THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, or as to the action to be taken, 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 Chinney Alliance Group Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for shares in Chinney Alliance Group Limited.

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(Stock Code: 385)

PROPOSED ACQUISITION OF THE ENTIRE INTEREST IN SHUN CHEONG INVESTMENTS LIMITED

MAJOR TRANSACTION

A notice convening a special general meeting of Chinney Alliance Group Limited to be held at Lotus Room, 6th Floor, The Marco Polo Hong Kong Hotel, Harbour City, Kowloon, Hong Kong on Monday, 27 March 2006 at 11:00 a.m. is set out on pages 137 and 138 of this circular. A form of proxy for use in the special general meeting is enclosed. Whether or not you propose to attend the special general meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company Secretary at the Company’s principal place of business in Hong Kong at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong as soon as possible and in any event no later than 48 hours before the time appointed for holding the special general meeting or any adjourned meeting thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the special general meeting or any adjourned meeting thereof should you so wish.

10 March 2006

			Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
APPENDIX I	–	FINANCIAL INFORMATION ON THE GROUP. . . . . . . .	16
APPENDIX II	–	ACCOUNTANTS’ REPORT OF
		THE CONTRACTING GROUP. . . . . . . . . . . . . . . . . . . .	77
APPENDIX III	–	PRO FORMA FINANCIAL INFORMATION OF
		THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . .	124
APPENDIX IV	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	129
NOTICE OF SGM		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	137

– i –

DEFINITIONS

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

“Account Date”	30 September 2005
“Accountants’ Report”	the accountants’ report of the Contracting Group as at the
	Account Date contained in this circular
“Acquisition”	the acquisition by CAT (BVI) of the entire issued share
	capital of SCI pursuant to the Sale and Purchase
	Agreement
“associate(s)”	has the meaning ascribed thereto under the Listing Rules
“Audited Consolidated Net	the audited consolidated net tangible assets of the
Tangible Assets”	Contracting Group at the Account Date as set out in the
	Accountants’ Report, assuming the Corporate Restructuring
	had taken place
“Board”	the board of Directors
“business day”	a day on which licensed banks in Hong Kong are generally
	open for business (excluding Saturday, Sunday and public
	holidays)
“CAT (BVI)” or the “Purchaser”	Chinney Alliance Trading (BVI) Limited, a company
	incorporated in the British Virgin Islands with limited
	liability and a wholly-owned subsidiary of the Company, the
	purchaser under the Sale and Purchase Agreement
“Company” or the “Purchaser’s	Chinney Alliance Group Limited, a company incorporated
Guarantor”	in Bermuda with limited liability, the shares of which are
	listed on the Main Board of the Stock Exchange (Stock
	Code: 385), the purchaser’s guarantor under the Sale and
	Purchase Agreement
“Completion”	the completion of the Acquisition and Disposal
	contemplated under the Sale and Purchase Agreement
“Completion Date”	the 5th business day after fulfillment of all the conditions
	precedent and shall in any event be no later than the Long
	Stop Date
“connected person(s)”	has the meaning ascribed thereto under the Listing Rules

– 1 –

DEFINITIONS

“Consideration”	the consideration of HK$35,000,000 (subject to adjustment)
	under the Sale and Purchase Agreement
“Continuing Connected	the transactions contemplated under the sub-contracting
Transactions”	agreements entered into between the members of the
	Contracting Group (as main contractors) and a member of
	the Remaining SCH Group (as sub-contractor) on 31
	December 2005
“Contracting Group”	SCI and its certain subsidiaries engaging in building related
	contracting services for both public and private sectors,
	together with any investments held by SCI and/or such
	subsidiaries
“Corporate Restructuring”	the corporate restructuring of SCH and its subsidiaries
	and/or investments prior to Completion, which include the
	transfer of certain subsidiaries of SCI engaging in the
	building maintenance business to a wholly-owned
	subsidiary of SCH to form the Remaining SCH Group, and
	the waiver of an aggregate sum of approximately HK$18
	million due by the Contracting Group to the Remaining
	SCH Group
“Deed of Indemnity”	the deed of indemnity to be executed by the Company under
	which the Company will indemnify the Vendor against
	certain liabilities of the Vendor as well as the Purchaser
“Director(s)”	the director(s) of the Company
“Disposal”	the disposal by SCH of the entire issued share capital of SCI
	pursuant to the Sale and Purchase Agreement
“Enlarged Group”	the Group after completion of the Acquisition
“Group”	the Company and its subsidiaries
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	3 March 2006, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange

– 2 –

DEFINITIONS

“Long Stop Date”	28 April 2006, or such other date as the parties to the Sale
	and Purchase Agreement may agree in writing
“Remaining SCH Group”	the SCH Group as remained after the Disposal pursuant to
	the Sale and Purchase Agreement
“Sale and Purchase Agreement”	the sale and purchase agreement dated 26 January 2006
	entered into between SCH, CAT (BVI) and the Company for
	the sale and purchase of the entire issued share capital in
	SCI
“SCH” or the “Vendor”	Shun Cheong Holdings Limited, a company incorporated in
	Bermuda with limited liability, the shares of which are listed
	on the Main Board of the Stock Exchange (Stock Code:
	650), the vendor under the Sale and Purchase Agreement,
	which is owned as to approximately 29.93% by the
	Company
“SCH Board”	the board of SCH Directors
“SCH Director(s)”	the director(s) of SCH
“SCH Group”	SCH and its subsidiaries
“SCH Independent Shareholders”	SCH’s shareholders other than the Company and its
	associates
“SCH SGM”	the special general meeting of SCH to be convened and held
	for, amongst other things, seeking approvals from the SCH
	Independent Shareholders for the Disposal contemplated
	under the Sale and Purchase Agreement and the Continuing
	Connected Transactions
“SCI”	Shun Cheong Investments Limited, an investment holding
	company incorporated in the British Virgin Islands and a
	wholly-owned subsidiary of SCH
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be convened
	and held for, amongst other things, seeking approvals from
	the Shareholders for the Acquisition contemplated under the
	Sale and Purchase Agreement

– 3 –

DEFINITIONS

“Share(s)”	share(s) of HK$0.25 each in the capital of the Company
“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“HK$”	Hong Kong dollars

– 4 –

LETTER FROM THE BOARD

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(Stock Code: 385)

Executive Directors: Registered Office: James Sai-Wing Wong (Chairman) Clarendon House Stephen Sek-Kee Yu Church Street Frank Kwok-Kit Chu Hamilton HM11 Peter Chi-Chung Luk Bermuda

Non-Executive Director: Head Office and Principal Place of Herman Man-Hei Fung Business: 18th Floor Independent Non-Executive Directors: Hang Seng Building William Gage McAfee 77 Des Voeux Road Central David Chung-Shing Wu Hong Kong Vincent Tian-Quan Mo

10 March 2006

To the Shareholders and option holders (for information only)

Dear Sir or Madam,

PROPOSED ACQUISITION OF THE ENTIRE INTEREST IN SHUN CHEONG INVESTMENTS LIMITED

MAJOR TRANSACTION

1. INTRODUCTION

On 26 January 2006, SCH (as Vendor), CAT (BVI) (as Purchaser) and the Company (as Purchaser’s Guarantor) entered into the Sale and Purchase Agreement pursuant to which SCH has conditionally agreed to dispose and CAT (BVI) has conditionally agreed to acquire the entire issued share capital of SCI, being the holding company for the building related contracting business under the Contracting Group upon completion of the Corporate Restructuring, for a cash consideration of HK$35,000,000 (subject to adjustment). The Consideration, which has been arrived at after arm’s length negotiations between the parties, was determined by reference to the unaudited consolidated net tangible assets of approximately HK$38 million of the Contracting Group as at 30 September 2005 (assuming Corporate Restructuring had taken place) and after taking into consideration the Contracting Group’s further expected operating losses during the period between 1 October 2005 and the Completion Date, currently expected to be in March 2006.

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LETTER FROM THE BOARD

The Acquisition constitutes a major transaction for the Company under the Listing Rules and is subject to the approval by the Shareholders at the SGM.

The Sale and Purchase Agreement is also conditional upon, among other things, the approval by the SCH Independent Shareholders of the Continuing Connected Transactions of SCH upon completion of the Sale and Purchase Agreement.

2. THE SALE AND PURCHASE AGREEMENT

Date

26 January 2006

Parties

Vendor : SCH, which is owned as to approximately 29.93% by the Company Purchaser : CAT (BVI), a wholly-owned subsidiary of the Company Purchaser’s Guarantor : The Company

Assets to be acquired by CAT (BVI)

SCH has conditionally agreed to sell to CAT (BVI) and CAT (BVI) has conditionally agreed to purchase from SCH the entire interest in Contracting Group, being SCI and its certain subsidiaries together with their investments upon completion of the Corporate Restructuring.

Upon Completion, CAT (BVI) will have 100% interest in the Contracting Group and that SCI will become an indirect wholly-owned subsidiary of the Company.

Consideration

Pursuant to the Sale and Purchase Agreement, the initial Consideration for the sale and purchase of the Contracting Group is HK$35,000,000, subject to adjustment. The Consideration payable to SCH will be satisfied by CAT (BVI) in cash by way of internal resources upon Completion.

The Consideration payable under the Sale and Purchase Agreement was arrived at after arm’s length negotiations between SCH and CAT (BVI) and was determined by reference to the value of the Contracting Group’s unaudited consolidated net tangible assets of approximately HK$38 million as at 30 September 2005 (assuming Corporate Restructuring had taken place) and after taking into consideration the Contracting Group’s further expected operating losses during the period between 1 October 2005 and the Completion Date, currently expected to be in March 2006. The Contracting Group’s unaudited consolidated net tangible assets of HK$38

– 6 –

LETTER FROM THE BOARD

million is arrived at after waiving the inter-company balances of approximately HK$18 million (due by the Contracting Group to the Remaining SCH Group) upon completion of Corporate Restructuring (the “Waiver”), i.e. being the sum of the Contracting Group’s unaudited consolidated net tangible assets before the Waiver of approximately HK$20 million and the Waiver of approximately HK$18 million, assuming the Corporate Restructuring had taken place. The above inter-company balances arose from business activities between the Contracting Group and the Remaining SCH Group. The purpose of the Waiver is to clean up such inter-company balances as part of the Corporate Restructuring prior to Completion of the Sale and Purchase Agreement.

The Consideration is subject to adjustment with reference to the Accountants’ Report in the following manner:

(i) if the value of the Contracting Group’s Audited Consolidated Net Tangible Assets is less than HK$34,500,000, the Consideration will be reduced by the amount equivalent to the difference between such value and HK$34,500,000; or
(ii) if the value of the Contracting Group’s Audited Consolidated Net Tangible Assets is more than HK$39,500,000, the Consideration will be increased by the amount equivalent to the difference between such value and HK$39,500,000.

The Accountants’ Report as contained in Appendix II of the circular reported Audited Consolidated Net Tangible Assets of the Contracting Group to be HK$38,395,000 as at 30 September 2005. As the Audited Consolidated Net Tangible Assets did not exceed the threshold of HK$39,500,000 nor fall below the threshold of HK$34,500,000, the adjustment mechanism set out above has not been triggered and the final Consideration payable for the Acquisition was determined to be HK$35,000,000.

Conditions precedent

The Completion of the Sale and Purchase Agreement is subject to the fulfillment of the following conditions:

(a) the passing of resolutions by the SCH Independent Shareholders by poll at the SCH SGM approving the Disposal and the Continuing Connected Transactions;
(b) the passing of a resolution by the Shareholders at the SGM approving the Acquisition;
(c) the Deed of Indemnity (as detailed below) being duly executed by the parties thereto on the Completion Date;
(d) the completion of the Corporate Restructuring which include among others, the waiver of the aggregate sum of approximately HK$18 million due by the Contracting Group to the Remaining SCH Group;

– 7 –

LETTER FROM THE BOARD

(e) the value of the Audited Consolidated Net Tangible Assets being confirmed and determined by the auditors with an unqualified opinion; and
(f) all of the warranties, representations, indemnities and undertakings of the Vendor, the Purchaser and the Company as set out in the Sale and Purchase Agreement remain true and accurate and not misleading at all times from the date of the Sale and Purchase Agreement up to and including the Completion Date.

If the conditions precedent have not been fulfilled or waived by the Vendor and/or the Purchaser (save for conditions (a) to (e) which cannot be waived) and the Completion cannot take place on or before the Long Stop Date (or any other date as agreed between the parties), the Sale and Purchase Agreement shall have no effect and no party shall have any claims against the other parties under the Sale and Purchase Agreement (without prejudice to the rights of any party to the Sale and Purchase Agreement in respect of antecedent breaches). As at the Latest Practicable Date, the condition (e) has been fulfilled.

Completion

Upon compliance with or fulfillment of the conditions precedent, Completion shall take place on the Completion Date.

Deed of indemnity

Upon Completion, the Company shall, among other things, execute the Deed of Indemnity.

Date : Completion Date Parties : The Company, as Purchaser’s Guarantor SCH, as Vendor Scope : The Company has agreed to guarantee the performance of the Purchaser and to indemnify the Vendor for all its obligations in relation to the guarantees provided by the Vendor to the banks and/or third parties for the business operation of certain members of the Contracting Group as set out in the Sale and Purchase Agreement, and procure the discharge or release or cancellation of such guarantees in its best endeavors within three months after Completion or such other date as agreed in writing between the Vendor and the Company.

Information on the Contracting Group

SCI is the holding company of the Contracting Group which include Shun Cheong Engineering Limited and Shun Cheong International Limited, both of which are investment holding companies and wholly-owned subsidiaries of SCI.

– 8 –

LETTER FROM THE BOARD

Shun Cheong Engineering Limited’s main operating subsidiaries include Shun Cheong Electrical Engineering Company Limited and Shun Wing Construction & Engineering Company Limited. Shun Cheong Electrical Engineering Company Limited, together with its wholly-owned subsidiary, Westco Airconditioning Limited, are engaged in the design and installation of electrical and mechanical systems, heating ventilation and air-conditioning systems for both public and private sectors. Shun Wing Construction & Engineering Company Limited, a 50.10% owned subsidiary within the Contracting Group, was engaged in the design and installation of building and electrical systems for a contract of the government of Hong Kong (the “Government”), which was completed in March 2004 but pending payment of sub-contracting fee by the main contractor following certification by the Government.

Shun Cheong International Limited’s main operating subsidiary is Shun Cheong Trade and Development Company Limited which is engaged in the trading and installation of generator sets.

As at 30 September 2005, assuming the Corporate Restructuring had taken place, the audited consolidated net tangible assets of the Contracting Group was approximately HK$38 million.

The audited consolidated results of the Contracting Group for the three years ended 31 March 2005 and the six months ended 30 September 2005 (assuming Corporate Restructuring had taken place) are as follows:

				For the six
	For	the year ended		months ended
		31 March		30 September
	2003	2004	2005	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	640,816	734,616	505,574	206,084
Profit/(loss) before
tax	(599)	10,915	(19,498)	12,699
				(Note 1)
Profit/(loss) after tax
and minority
interests	(16,601)	(2,731)	(20,467)	12,680
				(Note 1)
Adjusted loss after
tax and minority
interests	(16,601)	(2,731)	(20,467)	(5,373)
				(Note 2)

Notes:

Included the gain of HK$18,053,000 arising from the Waiver, assuming the Corporate Restructuring had taken place.
Excluded the gain arising from the Waiver.

– 9 –

LETTER FROM THE BOARD

Management analysis of the Contracting Group

Financial results for the year ended 31 March 2004 and 2003

Turnover for the year ended 31 March 2004 increased by HK$93.8 million to HK$734.6 million from HK$640.8 million in the year ended 31 March 2003. Loss attributable to equity holders of the parent of the Contracting Group for the year ended 31 March 2004 amounted to HK$2.7 million, representing an improvement from the loss of HK$16.6 million in the prior year. The decrease in net loss was principally resulted from the increase in turnover and gross profit.

Financial results for the year ended 31 March 2005 and 2004

Turnover for the year ended 31 March 2005 decreased by approximately 31% to HK$505.6 million from HK$734.6 million for the year ended 31 March 2004. The decrease in turnover was a result of the slow down in housing development in both pubic and private sectors which led to limited availability of building services projects. Loss attributable to equity holders of the parent of the Contracting Group for the year ended 31 March 2005 increased to HK$20.5 million from the prior year’s loss of HK$2.7 million. The increase in loss was mainly due to the decrease in turnover and gross profit.

Financial results for the six months ended 30 September 2005

Turnover for the six months ended 30 September 2005 amounted to HK$206.1 million, represented a decrease of 13% from HK$237.3 million for the same period in 2004, primarily due to delay in commencement of actual works for major Government contracts, and there were few new projects in both public and private sectors in Hong Kong. The profit attributable to equity holders of the parent of the Contracting Group for the six months ended 30 September 2005 amounted to HK$12.7 million, which included a gain arising from the waiver of inter-company indebtedness of approximately HK$18 million due by the Contracting Group to the Remaining SCH Group. Had the above gain arising from the waiver not been taken into account, the adjusted loss for the six months ended 30 September 2005 would have been HK$5.4 million, as compared with the loss of HK$3.1 million for the same period in 2004. The above increase in loss was primarily attributable to the decrease in turnover and gross profit.

Liquidity and financial resources

Total borrowings of the Contracting Group amounted to HK$51.6 million as at 30 September 2005, which represented trust receipt loans and overdrafts of HK$44.7 million wholly repayable within one year and loan from a minority shareholder of a subsidiary of the Contracting Group of HK$6.9 million which was unsecured, interest-free and with no fixed repayment terms.

Total cash and bank balances as at 30 September 2005 was HK$33.7 million, which included pledged time deposits of HK$26.8 million to secure general banking facilities of the Contracting Group. The Contracting Group had banking facilities totaled HK$76.5 million, of which HK$9.9 million remained undrawn as at 30 September 2005.

– 10 –

LETTER FROM THE BOARD

The gearing ratio of the Contracting Group, as measured by the bank borrowings less pledged time deposits of HK$17.9 million to consolidated net assets attributable to equity holders of HK$38.4 million, was 47% as at 30 September 2005.

Funding and treasury policy

The assets and liabilities of the Contracting Group are mainly denominated in Hong Kong dollars. Accordingly, the Contracting Group considered that it has minimal exposure to foreign exchange fluctuation. It has been the Contracting Group’s policy to closely monitor the overall currency and interest rate exposure and hedge against such exposures when considered appropriate.

Investments

As at 30 September 2005, the Contracting Group invested in listed and unlisted equity securities with an aggregate carrying value of approximately HK$3.1 million.

Contingent liabilities

As at 30 September 2005, the Contracting Group had contingent liabilities in respect of letters of indemnity provided by certain subsidiaries of the Contracting Group to a financial institution for the issue of performance bonds amounted to HK$4.47 million.

Employees and remuneration policies

The Contracting Group employed approximately 120 staff, all in Hong Kong, as at 30 September 2005. It has been the Contracting Group’s policy that staff be remunerated by reference to market terms, qualifications and experience of the staff concerned. The Contracting Group annually reviewed staff salaries by reference to individual merits and provided employment related benefits including retirement benefits, medical insurance and education subsidies to all eligible staff.

Information on the Group and SCH Group

The Group is principally engaged in the trading of plastics and chemicals, trading of industrial products and equipment, air-conditioning engineering works and has approximately 29.93% equity investment in SCH. The SCH Group is principally engaged in building related contracting services, which include the provision of multi-disciplinary building services, comprising electrical engineering, water pumping and fire services, air-conditioning installation, plumbing and drainage, environmental engineering, extra low voltage systems engineering and project management, trading of electrical and mechanical engineering materials and equipment as well as building related maintenance services.

Financial effects of the Acquisition

Upon Completion, SCI will become an indirect wholly-owned subsidiary of the Company and the financials of the Contracting Group will be consolidated into the financial statements of the Company.

– 11 –

LETTER FROM THE BOARD

Earnings

As set out in the unaudited pro forma financial information of the Enlarged Group assuming the Completion had taken place on 30 June 2005, the Group would have recorded a negative goodwill of approximately HK$2.8 million arising from the Acquisition in the income statement, representing the excess amount of the fair value of the Contracting Group’s identifiable assets and liabilities of HK$38.4 million as at 30 September 2005 over the cost of Acquisition (including estimated expenses of approximately HK$0.6 million to be incurred in relation to the Acquisition) of approximately HK$35.6 million.

The Contracting Group is expected to incur loss during the period between 1 October 2005 and the Completion Date. Goodwill arising from acquisition of the Contracting Group would be finally determined based on the cost of acquisition and the fair value of the Contracting Group’s identifiable assets and liabilities as at the Completion Date. Shareholders should therefore note that the above financial effects are hypothetical figures calculated based on unaudited financials from the interim report of the Group for the six months ended 30 June 2005, audited financials of the Contracting Group for the six months ended 30 September 2005 and on the assumption that there are no changes in the cost of acquisition and the fair value of the Contracting Group’s consolidated net assets upon Completion. In case goodwill arises as a result of the cost of acquisition exceeding the fair value of the Contracting Group’s consolidated net assets as at Completion, it will be recognised as an asset and assessed for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Any impairment losses arising from the assessment will be charged to the consolidated profit and loss account.

Net assets

Based on the unaudited pro forma combined balance sheet of the Enlarged Group assuming the Completion had taken place on 30 June 2005, the unaudited consolidated net assets of the Enlarged Group would have been HK$153.9 million, representing a slight increase from the Group’s unaudited net assets of HK$152.7 million as at 30 June 2005 before the Acquisition.

Pro forma borrowings increased from HK$255.6 million to HK$307.2 million, as a result of consolidating all borrowings of the Contracting Group. Pro forma cash and bank balances dropped from HK$66.6 million to HK$64.7 million (including pledged deposits of HK$26.8 million), as a result of an outflow of HK$35.6 million paid for acquisition of the Contracting Group and the cash and bank balances of HK$33.7 million (including pledged deposits of HK$26.8 million) held by the Contracting Group as at 30 September 2005. The pro forma gearing ratio of the Enlarged Group, as measured by the net borrowings of HK$242.5 million to unaudited consolidated total net assets of HK$153.9 million, would be 158% as compared with the gearing ratio of 124% of the Group as at 30 June 2005 prior to the Acquisition.

– 12 –

LETTER FROM THE BOARD

The pro forma financial information of the Enlarged Group set out in Appendix III to this circular is for illustration purpose only. As the consolidated net assets of the Contracting Group at the Completion Date and the cost of acquisition may be different from the amounts currently used in the preparation of the pro forma financial information, the actual financial impact arising from the Acquisition is likely to be different from the estimated amount in the pro forma financial information.

Reasons for and benefits of the Acquisition

The development in gambling and entertainment businesses in Macau brings business opportunities to Hong Kong based construction companies. During the six months ended 30 September 2005, SCH through the Contracting Group had actively explored new contracting business opportunities in Macau, and was awarded a new contract for the electrical installation for the Grand Lisboa Hotel and Casino in 2005. Funding and banking support are, however, vital in order to grow new businesses under the Contracting Group. Currently, the SCH Group has banking facilities of approximately HK$76.5 million which the SCH Group has found it difficult to secure further banking support and financial resources in other means for the development of the contracting business.

The Board is of the view that the Acquisition will give the Company a direct investment opportunity in the Contracting Group, apart from its existing investment in SCH. It would also allow the Group, which had unaudited net assets of approximately HK$152.7 million as at 30 June 2005, to leverage on its balance sheet to further expand the Contracting Group’s business when opportunities arise. More importantly, the Group currently has total banking facilities of approximately HK$446 million, which can support the Contracting Group’s business. The Board is of the view that, given the financial resources of the Group to support the Contracting Group’s business which has trading prospects in Macau, there is a good opportunity to gradually turn around the results of the Contracting Group.

As disclosed in the announcement of the Company dated 2 February 2006, the sub-contracting agreements were entered into between members of the Contracting Group (as main contractors) and a member of the Remaining SCH Group (as sub-contractor) with regard to certain maintenance work contracts on 31 December 2005. Upon completion of the Sale and Purchase Agreement, those existing maintenance work contracts held under the main operating companies within the Contracting Group, for which a member within the Remaining SCH Group currently acts as a sub-contractor, will continue in order to allow continuity to those contracts until completion of such contracts. It is currently expected that the above maintenance contracts will run until 2008.

Under the above sub-contracting agreements, members of the Contracting Group (as main contractors) are entitled to deduct a management fee representing 3% on amounts receivable from their clients and pay the balance to the Remaining SCH Group as sub-contractor following receipt of monies from clients. It is currently estimated that the sub-contracting fees payable to the Remaining SCH Group under the sub-contracting agreements will be (i) approximately HK$114 million for the year ending 31 March 2007; (ii) about HK$82 million

– 13 –

LETTER FROM THE BOARD

for the year ending 31 March 2008. The SCH Directors, the independent board committee of SCH and the independent financial adviser to the independent board committee of SCH have all confirmed that management fee is determined with reference to market rate and the terms of the sub-contracting agreements are on normal commercial terms in line with market practice.

Requirements of the Listing Rules

The Acquisition constitutes a major transaction for the Company under the Listing Rules and is therefore subject to the approval by the Shareholders at the SGM.

3. SGM

Set out on pages 137 and 138 of this circular is a notice convening the SGM to be held at Lotus Room, 6th Floor, The Marco Polo Hong Kong Hotel, Harbour City, Kowloon, Hong Kong on Monday, 27 March 2006 at 11:00 a.m. at which an ordinary resolution will be proposed to the Shareholders to consider and, if thought fit, approve the Acquisition. To the best of the Directors’ knowledge, information and belief, and after making reasonable enquiries, as at the Latest Practicable Date, no Shareholder has any material interest in the Acquisition, and therefore no Shareholder will be required to abstain from voting at the SGM.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the Company Secretary at the Company’s principal place of business in Hong Kong at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof if you so wish.

