Change in trade and other receivables Change in trade and other payables Cash (used in)/generated from operations	2009 RMB’000 227,564 76,135 140 30,057 – 2,090 (280,411) (757,122) 289,081 (412,466)	2008 RMB’000 395,299 37,758 140 48,577 (97,085) – 326,551 161,989 (135,059)
		738,170

23 LOANS AND BORROWINGS

Current Secured bank loans and bank advances (i) Bank advances under discounted bill receivables (ii) Other borrowings from a related party (see Note 30(b)) Current portion of non-current secured bank loans (iii) Non-current Secured bank loans (iii)	The Group 2009 2008 RMB’000 RMB’000 1,912,238 769,482 41,687 4,900 – 51,817 59,888 81,067 2,013,813 907,266 - - - - - - - - - - - - - - - - - - - - - - - - 231,924 261,608 ------------ --------------------------------------------- ------------ --------------------------------------------- 2,245,737 1,168,874	The Group 2009 2008 RMB’000 RMB’000 1,912,238 769,482 41,687 4,900 – 51,817 59,888 81,067 2,013,813 907,266 - - - - - - - - - - - - - - - - - - - - - - - - 231,924 261,608 ------------ --------------------------------------------- ------------ --------------------------------------------- 2,245,737 1,168,874
		907,266 - - - - - - - - - - - - 261,608 ------------ --------------------------------------------- 1,168,874

(i) Current bank loans and bank advances carried interest at rates ranging from 0.83% to 4.86% (2008: 1.75% to 6.77%) per annum. Current secured bank loans and bank advances were secured by the following assets and guaranteed by related parties (see Note 30(c)):

	The	Group
	2009	2008
	RMB’000	RMB’000
Property, plant and equipment	387,446	327,034
Inventories	101,400	22,323
Trade and bill receivables	171,494	59,214
Pledged deposits	1,037,328	485,425

Unutilised bank facilities secured by pledged deposits for the Group were RMB702,723,000 as at 31 December 2009 (31 December 2008: RMB27,065,000).

– I-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The Group’s discounted bank acceptance bills with recourse have been accounted for as collateralised bank advances. The discounted bill receivables and the related proceeds of the same amount are included in the Group’s “Trade debtors and bill receivables” and “Bank advances under discounted bill receivables” as at the reporting date.
(iii) Non-current secured bank loans as at 31 December 2009 were pledged by fixed assets with carrying amounts of RMB263,927,000 (31 December 2008: RMB569,807,000) and guaranteed by a related party (see Note 30(c)).

Non-current secured bank loans as at 31 December 2009 carried variable interest rates based on (i) the LIBOR plus 1% and (ii) 10% discount on the per annum interest rate quoted by the People’s Bank of China in respect of three-year borrowings (31 December 2008: (i) the LIBOR plus 1% and (ii) 5% discount on the per annum interest rate quoted by the People’s Bank of China in respect of long-term borrowings over 5 years).

The Group’s non-current bank loans were repayable as follows:

Within 1 year Over 1 year but less than 2 years Over 2 years but less than 5 years Over 5 years	The Group 2009 2008 RMB’000 RMB’000 59,888 81,067 - - - - - - - - - - - - - - - - - - - - - - - - 45,352 82,948 186,572 167,857 – 10,803 231,924 261,608 ------------ --------------------------------------------- ------------ --------------------------------------------- 291,812 342,675	The Group 2009 2008 RMB’000 RMB’000 59,888 81,067 - - - - - - - - - - - - - - - - - - - - - - - - 45,352 82,948 186,572 167,857 – 10,803 231,924 261,608 ------------ --------------------------------------------- ------------ --------------------------------------------- 291,812 342,675
		261,608 ------------ --------------------------------------------- 342,675

24 EQUITY-SETTLED SHARE-BASED PAYMENTS

(a) Pre-IPO Share Option Scheme

Pursuant to the sole shareholder’s written resolutions passed on 12 June 2009, the Company adopted a Pre-IPO Share Option Scheme (the “Pre-IPO Option”) whereby one executive director and 25 employees of the Group were granted the rights to subscribe for shares of the Company.

The total number of shares which may be issued upon the exercise of all options granted under the Pre-IPO Option is 8,400,000 shares which were granted on 12 June 2009 with the subscription price of HKD2.52 per share.

Each option granted under the Pre-IPO Option has a vesting period of one to three years commencing from 3 July 2009, being the listing date of the shares on The Stock Exchange (the “Listing Date”) and the options are exercisable for a period of 10 years. The Company has no legal or constructive obligation to repurchase or settle the option in cash.

– I-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) The terms and conditions of the grants are as follows:

Options granted to a director – on 12 June 2009 Options granted to employees – on 12 June 2009 Total share options	Number of options Vesting conditions Contractual life of options 600,000 30% on both of the first and second anniversary of the Listing Date, 40% on the third anniversary of the Listing Date 10 years 7,800,000 30% on both of the first and second anniversary of the Listing Date, 40% on the third anniversary of the Listing Date 10 years 8,400,000

(ii) The number and weighted average exercise prices of share options are as follows:

	Exercise	Number of
	price	options
	HKD	’000 shares
Outstanding at the beginning of the year	–	–
Granted during the year	2.52	8,400
Forfeited during the year	2.52	200
Outstanding at the end of the year	2.52	8,200
Exercisable at the end of the year	2.52	–

No share options were exercised during the year.

The share options outstanding at 31 December 2009 had an exercise price of HKD2.52 and a weighted average remaining contractual life of 9.5 years. No options and rights were outstanding as at 31 December 2008 as the Pre-IPO Option has not been granted during that year.

(iii) Fair value of share options and assumptions

The fair value of service received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the share options granted is measured based on the Binomial Model. The contractual life of the share options is used as an input into this model. Expectations of early exercise are incorporated into the Binomial Model.

	Granted in
	June 2009
Fair value at grant date	HKD7,650,000
Share price	HKD2.52
Exercise price	HKD2.52
Expected volatility	56%
Expected Option life	10 years
Expected dividend yield rate	1.50%
Risk-free interest rate	3.029%

– I-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The expected volatility and expected dividend yield rate are based on the average volatilities and dividend yield rates in the similar industry. Changes in the subjective input assumptions could materially affect the fair value estimate.

