THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, 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(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

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.

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(Stock Code: 385)

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

Financial adviser to Chinney Alliance Group Limited

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out in pages 5 to 14 of this circular. A letter from the Independent Board Committee containing its recommendation in respect of the Acquisition is set out in page 15 of this circular. A letter from Veda Capital Limited containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders in connection with the Acquisition is set out in pages 16 to 26 of this circular.

A notice convening a special general meeting of the Company to be convened and held at Full Moon Shanghai Restaurant, 4/F., East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Tuesday, 16 October 2007 at 4:00 p.m. is set out in pages 155 to 156 of this circular.

Whether or not you are able 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 the same to the Company’s Hong Kong branch share registrar, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the special general meeting or any adjourned meeting thereof. Completion and return of the accompanying from of proxy will not preclude you from attending and voting at the special general meeting or any adjourned meeting thereof should you so wish.

25 September 2007

Page

DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . .		15
LETTER FROM	VEDA CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		16
APPENDIX I	–	FINANCIAL INFORMATION ON THE GROUP. . . . . . . .	27
APPENDIX II	–	ACCOUNTANTS’ REPORT OF THE VICTORY
		LEAP GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE ENLARGED GROUP . . . . . .	136
APPENDIX IV	–	MANAGEMENT DISCUSSION AND ANALYSIS
		OF THE VICTORY LEAP GROUP. . . . . . . . . . . . . . . . .	142
APPENDIX V	–	PROPERTY VALUATION . . . . . . . . . . . . . . . . . . . . . . . . .	144
APPENDIX VI	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	147
NOTICE OF SGM		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	155

– i –

DEFINITIONS

Unless the context otherwise requires, the following terms shall have the meanings set out below:

“Acquisition”	the acquisition of the entire issued share capital of
	Victory Leap by CATBVI from Chinney Contractors
	pursuant to the Sale and Purchase Agreement
“associate(s)”	has the meaning ascribed thereto under the Listing Rules
“Board”	the board of directors of the Company
“business day”	a day on which licensed banks in Hong Kong are
	generally open for business to the public (excluding
	Saturday, Sunday and public holidays)
“CATBVI” or the “Purchaser”	Chinney Alliance Trading (BVI) Limited, an investment
	holding 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
“China” or “PRC”	the People’s Republic of China, for the purposes of this
	circular, excluding Hong Kong and Macau
“Chinney Construction”	Chinney Construction (BVI) Limited, an investment
	holding company incorporated in the British Virgin
	Islands with limited liability and a wholly-owned
	subsidiary of Victory Leap
“Chinney Construction Group”	Chinney Construction and its subsidiaries
“Chinney Contractors” or	Chinney Contractors Company Limited, an investment
the “Vendor”	holding company incorporated in the British Virgin
	Islands with limited liability, which is owned as to
	86.05% by CIL and as to 13.95% by Mr. Yuen-Keung
	Chan, a Director, respectively
“CIL”	Chinney Investments, Limited, a company incorporated
	in Hong Kong with limited liability whose shares are
	listed on the Main Board of the Stock Exchange (Stock
	Code: 216)
“CIL Group”	CIL and its subsidiaries

– 1 –

DEFINITIONS

“Company”	Chinney Alliance Group Limited, a company
	incorporated in Bermuda with limited liability whose
	shares are listed on the Main Board of the Stock
	Exchange (Stock Code: 385)
“Completion”	the completion of the Acquisition contemplated under the
	Sale and Purchase Agreement
“connected person(s)”	has the meaning ascribed thereto under the Listing Rules
“Consideration”	the consideration of approximately HK$92.865 million
	under the Sale and Purchase Agreement
“Director(s)”	the director(s) of the Company
“Dr. James Wong”	Dr. James Sai-Wing Wong, the chairman and executive
	director of both CIL and the Company
“EIL”	Enhancement Investments Limited, a company
	incorporated in the British Virgin Islands with limited
	liability and beneficially held by Dr. James Wong solely,
	which holds approximately 25.9% interest in the issued
	share capital of the Company
“Enlarged Group”	the Group as enlarged by the Acquisition immediately
	upon Completion
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	the committee of the Board consisting of all the
	independent non-executive Directors, namely Mr.
	William Gage McAfee, Mr. David Chung-Shing Wu and
	Mr. Sou-Tung Chan formed to advise the Independent
	Shareholders in respect of the Acquisition
“Independent Shareholders”	Shareholders who are not required to abstain from voting
	at the SGM in approving the Acquisition under the
	Listing Rules

– 2 –

DEFINITIONS

“Kin Wing Chinney” Kin Wing Chinney (BVI) Limited, an investment holding company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of Victory Leap “Kin Wing Chinney Group” Kin Wing Chinney and its subsidiaries “Latest Practicable Date” 18 September 2007, 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 “Macau” the Macau Special Administrative Region of the PRC “Properties” Workshops A, B and C on the 9th Floor, car parking space nos. L4 and P15 on the 4th Floor and cooling tower space no. 4 on the 4th Floor of Hong Kong Spinners Industrial Building Phase VI, 481-483 Castle Peak Road, Kowloon, Hong Kong

“Sale and Purchase Agreement” the sale and purchase agreement dated 4 September 2007 entered into between Chinney Contractors as Vendor, CIL and Mr. Yuen-Keung Chan (a Director) as Vendor’s guarantors, CATBVI as Purchaser and the Company as Purchaser’s guarantor for the sale and purchase of the entire issued share capital of Victory Leap

“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 approving the Sale and Purchase Agreement and all transactions contemplated thereunder “Share(s)” ordinary share(s) of nominal value of HK$0.10 each in the capital of the Company “Shareholder(s)” holder(s) of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited

– 3 –

DEFINITIONS

“Veda Capital” or “Independent Financial Adviser”

Veda Capital Limited, a corporation licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO, the independent financial adviser appointed to make the relevant recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition

“Victory Leap”

Victory Leap Limited, an investment holding company incorporated in the British Virgin Islands in August 2007 with limited liability and a direct wholly-owned subsidiary of Chinney Contractors, which holds the entire issued share capital of Chinney Construction and Kin Wing Chinney as subsidiaries

“Victory Leap Group” Victory Leap and its subsidiaries

“%”

per cent.

– 4 –

LETTER FROM THE BOARD

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(Stock Code: 385)

Executive Directors:

Dr. James Sai-Wing Wong (Chairman) Mr. Sek-Kee Yu Mr. Frank Kwok-Kit Chu Mr. Yuen-Keung Chan Mr. Wai-Hong Ling

Non-executive Director:

Mr. Herman Man-Hei Fung

Independent non-executive Directors: Mr. William Gage McAfee Mr. David Chung-Shing Wu Mr. Sou-Tung Chan

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

Head office and principal place of business: 23rd Floor Wing On Centre 111 Connaught Road Central Hong Kong

25 September 2007

To the Shareholders and option holders (for information only)

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

INTRODUCTION

With reference to the Company’s announcement dated 4 September 2007, Chinney Contractors (as Vendor), CIL and Mr. Yuen-Keung Chan (as Vendor’s guarantors), CATBVI (as Purchaser) and the Company (as Purchaser’s guarantor) entered into the Sale and Purchase Agreement on 4 September 2007, pursuant to which Chinney Contractors has conditionally agreed to dispose of and CATBVI has conditionally agreed to acquire the entire issued share capital of Victory Leap for a total consideration of approximately HK$92.865 million. Victory Leap currently owns the respective entire issued share capital of Chinney Construction and Kin Wing Chinney.

– 5 –

LETTER FROM THE BOARD

The Acquisition constitutes a major and connected transaction for the Company under the Listing Rules. The purpose of this circular is to provide you with further details of the Acquisition, the recommendation from the Independent Board Committee to the Independent Shareholders, the recommendation of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, the financial information on the Enlarged Group and a notice convening the SGM for approving the Acquisition contemplated under the Sale and Purchase Agreement.

THE SALE AND PURCHASE AGREEMENT

Date

4 September 2007

Parties

Vendor : Chinney Contractors, a company in which CIL and Mr. Yuen-Keung Chan (a Director) have 86.05% and 13.95% interests respectively.

CIL is a substantial shareholder of the Company, which beneficially holds approximately 29.1% of the issued share capital of the Company. Chinney Contractors is therefore a connected person of the Company under the Listing Rules.

Vendor’s : CIL and Mr. Yuen-Keung Chan (a Director), which severally guarantee Guarantors the obligations of Chinney Contractors under the Sale and Purchase Agreement in proportion to their respective equity interests in Chinney Contractors.

Purchaser : CATBVI, a wholly-owned subsidiary of the Company.

The Company is deemed to be owned as to approximately 55.0% by Dr. James Wong, the chairman and controlling shareholder of CIL (through CIL’s 29.1% interest and ElL’s 25.9% interest in the Company, respectively), and is therefore a connected person of CIL under the Listing Rules.

Purchaser’s : The Company

Guarantor

– 6 –

LETTER FROM THE BOARD

Guarantees given by the Vendor’s guarantors and the Purchaser’s guarantor

The obligations of the Vendor under the Sale and Purchase Agreement shall be guaranteed by CIL and Mr. Yuen-Keung Chan (a Director) severally in proportion to their respective shareholdings of 86.05% and 13.95% on the Vendor.

The obligations of the Purchaser under the Sale and Purchase Agreement shall be guaranteed by the Company.

Assets to be acquired by the Company

The entire issued share capital of Victory Leap, which currently owns the respective entire issued share capital of Chinney Construction and Kin Wing Chinney.

Upon Completion, CATBVI, through Victory Leap, will have 100% interest in both Chinney Construction and Kin Wing Chinney whereas Chinney Contractors will cease to have any interest in the same.

The Vendor and the Purchaser agreed and acknowledged all assets, liabilities, risks and benefits associated with certain construction contracts enjoyed by the Victory Leap Group be held for the account of the Vendor with effect from 30 June 2007. The Purchaser further agreed and acknowledged with the Vendor that such assets, liabilities, risks and benefits associated with those construction contracts shall continue to be held for the account of the Vendor notwithstanding Completion. Based on the information provided by the Vendor, the construction contracts, which are at the stage of account finalisation with the clients, had an aggregate net carrying value of approximately HK$13.78 million in the accounts of the Victory Leap Group as at 30 June 2007. After netting off against the payables of HK$4.643 million currently due by the Victory Leap Group to the Vendor, the net payable due by the Vendor to the Victory Leap Group would be approximately HK$9.137 million upon Completion.

Consideration

The Consideration for the Sale and Purchase Agreement is approximately HK$92.865 million. A refundable deposit of HK$8.0 million has been paid by the Purchaser to the Vendor upon the signing of the Sale and Purchase Agreement. The balance of the Consideration of approximately HK$84.865 million will be settled by the Purchaser upon Completion as follows: (1) approximately HK$9.137 million to be set off against net balance estimated to be payable by the Vendor to the Victory Leap Group; (2) approximately HK$35.728 million in cash; and (3) HK$40.0 million by the issue to the Vendor a 5% promissory note repayable within three years. The promissory note of a principal amount of HK$40.0 million is to be issued by the Purchaser and guaranteed by the Company. The promissory note will bear interest from the Completion date at a rate of 5% per annum on the principal amount of the promissory note, payable semi-annually in arrears up to the date of full settlement of the promissory note by the Purchaser.

– 7 –

LETTER FROM THE BOARD

The Consideration payable under the Sale and Purchase Agreement was arrived at after arm’s length negotiations between the parties and was determined by reference to the aggregate audited net assets of the Chinney Construction Group and the Kin Wing Chinney Group of HK$76.6 million as at 31 March 2007 and adjusted for (1) surplus of approximately HK$12.2 million arising from the independent valuation of the Properties currently held by the Chinney Construction Group as at 30 June 2007; (2) surplus of approximately HK$12.9 million in respect of the aggregate value of certain plant and machinery currently held by the Kin Wing Chinney Group as at 30 June 2007; (3) the aggregate unaudited operating loss of the Chinney Construction Group and the Kin Wing Chinney Group of HK$17.0 million for the three months ended 30 June 2007; and (4) the gain of HK$8.2 million in respect of the disposal of certain plant and machinery by the Kin Wing Chinney Group in July 2007.

The Properties are partly occupied by the Chinney Construction Group and the Kin Wing Chinney Group as office, which are stated at cost less accumulated depreciation, and partly leased out for rental income, which are stated at fair value, in the books of the Chinney Construction Group.

The carrying value of the plant and machinery in the books of Kin Wing Chinney was HK$89.6 million as at 30 June 2007, comprising costs of HK$379.5 million less accumulated depreciation of HK$289.9 million. In determining the Consideration, reference was made by the Purchaser and the Vendor to an independent valuation report, which set out the market value and forced liquidation value of certain plant and machinery of Kin Wing Chinney as at 30 June 2007 to be HK$83.5 million and HK$25.0 million, respectively. After arm’s length negotiation between the parties, it was agreed that these plant and machinery be valued at HK$54.3 million, being the average of the market value and forced liquidation value. A surplus of HK$12.9 million arose, which represented the difference between the agreed value of HK$54.3 million and the carrying value of these plant and machinery of HK$41.4 million in the books of Kin Wing Chinney Group as at 30 June 2007.

Conditions precedent

Completion of the Sale and Purchase Agreement is subject to, inter alia, the fulfilment of the following conditions:

(a) the passing of an ordinary resolution by the Independent Shareholders by poll at the SGM to approve the Acquisition;
(b) the passing of an ordinary resolution by the independent CIL’s shareholders by poll at the extraordinary general meeting of CIL to approve the disposal of the entire issued share capital of Victory Leap;
(c) if applicable, the granting of all consents from banks or other third parties which are necessary in connection with the execution and performance of the Sale and Purchase Agreement and any of the transactions contemplated under the Sale and Purchase Agreement;

– 8 –

LETTER FROM THE BOARD

(d) there having been no breach by the Vendor and the Vendor’s guarantors of any obligations, undertakings, representations and warranties under the Sale and Purchase Agreement;
(e) the Purchaser having been reasonably satisfied with the results of the due diligence review on the Victory Leap Group; and
(f) there having been no breach by the Purchaser and the Purchaser’s guarantor of any obligations, undertakings, representations and warranties under the Sale and Purchase Agreement.

If the conditions precedent have not been fulfilled or waived by the Vendor and/or the Purchaser (save for conditions (a) to (c) which cannot be waived) on or before 30 November 2007 (or any other date as agreed between the parties), the Completion will not take place and 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) and the deposit already paid to the Vendor should, depending on circumstance, be refundable in full forthwith without interest.

Completion

The Completion will take place within seven business days from the date upon which all the conditions precedent to the Sale and Purchase Agreement have been fulfilled, being not later than 30 November 2007 (or such other date as the parties may agree in writing).

Information on the Victory Leap Group

Victory Leap is a wholly-owned subsidiary of Chinney Contractors, which is owned as to 86.05% by CIL and as to 13.95% by Mr. Yuen-Keung Chan, a Director. Victory Leap currently owns the respective entire issued share capital of Chinney Construction and Kin Wing Chinney. Chinney Construction, through its subsidiaries, is principally engaged in superstructure construction works for both public and private sectors in Hong Kong and Macau. Kin Wing Chinney, through its subsidiaries, is principally engaged in the sub-structure and foundation piling work for both public and private sectors in Hong Kong and Macau.

As at 31 March 2007, the aggregate audited net assets, prepared in accordance with Hong Kong accounting standards, of the Chinney Construction Group and the Kin Wing Chinney Group amounted to approximately HK$76.6 million.

Information on the CIL Group and the Group

The CIL Group is principally engaged in property development and investment in China and Hong Kong, superstructure construction work, foundation piling, garment manufacturing and trading and other investments.

– 9 –

LETTER FROM THE BOARD

The Group is principally engaged in the trading in plastics and chemicals, industrial products and equipment as well as in building related contracting services for both public and private sectors in Hong Kong and Macau.