4. PROCEDURE FOR DEMANDING A POLL

Pursuant to bye-law 66 of the bye-laws of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

(i) the chairman of the meeting; or
(ii) at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

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LETTER FROM THE BOARD

(iii) any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(iv) any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

In case a poll is demanded, the results of which will be published by way of an announcement in the local newspapers on the Business Day following the SGM.

5. RECOMMENDATION

The Directors are of the view that the terms of the Acquisition are fair and reasonable and in the interests of the Shareholders as a whole and would therefore recommend the Shareholders to vote in favour of the ordinary resolution as set out in the notice of the SGM to approve the Acquisition.

6. ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board

Chinney Alliance Group Limited James Sai-Wing Wong Chairman

– 15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. THREE-YEAR FINANCIAL SUMMARY

Set out below is a summary of the audited financial statements of the Group for each of the three financial years ended 31 December 2002, 2003 and 2004 extracted from the relevant annual reports of the Company.

Results

Year ended 31 December 2004 2003 2002 (Restated) HK$’000 HK$’000 HK$’000 1,073,103 852,722 828,252 20,501 (20,477) (52,774) (3,542) (3,991) (2,280) 16,959 (24,468) (55,054) (4,019) (2,932) (3,595) 12,940 (27,400) (58,649) (220) (418) (236) 12,720 (27,818) (58,885)	Year ended 31 December 2004 2003 2002 (Restated) HK$’000 HK$’000 HK$’000 1,073,103 852,722 828,252 20,501 (20,477) (52,774) (3,542) (3,991) (2,280) 16,959 (24,468) (55,054) (4,019) (2,932) (3,595) 12,940 (27,400) (58,649) (220) (418) (236) 12,720 (27,818) (58,885)	Year ended 31 December 2004 2003 2002 (Restated) HK$’000 HK$’000 HK$’000 1,073,103 852,722 828,252 20,501 (20,477) (52,774) (3,542) (3,991) (2,280) 16,959 (24,468) (55,054) (4,019) (2,932) (3,595) 12,940 (27,400) (58,649) (220) (418) (236) 12,720 (27,818) (58,885)
20,501 (3,542) 16,959 (4,019) 12,940 (220)	(20,477) (3,991) (24,468) (2,932) (27,400) (418)	(52,774 (2,280
		(55,054 (3,595
		(58,649 (236
12,720	(27,818)

TOTAL ASSETS TOTAL LIABILITIES MINORITY INTERESTS	As 2004 HK$’000 519,166 (364,893) (1,912) 152,361	at 31 December 2003 2002 (Restated) HK$’000 HK$’000 428,201 436,346 (301,575) (298,671) (1,692) (1,274) 124,934 136,401

– 16 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2004

The following is the reproduction of the text of the audited consolidated financial statements of the Group together with the accompanying notes contained on pages 18 to 70 of the annual report of the Company for the year ended 31 December 2004. The page references in this section are the same as the Annual Report.

Consolidated Profit and Loss Account

Year ended 31 December 2004

Notes TURNOVER 5 Cost of sales/services Gross profit Other revenue and gains 5 Selling and distribution costs Administrative expenses Other operating (expenses)/income, net Surplus arising from revaluation of land and buildings 13 Provision for impairment of goodwill 14 Provision for impairment of interest in an associate PROFIT/(LOSS) FROM OPERATING ACTIVITIES 6 Finance costs 9 OPERATING PROFIT/(LOSS) Share of losses of associates PROFIT/(LOSS) BEFORE TAX Tax 10 PROFIT/(LOSS) BEFORE MINORITY INTERESTS Minority interests NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS 11 EARNINGS/(LOSS) PER SHARE – Basic 12	2004 HK$’000 1,073,103 (951,207)	2003 HK$’000 852,722 (756,384) 96,338 3,866 (19,056) (76,722) 6,372 – (18,722) (5,800) (13,724) (6,753) (20,477) (3,991) (24,468) (2,932) (27,400) (418) (27,818) (0.84 cent)
	121,896 4,779 (22,463) (73,398) (6,484) 5,826 (1,634) (1,400) 27,122 (6,621) 20,501 (3,542) 16,959 (4,019) 12,940 (220)	96,338 3,866 (19,056 (76,722 6,372 – (18,722 (5,800
		(13,724 (6,753
		(20,477 (3,991
		(24,468 (2,932
		(27,400 (418
	12,720 0.33 cent

– 17 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

31 December 2004

Notes NON-CURRENT ASSETS Fixed assets 13 Goodwill 14 Interests in associates 16 Long term investments 17 Deferred tax assets 31 Other assets 18 CURRENT ASSETS Properties held for resale 19 Inventories 20 Gross amount due from contract customers 21 Trade and retention monies receivables 22 Amounts due from related companies 23 Short term investments 24 Deposits, prepayments and other receivables Cash and cash equivalents 25 CURRENT LIABILITIES Trade and bills payables 26 Trust receipt loans 27 Amounts due to related companies 23 Other payables and accruals 30 Tax payable Interest-bearing bank loans and overdrafts 27, 28 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans 27, 28 Provisions 29 Deferred tax liabilities 31 MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 32 Reserves 34	2004 HK$’000 36,545 – 28,279 – 1,404 4,036	2003 HK$’000 30,938 1,759 34,299 – 1,497 2,045
	70,264 3,036 118,363 5,134 236,577 3,244 11,986 7,784 62,778 448,902 81,422 189,584 315 41,886 5,541 39,960 358,708 90,194 160,458 3,750 1,376 1,059 6,185 1,912	70,538
		3,036 106,312 5,081 175,629 1,511 13,338 11,036 41,720
		357,663
		88,416 132,051 742 32,720 4,646 40,179
		298,754
		58,909
		129,447 – 1,650 1,171
		2,821
		1,692
	152,361	124,934

	39,660 112,701	33,060 91,874
	152,361	124,934

– 18 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

Year ended 31 December 2004

Notes At 1 January 2003 Exchange realignment and loss not recognised in the profit and loss account Impairment of goodwill previously eliminated against capital reserve Net loss for the year At 31 December 2003 and at 1 January 2004 Exchange realignment and gain not recognised in the profit and loss account Issue of shares 32, 34(b) Share issue expenses 34(b) Surplus on revaluation 13 Net profit for the year At 31 December 2004	Issued share capital Share premium account HK$’000 HK$’000 33,060 562,724 – – – – – –	Issued share capital Share premium account HK$’000 HK$’000 33,060 562,724 – – – – – –	Capital reserve HK$’000 220,076 – 16,424 –	Land and buildings revaluation reserve HK$’000 – – – –	Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 84 (679,543) (73) – – – – (27,818)	Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 84 (679,543) (73) – – – – (27,818)	Exchange fluctuation reserve Accumulated losses HK$’000 HK$’000 84 (679,543) (73) – – – – (27,818)
	33,060 – 6,600 – – –	562,724 – 6,600 (338) – –	236,500 – – – – –	– – – – 1,827 –	11 18 – – – –	(707,361) – – – – 12,720	124,934 18 13,200 (338 1,827 12,720
	39,660	568,986*	236,500*	1,827*	29*

– 19 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Reserves retained by (accumulated in): Company and subsidiaries Associates At 31 December 2004 Company and subsidiaries Associates At 31 December 2003	Issued share capital HK$’000 39,660 – 39,660 33,060 – 33,060	Share premium account HK$’000 568,986 – 568,986 562,724 – 562,724	Capital reserve HK$’000 236,500 – 236,500 236,500 – 236,500	Land and buildings revaluation reserve HK$’000 1,827 – 1,827 – – –	Exchange fluctuation reserve HK$’000 29 – 29 11 – 11	Accumulated losses HK$’000 (662,136) (32,505) (694,641) (679,476) (27,885) (707,361)	Total HK$’000 184,866 (32,505) 152,361 152,819 (27,885) 124,934

* These reserve accounts comprise the consolidated reserves of HK$112,701,000 (2003: HK$91,874,000) in the consolidated balance sheet.

– 20 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement

Year ended 31 December 2004

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Share of losses of associates Finance costs 9 Surplus arising from revaluation of land and buildings 13 Provision for impairment of goodwill 14 Provision for impairment of interest in an associate Amortisation of goodwill 6 Bad and doubtful debts 6 Depreciation 6 (Write-back of)/provision for obsolete inventories 6 Provision for advances to an associate 6 Unrealised holding losses/(gains) on other investments 6 Write-back of impairment in values of properties held for resale 6 Gain on disposal of fixed assets Gain on disposal of subsidiaries 6 Interest income 5 Operating profit before working capital changes (Increase)/decrease in other assets Decrease in properties held for resale Increase in inventories and gross amount due from contract customers Increase in trade and retention monies receivables Decrease/(increase) in deposits, prepayments and other receivables Increase in amounts due from related companies, net Increase in trade and bills payables, other payables and accruals, and provisions Cash used in operations Interest received Interest paid Hong Kong profits tax paid, net Overseas taxes paid Net cash outflow from operating activities −page 23	2004 HK$’000 16,959 3,542 6,621 (5,826) 1,634 1,400 125 5,245 2,302 (83) – 1,352 – (24) – (161)	2003 HK$’000 (24,468) 3,991 6,753 – 18,722 5,800 386 2,125 2,966 2,610 1,518 (3,536) (1,286) (7) (2,246) (408) 12,920 2,139 2,212 (19,812) (17,905) (4,338) (553) 12,454 (12,883) 408 (6,753) (2,034) (132) (21,394)
	33,086 (1,991) – (12,021) (66,193) 3,257 (2,160) 1,898 (44,124) 161 (6,621) (1,946) (119) (52,649)	12,920 2,139 2,212 (19,812 (17,905 (4,338 (553 12,454
		(12,883 408 (6,753 (2,034 (132
		(21,394

– 21 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes Net cash outflow from operating activities −page 22 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets 13 Proceeds from disposal of fixed assets Advances to an associate Disposal of subsidiaries 35 Net cash (outflow)/inflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of new shares 32, 34(b) Share issue expenses 34(b) Increase in trust receipt loans New bank loans Repayment of bank loans Net cash inflow from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 25 Non-pledged time deposits with original maturity of less than three months when acquired 25 Bank overdrafts 28	2004 HK$’000 (52,649)	2003 HK$’000 (21,394) (167) 16 (1,518) 14,977 13,308 – – 31,305 – (24,752) 6,553 (1,533) 8,580 (19) 7,028 16,427 25,293 (34,692) 7,028
	(295) 63 – 8 (224) 13,200 (338) 57,533 10,000 (6,737) 73,658 20,785 7,028 5	(167 16 (1,518 14,977
		13,308
		– – 31,305 – (24,752
		6,553
		(1,533 8,580 (19
	27,818
	33,486 29,292 (34,960)	16,427 25,293 (34,692
	27,818

– 22 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Balance Sheet

31 December 2004

Notes NON-CURRENT ASSETS Fixed assets 13 Interests in subsidiaries 15 Interest in an associate 16 Other assets 18 CURRENT ASSETS Short term investments 24 Deposits, prepayments and other receivables Cash and cash equivalents 25 CURRENT LIABILITIES Other payables and accruals 30 Interest-bearing bank loans 27, 28 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans 27, 28 CAPITAL AND RESERVES Issued capital 32 Reserves 34	2004 HK$’000 30 99,986 26,248 1,220	2003 HK$’000 67 79,763 30,198 1,220
	127,484 11,986 526 8,642 21,154 3,077 5,000 8,077 13,077 140,561 3,750	111,248
		13,338 169 1,364
		14,871
		3,211 4,500
		7,711
		7,160
		118,408 –
	136,811	118,408

	39,660 97,151	33,060 85,348
	136,811	118,408

– 23 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes to the Financial Statements

31 December 2004

1. CORPORATE INFORMATION

During the year, the Group was involved in the following principal activities:

trading and manufacturing of plastic and chemical products
distribution and installation of building supplies, electrical and mechanical products
wholesaling of electrical appliances, engineering contracting business in the air-conditioning industry and the provision of maintenance services
investment holding

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

The Hong Kong Institute of Certified Public Accountants (“HKICPA”) has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards, which includes Statements of Standard Accounting Practice (“SSAPs”) and Interpretations issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of certain fixed assets and equity investments, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2004. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

Associates

An associate is a company, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

– 24 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses. Goodwill arising from the acquisition of associates, which was not previously eliminated against the consolidated reserves, is included as part of the Group’s interests in associates.

The results of associates are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interest in an associate is treated as a long term asset and is stated at cost less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries and associates represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of not more than 20 years. In the case of associates, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

Prior to the adoption of SSAP 30 “Business combinations” in 2001, goodwill arising on acquisitions was eliminated against consolidated reserves in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provision of the SSAP that permitted such goodwill to remain eliminated against consolidated reserves. Goodwill on acquisitions subsequent to the adoption of the SSAP is treated according to the SSAP 30 goodwill accounting policy above.

On disposal of subsidiaries and associates, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

The carrying amount of goodwill, including goodwill remaining eliminated against consolidated reserves, is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

– 25 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Fixed assets and depreciation

Fixed assets are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance costs, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an asset, the expenditure is capitalised as an additional cost of that asset.

Changes in the values of fixed assets are dealt with as movements in the revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of the previous valuations is transferred to retained earnings as a movement in reserves.

Depreciation is provided using either the straight-line or the reducing balance method in order to write off the cost or valuation of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Medium term leasehold land Over the lease terms Buildings 2%-4.5% Leasehold improvements Over the lease terms or 20%-33[1] ⁄3% Furniture, fixtures and equipment 10%-33[1] ⁄3% Motor vehicles 15%-25%

The gain or loss on disposal of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under the operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Other assets

Other assets held on a long term basis are stated at cost less any impairment losses.

Long term investments

Long term investments in listed and unlisted equity securities, intended to be held for a continuing strategic or long term purpose, are classified as investment securities and are stated at cost less any impairment losses, on an individual investment basis.

When a decline in the fair value of a security below its carrying amount has occurred, unless there is evidence that the decline is temporary, the carrying amounts of the security is reduced to their fair values, as estimated by the directors. The amount of the impairment is charged to the profit and loss account for the period in which it arises. When the circumstances and events which led to the impairment in value cease to exist and there is persuasive evidence that the new circumstances and events will persist in the foreseeable future, the amounts of the impairments previously charged are credited to the profit and loss account to the extent of the amount previously charged.

Short term investments

Short term investments are investments in equity securities held for trading purposes and are classified as other investments. Listed securities are stated at their fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis. Unlisted securities are stated at their fair values estimated by the directors having regard to information known to them and to market conditions existing at the balance sheet date, on an individual basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account for the period in which they arise.

– 26 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Properties held for resale

Properties held for resale, consisting of completed properties, are classified under current assets and are stated at the lower of cost and net realisable value. Cost consists of all expenditure directly attributable to the acquisition and development of the properties plus other direct costs attributable to such properties. Net realisable value is determined by reference to prevailing market prices on an individual property basis.

Inventories

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

Construction contracts

Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders, claims and incentive payments. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable and fixed construction overheads.

Revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the proportion of costs incurred to date to the estimated total cost of the relevant contract.

Revenue from cost plus construction contracts is recognised on the percentage of completion method, by reference to the recoverable costs incurred during the year plus the related fee earned, measured by the proportion of costs incurred to date to the estimated total cost of the relevant contract.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from construction contracts, on the percentage of completion basis as further explained in the accounting policy for “Construction contracts” above;
(c) from the rendering of services, on completion of the transactions;

– 27 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(d) rental income, on the straight-line basis over the lease terms;
(e) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; and
(f) dividend income, when the shareholders’ right to receive payment has been established.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences:
except where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax assets and unused tax losses can be utilised:

except where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the profit and loss account of overseas subsidiaries and associates are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries and associates are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

– 28 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A provision is recognised in respect of probable future long service payments expected to be made. The provision is based on the best estimate of the probable future payments which have been earned by the employees from their service to the Group to the balance sheet date, net of employer’s contributions and accrued benefits derived therefrom under the Group’s pension schemes.

Pension schemes

The Group operates defined contribution Mandatory Provident Fund retirement benefits schemes (the “MPF Schemes”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Schemes. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Schemes. The Group’s employer contributions vest fully with the employees when contributed into the MPF Schemes, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Schemes.

Prior to the MPF Schemes becoming effective, the Group operated defined contribution provident fund schemes (the “Provident Funds”) under the Occupational Retirement Schemes Ordinance for those employees who were eligible to participate. The Provident Funds operated in a similar way to the MPF Schemes, except that when an employee left the Provident Funds prior to his/her interest in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group were reduced by the relevant amount of forfeited contributions. Upon implementation of the MPF Schemes, the Provident Funds have been frozen and no further contributions have been made by the Group or the eligible employees after that date. The eligible employees are entitled to receive their funds in accordance with the rules of the Provident Funds when they leave the Group.

The assets of both types of scheme are held separately from those of the Group in independently administered funds.

– 29 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Share option scheme

The Group operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or the balance sheet for their cost. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

4. SEGMENT INFORMATION

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

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

the plastic and chemical products segment consists of importing, marketing and distributing plastic and chemical products;
the building supplies, electrical and mechanical products segment consists of importing, marketing, distributing and installing building supplies, electrical and mechanical products;
the electrical appliances and air-conditioning business segment consists of importing, marketing, distributing and installing electrical appliances and air-conditioning products; and
the property and investment holding segment consists of investments in properties and listed and unlisted securities for their investment potential.

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

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

– 30 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(a) Business segments

The following tables present revenue, profit/(loss) and certain assets, liabilities and expenditure information for the Group’s business segments.

Group

Plastic and chemical products 2004 2003 HK$’000 HK$’000 862,649 643,108 – 172 1,533 1,633 864,182 644,913	Plastic and chemical products 2004 2003 HK$’000 HK$’000 862,649 643,108 – 172 1,533 1,633 864,182 644,913	Building supplies, electrical and mechanical products 2004 2003 HK$’000 HK$’000 116,012 127,223 – – 1,404 242 117,416 127,465	Building supplies, electrical and mechanical products 2004 2003 HK$’000 HK$’000 116,012 127,223 – – 1,404 242 117,416 127,465	Electrical appliances and air-conditioning business 2004 2003 HK$’000 HK$’000 94,442 80,298 – – 25 57 94,467 80,355	Electrical appliances and air-conditioning business 2004 2003 HK$’000 HK$’000 94,442 80,298 – – 25 57 94,467 80,355	Property and investment holding 2004 2003 HK$’000 HK$’000 – 2,093 – – – – – 2,093	Property and investment holding 2004 2003 HK$’000 HK$’000 – 2,093 – – – – – 2,093	Eliminations 2004 2003 HK$’000 HK$’000 – – – (172) – – – (172)	Eliminations 2004 2003 HK$’000 HK$’000 – – – (172) – – – (172)	Consolidated 2004 2003 HK$’000 HK$’000 1,073,103 852,722 – – 2,962 1,932 1,076,065 854,654	Consolidated 2004 2003 HK$’000 HK$’000 1,073,103 852,722 – – 2,962 1,932 1,076,065 854,654
864,182	644,913	117,416	127,465	94,467	80,355	–	2,093	–	(172)	1,076,065	854,654

39,104 2,218 – – –	21,358 – – – –	(7,149) 3,380 – – –	(9,058) – – – 1,286	1,088 228 – – –	707 – – – –	– – (1,352) – –	551 – 3,536 2,246 –	– – – – –	– – – – –	33,043 5,826 (1,352) – –	13,558 – 3,536 2,246 1,286
41,322	21,358	(3,769)	(7,772)	1,316	707	(1,352)	6,333	–	–	37,517	20,626

–	–	–	–	–	–	(3,542)	(3,991)	–	–	1,817 (9,178) (1,634) (1,400) –	1,934 (10,244 (18,722 (5,800 (1,518
										27,122 (6,621) (3,542)	(13,724 (6,753 (3,991
										16,959 (4,019)	(24,468 (2,932
										12,940 (220)	(27,400 (418
										12,720	(27,818

– 31 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Plastic and chemical products Building supplies, electrical and mechanical products Electrical appliances and air-conditioning business Property and investment holding Eliminations 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 363,601 271,620 24,157 34,448 51,040 38,613 65,375 47,202 (49,650) (34,170) Interests in associates – – – – – – 28,279 34,299 – – Unallocated assets Bank overdrafts included in segment assets – – 31,082 28,840 3,878 5,852 – – – – Total assets Segment liabilities 83,417 72,404 58,429 58,005 28,155 24,036 4,622 3,452 (49,650) (34,166) Unallocated liabilities Bank overdrafts included in segment assets – – 31,082 28,840 3,878 5,852 – – – – Total liabilities Other segment information: Capital expenditure 52 18 187 116 45 26 11 7 – – Amortisation of goodwill – – – – – – 125 386 – – Depreciation 1,285 1,406 647 1,140 322 365 48 55 – – Other non-cash (income)/expenses: Surplus arising from revaluation of land and buildings (2,218) – (3,380) – (228) – – – – – Provision for impairment of goodwill – – – – – – 1,634 18,722 – – Provision for impairment of interest in an associate – – – – – – 1,400 5,800 – – Provision for advances to an associate – – – – – – – 1,518 – – Unrealised holding losses/(gains) on other investments – – – – – – 1,352 (3,536) – – Write-back of impairment in values of properties held for resale – – – (1,286) – – – – – –	Consolidated 2004 2003 HK$’000 HK$’000 454,523 357,713 28,279 34,299 1,404 1,497 34,960 34,692 519,166 428,201	Consolidated 2004 2003 HK$’000 HK$’000 454,523 357,713 28,279 34,299 1,404 1,497 34,960 34,692 519,166 428,201
	519,166	428,201

	124,973 204,960 34,960	123,731 143,152 34,692
	364,893	301,575

	295 125 2,302 (5,826) 1,634 1,400 – 1,352 –	167 386 2,966 – 18,722 5,800 1,518 (3,536) (1,286)

– 32 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) Geographical segments

The following table presents revenue and certain assets and expenditure information for the Group’s geographical segments.

Group

Segment revenue: Sales to external customers Other revenue Total revenue Other segment information: Segment assets Bank overdrafts included in segment assets Capital expenditure	Hong Kong 2004 2003 HK$’000 HK$’000 1,009,897 784,093 2,962 1,932 1,012,859 786,025 454,117 366,832 34,960 34,692 272 119	Mainland China 2004 2003 HK$’000 HK$’000 63,206 68,629 – – 63,206 68,629 30,089 26,677 – – 23 48	Consolidated 2004 2003 HK$’000 HK$’000 1,073,103 852,722 2,962 1,932 1,076,065 854,654	Consolidated 2004 2003 HK$’000 HK$’000 1,073,103 852,722 2,962 1,932 1,076,065 854,654
				854,654

			484,206 34,960	393,509 34,692
			519,166 295	428,201

				167

5. TURNOVER, REVENUE AND GAINS

Turnover represents the net invoiced value of services rendered and goods sold, after allowances for returns and trade discounts, an appropriate proportion of contract revenue of construction contracts and gross rental income received and receivable during the year.

An analysis of the Group’s turnover, other revenue and gains is as follows:

Turnover Sale of goods Construction contracts Gross rental income Other revenue and gains Interest income Commission income Others	2004 HK$’000 1,027,810 45,293 –	2003 HK$’000 809,487 41,142 2,093
	1,073,103 161 2,962 1,656 4,779	852,722
		408 1,932 1,526
		3,866
	1,077,882	856,588

– 33 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

6. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

The Group’s profit/(loss) from operating activities is arrived at after charging/(crediting):

Notes Auditors’ remuneration: Current year provision (Over)/underprovision in prior years Staff costs*: Wages and salaries Pension scheme contributions Less: Forfeited contributions Net pension scheme contributions Amortisation of goodwill 14 Bad and doubtful debts Cost of inventories sold Cost of services rendered Depreciation 13 Operating lease rentals in respect of land and buildings (Write-back of)/provision for obsolete inventories included in cost of inventories sold Provision for advances to an associate Unrealised holding losses/(gains) on other investments Write-back of impairment in values of properties held for resale 19 Foreign exchange gains, net Gain on disposal of subsidiaries 35 Interest income from: Banks and financial institutions Others Net rental income	Group 2004 2003 HK$’000 HK$’000 1,121 1,416 (84) 14 1,037 1,430 49,435 46,436 2,784 2,824 (90) (257) 2,694 2,567 52,129 49,003 125 386 5,245 2,125 908,228 717,317 42,979 39,067 2,302 2,966 4,303 5,839 (83) 2,610 – 1,518 1,352 (3,536) – (1,286) (2,302) (1,436) – (2,246) (161) (396) – (12) (711) (1,008)	Group 2004 2003 HK$’000 HK$’000 1,121 1,416 (84) 14 1,037 1,430 49,435 46,436 2,784 2,824 (90) (257) 2,694 2,567 52,129 49,003 125 386 5,245 2,125 908,228 717,317 42,979 39,067 2,302 2,966 4,303 5,839 (83) 2,610 – 1,518 1,352 (3,536) – (1,286) (2,302) (1,436) – (2,246) (161) (396) – (12) (711) (1,008)
	1,037 49,435 2,784 (90) 2,694 52,129	1,430
		46,436 2,824 (257
		2,567
		49,003
	125 5,245 908,228 42,979 2,302 4,303 (83) – 1,352 – (2,302) – (161) – (711)

The staff costs include directors’ remuneration as further detailed in note 7 below. As at 31 December 2004, the Group had no forfeited pension scheme contributions available to offset against future contributions (2003: Nil).

– 34 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

7. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Fees to non-executive directors Executive directors: Fees Basic salaries, housing allowances and other benefits in kind Bonuses paid and payable Pension scheme contributions	Group 2004 2003 HK$’000 HK$’000 171 110	Group 2004 2003 HK$’000 HK$’000 171 110
	– 4,164 1,600 317 6,081	– 4,171 900 317
		5,388
	6,252	5,498

The number of directors whose remuneration fell within the following bands is as follows:

Nil – HK$1,000,000 HK$1,500,001 – HK$2,000,000 HK$2,500,001 – HK$3,000,000 HK$3,500,001 – HK$4,000,000	Number of 2004 8 1 – 1 10	directors 2003 8 1 1 –
		10

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

During the year, no share options were granted to the directors in respect of their services to the Group. Further details of the share option scheme and the directors’ options remaining outstanding under the scheme at the balance sheet date are set out in note 33 to the financial statements.

8. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees of the Group included two directors (2003: two), details of whose remuneration are set out in note 7 above. The details of the remuneration of the remaining three (2003: three) non-director, highest paid employees for the year are as follows:

Basic salaries, housing allowances and other benefits in kind Bonuses paid and payable Pension scheme contributions	Group 2004 2003 HK$’000 HK$’000 2,667 2,381 2,200 1,100 129 129 4,996 3,610	Group 2004 2003 HK$’000 HK$’000 2,667 2,381 2,200 1,100 129 129 4,996 3,610
		3,610

– 35 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The number of the above non-director, highest paid employees whose remuneration fell within the following bands is as follows:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000	Number of employees 2004 2003 1 1 – 2 1 – 1 – 3 3	Number of employees 2004 2003 1 1 – 2 1 – 1 – 3 3
		3

During the year, no share options were granted to the non-director, highest paid employees in respect of their services to the Group. Further details of the share option scheme and the employees’ options remaining outstanding under the scheme at the balance sheet date are set out in note 33 to the financial statements.

9. FINANCE COSTS

											Group
											2004	2003
											HK$’000	HK$’000
Interest	on	bank	loans	and	overdrafts	wholly	repayable	within	five	years	6,621	6,753

No interest was capitalised by the Group during the current or the prior year.

10. TAX

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Group: Current – Hong Kong: Charge for the year Overprovision in prior years Current – Elsewhere Deferred (note 31) Share of tax attributable to associates Total tax charge for the year	2004 HK$’000 4,201 (2,319) 1,078 (19)	2003 HK$’000 1,594 (681 427 83
	2,941 1,078	1,423 1,509
	4,019	2,932

– 36 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

A reconciliation of the tax expense/(credit) applicable to profit/(loss) before tax using the statutory rate to the tax expense for the year is as follows:

Profit/(loss) before tax Tax at Hong Kong profits tax rate of 17.5% (2003: 17.5%) Effect of different rates for companies operating in other jurisdictions Effect on opening deferred tax of increase in rates Overprovision in prior years Income not subject to tax Expenses not deductible for tax Deferred tax (assets)/liabilities not (recognised)/provided for Tax losses utilised from previous periods Tax losses not recognised Tax effect of share of results of associates Others Tax expense for the year	Group 2004 2003 HK$’000 HK$’000 16,959 (24,468) 2,968 (4,282) 189 205 – (142) (2,319) (681) (1,113) (436) 1,928 5,979 (609) 432 (534) (1,776) 1,852 1,528 1,698 2,207 (41) (102) 4,019 2,932	Group 2004 2003 HK$’000 HK$’000 16,959 (24,468) 2,968 (4,282) 189 205 – (142) (2,319) (681) (1,113) (436) 1,928 5,979 (609) 432 (534) (1,776) 1,852 1,528 1,698 2,207 (41) (102) 4,019 2,932
	2,968 189 – (2,319) (1,113) 1,928 (609) (534) 1,852 1,698 (41)	(4,282 205 (142 (681 (436 5,979 432 (1,776 1,528 2,207 (102
	4,019

11. NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The net profit attributable to shareholders for the year ended 31 December 2004 dealt with in the financial statements of the Company was HK$5,541,000 (2003: net loss of HK$6,084,000 (note 34(b)).

12. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings/(loss) per share is based on the net profit attributable to shareholders for the year of HK$12,720,000 (2003: net loss of HK$27,818,000) and on the weighted average of 3,830,378,546 shares (2003: 3,305,994,984 shares) in issue during the year.

There was no dilutive effect on the basic earnings per share for the year ended 31 December 2004 as the exercise prices of the outstanding share options were higher than the average market price of the Company’s shares during the year.

Diluted loss per share for the year ended 31 December 2003 had not been disclosed as the share options outstanding during that year had an anti-dilutive effect on the basic loss per share for that year.

– 37 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

13. FIXED ASSETS

Group

Land and buildings Leasehold improvements HK$’000 HK$’000 29,328 4,061 – – 5,780 – – –	Land and buildings Leasehold improvements HK$’000 HK$’000 29,328 4,061 – – 5,780 – – –	Furniture, fixtures and equipment HK$’000 16,507 196 – (279)	Motor vehicles HK$’000 1,737 99 – (337)	Total HK$’000 51,633 295 5,780 (616
35,108 1,338 684 (1,873) – 149	4,061 3,195 257 – – 3,452	16,424 14,758 1,222 – (272) 15,708	1,499 1,404 139 – (305) 1,238	57,092
				20,695 2,302 (1,873 (577
				20,547
34,959 27,990	609 866	716 1,749	261 333	36,545

				30,938

The Group’s land and buildings are stated at valuation, while the other fixed assets are stated at cost. The valuation of the land and buildings included above are held under the following terms:

Medium term leases: At 2001 valuation, Hong Kong At 2004 valuation, Hong Kong At 2001 valuation, elsewhere At 2004 valuation, elsewhere At carrying amount, elsewhere	2004 HK$’000 – 24,280 – 10,000 828 35,108	2003 HK$’000 21,500 – 7,000 – 828
		29,328

The Group’s leasehold land and buildings, except for a property located outside Hong Kong with a net carrying value of HK$680,000 as at 31 December 2004, were revalued individually on 31 December 2004 by Knight Frank Hong Kong Limited, independent professionally qualified valuers, at an open market value of HK$34,280,000 based on their existing use. Revaluation surplus of HK$5,826,000 and HK$1,827,000, resulting from the above valuations, have been credited to the profit and loss account and the land and buildings revaluation reserve, respectively.

Had these land and buildings been carried at historical cost less accumulated depreciation, their carrying amounts would have been approximately HK$48,281,000 (2003: HK$49,339,000).

– 38 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The net carrying value of land and buildings pledged to secure banking facilities granted to the Group amounted to HK$24,280,000 (2003: HK$20,506,000) (see note 27).

Company Cost: At beginning of year Additions At 31 December 2004 Accumulated depreciation: At beginning of year Provided during the year At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Furniture, fixtures and equipment HK$’000 269 11
	280
	202 48
	250
	30

	67

14. GOODWILL

The amount of the goodwill capitalised as an asset in the consolidated balance sheet, arising from the acquisition of subsidiaries, is as follows:

Group

Cost: At beginning of year and at 31 December 2004 Accumulated amortisation: At beginning of year Provided during the year Provision for impairment At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Goodwill HK$’000 2,498
	739 125 1,634
	2,498
	–

	1,759

As detailed in note 3 to the financial statements, on the adoption of SSAP 30 in 2001, the Group applied the transitional provision of SSAP 30 that permitted goodwill in respect of acquisitions of subsidiaries which occurred prior to the adoption of the SSAP, to remain eliminated against consolidated reserves.

In the opinion of directors, the acquired subsidiaries are facing a difficult operating environment. In view of this, the Group made a full provision against the unamortised goodwill as at 31 December 2004.

– 39 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

15. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Provision for impairment	Company 2004 2003 HK$’000 HK$’000 185,600 185,600 786,495 819,917 (1,529) (5,568) 970,566 999,949 (870,580) (920,186) 99,986 79,763	Company 2004 2003 HK$’000 HK$’000 185,600 185,600 786,495 819,917 (1,529) (5,568) 970,566 999,949 (870,580) (920,186) 99,986 79,763
	970,566 (870,580)	999,949 (920,186
	99,986

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

Particulars of the principal subsidiaries at the balance sheet date are as follows:

	Place of	Nominal value	Percentage of	Percentage of
	incorporation	of issued/	equity interest
	or registration/	registered	attributable to
Name	and operation	capital	the Group		Principal activities
			Direct	Indirect
Best Treasure Limited	British Virgin	Ordinary US$1	–	100%	Investment holding
	Islands
Chinney Alliance	Hong Kong	Ordinary HK$2	–	100%	Treasury function
Corporate Treasury
Limited
Chinney Alliance	Hong Kong	Ordinary	–	100%	Distribution and
Engineering Limited		HK$10,000			installation of
					mechanical,
					electrical and
					building supplies
					products
Chinney Alliance Trading	British Virgin	Ordinary	100%	–	Investment holding
(BVI) Limited	Islands	HK$360,001
DMT-Jacobson Holdings	British Virgin	Ordinary	–	100%	Investment holding
Limited	Islands	US$2,000,000
DMT International Hong	Hong Kong	Ordinary	–	100%	Agency trading of
Kong Limited		HK$1,000			industrial
		Non-voting			materials
		deferred
		HK$5,156,700
Gina Enterprises Limited	Hong Kong	Ordinary HK$2	–	100%	Property holding

– 40 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

			Place of	Nominal value	Percentage of	Percentage of
			incorporation	of issued/	equity interest
			or registration/	registered	attributable to
Name			and operation	capital	the Group		Principal activities
					Direct	Indirect
Jackson	Mercantile		Hong Kong	Ordinary	–	100%	Investment holding
Trading		Company		HK$2,000			and wholesaling
Limited				Non-voting			of electrical
				deferred			appliances
				HK$5,000,000
Jacobson van den Berg			Hong Kong	Ordinary	–	100%	Trading of electrical
(China)		Limited*		HK$1,000,000			and mechanical
							products
Jacobson van den Berg			Hong Kong	Ordinary	–	100%	Investment holding
(Hong Kong) Limited				HK$1,000			and agency
				Non-voting			trading of
				deferred			industrial
				HK$35,486,600			products
Lei Kee	Development		Hong Kong	Ordinary HK$2	–	100%	Property holding
Company Limited
Tegan Holdings Limited			Hong Kong	Ordinary HK$2	–	100%	Property holding
Westco Chinney Limited*			Hong Kong	Ordinary	–	100%	Sales and
				HK$3,000,000			installation of
							air-conditioning
							system
Dongguan		Dharmala PVC	People’s	HK$8,000,000	–	70%	Manufacture of
Compounding Limited *#			Republic of				industrial
			China				products
			(“PRC”)

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

The subsidiary is a wholly-foreign owned enterprise with a duration of business of 12 years which commenced from 7 June 1995. This subsidiary is indirectly held by the Company through a 70% owned subsidiary.

In the prior year, the Group disposed its entire equity interest in China Parking (BVI) Limited, a wholly-owned subsidiary of the Group, to a wholly-owned subsidiary of Hon Kwok Land Investment Company Limited (“Hon Kwok”) for a consideration of HK$15,000,000. The details are set out in note 36 to the financial statements.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

– 41 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

16. INTERESTS IN ASSOCIATES

Group 2004 2003 HK$’000 HK$’000 – – 35,479 40,099 (7,200) (5,800)	Group 2004 2003 HK$’000 HK$’000 – – 35,479 40,099 (7,200) (5,800)	Company 2004 2003 HK$’000 HK$’000 87,723 87,723 – – (61,475) (57,525) 26,248 30,198 – – – – – – – – 26,248 30,198	Company 2004 2003 HK$’000 HK$’000 87,723 87,723 – – (61,475) (57,525) 26,248 30,198 – – – – – – – – 26,248 30,198
28,279 2,704 (406) (2,298) –	34,299 2,704 (406) (2,298) –	26,248 – – – –	30,198
			– – –
			–
28,279	34,299	26,248

The market value of the shares of a listed associate of the Group held at 31 December 2004 was HK$7,633,000 (2003: HK$11,936,000).

Particulars of the associates at the balance sheet date are as follows:

	Place of	Nominal value	Percentage of
	incorporation or	of issued/	equity interest
	registration/	registered	attributable to
Name	and operation	capital	the Group	Principal activities
Jiangxi Kaitong New	PRC	RMB50,000,000	24.9%	Manufacture of
Materials Company				stainless steel and
Limited*#				plastic compound
(“Jiangxi Kaitong”)				pipes
Shun Cheong	Bermuda/Hong	Ordinary	29.9%	Investment holding
Holdings Limited	Kong	HK$1,159,304		and provision of
(“Shun Cheong”)				multi-disciplinary
				building services

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

This associate is a Sino-foreign joint venture with a duration of business of 15 years which commenced from 11 October 2000.

The voting power held and the profit sharing arrangement in relation to the associates are both the same as the equity interest shown above.

The financial year end for Jiangxi Kaitong and Shun Cheong are 31 December and 31 March, respectively. The Group’s financial statements have taken into account the results of Shun Cheong between 1 October 2003 to 30 September 2004. There were no material transactions between the Group and Shun Cheong during the period from 1 October 2004 to 31 December 2004.

– 42 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Financial information as extracted from the most recent published financial statements of the Group’s major associate is set out below:

Shun Cheong Holdings Limited

Consolidated profit and loss account
	Six months ended
	30 September
	2004	2003
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Turnover	249,407	396,829

(Loss)/profit attributable to shareholders	(12,446)	2,558

Consolidated balance sheet
	As at	As at
	30 September	31 March
	2004	2004
	(Unaudited)	(Audited)
	HK$’000	HK$’000
Non-current assets	22,265	24,403
Current assets	314,118	297,310
Current liabilities	(220,541)	(195,442)
Non-current liabilities	(7,047)	(7,047)
Minority interests	(21,098)	(19,081)
Net assets	87,697	100,143

LONG TERM INVESTMENTS
	Group
	2004	2003
	HK$’000	HK$’000
Investment securities:
Unlisted equity investments, at cost	95,415	95,415
Convertible loan notes	89,148	89,148
Provision for impairment	(184,563)	(184,563)
	–	–

17. LONG TERM INVESTMENTS

At 31 December 2004, included in the unlisted equity investments was an interest in Dharmala Agrifood Asia Pte Limited (“DAAL”), a company incorporated in Singapore, stated at a carrying value of nil (2003: Nil) comprising the cost of the Group’s equity investment of HK$95,415,000 (2003: HK$95,415,000), representing a 19.73% interest in DAAL and an interest in convertible loan notes of HK$89,148,000 (2003: HK$89,148,000), net of a provision of HK$184,563,000 (2003: HK$184,563,000). In the opinion of the directors, the above provision is required to cover the impairment in DAAL, as the major subsidiaries of DAAL have either been declared bankrupt by their creditors or have financial difficulties in repaying outstanding bank loans.

– 43 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The convertible loan notes of DAAL are unsecured and carry interest at the rate of 5.5% per annum (2003: 5.5% per annum) with a right to be converted into ordinary shares of DAAL at a conversion price based on the net asset value per DAAL share according to the then latest annual audited consolidated financial statements of DAAL and its subsidiaries. Interest income on the convertible loan notes is only recognised by the Group when the receipt of such income is certain, and therefore no interest income has been recognised by the Group during the year (2003: Nil).

18. OTHER ASSETS

Club memberships Retention monies receivable over one year	Group 2004 2003 HK$’000 HK$’000 1,220 1,220 2,816 825 4,036 2,045	Company 2004 2003 HK$’000 HK$’000 1,220 1,220 – – 1,220 1,220	Company 2004 2003 HK$’000 HK$’000 1,220 1,220 – – 1,220 1,220
			1,220

19. PROPERTIES HELD FOR RESALE

At beginning of year Write-back of impairment Disposal during the year Disposal of subsidiaries (note 35) At 31 December	Group 2004 2003 HK$’000 HK$’000 3,036 32,500 – 1,286 – (2,212 – (28,538 3,036 3,036	Group 2004 2003 HK$’000 HK$’000 3,036 32,500 – 1,286 – (2,212 – (28,538 3,036 3,036
		3,036

Details of the completed properties of the Group held for resale as at 31 December 2004 are as follows:

	Interest in
	property
	attributable to
Description	the Group	Gross floor area	Existing use
Two villas in Shenzhen, the PRC	100%	443 square metres	Vacant

At 31 December 2004, the properties held for resale were stated at their net carrying value at the time when they were reclassified from fixed assets in the prior years. There was no security created over the properties.

20. INVENTORIES

Raw materials Finished goods	Group 2004 2003 HK$’000 HK$’000 99,845 76,932 18,518 29,380 118,363 106,312	Group 2004 2003 HK$’000 HK$’000 99,845 76,932 18,518 29,380 118,363 106,312
		106,312

At 31 December 2004, the amount of inventories carried at net realisable value was HK$2,245,000 (2003: HK$1,787,000).

– 44 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

21. CONSTRUCTION CONTRACTS

Gross amount due from contract customers Gross amount due to contract customers included in other payables and accruals (note 30) Contract costs incurred plus recognised profits less recognised losses to date Less: Progress billings	Group 2004 2003 HK$’000 HK$’000 5,134 5,081 (4,209) (1,572 925 3,509	Group 2004 2003 HK$’000 HK$’000 5,134 5,081 (4,209) (1,572 925 3,509
		3,509

	113,840 (112,915)	108,486 (104,977
	925	3,509

At 31 December 2004, retention monies held by customers for contract works included in other assets and trade and retention monies receivables amounted to approximately HK$2,816,000 (2003: HK$825,000) and HK$2,120,000 (2003: HK$4,428,000), respectively.

No advances were received from customers for contract works in both years.

22. TRADE AND RETENTION MONIES RECEIVABLES

Trade receivables Retention monies receivable within one year	Group 2004 2003 HK$’000 HK$’000 234,457 171,201 2,120 4,428 236,577 175,629	Group 2004 2003 HK$’000 HK$’000 234,457 171,201 2,120 4,428 236,577 175,629
		175,629

The Group grants a credit period to its customers ranging from cash on delivery to 60 days. A longer credit period may be allowed to customers with a good business relationship. An aged analysis of the trade receivables as at the balance sheet date, based on payment due date, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days Provision	Group 2004 2003 HK$’000 HK$’000 169,093 131,526 31,161 20,587 16,549 10,122 29,827 22,028	Group 2004 2003 HK$’000 HK$’000 169,093 131,526 31,161 20,587 16,549 10,122 29,827 22,028
	246,630 (12,173)	184,263 (13,062
	234,457	171,201

– 45 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

23. BALANCES WITH RELATED COMPANIES

The balances with related companies are unsecured, interest-free, and have no fixed terms of repayment.

24. SHORT TERM INVESTMENTS

Other investments: Listed equity investments in Hong Kong, at market value Unlisted equity investments, at fair value	Group and 2004 HK$’000 11,986 – 11,986	Company 2003 HK$’000 12,622 716
		13,338

25. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits Cash and cash equivalents	Group 2004 2003 HK$’000 HK$’000 33,486 16,427 29,292 25,293 62,778 41,720	Company 2004 2003 HK$’000 HK$’000 637 964 8,005 400 8,642 1,364	Company 2004 2003 HK$’000 HK$’000 637 964 8,005 400 8,642 1,364
			1,364

26. TRADE AND BILLS PAYABLES

Trade payables Bills payable	Group 2004 2003 HK$’000 HK$’000 57,077 54,202 24,345 34,214 81,422 88,416	Group 2004 2003 HK$’000 HK$’000 57,077 54,202 24,345 34,214 81,422 88,416
		88,416

An aged analysis of the trade payables as at the balance sheet date, based on invoice date, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	Group 2004 2003 HK$’000 HK$’000 52,183 44,607 1,408 2,920 384 3,576 3,102 3,099 57,077 54,202	Group 2004 2003 HK$’000 HK$’000 52,183 44,607 1,408 2,920 384 3,576 3,102 3,099 57,077 54,202
		54,202

– 46 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

27. BANKING FACILITIES

At 31 December 2004, the Company and the Group had certain banking facilities which were secured by certain leasehold land and buildings with an aggregate carrying value of HK$24,280,000 (2003: HK$20,506,000) (note 13).

28. INTEREST-BEARING BANK LOANS AND OVERDRAFTS

Bank overdrafts, unsecured Loans from banks, secured	Group 2004 2003 HK$’000 HK$’000 34,960 34,692 8,750 5,487 43,710 40,179	Company 2004 2003 HK$’000 HK$’000 – – 8,750 4,500 8,750 4,500	Company 2004 2003 HK$’000 HK$’000 – – 8,750 4,500 8,750 4,500
			4,500

The maturity of the above bank loans and overdrafts is as follows:

Group 2004 2003 HK$’000 HK$’000 34,960 34,692	Group 2004 2003 HK$’000 HK$’000 34,960 34,692	Company 2004 2003 HK$’000 HK$’000 – –	Company 2004 2003 HK$’000 HK$’000 – –
5,000 3,750 8,750 (39,960)	5,487 – 5,487 (40,179)	5,000 3,750 8,750 (5,000)	4,500 –
			4,500 (4,500
3,750	–	3,750	–

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. PROVISIONS

Group

Corporate 2004 HK$’000 – – – – –	guarantee 2003 HK$’000 16,000 – – – (16,000)	Long service payment 2004 2003 HK$’000 HK$’000 1,650 1,797 – (173) 27 165 (301) (139) – –	Long service payment 2004 2003 HK$’000 HK$’000 1,650 1,797 – (173) 27 165 (301) (139) – –	Total 2004 2003 HK$’000 HK$’000 1,650 17,797 – (173 27 165 (301) (139 – (16,000	Total 2004 2003 HK$’000 HK$’000 1,650 17,797 – (173 27 165 (301) (139 – (16,000	Total 2004 2003 HK$’000 HK$’000 1,650 17,797 – (173 27 165 (301) (139 – (16,000
– –	– –	1,376 –	1,650 –	1,376 –		1,650 –
–	–	1,376	1,650	1,376 1,650 Corporate guarantee 2004 2003 HK$’000 HK$’000 – 16,000 – (16,000 – –		1,650


					–

30. OTHER PAYABLES AND ACCRUALS

Gross amount due to contract customers (note 21) Other payables and accruals	Group 2004 2003 HK$’000 HK$’000 4,209 1,572 37,677 31,148 41,886 32,720	Company 2004 2003 HK$’000 HK$’000 – – 3,077 3,211 3,077 3,211	Company 2004 2003 HK$’000 HK$’000 – – 3,077 3,211 3,077 3,211
			3,211

– 48 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

31. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year were as follows:

Deferred tax liabilities

Group

At beginning of year
Deferred tax
charged/(credited) to
the profit and loss
account during the
year (note 10)
Gross deferred tax
liabilities
At 31 December
Deferred tax assets
Group
At beginning of year
Deferred tax
(charged)/credited to
the profit and loss
account during the
year (note 10)
Gross deferred tax
assets
At 31 December
Net deferred tax assets
At 31 December

Fair value
adjustments arising
from acquisition
of a subsidiary
Others
Total
2004
2003
2004
2003
2004
2003
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
1,084
1,014
87
87
1,171
1,101
(25)
70
(87)
–
(112)
70
1,059
1,084
–
87
1,059
1,171
Decelerated tax
depreciation
Provision for
bad debts and
inventories
Losses available
for offset against
future taxable
profit
Total
2004
2003
2004
2003
2004
2003
2004
2003
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
823
775
674
476
–
259
1,497
1,510
(44)
48
(49)
198
–
(259)
(93)
(13)
779
823
625
674
–
–
1,404
1,497
345
326

The Group has tax losses arising in Hong Kong of approximately HK$193,000,000 (2003: HK$184,000,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

32. SHARE CAPITAL

Authorised: 25,000,000,000 (2003: 25,000,000,000) ordinary shares of HK$0.01 each Issued and fully paid: 3,965,994,984 (2003: 3,305,994,984) ordinary shares of HK$0.01 each At 1 January 2003 and at 31 December 2003 At 1 January 2004 Shares issued At 31 December 2004	Company 2004 2003 HK$’000 HK$’000 250,000 250,000 39,660 33,060 Number of shares HK$’000 3,305,994,984 33,060 3,305,994,984 33,060 660,000,000 6,600 3,965,994,984 39,660	Company 2004 2003 HK$’000 HK$’000 250,000 250,000 39,660 33,060 Number of shares HK$’000 3,305,994,984 33,060 3,305,994,984 33,060 660,000,000 6,600 3,965,994,984 39,660

		33,060

		HK$’000 33,060

		33,060 6,600
		39,660

Pursuant to a placing agreement dated 3 March 2004, arrangements were made for a private placement to independent third parties of 468,000,000 existing shares of HK$0.01 each of the Company held by Multi-Investment Group Limited (“MIG”), a substantial shareholder of the Company, at a placing price of HK$0.02 per share. Concurrently, pursuant to a subscription agreement dated 3 March 2004, MIG subscribed to and was allotted 660,000,000 new shares of HK$0.01 each of the Company at an issue price of HK$0.02 per share, of which HK$0.01 per share was credited to issued share capital and the balance of HK$0.01 per share was credited to the share premium account. The proceeds from the issue of new shares of approximately HK$13 million have been applied for general working capital of the Group.

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 33 to the financial statements.

33. SHARE OPTION SCHEME

On 24 September 1993, an Executive Share Option Scheme (the “Scheme”) was approved by the shareholders of the Company (as amended by the shareholders of the Company on 28 June 2001), under which the directors of the Company may, at their discretion, offer any employee (including any director) of the Company or of any of its subsidiaries options to subscribe for shares of the Company subject to the terms and conditions stipulated in the Scheme. The summary terms and particulars of outstanding options under the Scheme are disclosed below pursuant to the requirements as contained in Chapter 17 of the Listing Rules.

Summary of the Scheme

(a) Purposes of the Scheme

The purposes of the Scheme are to attract and retain high calibre employees, and to motivate them to a higher level of performance.

(b) Participants of the Scheme

The Board may, at its discretion, grant to any employee (including any director) of the Company or of any of its subsidiaries, options to subscribe for the Company’s shares.

– 50 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(c) Maximum number of shares available for issue under the Scheme

The maximum number of the shares in respect of which options may be granted under the Scheme is such number of shares, which when aggregated with shares already subject to any other share option schemes of the Company, represents 10% of the issued share capital of the Company from time to time (excluding for this purpose any shares issued pursuant to the Scheme). The Scheme expired on 23 September 2003 and, as a result, there are no further shares available for issue under the Scheme as at the date of this annual report.