(b) Share Option Scheme

The Company has also adopted a Share Option Scheme (the “Share Option Scheme”) pursuant to the sole shareholder’s written resolutions passed on 12 June 2009.

The maximum number of shares that may be issued upon exercise of all options which then has been granted and have yet to be exercised under the Share Option Scheme and any other share option schemes of the Company shall not, in the absence of the shareholders’ approval, in aggregate exceed 30% of the shares in issue from time to time. Unless approved by the shareholders, no option may be granted to any person which if exercised in full would result in the total number of shares issued and to be issued upon exercise of the share options already granted or to be granted to such person (including exercised, cancelled, and outstanding share option) in the 12-month period up to and including the date of such new grant exceeding 1% of the total number of shares in issue as at the date of such new grant.

An option under the Share Option Scheme may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as determined by the board of directors of the Company, which must not be more than 10 years from the date of the grant.

No share option has been granted under the Share Option Scheme during the year.

25 TRADE AND OTHER PAYABLES

Trade and bill payables Dividends payable Other taxes payable Receipts in advance Accrued interest on shareholder’s loans (see Note 30(b)) Accrued port services fee and other expenses Amount due to subsidiaries Other miscellaneous payables	The Group 2009 2008 RMB’000 RMB’000 192,251 24,885 – 45,704 76,201 32,917 39,053 1,452 – 7,333 36,164 7,776 – – 26,435 3,928 370,104 123,995	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – – – – – 219,502 – 26 – 219,528 –	The Company 2009 2008 RMB’000 RMB’000 – – – – – – – – – – – – 219,502 – 26 – 219,528 –
			–

Credit terms granted to the Group by its suppliers ranged from 0 to 30 days. An ageing analysis of trade and bill payables of the Group is as follows:

Within 1 month Over 1 month but less than 3 months Over 3 months but less than 6 months	The Group 2009 2008 RMB’000 RMB’000 190,429 23,414 968 1,159 854 312 192,251 24,885	The Group 2009 2008 RMB’000 RMB’000 190,429 23,414 968 1,159 854 312 192,251 24,885
		24,885

– I-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the year are set out below:

The Company

Note At 4 March 2008 (date of incorporation), at 31 December 2008 and at 1 January 2009 Foreign currency translation difference Arising from the Reorganisation 26(b)(ii) Capitalisation issue 26(b)(iii) Issuance of shares by Initial Public Offering 26(b)(iv) Issuance of shares under the over-allotment option related to the placement 26(b)(v) Share issuing expenses Equity-settled share-based payments 26(c)(vii) Loss for the year At 31 December 2009	Share capital RMB’000 – – 88 66,039 22,042 3,305 – – – 91,474	Share premium RMB’000 – – – (66,039) 533,429 79,987 (52,744) – – 494,633	Contributed surplus RMB’000 – – 658,719 – – – – – – 658,719	Exchange reserve Share-based compensation reserve Accumulated losses RMB’000 RMB’000 RMB’000 – – – (407) – – – – – – – – – – – – – – – – – – 2,090 – – – (5,307) (407) 2,090 (5,307)	Total RMB’000 – (407) 658,807 – 555,471 83,292 (52,744) 2,090 (5,307)
					1,241,202

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Share capital

The Group and the Company

Note Authorised Ordinary shares of HKD0.10 each (i) (iii) Ordinary shares, issued and fully paid At 1 January Share issued upon incorporation (i) Issuance of new shares pursuant to the Reorganisation (ii) Capitalisation issue (iii) Issuance of shares by Initial Public Offering (iv) Issuance of shares under the over-allotment option related to the placement (v)	2009 No. of shares 20,000,000,000 1 – 999,999 749,000,000 250,000,000 37,500,000 1,037,500,000	Amount RMB’000 1,763,000 – – 88 66,039 22,042 3,305 91,474	2008 No. of shares Amount RMB’000 3,800,000 348 – – 1 – – – – – – – – – 1 –	2008 No. of shares Amount RMB’000 3,800,000 348 – – 1 – – – – – – – – – 1 –

				– – – – – –
				–

(i) The Company was incorporated in the Cayman Islands on 4 March 2008 with an authorised share capital of HKD380,000 divided into 3,800,000 shares of par value HKD0.10 each. On 4 March 2008, 1 share of par value HKD0.10 in the Company was allotted, issued and fully paid to Codan Trust Company (Cayman) Limited as the initial subscriber, which was subsequently transferred by Codan Trust Company (Cayman) Limited to Mr. Xu on the same day. On 12 June 2009, Mr. Xu transferred his one share to Fortune Pearl International Limited (“Fortune Pearl”, the ultimate holding company of the Group).
(ii) Pursuant to the Reorganisation, on 12 June 2009, 999,999 shares credited as fully paid were allotted and issued to Fortune Pearl, in consideration for the acquisition by the Company of the entire equity interest of Qinfa Investment, an intermediate holding company of the Group.
(iii) Pursuant to a written resolution of the sole shareholder passed on 12 June 2009, the authorised share capital of the Company was increased from HKD380,000 to HKD2,000,000,000 by the creation of an additional 19,996,200,000 shares of HKD0.10 each.

Pursuant to a written resolution of the sole shareholder passed on 12 June 2009, 749,000,000 ordinary shares of HKD0.10 each in the Company were issued at par value on 3 July 2009 by way of capitalisation of HKD74,900,000 (equivalent to RMB66,039,000) from the share premium account upon the listing of the Company’s shares on The Stock Exchange.

(iv) On 3 July 2009, 250,000,000 ordinary shares of HKD0.10 each were issued at a price of HKD2.52 per share under the Initial Public Offering and the International Placing. The proceeds of HKD25,000,000 (equivalent to RMB22,042,000) representing the par value, were credited to the Company’s share capital. The remaining proceeds of HKD605,000,000 (equivalent to RMB533,429,000), before the issuing expenses, were credited to the share premium account.

– I-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(v) On 22 July 2009, the underwriters of the International Placing exercised the over-allotment option for the issuance of 37,500,000 ordinary shares of HKD0.10 each at HKD2.52 per share. The proceeds of HKD3,750,000 (equivalent to RMB3,305,000) representing the par value, were credited to the Company’s share capital. The remaining proceeds of HKD90,750,000 (equivalent to RMB79,987,000), before the issuing expenses, were credited to the share premium account.