Financial effect of the Acquisition

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

Earnings

As set out in the unaudited pro forma financial information of the Enlarged Group assuming the Completion had taken place on 30 June 2007, the Group would have recorded a negative goodwill of approximately HK$32.561 million arising from the Acquisition, representing the excess amount of the fair value of the Victory Leap Group’s identifiable assets and liabilities as at 31 March 2007, as adjusted for the surplus arising from valuation of the Properties, surplus arising from the fair value of certain plant and machinery, the gain on disposal of certain plant and machinery acquired, less the increase in deferred tax liabilities as a result of the above fair value adjustments, of HK$125.088 million over the costs of investments of the Group of HK$92.527 million (which include the Consideration of HK$92.865 million and the estimated costs of HK$1.2 million to be incurred in relation to the Acquisition less the adjustment for the fair value of the promissory note of HK$1.538 million).

The Victory Leap Group is expected to incur loss during the period between 1 April 2007 and the date of Completion. Goodwill arising from the Acquisition would be finally determined based on the costs of acquisition and the fair value of the Victory Leap Group’s identifiable assets and liabilities as at the date of Completion. Shareholders should therefore note that the above financial effects are hypothetical figures calculated based on unaudited financial information from the preliminary announcement of the interim results of the Group for the six months ended 30 June 2007, the audited financial information of the Victory Leap Group for the year ended 31 March 2007, the surplus on valuation of the Properties as at 30 June 2007, the surplus arising from fair value of certain plant and machinery of the Kin Wing Chinney Group, the gain on the disposal of certain plant and machinery by the Kin Wing Chinney Group in July 2007 and the estimated costs of Acquisition and there would be no changes in the cost of Acquisition and the fair value of the Victory Leap Group upon Completion. In case goodwill arose as a result of the costs of Acquisition exceeding the fair value of the Victory Leap Group’s consolidated net assets as at Completion, it would be recognised as an asset and

– 10 –

LETTER FROM THE BOARD

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 income statement.

Net assets

Based on the unaudited pro forma combined balance sheet of the Enlarged Group assuming the Completion had taken place on 30 June 2007, the unaudited consolidated net assets attributable to equity holders of the parent of the Enlarged Group would have been HK$276.6 million, representing an increase from the Group’s unaudited net assets attributable to the equity holders of the parent of HK$244 million as at 30 June 2007 before the Acquisition.

Pro forma borrowings increased from HK$211.3 million to HK$367 million as a result of consolidating all borrowings of the Victory Leap Group and the issue of the promissory note with a principal amount of HK$40 million. Pro forma cash and bank balances increased from HK$145 million to HK$146.5 million (including pledged deposits of HK$70 million), as a result of an outflow of HK$44.9 million paid for the Acquisition (including estimated costs of HK$1.2 million in relation to the Acquisition) and the cash and bank balances of HK$46.4 million (including pledged deposits of HK$36.8 million) held by the Victory Leap Group as at 31 March 2007.

The unaudited pro forma financial information of the Enlarged Group set out in Appendix III to this circular is for illustration purpose only. As the fair value of the identifiable assets and liabilities of the Victory Leap Group at the date of Completion and the costs of the Acquisition may be different from the amounts currently used in the preparation of the unaudited pro forma financial information, the actual financial impact arising from the Acquisition is likely to be different from the estimated amount in the unaudited pro forma financial information.

Reasons for and benefits of the Acquisition

Apart from trading in plastics and chemicals, industrial products and equipments, the Group is currently engaged in building related contracting services for both public and private sectors in Hong Kong and Macau. It focuses primarily on design and installation of building and electrical systems, electrical and mechanical systems, heating ventilation as well as air-conditioning systems for both public and private sectors in Hong Kong and Macau.

The Directors believe that the Acquisition is complementary to the Company’s existing building and electrical contracting businesses and also allows the Group to provide superstructure and foundation piling services to its existing clients in both public and private sectors. The Board considers that the Acquisition under the Sale and Purchase Agreement was entered into with CIL on normal commercial terms after arm’s length negotiation and is in the interests of the Company and the Shareholders taken as a whole.

– 11 –

LETTER FROM THE BOARD

Requirements of the Listing Rules

As the applicable percentage ratios exceed 25% but less than 100%, the Acquisition constitutes a major transaction for the Company under the Listing Rules and will be subject to the approval of the Shareholders at the SGM. As CIL and ElL (a company solely owned by Dr. James Wong) have approximately 29.1% and 25.9% interests in the Company respectively, the Acquisition constitutes a connected transaction for the Company under the Listing Rules and is subject to the approval by the Independent Shareholders by poll at the SGM. CIL, ElL and their respective associates shall abstain from voting with respect to the Acquisition at the SGM.

SGM

Set out in pages 155 and 156 of this circular is a notice convening the SGM to be held at Full Moon Shanghai Restaurant, 4/F., East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Tuesday, 16 October 2007 at 4:00 p.m. at which a resolution will be proposed to the Shareholders to consider and, if thought fit, approve the Acquisition. CIL, ElL and their respective associates shall abstain from voting at the resolution with respect to the Acquisition at the SGM.

Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar, Tricor Tengis Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the accompanying form of proxy will not preclude you from attending and voting at the SGM or any adjourned meeting thereof should you so wish.

PROCEDURE FOR DEMANDING A POLL

Pursuant to bye-law 66 of the bye-laws of the Company, a resolution put to the vote of a general 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 such 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
(iii) a 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 Shareholders having the right to vote at the meeting; or

– 12 –

LETTER FROM THE BOARD

(iv) a 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 in the Company 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 accordance with the requirements of the Listing Rules, the Acquisition is subject to the Independent Shareholders’ approval at the SGM by way of poll.

RECOMMENDATION

Your attention is drawn to (a) the “Letter from the Independent Board Committee” as set out in page 15 of this circular, which contains its recommendation to the Independent Shareholders; and (b) the “Letter from Veda Capital” as set out in pages 16 to 26 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition.

Having taken into account the recommendation and advice from Veda Capital in respect of the Acquisition, the Independent Board Committee are of the view that the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM for approving the Acquisition.

For reasons set out above, the Directors concur and are of the view that the Sale and Purchase Agreement and the terms thereof are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM for approving the Acquisition.

– 13 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, By Order of the Board Sek-Kee Yu Director

– 14 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [327 x 46] intentionally omitted <==

(Stock Code: 385)

25 September 2007

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Acquisition, details of which are set out in the letter from the Board to the circular of the Company dated 25 September 2007 (the “Circular”). Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We wish to draw your attention to the letter from Veda Capital to the Circular containing the advice of Veda Capital in respect of the Acquisition.

RECOMMENDATION

Having taken into account of the principal factors taken into account by Veda Capital in arriving at its opinion in respect of the Acquisition, we concur with the views of Veda Capital that the Sale and Purchase Agreement is entered into on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution for approving the Acquisition contemplated under the Sale and Purchase Agreement.

Yours faithfully,

For and on behalf of

Independent Board Committee of

Chinney Alliance Group Limited

Mr. David Chung-Shing Wu Mr. Sou-Tung Chan

Mr. William Gage McAfee

– 15 –

LETTER FROM VEDA CAPITAL

The following is the full text of a letter of advice from Veda Capital to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.

==> picture [120 x 33] intentionally omitted <==

Veda Capital Limited

Suite 809, 8th Floor, Shui On Centre 8 Harbour Road, Wanchai, Hong Kong

25 September 2007

To the Independent Board Committee and the Independent Shareholders of Chinney Alliance Group Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition, details of which are set out in the letter from the Board (the “Board Letter”) contained in this circular (the “Circular”) dated 25 September 2007 issued by the Company, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

It was stated in the joint announcement of CIL and the Company dated 4 September 2007 that on 4 September 2007, Chinney Contractors (as Vendor), CIL and Mr. Yuen-Keung Chan (collectively as Vendor’s guarantors), CATBVI (as Purchaser) and the Company (as Purchaser’s guarantor) entered into the Sale and Purchase Agreement pursuant to which Chinney Contractors has conditionally agreed to dispose of and CATBVI has conditionally agreed to acquire the entire issued share capital of Victory Leap for a total consideration of approximately HK$92.865 million.

The Acquisition constitutes a major transaction for the Company under Chapter 14 of the Listing Rules and will be subject to the approval of the Shareholders at the SGM. The Acquisition also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and will be subject to the approval of the Independent Shareholders by poll at the SGM. CIL and EIL and their respective associates will abstain from voting with respect to the proposed Acquisition at the SGM.

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LETTER FROM VEDA CAPITAL

The Independent Board Committee has been established to advise whether the terms of the Acquisition are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. The Independent Board Committee, comprising the independent non-executive Directors, namely Mr. William Gage McAfee, Mr. David Chung-Shing Wu and Mr. Sou-Tung Chan, which is not involved in nor has any interest in the Acquisition and thus being independent, has been established. Veda Capital has been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to (i) whether the terms of the Acquisition are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and (ii) whether the Independent Shareholders should vote in favour of the resolution to approve the Acquisition.

BASIS OF OUR ADVICE

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company, Directors and management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, Directors and management of the Company and for which they are solely and wholly responsible, were true and accurate at the time they were made and continue to be true at the date of the Circular.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in the Circular misleading. We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company or its subsidiaries.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In assessing the Acquisition and in giving our recommendation to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors and reasons:

A. Reasons for the Acquisition

Apart from trading in plastics and chemicals, industrial products and equipment, the Group is currently engaged in building related contracting services for both public and private sectors in Hong Kong and Macau. The Group currently focuses primarily on design and installation of building and electrical systems, electrical and mechanical systems, heating ventilation as well as air-conditioning systems for both public and private sectors in Hong Kong and Macau.

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LETTER FROM VEDA CAPITAL

Victory Leap is a wholly-owned subsidiary of Chinney Contractors which is owned as to 86.05% by CIL and as to 13.95% by Mr. Yuen-Keung Chan, a director of the Company. Victory Leap owns the entire issued share capital of Chinney Construction and Kin Wing Chinney. Chinney Construction, through its subsidiaries, is principally engaged in superstructure construction works for both public and private sectors in Hong Kong and Macau. Kin Wing Chinney, through its subsidiaries, is principally engaged in the sub-structure and foundation piling work for both public and private sectors in Hong Kong and Macau.

As stated in the Board Letter, the Directors believe that the Acquisition of Victory Leap is complementary to the Company’s existing building and related contracting businesses and also allows the Group to provide superstructure and foundation piling services to its existing clients in both public and private sectors. The Directors expected that the Acquisition will bring along synergy effect to the business of the Group and will result in cost saving efficiencies for the business of the Group. As listed on the websites of the Works Branch Development Bureau of the Government of Hong Kong and the Hong Kong Housing Authority, the existing member companies of the Group are licensed to perform burglar alarm and security installation, diesel generator installation, electrical installation (Group III), fire service installation (Group II), foundation installation, industrial type electrical installation, video electronics installation, air-conditioning installation (Group II), and electrical, fire services and water pumps. With the acquisition of the Victory Leap Group, the Enlarged Group will be on the list of approved contractors for public works as Group C contractors for “Buildings”, which are licensed for contracts of any values exceeding HK$50 million (being the category with the highest contract amount). The Victory Leap Group, being on the approved list, has been able to meet the financial, technical and management criteria for admission and retention on the approved list and for the award of public works contracts. As listed on the websites of the Works Branch Development Bureau of the Government of Hong Kong and the Hong Kong Housing Authority, member companies of the Victory Leap Group are also licensed as contractors for buildings, ground investigation field work (Group II), land piling (Group II), large diameter bored pile (with bell-out), minipile, rock-socketed steel H-pile in pre-bored hole, steel H pile, building (new works)/ Group NW1, and percussive piling. The Directors expected that the Acquisition will enable the Enlarged Group to perform a more comprehensive range of construction services to existing and potential clients and hence create future business opportunities.

Based on the aggregate audited results of the Chinney Construction Group and the Kin Wing Chinney Group for the two financial years ended 31 March 2006 and 2007, turnover increased from approximately HK$691.1 million for the year ended 31 March 2006 by approximately 22.02% to approximately HK$843.3 million for the year ended 31 March 2007 whereas the amount of net loss before tax of approximately HK$70.3 million for the year ended 31 March 2006 lessened by approximately 7.9% to approximately HK$64.8 million for the year ended 31 March 2007. The Directors are optimistic that the performance of the Victory Leap Group would keep improving given the booming economy in Macau and the raise of awareness of urban planning in Hong Kong which will result in more construction works available both in Hong Kong and Macau.

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LETTER FROM VEDA CAPITAL

As stated in the Budget Speech for the 2007-2008 Budget of the Hong Kong Government, HK$29 billion a year on average will continue to be earmarked for infrastructure projects over the next few years. Major projects including the Central-Wan Chai Bypass and Wan Chai Development Phase II, Central Kowloon Route and Kai Tak Development are expected to involve expenditure of HK$25.2 billion, HK$12.5 billion and HK$9.8 billion respectively. According to Hong Kong Housing Authority, public housing production for year 2006/07 was 8,392 flats and is forecasted to increase to approximately 16,400 flats and approximately 22,200 flats for year 2007/08 and year 2008/09 respectively.

According to the Lands, Public Works and Transport Bureau of the Government of Macau, total gross floor area of construction of residential, commercial buildings and parking spaces was approximately 1.07 million square metres for the second quarter of 2006 and increased to approximately 1.79 million square metres for the second quarter of 2007. In addition, construction projects related to hotels involved approximately 2.14 million square metres in gross floor area for the second quarter of 2006 increased substantially to approximately 3.8 million square metres for the second quarter of 2007. Chinney Construction Group and Kin Wing Chinney Group have been participating in foundation piling, building construction and/or renovation projects in Macau including City of Dreams, Macao Studio City, MGM Grand Macau, Mandarin Oriental Macau and the Praia. We share the view of the Directors that the Victory Leap Group would benefit from the continuous booming of the construction industry in Macau.

B. Conditions Precedent

Completion of the Sale and Purchase Agreement is subject to, inter alia, the fulfillment of the following conditions:

(a) the passing of an ordinary resolution by the Independent Shareholders by poll at the SGM to approve the Acquisition;
(b) the passing of an ordinary resolution by the CIL Independent Shareholders by poll at the extraordinary general meeting of CIL to approve the disposal of Victory Leap;
(c) if applicable, the granting of all consent from banks or other parties which are necessary in connection with the execution and performance of the Sale and Purchase Agreement and any of the transaction contemplated under the Sale and Purchase Agreement;
(d) there having no breach by the Vendor and the Vendor’s guarantors of any obligations, undertakings, representations and warranties under the Sale and Purchase Agreement;
(e) the Purchaser having been reasonably satisfied with the results of due diligence review on the Victory Leap Group; and
(f) there having been no breach by the Purchaser and the Purchaser’s guarantor of any obligations, representations and warranties under the Sale and Purchase Agreement.

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LETTER FROM VEDA CAPITAL

If the conditions have not been fulfilled or waived by the Vendor and/or the Purchaser (save for conditions (a) to (c) which cannot be waived) on or before 30 November 2007(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 part to the Sale and Purchase Agreement (without prejudice to the rights of any party to the Sale and Purchase Agreement in respect of antecedent breaches). We concur with the Directors that the conditions of the Acquisition are in normal commercial terms and fair and reasonable to the Company and the Independent Shareholders.

C. Consideration

The Consideration payable under the Sale and Purchase Agreement was arrived at after arm’s length negotiations between Chinney Contractors and CATBVI and was determined by reference to the aggregate audited net assets of Chinney Construction Group and Kin Wing Chinney Group of HK$76.6 million as at 31 March 2007 and adjusted for:

(1) surplus of approximately HK$12.2 million arising from the independent valuation of the Properties currently held by the Chinney Construction Group as at 30 June 2007;
(2) surplus of approximately HK$12.9 million over the carrying value in the books of the Kin Wing Chinney Group in respect of the aggregate value of certain plant and machinery currently held by the Kin Wing Chinney Group. As agreed by all parties after arm’s length negotiation, these plant and machinery were valued at approximately HK$54.3 million, being the average of the market value of approximately HK$83.5 million and forced liquidation value of approximately HK$25 million with reference to an independent valuation report as at 30 June 2007. A surplus of approximately HK$12.9 million, representing the difference between the agreed value of HK$54.3 million and the carrying value of HK$41.4 million of these plant and machinery as at 30 June 2007 is thus arisen;
(3) the aggregate unaudited operating loss of Chinney Construction Group and Kin Wing Chinney Group of approximately HK$17.0 million for the three months ended 30 June 2007; and
(4) the gain of HK$8.2 million in respect of the disposal of certain plant and machinery by the Kin Wing Chinney Group in July 2007.