(d) Maximum entitlement to any participant

Under the Scheme, no options may be granted to any employee which if exercised in full would result in the total number of the Company’s shares already issued and issuable to the employee under all the options granted to the employee exceeding 25% of the aggregate number of shares of the Company for the time being issued and issuable under the Scheme.

(e) Period and payment on acceptance of options

Under the Scheme, the offer of an option to acquire shares must be accepted in writing in such manner as the Board may prescribe within 14 days from the date of offer and upon payment of a nominal consideration of HK$1 in total by the participant to the Company, whereby such consideration is not refundable.

(f) Period within which the shares must be taken up under an option

For those options granted on or before 28 June 2001, the exercise period of the options is 10 years from the date of grant. The number of options that can be exercised is restricted to a maximum of 20% of the shares comprised in the option in the first year from the date of grant and the threshold is increased progressively by 20% each year until it reaches 100% in the fifth year from the date of grant.

For those options granted after 28 June 2001, an option may be exercised in whole or in part at any time during an exercise period ranging from two to five years from the date of grant as specified by the Board in each grant.

(g) Basis of determining the exercise price

The exercise price of the options is determined by the Board and will not be less than the higher of (i) the nominal value of the Company’s shares; and (ii) an amount not less than 80% of the average closing price of the Company’s shares on The Stock Exchange of Hong Kong Limited for the five business days immediately preceding the date of the offer.

(h) Expiration of the Scheme

The Scheme expired on 23 September 2003.

– 51 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Particulars of outstanding options

Details of the share options outstanding as at 31 December 2004 which were granted to directors and employees under the Scheme are as follows:

Number of share options held at 1 January 2004 1,000,000 500,000 500,000 250,000 12,000,000	Number of share options lapsed during the year Number of share options held at 31 December 2004 Exercise price per share Date of grant Exercisable from Exercisable until HK$ (1,000,000)# – 0.78 1 June 1994 1 June 1994 31 May 2004 – 500,000 0.78 22 December 1995 22 December 1995 21 December 2005 (500,000)# – 0.78 7 June 1997 1 June 1994 31 May 2004 – 250,000 0.78 7 June 1997 22 December 1995 21 December 2005 – 12,000,000 0.07 16 July 1999 16 July 1999 15 July 2009 (1,500,000) 12,750,000 (800,000)# – 0.78 9 June 1994 9 June 1994 8 June 2004 (400,000)# – 0.78 7 June 1997 9 June 1994 8 June 2004 – 8,000,000 0.07 13 July 1999 13 July 1999 12 July 2009 (1,200,000) 8,000,000 – 4,000,000 0.07 12 July 1999 12 July 1999 11 July 2009 – 8,000,000 0.07 13 July 1999 13 July 1999 12 July 2009 (800,000) – 0.78 2 June 1994 2 June 1994 1 June 2004 (800,000) – 0.78 8 January 1996 8 January 1996 7 January 2006 (400,000) – 0.78 7 June 1997 2 June 1994 1 June 2004 (400,000) – 0.78 7 June 1997 8 January 1996 7 January 2006 (8,000,000)* – 0.07 21 July 1999 21 July 1999 20 July 2009 (10,400,000) – (13,100,000) 32,750,000 (225,000)# – 0.78 4 June 1994 4 June 1994 3 June 2004 (555,000)# – 0.78 10 June 1994 10 June 1994 9 June 2004 – 225,000 0.78 2 January 1996 2 January 1996 1 January 2006 – 4,000,000 0.07 16 July 1999 16 July 1999 15 July 2009 – 4,000,000 0.07 19 July 1999 19 July 1999 18 July 2009 (780,000) 8,225,000 (13,880,000) 40,975,000	Number of share options lapsed during the year Number of share options held at 31 December 2004 Exercise price per share Date of grant Exercisable from Exercisable until HK$ (1,000,000)# – 0.78 1 June 1994 1 June 1994 31 May 2004 – 500,000 0.78 22 December 1995 22 December 1995 21 December 2005 (500,000)# – 0.78 7 June 1997 1 June 1994 31 May 2004 – 250,000 0.78 7 June 1997 22 December 1995 21 December 2005 – 12,000,000 0.07 16 July 1999 16 July 1999 15 July 2009 (1,500,000) 12,750,000 (800,000)# – 0.78 9 June 1994 9 June 1994 8 June 2004 (400,000)# – 0.78 7 June 1997 9 June 1994 8 June 2004 – 8,000,000 0.07 13 July 1999 13 July 1999 12 July 2009 (1,200,000) 8,000,000 – 4,000,000 0.07 12 July 1999 12 July 1999 11 July 2009 – 8,000,000 0.07 13 July 1999 13 July 1999 12 July 2009 (800,000) – 0.78 2 June 1994 2 June 1994 1 June 2004 (800,000) – 0.78 8 January 1996 8 January 1996 7 January 2006 (400,000) – 0.78 7 June 1997 2 June 1994 1 June 2004 (400,000) – 0.78 7 June 1997 8 January 1996 7 January 2006 (8,000,000)* – 0.07 21 July 1999 21 July 1999 20 July 2009 (10,400,000) – (13,100,000) 32,750,000 (225,000)# – 0.78 4 June 1994 4 June 1994 3 June 2004 (555,000)# – 0.78 10 June 1994 10 June 1994 9 June 2004 – 225,000 0.78 2 January 1996 2 January 1996 1 January 2006 – 4,000,000 0.07 16 July 1999 16 July 1999 15 July 2009 – 4,000,000 0.07 19 July 1999 19 July 1999 18 July 2009 (780,000) 8,225,000 (13,880,000) 40,975,000
14,250,000 800,000 400,000 8,000,000 9,200,000 4,000,000 8,000,000 800,000 800,000 400,000 400,000 8,000,000 10,400,000	(1,500,000) 12,750,000 (800,000)# – (400,000)# – – 8,000,000 (1,200,000) 8,000,000 – 4,000,000 – 8,000,000 (800,000) – (800,000) – (400,000) – (400,000) – (8,000,000)* – (10,400,000) –	12,750,000
		–
45,850,000	(13,100,000)
225,000 555,000 225,000 4,000,000 4,000,000	(225,000)# – (555,000)# – – 225,000 – 4,000,000 – 4,000,000
9,005,000 54,855,000	(780,000) (13,880,000)

These options lapsed upon expiry of the 10-year exercise period.
All options granted to Mr. Kenneth Kin-Hing Lam lapsed upon his resignation as a non-executive director of the Company on 26 March 2004.

The exercise in full of the outstanding share options would result in the issue of 40,975,000 additional ordinary shares for an aggregate amount of approximately HK$3.6 million.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

34. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and the prior years are presented in the consolidated statement of changes in equity on page 21 of these financial statements.

Cost: At beginning of year and as at 31 December 2004 Accumulated impairment: At beginning of year and as at 31 December 2004 Net amount: At 31 December 2004 At 31 December 2003	Goodwill eliminated against capital reserve HK$’000 28,842
	28,842
	–

	–

Goodwill eliminated against capital reserve, arising from the acquisition of a subsidiary and an associate prior to the adoption of SSAP 30 in 2001, was considered impaired and charged to the profit and loss account in prior years.

(b) Company

At 1 January 2003 Net loss for the year At 31 December 2003 and 1 January 2004 Issue of shares (note 32) Share issue expenses Net profit for the year At 31 December 2004	Share premium account HK$’000 562,724 –	Capital reserve Accumulated losses HK$’000 HK$’000 236,500 (707,792) – (6,084)	Capital reserve Accumulated losses HK$’000 HK$’000 236,500 (707,792) – (6,084)	Total HK$’000 91,432 (6,084
	562,724 6,600 (338) –	236,500 – – –	(713,876) – – 5,541	85,348 6,600 (338 5,541
	568,986	236,500	(708,335)	97,151

– 53 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

35. NOTE TO THE CONSOLIDATED CASH FLOW STATEMENT

Disposal of subsidiaries

Net assets disposed of: Fixed assets Properties held for resale Deposits, prepayments and other receivables Amounts due from related companies Cash and cash equivalents Other payables and accruals Provision for corporate guarantee Gain on disposal of subsidiaries (note 6) Satisfied by: Cash received	2004 HK$’000 – – 8 – 4 – –	2003 HK$’000 11 28,538 79 128 23 (25) (16,000) 12,754 2,246 15,000 15,000
	12 –	12,754 2,246
	12 12

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of the subsidiaries is as follows:

Cash consideration received Cash and cash equivalents disposed of Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries	2004 HK$’000 12 (4) 8	2003 HK$’000 15,000 (23) 14,977

The result of the subsidiary disposed of in the year ended 31 December 2004 had no significant impact on the Group’s consolidated turnover or profit after tax for the year.

36. RELATED PARTY TRANSACTIONS

Set out below are the significant transactions between the Group and related parties during the year:

			Group
		2004	2003
	Notes	HK$’000	HK$’000
Management fees paid to a major shareholder	(i)	2,000	2,000
Rental and office expenses paid to a related company	(ii)	496	576
Sales of goods to an associate	(iii)	(2,881)	(5,524)
Rental income received from a related company	(iv)	(541)	(320)

Notes:

(i) The management fees are charged by Chinney Investments, Limited (“CIL”) based on the time involvement of the personnel providing services. Mr. James Sai-Wing Wong, a director of the Company, is also a director of and has beneficial interests in CIL. Mr. Herman Man-Hei Fung is a common director of the Company and CIL.

– 54 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) The rental and office expenses were charged by Hon Kwok on an actual basis. Mr. James Sai-Wing Wong is a director of and has beneficial interests in Hon Kwok. Mr. Herman Man-Hei Fung is a common director of the Company and Hon Kwok.
(iii) The sales of products to subsidiaries of Shun Cheong, an associate of the Group, were made according to the published prices and conditions offered to third-party customers. Mr. Stephen Sek-Kee Yu is a common director of the Company and Shun Cheong. Mr. James Sai-Wing Wong was a director of Shun Cheong until 16 September 2004.
(iv) The rental income arose from leasing certain space of an office premises of the Group to DrilTech Ground Engineering Limited, a subsidiary of CIL, and was charged in accordance with the amount agreed by both parties.

In addition to the above, on 26 August 2003, the Group reached an agreement with Careful Action Limited (“CAL”), a wholly-owned subsidiary of Hon Kwok, which is a subsidiary of the Company’s major shareholder, to dispose its carpark assets and a villa in Shenzhen, the PRC, for a cash consideration of HK$15,000,000 (the “Agreement”). The carpark assets under disposal included the 115 parking bays at Lido Garden, Sham Tseng, New Territories, Hong Kong, the 26 parking bays at Shining Court, Shun Ning Road, Kowloon, Hong Kong, and a 40% interest in the 369 parking bays at Provident Centre, North Point, Hong Kong. The disposal was effected by the sale of the entire issued share capital of China Parking (BVI) Limited (“CPB”), a wholly-owned subsidiary of the Group, and assignment of related shareholders’ loans, taking reference to the fair value of the property assets as independently assessed by an independent property valuer.

The disposal constituted a connected transaction for the Company under the Listing Rules. The disposal was approved by the independent shareholders of the Company on 6 October 2003 and completed on 22 October 2003.

37. OPERATING LEASE ARRANGEMENTS

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to twelve years.

At 31 December 2004, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive Beyond five years	Group 2004 2003 HK$’000 HK$’000 3,803 3,417 3,584 4,568 – 52 7,387 8,037	Group 2004 2003 HK$’000 HK$’000 3,803 3,417 3,584 4,568 – 52 7,387 8,037
		8,037

The Company had no operating lease commitments at the balance sheet date (2003: Nil).

38. CONTINGENT LIABILITIES

At the balance sheet date, contingent liabilities not provided for in the financial statement were as follows:

	Group		Company
	2004	2003	2004	2003
	HK$’000	HK$’000	HK$’000	HK$’000
Guarantees given to banks in connection
with facilities granted to subsidiaries	–	–	433,334	400,000

As at 31 December 2004, the total facilities utilised by the subsidiaries amounted to HK$312,939,000 (2003: HK$265,533,000).

– 55 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In addition to the above, pursuant to the Agreement as set out in note 36 to the financial statements, the Company undertakes to pay HK$3,100,000 plus accrued interest to CAL and CAL undertakes to transfer the entire issued share capital of China Parking Limited (a wholly-owned subsidiary of CPB) together with the assignment of related shareholders’ loans to the Company should China Parking Limited fail to obtain the relevant real estate ownership certificate under its name in relation to the villa in Shenzhen, the PRC, latest by 22 October 2005, being the date which is two years from the completion of the Agreement.

39. COMMITMENTS

In addition to the operating lease commitments detailed in note 37 above, at the balance sheet date, the Group had commitments under forward foreign exchange contracts amounting to HK$5,379,000 (2003: HK$10,966,000).

The Group and the Company had no other significant commitment at the balance sheet date.

40. POST BALANCE SHEET EVENT

As announced on 13 April 2005, the Board proposed to seek approval from the shareholders to effect a capital reorganisation of the Company pursuant to the Companies Act 1981 of Bermuda (the “Capital Reorganisation”). The Capital Reorganisation involves:

(a) the cancellation of the entire amount of HK$236,500,000 standing to the credit of the capital reserve account of the Company as at 31 December 2004 and the application of the credit arising therefrom towards partial elimination of the accumulated losses of the Company of HK$708,335,000 as at 31 December 2004;
(b) the cancellation of the entire amount of HK$568,986,000 standing to the credit of the share premium account of the Company as at 31 December 2004 and the application of the credit arising therefrom:
(i) to eliminate the balance of HK$471,835,000 of the accumulated losses of the Company as at 31 December 2004; and
(ii) to apply the remaining credit of HK$97,151,000 arising therefrom to the Company’s contributed surplus account; and
(c) the consolidation of every twenty-five existing shares (issued and unissued) into one new share (the “Share Consolidation”).

The directors are in the opinion that the Capital Reorganisation is in the interests of the Company and the shareholders as a whole because, upon completion of the Capital Reorganisation, the Company will be in a better position to declare and pay dividends and the Share Consolidation is intended to reduce the transaction cost per dollar value of each new share.

41. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board on 13 April 2005.

– 56 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

3. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2005

The following is the reproduction of the text of the unaudited consolidated financial statements of the Group contained on pages 8 to 23 of the interim report of the Company for the six months ended 30 June 2005:

Condensed Consolidated Profit and Loss Account

Notes CONTINUING OPERATIONS TURNOVER 2 Cost of sales/services Gross profit Other income and gains 3 Selling and distribution costs Administrative expenses Other operating income/(expenses), net Finance costs 4 Share of losses of associates Profit before tax 5 Tax 6 Profit from continuing operations DISCONTINUED OPERATION Loss from discontinued operation 7 PROFIT FOR THE PERIOD ATTRIBUTABLE TO: Equity holders of the parent Minority interests EARNINGS PER SHARE – Basic 8 From continuing and discontinued operations From continuing operations	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 534,525 496,007 (484,760) (444,689) 49,765 51,318 2,727 2,232 (9,626) (9,730) (31,270) (32,326) 3,586 (1,300) (4,489) (2,533) (6,608) (416) 4,085 7,245 (2,792) (1,420) 1,293 5,825 (968) (88) 325 5,737 526 5,174 (201) 563 325 5,737 0.33 cent 3.50 cents 0.94 cent 3.56 cents	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 534,525 496,007 (484,760) (444,689) 49,765 51,318 2,727 2,232 (9,626) (9,730) (31,270) (32,326) 3,586 (1,300) (4,489) (2,533) (6,608) (416) 4,085 7,245 (2,792) (1,420) 1,293 5,825 (968) (88) 325 5,737 526 5,174 (201) 563 325 5,737 0.33 cent 3.50 cents 0.94 cent 3.56 cents
	49,765 2,727 (9,626) (31,270) 3,586 (4,489) (6,608) 4,085 (2,792) 1,293 (968)	51,318 2,232 (9,730 (32,326 (1,300 (2,533 (416
		7,245 (1,420
		5,825 (88
	325
	526 (201)	5,174 563
	325 0.33 cent 0.94 cent

– 57 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Condensed Consolidated Balance Sheet

Notes NON-CURRENT ASSETS Fixed assets Interests in associates Deferred tax assets Other assets CURRENT ASSETS Properties held for resale Inventories Gross amount due from contract customers Trade and retention monies receivables 9 Amounts due from related companies Financial assets at fair value through profit or loss Deposits, prepayments and other receivables Cash and cash equivalents CURRENT LIABILITIES Trade and bills payables 10 Trust receipt loans Amounts due to related companies Other payables and accruals Tax payable Interest-bearing bank loans and overdrafts NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans Provisions Deferred tax liabilities	As at 30 June 2005 (Unaudited) HK$’000 35,589 21,671 766 4,618	As at 31 December 2004 (Audited and restated) HK$’000 36,545 28,279 1,404 4,036
	62,644 3,036 103,450 3,610 258,492 1,784 9,776 10,330 66,624 457,102 67,443 216,818 353 32,745 7,007 38,837 363,203 93,899 156,543 – 1,248 1,047 2,295	70,264
		3,036 118,363 5,134 236,577 3,244 11,986 7,784 62,778
		448,902
		81,422 189,584 315 41,886 5,541 39,960
		358,708
		90,194
		160,458
		3,750 1,376 1,059
		6,185
	154,248	154,273

– 58 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes CAPITAL AND RESERVES Equity attributable to equity holders of the parent Issued capital 11 Reserves 12 Minority interests 13	As at 30 June 2005 (Unaudited) HK$’000 39,660 113,062 152,722 1,526 154,248	As at 31 December 2004 (Audited and restated) HK$’000 39,660 112,701
		152,361 1,912
		154,273

– 59 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Condensed Consolidated Statement of Changes in Equity

Notes Total equity at 1 January: As previously reported as equity As previously reported separately as minority interests Changes in equity during the period Exchange differences on translating foreign operations 12 Net (expenses)/income recognised directly in equity Profit for the period Total recognised income and expenses for the period Issue of new shares, net of expenses Loan repayment to minority interests 13 Total equity at 30 June Total recognised income and expenses for the period attributable to: Equity holders of the parent Minority interests	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 152,361 124,934 1,912 1,692	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 152,361 124,934 1,912 1,692
	154,273 (165) (165) 325 160 – (185)	126,626 16
		16 5,737
		5,753 12,862 –
	154,248	145,241

	361 (201)	5,190 563
	160	5,753

– 60 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Condensed Consolidated Cash Flow Statement

Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Bank overdrafts	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 (18,314) (27,827) (32) (244) 24,549 31,819 6,203 3,748 27,818 7,028 16 (8) 34,037 10,768 66,624 44,334 (32,587) (33,566) 34,037 10,768	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 (18,314) (27,827) (32) (244) 24,549 31,819 6,203 3,748 27,818 7,028 16 (8) 34,037 10,768 66,624 44,334 (32,587) (33,566) 34,037 10,768
	6,203 27,818 16	3,748 7,028 (8
	34,037
	66,624 (32,587)	44,334 (33,566
	34,037

– 61 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes to the Interim Financial Statements

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The unaudited condensed consolidated interim financial statements are prepared in accordance with the requirements of the Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting”. The accounting policies and basis of preparation adopted in the preparation of the interim financial statements are the same as those used in the annual financial statements for the year ended 31 December 2004, except in relation to the following new and revised Hong Kong Financial Reporting Standards (“HKFRSs”, which also include HKASs and Interpretations) that affect the Group and are adopted for the first time for the current period’s financial statements:

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HKFRS 5	Non-current Assets Held for Sale and Discontinued Operations

The adoption of the HKAS 1, 2, 7, 8, 10, 12, 16, 17, 18, 19, 21, 23, 24, 27, 28, 33, 37 and HKFRS 5 did not result in substantial changes to the Group’s accounting policies. In summary:

HKAS 1 has affected the presentation of minority interests, share of net after-tax results of associates and other disclosures.
HKAS 2, 7, 8, 10, 12, 16, 17, 18, 19, 21, 23, 27, 28, 33 and 37 had no material effect on the Group’s policies.
HKAS 24 has affected the identification of related parties and some other related-party disclosures.
HKFRS 5 has affected the presentation and disclosure of the discontinued operation.

The impact of adopting the other HKFRSs is summarised as follows:

(a) HKAS 32 and HKAS 39 – Financial Instruments

In the current period, the Group has applied HKAS 32 Financial Instruments: Disclosure and Presentation and HKAS 39 Financial Instruments: Recognition and Measurement. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit to recognise, derecognise or measure financial assets and liabilities on a retrospective basis.

Trade receivables

In accordance with HKAS 39, impairment assessments should be performed at each balance sheet date to determine whether there is any objective evidence that a financial asset is impaired. Where

– 62 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

objective evidence of impairment exists, the amount of the loss is measured at the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The amount of loss is recognised in the profit and loss account.

In view of the absence of objective evidence for certain of the Group’s trade receivables in which general provision have been provided for in previous years, a write-back of the provision for bad and doubtful debts of HK$4,355,000 was made in the current period. As a consequence, deferred tax assets which arose partly as a result of the general provision for bad and doubtful debts was reduced by HK$626,000 in the current period.

In accordance with the transitional provisions of HKAS 39, comparative amounts have not been restated.

Financial assets at fair value through profit or loss

In prior period, the Group classified its investment in equity securities as short term investments which were held for trading purposes and were stated at fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis.

Upon the adoption of HKASs 32 and 39, these securities are reclassified as financial assets at fair value through profit or loss and measured at the same basis as before.

The change has resulted in reclassification of the Group’s investment in equity securities and has no impact on the Group’s results and equity.

(b) HKFRS 2 – Share-based Payment

The adoption of HKFRS 2 has resulted in a change in accounting policy for employee share options and other share-based payments. Prior to this, the provision of share options and share-based payments to directors and employees did not result in a charge to profit and loss account. Following the adoption of HKFRS 2, the fair value of share options at grant day are amortised over the vesting periods to the profit and loss account.

HKFRS 2 has no impact on the Group’s results and equity as no retrospective adjustment is required to be made for options granted before 7 November 2002.

(c) HKFRS 3 – Business Combinations and HKAS 36 – Impairment of Assets

In prior periods, goodwill arising on acquisitions prior to 1 January 2001 was eliminated against consolidated reserves in the year of acquisition and was not recognised in the profit and loss account until disposal or impairment of the acquired business. Goodwill arising on acquisitions on or after 1 January 2001 was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment.

Upon the adoption of HKFRS 3 and HKAS 36, goodwill arising on acquisitions is no longer amortised but subject to impairment review at least annually. Any impairment loss recognised for goodwill is not reversed in a subsequent period.

The transitional provisions of HKFRS 3 have required the Group to eliminate at 1 January 2005 the carrying amounts of accumulated amortisation with a corresponding entry to the cost of goodwill. Goodwill previously eliminated against consolidated reserves remains eliminated against consolidated reserves and is not recognised in the profit and loss account when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired.

The adoption of HKFRS 3 and HKAS 36 has no impact on the Group’s results and equity, as the Group has no remaining goodwill as at 31 December 2004.

– 63 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

2. SEGMENT INFORMATION

The Group is principally engaged in the trading of plastics and chemicals, distribution and installation of building supplies, electrical and mechanical products and air-conditioning engineering works. The wholesaling of electrical appliances was discontinued in June 2005. An analysis of the Group’s revenue and results by business segments and revenue by geographical segments is as follows:

(a) Business segments

CONTINUING OPERATIONS Segment revenue: Sales to external customers Other income Segment results Interest income and unallocated gains Unallocated expenses Unrealised losses on financial assets at fair value through profit or loss Finance costs Share of losses of associates Profit before tax Tax Profit from continuing operations DISCONTINUED OPERATION Loss from discontinued operation Profit for the period	Plastic and chemical products Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 466,338 384,608 971 655 467,309 385,263 21,699 15,455	Building supplies, electrical and mechanical products Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 30,225 81,161 322 1,113 30,547 82,274 (2,906) 383	Air-conditioning business Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 37,962 30,238 45 46 38,007 30,284 1,911 284	Air-conditioning business Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 37,962 30,238 45 46 38,007 30,284 1,911 284	Group Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 534,525 496,007 1,338 1,814 535,863 497,821 20,704 16,122	Group Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 534,525 496,007 1,338 1,814 535,863 497,821 20,704 16,122
						497,821

						16,122
					1,389 (4,701) (2,210) (4,489) (6,608) 4,085 (2,792) 1,293 (968)	418 (4,495 (1,851 (2,533 (416
						7,245 (1,420
						5,825 (88
					325	5,737

There were no significant sales between the business segments during the period.

– 64 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) Geographical segments

				Elsewhere	Elsewhere
	Hong	Kong		in the PRC				Group
	Six months ended			Six months ended				Six months ended
	30 June			30 June				30	June
	2005		2004	2005		2004		2005		2004
		(Unaudited							(Unaudited
			and							and
	(Unaudited)	restated)		(Unaudited) (Unaudited)				(Unaudited)	restated)
	HK$’000	HK$’000		HK$’000	HK$’000			HK$’000	HK$’000
Segment revenue:
Sales to external
customers	506,014		460,800	28,511	35,207			534,525		496,007
Other income	1,338		1,812	–			2	1,338		1,814
	507,352		462,612	28,511	35,209			535,863		497,821

There were no significant sales between the geographical segments during the period.

3. OTHER INCOME AND GAINS

Interest income Commission income Others FINANCE COSTS Interest on bank loans and overdrafts wholly repayable within five years	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 418 40 1,338 1,814 971 378 2,727 2,232 Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 4,489 2,533

4. FINANCE COSTS

No interest was capitalised by the Group in both periods.