(c) Reserves

(i) Capital reserve

Capital reserve of the Group as at 1 January 2008 and 31 December 2008 represented the aggregate amount of paid-in capital of the companies comprising the Group at the respective dates after elimination of investment in subsidiaries.

(ii) Share premium

250,000,000 ordinary shares of HKD0.10 each in the Company were issued at HKD2.52 per share under the Initial Public Offering on 3 July 2009. The excess of the proceeds totalling HKD605,000,000 (equivalent to RMB533,429,000) over the nominal value of the total number of ordinary shares issued, less certain listing costs of HKD49,562,000 (equivalent to RMB43,699,000) incurred in connection with the issue of the share capital, amounting to HKD555,438,000 (equivalent to RMB489,730,000), were credited to the share premium account.

An additional 37,500,000 ordinary shares of HKD0.10 each in the Company were issued at HKD2.52 per share on 22 July 2009 pursuant to the over-allotment option related to the International Placing. The excess of the proceeds totalling HKD90,750,000 (equivalent to RMB79,987,000) over the nominal value of the total number of ordinary shares issued, less certain listing costs of HKD10,259,000 (equivalent to RMB9,045,000) incurred in connection with the issue of share capital, amounting to HKD80,491,000 (equivalent to RMB70,942,000), were credited to the share premium account.

The application of the share premium account is governed by the Companies Law of the Cayman Islands. Under the Companies Law of the Cayman Islands, the funds in share premium account are distributable to shareholders of the Company provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business.

(iii) Merger reserve

Merger reserve as at 31 December 2008 represents the difference between the aggregate amount of paid-in capital of Perpetual, Liberal, Qinfa Shipping, Qinfa Trading, Qinfa International and Super Grace and the amount of share capital of Qinfa Investment, issued to Fortune Pearl on 6 October 2008 in exchange for the entire equity interests in the above six companies as part of the Reorganisation.

Merger reserve as at 31 December 2009 represents the difference between the aggregate amount of paid-in capital of the subsidiaries of the Company and the amount of share capital of the Company transferred and issued to Fortune Pearl in exchange for the entire equity interests in all members of the Group as part of the Reorganisation.

– I-42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Reserves

Reserves were established in accordance with the relevant PRC rules and regulations and the articles of association of the companies comprising the Group which are established in the PRC. Appropriations to the reserves were approved by the respective shareholders’ meetings.

Reserves include statutory reserves and discretionary reserves. For the entity concerned, statutory reserves can be used to make good previous years’ losses, if any, and may be converted into capital in proportion to the existing equity interests of investors, provided that the balance after such conversion is not less than 25% of the registered capital.

(v) Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets held at the reporting date and is dealt with in accordance with the accounting policies set out in Notes 2(c) and 2(g).

(vi) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in Note 2(b).

(vii) Share-based compensation reserve

Share-based compensation reserve represents value of employee services in respect of share options granted under the Pre-IPO Option as set out in Note 24(a).

(d) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Consistent with industry practice, the Group monitors its capital structure on the basis of debts to equity ratio. For this purpose the Group defines debt as total loans and borrowings and equity as total equity attributable to equity shareholders of the Company.

The debt to equity ratio as at 31 December 2009 and 2008 was as follows:

Debt to equity ratio (e) Dividends *(i)* *Dividends paid to equity shareholders attributable to the year*	2009 163.06%	2008 159.04%

Interim dividend declared and paid during the year	2009 RMB’000 88,152	2008 RMB’000 –

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

According to the written resolution of the directors’ meeting passed on 11 June 2009, Qinfa Trading declared a special interim dividend of HKD100,000,000 (equivalent to RMB88,152,000) to its then equity shareholder. Such dividend was fully paid on 26 June 2009.

(ii) Dividends payable to the equity holder attributable to previous financial years, declared and approved during the year

2009 2008 RMB’000 RMB’000 Dividends declared and approved during the year – Qinhuangdao Trading – 120,341

Pursuant to the resolution passed at the board of directors’ meeting on 1 August 2008, a dividend of RMB120,341,000 was declared to the equity holder of Qinhuangdao Trading.

27 FINANCIAL RISK MANAGEMENT AND FAIR VALUES

Exposure to credit risk, interest risk, currency risk and liquidity risk arises in the normal course of the Group’s businesses. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables.

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

At the reporting date, the Group had no significant concentration of credit risk with any of its customers. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position. The Group does not provide any guarantee which would expose the Group to credit risk.

(b) Liquidity risk

Individual operating entities within the group are responsible for their own cash management, but the borrowings are subject to approval by the parent company’s management. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

– I-44 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following tables show the remaining contractual maturities at the reporting date of the Group’s non-derivative financial liabilities which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting date) and the earliest date the Group can be required to pay:

Loans and borrowings Trade and other payables Loans and borrowings Trade and other payables	Year ended 31 December 2009 Carrying amount Total undiscounted cash flow Within one year or on demand RMB’000 RMB’000 RMB’000 2,245,737 2,304,571 2,063,649 370,104 370,104 370,104 2,615,841 2,674,675 2,433,753 Year ended 31 December 2008 Carrying amount Total undiscounted cash flow Within one year or on demand More than one year and less than five years RMB’000 RMB’000 RMB’000 RMB’000 1,168,874 1,198,020 920,426 264,086 123,995 123,995 123,995 – 1,292,869 1,322,015 1,044,421 264,086	More than one year and less than five years RMB’000 240,922 –
		240,922

		More than five years RMB’000 13,508 – 13,508

– I-45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Interest rate risk

The Group’s interest rate risk arises primarily from loans and borrowings. Borrowings issued at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The Group’s interest rate profile as monitored by management is set out in (i) below:

(i) Interest rate profile

The following table details the interest rate profile of the Group’s loans and borrowings at the reporting date:

		The	Group
	2009		2008
	Effective
	Interest	Carrying	Effective	Carrying
	Rate	value	interest rate	value
		RMB’000		RMB’000
Fixed rate borrowings:
Bank loans	0.83%-4.86%	1,842,196	4.16%-6.48%	649,545
Less: pledged deposits	0.36%-2.25%	(1,037,328)	4.14%	(485,425)
		804,868		164,120
		- - - - - - - - - - - -	- -	- - - - - - - - - -
Variable rate borrowings:
Bank loans	1.23%-5.64%	403,541	1.75%-7.44%	467,512
Other borrowings from a
related party		–	0.46%-3.70%	51,817
		403,541 ------------	519,329 ------------
		---------------------------------------------	---------------------------------------------
Total net borrowings		1,208,409		683,449

Net fixed rate borrowings as
a percentage of total net
borrowings		66.61%		24.01%

(ii) Sensitivity analysis

It is estimated that a general increase/decrease of 100 basis points in the interest rates of variable rate borrowings prevailing at the reporting date, with all other variables held constant, would decrease/increase the Group’s profit after tax and retained profits by approximately RMB2,778,000 and RMB3,598,000 for the years ended 31 December 2009 and 2008 respectively.

The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and consolidated equity that would arise assuming that the change in interest rates had occurred at the reporting date and had been applied to re-measure those floating rate non-derivative instruments held by the Group which expose the Group to cash flow interest rate risk at the reporting date. The impact on the Group’s profit after tax and consolidated equity is estimated as an annualised impact on interest expense of such a change in interest rates. The analysis is performed on the same basis for 2008.

(d) Foreign currency risk

RMB is not freely convertible into foreign currencies. All foreign exchange transactions involving RMB must take place through the People’s Bank of China or other institutions authorised to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange

– I-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

quoted by the People’s Bank of China that are determined largely by supply and demand. The Group is exposed to foreign currency risk primarily through purchases and borrowings that are denominated in USD, while all the other operations of the Group are mainly transacted in RMB. Changes in exchange rate affect the RMB value of purchase costs of commodities that are denominated in foreign currencies.

The following table demonstrates the Group’s exposure at the reporting date to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate.

Cash and cash equivalents Trade and other receivables Trade and other payables Loans and borrowings	2009 USD’000 HKD’000 80 21,967 900 – (34,853) – (87,168) – (121,041) 21,967	2008 USD’000 HKD’000 573 – – – – – (3,725) – (3,152) –	2008 USD’000 HKD’000 573 – – – – – (3,725) – (3,152) –
			–

The following table demonstrates the changes in the USD and HKD exchange rates during the years ended 31 December 2009 and 2008:

	2009	2008
USD
– Average rate	6.8311	6.9480
– Reporting date mid-spot rate	6.8282	6.8346
HKD
– Average rate	0.8813	0.8919
– Reporting date mid-spot rate	0.8805	0.8819

Foreign exchange sensitivity analysis

The following table indicates the instantaneous change in the Group’s profit after tax (and retained profits) that would arise if foreign exchange rates to which the Group has significant exposure at the reporting date had changed at that date, assuming all other risk variables remained constant.

The Group

	2009		2008
	Increase/	Effect on	Increase/	Effect on
	(decrease)	profit after	(decrease)	profit after
	in foreign	tax and	in foreign	tax and
	exchange	retained	exchange	retained
	rates	profits	rates	profits
		RMB’000		RMB’000
USD	5%	30,993	5%	808
	(5%)	(30,993)	(5%)	(808)
HKD	5%	(743)	5%	–
	(5%)	743	(5%)	–

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group entities’ profit after tax and equity measured in the respective functional currencies, translated into RMB at the exchange rate ruling at the reporting date for presentation purposes.

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the reporting date, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group’s presentation currency and other investments. The analysis is performed on the same basis for 2008.

(e) Equity price risk

The Group is exposed to equity price changes arising from equity investments classified as available-for-sale financial assets (see Note 16).

The Group’s listed investments are listed on the Australian Securities Exchange. The Group observes the invested company’s operation and development, and seeks to obtain an understanding of their business management through participation in their directors’ meetings.

It is estimated that an increase/decrease of 1% in the respective quoted share prices of these financial assets, with all other variables held constant, would have increased/decreased the Group’s fair value reserve as follows:

The Group

		2009
		Effect on other
		components of equity
		RMB’000
Change in the relevant equity price risk variable
Increase	1%	304
Decrease	1%	(304)

The sensitivity analysis indicates the instantaneous change in the Group’s fair value reserve that would arise assuming that the changes in the respective quoted share prices has occurred at the reporting date and had been applied to re-measure those financial instruments held by the Group which expose the Group to equity price risk at the reporting date. It is also assumed that the fair values of the Group’s equity investments would change in accordance with the historical correlation with the relevant share price that none of the Group’s available-for-sale financial assets would be considered impaired as a result of the short term fluctuation of the relevant share, and that all other variables remain constant. No such financial assets were held as at 31 December 2008.

(f) Fair value

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the reporting date across three levels of the fair value hierarchy defined in IFRS 7, Financial Instruments: Disclosures, with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments
Level 2: fair value measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data

The Group

			2009
		Level 1	Level 2	Level 3	Total
		RMB’000	RMB’000	RMB’000	RMB’000
Available-for-sale	financial
assets		30,390	–	–	30,390

During the year there were no significant transfers between instruments in Level 1 and Level

(ii) Fair values of financial instruments carried at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost approximate their respective fair values as at 31 December 2009 and 2008 respectively.

(g) Estimation of fair values

(i) Available-for-sale financial assets

The fair value of the available-for-sale financial assets is based on quoted market prices at the reporting date without any deduction for transaction costs.

(ii) Loans and borrowings

Loans and borrowings are carried at amounts not materially different from their fair value as at 31 December 2009 and 2008 due to either the short maturities or variable market interest rate for long-term bank borrowings.

(iii) Share-based payment transactions

The fair value of share options under the Pre-IPO Option is measured using the Binomial Model. Measuring inputs include the offer price, the exercise price, the risk-free rate of interest, expected option period, expected volatility and expected dividend. Service and non-market performance conditions attached to the transactions are not taken into account in determining the fair value.