In other words, the Consideration is primarily determined by reference to the aggregate of the audited net assets value of Chinney Construction Group and Kin Wing Chinney Group as at 31 March 2007 and adjusted for (i) the latest market value of the Properties held as at 30 June 2007; (ii) the average of the market value and forced liquidation value of certain plant and machinery as at 30 June 2007; (iii) the latest aggregate operating results of Chinney Construction Group and Kin Wing Chinney Group up to 30 June 2007; and (iv) the gain on disposal by the Kin Wing Chinney Group in July 2007 (altogether, the “Adjusted NAV”).

As advised by the Directors, the Properties are partly occupied by the Chinney Construction Group and the Kin Wing Chinney Group as office, which are stated at cost less accumulated depreciation, and partly leased out for rental income, which are stated at fair value, in the books of the Chinney Construction Group.

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LETTER FROM VEDA CAPITAL

(a) Price-earnings multiples basis

We consider that price-earnings multiple is one of the most commonly used benchmarks for valuing the Acquisition. However, the Chinney Construction Group and the Kin Wing Chinney Group have been loss making for the two years ended 31 March 2007. Accordingly, it would not be feasible and meaningful to assess the Consideration using the price-earnings multiple approach.

(b) Net asset value basis

To facilitate meaningful comparison, we have extended our analysis to the price to net asset value ratio. Given the Chinney Construction Group and the Kin Wing Chinney Group are engaged in the construction business which require capital spending in machineries, the Directors believe that there exists a certain level of correlation between the invested capital and the turnover being generated. In this regard, the asset size reflects the scales and capabilities of the Chinney Construction Group and the Kin Wing Chinney Group to create earnings. On the other hand, the price to net asset value ratio is not affected by the negative earnings of companies. For comparison purpose, we have identified, in our best endeavours, five companies listed on the Stock Exchange (the “Comparables”), representing all companies listed on the Stock Exchange which are engaged in similar principal businesses as the Chinney Construction Group and/or the Kin Wing Chinney Group and we have reviewed and tabulated below the price to net asset value (being the latest published net asset value of the Comparables) ratios of the Comparables respectively:

			Market
			capitalisation
			as at the	Latest	Price to
			Latest	published	net asset
Company	Stock		Practicable	net asset	value
name	Code	Principal business	Date	value	ratio
			(HK$	(HK$
			million)	million)	(times)
Chun Wo	711	Civil engineering, electrical	1,579.8	1,251.0	1.26
Holdings		and mechanical
Limited		engineering foundation
		and building construction
		work and property
		development
Hsin Chong	404	Building construction, civil	872.4	586.5	1.49
Construction		engineering, piling and
Group		foundations, renovation
Limited		and fitting-out, building
		repair maintenance,
		construction management,
		property investment,
		property rental, property
		development and
		contractor finance

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LETTER FROM VEDA CAPITAL

			Market
			capitalisation
			as at the	Latest	Price to
			Latest	published	net asset
Company	Stock		Practicable	net asset	value
name	Code	Principal business	Date	value	ratio
			(HK$	(HK$
			million)	million)	(times)
Sam Woo	2322	Foundation works related	1,147.6	161.9	7.09
Holdings		business, specializing in
Limited		piling. Also engaged in
		trading of used foundation
		works related machinery
		and equipment and leasing
		of foundation works
		related machinery and
		equipment
Tysan	687	Foundation piling,	854.2	680.2	1.26
Holdings		machinery trading and
Limited		leasing; property
		investment and
		development, electric &
		mechanic engineering and
		building construction
Wing Hing	621	Construction of	110.2	160.8	0.69
International		superstructures, and
(Holdings)		foundation piling,
Limited		substructure works, slope
		improvement works and
		interior decoration works
		in Hong Kong
				Highest	7.09
				Lowest	0.69
				Average	2.36
Acquisition		superstructure	92.9	92.9	1.00
		construction works, sub-			(Note)
		structure and foundation
		piling work for both
		public and private
		sectors in Hong Kong
		and Macau

Note: represented by the ratio of the Consideration to the Adjusted NAV.

Source: www.hkex.com.hk

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LETTER FROM VEDA CAPITAL

As shown in the above table, we noted that the ratio represented by the Consideration to the Adjusted NAV of 1 time is within the range of price to net asset value ratio of the Comparables from approximately 0.69 times to approximately 7.09 times and is below the average of the price to net asset value ratio of approximately 2.36 times. Given the exceptionally high price to net asset value ratio of Sam Woo Holdings Limited, we also calculate the average of the price to net asset value ratios of the Comparables by excluding Sam Woo Holdings Limited to be approximately 1.17 times which is higher than the ratio represented by the Consideration to the Adjusted NAV of 1 time. On such basis, we consider that the Consideration is fair and reasonable so far as the interests of the Company and the Independent Shareholders are concerned.

(c) Settlement of the Consideration

The Consideration for the Sale and Purchase Agreement of approximately HK$92.865 million has been/will be settled by the Purchaser as follows:

(1) a refundable deposit of HK$8.0 million has been paid by the Purchaser to the Vendor upon the signing of the Sale and Purchase Agreement;
(2) as to approximately HK$9.137 million to be set off against net balance estimated to be payable by the Vendor to Victory Leap Group upon Completion;
(3) as to approximately HK$35.728 million in cash upon Completion; and
(4) as to HK$40.0 million by the issue to the Vendor upon Completion a 5% promissory note repayable within three years. The promissory note of a principal amount of HK$40.0 million will be issued by the Purchaser and guaranteed by the Company. The promissory note will bear interest from (and including) the Completion date at a rate of 5% per annum on the principal amount of the promissory note, payable semi-annually in arrears up to the date of full settlement of the promissory note by the Purchaser.

(i) Net balance set off

The Vendor and the Purchaser agreed and acknowledged that all assets, liabilities, risks and benefits associated with certain construction contracts enjoyed by the Victory Leap Group be held for the account of the Vendor with effect from 30 June 2007. The Purchaser further agreed and acknowledged with the Vendor that such assets, liabilities, risks and benefits associated with those construction contracts shall continue to be held for the account of the Vendor notwithstanding Completion. The construction contracts, which are at the stage of account finalization with the clients, had an aggregate net carrying value of approximately HK$13.78 million in the accounts of the Victory Leap Group as at 30 June 2007. After netting off against the payables of approximately HK$4.643 million currently

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LETTER FROM VEDA CAPITAL

due by the Victory Leap Group to the Vendor, the net payable due by the Vendor to the Victory Leap Group would be approximately HK$9.137 million upon Completion. Given the at cost basis to set off the net balance, we concur with the Directors that such arrangement is fair and reasonable.

(ii) Promissory Note

As advised by the Directors, the current borrowing rates of the Group for unsecured borrowings were between prime rate to prime rate plus 2.75% whereas the current prime rate as quoted by the Hongkong and Shanghai Banking Corporation Limited is approximately 7.75%. Since the coupon rate of 5% of the promissory notes falls below the existing borrowing cost of the Group, we consider that the partial settlement of the Acquisition in the form of promissory note is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

(iii) Cash resources

The Acquisition will be funded by internal cash resources of the Group. It should be noted that, of the total Consideration of approximately HK$92.865 million, only approximately HK$43.728 million will be cash payable whereas HK$40.0 million will be payable in the form of 3-year promissory note bearing interest of 5 per cent. per annum and the remaining HK$9.137 million will be set off against net balance estimated to be payable by the Vendor to the Victory Leap Group. According to the preliminary announcement of the interim results of the Company for the six months ended 30 June 2007, the balance of cash and cash equivalents of the Group was approximately HK$111.8 million as at 30 June 2007. We concur with the Directors that the Group has enough internal cash resources to cover the total cash outlay for the Acquisition of approximately HK$43.728 million.

D. Financial effects of the Acquisition on the Enlarged Group

(1) Earnings

As the Consideration is primarily determined by reference to audited net assets value of Chinney Construction Group and Kin Wing Chinney Group as at 31 March 2007 and adjusted for the fair value of the Properties and plant and machinery held as at 30 June 2007, it is expected that the Acquisition will not generate material gain or loss to the Group, save for the goodwill, if any, arising from the Acquisition, which is calculated on the difference between the Consideration, and cost of Acquisition, and the fair value of the identifiable assets and liabilities of the Victory Leap Group on the date of Completion. If goodwill arose, it would be subject to impairment test and charged to the consolidated income statement if impaired. If negative goodwill arose, it would be credited to the consolidated income statement immediately upon Completion.

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LETTER FROM VEDA CAPITAL

(2) Net assets value

As set out in the unaudited pro forma financial information of the Enlarged Group which assumed Completion had taken place on 30 June 2007, the unaudited consolidated net assets of the Enlarged Group attributable to the Shareholders would have been approximately HK$276.60 million, representing an increase of approximately 13.34% from the Group’s audited net assets attributable to the Shareholders of approximately HK$244.04 million as at 30 June 2007 before the Acquisition.

(3) Gearing

Based on the unaudited consolidated balance sheet of the Group as at 30 June 2007 the gearing ratio of the Group, as measured by the net interest bearing debts over the equity attributable to the Shareholders, was approximately 27%. Based on the unaudited pro forma financial information of the Enlarged Group which assumed Completion took place on 30 June 2007, it is expected that the gearing ratio of the Enlarged Group would increase.

Having considered that:

(i) the Acquisition will bring along synergy effect to enhance cost savings and enable the Enlarged Group to perform a more comprehensive range of construction services to existing and potential clients and hence create future business opportunities;
(ii) the booming economy in Macau and the raise of awareness of urban planning in Hong Kong which will result in more construction works available both in Hong Kong and Macau;
(iii) the conditions of the Acquisition are in normal commercial terms;
(iv) the ratio represented by the Consideration to the Adjusted NAV of 1 time is within the range of price to net asset value ratio of the Comparables from approximately 0.69 times to approximately 7.09 times and is below the average of the price to net asset value ratio of approximately 2.36 times;
(v) the coupon rate of 5% of the promissory notes falls below the existing borrowing cost of the Group, and
(vi) the unaudited consolidated net assets of the Enlarged Group attributable to the Shareholders would have been approximately HK$276.60 million, representing an increase of approximately 13.34% from the Group’s unaudited net assets attributable to the Shareholders of approximately HK$244.04 million as at 30 June 2007 before the Acquisition,

we consider that the benefits of the Acquisition might outweigh the effect from increase in gearing ratio of the Enlarged Group.

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LETTER FROM VEDA CAPITAL

RECOMMENDATION

Taking into consideration of the above mentioned principal factors and reasons, we consider that, on balance, the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole. We also consider that the terms of the Acquisition were entered into upon normal commercial terms and in the ordinary and usual course of business of the Group. We recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the relevant ordinary resolution to be proposed at the SGM to approve the Acquisition.

Yours faithfully, For and on behalf of

Veda Capital Limited

Hans Wong Julisa Fong Managing Director Executive Director

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006

The following is a summary of the consolidated financial information of the Group for each of the three years ended 31 December 2004, 2005 and 2006 as extracted from the relevant annual reports of the Company:

Results

Year ended 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 1,468,521 1,015,001 1,044,491 21,069 9,093 15,907 (4,038) (3,681) (3,028) 17,031 5,412 12,879 – (1,960) 61 17,031 3,452 12,940 16,997 3,411 12,720 34 41 220 17,031 3,452 12,940	Year ended 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 1,468,521 1,015,001 1,044,491 21,069 9,093 15,907 (4,038) (3,681) (3,028) 17,031 5,412 12,879 – (1,960) 61 17,031 3,452 12,940 16,997 3,411 12,720 34 41 220 17,031 3,452 12,940	Year ended 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 1,468,521 1,015,001 1,044,491 21,069 9,093 15,907 (4,038) (3,681) (3,028) 17,031 5,412 12,879 – (1,960) 61 17,031 3,452 12,940 16,997 3,411 12,720 34 41 220 17,031 3,452 12,940
21,069 (4,038) 17,031 –	9,093 (3,681) 5,412 (1,960)	15,907 (3,028
		12,879 61
17,031	3,452
16,997 34	3,411 41	12,720 220
17,031	3,452

Assets, liabilities and minority interests

TOTAL ASSETS TOTAL LIABILITIES MINORITY INTERESTS	As 2006 HK$’000 846,862 (604,100) (10,804) 231,958	at 31 December 2005 2004 HK$’000 HK$’000 438,573 519,166 (281,105) (364,893) – (1,912) 157,468 152,361

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR EACH OF THE TWO YEARS ENDED 31 DECEMBER 2005 AND 2006

The following is the reproduction of the text of the audited financial statements of the Group together with the accompanying notes contained on pages 27 to 96 of the annual report of the Company for the year ended 31 December 2006. The page references in this section are the same as the 2006 annual report.

CONSOLIDATED INCOME STATEMENT

Year ended 31 December 2006

Notes CONTINUING OPERATIONS REVENUE 5 Cost of sales/services provided Gross profit Other income and gain 5 Selling and distribution costs Administrative expenses Other operating income, net Surplus arising from revaluation of land and buildings 15 Changes in fair value of investment properties 16 Fair value adjustment on properties held for resale 21 Loss on disposal of an associate Finance costs 6 Share of losses of associates PROFIT BEFORE TAX 7 Tax 10 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS DISCONTINUED OPERATION Loss for the year from a discontinued operation 12 PROFIT FOR THE YEAR	2006 HK$’000 1,468,521 (1,363,055)	2005 HK$’000 1,015,001 (927,465) 87,536 6,662 (15,324) (62,965) 4,903 5,261 – 2,914 – (10,754) (9,140) 9,093 (3,681) 5,412 (1,960) 3,452
	105,466 7,589 (11,707) (74,567) 6,711 4,477 3,880 – (6,180) (12,981) (1,619) 21,069 (4,038) 17,031 –	87,536 6,662 (15,324 (62,965 4,903 5,261 – 2,914 – (10,754 (9,140
		9,093 (3,681
		5,412 (1,960
	17,031

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes Attributable to: Equity holders of the parent 11 Minority interests DIVIDEND – proposed final 13 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 14 Basic – For profit for the year – For profit from continuing operations Diluted	2006 HK$’000 16,997 34 17,031 3,966 8.18 cents 8.18 cents N/A	2005 HK$’000 3,411 41 3,452 – 2.07 cents (restated) 3.26 cents (restated) N/A

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 December 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Investment properties 16 Interests in associates 18 Goodwill 19 Deferred tax assets 33 Other assets 20 Retention monies receivable over one year 23 Total non-current assets CURRENT ASSETS Inventories 22 Gross amount due from contract customers 23 Trade and bills receivables 24 Retention monies receivable 23 Amounts due from related companies 25 Prepayments, deposits and other receivables Equity investments at fair value through profit or loss 26 Tax recoverable Pledged time deposits 27 Cash and cash equivalents 27 Total current assets CURRENT LIABILITIES Gross amount due to contract customers 23 Trade and bills payables 28 Trust receipt loans 29 Retention monies payable Amounts due to related companies 25 Other payables and accruals 32 Tax payable Interest-bearing bank loans and overdrafts 30 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans 30 Loan from a minority shareholder of a subsidiary 39(c) Provision 31 Deferred tax liabilities 33 Total non-current liabilities Net assets	2006 HK$’000 26,988 19,830 1,429 8,922 679 282 17,548	2005 HK$’000 23,852 13,049 19,139 – 809 282 3,672
	75,678 66,813 41,508 388,523 13,818 8,381 31,223 12,030 3,223 26,800 178,865 771,184 76,067 115,195 209,400 24,126 531 119,655 1,418 39,208 585,600 185,584 261,262 8,000 6,900 1,028 2,572 18,500	60,803
		91,071 5,458 186,990 1,781 2,724 7,974 9,330 2,340 – 70,102
		377,770
		1,412 62,768 155,903 – 203 28,854 920 29,162
		279,222
		98,548
		159,351 – – 1,119 764
		1,883
	242,762	157,468