– 65 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

5. PROFIT BEFORE TAX

Profit before tax from continuing operations was determined after charging/(crediting) the following:

	Six months ended 30 June	Six months ended 30 June
	2005	2004
		(Unaudited
		and
	(Unaudited)	restated)
	HK$’000	HK$’000
Depreciation	869	1,038
Amortisation of goodwill	–	125
Unrealised losses on financial assets at fair value through profit or loss	2,210	1,851
Staff costs (including directors’ emoluments)	20,933	21,498
Write-back of provision for bad and doubtful debts	(4,355)	–

6. TAX

Group: Current – Hong Kong Current – Elsewhere Deferred	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 1,933 1,338 233 32 626 50 2,792 1,420	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited and restated) HK$’000 HK$’000 1,933 1,338 233 32 626 50 2,792 1,420
		1,420

Hong Kong profits tax has been provided at the rate of 17.5% (2004:17.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Share of tax credit attributable to an associate amounting to HK$147,000 (2004: share of tax charge of HK$710,000) is included in “Share of losses of associates” on the face of the condensed consolidated profit and loss account.

– 66 –

8. EARNINGS PER SHARE

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

7. DISCONTINUED OPERATION

The Group discontinued the wholesaling of electrical appliance business in June 2005.

The turnover, other income and gains, expenses, loss for the period attributable to the discontinued operation are as follows:

Turnover Cost of sales/services Gross profit Other income and gains Selling and distribution costs Administrative expenses Other operating expenses Finance costs Loss before tax Tax credit Loss for the period	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 12,642 14,013 (9,360) (9,895) 3,282 4,118 270 329 (1,204) (1,021) (3,112) (3,220) – (106) (204) (275) (968) (175) – 87 (968) (88)	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 12,642 14,013 (9,360) (9,895) 3,282 4,118 270 329 (1,204) (1,021) (3,112) (3,220) – (106) (204) (275) (968) (175) – 87 (968) (88)
	3,282 270 (1,204) (3,112) – (204) (968) –	4,118 329 (1,021 (3,220 (106 (275
		(175 87
	(968)

The net cash flows attributable to the discontinued operation are as follows:

Net cash inflow/(outflow) from operating activities Net cash (outflow)/inflow from financing activities Net cash inflow	Six months ended 30 June 2005 2004 (Unaudited) (Unaudited) HK$’000 HK$’000 3,041 (506) (2,264) 1,124 777 618

From continuing and discontinued operations

The calculation of the basic earnings per share is based on the profit attributable to equity holders of the parent of HK$526,000 (2004: HK$5,174,000) and on the 158,639,799 shares (2004 (restated): weighted average of 147,615,624 shares) in issue during the period.

The earnings per share for the six months ended 30 June 2004 has been restated to reflect the reduction in number of ordinary shares in issue as a result of the consolidation of every twenty-five shares of nominal value of HK$0.01 each into one new share of nominal value of HK$0.25 each in June 2005.

There have been no dilutive effect on the basic earnings per share for the period ended 30 June 2005 and 30 June 2004 as the exercise prices of the outstanding share options were higher than the average market price of the Company’s shares during both periods.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

9. TRADE AND RETENTION MONIES RECEIVABLES

APPENDIX I

From continuing operations

The calculation of the basic earnings per share is based on the profit for the period from the continuing operations of HK$1,494,000 (2004: HK$5,262,000). The denominators used are the same as those detailed above for the basic earnings per share from continuing and discontinued operations.

From discontinued operation

Basic loss per share for the discontinued operation is 0.61 cent per share (2004: 0.06 cent per share) based on the loss for the period from the discontinued operation of HK$968,000 (2004: HK$88,000). The denominators used are the same as those detailed above for the basic earnings per share from continuing and discontinued operations.

Trade receivables Retention monies receivable within one year	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 256,299 234,457 2,193 2,120 258,492 236,577	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 256,299 234,457 2,193 2,120 258,492 236,577
		236,577

The Group grants a credit period to its customers ranging from cash on delivery to 60 days. A longer credit period may be allowed to customers with a good business relationship. An aged analysis of trade receivables as at the balance sheet date, based on payment due date, net of provision for impairment, is as follows:

Current to 30 days 31-60 days 61-90 days Over 90 days	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited and restated) HK$’000 HK$’000 196,206 169,093 28,342 30,899 10,924 16,521 20,827 17,944 256,299 234,457	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited and restated) HK$’000 HK$’000 196,206 169,093 28,342 30,899 10,924 16,521 20,827 17,944 256,299 234,457
		234,457

A provision is made when there is objective evidence that the Group will not be able to collect the amounts due according to the original terms of the receivables.

– 68 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

10. TRADE AND BILLS PAYABLES

Trade payables Bills payable	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 50,676 57,077 16,767 24,345 67,443 81,422	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 50,676 57,077 16,767 24,345 67,443 81,422
		81,422

An aged analysis of trade payables as at the balance sheet date, based on invoice date, is as follows:

Current to 30 days 31-60 days 61-90 days Over 90 days	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 45,501 52,183 3,195 1,408 605 384 1,375 3,102 50,676 57,077	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 45,501 52,183 3,195 1,408 605 384 1,375 3,102 50,676 57,077
		57,077

11. SHARE CAPITAL

Shares

Authorised: 1,000,000,000 (2004: 25,000,000,000) ordinary shares of HK$0.25 (2004: HK$0.01) each Issued and fully paid: 158,639,799 (2004: 3,965,994,984) ordinary shares of HK$0.25 (2004: HK$0.01) each	As at 30 June 2005 (Unaudited) HK$’000 250,000 39,660	As at 31 December 2004 (Audited) HK$’000 250,000

		39,660

As announced on 13 April 2005, the Company proposed a capital reorganisation involving cancellation of the capital reserve and share premium accounts as well as consolidation of shares into larger denomination (the “Capital Reorganisation”). The Capital Reorganisation was approved by the shareholders of the Company by way of a special resolution and took effect on 6 June 2005 as follows:

(a) the entire amount of HK$236,500,000 standing to the credit of the capital reserve account of the Company as at 31 December 2004 was cancelled and the credit arising therefore was applied towards the partial elimination of the accumulated losses of the Company as at 31 December 2004 in the amount of HK$708,335,000;

– 69 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) the entire amount of HK$568,986,000 standing to the credit of the share premium account of the Company as at 31 December 2004 was cancelled and the credit arising therefrom was applied to eliminate the balance of HK$471,835,000 of the accumulated losses of the Company as at 31 December 2004 and the remaining credit of HK$97,151,000 arising therefrom was transferred to the Company’s contributed surplus account; and
(c) every twenty-five issued and unissued shares of nominal value HK$0.01 each in the authorised share capital of the Company were consolidated into one new share of nominal value HK$0.25 each (the “New Share(s)”).

As a result of the Capital Reorganisation, the authorised share capital of the Company became HK$250,000,000 divided into 1,000,000,000 New Shares, of which 158,639,799 New Shares were in issue and fully paid. The New Shares rank pari passu in all respects with each other.

Share options

As announced on 3 June 2005, the number of shares subject to the outstanding share options has been adjusted from 40,975,000 shares to 1,639,000 shares with the relevant exercise price being adjusted to HK$19.5 (Previous: HK$0.78) per share and HK$1.75 (Previous: HK$0.07) per share as a result of the Capital Reorganisation becoming effective. The movement of the outstanding share options of the Company during the period is as follows:

At 1 January 2005 Arising from Capital Reorganisation At 30 June 2005	Outstanding share options with an adjusted exercise price of HK$19.5 per share 975,000 (936,000) 39,000	Outstanding share options with an adjusted exercise price of HK$1.75 per share 40,000,000 (38,400,000) 1,600,000	Total 40,975,000 (39,336,000)
			1,639,000

The exercise in full of the outstanding share options would result in the issue of 1,639,000 additional ordinary shares for an aggregate amount of approximately HK$3.6 million.

12. RESERVES

At 1 January 2005 Arising from Capital Reorganisation Exchange realignment Profit for the period At 30 June 2005	Share premium account (Unaudited) HK$’000 568,986 (568,986) – – –	Capital reserve (Unaudited) HK$’000 236,500 (236,500) – – –	Contributed surplus (Unaudited) HK$’000 – 97,151 – – 97,151	Land and buildings revaluation reserve (Unaudited) HK$’000 1,827 – – – 1,827	Exchange fluctuation reserve Retained earnings/ (accumulated losses) (Unaudited) (Unaudited) HK$’000 HK$’000 29 (694,641) – 708,335 (165) – – 526 (136) 14,220	Total (Unaudited) HK$’000 112,701 – (165) 526
						113,062

– 70 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

13. MINORITY INTERESTS

At 1 January 2005 Loan repayment to minority interests Loss for the period At 30 June 2005	Minority interests (Unaudited) HK$’000 1,912 (185) (201) 1,526

14. RELATED PARTY TRANSACTIONS

(a) Significant transactions between the Group and related parties during the period

Management fee paid to a major shareholder
Sale of goods to an associate
Service income from an associate
Amounts due from/(to) related companies
Amounts due from:
– An associate
– Related companies with common directors
Amounts due to:
– An associate
– A related company with common director
Compensation of key management personnel of the Group
Salaries and other short-term employee benefits
Post-employment benefits

Six months ended 30 June
2005
2004
(Unaudited)
(Unaudited)
HK$’000
HK$’000
1,000
1,000
(339)
(1,551)
(4,136)
–
As at
30 June
2005
As at
31 December
2004
(Unaudited)
(Audited)
HK$’000
HK$’000
91
223
1,693
3,021
(301)
(265)
(52)
(50)
Six months ended 30 June
2005
2004
(Unaudited)
(Unaudited)
HK$’000
HK$’000
4,299
4,182
250
250

(b) Amounts due from/(to) related companies

(c) Compensation of key management personnel of the Group

– 71 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

15. COMMITMENTS

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to twelve years.

At the balance sheet date, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 3,006 3,803 2,440 3,584 5,446 7,387	As at 30 June 2005 As at 31 December 2004 (Unaudited) (Audited) HK$’000 HK$’000 3,006 3,803 2,440 3,584 5,446 7,387
		7,387

16. CONTINGENT LIABILITIES

The real estate ownership certificate for a villa sold in August 2003 was obtained to the satisfaction of the purchaser on 16 March 2005. As a result, the Group ceased to be contingently liable for repayment of the purchase monies of HK$3,100,000 plus accrued interest in case the certificate cannot be obtained within two years from the date of sale of the villa.

The Group had no significant contingent liability at the balance sheet date.

17. COMPARATIVE AMOUNTS

As explained in note 1, due to the adoption of new and revised HKFRSs during the current period, the presentation of certain items and balances in the condensed consolidated financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified to conform with the current period’s presentation.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

4. STATEMENT OF INDEBTEDNESS

As at 31 January 2006, being the latest practicable date prior to the printing of this circular for ascertaining information for inclusion in this statement of indebtedness, the Group had outstanding secured and unsecured bank borrowings, which represented bank loans and overdrafts of approximately HK$26,085,000 and trust receipt loans of approximately HK$127,733,000 respectively.

(i) The Group provided corporate guarantees and indemnities to certain banks for an aggregate amount of HK$2,158,000 for the issue of performance bonds in its ordinary course of business; and
(ii) On 26 October 2005, Best Treasure Limited as vendor, the Company as vendor’s guarantor and Chinney Construction (BVI) Limited, a 86.05% owned subsidiary of Chinney Investments Limited, as purchaser entered into a sale and purchase agreement in relation to the sale and purchase of the entire issued share capital of Jackson Mercantile Trading Company Limited (“JMT”) for a cash consideration of HK$7,800,000. The Company as the vendor’s guarantor and Best Treasure Limited as the vendor have undertaken to indemnify Chinney Construction (BVI) Limited up to a maximum amount of HK$7,800,000 until 8 November 2007, being two years after the completion date, in case there are valid claims against the Company and/or Best Treasure Limited under the agreement.

The Group’s secured banking facilities were secured by certain leasehold land and buildings of the Group.

Save as aforesaid and apart from intra-group liabilities, normal trade and bills payables, the Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, loans, bank overdrafts or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances or acceptance credits or guarantees or other material contingent liabilities as at the close of business on 31 January 2006.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximately exchange rates prevailing at the close of business on 31 January 2006.

5. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the financial resources available to the Enlarged Group, including internal resources and present available banking facilities, and in the absence of unforeseen circumstances, the Enlarged Group has available sufficient working capital for the Enlarged Group’s present requirements for the next 12 months from the date of this circular.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

The following is the reproduction of certain paragraphs of the management discussion and analysis as contained in the interim report of the Company for the six months ended 30 June 2005.

Review of operations

Results

The Group’s turnover and profit for the six months ended 30 June 2005 were HK$535 million (2004: HK$496 million) and HK$0.3 million (2004: HK$5.7 million), respectively. The growth in turnover came mainly from the strong performance of our plastic division. The division posted a 21% increase in turnover as plastic resin prices went up in tandem with the oil prices. The Group’s net profit was affected by sharing the loss of an associate, Shun Cheong Holdings Limited (“Shun Cheong”). Stripping out the share of net loss of Shun Cheong, the Group would have reported a net profit of HK$6.7 million, as compared with a net profit of HK$5.9 million in prior period.

Trading of plastics and chemicals

DMT International Hong Kong Limited (“DMT”) and Jacobson van den Berg (Hong Kong) Limited (“JvdB”) recorded an aggregate turnover of HK$466 million compared with HK$385 million in prior period. The 21% turnover growth was mainly attributable to the increase in resin prices in an environment of escalating oil prices. DMT and JvdB maintain a prudent inventory replenishment policy, which is demand driven rather than speculating the ups and downs of the resin prices. So, the business is growing healthily albeit at a slightly lower margin as customers pressured for price decrease. Operating profit increased to HK$21.7 million (2004: HK$15.5 million) against the increase in revenue.

Trading of industrial products and equipment

Chinney Alliance Engineering Limited and its subsidiaries (“CAEL”) reported a turnover of HK$30.2 million compared with HK$81.2 million in prior period. Delay in project billings and the longer-than-expected time to nurture new agencies accounted mainly for the drop in turnover. The division turned from break-even to an operating loss of HK$2.9 million, as revenue dropped. The road ahead remains difficult but it is encouraged to see that there are more business enquiries as the construction industry seems to be recovering and the efforts to develop Mainland trade start to bear fruit.

Wholesaling of electrical appliances and air-conditioning engineering works

Jackson Mercantile Trading Company Limited (“JMT”) was acquired in September 2001 as an attempt to expand the Company’s trading business. Nevertheless, the home electrical appliances business has not been promising in the past few years, as the consumers would

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

rather spend on “brown” goods such as televisions, hi-fis, mobiles and digital cameras than on “white” goods such as air-conditioners and washers. JMT imported a major portion of its merchandise from Europe. The high exchange rate of Euros made imported goods noncompetitive in this shrinking market. So, after careful consideration, the management finally decided to discontinue the home appliance business during the period under review. The remaining stocks were sold to the new distributor at book value with all staff being retrenched in June 2005. JMT recorded turnover of HK$12.6 million (2004: HK$14.0 million) and a net loss of HK$1.0 million (2004: HK$0.1 million) in the period. Westco Chinney Limited, the subsidiary of JMT engaged in air-conditioning works, contributed turnover of HK$38.0 million (2004: HK$30.2 million) and an operating profit of HK$1.9 million (2004: HK$0.3 million) in the period.

Associates

Shun Cheong Holdings Limited (“Shun Cheong”), a 29.9% owned associate of the Company, provides electrical and mechanical engineering services as well as other associated engineering services to the building industry. Shun Cheong reported turnover of HK$550 million (2004: HK$734 million) and a net loss after minority interests of HK$33.7 million for the year ended 31 March 2005 (2004: net profit after minority interests of HK$1.8 million). Shun Cheong’s loss intensified from the first-half year loss of HK$12.4 million to the second-half year loss of HK$21.3 million during the year ended 31 March 2005. The Company’s share of loss of Shun Cheong was therefore HK$6.4 million in the period (2004: HK$0.2 million).

The slowdown in housing development in both private and public sectors remained during the period under review. Shun Cheong continued to face fierce competition due to limited availability of jobs, which led to erosion of turnover and reduced gross margin. Pending recovery of the local construction industry, Shun Cheong actively explores the Macau market where there has been a construction boom arising from the liberalisation of the gambling industry. In July 2005, Shun Cheong was awarded an electrical installation contract of HK$130 million for the Grand Lisboa Hotel and Casino project at Macau. As the local economy becomes revived, it is hoped that the difficult operating environment will improve with more private developments and increased government spending in the public sector.

Financial review

Liquidity and financial resources

Total interest-bearing debts of the Group amounted to HK$256 million as at 30 June 2005 (31 December 2004: HK$233 million), of which HK$217 million (31 December 2004: HK$190 million) related to trust receipt loans. The debts were all due and repayable within one year. Current ratio of the Group at 30 June 2005, as measured by total current assets over total current liabilities, was 1.26. Total cash on hand as at 30 June 2005 was HK$67 million. The Group had a total of HK$122 million committed but undrawn banking facilities at period-end available for its working capital purpose. The gearing ratio of the Group, as measured by the net interest-bearing debts of HK$189 million over the shareholders’ funds of HK$153 million, was 124% as at 30 June 2005.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Funding and treasury policy

The Group maintains a prudent funding and treasury policy. Surplus funds are maintained in the form of cash deposits with leading banks. Borrowings are mainly denominated in Hong Kong dollars and bear interest at floating rates. Forward contracts of non-speculative nature are entered to hedge the foreign currency trade purchase commitments of the Group.

Pledged assets

Certain properties, having an aggregate book value of HK$24 million as at 30 June 2005, were pledged to secure the borrowings of the Group.

Employees and remuneration policies

The Group employed approximately 250 staff in Hong Kong and other parts of the PRC as at 30 June 2005. Remuneration packages are reviewed annually and determined by reference to market pay and individual performance. In addition to salary payments and year-end discretionary bonuses, the Group also provides other employment benefits including medical insurance cover, provident fund and educational subsidies to eligible staff.

Outlook

The global economy continued to improve during the period under review, despite soaring oil prices, rising interest rates and increased threat of terrorism. The Mainland economy is still the main growth engine, with GDP growth exceeding 9% in the second quarter of 2005. The Group, mainly in the trading of plastics for customers with production base in Mainland China, stands to benefit from the global economic growth and the increased oil prices. The merging of our plastic trade businesses a few years ago laid the solid foundation to build a cohesive management team in capturing the opportunities now available in the market place. The Group’s decision to discontinue the wholesaling of electrical home appliance business is a move to preserve the value of the Company to its shareholders by focusing resources on trading activities in Mainland China, which offer better prospects for profitability.

7. MATERIAL ADVERSE CHANGE

Save for the financial effects arising from the Acquisition as set out in this circular, and the change in financial or trading position of the Group as disclosed in the interim report of the Company for the six months ended 30 June 2005, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, the date to which the latest audited financial statements of the Company were made up.

– 76 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP FOR THE THREE YEARS ENDED 31 MARCH 2005 AND THE SIX MONTHS ENDED 30 SEPTEMBER 2005

The following is a text of the accountants’ report from Ernst & Young, the auditors and reporting accountants of the Company, for each of the three years ended 31 March 2003, 2004 and 2005, and the six months ended 30 September 2005 prepared for the purpose of incorporation in this circular.

==> picture [147 x 38] intentionally omitted <==

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

10 March 2006

The Board of Directors Chinney Alliance Group Limited

Dear Sirs,

We set out below our report on the financial information (the “Summaries”) regarding Shun Cheong Investments Limited (the “Target Company”) and certain of its subsidiaries (hereinafter collectively referred to as the “Contracting Group”) for each of the three years ended 31 March 2003, 2004 and 2005, and the six months ended 30 September 2005 (the “Relevant Periods”) and the comparative unaudited financial information for the six months ended 30 September 2004, pursuant to a conditional sale and purchase agreement (the “Agreement”) dated 26 January 2006 regarding the proposed acquisition of the building related contracting business under the Contracting Group (the “Acquisition”) from Shun Cheong Holdings Limited (“SCH”) as vendor, Chinney Alliance Trading (BVI) Limited (“CAT (BVI)”) as purchaser, and Chinney Alliance Group Limited (the “Company” or “CAG”) as purchaser’s guarantor. The Summaries have been prepared on the basis as set out in Section 1 below, for inclusion in the circular (the “Circular”) dated 10 March 2006 issued by the Company in connection with the Acquisition.

The Target Company was incorporated in the British Virgin Islands with limited liability and is a wholly-owned subsidiary of SCH. The Contracting Group has adopted 31 March as its financial year end date.

During the Relevant Periods, the principal activities of the Contracting Group consisted of the provision of multi-disciplinary building services, comprising electrical engineering, water pumping and fire services, air-conditioning installation, plumbing and drainage, environmental engineering, extra low voltage systems engineering and project management, together with the trading of electrical and mechanical engineering materials and equipment. The principal activity of the Target Company is investment holding.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the unaudited management accounts of all companies of the Contracting Group for the Relevant Periods and the six months ended 30 September 2004 and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The Summaries of the Contracting Group (which includes the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Contracting Group for the Relevant Periods and the consolidated balance sheets of the Contracting Group and the balance sheets of the Target Company as at 31 March 2003, 2004 and 2005 and 30 September 2005) have been prepared based on the audited financial statements or, where appropriate, unaudited management accounts of the companies comprising the Contracting Group, on the basis as set out in Section 1 below and the significant accounting policies as detailed in Section 2.

The directors of the respective companies of the Contracting Group are responsible for the preparation of the respective financial statements which give a true and fair view. The directors of the Target Company (the “Directors”) are responsible for the preparation of the Summaries which give a true and fair view. In preparing the Summaries and the financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of CAG are responsible for the contents of the Circular in which this report is included. It is our responsibility to form an independent opinion on the Summaries and to report our opinion to you.

In our opinion, on the basis of presentation as set out in Section 1 below, the Summaries give a true and fair view of the state of affairs of the Contracting Group and the Target Company as at 31 March 2003, 2004, 2005 and 30 September 2005 and of the consolidated results and cash flows of the Contracting Group for the Relevant Periods.

The comparative consolidated income statements, statements of changes in equity and cash flow statements of the Contracting Group for the six months ended 30 September 2004 together with the notes thereon (the “30 September 2004 Financial Information”) have been extracted from the Contracting Group’s financial information which was prepared by the Directors solely for the purpose of this report. We have reviewed the 30 September 2004 Financial Information in accordance with the Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excluded audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope and provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 September 2004 Financial Information.

On the basis of our review, for the purpose of this report which does not constitute an audit, we are not aware of any material modification that should be made to the 30 September 2004 Financial Information of the Contracting Group.

– 78 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

1. BASIS OF PRESENTATION

On 26 January 2006, SCH and CAT (BVI) entered into the Agreement pursuant to which SCH has conditionally agreed to dispose and CAT (BVI) has conditionally agreed to acquire the entire issued share capital of the Target Company, being the holding company for the building related contracting business under the Contracting Group upon the completion of a corporate restructuring of SCH and its subsidiaries and/or investments prior to completion (the “Corporate Restructuring”), which include (i) the transfer of certain subsidiaries of the Target Company engaging in the building maintenance business to a wholly-owned subsidiary of SCH so as to form a remaining SCH Group (hereinafter collectively referred to as the “Remaining Group” in this report) and (ii) the waiver of an aggregate sum of approximately HK$18 million due by the Contracting Group to the Remaining Group as at 30 September 2005 (the “Waiver”), assuming the Corporate Restructuring had taken place.

The Summaries as presented in this report have been prepared to illustrate the financial position of the Contracting Group as at 31 March 2003, 2004, 2005 and 30 September 2005 and the consolidated results for the Relevant Periods then ended, as if the Contracting Group had been in place throughout the Relevant Periods and the Waiver was effected on 30 September 2005.

The Summaries have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong (“GAAP”), the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. The Summaries have been prepared under the historical cost convention, except for available-for-sale equity investments and equity investments at fair value through profit or loss, which have been measured at fair value as further explained below. The Summaries are presented in Hong Kong dollars and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

The HKICPA has issued a number of new and revised HKFRSs which are effective for the accounting periods beginning on or after 1 January 2005. The Summaries have been prepared in accordance with the new HKFRSs.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Basis of consolidation

The consolidated financial statements include the financial statements of the Target Company and its subsidiaries for the Relevant Periods. The results of the subsidiaries are consolidated from the date of acquisition, being the date on which the Contracting Group obtains control, and continue to be consolidated until the date that such control ceases. All significant inter-company transactions and balances within the Contracting Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Target Company’s subsidiaries and are presented separately in the consolidated income statement and within equity in the consolidated balance sheet from the results/equity attributable to equity holders of the parent.

The definitions used in the Circular apply to this report unless otherwise stated.

At the date of this report, the Target Company had direct or indirect interests in the following principal subsidiaries, all of which are private companies, the particulars of which are set out below:

			Percentage
		Nominal value	of equity
	Place of	of issued	attributable
	incorporation	ordinary share	to the Target
Name	and operation	capital	Company*	Principal activities
Shun Cheong Engineering	British Virgin	US$1	100	Investment holding
Limited	Islands
Shun Cheong International	British Virgin	US$1	100	Investment holding
Limited	Islands
Shun Cheong Automation	Hong Kong	HK$2,000,000	85	Design and installation
Systems Limited				of computer control
				systems and building
				automation projects
Shun Cheong Electrical	Hong Kong	HK$4,100,000	100	Design, installation,
Engineering Company				repair and
Limited				maintenance of
				electrical and
				mechanical systems

– 80 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

			Percentage
		Nominal value	of equity
	Place of	of issued	attributable
	incorporation	ordinary share	to the Target
Name	and operation	capital	Company*	Principal activities
Shun Cheong Electrical	Hong Kong	HK$100,000	100	General trading of
Supplies Company				materials and
Limited				equipment for
				electrical installation
Shun Cheong Trade and	Hong Kong	HK$663,000	100	Trading of electrical
Development Company				generators and uPVC
Limited				conduits and trunking
				systems
Shun Cheong Management	Hong Kong	HK$2	100	Provision of
Limited				management Services
Shun Wing Construction &	Hong Kong	HK$1,000	50.10	Provision of building
Engineering Company				and electrical
Limited (“Shun Wing”)				maintenance services
Westco Airconditioning	Hong Kong	HK$4,100,000	100	Design, installation and
Limited				maintenance of
				heating ventilation
				and air-conditioning
				systems

* All the above subsidiaries are held indirectly by the Target Company, except for Shun Cheong Engineering Limited, Shun Cheong International Limited and Shun Cheong Management Limited which are held directly by the Target Company.