28 CAPITAL COMMITMENTS

Capital commitments outstanding at the year end not provided for in the consolidated financial statements are as follows:

The Group

Authorised but not contracted for Contracted for	2009 RMB’000 313,420 1,251,561 1,564,981	2008 RMB’000 5,000 45,853
		50,853

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29 OPERATING LEASES

(a) Leases as lessee

At each reporting date, the total future minimum lease payments of the Group under non-cancellable operating leases in respect of properties are payable as follows:

Within 1 year After 1 year but within 5 years After 5 years	2009 RMB’000 5,945 19,576 8,210 33,731	2008 RMB’000 5,711 18,506 12,719
		36,936

(b) Leases as lessor

The Group leases out its vessels under operating leases and the future minimum lease income under non-cancellable operating leases are receivable as follows:

Within 1 year	2009 RMB’000 –	2008 RMB’000 5,227

30 MATERIAL RELATED PARTY TRANSACTIONS

The Group has transactions with Qinhuangdao Qinfa Industry Group Co., Ltd. (“Qinfa Industry”) and Mr. Xu. Mr. Xu is the shareholder of Qinfa Industry and Fortune Pearl, the ultimate controlling party of the Group.

Particulars of significant transactions between the Group and the above related parties for the years 2009 and 2008 are as follows:

(a) Significant related party transactions

(i) Recurring transactions

	2009	2008
	RMB’000	RMB’000
Operating leases from –
Qinfa Industry	1,209	1,209

The directors of the Company are of the opinion that the above related party transactions were conducted on terms no less favourable to the Group than terms available to or from independent third parties, and in the ordinary course of business.

– I-50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) Non-recurring transactions

Interest-bearing borrowings from – Mr. Xu Interest charge Repayment of interest-bearing borrowings to – Mr. Xu Paid by the Group on behalf of – Qinfa Industry (b) Amounts due to related parties Shareholder’s loan – Mr. Xu Accrued interest Dividend payable to Qinfa Industry, the equity holder of Qinhuangdao Trading (c) Guarantees issued by related parties Guarantees issued by Mr. Xu – RMB – HK Dollars – US Dollars Guarantees issued by Qinfa Industry – RMB	2009 RMB’000 71,328 116 130,594 – 2009 RMB’000 – – – – 2009 thousand 440,000 320,000 59,370 200,000	2008 RMB’000 50,480 87

		2,473

		25,471

		2008 RMB’000 51,817 7,333
		59,150

		45,704

		2008 thousand 635,340 170,000 75,088

		100,000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors as disclosed in Note 9 and certain of the highest paid employees as disclosed in Note 10, is as follows:

Directors’ fee Salaries, allowances and benefits in kind Contributions to retirement benefit schemes Discretionary bonuses Share-based payments	2009 RMB’000 256 4,186 42 4,738 817 10,039	2008 RMB’000 – 2,450 35 – –
		2,485

31 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2009

Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2009 and which have not been adopted in these financial statements.

		Effective for accounting
		periods beginning on or after
Revised IFRS 1	First-time adoption of	1 July 2009
	International Financial
	Reporting Standards
Revised IFRS 3	Business combinations	Applied to business
		combinations for which the
		acquisition date is on or after
		the beginning of the first
		annual reporting period
		beginning on or after 1 July
		2009
Amended IAS 27	Consolidated and separate	1 July 2009
	financial statements
Amendment to IAS 39	Financial instruments:	1 July 2009
	Recognition and measurement
	– Eligible hedged items
IFRIC 17	Distributions of non-cash assets	1 July 2009
	to owners
Improvements to IFRSs 2009		1 July 2009 or 1 January 2010
Amendment to IFRS 1	First-time adoption of	1 January 2010
	International Financial
	Reporting Standards –
	Additional exemptions for
	first-time adopters
Amendments to IFRS 2	Share-based payment – Group	1 January 2010
	cash-settled share-based
	payment transactions
Amendment to IAS 32	Financial instruments:	1 February 2010
	Presentation – Classification
	of rights issues

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Effective for accounting
		periods beginning on or after
IFRIC 19	Extinguishing financial	1 July 2010
	liabilities with equity
	instruments
Amendment to IFRS 1	First-time adoption of	1 July 2010
	International Financial
	Reporting Standards –
	Limited exemption from
	comparative IFRS 7
	disclosure for first-time
	adopters
Revised IAS 24	Related party disclosures	1 January 2011
Amendment to IFRIC 14, IAS 19	The limit on a defined benefit	1 January 2011
	asset, minimum funding
	requirements and their
	interaction – Prepayments of
	a minimum funding
	requirement
IFRS 9	Financial instruments	1 January 2013

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. Up to the date of issuance of these financial statements, the Group believes that the adoption of them is unlikely to have a significant impact on the Group’s results of operations and financial position.

32 COMPARATIVE FIGURES

As a result of the application of IAS 1 Presentation of Financial Statements (2007) and IFRS 8 Operating segments, certain comparative figures have been adjusted to conform to current year’s presentation and to provide comparative amounts in respect of items disclosed for the first time in 2009. Further details of these developments are disclosed in Note 3.

33 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

At 31 December 2009, the directors consider the immediate parent and ultimate controlling party of the Group to be Fortune Pearl, which is incorporated in the British Virgin Islands. This entity does not produce financial statements available for public use.

– I-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

As of the close of business on 31 May 2010, being the latest practicable date for ascertaining the information regarding this indebtedness statement prior to the printing of this circular, the Group had outstanding secured bank borrowings of approximately RMB2,505.2 million.

The Group’s secured bank borrowings and bank facilities were secured by certain assets and guaranteed by related parties. As of 31 May 2010, the Group’s assets in an aggregate amount of approximately RMB2,355.9 million in forms of property, plant and equipment, trade and bill receivables and bank deposits were pledged to banks for credit facilities granted to the Group.

Saved as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of business, the Group did not have any bank loans, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding as of the close of business on 31 May 2010.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 31 May 2010.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Renminbi at the rates of the exchange prevailing as of the close of business on 31 May 2010.

4. WORKING CAPITAL

The Directors are of the opinion that the Group has sufficient working capital for its present requirements for at least 12 months from the date of this circular after taking into account the schedule of payment of each instalment of the consideration under the Shipbuilding Contracts, the expected completion of the Shipbuilding Contracts and the financial resources available to the Group, including its internally generated funds and available banking facilities.

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2009, being the date to which the Group’s latest published audited consolidated financial statements were made up.