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes EQUITY Equity attributable to equity holders of the parent Issued capital 34 Reserves 36(a) Proposed final dividend 13 Minority interests Total equity	2006 HK$’000 39,660 188,332 3,966 231,958 10,804 242,762	2005 HK$’000 39,660 117,808 –
		157,468 –
		157,468

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2006

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	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

Notes At 1 January 2005 Exchange realignment Revaluation surplus on land and buildings 15 Total income and expense for the year recognised directly in equity Profit for the year Total income and expenses for the year Arising from Capital Reorganisation 34 Disposal of subsidiaries 37 Dividend paid to a minority shareholder Loan repayment to a minority shareholder At 31 December 2005 and 1 January 2006 Exchange realignment Revaluation surplus on land and buildings 15 Deferred tax on revaluation surplus on land and buildings 33 Total income and expense for the year recognised directly in equity Profit for the year Proposed 2006 final dividend 13 Total income and expenses for the year Arising from Capital Reduction 34 Arising from Open Offer 34 Share issue expenses in relation to Open Offer 34 Acquisition of subsidiaries 38 At 31 December 2006	Issued capital HK$’000 39,660 – – – – – – – – – 39,660 – – – – – – – (23,795) 23,795 – –	Share premium account HK$’000 568,986 – – – – – (568,986) – – – – – – – – – – – – 35,694 (2,689) –	Capital reserve HK$’000 236,500 – – – – – (236,500) – – – – – – – – – – – – – – –	Contributed surplus HK$’000 – – – – – – 97,151 – – – 97,151 – – – – – – – 23,795 – – –	Asset revaluation reserve HK$’000 1,827 – 1,873 1,873 – 1,873 – (3,700) – – – – 636 (99) 537 – – 537 – – – –	Exchange fluctuation reserve Retained profits/ (accumulated losses) HK$’000 HK$’000 29 (694,641) (103) – – – (103) – – 3,411 (103) 3,411 – 708,335 (74) 3,700 – – – – (148) 20,805 156 – – – – – 156 – – 16,997 – (3,966) 156 13,031 – – – – – – – –		Proposed final dividend HK$’000 – – – – – – – – – – – – – – – – 3,966 3,966 – – – –	Total HK$’000 152,361 (103) 1,873 1,770 3,411 5,181 – (74) – – 157,468 156 636 (99) 693 16,997 – 17,690 – 59,489 (2,689) –	Minority interests HK$’000 1,912 (5) – (5) 41 36 – (876) (888) (184) – – – – – 34 – 34 – – – 10,770	Total equity HK$’000 154,273 (108) 1,873
											1,765 3,452
											5,217 – (950) (888) (184)
											157,468 156 636 (99)
											693 17,031 –
											17,724 – 59,489 (2,689) 10,770
	39,660	33,005*	–	120,946*	537*	8*	33,836*	3,966	231,958	10,804	242,762

These reserve accounts comprise the consolidated reserves of HK$188,332,000 (2005: HK$117,808,000) in the consolidated balance sheet.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2006

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax: From continuing operations From a discontinued operation 12 Adjustments for: Finance costs 6 Share of losses of associates Loss on disposal of an associate Gain on disposal of subsidiaries 5 Surplus arising from revaluation of land and buildings 15 Changes in fair value of investment properties 16 Fair value adjustment on properties held for resale 21 Provision for impairment of other assets 7 Write-back of impairment of accounts receivable 7 Write-down/(write-back) of inventories to net realisable value 7 Depreciation 7 Loss/(gain) on disposal of items of properties, plant and equipment 7 Fair value (gains)/losses on equity investments at fair value through profit or loss, net 7 Impairment of available-for-sale investments 7 Gain on disposal of available-for-sale investments 7 Gain on disposal of equity investments at fair value through profit or loss Interest income 5 Increase in retention monies receivable Decrease in inventories Decrease/(increase) in the gross amount due from contract customers Decrease/(increase) in trade and bills receivables Movement in balances with related companies, net Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in the gross amount due to contract customers Increase/(decrease) in trade and bills payables Increase in retention monies payable Increase/(decrease) in other payables and accruals Decrease in provision Cash generated from operations Interest received Interest paid Hong Kong profits tax refunded/(paid), net Overseas taxes paid Net cash inflow from operating activities – page 32	2006 HK$’000 21,069 – 12,981 1,619 6,180 – (4,477) (3,880) – – (1,105) (579) 1,908 163 (2,136) 340 (499) – (3,403)	2005 HK$’000 9,093 (1,960) 11,059 9,140 – (1,128) (5,261) – (2,914) 938 (5,484) 2,790 1,475 (32) 2,656 – – (16) (1,317) 19,039 (1,108) 19,327 (501) 46,719 408 (820) (2,797) (12,071) – (4,813) (257) 63,126 1,317 (11,059) (7,131) (368) 45,885
	28,181 (6,470) 24,837 6,209 (138,051) 3,319 184 30,918 12,249 1,979 69,408 (91) 32,672 3,403 (12,981) 405 (250) 23,249	19,039 (1,108 19,327 (501 46,719 408 (820 (2,797 (12,071 – (4,813 (257
		63,126 1,317 (11,059 (7,131 (368
		45,885

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes Net cash inflow from operating activities – page 31 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment 15 Proceeds from disposal of items of property, plant and equipment Disposal of subsidiaries 37 Proceeds from disposal of equity investments at fair value through profit or loss Proceeds from disposal of available-for-sale investments Proceeds from disposal of an associate Acquisition of subsidiaries 38 Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of new shares 34 Share issue expenses 36(b) Increase/(decrease) in trust receipt loans Dividend paid to a minority shareholder Loan repayment to a minority shareholder New bank loans Repayment of bank loans Net cash inflow/(outflow) from financing activities NET INCREASE 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 27 Non-pledged time deposits with original maturity of less than three months when acquired 27 Time deposits with original maturity of less than three months when acquired, pledged as security for bank overdraft facilities 27 Bank overdrafts 30	2006 HK$’000 23,249	2005 HK$’000 45,885 (573) 206 5,158 1,184 – – – 5,975 – – (33,681) (888) (184) 5,000 (5,000) (34,753) 17,107 27,818 (235) 44,690 14,268 55,834 – (25,412) 44,690
	(473) 139 – 809 499 9,566 (22,442) (11,902) 59,489 (2,689) 49,679 – – 15,000 (6,750) 114,729 126,076 44,690 (309)	(573 206 5,158 1,184 – – –
		5,975
		– – (33,681 (888 (184 5,000 (5,000
		(34,753
		17,107 27,818 (235
	170,457
	84,886 93,979 26,800 (35,208)	14,268 55,834 – (25,412
	170,457

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

31 December 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Interests in subsidiaries 17 Interest in an associate 18 Other assets 20 Total non-current assets CURRENT ASSETS Amount due from subsidiaries 17 Prepayments, deposits and other receivables Equity investments at fair value through profit or loss 26 Cash and cash equivalents 27 Total current assets CURRENT LIABILITIES Other payables and accruals 32 Interest-bearing bank loans 30 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans 30 Net assets EQUITY Issued capital 34 Reserves 36(b) Proposed final dividend 13,36(b) Total equity	2006 HK$’000 11 132,473 – 282	2005 HK$’000 16 98,042 17,599 282
	132,766 14,496 1,248 10,455 59,228 85,427 3,745 4,000 7,745 77,682 210,448 8,000	115,939
		11,985 271 9,330 7,046
		28,632
		3,488 3,750
		7,238
		21,394
		137,333 –
	202,448	137,333

	39,660 158,822 3,966	39,660 97,673 –
	202,448	137,333

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 December 2006

1. CORPORATE INFORMATION

Chinney Alliance Group Limited is a limited liability company incorporated Bermuda with its shares listed in The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The registered office of the Company is located at Clarendon House, Church Street, Hamilton HM 11, Bermuda, and the Company’s head office and principal place of business is located at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

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

trading of plastic and chemical products
distribution and installation of building supplies, electrical and mechanical products
provision of building related contracting services for both public and private sectors, including engineering contracting services in the air-conditioning industry and the provision of maintenance services
investment holding

During the current year, the Group acquired the entire equity interest in Shun Cheong Investments Limited and its subsidiaries (the “SCI Group”) which are engaged in the provision of building related contracting services for both public and private sectors.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, 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 investment properties, land and buildings and equity investments, which have been measured at fair value. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand, except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2006. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The acquisition of subsidiaries during the year has been accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries. Acquisition of minority interests are accounted for using the parent entity extension method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. Except for in certain cases, giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised standards and interpretation has had no material effect on these financial statements.

HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 39 & HKFRS 4 Financial Guarantee Contracts Amendments HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The principal changes in accounting policies are as follows:

(a) HKAS 21 the Effects of Changes in Foreign Exchange Rates

Upon the adoption of HKAS 21 Amendment regarding a net investment in a foreign operation, all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognised in a separate component of equity in the consolidated financial statements irrespective of the currency in which the monetary item is denominated. This change has had no material impact on these financial statements as at 31 December 2006 or 31 December 2005.

(b) HKAS 39 Financial Instruments: Recognition and Measurement

(i) Amendment for financial guarantee contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue . The adoption of this amendment has had no material impact on these financial statements.

(ii) Amendment for the fair value option

This amendment has changed the definition of a financial instrument classified as fair value through profit or loss and has restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through the income statement. The adoption of this amendment has had no material impact on these financial statements.

(iii) Amendment for cash flow hedge accounting of forecast intragroup transactions

This amendment has revised HKAS 39 to permit the foreign currency risk of a highly probable intra-group forecast transaction to qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated income statement. As the Group currently has no such transactions, the amendment has had no effect on these financial statements.

(c) HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The Group has adopted this interpretation as of 1 January 2006, which provides guidance in determining whether arrangements contain a lease to which lease accounting must be applied. This interpretation has had no material impact on these financial statements.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKAS 1 Amendment	Capital Disclosures
HKFRS 7	Financial Instruments: Disclosures
HKFRS 8	Operating Segments
HK(IFRIC)-Int 7	Applying the Restatement Approach under HKAS 29 Financial
	Reporting in Hyperinflationary Economies
HK(IFRIC)-Int 8	Scope of HKFRS 2
HK(IFRIC)-Int 9	Reassessment of Embedded Derivatives
HK(IFRIC)-Int 10	Interim Financial Reporting and Impairment
HK (IFRIC)-Int 11	HKFRS2-Group and Treasury Share Transactions
HK (IFRIC)-Int 12	Service Concession Arrangements

HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for annual periods beginning on or after 1 January 2007. The standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments.

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. This HKFRS replaces HKAS 14 Segment Reporting and has main changes on the identification of segments and the measurement of segment information.

HK(IFRIC)-Int 7, HK(IFRIC)-Int 8, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10, HK(IFRIC)-Int 11 and HK(IFRIC)Int 12 shall be applied for annual periods beginning on or after 1 March 2006, 1 May 2006, 1 June 2006, 1 November 2006, 1 March 2007 and 1 January 2008, respectively.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of HKAS 1 Amendment and HKFRS 7 may result in new or amended disclosures, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

3.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity 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 income statement 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 an entity, 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.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement 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.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The results of associates are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in associates are treated as non-current assets and are 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 business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is initially recognised in the consolidated balance sheet as an asset at cost, and is subsequently measured at cost less any accumulated impairment losses. In the case of associates, goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 Segment Reporting.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets, deferred tax assets, financial assets, goodwill and investment properties), 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.

– 39 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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 other than goodwill and certain financial assets 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 arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment 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.

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the asset 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 income statement. Any subsequent revaluation surplus is credited to the income statement 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 previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost or valuation 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:

Land and buildings	2% – 3%
Leasehold improvements	Over the lease terms or 20% – 331⁄3%
Furniture, fixtures and equipment	10% – 331⁄3%
Motor vehicles	15% – 25%

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

Residual values, useful lives and the 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.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date.

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise.

– 40 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Property, plant and equipment and depreciation” up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is accounted for as a revaluation in accordance with the policy stated under “Property, plant and equipment and depreciation” above.

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 lessor, assets leased by the 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 Group is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms.

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the 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 at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on investments held for trading are recognised in the income statement.

Financial assets may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 are not classified in any of the other two categories. 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 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.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets

The 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.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Available-for-sale financial assets

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 the income statement, is transferred from equity to the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities including trade and other payables and interest-bearing bank loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

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.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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, depends on the nature of the contract works, measured either by reference to the proportion of costs incurred to date to the estimated total cost of the relevant contract or to the percentage of certified work performed to date to the estimated total 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.

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 income statement.

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 the completion of the transactions;
(d) rental income, on a time proportion basis over the lease terms; and
(e) 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 asset.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 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, 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 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 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.

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.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the 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 the income statement. 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.

– 45 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The functional currencies of certain overseas subsidiaries and an associate are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at exchange rates ruling at the balance sheet date and, and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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

Related parties

A party is considered to be related to the 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 Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a member of the key management personnel of the Company or its parent;
(d) the party is a close member of the family of any individual referred to in (a) or (c);
(e) 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 (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

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.

Pension schemes

The Group operates defined contribution retirement benefits schemes, including Mandatory Provident Fund retirement benefits schemes (the “MPF Schemes”) under the Mandatory Provident Fund Schemes Ordinance and an Occupational Retirement Schemes Ordinance retirement benefits scheme (the “ORSO Scheme”), for all of its employees who are eligible to participate in the MPF Schemes or ORSO Scheme.

Under the MPF Schemes, 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 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.

– 46 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The ORSO Scheme is managed by an independent trustee. The 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 Group together with the accrued earnings thereon upon retirement or leaving the 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 Group.

Prior to the MPF Schemes becoming effective, certain member companies of 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 the above-mentioned schemes are held separately from those of the Group in independently administered funds.

Share-based payment transactions

The Company had a share option scheme, which expired on 23 September 2003, for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (“equitysettled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using a valuation model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (“market conditions”), if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the “vesting date”). The cumulative expense recognised for equity-settled transactions at each balance sheet date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

The Group has adopted the transitional provisions of HKFRS 2 in respect of equity-settled awards and has applied HKFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested by 1 January 2005 and to those granted on or after 1 January 2005.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

3.2 SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES

Judgements

The preparation of the Group’s financial statements requires the use of estimates and assumptions about future events and conditions. In this connection, the directors consider that the significant areas where management’s judgement is necessary are those in relation to (i) the valuation of the Group’s available-for-sale financial assets and equity investments at fair value through profit or loss; (ii) the provision for foreseeable losses on construction contracts; and (iii) the recognition of losses on the Group’s trade and other receivables and retention monies receivable.

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. It should be noted that actual results could differ from those estimates.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2006 was HK$8,922,000 (2005: Nil). More details are given in note 19.

The Group tests annually whether property, plant and equipment has suffered any impairment, in accordance with the accounting policy stated in note 3.1. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of estimates such as future revenue and discount rates.

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 building related contracting services segment consists of contracting services for both public and private sectors, including engineering contracting services in the air-conditioning industry and the provision of maintenance services which were treated as a separate segment in the prior years.

– 48 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In June 2005, the Group discontinued its electrical appliances business segment which consisted of importing, marketing and distributing electrical appliances.

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.

(a) Business Segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the years ended 31 December 2006 and 2005.