The above table lists the subsidiaries of the Target Company which, in the opinion of the Directors, principally affected the results for the Relevant Periods or formed a substantial portion of the net assets of the Contracting Group. To give details of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

– 81 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Target Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Target Company’s income statement to the extent of dividends received and receivable. The Target Company’s interests in subsidiaries are stated at cost less any impairment losses.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Contracting Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Contracting Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Contracting Group’s interests in associates are stated in the consolidated balance sheet at the Contracting Group’s share of net assets under the equity method of accounting, less any impairment losses.

The results of associates are included in the Target Company’s income statement to the extent of dividends received and receivable. The Target Company’s interests in associates are treated as non-current assets and are stated at cost less any impairment losses.

Critical accounting estimates and judgements

The preparation of the Contracting Group’s financial statements requires the use of estimates and assumptions about future events and conditions. In this connection, the Directors consider the significant areas where management’s judgement is necessary are those in relation to (i) the valuation of the Contacting Group’s available-for-sale equity investments and equity investments at fair value through profit or loss, (ii) provision for foreseeable losses against gross amount due from contract customers and (iii) recognition of losses against the Contracting Group’s trade and other receivables and retention money receivables.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are considered to be reasonable under the circumstances. It should be noted that actual results could differ from those estimates.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Impairment of assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arise.

Property, plant and equipment and depreciation

Property, plant and equipment, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment and the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Furniture and office equipment 20% Motor vehicles 20% Leasehold improvements 3 years or over the lease terms, whichever is shorter

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Investments

The Contracting Group classifies its investments as financial assets at fair value through profit or loss and available-for-sale financial assets under the scope of HKAS 39. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments after initial recognition and, where allowed and appropriate, re-evaluates this designation at every financial reporting date.

All regular way purchases and sales of financial assets are recognised on the trade date i.e., the date that the Contracting Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

Realised and unrealised gain or losses arising from changes in fair values of the “financial assets at fair value through profit or loss” are recognised in the consolidated income statement in the period in which they arise.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets in listed and unlisted equity securities that are designated as available-for-sale or not classified in any other categories under the scope of HKAS 39. After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated income statement.

The fair values of quoted investments are based on bid prices. If the market for a financial asset is not active (and for unlisted securities), the Contracting Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis or other valuation models as appropriate.

The Contracting Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in consolidated income statement, is transferred from equity to the consolidated income statement. Impairment losses on equity instruments classified as available-for-sale are not reversed through the consolidated income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Installation and maintenance contracts and contracts in progress

Revenue from fixed price installation and maintenance contracts is recognised on the percentage of completion method, measured by reference to the percentage of certified work performed to date to the estimated total contract sum of the relevant contracts. When the outcome of the contracts cannot be estimated reliably, revenue is recognised only to the extent of certified work performed that is probable to be recoverable.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

where the deferred tax asset relating to the deductible temporary differences arises from negative goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Provisions

– 87 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Foreign currencies

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

Related parties

A party is considered to be related to the Contracting Group if:

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

Cash and cash equivalents

– 88 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits which are not restricted as to use.

Leases

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

Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Contracting Group is the lessor, assets leased by the Contracting Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Contracting Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Employee benefits

Paid leave carried forward

The Contracting Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year/period by the employees and carried forward.

Retirement benefits schemes

The Contracting Group operates defined contribution retirement benefits schemes, including an Occupational Retirement Schemes Ordinance retirement benefits scheme (the “ORSO Scheme”) and a Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees (including executive directors of the Contracting Group).

– 89 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

The ORSO Scheme is managed by an independent trustee. The Contracting Group makes monthly contributions to the scheme at 5% to 15% of the employees’ basic salaries while the employees are not required to make any contributions. The employees are entitled to receive 100% of the contributions made by the Contracting Group together with the accrued earnings thereon upon retirement or leaving the Contracting Group after completing 10 years of service or at a reduced scale of 30% to 90% after completing three to nine years of service. Forfeited contributions and related earnings are used to reduce the contributions payable by the Contracting Group.

Under the MPF Scheme, contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The Contracting Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Contracting Group’s employer voluntary contributions, which are refunded to the Contacting Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

The assets of both schemes are held separately from those of the Contracting Group in independently administered funds.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Contracting Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Contracting Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from installation and maintenance contracts, on the percentage of completion basis, as further explained in the accounting policy for “Installation and maintenance contracts and contracts in progress” above;
(c) project management income, when project management services are rendered; and
(d) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial assets.

– 90 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

3. CONSOLIDATED INCOME STATEMENT

The following is a summary of the consolidated income statements of the Contracting Group for the Relevant Periods and the six months ended 30 September 2004, which is presented on the basis set out in Section 1 above:

Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 640,816 734,616 505,574 237,277 206,084 (571,568) (654,467) (489,696) (218,280) (194,737) 69,248 80,149 15,878 18,997 11,347 6,538 4,965 4,109 2,028 2,600 (66,110) (61,591) (37,400) (18,482) (18,412) (7,130) (9,108) (757) (944) – (1,244) 245 103 (95) 133 – (2,179) – – – (1,899) (1,566) (1,431) (705) (1,022) (2) – – – – – – – – 18,053 (599) 10,915 (19,498) 799 12,699 (4,363) (4,249) (688) (1,158) (66) (4,962) 6,666 (20,186) (359) 12,633 (16,601) (2,731) (20,467) (3,065) 12,680 11,639 9,397 281 2,706 (47) (4,962) 6,666 (20,186) (359) 12,633	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 640,816 734,616 505,574 237,277 206,084 (571,568) (654,467) (489,696) (218,280) (194,737) 69,248 80,149 15,878 18,997 11,347 6,538 4,965 4,109 2,028 2,600 (66,110) (61,591) (37,400) (18,482) (18,412) (7,130) (9,108) (757) (944) – (1,244) 245 103 (95) 133 – (2,179) – – – (1,899) (1,566) (1,431) (705) (1,022) (2) – – – – – – – – 18,053 (599) 10,915 (19,498) 799 12,699 (4,363) (4,249) (688) (1,158) (66) (4,962) 6,666 (20,186) (359) 12,633 (16,601) (2,731) (20,467) (3,065) 12,680 11,639 9,397 281 2,706 (47) (4,962) 6,666 (20,186) (359) 12,633	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 640,816 734,616 505,574 237,277 206,084 (571,568) (654,467) (489,696) (218,280) (194,737) 69,248 80,149 15,878 18,997 11,347 6,538 4,965 4,109 2,028 2,600 (66,110) (61,591) (37,400) (18,482) (18,412) (7,130) (9,108) (757) (944) – (1,244) 245 103 (95) 133 – (2,179) – – – (1,899) (1,566) (1,431) (705) (1,022) (2) – – – – – – – – 18,053 (599) 10,915 (19,498) 799 12,699 (4,363) (4,249) (688) (1,158) (66) (4,962) 6,666 (20,186) (359) 12,633 (16,601) (2,731) (20,467) (3,065) 12,680 11,639 9,397 281 2,706 (47) (4,962) 6,666 (20,186) (359) 12,633	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 640,816 734,616 505,574 237,277 206,084 (571,568) (654,467) (489,696) (218,280) (194,737) 69,248 80,149 15,878 18,997 11,347 6,538 4,965 4,109 2,028 2,600 (66,110) (61,591) (37,400) (18,482) (18,412) (7,130) (9,108) (757) (944) – (1,244) 245 103 (95) 133 – (2,179) – – – (1,899) (1,566) (1,431) (705) (1,022) (2) – – – – – – – – 18,053 (599) 10,915 (19,498) 799 12,699 (4,363) (4,249) (688) (1,158) (66) (4,962) 6,666 (20,186) (359) 12,633 (16,601) (2,731) (20,467) (3,065) 12,680 11,639 9,397 281 2,706 (47) (4,962) 6,666 (20,186) (359) 12,633	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 640,816 734,616 505,574 237,277 206,084 (571,568) (654,467) (489,696) (218,280) (194,737) 69,248 80,149 15,878 18,997 11,347 6,538 4,965 4,109 2,028 2,600 (66,110) (61,591) (37,400) (18,482) (18,412) (7,130) (9,108) (757) (944) – (1,244) 245 103 (95) 133 – (2,179) – – – (1,899) (1,566) (1,431) (705) (1,022) (2) – – – – – – – – 18,053 (599) 10,915 (19,498) 799 12,699 (4,363) (4,249) (688) (1,158) (66) (4,962) 6,666 (20,186) (359) 12,633 (16,601) (2,731) (20,467) (3,065) 12,680 11,639 9,397 281 2,706 (47) (4,962) 6,666 (20,186) (359) 12,633
69,248 6,538 (66,110) (7,130) (1,244) – (1,899) (2) – (599) (4,363)	80,149 4,965 (61,591) (9,108) 245 (2,179) (1,566) – – 10,915 (4,249)	15,878 4,109 (37,400) (757) 103 – (1,431) – – (19,498) (688)	18,997 2,028 (18,482) (944) (95) – (705) – – 799 (1,158)	11,347 2,600 (18,412 – 133 – (1,022 – 18,053
				12,699 (66
(4,962)	6,666	(20,186)	(359)
(16,601) 11,639	(2,731) 9,397	(20,467) 281	(3,065) 2,706	12,680 (47
(4,962)	6,666	(20,186)	(359)

– 91 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Notes:

(a) Revenue, other income and gains

Turnover represented the net invoiced value of services rendered and goods sold, after allowances for returns and trade discounts, and an appropriate proportion of contract revenue from long term installation and maintenance contracts during the Relevant Periods.

An analysis of the Contracting Group’s revenue, other income and gains is as follows:

Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 584,944 705,006 479,171 4,638 2,240 2,222 51,234 27,370 24,181 640,816 734,616 505,574	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 584,944 705,006 479,171 4,638 2,240 2,222 51,234 27,370 24,181 640,816 734,616 505,574	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 584,944 705,006 479,171 4,638 2,240 2,222 51,234 27,370 24,181 640,816 734,616 505,574	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 224,498 184,625 1,023 996 11,756 20,463 237,277 206,084	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 224,498 184,625 1,023 996 11,756 20,463 237,277 206,084
				206,084

1,658 568 – – 2,200 2,112	950 204 (33) – 2,160 1,684	927 87 313 199 1,680 903	464 43 – – 840 681	642 478 – – 840 640
6,538	4,965	4,109	2,028	2,600

– 92 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(b) Profit/(loss) before tax

The Contracting Group’s profit/(loss) before tax is arrived at after charging/(crediting):

Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 43,188 24,583 17,332 528,380 629,884 472,364	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 43,188 24,583 17,332 528,380 629,884 472,364	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 43,188 24,583 17,332 528,380 629,884 472,364	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 7,230 395 211,050 194,342 218,280 194,737 523 244 361 288 216 215 12,641 11,971 797 827 (163) (77) 634 750 13,275 12,721 – 375 – – – (18,053) 19 (9)	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 7,230 395 211,050 194,342 218,280 194,737 523 244 361 288 216 215 12,641 11,971 797 827 (163) (77) 634 750 13,275 12,721 – 375 – – – (18,053) 19 (9)
571,568 1,948 1,623 489 49,827 2,243 (116) 2,127 51,954	654,467 1,687 1,070 462 50,899 2,042 (791) 1,251 52,150	489,696 838 619 452 25,046 1,841 (309) 1,532 26,578	218,280 523 361 216 12,641 797 (163) 634 13,275	194,737
				244 288 215 11,971 827 (77
				750
				12,721
– (595) – 429	109 (392) – 7	1,460 (134) – (47)	– – – 19

* The Contracting Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years as at 31 March 2003, 2004 and 2005 and 30 September 2004 and 2005.

** Pursuant to the Agreement entered into on 26 January 2006, upon the completion of the Corporate Restructuring, approximately HK$18 million of the amounts due by the Contracting Group to the Remaining Group as at 30 September 2005 are to be waived and such balances had been incorporated in the consolidated income statements of the Contracting Group for the six months ended 30 September 2005, on the basis of presentation as set out in Section 1 of this report.

– 93 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(c) Directors’ and senior executives’ remuneration:

Fees Other emoluments: Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Year ended 31 March 2003 Directors: Mr. Au Shiu Wai, Frank Mr. Chan Yuen Keung, Zuric Mr. Ou Ka Chi Year ended 31 March 2004 Directors: Mr. Au Shiu Wai, Frank Mr. Au Yu Fai, Patrick Mr. Chan Yuen Keung, Zuric Mr. Ou Ka Chi	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 3,342 5,397 3,322 1,533 1,533 538 334 330 – – 153 220 175 88 88 4,033 5,951 3,827 1,621 1,621 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,063 80 72 1,215 – 1,223 380 11 1,614 – 1,056 78 70 1,204 – 3,342 538 153 4,033 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,040 80 76 1,196 – 975 75 68 1,118 – 1,306 101 12 1,419 – 2,076 78 64 2,218 – 5,397 334 220 5,951	Year ended 31 March Six months ended 30 September 2003 2004 2005 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 3,342 5,397 3,322 1,533 1,533 538 334 330 – – 153 220 175 88 88 4,033 5,951 3,827 1,621 1,621 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,063 80 72 1,215 – 1,223 380 11 1,614 – 1,056 78 70 1,204 – 3,342 538 153 4,033 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,040 80 76 1,196 – 975 75 68 1,118 – 1,306 101 12 1,419 – 2,076 78 64 2,218 – 5,397 334 220 5,951
		5,951

– 94 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Year ended 31 March 2005

Directors: Mr. Au Shiu Wai, Frank Mr. Au Yu Fai, Patrick Mr. Chan Yuen Keung, Zuric Six months ended 30 September Directors: Mr. Au Shiu Wai, Frank Mr. Au Yu Fai, Patrick Mr. Chan Yuen Keung, Zuric Six months ended 30 September Directors: Mr. Au Shiu Wai, Frank Mr. Au Yu Fai, Patrick Mr. Chan Yuen Keung, Zuric	Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,040 80 96 1,216 – 975 150 67 1,192 – 1,307 100 12 1,419 – 3,322 330 175 3,827 2004 (unaudited) Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 480 – 48 528 – 450 – 34 484 – 603 – 6 609 – 1,533 – 88 1,621 2005 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 480 – 48 528 – 450 – 34 484 – 603 – 6 609 – 1,533 – 88 1,621	Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 1,040 80 96 1,216 – 975 150 67 1,192 – 1,307 100 12 1,419 – 3,322 330 175 3,827 2004 (unaudited) Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 480 – 48 528 – 450 – 34 484 – 603 – 6 609 – 1,533 – 88 1,621 2005 Fees Salaries, allowances and benefits in kind Performance related payments Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 480 – 48 528 – 450 – 34 484 – 603 – 6 609 – 1,533 – 88 1,621
		1,621

There was no arrangement under which a Director waived or agreed to waive any remuneration during the Relevant Periods and the six months ended 30 September 2004.

During the Relevant Periods and the six months ended 30 September 2004, no emoluments were paid by the Contracting Group to any of the Directors as an inducement to join, or upon joining the Contracting Group, or as compensation for loss of office.

– 95 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(d) Five highest paid employees

The five highest paid employees of the Contracting Group during the years ended 31 March 2003, 2004 and 2005 and the six months ended 30 September 2004 and 2005 included three, four, three, three and three Directors, respectively, details of whose remuneration are set out in Section 3(c) above. Details of the remuneration of the remaining non-Director, highest paid employees during the Relevant Periods and the six months ended 30 September 2004 are set out below.

Salaries, allowances and benefits in kind Performance related payments Pension scheme contribution	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,607 647 1,284 125 50 81 110 44 72 1,842 741 1,437	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 598 598 – – 36 36 634 634	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 598 598 – – 36 36 634 634
			634

The number of non-Director, highest paid employees whose remuneration fell within the following bands is as follows:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	Year ended 31 March 2003 2004 2005 1 – 2 1 1 – 2 1 2	Six months ended 30 September 2004 2005 2 2 – – 2 2	Six months ended 30 September 2004 2005 2 2 – – 2 2
			2

During the Relevant Periods and the six months ended 30 September 2004, no emoluments were paid by the Contracting Group to the non-Director, highest paid employees as an inducement to join, or upon joining the Contracting Group, or as compensation for loss of office.

(e) Finance costs

Interest on bank loans, overdrafts and other loans wholly repayable within five years Interest on other loans Interest on finance leases Bank charges	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,322 813 739 – – 234 65 51 43 512 702 415 1,899 1,566 1,431	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 340 746 – 94 43 – 322 182 705 1,022	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 340 746 – 94 43 – 322 182 705 1,022
			1,022

– 96 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(f) Tax

Hong Kong profits tax has been provided at the statutory tax rate on the estimated assessable profits arising in Hong Kong during the Relevant Periods and the six months ended 30 September 2004. The statutory tax rate for Hong Kong profits tax is 16% for the year ended 31 March 2003; and 17.5% for the years ended 31 March 2004 and 2005 and the six months ended 30 September 2004 and 2005.

Contracting Group: Current – Hong Kong Charge for the year/period Overprovision in prior years Deferred (Section 4(o)) Total tax charge for the year/period	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 4,690 4,398 793 (20) (24) (3) (307) (125) (102) 4,363 4,249 688	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 1,158 66 – – – – 1,158 66	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 1,158 66 – – – – 1,158 66
			66

A reconciliation of the tax expenses applicable to profit/(loss) before tax using the statutory rates of Hong Kong to the tax expense at the effective tax rates is as follows:

Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498)	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 799 12,699	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 799 12,699

(95) 24 (20) (24) 1,539 (258) 3,231 (34)	1,910 – (24) (8) 2,043 (699) 1,001 26	(3,412) – (3) (2) 161 (44) 3,970 18	140 – – (1) 159 – 851 9	2,222 – – (3,197 92 (208 1,130 27
4,363	4,249	688	1,158	66

– 97 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(g) Related party transactions

(1) In addition to the transactions detailed elsewhere in this report, the Contracting Group had the following material transactions with related parties, including the Remaining Group entities, during the Relevant Periods and the six months ended 30 September 2004:

					Six months	ended
		Year	ended 31 March		30 September
		2003	2004	2005	2004	2005
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Billing of building
maintenance works and
building services installation
works to Chinney
Construction Company,
Limited (“Chinney
Construction”)	(i)	(274,343)	(268,515)	(78,509)	(50,099)	(9,612)
Payment to Diyixian.com
Limited (“Diyixian”) of
rental for server co-location
at Diyixian’s data centres
and for access to the internet
together with related set-up
charges	(ii)	192	–	–	–	–
Purchase of merchandise from
Chinney Alliance
Engineering Limited	(iii)	808	1,155	817	613	491
Interest income from the
Remaining Group	(iv)	(1,658)	(950)	(927)	(464)	(642)
Sub-contracting charge paid to
a 49.90% minority shareholder
of Shun Wing for the
completion of work orders
of a building maintenance
contract		81,670	92,310	25,846	11,140	1,617
Management fee paid to a
49.90% minority shareholder
of Shun Wing for the
provision of management
services of a building
maintenance contract		5,091	6,510	–	–	–
Management fee received from
the Remaining Group for the
provision of various
management, secretarial and
administrative services		(2,200)	(2,160)	(1,680)	(840)	(840)
Sub-contracting charge paid to
the Remaining Group for
various building and
installation services		141,778	163,899	79,323	31,463	48,186
Waiver of payable balances by
the Remaining Group		–	–	–	–	(18,053)

– 98 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Notes:

(i) Chinney Construction is a company of which Wong Sai Wing, James (who resigned as chairman and executive director of SCH, the holding company of the Contracting Group, on 17 September 2004) and Chan Yuen Keung, Zuric, are also directors of SCH and have indirect beneficial interests therein.

The amounts due from Chinney Construction are unsecured, interest-free and are repayable within normal credit terms of 60 days. Details of the balances are included in Section 4(h) to this Summaries.

The Contracting Group also had amounts payable to Chinney Construction of HK$22,930,000 and HK$15,700,000, which were unsecured, interest-free and had no fixed terms of repayment as at 31 March 2005 and 30 September 2005, respectively. There were no amounts payable to Chinney Construction as at 31 March 2003 and 2004.

(ii) Diyixian was a minority shareholder of Speedlink Limited, a former subsidiary of SCH which was dissolved in August 2003.
(iii) Chinney Alliance Engineering Limited is a wholly-owned subsidiary of CAG, a company listed on The Stock Exchange of Hong Kong Limited, which is also a substantial shareholder of SCH. Wong Sai Wing, James and Yu Sek Kee, Stephen, a director of SCH, are also directors of CAG.
(iv) Interest was charged to the Remaining Group at prevailing market rates.

In the opinion of the Directors, the above transactions were conducted at mutually agreed terms and rates in the normal course of the Contracting Group’s business.

(2) Outstanding balances with related parties
(i) Details of the balances with the Remaining Group are included in Section 4(i) to the report.
(ii) Details of the Contracting Group’s loan from a minority shareholder of a subsidiary are included in Section 4(n) to this report.
(3) Compensation of key management personnel of the Contracting Group:

The executive Directors are the key management personnel of the Contracting Group. Details of their remunerations are disclosed in Section 3(c) to this report.

(h) Dividends

				Six months	ended
	Year	ended 31 March		30 September
	2003	2004	2005	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Interim – 31 March 2003,
2004 and 30 September
2005: HK$60,000 per
ordinary share, 31 March
2005 and 30 September
2004: Nil	6,000	6,000	–	–	6,000

– 99 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

4. BALANCE SHEETS

The following is a summary of the consolidated balance sheets of the Contracting Group and the balance sheets of the Target Company as at 31 March 2003, 2004 and 2005 and 30 September 2005, after making such adjustments as we consider appropriate and on the basis as set out in Section 1 above:

Consolidated balance sheet of the Contracting Group

2003 HK$’000 3,326 – 12,365 166	31 March 2004 HK$’000 1,720 – 3,257 411	2005 HK$’000 519 – 2,500 514	30 September 2005 HK$’000 291 – 2,500 647
15,857 82,718 3,499 116,830 21,812 334 47,164 1,907 27,348 19,723 321,335 56,512 34,339 23,032 15,818 34,520 59,348 1,715 29,741 270 255,295 66,040 81,897	5,388 74,017 3,248 102,106 23,592 272 50,855 2,184 26,800 8,275 291,349 40,246 26,358 6,443 19,197 33,844 66,963 474 26,941 180 220,646 70,703 76,091	3,533 59,338 395 126,769 20,753 268 32,305 4,288 26,800 7,467 278,383 67,900 22,520 3,263 23,002 31,165 31,593 357 46,339 – 226,139 52,244 55,777	3,438
			63,899 – 96,110 19,857 227 20,575 4,288 26,800 6,932
			238,688
			39,365 38,721 6,472 21,960 34,193 – 346 44,659 –
			185,716
			52,972
			56,410

– 100 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Notes NON-CURRENT LIABILITIES Loan from a minority shareholder of a subsidiary (n) Finance lease payables (m) Deferred tax liabilities (o) Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent: Issued capital (p) Reserves (q) Minority interests Total equity	2003 HK$’000 6,900 180 253 7,333 74,564 1 60,912 60,913 13,651 74,564	31 March 2004 HK$’000 6,900 – 128 7,028 69,063 1 52,181 52,182 16,881 69,063	2005 HK$’000 6,900 – 26 6,926 48,851 1 31,714 31,715 17,136 48,851	30 September 2005 HK$’000 6,900 – 26
				6,926
				49,484

				1 38,394
				38,395 11,089
				49,484

– 101 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Balance sheet of the Target Company

Notes NON-CURRENT ASSETS Interests in subsidiaries (b) Net assets EQUITY Issued capital (p) Reserves (q) Total equity	2003 HK$’000 33,116 33,116 1 33,115 33,116	31 March 2004 HK$’000 33,116 33,116 1 33,115 33,116	2005 HK$’000 33,116 33,116 1 33,115 33,116	30 September 2005 HK$’000 33,116
				33,116

				1 33,115
				33,116

– 102 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Notes:

(a) Property, plant and equipment

Contracting Group

Furniture and office equipment HK$’000 7,254 (3,691) 3,563	Motor vehicles Leasehold improvements HK$’000 HK$’000 3,380 985 (1,423) (386) 1,957 599	Motor vehicles Leasehold improvements HK$’000 HK$’000 3,380 985 (1,423) (386) 1,957 599	Total HK$’000 11,619 (5,500) 6,119 6,119 64 (1,948) (909) 3,326 8,748 (5,422) 3,326 8,748 (5,422) 3,326 3,326 88 (1,687) (7) 1,720 8,294 (6,574) 1,720
3,563 64 (999) (851)	1,957 – (676) –	599 – (273) (58)	6,119 64 (1,948 (909
1,777	1,281	268
4,673 (2,896)	3,380 (2,099)	695 (427)	8,748 (5,422
1,777	1,281	268
4,673 (2,896)	3,380 (2,099)	695 (427)	8,748 (5,422
1,777	1,281	268
1,777 88 (819) (7)	1,281 – (676) –	268 – (192) –	3,326 88 (1,687 (7
1,039 4,219 (3,180) 1,039	605 3,380 (2,775) 605	76 695 (619) 76

– 103 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Furniture and office equipment HK$’000 4,219 (3,180) 1,039	Motor vehicles Leasehold improvements HK$’000 HK$’000 3,380 695 (2,775) (619) 605 76	Motor vehicles Leasehold improvements HK$’000 HK$’000 3,380 695 (2,775) (619) 605 76	Total HK$’000 8,294 (6,574) 1,720 1,720 148 (838) (511) 519 5,559 (5,040) 519 5,559 (5,040) 519 519 34 (244) (18) 291 4,644 (4,353) 291
1,039 148 (699) –	605 – (94) (511)	76 – (45) –	1,720 148 (838 (511
488	–	31
4,367 (3,879)	497 (497)	695 (664)	5,559 (5,040
488	–	31
4,367 (3,879)	497 (497)	695 (664)	5,559 (5,040
488	–	31
488 34 (242) (18)	– – – –	31 – (2) –	519 34 (244 (18
262	–	29
3,452 (3,190)	497 (497)	695 (666)	4,644 (4,353
262	–	29

The net book value of the Contracting Group’s property, plant and equipment held under finance leases included in the total amounts of motor vehicles as at 31 March 2003 and 2004 were HK$648,000 and HK$468,000, respectively. As at 31 March 2005 and 30 September 2005, no items of property, plant and equipment of the Contracting Group was held under finance leases.