– I-54 –

GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

DISCLOSURE OF INTERESTS

Interests of Directors

As of the Latest Practicable Date, the interests of the Directors in the share capital of the Company which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests which they were taken or deemed to have under such provisions of the SFO), or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules (the “ Model Code ”), to be notified to the Company and the Stock Exchange were as follows:–

1. Interests in the Company

	Nature of				Approximate percentage of issued	Approximate percentage of issued
Name of Director	Interest	Number of Shares			share capital of the Company (%)
		Long positions	Short	positions	Long positions	Short positions
Mr. XU	Corporate	593,000,000 (Note 1)		Nil	57.2	Nil
Ms. WANG Jianfei	Beneficial Owner	50,000,000 (Note 2)		Nil	4.8	Nil
Mr. WENG Li	Beneficial Owner	3,000,000 (Note 2)		Nil	0.3	Nil
Ms. LIU Xiaomei	Beneficial Owner	600,000 (Note 3)		Nil	0.1	Nil

Notes:–

The Shares are held directly by Fortune Pearl which is wholly-owned by Mr. XU. By virtue of the SFO, Mr. XU is deemed to have interests in the 593,000,000 Shares.
The beneficial interest is held under the trust scheme adopted by Fortune Pearl on 13 June 2009.
The beneficial interest is in the form of options granted under the Pre-IPO Share Option Scheme adopted by the Company on 12 June 2009.

– II-1 –

GENERAL INFORMATION

APPENDIX II

2. Interests in associated corporations

	Name of			Percentage
Name of	associated		Number	of issued
Director	corporations	Capacity	of shares	shares
				(%)
Mr. XU	Fortune Pearl	Beneficial owner	1	100

Save as disclosed above, as of the Latest Practicable Date, none of the Directors or chief executive of the Company had interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which each of them had taken or deemed to have taken under the provisions of the SFO); or (b) to be recorded in the register required to be kept by the Company pursuant to section 352 of the SFO; or (c) to be notified to the Company and the Stock Exchange pursuant to the Model Code.

Interests in contract or arrangement

None of the Directors had any material interests in contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group taken as a whole, save for the Structure Contracts as defined in the Prospectus in which Mr. XU is interested.

Interests in assets

None of the Directors has any direct or indirect interest in any assets acquired or disposed of by or leased to any member of the Group or is proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2009, being the date to which the latest published audited consolidated financial statements of the Group were made up.

Service contracts

There is no existing or proposed service contract between any member of the Group and any Director or proposed Director excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensations).

Competing business

None of the Directors has any interest in any business which competes or is likely to complete, either directly or indirectly, with the Group’s business.

– II-2 –

GENERAL INFORMATION

APPENDIX II

LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this circular and are or may be material:–

the second supplemental agreement dated 6 June 2008 and entered into between Hong Kong Qinfa Shipping Limited ( ) (“ Qinfa Shipping ”), Hong Kong Qinfa Trading Limited ( ) (“ Qinfa Trading ”), Mr. XU and Bank of China (Hong Kong) Limited in relation to a secured term loan facility of up to US$42,088,000 and a secured term loan facility of up to US$18,000,000 ;
a facility agreement dated 14 July 2008 in relation to a secured term loan facility of up to US$15,000,000 and a secured term loan facility of up to US$25,000,000 and entered into between Bank of Communications Co., Ltd. Hong Kong Branch and Super Grace Enterprises Limited (“ Super Grace ”);
a letter of undertaking dated 14 July 2008 issued by the Company to Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a subordination deed dated 14 July 2008 and entered into between Super Grace, Qinfa Shipping, Qinfa Trading and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a debenture dated 14 July 2008 and entered into between Super Grace and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a conversion contract assignment of m.v. “Qinfa 10” dated 14 July 2008 and entered into between Super Grace and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a general assignment m.v. “Qinfa 10” dated 23 July 2008 and entered into between Super Grace and Bank of Communications Co. Ltd. Hong Kong Branch in relation to item no. 2 above;
a first preferred Panamanian ship mortgage of m.v. “Qinfa 10” dated 23 July 2008 executed by Super Grace in favour of Bank of Communications Co. Ltd. Hong Kong Branch in relation to item no. 2 above;

– II-3 –

GENERAL INFORMATION

APPENDIX II

a share sale agreement dated 24 July 2008 entered into between Excel Coal Limited as Buyer (as defined therein) and various parties (including Qinfa Trading) as Sellers (as defined therein) for 14.8409% shares in Millennium Coal Pty Ltd, a coal mining company operating coal mine in the Bowen Basin, Australia at an aggregate consideration of A$117,306,000;
the agreement in Chinese named “ ” dated 4 August 2008 entered into between (Qinhuangdao Qinfa Industry Group Co. Ltd.) as transferor and (Zhuhai Qinfa Logistics Co. Ltd.) as transferee for the transfer of certain trademarks at nil consideration;
the share exchange agreement dated 6 October 2008 and entered into between Mr. XU, Ms. WANG Jianfei and Qinfa Investment Limited (“ Qinfa Investment ”) as part of the reorganisation of the Group in preparation for the listing of the Company on the Stock Exchange;
a facility letter dated 14 April 2009 issued by Bank of China (Hong Kong) Limited to Hong Kong Qinfa International Trading Limited ( ) (“ Qinfa International ”) and Qinfa Trading on the provision of various general banking facilities by Bank of China (Hong Kong) Limited to Qinfa International and Qinfa Trading ;
a release dated 29 April 2009 executed by Bank of China (Hong Kong) Limited to release and discharge Liberal City Limited (“ Liberal ”) from all its obligations under the general assignment dated 29 November 2007 relating to the vessel “Qinfa 8”;
a release dated 29 April 2009 executed by Bank of China (Hong Kong) Limited to release and discharge Liberal from all its obligations under the deed of covenants dated 29 November 2007 relating to the vessel “Qinfa 8”;
the third supplemental agreement to a facility agreement dated 21 November 2007 as supplemented by a supplemental agreement dated 13 May 2008 and a second supplemental agreement dated 6 June 2008, dated 8 May 2009 and entered into between Qinfa Shipping, Qinfa Trading, Mr. XU, Qinfa International and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
the addendum to deed of covenants dated 10 December 2007 m.v. “Qinfa 9”, dated 8 May 2009 and entered into between Perpetual Goodluck Limited (“ Perpetual ”) and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
the addendum to general assignment dated 10 December 2007 m.v. “Qinfa 9”, dated 8 May 2009 and entered into between Perpetual and Bank of China (Hong Kong) Limited in relation to item no. 1 above;