		Continuing	Continuing	operations	operations			Discontinued operation	Discontinued operation
Plastic and chemical products 2006 2005 HK$’000 HK$’000 785,879 883,594 2,414 2,093		Building supplies, electrical and mechanical products 2006 2005 HK$’000 HK$’000 54,047 51,968 395 335		Building related contracting services 2006 2005 HK$’000 HK$’000 628,595 79,439 13 61		Total 2006 2005 HK$’000 HK$’000 1,468,521 1,015,001 2,822 2,489		Electrical appliances business 2006 2005 HK$’000 HK$’000 – 13,031 – –		Consolidated 2006 2005 HK$’000 HK$’000 1,468,521 1,028,032 2,822 2,489
788,293	885,687	54,442	52,303	628,608	79,500	1,471,343	1,017,490	–	13,031	1,471,343	1,030,521

28,055 4,477 2,420	34,575 5,185 2,914	(1,033) – 1,460	(5,411) 76 –	11,014 – –	1,922 – –	38,036 4,477 3,880	31,086 5,261 2,914	– – –	(2,149) – –	38,036 4,477 3,880	28,937 5,261 2,914
34,952	42,674	427	(5,335)	11,014	1,922	46,393	39,261	–	(2,149)	46,393	37,112

						2,065 (8,405) 2,136 (340) (6,180) (12,981) (1,619)	3,107 (10,725) (2,656) – – (10,754) (9,140)	– – – – – – –	494 – – – – (305) –	2,065 (8,405) 2,136 (340) (6,180) (12,981) (1,619)	3,601 (10,725 (2,656 – – (11,059 (9,140
						21,069 (4,038)	9,093 (3,681)	– –	(1,960) –	21,069 (4,038)	7,133 (3,681
						17,031	5,412	–	(1,960)	17,031	3,452

						16,997 34	5,371 41	– –	(1,960) –	16,997 34	3,411 41
						17,031	5,412	–	(1,960)	17,031	3,452

– 49 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Continuing operations			Discontinued operation	Discontinued operation	Consolidated 2006 2005 HK$’000 HK$’000 750,549 373,929 1,429 19,139 59,676 20,093 35,208 25,412 846,862 438,573	Consolidated 2006 2005 HK$’000 HK$’000 750,549 373,929 1,429 19,139 59,676 20,093 35,208 25,412 846,862 438,573
Plastic and chemical products Building supplies, electrical and mechanical products Building related contracting services Eliminations 2006 2005 2006 2005 2006 2005 2006 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 348,119 325,321 16,352 19,384 392,675 35,014 (6,597) (5,790) – – 27,418 23,419 7,790 1,993 – – 55,523 48,691 84,810 26,050 269,523 21,788 (6,597) (5,790) – – 27,418 23,419 7,790 1,993 – – – 128 351 326 2,782 115 – – 551 624 673 588 684 47 – – (4,477) (5,185) – (76) – – – – (2,420) (2,914) (1,460) – – – – –	Total 2006 2005 HK$’000 HK$’000 750,549 373,929 1,429 19,139 59,676 20,093 35,208 25,412 846,862 438,573		Electrical appliances business 2006 2005 HK$’000 HK$’000 – – – – – – – – – –
	846,862	438,573	–	–	846,862	438,573

	403,259 165,633 35,208	90,739 164,954 25,412	– – –	– – –	403,259 165,633 35,208	90,739 164,954 25,412
	604,100	281,105	–	–	604,100	281,105

	3,133 1,908 (4,477) (3,880)	569 1,259 (5,261) (2,914)	– – – –	4 216 – –	3,133 1,908 (4,477) (3,880)	573 1,475 (5,261) (2,914)

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Geographical Segments

The following table presents revenue and certain asset and expenditure information for the Group’s geographical segments for the years ended 31 December 2006 and 2005.

Group

		Continuing operations	Discontinued operation Hong Kong 2006 2005 HK$’000 HK$’000 – 13,031 – – – 13,031 – – – – – – – 4	Consolidated 2006 2005 HK$’000 HK$’000 1,468,521 1,028,032 2,822 2,489 1,471,343 1,030,521 811,654 413,161 35,208 25,412 846,862 438,573 3,133 573
Hong 2006 HK$’000 1,292,119 2,427 1,294,546 698,302 35,208 2,771	Kong 2005 HK$’000 972,534 2,489 975,023 404,391 25,412 532	Macau and Mainland China 2006 2005 HK$’000 HK$’000 176,402 42,467 395 – 176,797 42,467 113,352 8,770 – – 362 37	Hong 2006 HK$’000 – – – – – – –
				1,030,521

				413,161 25,412
				438,573

				573

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. REVENUE, OTHER INCOME AND GAIN

Revenue, which is also the Group’s turnover, represents the net invoiced value of services rendered and goods sold, after allowances for returns and trade discounts, and an appropriate proportion of revenue from construction contracts during the year.

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

2006 HK$’000 878,402 590,119	2005 HK$’000 964,281 50,720	2005 HK$’000 964,281 50,720
1,468,521 – – –	1,015,001
	11,834 1,197
	13,031
1,468,521	1,028,032

3,403 1,651 455 2,080 7,589 – – –	1,317 2,489 152 1,576
	5,534
	391 103
	494
7,589 6,028 – 1,128 Group 2006 2005 HK$’000 HK$’000 12,981 11,059	6,028

	1,128



12,981 –		10,754 305
12,981		11,059

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. PROFIT BEFORE TAX

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

Continuing operations 2006 2005 HK$’000 HK$’000 1,787 1,100 148 69	Continuing operations 2006 2005 HK$’000 HK$’000 1,787 1,100 148 69	Discontinued operation 2006 2005 HK$’000 HK$’000 – – – –	Discontinued operation 2006 2005 HK$’000 HK$’000 – – – –	Consolidated 2006 2005 HK$’000 HK$’000 1,787 1,100 148 69 1,935 1,169 50,834 44,208 2,803 2,582 (217) (181) 2,586 2,401 53,420 46,609 800,337 886,737 562,718 50,724 1,908 1,475 3,817 4,247 (1,105) (5,484) (579) 2,790 – 938 (2,136) 2,656 163 (32) (499) – 340 – (3,104) (2,703)	Consolidated 2006 2005 HK$’000 HK$’000 1,787 1,100 148 69 1,935 1,169 50,834 44,208 2,803 2,582 (217) (181) 2,586 2,401 53,420 46,609 800,337 886,737 562,718 50,724 1,908 1,475 3,817 4,247 (1,105) (5,484) (579) 2,790 – 938 (2,136) 2,656 163 (32) (499) – 340 – (3,104) (2,703)
1,935 50,834 2,803 (217) 2,586 53,420	1,169 41,556 2,433 (140) 2,293 43,849	– – – – – –	– 2,652 149 (41) 108 2,760	1,935 50,834 2,803 (217) 2,586 53,420	1,169
					44,208 2,582 (181
					2,401
					46,609
800,337 562,718 1,908 3,817 (1,105) (579) – (2,136) 163 (499) 340 (3,104)	878,293 49,172 1,259 3,519 (5,502) 4,351 938 2,656 (32) – – (2,703)	– – – – – – – – – – – –	8,444 1,552 216 728 18 (1,561) – – – – – –	800,337 562,718 1,908 3,817 (1,105) (579) – (2,136) 163 (499) 340 (3,104)

As at 31 December 2006, the Group did not have significant forfeited contributions available to reduce its contributions to the pension schemes in future years (2005: Nil).

These expenses/(income) are included in “Other operating income, net” on the face of the consolidated income statement.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. 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 Other emoluments: Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions	Group 2006 2005 HK$’000 HK$’000 138 150 3,714 4,206 800 1,088 272 317 4,786 5,611 4,924 5,761	Group 2006 2005 HK$’000 HK$’000 138 150 3,714 4,206 800 1,088 272 317 4,786 5,611 4,924 5,761

		4,206 1,088 317
		5,611
		5,761

(a) Independent Non-executive Directors

The fees paid to independent non-executive directors during the year were as follows:

William Gage McAfee David Chung-Shing Wu Tian-Quan Mo (resigned on 4 October 2006)	2006 HK$’000 50 50 38 138	2005 HK$’000 50 50 50
		150

There were no other emoluments payable to the independent non-executive directors during the year (2005: Nil).

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Executive Directors and a Non-executive Director

Fees HK$’000 – – – –	Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 – – – – 1,646 – 149 1,795 1,918 700 108 2,726 150 100 15 265	Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 – – – – 1,646 – 149 1,795 1,918 700 108 2,726 150 100 15 265	Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 – – – – 1,646 – 149 1,795 1,918 700 108 2,726 150 100 15 265	Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions Total remuneration HK$’000 HK$’000 HK$’000 HK$’000 – – – – 1,646 – 149 1,795 1,918 700 108 2,726 150 100 15 265
– –	3,714 –	800 –	272 –	4,786 –
–	3,714	800	272	4,786

– – – – – –	– 1,646 1,910 650 4,206 –	– – 1,000 88 1,088 –	– 149 108 60 317 –	– 1,795 3,018 798
				5,611 –
–	4,206	1,088	317	5,611

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 35 to the financial statements.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees of the Group included two (2005: two) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining three (2005: 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 2006 2005 HK$’000 HK$’000 2,633 2,898 1,697 1,800 116 135 4,446 4,833	Group 2006 2005 HK$’000 HK$’000 2,633 2,898 1,697 1,800 116 135 4,446 4,833
		4,833

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

HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000	Number of employees 2006 2005 1 1 2 1 – 1 3 3	Number of employees 2006 2005 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 options remaining outstanding under the scheme at the balance sheet date are included in the disclosures in note 35 to the financial statements.

10. TAX

Hong Kong profits tax has been provided at the rate of 17.5% (2005: 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 Underprovision in prior years Current – Elsewhere Deferred (note 33) Total tax charge for the year	2006 HK$’000 1,972 3 250 1,813 4,038	2005 HK$’000 1,927 37 358 1,359
		3,681

– 56 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

A reconciliation of the tax expense applicable to profit before tax using the statutory rate to the tax charge for the year is as follows:

Profit before tax (including loss from a discontinued operation) Tax at Hong Kong profits tax rate of 17.5% (2005:17.5%) Effect of different rates for companies operating in other jurisdictions Underprovision in prior years Income not subject to tax Expenses not deductible for tax Tax losses utilised from previous periods Tax losses not recognised Losses attributable to associates Others Tax charge for the year Represented by: Tax charge attributable to continuing operations reported in the consolidated income statement Tax charge attributable to a discontinued operation (note 12)	Group 2006 2005 HK$’000 HK$’000 21,069 7,133 3,687 1,248 (219) (439) 3 37 (2,243) (1,891) 715 1,071 (305) (173) 1,916 2,181 283 1,599 201 48 4,038 3,681 4,038 3,681 – – 4,038 3,681	Group 2006 2005 HK$’000 HK$’000 21,069 7,133 3,687 1,248 (219) (439) 3 37 (2,243) (1,891) 715 1,071 (305) (173) 1,916 2,181 283 1,599 201 48 4,038 3,681 4,038 3,681 – – 4,038 3,681
	4,038 –	3,681 –
	4,038

The share of tax attributable to an associate amounting to HK$4,000 (2005: HK$116,000) is included in “Share of losses of associates” on the face of the consolidated income statement.

11. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

The consolidated profit attributable to equity holders of the parent for the year ended 31 December 2006 includes a profit of HK$8,315,000 (2005: HK$522,000) which has been dealt with in the financial statements of the Company (note 36(b)) .

– 57 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

12. DISCONTINUED OPERATION

The Group discontinued the wholesaling of electrical appliances business in June 2005 as such business had not been performing in the previous few years. The remaining stocks were sold to the new distributor and all staff were retrenched in June 2005. As at 31 December 2006, no assets or liabilities of the Group were attributable to this discontinued operation.

The results attributable to the discontinued operation for the year are presented below:

Revenue Cost of sales/services provided Gross profit Other income Selling and distribution costs Administrative expenses Other operating expenses Finance costs Loss before tax Tax Loss for the year	2006 HK$’000 – –	2005 HK$’000 13,031 (9,996)
	– – – – – – – –	3,035 494 (1,116) (4,039) (29) (305)
		(1,960) –
	–	(1,960)

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

Net cash inflow from operating activities Net cash inflow from financing activities Net cash inflow LOSS PER SHARE Basic, from the discontinued operation Diluted, from the discontinued operation	2006 HK$’000 – – – – N/A	2005 HK$’000 4,040 537
		4,577

		(1.19 cents)

		(restated) N/A

The calculations of basic loss per share from the discontinued operation are based on:

Loss attributable to equity holders of the parent from the discontinued operation Weighted average number of ordinary shares in issue during the year used in the basic loss per share calculation	2006 N/A N/A	2005 HK$(1,960,000) 164,525,336

		(restated)

The weighted average number of ordinary shares in issue for year ended 31 December 2005 has been adjusted for the effect of the Open Offer (note 34) during the current year.

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. DIVIDEND

									2006	2005
									HK$’000	HK$’000
Proposed	final	–	HK$0.01	(2005:	Nil)	per	ordinary	share	3,966	–

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

14. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share amounts is based on the profit for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares in issue during the year, as adjusted to reflect the effect of the Open Offer (note 34) during the year.

Diluted earnings per share amounts for the years ended 31 December 2006 and 31 December 2005 have not been disclosed, as the outstanding share options had an anti-dilutive effect on the basic earnings per share since their exercise prices were higher than the average market price of the Company’s ordinary shares during both years.

The calculations of basic earnings/(loss) per share are based on:

Earnings Profit/(loss) attributable to ordinary equity holders of the parent From continuing operations From a discontinued operation Profit attributable to ordinary equity holders of the parent Shares Weighted average number of ordinary shares in issue during the year	2006 2005 HK$’000 HK$’000 16,997 5,371 – (1,960) 16,997 3,411 Number of shares 2006 2005 207,761,070 164,525,336	2005 HK$’000 5,371 (1,960)
		3,411

(restated)

The weighted average number of ordinary shares in issue for year ended 31 December 2005 has been adjusted for the effect of the Open Offer (note 34) during the current year.

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. PROPERTY, PLANT AND EQUIPMENT

Group

Land and buildings Leasehold improvements HK$’000 HK$’000 23,031 2,938 (166) (2,699) 22,865 239	Land and buildings Leasehold improvements HK$’000 HK$’000 23,031 2,938 (166) (2,699) 22,865 239	Furniture, fixtures and equipment HK$’000 7,868 (7,403) 465	Motor vehicles HK$’000 688 (405) 283	Total HK$’000 34,525 (10,673) 23,852 23,852 473 (302) 2,660 636 4,477 (1,908) (2,901) 1 26,988 33,775 (6,787) 26,988 9,188 24,587 33,775
22,865 – – 27 636 4,477 (517) (2,901) –	239 34 – 1,880 – – (747) – –	465 370 (302) 753 – – (468) – 1	283 69 – – – – (176) – –	23,852 473 (302 2,660 636 4,477 (1,908 (2,901 1
24,587	1,406	819	176
24,587 –	2,876 (1,470)	5,421 (4,602)	891 (715)	33,775 (6,787
24,587	1,406	819	176
– 24,587	2,876 –	5,421 –	891 –	9,188 24,587
24,587	2,876	5,421	891

– 60 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Group (Continued)

Land and buildings Leasehold improvements HK$’000 HK$’000 35,108 4,061 (149) (3,452) 34,959 609	Land and buildings Leasehold improvements HK$’000 HK$’000 35,108 4,061 (149) (3,452) 34,959 609	Furniture, fixtures and equipment HK$’000 16,424 (15,708) 716	Motor vehicles HK$’000 1,499 (1,238) 261	Total HK$’000 57,092 (20,547) 36,545 36,545 573 (174) (11,705) 1,873 5,261 (1,475) (7,099) 53 23,852 34,525 (10,673) 23,852 12,322 22,203 34,525
34,959 – – (11,500) 1,873 5,261 (629) (7,099) –	609 2 (121) – – – (252) – 1	716 303 (16) (182) – – (406) – 50	261 268 (37) (23) – – (188) – 2	36,545 573 (174 (11,705 1,873 5,261 (1,475 (7,099 53
22,865	239	465	283
23,031 (166)	2,938 (2,699)	7,868 (7,403)	688 (405)	34,525 (10,673
22,865	239	465	283
828 22,203	2,938 –	7,868 –	688 –	12,322 22,203
23,031	2,938	7,868	688

– 61 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Group’s land and buildings were revalued individually on 31 December 2006 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, at an open market value of HK$24,587,000 based on their existing use. Revaluation surpluses of HK$4,477,000 and HK$636,000, resulting from the above valuations, have been credited to the consolidated income statement and the asset revaluation reserve, respectively.

Details of the land and buildings are as follows:

Medium-term leases: Hong Kong Mainland China	2006 HK$’000 23,830 757 24,587	2005 HK$’000 19,300 3,565
		22,865

Had these land and buildings been carried at historical cost less accumulated depreciation, their carrying amounts would have been approximately HK$23,679,000 (2005: HK$26,123,000).