– 104 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(b) Interests in subsidiaries

Target Company

								30
					31	March		September
				2003		2004	2005	2005
				HK$’000		HK$’000	HK$’000	HK$’000
Unlisted	shares,	at	cost	33,116		33,116	33,116	33,116

Particulars of the Contracting Group’s principal subsidiaries are set out in Section 1 above.

(c) Interest in an associate

								30
					31	March		September
				2003		2004	2005	2005
				HK$’000		HK$’000	HK$’000	HK$’000
Share	of	net	assets	–		–	–	–

Particulars of the associate as at 31 March 2003 and 2004 are as follows:

			Percentage of
		Place of	ownership interest
		incorporation	attributable to the	Principal
Name	Business structure	and operations	Contracting Group	activity
MIT Shun Cheong	Corporate	Hong Kong	50	Inactive
Company Limited

The associate was deregistered on 18 February 2005.

(d) Available-for-sale equity investments

				30
		31 March		September
	2003	2004	2005	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Unlisted equity investments,
at fair value	12,365	3,257	2,500	2,500

The above investments consist of investments in equity securities which are designated as available-for-sale financial assets and have no fixed maturity date or coupon rate.

The available-for-sale equity investments were stated at their fair values as estimated by the directors of the Contracting Group based on available audited financial statements or latest available unaudited financial information. The Directors believe the estimated fair values resulting from the aforesaid valuation method are reasonable and appropriate at the respective balance sheet dates.

(e) Equity investments at fair value through profit or loss

				30
		31 March		September
	2003	2004	2005	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Listed equity investments in Hong Kong,
at market value	166	411	514	647

– 105 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(f) Gross amount due from/(to) contract customers

2003 HK$’000 82,718 (56,512) 26,206	31 March 2004 HK$’000 74,017 (40,246) 33,771	2005 HK$’000 59,338 (67,900) (8,562)	30 September 2005 HK$’000 63,899 (39,365
			24,534

2,073,258 (2,047,052)	2,616,187 (2,582,416)	2,861,282 (2,869,844)	3,047,717 (3,023,183
26,206 2003 HK$’000 3,499	33,771 31 March 2004 HK$’000 3,248	(8,562) 2005 HK$’000 395	24,534

			30 September 2005 HK$’000 –

(h) Trade and other receivables

The Contracting Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and that the Contracting Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

Trade receivables Other receivables	2003 HK$’000 101,530 15,300 116,830	31 March 2004 HK$’000 83,839 18,267 102,106	2005 HK$’000 97,112 29,657 126,769	30 September 2005 HK$’000 70,351 25,759
				96,110

An aged analysis of the Contracting Group’s trade receivables as at each of the balance sheet dates, based on the invoice date and net of provisions for bad and doubtful debts, is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	2003 HK$’000 85,438 6,572 2,780 6,740 101,530	31 March 2004 HK$’000 61,230 14,071 5,574 2,964 83,839	2005 HK$’000 53,351 5,221 5,143 33,397 97,112	30 September 2005 HK$’000 24,582 1,820 2,062 41,887
				70,351

– 106 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Included in the trade receivables balance as at 30 September 2005 as set out above are amounts due from Chinney Construction of approximately HK$32,912,000 (31 March 2003: HK$15,420,000; 31 March 2004: HK$46,729,000 and 31 March 2005: HK$33,717,000) which arose from the Contracting Group’s provision of various building and maintenance services for Chinney Construction. Please refer to Section 3(g)(1)(i) for details of related party transactions with Chinney Construction.

(i) Balances with the Remaining Group

The balances with the Remaining Group are unsecured, interest-free and have no fixed terms of repayment, except for the amounts due from Shun Cheong Real Estates Limited and Tinhawk Company Limited which are unsecured, bear interest at prevailing market rate and have no fixed terms of repayment.

Subsequent to 30 September 2005, the amounts due from the Remaining Group were substantially reduced as payments have been made by the Remaining Group.

(j) Cash and cash equivalents and pledged time deposits

Cash and bank balances Time deposits Less: Time deposit pledged for general banking facilities (Section 4(l)) Cash and cash equivalents	2003 HK$’000 7,136 39,935	31 March 2004 HK$’000 2,777 32,298	2005 HK$’000 1,957 32,310	30 September 2005 HK$’000 1,366 32,366
	47,071 (27,348)	35,075 (26,800)	34,267 (26,800)	33,732 (26,800
	19,723	8,275	7,467	6,932

(k) Trade payables

An aged analysis of the Contracting Group’s trade payables as at each of the balance sheet dates is as follows:

0 – 30 days 31 – 60 days Over 60 days	2003 HK$’000 12,982 8,366 12,991 34,339	31 March 2004 HK$’000 10,675 7,878 7,805 26,358	2005 HK$’000 14,343 3,735 4,442 22,520	30 September 2005 HK$’000 9,368 11,201 18,152
				38,721

– 107 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(l) Interest-bearing bank loans and overdrafts

2003 HK$’000 16,086 – 13,655 29,741	31 March 2004 HK$’000 17,143 – 9,798 26,941	2005 HK$’000 25,490 4,519 16,330 46,339	30 September 2005 HK$’000 21,942 4,361 18,356
			44,659

16,086 13,655	17,143 9,798	30,009 16,330	26,303 18,356
29,741	26,941	46,339	44,659

As at 30 September 2005, the Contracting Group’s banking facilities, including overdrafts, letters of credit and bank guarantees of approximately HK$76,500,000 (31 March 2003: HK$100,500,000; 31 March 2004: HK$85,500,000 and 31 March 2005: HK$76,500,000), of which HK$66,561,000 (31 March 2003: HK$75,467,000; 31 March 2004: HK$50,968,000 and 31 March 2005: HK$67,793,000) has been utilised as at the balance sheet date.

As at 30 September 2005, the aforesaid banking facilities are secured by bank deposits of the Contracting Group of approximately HK$26,800,000 (31 March 2003: HK$27,348,000 and 31 March 2004 and 2005: HK$26,800,000) and corporate guarantees from SCH.

All of the above borrowings of the Contracting Group bear interest at floating interest rates.

The carrying amounts of the Contracting Group’s bank borrowings approximate their fair values at the respective balance sheet dates.

– 108 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(m) Finance lease payables

During the Relevant Periods, the Contracting Group leased motor vehicles for its building services contracting business and classified these leases as finance leases. These leases expired in the year ended 31 March 2005.

As at each of the balance sheet date, the total future minimum lease payments under finance leases and their present values were as follows:

2003 HK$’000 322 214 536 (86) 450 (270)	2003 HK$’000 322 214 536 (86) 450 (270)	Minimum lease payments 31 March 30 September 2004 2005 2005 HK$’000 HK$’000 HK$’000 214 – – – – – 214 – –	Minimum lease payments 31 March 30 September 2004 2005 2005 HK$’000 HK$’000 HK$’000 214 – – – – – 214 – –	Minimum lease payments 31 March 30 September 2004 2005 2005 HK$’000 HK$’000 HK$’000 214 – – – – – 214 – –	value of minimum lease payments 31 March 30 September 2004 2005 2005 HK$’000 HK$’000 HK$’000 180 – – – – – 180 – –
					–

	) )	(34) 180 (180)	– – –	– – –
450 (270
180		–	–	–

(n) Loan from a minority shareholder of a subsidiary

The loan from a minority shareholder of a subsidiary was unsecured, interest-free and had no fixed terms of repayment as at 31 March 2003, 2004 and 2005 and 30 September 2005.

(o) Deferred tax liabilities

The movements in deferred tax liabilities, which comprised the tax effects of the accelerated tax depreciation and the cumulative differences in profit relating to incomplete long term installation and maintenance contracts, during the Relevant Periods are as follows:

2003 HK$’000 – –	31 March 2004 HK$’000 – 128	2005 HK$’000 128 (102)	30 September 2005 HK$’000 26 –
– 560 (307) 253	128 253 (253) –	26 – – –	26
			– –
			–
253	128	26	26

– 109 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

As at 30 September 2005, the Contracting Group has tax losses arising in Hong Kong of approximately HK$60,163,000 (31 March 2003: HK$35,292,000; 31 March 2004: HK$35,594,000 and 31 March 2005: HK$53,093,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time or the future profit streams are unpredictable.

At 31 March 2003, 2004 and 2005 and 30 September 2005, there were no significant unrecognised deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Contracting Group’s subsidiaries as the Contracting Group had no liability to additional tax should such amounts be remitted.

(p) Share capital

Target Company

Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 100 ordinary share of US$1 each	2003 HK$’000 390 1	31 March 2004 HK$’000 390 1	2005 HK$’000 390 1	30 September 2005 HK$’000 390

				1

During the Relevant Periods, there was no movement in the share capital of the Target Company.

(q) Reserves

(i) Contracting Group

The amounts of the Contracting Group’s reserves and the movements therein for the Relevant Periods are presented in the consolidated statements of changes in equity set out in Section 6 of this report.

(ii) Target Company

Surplus account HK$’000 33,115 – –	Retained profits HK$’000 – 6,000 (6,000)	Total HK$’000 33,115 6,000 (6,000
33,115 – – 33,115 – –	– 6,000 (6,000) – 6,000 (6,000)	33,115 6,000 (6,000
		33,115 6,000 (6,000
33,115	–	33,115

The surplus account of the Target Company represents the difference between the aggregate net asset value of the subsidiaries acquired and the nominal value of the Target Company’s shares issued for the acquisition of the subsidiaries.

– 110 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(r) Dissolution of subsidiaries, net

The fair values of the identifiable assets and liabilities of the subsidiaries dissolved during the Relevant Periods at their dates of dissolution are as follows:

Net assets disposed of: Cash and bank balances Trade and other receivables Other payables and accruals Minority interests Gain/(loss) on dissolution of subsidiaries	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 565 133 – – 6 – (365) (426) – (167) (26)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 565 133 – – 6 – (365) (426) – (167) (26)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 – 565 133 – – 6 – (365) (426) – (167) (26)	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) – – – – – – – –	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) – – – – – – – –
	– –	33 (33)	(313) 313	– –	– –
	–	–	–	–	–

An analysis of the net outflow of cash and cash equivalents in respect of the dissolution of subsidiaries is as follows:

				Six months	ended	ended
	Year	ended 31 March		30 September
	2003	2004	2005	2004		2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Cash and bank balances
disposed of	–	(565)	(133)	–		–

The results of the subsidiaries dissolved during the years ended 31 March 2004 and 2005 had no significant impact on the Contracting Group’s consolidated turnover or profit/(loss) after tax for those years.

(s) Contingent liabilities

In addition to the bank deposits as detailed in Section 4(j) to this report to secure the banking facilities granted to the Contracting Group as set out in Section 4(l) to the report, as at 30 September 2005, the Contracting Group had contingent liabilities in respect of letters of indemnity provided by certain subsidiaries of the Contracting Group to a financial institution for the issue of performance bonds amounted to HK$4,470,000 (31 March 2003, 2004 and 2005: Nil).

Save as disclosed above, the Contracting Group and the Target Company had no significant contingent liabilities as at 31 March 2003, 2004, 2005 and 30 September 2005.

– 111 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(t) Operating lease arrangements

The Contracting Group leases certain of its office properties under operating lease arrangements. Leases for these properties are negotiated for terms ranging from one to three years.

At 31 March 2003, 2004 and 2005 and 30 September 2005, the Contracting Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2003 HK$’000 1,322 407 1,729	31 March 2004 HK$’000 569 64 633	2005 HK$’000 205 52 257	30 September 2005 HK$’000 102 23
				125

(u) Commitments

Apart from the operating lease commitments detailed in Section 4 (t) above, neither the Contracting Group nor the Target Company had any significant commitments as at 31 March 2003, 2004, 2005 and 30 September 2005.

5. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Contracting Group’s principal financial instruments comprise interest-bearing bank loans and overdrafts, cash and bank balances, pledged time deposits and finance leases. The main purpose of these financial instruments is to raise finance for the Contracting Group’s operations. The Contracting Group has various other financial assets and liabilities such as gross amounts due from and to contract customers, trade and other receivables, retention money receivables and payables and trade and bills payables, which arise directly from the Contracting Group’s operations.

The main risk arising from the Contracting Group’s financial instruments are cash flow interest rate risk, credit risk, and liquidity risk. The Directors meet periodically to analyse and formulate measures to manage the Contracting Group’s exposure to these risks. Generally, the Contracting Group introduces conservative strategies on its risk management. As the Group’s exposure to these risks is kept to a minimum, the Contracting Group has not used any derivatives and other instruments for hedging purposes. The Contracting Group does not hold or issue derivative financial instruments for trading purposes. The Directors review and agree policies for managing each of these risks and they are summarised as follows:

(i) Cash flow interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The interest rates and terms of repayment of interest-bearing bank loans and other borrowings are disclosed in Section 4(l). Other financial assets and liabilities do not have material interest rate risk.

– 112 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Interest-bearing bank loans and other borrowings, cash and bank balances, and short term time deposits are stated at cost and are not revalued on a periodic basis. Floating-rate interest income and expenses are charged to the consolidated income statement as incurred.

The nominal interest rates of the financial instruments approximate to their respective effective interest rates.

(ii) Credit risk

The Contracting Group maintains various credit policies for business operations as detailed in Section 4(h) above. In addition, all receivable balances are closely monitored on an ongoing basis to minimize the Contracting Group’s exposure to bad debts.

With respect to credit risk arising from the other financial assets of the Contracting Group, which mainly comprise cash and cash equivalents, the Contracting Group’s exposure to credit risk arises from default of the counterparties, with a maximum exposure equal to the carrying amount of these instruments.

(iii) Liquidity risk

The Contracting Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, trust receipt loans and finance leases. The Contracting Group’s policy is to maintain the Contracting Group at a net current asset position.

The Contracting Group’s overall risk management policy focuses on monitoring all potential financial risks to the Contracting Group. Whenever possible and considered appropriate, the Contracting Group will reduce the risk exposure.

– 113 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

6. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Movements in the shareholders’ equity of the Contracting Group for the Relevant Periods and the six months ended 30 September 2004 on the basis set out in Section 1 above are as follows:

Attributable to equity holders of the parent

	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent	Attributable to equity holders of the parent

At 1 April 2002 Loss for the year Interim 2003 dividend At 31 March 2003 and 1 April 2003 Loss for the year Interim 2004 dividend Dissolution of subsidiaries (Section 4(r)) At 31 March 2004 and 1 April 2004 Loss for the year Dissolution of subsidiaries (Section 4(r)) At 31 March 2005 and 1 April 2005 Profit for the period Interim 2006 dividend At 30 September 2005 At 31 March 2004 and 1 April 2004 Loss for the period At 30 September 2004	Issued share capital HK$’000 1 – – 1 – – – 1 – – 1 – –	Surplus accounts* HK$’000 33,115 – – 33,115 – – – 33,115 – – 33,115 – –	Retained profits/ (accumulated losses)* HK$’000 50,398 (16,601) (6,000) 27,797 (2,731) (6,000) – 19,066 (20,467) – (1,401) 12,680 (6,000)	Total HK$’000 83,514 (16,601) (6,000) 60,913 (2,731) (6,000) – 52,182 (20,467) – 31,715 12,680 (6,000)	Minority interests HK$’000 8,012 11,639 (6,000) 13,651 9,397 (6,000) (167) 16,881 281 (26) 17,136 (47) (6,000)	Total equity HK$’000 91,526 (4,962 (12,000
						74,564 6,666 (12,000 (167
						69,063 (20,186 (26
						48,851 12,633 (12,000
	1	33,115	5,279	38,395	11,089
	1 –	33,115 –	19,066 (3,065)	52,182 (3,065)	16,881 2,706	69,063 (359
	1	33,115	16,001	49,117	19,587

* These reserves accounts comprise the consolidated reserves of HK$60,912,000, HK$52,181,000, HK$31,714,000 and HK$38,394,000 as at 31 March 2003, 2004 and 2005 and 30 September 2005 respectively.

– 114 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

7. CONSOLIDATED CASH FLOW STATEMENTS

The consolidated cash flow statements of the Contracting Group for the Relevant Periods and the six months ended 30 September 2004 after making such adjustments as we consider appropriate and on the basis set out in Section 1 above are as follows:

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Share of loss of an associate Interest paid Interest income Depreciation Loss/(gain) on disposal of items of property, plant and equipment Loss/(gain) on dissolution of subsidiaries (Section 4(r)) Gain on dissolution of an associate Provision for amounts due from former subsidiaries Provision for doubtful debts Impairment loss of available-for-sale equity investments Unrealised holding (gain)/loss on equity investments at fair value through profit or loss Waiver of payable balances by the Remaining Group Operating profit/(loss) before working capital changes Decrease/(increase) in gross amount due from contract customers Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables (note (b)) Decrease/(increase) in retention money receivables Decrease in prepayments, deposits and other assets Increase/(decrease) in gross amount due to contract customers Increase/(decrease) in trade payables Increase/(decrease) in bills payable Increase/(decrease) in retention money payable Increase/(decrease) in other payables and accruals Cash generated from/(used in) operations – page 116	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498) 2 – – 1,387 864 1,016 (2,226) (1,154) (1,014) 1,948 1,687 838 429 7 (47) – 33 (313) – – (199) – 2,179 – – 109 1,460 7,130 9,108 757 1,244 (245) (103) – – –	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498) 2 – – 1,387 864 1,016 (2,226) (1,154) (1,014) 1,948 1,687 838 429 7 (47) – 33 (313) – – (199) – 2,179 – – 109 1,460 7,130 9,108 757 1,244 (245) (103) – – –	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (599) 10,915 (19,498) 2 – – 1,387 864 1,016 (2,226) (1,154) (1,014) 1,948 1,687 838 429 7 (47) – 33 (313) – – (199) – 2,179 – – 109 1,460 7,130 9,108 757 1,244 (245) (103) – – –	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 799 12,699 – – 383 840 (507) (1,120) 523 244 19 (9) – – – – – – – 375 944 – 95 (133) – (18,053) 2,256 (5,157) (2,352) (4,561) (55) 395 (21,131) 30,284 2,943 896 6 41 37,308 (28,535) 4,350 16,201 (3,238) 3,209 1,758 (1,042) (22,316) 3,028 (471) 14,759	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) 799 12,699 – – 383 840 (507) (1,120) 523 244 19 (9) – – – – – – – 375 944 – 95 (133) – (18,053) 2,256 (5,157) (2,352) (4,561) (55) 395 (21,131) 30,284 2,943 896 6 41 37,308 (28,535) 4,350 16,201 (3,238) 3,209 1,758 (1,042) (22,316) 3,028 (471) 14,759
	9,315 (22,124) 880 (42,572) 3,821 847 21,314 5,508 (9,962) (3,290) 10,075 (26,188)	23,503 8,701 251 12,436 (1,780) 62 (16,266) (7,981) (16,589) 3,379 (311) 5,405	(17,103) 14,679 2,853 (26,129) 2,839 4 27,654 (3,838) (3,180) 3,805 (2,054) (470)	2,256 (2,352) (55) (21,131) 2,943 6 37,308 4,350 (3,238) 1,758 (22,316) (471)	(5,157 (4,561 395 30,284 896 41 (28,535 16,201 3,209 (1,042 3,028
					14,759

– 115 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (26,188) 5,405 (470) (1,322) (813) (973) (65) (51) (43) (7,739) (5,892) (3,011)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (26,188) 5,405 (470) (1,322) (813) (973) (65) (51) (43) (7,739) (5,892) (3,011)	Year ended 31 March 2003 2004 2005 HK$’000 HK$’000 HK$’000 (26,188) 5,405 (470) (1,322) (813) (973) (65) (51) (43) (7,739) (5,892) (3,011)	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) (471) 14,759 (340) (840) (43) – (8) (77) (862) 13,842 507 1,120 (17) (34) 430 27 – – – – – – 920 1,113 – – – – (180) – (5,116) 2,026 (12,141) (13,810) (17,437) (11,784) (17,379) 3,171 17,932 4,258 553 7,429 4,896 1,366 5,500 5,566 26,800 26,800 (36,643) (26,303) 553 7,429	Six months ended 30 September 2004 2005 HK$’000 HK$’000 (unaudited) (471) 14,759 (340) (840) (43) – (8) (77) (862) 13,842 507 1,120 (17) (34) 430 27 – – – – – – 920 1,113 – – – – (180) – (5,116) 2,026 (12,141) (13,810) (17,437) (11,784) (17,379) 3,171 17,932 4,258 553 7,429 4,896 1,366 5,500 5,566 26,800 26,800 (36,643) (26,303) 553 7,429
(35,314) 2,226 (64) 480 – (2) (990) 1,650 (6,000) (6,000) (337) 7,772 38,112 33,547 (117) 31,102	(1,351) 1,154 (88) – (565) – – 501 (6,000) (6,000) (270) (3,857) 3,924 (12,203) (13,053) 30,985	(4,497) 1,014 (148) 558 (133) – – 1,291 – – (180) 6,532 (16,820) (10,468) (13,674) 17,932	(862) 507 (17) 430 – – – 920 – – (180) (5,116) (12,141) (17,437) (17,379) 17,932	13,842
				1,120 (34 27 – – –
				1,113
				– – – 2,026 (13,810
				(11,784
				3,171 4,258
30,985	17,932	4,258	553
7,136 12,587 27,348 (16,086)	2,777 5,498 26,800 (17,143)	1,957 5,510 26,800 (30,009)	4,896 5,500 26,800 (36,643)	1,366 5,566 26,800 (26,303
30,985	17,932	4,258	553

– 116 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Notes:

Major non-cash transactions

(a) During the six months ended 30 September 2005, an interim dividend of HK$6,000,000 was settled by the Contracting Group through current account with the Remaining Group.
(b) During the six months ended 30 September 2005, Shun Wing, a subsidiary of the Contracting Group, settled a dividend of HK$6,000,000 payable to its minority shareholder by offsetting the balance due from it.
(c) As set out in Section 1 above, the waiver of payable balances by the Remaining Group of HK$18,053,000 was credited to the consolidated income statement as if the Corporate Restructuring had taken place. This waiver had no cash flow impact to the Contracting Group for the six months ended 30 September 2005.

8. SEGMENT INFORMATION

Segment information is presented by way of the Contracting Group’s primary segment reporting basis, by business segment. In determining the Contracting Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets. No further geographical segment information is presented as over 90% of the Contracting Group’s revenue is derived from customers based in Hong Kong and over 90% of the Contracting Group’s assets are located in Hong Kong.

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

(a) the building services contracting and project management business segment, which includes the provision of multi-disciplinary building services, comprising electrical engineering, water pumping and fire services, air conditioning installation, plumbing and drainage, environmental engineering, extra low voltage systems engineering and project management; and
(b) the trading of electrical and mechanical engineering materials and equipment segment.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

– 117 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(a) Business segments

The following tables present revenue, results and certain assets, liabilities and expenditure information for the Contracting Group’s business segments.

Year ended 31 March 2003

Segment revenue: Sale to external customers Intersegment sales Total Segment results Interest income and unallocated gains Impairment loss of available-for-sale equity investments Unrealised holding loss on equity investments at fair value through profit or loss Finance costs Share of loss of an associate Loss before tax Tax Loss for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Capital expenditure	Building services contracting business and project management HK$’000 589,582 – 589,582 2,532 206,672 152,847 1,879 53	Trading of electrical and mechanical engineering materials and equipment Eliminations Consolidated HK$’000 HK$’000 HK$’000 51,234 – 640,816 8,342 (8,342) – 59,576 (8,342) 640,816 606 – 3,138 6,538 (7,130) (1,244) (1,899) (2) (599) (4,363) (4,962) 21,847 – 228,519 108,673 337,192 11,824 – 164,671 97,957 262,628 69 – 1,948 11 – 64

– 118 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Year ended 31 March 2004

Segment revenue: Sales to external customers Intersegment sales Total Segment results Interest income and unallocated gains Impairment loss of available-for-sale equity investments Unrealised holding gain on equity investments at fair value through profit or loss Provision for amounts due from former subsidiaries Finance costs Profit before tax Tax Profit for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Capital expenditure Provision for doubtful debts	Building services contracting business and project management HK$’000 707,246 – 707,246 21,265 185,870 116,406 1,633 75 109	Trading of electrical and mechanical engineering materials and equipment Eliminations Consolidated HK$’000 HK$’000 HK$’000 27,370 – 734,616 9,951 (9,951) – 37,321 (9,951) 734,616 (2,707) – 18,558 4,965 (9,108) 245 (2,179) (1,566) 10,915 (4,249) 6,666 19,085 – 204,955 91,782 296,737 9,862 – 126,268 101,406 227,674 54 – 1,687 13 – 88 – – 109

– 119 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Year ended 31 March 2005

Segment revenue: Sales to external customers Intersegment sales Total Segment results Interest income and unallocated gains Impairment loss of available-for-sale equity investments Unrealised holding gain on equity investments at fair value through profit or loss Finance costs Loss before tax Tax Loss for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Capital expenditure Provision for doubtful debts	Building services contracting business and project management HK$’000 481,393 – 481,393 (16,487) 196,237 139,814 797 148 6	Trading of electrical and mechanical engineering materials and equipment Eliminations Consolidated HK$’000 HK$’000 HK$’000 24,181 – 505,574 1,963 (1,963) – 26,144 (1,963) 505,574 (5,035) – (21,522) 4,109 (757) 103 (1,431) (19,498) (688) (20,186) 11,805 − 208,042 73,874 281,916 8,036 − 147,850 85,215 233,065 41 – 838 – – 148 1,454 – 1,460

– 120 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Six months ended 30 September 2004

Segment revenue: Sales to external customers Intersegment sales Total Segment results Interest income and unallocated gains Impairment loss of available-for-sale equity investments Unrealised holding loss on equity investments at fair value through profit or loss Finance costs Profit before tax Tax Loss for the period Other segment information: Depreciation Capital expenditure	Building services contracting business and project management HK$’000 225,521 – 225,521 1,596 503 17	Trading of electrical and mechanical engineering materials and equipment Eliminations Consolidated HK$’000 HK$’000 HK$’000 11,756 – 237,277 1,152 (1,152) – 12,908 (1,152) 237,277 (1,081) – 515 2,028 (944) (95) (705) 799 (1,158) (359) 20 – 523 – – 17

– 121 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

Six months ended 30 September 2005

Segment revenue: Sales to external customers Intersegment sales Total Segment results Interest income and unallocated gains Unrealised holding gain on equity investments at fair value through profit or loss Waiver of payable balances by the Remaining Group Finance costs Profit before tax Tax Profit for the period Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Capital expenditure Provision for doubtful debts	Building services contracting business and project management HK$’000 185,621 4 185,625 (7,140) 165,306 132,272 236 20 37	Trading of electrical and mechanical engineering materials and equipment Eliminations Consolidated HK$’000 HK$’000 HK$’000 20,463 – 206,084 3,350 (3,354) – 23,813 (3,354) 206,084 75 – (7,065) 2,600 133 18,053 (1,022) 12,699 (66) 12,633 15,078 – 180,384 61,742 242,126 8,439 – 140,711 51,931 192,642 8 – 244 14 – 34 338 – 375

– 122 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE CONTRACTING GROUP

(b) Geographical segments

No geographical segment information is presented as over 90% of the Contracting Group’s revenue is derived from customers based in Hong Kong and over 90% of the Contracting Group’s assets are located in Hong Kong.

9. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Contracting Group in respect of any period subsequent to 30 September 2005.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

– 123 –

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF THE ENLARGED GROUP

The unaudited pro forma combined balance sheet of the Group and the Contracting Group (collectively the “Enlarged Group”) has been prepared to demonstrate the effect of the Acquisition on the consolidated balance sheet of the Group on the assumption that SCI would have become a wholly-owned subsidiary of CAT(BVI) as if the Acquisition had been completed on 30 June 2005 with further adjustments as explained in the notes below.

The unaudited pro forma combined balance sheet has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the financial position of the Enlarged Group as at 30 June 2005 or at any future dates.

The historical consolidated balance sheets of the Group and the Contracting Group have been extracted from the respective unaudited and audited interim financial statements in respect of the six months ended 30 June 2005 and 30 September 2005, respectively, as set out in Appendices I and II to the Circular.

The Group as at 30 June 2005 HK$’000 (Unaudited) 35,589 – 21,671 – – 766 4,618	The Contracting Group as at 30 September 2005 HK$’000 (Audited) (Note 1) 291 – – 2,500 647 – –	Total Pro Forma Adjustments Notes HK$’000 HK$’000 35,880 – 35,600 2 (35,600) 3 21,671 (1,615) 4 2,500 647 766 4,618	Pro Forma Enlarged Group HK$’000 (Unaudited) 35,880 – 20,056 2,500 647 766 4,618
62,644 3,036 103,450 3,610 258,492 1,784 9,776 10,330 – – 66,624 457,102 67,443 216,818 353 32,745 7,007 38,837 363,203	3,438 – – 63,899 90,209 20,575 – 25,985 4,288 26,800 6,932 238,688 45,193 18,356 – 95,518 346 26,303 185,716	66,082 3,036 103,450 67,509 348,701 22,359 9,776 36,315 4,288 26,800 73,556 (35,600) 2 695,790 112,636 235,174 353 128,263 7,353 65,140 548,919	64,467
			3,036 103,450 67,509 348,701 22,359 9,776 36,315 4,288 26,800 37,956
			660,190
			112,636 235,174 353 128,263 7,353 65,140
			548,919

– 124 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group as at 30 June 2005 HK$’000 (Unaudited) 93,899	The Contracting Group as at 30 September 2005 HK$’000 (Audited) (Note 1) 52,972	Total Pro Forma Adjustments Notes HK$’000 HK$’000 146,871	Pro Forma Enlarged Group HK$’000 (Unaudited) 111,271
156,543 – 1,248 1,047 2,295	56,410 6,900 – 26 6,926	212,953 6,900 1,248 1,073 9,221	175,738
			6,900 1,248 1,073
			9,221
154,248	49,484	203,732	166,517

39,660 113,062 152,722 1,526	1 38,394 38,395 11,089	39,661 (1) 3 151,456 (38,394) 3 2,795 3 (1,615) 4 191,117 12,615	39,660 114,242
			153,902 12,615
154,248	49,484	203,732	166,517

Notes:

This column represents the historical audited financial information of the Contracting Group as at 30 September 2005 as set out in the Accountants’ Report of the Contracting Group in Appendix II to the Circular. Certain balances have been reclassified in order to conform with the classification used by the Group.
The adjustment represents the aggregate effect on cash of (i) cash consideration of approximately HK$35 million for the Acquisition; and (ii) estimated expenses of approximately HK$0.6 million to be incurred for the Acquisition.
The adjustments represent the elimination of the acquisition cost incurred by the Group and the pre-acquisition reserves of the Contracting Group. The excess amount of the fair value of the identifiable assets and liabilities of the Contracting Group over the fair value of consideration given by the Group (the “Excess Amount”) is recognised immediately in the income statement (included in reserves above) in accordance with Hong Kong Financial Reporting Standard No. 3 – Business Combinations. This adjustment is for illustrative purpose and the actual Excess Amount at date of completion may be different. The directors of the Company are in the opinion that the Excess Amount will be substantially reduced or may even turn into a goodwill as the Contracting Group is expected to incur losses for the period from 1 October 2005 up to the date of completion of the Acquisition.
The adjustment represents the Group’s share of loss on disposal of the Contracting Group by Shun Cheong Holdings Limited (“SCH”), an associate to which the Company owns 29.93% equity interest as at 30 June 2005, after taking into account the estimated expenses of HK$2,000,000 to be incurred by SCH arising from this transaction and on the assumption that no loss is incurred by the Contracting Group for the period from 1 October 2005 up to the date of completion of the Acquisition.
There are outstanding balances between the Group and the Contracting Group, which have not been eliminated in the Pro Forma Combined Balance Sheet of the Enlarged Group. As at 30 June 2005, the Group had a receivable of approximately HK$3,370,000 from the Contracting Group grouped under “Trade and retention monies receivables” in the unaudited interim financial statements of the Group for the six months ended 30 June 2005. As at 30 September 2005, the Contracting Group had no material balances with the Group in the audited interim financial statements of the Contracting Group for the six months ended 30 September 2005.

– 125 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. LETTER ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is a text of the letter from Ernst & Young, the reporting accountants, in respect of the unaudited pro forma financial information of the Enlarged Group, prepared for the purpose of incorporation in this circular.

==> picture [147 x 38] intentionally omitted <==

18th Floor

Two International Finance Centre 8 Finance Street Central Hong Kong

10 March 2006

The Board of Directors Chinney Alliance Group Limited

Dear Sirs,

Chinney Alliance Group Limited (the “Company’’) and its subsidiaries (the “Group’’)

We report on the unaudited pro forma combined balance sheet of the Group and Shun Cheong Investments Limited (“SCI’’) and certain of its subsidiaries (the “Contracting Group’’) (“Pro Forma Combined Balance Sheet’’) set out on pages 124 to 125 in Appendix III to the Company’s circular dated 10 March 2006 (the “Circular’’) in connection with the proposed acquisition of the entire issued share capital of SCI by Chinney Alliance Trading (BVI) Limited (“CAT(BVI)”), a wholly-owned subsidiary of the Company (the “Acquisition’’). The Pro Forma Combined Balance Sheet is unaudited and has been prepared by the directors of the Company, solely for illustrative purposes, to provide information to the shareholders of the Company about how the Acquisition might affect the relevant consolidated balance sheet of the Group as at 30 June 2005.

The historical financial information is derived from the unaudited and audited historical financial information of the Group and the Contracting Group (collectively the “Enlarged Group’’), respectively, where applicable, appearing elsewhere in the Circular. The basis of preparation is set out in the accompanying introduction and notes to the Pro Forma Combined Balance Sheet.

– 126 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Pro Forma Combined Balance Sheet in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the Pro Forma Combined Balance Sheet and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Combined Balance Sheet beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments, and discussing the Pro Forma Combined Balance Sheet with the directors of the Company.

Our work does not constitute an audit or a review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the Pro Forma Combined Balance Sheet.

The Pro Forma Combined Balance Sheet is for illustrative purposes only, based on the directors’ judgements and assumptions, and, because of its nature, it does not provide an assurance or indication that any event will take place in the future and may not be indicative of the financial positions of:

the Group and the Enlarged Group, had the Acquisition actually occurred as at the date 30 June 2005; or
the Group and the Enlarged Group at any future dates.

– 127 –

APPENDIX III

PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Opinion

In our opinion:

(a) the Pro Forma Combined Balance Sheet has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group in respect of the six months ended 30 June 2005; and
(c) the adjustments are appropriate for the purposes of Pro Forma Combined Balance Sheet as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully

Ernst & Young Certified Public Accountants Hong Kong

– 128 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors

As at the Latest Practicable Date, the interests and short positions of the Directors in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) 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 or short positions which they are taken or deemed to have under such provisions of the SFO) or which were required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, were as follows:

(i) Directors’ interests in the Shares

					Percentage
		Number of	Shares held,		of the
	capacity and nature of interest				Company’s
	Personal	Family	Corporate		issued share
Name of Director	interests	interests	interests	Total	capital
James Sai-Wing Wong	–	–	46,158,319	46,158,319	29.10%
			(Note)
Frank Kwok-Kit Chu	48,240	47,840	–	96,080	0.06%
Peter Chi-Chung Luk	–	12,800	–	12,800	0.01%

Note: These shares are held by Multi-Investment Group Limited (“Multi-Investment”), a company in which Mr. James Sai-Wing Wong is a director and has a beneficial interest.

All the interests stated above represent long positions.

– 129 –

APPENDIX IV

GENERAL INFORMATION

(ii) Directors’ interests in options/underlying shares granted by the Company

			Exercise	Number of
			price per	options
Name of Director	Date of grant	Exercise period	share	outstanding
			HK$
Stephen Sek-Kee Yu	16 July 1999	16 July 1999 to	1.75	480,000
		15 July 2009
Frank Kwok-Kit Chu	13 July 1999	13 July 1999 to	1.75	320,000
		12 July 2009
Peter Chi-Chung Luk	12 July 1999	12 July 1999 to	1.75	160,000
		11 July 2009
Herman Man-Hei Fung	13 July 1999	13 July 1999 to	1.75	320,000
		12 July 2009

Save as disclosed in this circular, so far as was known to any Director as at the Latest Practicable Date, none of the Directors had any interest or short position in the Shares, underlying shares and debentures of the Company or any associated corporations (within the meaning of the Part XV of the SFO) 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 and short positions which the Director is taken or deemed to have under such provisions of the SFO), or which were required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, to be notified to the Company and the Stock Exchange.

– 130 –

APPENDIX IV

GENERAL INFORMATION

(b) Substantial shareholders

(i) As at the Latest Practicable Date, so far as was known to any Director, the following persons had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO:

				Percentage
				of the
				Company’s
			Number of	issued
		Capacity and	Shares	share
Name of Shareholder	Note	nature of interest	held	capital
James Sai-Wing Wong	1	Interest through a	46,158,319	29.10%
		controlled corporation
Madeline May-Lung Wong	1	Interest through a	46,158,319	29.10%
		controlled corporation
Lucky Year Finance Limited	1	Interest through a	46,158,319	29.10%
		controlled corporation
Chinney Holdings Limited	1	Interest through a	46,158,319	29.10%
		controlled corporation
Chinney Investments, Limited	1	Interest through a	46,158,319	29.10%
(“CIL”)		controlled corporation
Newsworthy Resources	1	Interest through a	46,158,319	29.10%
Limited		controlled corporation
Multi-Investment	1	Beneficial owner	46,158,319	29.10%
Sumitomo Mitsui Banking	2	Beneficial owner	12,792,000	8.06%
Corporation
Credit Suisse First Boston	2	Beneficial owner	12,792,000	8.06%
International
Dresdner Kleinwort	2	Beneficial owner	12,792,000	8.06%
Wasserstein Limited
Krung Thai Bank Public	2	Beneficial owner	12,792,000	8.06%
Company Limited
PT. Bank Mandiri (Persero)	2	Beneficial owner	12,792,000	8.06%
PT. NISP Sekuritas	2	Beneficial owner	12,792,000	8.06%
	–	131 –

APPENDIX IV

GENERAL INFORMATION

Notes:

Mr. James Sai-Wing Wong, Ms. Madeline May-Lung Wong, Lucky Year Finance Limited, Chinney Holdings Limited, CIL, Newsworthy Resources Limited and Multi-Investment are deemed to be interested in the same parcel of 46,158,319 shares by virtue of Section 316 of the SFO.
These shares are registered in the name of an agent bank on behalf of six banks that comprise a syndicate of lenders to a shareholder of the Company (the “Syndicate”). The Syndicate’s interest in the relevant shares was acquired as a result of security given by the shareholder over such shares in respect of a loan advanced to the shareholder by the Syndicate. Such interest became discloseable upon the Syndicate becoming entitled to exercise the power of sale and voting rights in respect of the interest in the shares as a result of a default by the shareholder. Accordingly, Sumitomo Mitsui Banking Corporation, Credit Suisse First Boston International, Dresdner Kleinwort Wasserstein Limited, Krung Thai Bank Public Company Limited, PT. Bank Mandiri (Persero) and PT. NISP Sekuritas are each deemed to have a security interest in the relevant shares.

All the interests stated above represent long positions.

(ii) So far as was known to any Director, as at the Latest Practicable Date, the following person was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group other than the Company and the amount of such person’s interest in such securities was as follows:

		Approximate
Name of person having	Name of member	percentage of
10% or more interest	of the Group	interest held
Saengsup Supaporn	Dharmala Sulee Limited	30%

Note: Dharmala Sulee Limited has an interest of approximately 99.9% in each of Cosper Enterprise Co., Ltd., Mail Order Gallery Enterprises Co., Ltd. and Shopper Express Enterprises Co., Ltd.

Save as disclosed in this circular, the Directors are not aware of any person as at the Latest Practicable Date who had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, was directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group other than the Company, or any options in respect of such capital.

3. DIRECTORS’ INTERESTS IN ASSETS, CONTRACTS AND IN COMPETING BUSINESS

CIL provided management services to the Group at a fee determined based on the time involvement of the personnel providing services. Mr. James Sai-Wing Wong, a director of the Company, is also a director of and has beneficial interests in CIL. Mr. Herman Man-Hei Fung is both a director of the Company and CIL.

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APPENDIX IV

GENERAL INFORMATION

The Group acted as subcontractor for certain members of the Contracting Group on air-conditioning engineering works at market terms. Mr. Stephen Sek-Kee Yu, a director of the Company, is also a director of SCH and the aforesaid members of the Contracting Group. SCH, a 29.9% owned associate of the Company, is the holding company of the Contracting Group.

The Group sold goods to a member of the Contracting Group at prices and conditions comparable to sales to third-party customers. Mr. Stephen Sek-Kee Yu, a director of the Company, is also a director of SCH and the member of the Contracting Group.

As announced on 26 October 2005, Best Treasure Limited, a wholly-owned subsidiary of the Company agreed to sell and Chinney Construction (BVI) Limited, a 86.05% owned subsidiary of CIL, agreed to purchase the entire issued share capital of Jackson Mercantile Trading Company Limited (“JMT”) for a cash consideration of HK$7,800,000. Mr. James Sai-Wing Wong is a director of and has a beneficial interest in CIL. This agreement constituted a disclosable and connected transaction of the Company. As each of the applicable ratios of the disposal was less than 25% and the consideration involved was less than HK$10,000,000, the disposal was subject to reporting and announcement requirements and exempted from independent shareholders’ approval.

So far as the Directors are aware and, save as disclosed above and in this circular, as at the Latest Practicable Date:

(i) none of the Directors had any direct or indirect interests in any assets acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up;
(ii) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which is subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group; and
(iii) none of the Directors or their respective associates had an interest in a business which competes or may compete either directly or indirectly with the business of the Group, or have or may have any other conflicts of interest with the Group.

4. MATERIAL CONTRACTS

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

(i) the Sale and Purchase Agreement;
(ii) a sale and purchase agreement dated 26 October 2005 entered into between Best Treasure Limited, a wholly-owned subsidiary of the Company (as vendor), Chinney Construction (BVI) Limited, a 86.05% owned subsidiary of CIL (as purchaser) and the Company as vendor’s guarantor in relation to the sale and purchase of the entire issued share capital of JMT for a cash consideration of HK$7,800,000;

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APPENDIX IV

GENERAL INFORMATION

(iii) a sale and purchase agreement dated 27 September 2005 entered into between DMT International Hong Kong Limited, a wholly-owned subsidiary of the Company (as vendor) and Mr. Lung Yee Cheong, a director of DMT PVC Compounding Ltd. (“DMT PVC”) as well as a shareholder holding 30% then equity interest in DMT PVC (as purchaser) in relation to the sale and purchase of a 30% equity interest in DMT PVC for a cash consideration of HK$888,000;
(iv) a placing agreement dated 3 March 2004 entered into between Multi-Investment as vendor and China Everbright Securities (HK) Limited as placing agent in relation to the placement of 468,000,000 existing Shares at a price of HK$0.02 each for cash proceeds of approximately HK$9 million;
(v) a subscription agreement dated 3 March 2004 entered into between the Company as issuer and Multi-Investment as subscriber in relation to the subscription of 660,000,000 new Shares at a price of HK$0.02 each for net cash proceeds of approximately HK$13 million.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has any existing or proposed service contract (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)) with any member of the Group.

6. LITIGATION

As at the Latest Practicable Date, the Directors are not aware that any of the respective members of the Group were engaged in any litigation or arbitration of material importance and there was no litigation, arbitration or claim of material importance known to the Directors to be pending or threatened against any respective members of the Group.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given its opinion and advice which are included in this circular:

Name Qualification Ernst & Young Certified Public Accountants

Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report and letter and the reference to its name in the form and context in which it appears.

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APPENDIX IV

GENERAL INFORMATION

As at the Latest Practicable Date, Ernst & Young did not have any shareholding interest in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group; nor did it have any direct or indirect interest in any assets acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up.

8. GENERAL

(a) The secretary and qualified accountant of the Company is Mr. Peter Chi-Chung Luk, FCCA, FCPA, FCS, FCIS.
(b) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM11, Bermuda. The head office and principal place of business of the Company is situated at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong.
(c) The Hong Kong branch share registrars and transfer office of the Company is Tengis Limited at Level 25, Three Pacific Place, 1 Queen’s Road East, Wanchai, Hong Kong.
(d) The English language text of this circular shall prevail over the Chinese language text.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong during normal business hours up to and including the date of the SGM:

(a) the Sale and Purchase Agreement;
(b) the Memorandum and Bye-laws of the Company;
(c) the annual reports of the Company for each of the two financial years ended 31 December 2003 and 2004;
(d) the interim report of the Company for the six months ended 30 June 2005;
(e) the accountants’ report of Ernst & Young of the Contracting Group, the text of which is set out in Appendix II to this circular;

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GENERAL INFORMATION

APPENDIX IV

(f) the letter from Ernst & Young on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in part 2 of Appendix III to this circular;
(g) the written consent from Ernst & Young as referred to in the paragraph headed “Expert and Consent” in this appendix;
(h) each of the material contracts, as referred to in the paragraph headed “Material Contracts” in this appendix;
(i) the circular of the Company dated 27 April 2005 in relation to proposals for capital reorganisation involving cancellation of the capital reserve and share premium accounts of the Company, consolidation of every twenty-five then existing shares of the Company having a nominal value of HK$0.01 each into one new share of the Company having a nominal value of HK$0.25 each, re-election of directors of the Company, general mandate to issue shares of the Company and notice convening the holding of the annual general meeting of the Company;
(j) the circular of the Company dated 11 November 2005 in relation to the disposal of the entire interest in JMT; and
(k) this circular.

– 136 –

NOTICE OF SGM

==> picture [328 x 47] intentionally omitted <==

(Stock Code: 385)

NOTICE IS HEREBY GIVEN that a special general meeting (the “Meeting”) of Chinney Alliance Group Limited (the “Company”) will be held at Lotus Room, 6th Floor, The Marco Polo Hong Kong Hotel, Harbour City, Kowloon, Hong Kong on Monday, 27 March 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT

(a) the acquisition by Chinney Alliance Trading (BVI) Limited of the entire issued share capital of Shun Cheong Investments Limited from Shun Cheong Holdings Limited (the “Acquisition”) pursuant to the sale and purchase agreement dated 26 January 2006 (the “Agreement”) made between Shun Cheong Holdings Limited as vendor, Chinney Alliance Trading (BVI) Limited as purchaser and the Company as purchaser’s guarantor, for an aggregate cash consideration of HK$35,000,000, including the giving of an indemnity by the Company in favour of Shun Cheong Holdings Limited to guarantee the performance of Chinney Alliance Trading (BVI) Limited under the Agreement and to indemnify Shun Cheong Holdings Limited for all its obligations under guarantees provided to banks and/or third parties for the business operation of Shun Cheong Investments Limited and its subsidiaries and an undertaking to procure the release of such guarantees within three months from the date of completion of the Agreement, be and is hereby approved and confirmed;
(b) the contents of the Agreement in relation to the sale and purchase of the entire issued share capital of Shun Cheong Investments Limited and all the transactions contemplated under the Agreement (a copy of which has been produced to the Meeting marked “A” and initialed by the Chairman of the Meeting for the purpose of identification), be and are hereby approved, ratified and confirmed; and
(c) any directors of the Company be and is hereby irrevocably and unconditionally authorised to execute (whether under seal or under hand) all such documents, instruments and agreements and to do all such acts and things deemed by him to be incidental to, ancillary to or in connection with the matters contemplated in or relating to the Agreement and/or the Acquisition as he may consider necessary, desirable or expedient.”

By order of the Board Chinney Alliance Group Limited James Sai-Wing Wong Chairman

Hong Kong, 10 March 2006

– 137 –

NOTICE OF SGM

Head Office and Principal Place of Business:

18th Floor

Hang Seng Building 77 Des Voeux Road Central Hong Kong

Notes:

A member entitled to attend and vote at the Meeting is entitled to appoint one or more than one proxy to attend and, subject to the provisions of the bye-laws of the Company, vote in his stead. A proxy need not be a member of the Company.
A form of proxy for use for the aforesaid purpose will be delivered forthwith together with a copy of this original notice to the registered address of the members entitled to vote at the Meeting. In order to be valid, the said form of proxy, together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney or authority, must be lodged with the Company Secretary at the Company’s principal place of business in Hong Kong at 18th Floor, Hang Seng Building, 77 Des Voeux Road Central, Hong Kong not less than 48 hours before the time for holding the meeting or any adjourned meeting at which the person named in such instrument proposes to vote.
Whether or not you propose to attend the Meeting in person, you are strongly urged to complete and return the said form of proxy in accordance with the instructions printed thereon. Completion and return of such form of proxy will not preclude you from attending the Meeting and voting in person if you so wish (in which case any appointment of proxy for the purpose of the Meeting will be automatically revoked).
For joint registered holders of any share attending the Meeting on the same occasion, the vote of the holder whose name stands first on the register who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders.
As at the date hereof, the board of directors of the Company comprises of eight directors, of which four are executive directors, namely Mr. James Sai-Wing Wong, Mr. Stephen Sek-Kee Yu, Mr. Frank Kwok-Kit Chu and Mr. Peter Chi-Chung Luk; and one is a non-executive director, namely Mr. Herman Man-Hei Fung; and three are independent non-executive directors, namely Mr. William Gage McAfee, Mr. David Chung-Shing Wu and Mr. Vincent Tian-Quan Mo.

– 138 –

AI assistant

Chinney Alliance Group Limited — Proxy Solicitation & Information Statement 2006

49180_rns_2006-03-13_4cb36158-e019-45a9-a14e-de265ac46cc1.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(Stock Code: 385)

PROPOSED ACQUISITION OF THE ENTIRE INTEREST IN SHUN CHEONG INVESTMENTS LIMITED

MAJOR TRANSACTION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(Stock Code: 385)

PROPOSED ACQUISITION OF THE ENTIRE INTEREST IN SHUN CHEONG INVESTMENTS LIMITED

MAJOR TRANSACTION

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE SALE AND PURCHASE AGREEMENT

Date

Parties

Assets to be acquired by CAT (BVI)

Consideration

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Completion

Deed of indemnity

Information on the Contracting Group

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Management analysis of the Contracting Group

Financial results for the year ended 31 March 2005 and 2004

Financial results for the six months ended 30 September 2005

LETTER FROM THE BOARD

Funding and treasury policy

Investments

Contingent liabilities

Employees and remuneration policies

Information on the Group and SCH Group

Financial effects of the Acquisition

LETTER FROM THE BOARD

Earnings

Net assets

LETTER FROM THE BOARD

Reasons for and benefits of the Acquisition

LETTER FROM THE BOARD

Requirements of the Listing Rules

3. SGM

4. PROCEDURE FOR DEMANDING A POLL

LETTER FROM THE BOARD

5. RECOMMENDATION

6. ADDITIONAL INFORMATION

1. THREE-YEAR FINANCIAL SUMMARY

Results

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2004

Consolidated Profit and Loss Account

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Balance Sheet

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes to the Financial Statements

1. CORPORATE INFORMATION

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSS”)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Chinney Alliance Group Limited Proxy Solicitation & Information Statement 2006