– II-4 –

GENERAL INFORMATION

APPENDIX II

a Hong Kong ship mortgage dated 8 May 2009 and executed by Perpetual, as mortgagor, to Bank of China (Hong Kong) Limited, as mortgagee in relation to item no. 12 above;
the second deed of covenants of m.v. “Qinfa 9” dated 8 May 2009 and entered into between Perpetual and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
the second general assignment of m.v. “Qinfa 9” dated 8 May 2009 and entered into between Perpetual and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
the addendum to second deed of covenants dated 21 November 2007 m.v. “Qinfa 6”, dated 8 May 2009 and entered into between Qinfa Shipping and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
the addendum to second general assignment dated 21 November 2007 m.v. “Qinfa 6”, dated 8 May 2009 and entered into between Qinfa Shipping and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
a Hong Kong ship mortgage dated 8 May 2009 and executed by Qinfa Shipping, as mortgagor, to Bank of China (Hong Kong) Limited, as mortgagee in relation to item no. 12 above;
the third deed of covenants of m.v. “Qinfa 6” dated 8 May 2009 and entered into between Qinfa Shipping and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
the third general assignment of m.v. “Qinfa 6” dated 8 May 2009 and entered into between Qinfa Shipping and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
a debenture dated 8 May 2009 and entered into between Qinfa Shipping and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
a debenture dated 8 May 2009 and entered into between Qinfa Trading and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
a debenture dated 8 May 2009 and entered into between Qinfa International and Bank of China (Hong Kong) Limited in relation to item no. 12 above;
a deed of charge over the shares in Qinfa Shipping dated 8 May 2009 and entered into between Qinfa Investment and Bank of China (Hong Kong) Limited in relation to item no. 1 above;
a deed of charge over the shares in Perpetual dated 8 May 2009 and entered into between Qinfa Investment and Bank of China (Hong Kong) Limited in relation to item no. 1 above;

– II-5 –

GENERAL INFORMATION

APPENDIX II

a supplemental agreement to facility agreement dated 14 July 2008, dated 29 May 2009 and entered into between Bank of Communications Co., Ltd. Hong Kong Branch and Super Grace in relation to item no. 2 above;
the addendum to general assignment dated 23 July 2008 m.v. “Qinfa 10”, dated 29 May 2009 and entered into between Super Grace and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
the addendum to a First Preferred Panamanian Ship Mortgage dated 23 July 2008 relating to the motor vessel “Qinfa 10”, dated 29 May 2009 and entered into between Super Grace and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a deed of charge over the shares in Super Grace dated 29 May 2009 and entered into between Qinfa Investment and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
a bareboat charter assignment m.v. “Qinfa 10” dated 29 May 2009 and entered into between Super Grace, (Zhuhai Qinfa Trading Co. Ltd.) and Bank of Communications Co., Ltd. Hong Kong Branch in relation to item no. 2 above;
the final share exchange agreement dated 12 June, 2009 and entered into between, among others, Fortune Pearl and the Company as part of the reorganisation of the Group in preparation for the listing of the Company on the Stock Exchange;
a deed of non-competition dated 12 June 2009 and entered into between Mr. XU, Fortune Pearl, Ms. WANG Jianfei, Mr. XU Da, Mr. WENG Li, Mr. LIU Jingwei, Ms. ZHOU Lusha, Ms. LIU Xiaomei (collectively the “ Covenantors ”) and the Company pursuant to which the Covenantors undertake not to involve in any business in competition with the existing and future business of the Group;
a deed of indemnity dated 12 June 2009 and entered into between Mr. XU, Fortune Pearl and the Company providing certain indemnities in favour of the Company;
the Structure Contracts (as defined in the Prospectus) dated 12 June 2009 including the Engagement Agreements (as defined in the Prospectus) and the Pledge Agreements (as defined in the Prospectus);
the Hong Kong public offer underwriting agreement dated 18 June 2009 entered into between, among others, the Company, China Everbright Securities (HK) Limited, Mizuho Securities Asia Limited, Friedmann Pacific Securities Limited, Kingsway Financial Services Group Limited and Mega Capital (Asia) Company Limited regarding the underwriting of the Hong Kong Public Offer Shares (as defined in the Prospectus);

– II-6 –

GENERAL INFORMATION

APPENDIX II

the international underwriting agreement dated 25 June 2009 entered into between, among others, the Company and the International Underwriters (as defined in the Prospectus) regarding the underwriting of the International Placing Shares (as defined in the Prospectus);
an agreement dated 17 August 2009 between (Datong Xiejiazhuang Jinfa Trading and Transportation Co. Ltd.) and (Shanxi Ruifeng Pharmaceutical Group Co., Ltd.) for

the acquisition of 87.88% equity interest in (Shanxi Hunyuan Ruifeng Coal Company Limited*) at the total consideration of RMB130 million;

a discharge of mortgage re m.v. “Qinfa 10” dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch in favour of Super Grace for discharging the mortgage and release of such vessel to Super Grace;
a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Super Grace from all its obligations under the general assignment dated 23 July 2008 (as amended by an addendum to general assignment dated 29 May 2009) relating to the vessel “Qinfa 10”;
a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Qinfa Shipping, Qinfa Trading and Super Grace from all their respective obligations under the subordination deed dated 14 July 2008 relating to a subordinated loan from Qinfa Shipping and Qinfa Trading to Super Grace;
a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Super Grace and (Zhuhai Qinfa Trading Co. Ltd.) from all their respective

obligations under the bareboat charter assignment dated 29 May 2009 relating to the vessel “Qinfa 10”;

a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Super Grace from all its obligations under the conversion contract assignment dated 14 July 2008 relating to the vessel “Qinfa 10”;
a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Super Grace from all its obligations under the debenture dated 14 July 2008;
a release dated 22 September 2009 executed by Bank of Communications Co., Ltd. Hong Kong Branch to release and discharge Qinfa Investment from all its obligations under the deed of charge over all the shares of Super Grace dated 29 May 2009;