The net carrying value of land and buildings pledged to secure banking facilities granted to the Group amounted to HK$23,350,000 (2005: HK$19,300,000) (note 30) .

Company

31 December 2006 At 31 December 2005 and 1 January 2006: Cost Accumulated depreciation Net carrying amount At 1 January 2006, net of accumulated depreciation Depreciation provided during the year At 31 December 2006, net of accumulated depreciation At 31 December 2006: Cost Accumulated depreciation Net carrying amount	Furniture, fixtures and equipment HK$’000 287 (271
	16

	16 (5
	11

	287 (276
	11

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Furniture, fixtures and equipment HK$’000

31 December 2005 At 1 January 2005: Cost Accumulated depreciation Net carrying amount At 1 January 2005, net of accumulated depreciation Additions Depreciation provided during the year At 31 December 2005, net of accumulated depreciation At 31 December 2005: Cost Accumulated depreciation Net carrying amount	280 (250
	30

	30 7 (21
	16

	287 (271
	16

16. INVESTMENT PROPERTIES

Carrying amount at 1 January Transfer from property, plant and equipment (note 15) Transfer from properties held for resale (note 21) Fair value changes Carrying amount at 31 December	Group 2006 2005 HK$’000 HK$’000 13,049 – 2,901 7,099 – 5,950 3,880 – 19,830 13,049	Group 2006 2005 HK$’000 HK$’000 13,049 – 2,901 7,099 – 5,950 3,880 – 19,830 13,049
		13,049

The Group’s investment properties were revalued on 31 December 2006 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, on an open market, existing use basis. These investment properties were vacant as at 31 December 2006.

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries Impairment	Company 2006 2005 HK$’000 HK$’000 185,600 185,600 802,544 783,217 (9,532) (9,538) 978,612 959,279 (846,139) (861,237) 132,473 98,042	Company 2006 2005 HK$’000 HK$’000 185,600 185,600 802,544 783,217 (9,532) (9,538) 978,612 959,279 (846,139) (861,237) 132,473 98,042
	978,612 (846,139)	959,279 (861,237
	132,473

The amounts due from subsidiaries included in the Company’s current assets of HK$14,496,000 (2005: HK$11,985,000) are unsecured, interest-free and are repayable on demand or within one year.

The carrying amounts of these amounts due from/to subsidiaries approximate to their fair values.

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

	Place of		Percentage of equity	Percentage of equity	Percentage of equity
	incorporation	Nominal value of	interest attributable to
Name	and operations	issued capital	the Group			Principal activities
			Direct	Indirect
Best Treasure Limited	British Virgin	Ordinary US$1	–		100%	Investment holding
	Islands/Hong
	Kong
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/Hong	HK$360,001
	Kong
Chinney E & M	Hong Kong	Ordinary HK$100	–		100%	Maintenance of air-
(Maintenance)						conditioning, electrical
Limited**						generators, water
						pumps and fire
						prevention and
						fighting systems
DMT-Jacobson Holdings	British Virgin	Ordinary	–		100%	Investment holding
Limited	Islands/Hong	US$2,000,000
	Kong

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	Place of		Percentage of equity	Percentage of equity
	incorporation	Nominal value of	interest attributable to
Name	and operations	issued capital	the Group		Principal activities
			Direct	Indirect
DMT International Hong	Hong Kong	Ordinary	–	100%	Agency trading of
Kong Limited		HK$1,000;			industrial materials
		Non-voting
		deferred
		HK$5,156,700
Gina Enterprises Limited	Hong Kong	Ordinary HK$2	–	100%	Property holding
Jacobson van den Berg	Hong Kong	Ordinary	–	100%	Trading of electrical and
(China) Limited*		HK$1,000,000			mechanical products
Jacobson van den Berg	Hong Kong	Ordinary	–	100%	Investment holding and
(Hong Kong) Limited		HK$1,000;			agency trading of
		Non-voting			industrial products
		deferred
		HK$35,486,600
Lei Kee Development	Hong Kong	Ordinary HK$2	–	100%	Property holding
Company Limited
Shun Cheong Building	Macau	Ordinary	–	100%	Installation and
Services (Macau)		MOP100,000			maintenance of
Limited**					electrical, mechanical,
					heat ventilation and
					air-conditioning
					systems
Shun Cheong Electrical	Hong Kong	“A” ordinary	–	100%	Design, installation,
Engineering Company		HK$100,000;			repair and maintenance
Limited**		Non-voting			of electrical and
		deferred			mechanical systems
		HK$4,000,000
Shun Cheong Investments	British Virgin	Ordinary HK$100	–	100%	Investment holding
Limited**	Islands/Hong
	Kong
Shun Cheong	Hong Kong	Ordinary HK$2	–	100%	Provision of management
Management Limited**					services
Shun Cheong Trade and	Hong Kong	Ordinary	–	100%	Trading of electrical
Development Company		HK$663,000			generators
Limited**
Shun Wing Construction	Hong Kong	Ordinary	–	50.1%	Provision of building and
& Engineering		HK$1,000			electrical maintenance
Company Limited**					services
Tegan Holdings Limited	Hong Kong	Ordinary HK$2	–	100%	Property holding

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	Place of		Percentage of equity	Percentage of equity	Percentage of equity
	incorporation	Nominal value of	interest attributable to
Name	and operations	issued capital	the Group			Principal activities
			Direct	Indirect
Westco Airconditioning	Hong Kong	Ordinary	–		100%	Design, installation and
Limited**		HK$4,100,000				maintenance of
						heating, ventilation
						and air-conditioning
						systems
Westco Chinney Limited*	Hong Kong	Ordinary	–		100%	Sale and installation of
		HK$3,000,000				air-conditioning
						systems

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.
** During the year, the Group acquired the entire equity interest in Shun Cheong Investments Limited for a consideration of HK$35,000,000. Further details of this acquisition are included in note 38 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.

18. INTERESTS IN ASSOCIATES

Listed shares, at cost Share of net assets Goodwill on acquisition Impairment of goodwill Impairment	Group 2006 2005 HK$’000 HK$’000 – – 8,629 26,339 – 2,298 – (2,298) (7,200) (7,200) 1,429 19,139	Company 2006 2005 HK$’000 HK$’000 – 87,723 – – – – – – – (70,124) – 17,599

During the year, the Group disposed of its entire equity interest in Shun Cheong Holdings Limited (“Shun Cheong”), an associate of the Group. Details of the transaction are set out in note 39(b)(iii) to the financial statements.

At 31 December 2005, the market value of the listed ordinary shares of Shun Cheong held by the Group was HK$10,409,250.

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

			Percentage of
	Place of	Particulars of	equity interest
	registration	registered	attributable to	Principal
Name	and operations	capital held	the Group	activities
Jiangxi Kaitong New	People’s	RMB12,450,000	24.9%	Manufacture of
Materials Company	Republic of			stainless steel
Limited*	China			and plastic
				compound pipes
(“Jiangxi Kaitong”)

Jiangxi Kaitong is 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 associate are both the same as the equity interest shown above. The financial statements of the above associate are coterminous with those of the Group. The following table illustrates the summarised financial information of Jiangxi Kaitong extracted from its financial statements:

	2006	2005
	HK$’000	HK$’000
Assets	30,139	30,750
Liabilities	(309)	(480)
Revenues	440	673
Loss for the year	(2,307)	(1,973)

19. GOODWILL

Carrying amount at 1 January Acquisition of subsidiaries (note 38) Carrying amount at 31 December	2006 HK$’000 – 8,922 8,922	2005 HK$’000 – –
		–

Goodwill acquired through business combination has been allocated to the reportable segment of building related contracting services.

Impairment testing of goodwill

For impairment testing, goodwill acquired through business combinations has been allocated to one single cash-generating unit which involves in building related contracting services. The recoverable amount of this cash-generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management. The discount rate applied to the cash flow projections is 6%.

Key assumptions were used in the value in use calculation for 31 December 2006 are as follows:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the estimated gross margins related to signed but uncompleted construction contracts in hand.

Discount rate – The discount rate used is before tax and reflect specific risks relating to the relevant unit.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. OTHER ASSETS

Club memberships, at cost Provision for impairment 21. PROPERTIES HELD FOR RESALE Carrying amount at 1 January Fair value adjustment upon reclassification to investment properties Transfer to investment properties (note 16) 22. INVENTORIES Raw materials Finished goods 23. CONSTRUCTION CONTRACTS Gross amount due from contract customers Gross amount due to contract customers Contract costs incurred plus recognised profits less recognised losses to date Less: Progress billings	Group and Company 2006 2005 HK$’000 HK$’000 1,220 1,220 (938) (938) 282 282 Group 2006 2005 HK$’000 HK$’000 – 3,036 – 2,914 – (5,950) – – Group 2006 2005 HK$’000 HK$’000 59,614 79,121 7,199 11,950 66,813 91,071 Group 2006 2005 HK$’000 HK$’000 41,508 5,458 (76,067) (1,412) (34,559) 4,046 3,201,024 135,818 (3,235,583) (131,772) (34,559) 4,046	Group and Company 2006 2005 HK$’000 HK$’000 1,220 1,220 (938) (938) 282 282 Group 2006 2005 HK$’000 HK$’000 – 3,036 – 2,914 – (5,950) – – Group 2006 2005 HK$’000 HK$’000 59,614 79,121 7,199 11,950 66,813 91,071 Group 2006 2005 HK$’000 HK$’000 41,508 5,458 (76,067) (1,412) (34,559) 4,046 3,201,024 135,818 (3,235,583) (131,772) (34,559) 4,046
	3,201,024 (3,235,583)	135,818 (131,772
	(34,559)

– 68 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At 31 December 2006, the retentions held by customers for contract works included in retention monies receivable over one year and the retention monies receivable included in current assets of the Group amounted to approximately HK$17,548,000 (2005: HK$3,672,000) and HK$13,818,000 (2005: HK$1,781,000), respectively.

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

24. TRADE AND BILLS RECEIVABLES

				Group
				2006	2005
				HK$’000	HK$’000
Trade	and	bills	receivables	388,523	186,990

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 good business relationships. In view of the aforementioned and the fact that the 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.

An aged analysis of the trade and bills receivables as at the balance sheet date, based on the payment due date, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	Group 2006 2005 HK$’000 HK$’000 253,139 132,927 67,628 20,118 15,751 11,377 52,005 22,568 388,523 186,990	Group 2006 2005 HK$’000 HK$’000 253,139 132,927 67,628 20,118 15,751 11,377 52,005 22,568 388,523 186,990
		186,990

Included in the trade receivable balances as at 31 December 2006 were amounts due from Chinney Construction Company, Limited (“Chinney Construction”) of approximately HK$27,686,000 which arose from the provision of various building and maintenance services. Please refer to note 39 for details of related party transactions with Chinney Construction.

In the prior year, included in the Group’s trade receivables were amounts due from an associate of the Group, of HK$2,003,000, which were repayable on credit terms similar to those offered to the major customers of the Group.

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. AMOUNTS DUE FROM/TO RELATED COMPANIES

The amount due from related companies, disclosed pursuant to Section 161B of the Companies Ordinance, is as follows:

Group

Notes Chinney Construction (i) Hon Kwok Land Investment (Shenzhen) Co., Ltd. (ii) Shun Cheong Electrical Engineering Company Limited (iii) Tinhawk Company Limited (“Tinhawk”) (iv) Ever Billion Engineering Limited (“Ever Billion”) (iv)	2006 HK$’000 171 28 – 2,057 6,125 8,381	2005 HK$’000 – 2,541 183 – –
		2,724

Notes:

(i) Chinney Construction is a subsidiary of Chinney Investments, Limited (“Chinney Investments”, a major shareholder of the Company) of which Dr. James Sai-Wing Wong, a director of the Company, is a director of and has beneficial interest. Mr. Sek-Kee Yu, a director of the Company, is also a director of Chinney Construction. The maximum amount due from Chinney Construction during the year was HK$171,000.
(ii) Hon Kwok Land Investment (Shenzhen) Co., Ltd. is a wholly-owned subsidiary of Hon Kwok Land Investment Company, Limited (“Hon Kwok”), which is a subsidiary of Chinney Investments of which Dr. James Sai-Wing Wong, a director of the Company, is a director of and has beneficial interest. Mr. Herman Man-Hei Fung, a director of the Company, is also a director of Chinney Investments. The maximum amount due from Hon Kwok Land Investment (Shenzhen) Co., Ltd. during the year was HK$2,541,000.
(iii) Mr. Sek-Kee Yu, a director of the Company, is also a director of Shun Cheong Electrical Engineering Company Limited, which became a subsidiary of the Company on 31 March 2006.
(iv) Tinhawk and Ever Billion are subsidiaries of Shun Cheong. Mr. Sek-Kee Yu is a common director of the Company and Tinhawk and Ever Billion.

The balances with the related companies are unsecured, interest-free and repayable on demand.

The carrying amounts of balances with related companies approximate to their fair values.

26. EQUITY INVESTMENTS AT FAIR VALUE THOUGH PROFIT OR LOSS

	Group		Company
	2006	2005	2006	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Listed equity investments in Hong Kong,
at market value	12,030	9,330	10,455	9,330

The above equity investments at 31 December 2006 and 2005 were classified as held for trading.

The market value of the above investments of the Group at the date of approval of these financial statements was approximately HK$19,826,000.

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. CASH AND CASH EQUIVALENTS AND PLEDGED TIME DEPOSITS

Cash and bank balances Time deposits Less: Pledged time deposits Cash and cash equivalents	Group 2006 2005 HK$’000 HK$’000 84,886 14,268 120,779 55,834	Group 2006 2005 HK$’000 HK$’000 84,886 14,268 120,779 55,834	Company 2006 2005 HK$’000 HK$’000 906 654 58,322 6,392	Company 2006 2005 HK$’000 HK$’000 906 654 58,322 6,392
	205,665 (26,800)	70,102 –	59,228 –	7,046 –
	178,865	70,102	59,228	7,046

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to HK$751,000 (2005: HK$914,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term time deposit rates. The carrying amounts of the cash and cash equivalents and the time deposits approximate to their fair values. Time deposits of HK$26,800,000 were pledged to a bank to secure bank overdraft facilities granted to certain subsidiaries of the Company (note 30) .

28. TRADE AND BILLS PAYABLES

Trade payables Bills payable	Group 2006 2005 HK$’000 HK$’000 72,722 45,194 42,473 17,574 115,195 62,768	Group 2006 2005 HK$’000 HK$’000 72,722 45,194 42,473 17,574 115,195 62,768
		62,768

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

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	Group 2006 2005 HK$’000 HK$’000 62,510 36,120 5,642 3,039 861 1,097 3,709 4,938 72,722 45,194	Group 2006 2005 HK$’000 HK$’000 62,510 36,120 5,642 3,039 861 1,097 3,709 4,938 72,722 45,194
		45,194

The trade payables are non-interest-bearing and are normally settled within terms of 60 to 120 days.

29. TRUST RECEIPT LOANS

At 31 December 2006, the Group’s trust receipt loans were secured by corporate guarantees given by the Company and certain subsidiaries. Trust receipt loans are repayable within six months from the date of advance, and bear interest at floating interest rates. Their carrying amounts approximate to their fair values.

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. INTEREST-BEARING BANK LOANS AND OVERDRAFTS

Group 2006 2005 HK$’000 HK$’000 28,450 25,412 6,758 – 4,000 3,750	Group 2006 2005 HK$’000 HK$’000 28,450 25,412 6,758 – 4,000 3,750	Company 2006 2005 HK$’000 HK$’000 – – – – 4,000 3,750	Company 2006 2005 HK$’000 HK$’000 – – – – 4,000 3,750
39,208 8,000	29,162 –	4,000 8,000	3,750
			–
47,208	29,162	12,000	3,750

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

Group 2006 2005 HK$’000 HK$’000 35,208 25,412	Group 2006 2005 HK$’000 HK$’000 35,208 25,412	Company 2006 2005 HK$’000 HK$’000 – –	Company 2006 2005 HK$’000 HK$’000 – –
4,000 8,000 12,000	3,750 – 3,750	4,000 8,000 12,000	3,750 –
			3,750
47,208	29,162	12,000	3,750

The bank loans and overdrafts of the Group and the Company as set out above bear interest at floating interest rates. All borrowings are denominated in Hong Kong dollars and are secured by the corporate guarantees given by the Company. The secured bank loans are repayable quarterly with last installment due in March 2009, and are secured by certain land and buildings with an aggregate carrying value of HK$23,350,000 (2005: HK$19,300,000) (note 15) . The secured bank overdrafts are secured by time deposits of HK$26,800,000 (note 27) . The carrying amounts of the bank loans and overdrafts approximate to their fair values.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. PROVISION

Group

At beginning of year Write-back of overprovision Provision for the year Amount utilised during the year At 31 December Portion classified as current liabilities Long-term portion	Long service payment 2006 2005 HK$’000 HK$’000 1,119 1,376 (127) (157) 36 73 – (173)	Long service payment 2006 2005 HK$’000 HK$’000 1,119 1,376 (127) (157) 36 73 – (173)
	1,028 –	1,119 –
	1,028	1,119

The Group provides for probable future long service payments expected to be made to employees under the Hong Kong Employment Ordinance. 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.

32. OTHER PAYABLES AND ACCRUALS

				Group		Company
				2006	2005	2006	2005
				HK$’000	HK$’000	HK$’000	HK$’000
Other	payables	and	accruals	119,655	28,854	3,745	3,488

Other payables and accruals are non-interest-bearing and are payable on demand.

33. DEFERRED TAX

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

Deferred tax liabilities

Group

At beginning of year Deferred tax charged to the income statement during the year (note 10) Deferred tax charged to asset revaluation reserve Acquisition of subsidiaries (note 38) Disposal of a subsidiary (note 37) Gross deferred tax liabilities at 31 December	Fair value adjustments arising from acquisition of a subsidiary 2006 2005 HK$’000 HK$’000 – 1,059 – – – – – – – (1,059) – –	Revaluation of properties 2006 2005 HK$’000 HK$’000 764 – 1,683 764 99 – – – – – 2,546 764	Others 2006 2005 HK$’000 HK$’000 – – – – – – 26 – – – 26 –	Total 2006 2005 HK$’000 HK$’000 764 1,059 1,683 764 99 – 26 – – (1,059) 2,572 764	Total 2006 2005 HK$’000 HK$’000 764 1,059 1,683 764 99 – 26 – – (1,059) 2,572 764
					764

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Deferred tax assets

Group

At beginning of year Deferred tax credited/(charged) to the income statement during the year (note 10) Gross deferred tax assets at 31 December Net deferred tax (liabilities)/assets at 31 December	Depreciation allowance less than related depreciation 2006 2005 HK$’000 HK$’000 723 779 (44) (56) 679 723	Revaluation of properties 2006 2005 HK$’000 HK$’000 86 – (86) 86 – 86	Impairment against trade receivables and inventories 2006 2005 HK$’000 HK$’000 – 625 – (625) – –	Total 2006 2005 HK$’000 HK$’000 809 1,404 (130) (595) 679 809 (1,893) 45	Total 2006 2005 HK$’000 HK$’000 809 1,404 (130) (595) 679 809 (1,893) 45
					809

					45

The Group has tax losses arising in Hong Kong of approximately HK$263,000,000 (2005: HK$200,000,000) 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 and it is not considered probable that future taxable profits will be available against which the tax losses can be utilised.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

34. SHARE CAPITAL

Authorised: 2,500,000,000 (2005: 1,000,000,000) ordinary shares of HK$0.10 (2005: HK$0.25) each Issued and fully paid: 396,599,497 (2005: 158,639,799) ordinary shares of HK$0.10 (2005: HK$0.25) each	2006 HK$’000 250,000 39,660	2005 HK$’000 250,000

		39,660

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 1 January 2005 Effect of Share Consolidation arising from Capital Reorganisation (note (a)) At 31 December 2005 and 1 January 2006 Effect of Capital Reduction (note (b)) New shares issued pursuant to Open Offer (note (b)) At 31 December 2006	Number of shares 3,965,994,984 (3,807,355,185)	HK$’000 39,660 – 39,660 (23,795) 23,795 39,660
	158,639,799 – 237,959,698	39,660 (23,795 23,795
	396,599,497

(a) During the prior year, the Company proposed a capital reorganisation involving the cancellation of the capital reserve and share premium accounts as well as the 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:
(i) 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 therefrom 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;
(ii) 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. The remaining credit of HK$97,151,000 arising therefrom was transferred to the Company’s contributed surplus account; and
(iii) 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)”) (the “Share Consolidation”).

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.

(b) During the year, the Company proposed:
(i) a capital reduction involving the reduction of the nominal value of the shares of the Company from HK$0.25 to HK$0.10 per share by the cancellation of HK$0.15 from the paid-up capital in each share (the “Capital Reduction”) ; and
(ii) an open offer of new shares on the basis of three offer shares for every two shares held at a subscription price of HK$0.25 per offer share (the “Open Offer”).

Details of the Capital Reduction and the Open Offer are set out in the circular to the shareholders of the Company dated 8 September 2006 and in the prospectus for the Open Offer dated 6 October 2006. The Capital Reduction and the Open Offer were approved by the shareholders of the Company on 3 October 2006.

The Capital Reduction became effective on 4 October 2006. As a result, a sum of HK$23,795,969.85 standing to the credit of the share capital account were transferred to the contributed surplus account of the Company and the authorised share capital of the Company of HK$250,000,000 divided into 1,000,000,000 shares of HK$0.25 each was cancelled and restored to HK$250,000,000 divided into 2,500,000,000 shares of HK$0.01 each.

The Open Offer became unconditional on 23 October 2006 and the subscription monies of HK$59.5 million were received by the Company on 25 October 2006. A total of 237,959,698 new shares of HK$0.01 each were issued and alloted on 26 October 2006.

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 35 to the financial statements.

35. 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 the outstanding options under the Scheme are disclosed below.

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.

(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 for the five business days immediately preceding the date of the offer.

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(h) Expiration of the Scheme

The Scheme expired on 23 September 2003.

Particulars of the outstanding options

During the year, options to subscribe for 9,000 (2005: 30,000) shares lapsed in accordance with the terms of the Scheme, upon the expiry of the option period for ten years from the date of grant of those options.

Details of the share options outstanding as at 31 December 2006 which were granted to directors and employees under the Scheme are as follows:

Number of shares subject to the outstanding share options as at 1 January 2006 480,000 320,000 320,000	Arising from Open Offer during the year* 720,000 480,000 480,000	Number of shares subject to the outstanding share options expired during the year** – – –	Number of shares subject to the outstanding share options as at 31 December 2006 Exercise price per share Date of grant Exercisable from Exercisable until* HK$ 1,200,000 0.70 16 July 1999 16 July 1999 15 July 2009 800,000 0.70 13 July 1999 13 July 1999 12 July 2009 800,000 0.70 13 July 1999 13 July 1999 12 July 2009 2,800,000 – 19.50 2 January 1996 2 January 1996 1 January 2006 400,000 0.70 16 July 1999 16 July 1999 15 July 2009 400,000 0.70 19 July 1999 19 July 1999 18 July 2009 400,000 0.70 12 July 1999 12 July 1999 11 July 2009 1,200,000 4,000,000
1,120,000 9,000 160,000 160,000 160,000 489,000	1,680,000 N/A 240,000 240,000 240,000 720,000	– (9,000) – – – (9,000)	2,800,000
			– 400,000 400,000 400,000
			1,200,000
1,609,000	2,400,000	(9,000)

* After completion of the Capital Reduction and the Open Offer, the number of shares subject to the outstanding share options has been adjusted from 1,600,000 shares to 4,000,000 shares, and the relevant exercise price was adjusted from HK$1.75 to HK$0.70 per share.

** These options lapsed upon the expiry of the 10-year exercise period.

At the balance sheet date, the Company had 4,000,000 share options outstanding under the Scheme. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 4,000,000 additional ordinary shares of the Company and an additional share capital of approximately HK$400,000 and share premium of HK$2,400,000 (before issue expenses).

At the date of approval of these financial statements, the Company had 4,000,000 share options outstanding under the Scheme, which represented approximately 1% of the Company’s shares in issue as at that date.

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

36. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 30 of these financial statements.

(b) Company

At 1 January 2005 Arising from Capital Reorganisation (note 34) Profit for the year At 31 December 2005 and 1 January 2006 Arising from Capital Reduction (note 34) Arising from Open Offer (note 34) Share issue expenses in relation to Open Offer Profit for the year Proposed final dividend (note 13) At 31 December 2006	Share premium account HK$’000 568,986 (568,986) –	Capital reserve HK$’000 236,500 (236,500) –	Contributed surplus* HK$’000 – 97,151 –	Retained profits/ (accumulated losses) HK$’000 (708,335) 708,335 522	Proposed final dividend HK$’000 – – –	Total HK$’000 97,151 – 522 97,673 23,795 35,694 (2,689) 8,315 – 162,788
	– – 35,694 (2,689) – –	– – – – – –	97,151 23,795 – – – –	522 – – – 8,315 (3,966)	– – – – – 3,966	97,673 23,795 35,694 (2,689 8,315 –
	33,005	–	120,946	4,871	3,966

* The Company’s contributed surplus arising from the Capital Reorganisation which involved the consolidation of the capital reserve and share premium accounts in the prior year and the Capital Reduction involving cancellation of a portion of paid-up capital during the year.

There is no specific provision in the Bermuda Companies Act which regulates the use of contributed surplus save that the Company cannot make a distribution out of the contributed surplus to the shareholders if there are reasonable grounds for believing that Company (i) is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realisable value of the Company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium.

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

37. DISPOSAL OF SUBSIDIARIES

Net assets disposed of: Property, plant and equipment (note 15) Retention monies receivable over one year Inventories Construction contracts Trade and retention monies receivables Prepayments, deposits and other receivables Cash and cash equivalents Trade payables Other payables and accruals Tax payable Interest-bearing bank loan Deferred tax liabilities (note 33) Minority interests Reclassification of the remaining 40% equity interest in a subsidiary to equity investments at fair value through profit or loss Gain on disposal of subsidiaries (note 5) Satisfied by: Cash received	2006 HK$’000 – – – – – – – – – – – – –	2005 HK$’000 11,705 591 5,175 177 6,232 630 3,530 (6,583) (4,010) (1,784) (5,000) (1,059) (876) 8,728 (1,168) 1,128 8,688 8,688
	– – –	8,728 (1,168 1,128
	– –

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of 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	2006 HK$’000 – – –	2005 HK$’000 8,688 (3,530) 5,158

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

38. BUSINESS COMBINATION

On 31 March 2006, the Group acquired the entire issued share capital of Shun Cheong Investments Limited for a cash consideration of HK$35 million. The purchase consideration for the acquisition was in the form of cash and was fully paid on the date of acquisition.

The fair values of the identifiable assets and liabilities of the SCI Group as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows:

Notes Net assets acquired: Property, plant and equipment 15 Retention monies receivable over one year Gross amount due from contract customers Trade receivables Retention monies receivable Amounts due from related companies Available-for-sale investments Equity investments at fair value through profit or loss Prepayments, deposits and other receivables Tax recoverable Pledged time deposits Cash and cash equivalents Gross amount due to contract customers Trade and bills payables Trust receipt loans Amounts due to related companies Retention monies payable Other payables and accruals Bank overdrafts Loan from a minority shareholder of a subsidiary Deferred tax liabilities 33 Minority interests Goodwill on acquisition 19 Satisfied by: Cash consideration Relevant costs for the acquisition Cash received	Fair value recognised on acquisition HK$’000 2,660 6,390 42,259 62,377 13,053 9,353 340 564 23,433 2,765 26,800 7,841 (43,737) (40,178) (3,818) (705) (22,147) (21,393) (21,510) (6,900) (26) (10,770) 26,651 8,922	Fair value recognised on acquisition HK$’000 2,660 6,390 42,259 62,377 13,053 9,353 340 564 23,433 2,765 26,800 7,841 (43,737) (40,178) (3,818) (705) (22,147) (21,393) (21,510) (6,900) (26) (10,770) 26,651 8,922	Carrying amount HK$’000 2,660 6,390 42,259 71,449 13,053 9,353 340 564 23,433 2,765 26,800 7,841 (43,737) (40,178) (3,818) (705) (22,147) (21,393) (21,510) (6,900) (26) (10,770) 35,723 35,000 573 35,573

	35,573
			35,000 573

– 80 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

Cash consideration paid Relevant costs for the acquisition Cash and cash equivalents acquired Time deposits with original maturity of less than three months when acquired, pledged as security for bank overdraft facilities acquired Bank overdrafts acquired Net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries	2006 HK$’000 (35,000) (573) 7,841 26,800 (21,510) (22,442)

Since its acquisition, the SCI Group contributed HK$565,744,000 to the Group’s turnover and accounted for HK$7,826,000 of the consolidated profit for the year ended 31 December 2006.

In the opinion of the directors, disclosures with respect to the revenue and profit or loss of the Group as if the business combinations had been effected at the beginning of the year would be impracticable, because the SCI Group, before acquisition by the Group, had financial year end date on 31 March.

The goodwill of HK$8,922,000 recognised above is mainly attributable to the differences between the carrying amounts and the fair values of the net assets of the cash-generating unit acquired as a whole.

39. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year:

		2006	2005
	Notes	HK$’000	HK$’000
Management fees to a major shareholder	(i)	2,000	2,000
Share of rental and office expenses with
a related company	(ii)	411	380
Rental expenses paid to a related company	(iii)	675	–
Subcontracting fees to related companies	(iv)	63,359	–
Subcontracting fees to a minority shareholder of
a subsidiary	(v)	464	–
Construction contract income from building
maintenance work and building services installation
work received from a related company	(vi)	(968)	–
Sale of goods to an associate	(vii)	–	(639)
Service income from an associate	(viii)	–	(5,415)
Rental income from a related company	(viii)	–	(392)

Notes:

(i) The management fees are charged by Chinney Investments based on the time involvement of the personnel providing services. Dr. James Sai-Wing Wong, a director of the Company, is a director of and has beneficial interests in Chinney Investments. Mr. Herman Man-Hei Fung is a director of the Company and Chinney Investments.
(ii) The rental and office expenses were charged by Hon Kwok, a subsidiary of Chinney Investments, on an actual basis. Dr. James Sai-Wing Wong is a director of and has beneficial interests in Hon Kwok. Mr. Herman Man-Hei Fung is a director of the Company and Hon Kwok.

– 81 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(iii) A subsidiary of the Company leased certain properties from Jackson Mercantile Trading Company Limited (“Jackson Mercantile”), a subsidiary of Chinney Investments, and paid rent at rates agreed by both parties. Dr. James Sai-Wing Wong, a director of the Company, is a director of and has beneficial interest in Chinney Investments. Mr. Sek-Kee Yu is a director of the Company and Jackson Mercantile.
(iv) The subcontracting charges were paid to Tinhawk and Ever Billion for the completion of work orders of certain building maintenance contracts for the Group. Mr. Sek-Kee Yu is a common director of the Company, Tinhawk and Ever Billion. Both Tinhawk and Ever Billion are subsidiaries of Shun Cheong, a then associate of the Group. Mr. Tian-Quan Mo, who resigned as director of the Company on 4 October 2006, has beneficial interests in Shun Cheong since April 2006, and has been appointed director of Shun Cheong since May 2006. Shun Cheong ceased to be an associate of the Company in April 2006.
(v) The subcontracting charges were paid to a 49.9% minority shareholder of Shun Wing Construction & Engineering Limited, a subsidiary of the Company, for the completion of work orders of a building maintenance contract.
(vi) The construction contract income represented the value of work certified during the year from Chinney Construction, a subsidiary of Chinney Investments of which Dr. James Sai-Wing Wong, a director of the Company, is a director and has beneficial interest. Mr. Sek-Kee Yu is a director of the Company and Chinney Construction.

As at 31 December 2006, the Group had outstanding trade receivables of HK$27,686,000 due from Chinney Construction (note 24) . The maximum amount due from Chinney Construction during the year was HK$30,741,000.