– II-7 –

GENERAL INFORMATION

APPENDIX II

the share subscription agreement and the option deed both dated 19 October 2009 and entered into between Bright Rock Holdings Limited (“ Bright Rock ”) and Tiaro Coal Limited (“ Tiaro Coal ”), a company incorporated in the State of New South Wales in Australia with its shares listed on the Australian Securities Exchange with stock code TCM, in relation to Bright Rock’s subscription of 7,400,000 new shares in the share capital of Tiaro Coal at the subscription price of A$1,332,000 ;
the joint venture agreement dated 21 October 2009 and entered into between Qinfa Trading and (Hebei Port Group Company Limited) (“ Heibei Group* ”) for the establishment of a joint venture company in China, of which Qinfa Trading will contribute 60%, i.e. RMB311.4 million and Heibei Group will contribute 40%, i.e. RMB207.8 million for the operation of the Zhuhai Terminal (as defined in the Prospectus) ;
the shipbuilding contract dated 30 October 2009 and entered into between Oriental Wise Group Limited and the Sellers for the construction of a vessel at a consideration of US$35.2 million ;
the shipbuilding contract dated 15 December 2009 and entered into between Super Grace and the Sellers for the construction of a vessel at a consideration of US$35.2 million ;
the acquisition and debt restructuring agreement dated 30 December 2009 and entered into between (Ordos Jinfa Materials Company Limited) (“ Jinfa Materials ”), (Ordos Bayin Mengke Investment Group Company Limited) (“ Baiyin Mengke Investment ”), Mr. LI Shan ( ) (“ Mr Li ”) and Ms. WANG Liying ( ) (“ Ms. Wang ”) (Baiyin Mengke Investment, Mr. Li and Ms. Wang are collectively referred to as the “ Vendors ”) for the acquisition of 60% equity interest in (Ordos Bayin Mengke Nayuan Coal

Company Limited) (the “ Equity Interests ”) at an aggregate consideration of RMB857.3 million (the “ Acquisition* ”);

the First Shipbuilding Contract;
the Second Shipbuilding Contract; and
the termination agreement dated 19 July 2010 and entered into between Jinfa Materials and the Vendors for the cancellation of the Acquisition, pursuant to which the Vendors shall repay the sum of RMB129 million to Jinfa Materials during the period of 12 months from the date of the termination agreement and Jinfa Materials shall transfer the Equity Interests to Bayin Mengke Investment or its nominee upon full repayment of the RMB129 million.

– II-8 –

GENERAL INFORMATION

APPENDIX II

GENERAL

(a) The secretary of the Company is Mr. MAK King Pui, Ricky, a non-practicing member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants in the United Kingdom.
(b) The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands
(c) The Hong Kong branch share registrar and transfer office of the Company is Union Registrars Limited, 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

DOCUMENTS AVAILABLE FOR PUBLIC INSPECTION IN HONG KONG

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Room 1303, 13th Floor, MassMutual Tower, No. 38 Gloucester Road, Wanchai, Hong Kong during normal business hours up to and including 9 August 2010:–

(a) the memorandum of association and articles of association of the Company;
(b) the annual report of the Company for the year ended 31 December 2009 and the Prospectus;
(c) this circular, being the only circular of the Company issued pursuant to Chapter 14 of the Listing Rules since 31 December 2009, being the date to which the latest published audited consolidated financial statements of the Group were made up; and
(d) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

– II-9 –

AI assistant

China Qinfa Group Limited — Proxy Solicitation & Information Statement 2010

49525_rns_2010-07-26_a7067d94-fd81-4bf2-a50e-2821dc39b6b3.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CHINA QINFA GROUP LIMITED

MAJOR TRANSACTION CONSTRUCTION OF TWO 82,000 DWT BULK CARRIERS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

CHINA QINFA GROUP LIMITED

MAJOR TRANSACTION CONSTRUCTION OF TWO 82,000 DWT BULK CARRIERS

LETTER FROM THE BOARD

THE SHIPBUILDING CONTRACTS

LETTER FROM THE BOARD

FINANCING FOR THE CONSTRUCTION OF THE VESSELS

REASONS FOR ENTERING INTO THE SHIPBUILDING CONTRACTS

FINANCIAL EFFECT ON THE GROUP

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

INFORMATION ON THE SELLERS

INFORMATION ON THE BUYERS AND THE COMPANY

ADDITIONAL INFORMATION

1. SUMMARY OF FINANCIAL INFORMATION

Results

2. AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2009

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Statement of Financial Position

Consolidated Statement of Changes in Equity

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Statement of Cash Flows

Notes to the Financial Statements

1 COMPANY BACKGROUND AND BASIS OF PREPARATION

1.1 General information and the basis of presentation

1.2 Basis of preparation

(a) Statement of compliance

(b) Basis of measurement

(c) Use of estimates and judgements

(i) Impairment losses on trade and other receivables

(ii) Depreciation

(iii) Net realisable value of inventories

(iv) Recognition of income taxes and deferred tax assets

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Subsidiaries

(b) Foreign currency

(i) Functional and presentation currency

(ii) Foreign currency transactions

(iii) Financial statements of foreign operations

(c) Financial instruments

(i) Non-derivative financial assets

Loans and receivables

Available-for-sale financial assets

(ii) Non-derivative financial liabilities

(iii) Share capital

Ordinary shares

(d) Property, plant and equipment

(i) Recognition and measurement

(ii) Subsequent costs

(iii) Depreciation

(iv) Disposal

(e) Lease prepayments

(f) Inventories

(g) Impairment of assets

(i) Financial assets (including receivables)

(ii) Non-financial assets

(iii) Interim financial reporting and impairment

(h) Employee benefits

(i) Short-term employee benefits

(ii) Defined contribution retirement plan

(iii) Share-based payments

(i) Provisions and contingent liabilities

(j) Revenue

(i) Sales of goods

(ii) Income from charter hire

(iii) Government grants

(k) Operating lease payments

(l) Finance income and costs

(m) Income tax expense

APPENDIX I

China Qinfa Group Limited Proxy Solicitation & Information Statement 2010