(vii) The sale of goods to and service income from subsidiaries of Shun Cheong, a then associate of the Group, were made according to the published prices and conditions offered to third-party customers. Mr. Sek-Kee Yu was a common director of the Company and Shun Cheong.
(viii) The rental income arose from leasing certain office space to DrilTech Ground Engineering Limited (“DrilTech Ground”), a subsidiary of Chinney Investments, and was charged at rates as agreed by both parties. Dr. James Sai-Wing Wong, a director of the Company, is a director and has beneficial interest in Chinney Investments. Mr. Sek-Kee Yu is a director of the Company and DrilTech Ground.
(b) Other transactions with related parties:
(i) On 26 January 2006, Chinney Alliance Trading (BVI) Limited (“CAT”), a wholly-owned subsidiary of the Company, as purchaser, the Company, as purchaser’s guarantor, and Shun Cheong, as vendor, entered into an agreement (the “Agreement”) relating to the sale and purchase of the entire issued share capital of Shun Cheong Investments Limited for a cash consideration of HK$35 million (note 38) . The subsidiaries of Shun Cheong Investments Limited are engaged in building related contracting services for both public and private sectors. The transaction was approved by the shareholders of the Company at a special general meeting held on 27 March 2006 and was completed on 31 March 2006. The transaction constitutes a major transaction of the Company and relevant details have been set out in the newspaper announcement of the Company dated 2 February 2006 and the circular to the shareholders of the Company dated 10 March 2006.
(ii) On 31 March 2006, upon completion of the acquisition of the SCI Group and pursuant to the terms of the Agreement, the Company executed a deed of indemnity in favour of Shun Cheong to guarantee and indemnify unconditionally and irrevocably all liabilities and all obligations of Shun Cheong under the corporate guarantees provided by Shun Cheong to banks for general banking facilities granted to certain subsidiaries of the SCI Group, as well as the liabilities of CAT for warranties provided by CAT under the Agreement. Up to 30 June 2006, all the corporate guarantees provided by Shun Cheong were released and replaced by corporate guarantees provided by the Company.

– 82 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(iii) On 12 April 2006, the Company sold 32,000,000 shares in Shun Cheong, representing approximately a 27.60% interest in the issued share capital of Shun Cheong, to Upsky which is wholly owned by Mr. Tian-Quan Mo, a director of the Company who resigned on 4 October 2006, for an aggregate cash consideration of HK$9.6 million. The consideration was arrived at by the board of directors of the Company after arm’s length negotiation with Upsky, after considering the loss-making track record of the business of Shun Cheong and the historical share price performance of Shun Cheong. The transaction constitutes a discloseable and exempt connected transaction of the Company and was subject to the reporting and announcement requirements in accordance with Rule 14A.32 of the Listing Rules. Details of the transaction were set out in the Company’s newspaper announcement dated 13 April 2006 and the circular to its shareholders dated 8 May 2006.
(iv) On 18 August 2006, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Enhancement Investments Limited (“EIL”) in relation to the proposed issuance of 237,959,698 new shares of the Company at a price of HK$0.25 per share under the Open Offer. Dr. James Sai-Wing Wong, a director of the Company, is the sole beneficial owner of EIL. Pursuant to the terms of the Underwriting Agreement, EIL agreed to underwrite the issuance of 168,722,220 shares (the “Underwritten Shares”) at a price of HK$0.25 per share under the Open Offer and the Company agreed to pay EIL an underwriting commission of 2.0% of the total subscription price for the Underwritten Shares. The Open Offer was approved by the independent shareholders of the Company at a special general meeting held on 3 October 2006. Upon the Open Offer become unconditional, the Company paid underwriting commission of approximately HK$844,000 to EIL. Details of the above are set out in a circular to the shareholders of the Company dated 8 September 2006 and in the prospectus for the Open Offer dated 6 October 2006.
(c) Outstanding balances with related parties:
(i) Details of the Group’s outstanding balances with related companies as at the balance sheet date are included in note 25 to the financial statements.
(ii) Details of the Group’s trade balances with a related company as at the balance sheet date are disclosed in note 24 to the financial statements.
(iii) As disclosed in the consolidated balance sheet, the Group had an outstanding loan due to a minority shareholder of a subsidiary of HK$6,900,000 (2005: Nil) as at the balance sheet date. The balance is unsecured, interest-free and has no fixed terms of repayment.
(d) Compensation of key management personnel of the Group:

Short-term employee benefits Post-employment benefits Total compensation paid to key management personnel	2006 HK$’000 9,930 429 10,359	2005 HK$’000 11,951 546
		12,497

Further details of directors’ emoluments are included in note 8 to the financial statements.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

40. OPERATING LEASE ARRANGEMENTS

(a) As Lessor

In the prior year, the Group leased certain of its investment properties (note 16) under operating lease arrangements, with leases negotiated for terms of three years. The terms of the leases generally also require the tenant to pay security deposits. During the year, the tenant has early terminated the lease arrangement.

Within one year In the second to fifth years, inclusive	Group 2006 2005 HK$’000 HK$’000 – 634 – 1,522 – 2,156	Group 2006 2005 HK$’000 HK$’000 – 634 – 1,522 – 2,156
		2,156

(b) As Lessee

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years (2005: one to three years).

At 31 December 2006, 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	Group 2006 2005 HK$’000 HK$’000 3,319 3,697 260 2,035 3,579 5,732	Group 2006 2005 HK$’000 HK$’000 3,319 3,697 260 2,035 3,579 5,732
		5,732

The Company had no operating lease commitments at the balance sheet date (2005: Nil).

41. COMMITMENTS

In addition to the operating lease commitments detailed in note 40(b) above, at 31 December 2005, the Group had commitments under forward foreign exchange contracts amounting to HK$5,379,000.

The Group and the Company had no other significant commitment at 31 December 2006.

42. CONTINGENT LIABILITIES

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

	Group		Company
	2006	2005	2006	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Guarantees given to banks in
connection with facilities
granted to subsidiaries	–	–	624,000	495,000

As at 31 December 2006, the total facilities utilised by the subsidiaries amounted to HK$375,099,000 (2005: HK$255,593,000).

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) The Group provided corporate guarantees and indemnities to certain banks for an aggregate amount of HK$12,408,000 for the issue of performance bonds in its ordinary course of business.
(iii) 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, 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 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 of the transaction, in case there are valid claims against the Company and/or Best Treasure Limited under the agreement.

43. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

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

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, credit risk and liquidity risk. The directors meet periodically to analyse and formulate measures to manage each of these risks and they are summarised below.

Cash flow interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with a floating interest rate.

The interest rates and terms of repayment of interest-bearing bank loans and overdrafts are disclosed in note 30 to the financial statements. Other financial assets and liabilities do not have material interest rate risk. Interest-bearing bank loans and overdrafts, cash and bank balances, and short-term 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.

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency. The Group uses forward currency contracts to eliminate the currency exposures on such sale and purchase transactions. The forward currency contracts must be in the same currency as the hedged item. It is the Group’s policy not to enter into forward contracts until a firm commitment is in place.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are closely monitored on an ongoing basis to minimise the Group’s exposure to bad debts.

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

Liquidity risk

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

44. COMPARATIVE AMOUNTS

Certain comparative amounts in the consolidated balance sheet, consolidated cash flow statement and notes to financial statements have been reclassified to conform with the current year’s presentation.

45. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 17 April 2007.

– 85 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2007

Set out below are the unaudited condensed interim consolidated financial statements of the Group as extracted from the preliminary announcement of the interim results of the Company for the six months ended 30 June 2007:

Condensed Consolidated Income Statement

Notes REVENUE 2 Cost of sales/services provided Gross profit Other income 3 Selling and distribution costs Administrative expenses Other operating income, net Loss on disposal of an associate Finance costs 4 Share of losses of associates Profit/(loss) before tax 5 Tax 6 PROFIT/(LOSS) FOR THE PERIOD ATTRIBUTABLE TO: Equity holders of the parent Minority interests EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 7 – Basic – Diluted	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 (Restated) 761,555 518,684 (709,241) (476,945) 52,314 41,739 4,982 3,169 (8,154) (7,959) (38,770) (31,855) 12,310 2,602 – (6,180) (5,557) (5,825) (164) (1,242) 16,961 (5,551) (867) (1,049) 16,094 (6,600) 16,439 (6,577) (345) (23) 16,094 (6,600) 4.15 cents (4.00 cents) N/A N/A	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 (Restated) 761,555 518,684 (709,241) (476,945) 52,314 41,739 4,982 3,169 (8,154) (7,959) (38,770) (31,855) 12,310 2,602 – (6,180) (5,557) (5,825) (164) (1,242) 16,961 (5,551) (867) (1,049) 16,094 (6,600) 16,439 (6,577) (345) (23) 16,094 (6,600) 4.15 cents (4.00 cents) N/A N/A
	52,314 4,982 (8,154) (38,770) 12,310 – (5,557) (164) 16,961 (867)	41,739 3,169 (7,959 (31,855 2,602 (6,180 (5,825 (1,242
		(5,551 (1,049
	16,094
	16,439 (345)	(6,577 (23
	16,094 4.15 cents N/A

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

Notes NON-CURRENT ASSETS Property, plant and equipment Investment properties Interests in an associate Goodwill Deferred tax assets Other assets Retention monies receivable over one year Total non-current assets CURRENT ASSETS Inventories Gross amount due from contract customers Trade and bills receivables 8 Retention monies receivable Amounts due from related companies Prepayments, deposits and other receivables Equity investments at fair value through profit or loss Tax recoverable Pledged time deposits Cash and cash equivalents Total current assets CURRENT LIABILITIES Gross amount due to contract customers Trade and bills payables 9 Trust receipt loans Retention monies payable Amounts due to related companies Other payables and accruals Tax payable Interest-bearing bank loans and overdrafts Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	30 June 2007 (Unaudited) HK$’000 28,051 19,830 1,265 8,922 679 282 20,490	31 December 2006 (Audited) HK$’000 26,988 19,830 1,429 8,922 679 282 17,548
	79,519 60,113 61,027 289,442 17,788 14,436 40,831 23,967 2,897 33,192 111,800 655,493 98,920 100,787 162,460 24,290 1,951 37,562 2,167 35,923 464,060 191,433 270,952	75,678
		66,813 41,508 388,523 13,818 8,381 31,223 12,030 3,223 26,800 178,865
		771,184
		76,067 115,195 209,400 24,126 531 119,655 1,418 39,208
		585,600
		185,584
		261,262

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes NON-CURRENT LIABILITIES Interest-bearing bank loans Loan from a minority shareholder of a subsidiary Provision Deferred tax liabilities Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital Reserves Proposed final dividend Minority interests Total equity	30 June 2007 (Unaudited) HK$’000 6,000 6,900 944 2,607 16,451 254,501	31 December 2006 (Audited) HK$’000 8,000 6,900 1,028 2,572
		18,500
		242,762

	39,660 204,382 – 244,042 10,459	39,660 188,332 3,966
		231,958 10,804
	254,501	242,762

– 88 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation

The unaudited condensed interim consolidated financial statements for the six months ended 30 June 2007 have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the applicable disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rule”).

The unaudited condensed interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2006.

Accounting policies

The accounting policies and methods of computation used in the preparation of this unaudited condensed interim financial statements are consistent with those adopted in the annual financial statements for the year ended 31 December 2006, except in relation to the following new and revised Hong Kong Financial Reporting Standards (“HKFRSs”, which also include HKASs and Interpretations) that are adopted for the first time for the current period’s financial information.

HKAS 1 Amendment Capital Disclosures HKFRS 7 Financial Instruments: Disclosures HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

The adoption of the above HKFRSs has had no material impact on the accounting policies of the Group and the methods of computation in the Group’s condensed consolidated financial statements.

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 building related contracting services for both public and private sectors, including engineering contracting services in the air-conditioning industry and the provision of maintenance services. An analysis of the Group’s revenue and results by business segments and revenue by geographical segments is as follows:

(a) Business segments

Plastic and chemical products Building supplies, electrical and mechanical products Building related contracting services Consolidated Six months ended 30 June Six months ended 30 June Six months ended 30 June Six months ended 30 June 2007 2006 2007 2006 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated Segment revenue: Sales to external customers 372,570 384,508 16,333 28,452 372,652 105,724 761,555 518,684 Other revenue 1,058 840 380 525 26 6 1,464 1,371 Total 373,628 385,348 16,713 28,977 372,678 105,730 763,019 520,055 Segment results: 10,930 13,127 (1,951) (1,598) 5,354 (557) 14,333 10,972 Interest income and unallocated gains 1,748 1,177 Unallocated expenses (5,336) (4,021 Fair value gains/(losses) on equity investments at fair value through profit or loss, net 11,937 (92 Impairment of available- for-sale investments – (340 Loss on disposal of an associate – (6,180 Finance costs (5,557) (5,825 Share of losses of associates (164) (1,242 Profit/(loss) before tax 16,961 (5,551 Tax (867) (1,049 Profit/(loss) for the period 16,094 (6,600 Attributable to: Equity holders of the parent 16,439 (6,577 Minority interests (345) (23 16,094 (6,600	Plastic and chemical products Building supplies, electrical and mechanical products Building related contracting services Consolidated Six months ended 30 June Six months ended 30 June Six months ended 30 June Six months ended 30 June 2007 2006 2007 2006 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated Segment revenue: Sales to external customers 372,570 384,508 16,333 28,452 372,652 105,724 761,555 518,684 Other revenue 1,058 840 380 525 26 6 1,464 1,371 Total 373,628 385,348 16,713 28,977 372,678 105,730 763,019 520,055 Segment results: 10,930 13,127 (1,951) (1,598) 5,354 (557) 14,333 10,972 Interest income and unallocated gains 1,748 1,177 Unallocated expenses (5,336) (4,021 Fair value gains/(losses) on equity investments at fair value through profit or loss, net 11,937 (92 Impairment of available- for-sale investments – (340 Loss on disposal of an associate – (6,180 Finance costs (5,557) (5,825 Share of losses of associates (164) (1,242 Profit/(loss) before tax 16,961 (5,551 Tax (867) (1,049 Profit/(loss) for the period 16,094 (6,600 Attributable to: Equity holders of the parent 16,439 (6,577 Minority interests (345) (23 16,094 (6,600	Plastic and chemical products Building supplies, electrical and mechanical products Building related contracting services Consolidated Six months ended 30 June Six months ended 30 June Six months ended 30 June Six months ended 30 June 2007 2006 2007 2006 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated Segment revenue: Sales to external customers 372,570 384,508 16,333 28,452 372,652 105,724 761,555 518,684 Other revenue 1,058 840 380 525 26 6 1,464 1,371 Total 373,628 385,348 16,713 28,977 372,678 105,730 763,019 520,055 Segment results: 10,930 13,127 (1,951) (1,598) 5,354 (557) 14,333 10,972 Interest income and unallocated gains 1,748 1,177 Unallocated expenses (5,336) (4,021 Fair value gains/(losses) on equity investments at fair value through profit or loss, net 11,937 (92 Impairment of available- for-sale investments – (340 Loss on disposal of an associate – (6,180 Finance costs (5,557) (5,825 Share of losses of associates (164) (1,242 Profit/(loss) before tax 16,961 (5,551 Tax (867) (1,049 Profit/(loss) for the period 16,094 (6,600 Attributable to: Equity holders of the parent 16,439 (6,577 Minority interests (345) (23 16,094 (6,600	Plastic and chemical products Building supplies, electrical and mechanical products Building related contracting services Consolidated Six months ended 30 June Six months ended 30 June Six months ended 30 June Six months ended 30 June 2007 2006 2007 2006 2007 2006 2007 2006 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated Segment revenue: Sales to external customers 372,570 384,508 16,333 28,452 372,652 105,724 761,555 518,684 Other revenue 1,058 840 380 525 26 6 1,464 1,371 Total 373,628 385,348 16,713 28,977 372,678 105,730 763,019 520,055 Segment results: 10,930 13,127 (1,951) (1,598) 5,354 (557) 14,333 10,972 Interest income and unallocated gains 1,748 1,177 Unallocated expenses (5,336) (4,021 Fair value gains/(losses) on equity investments at fair value through profit or loss, net 11,937 (92 Impairment of available- for-sale investments – (340 Loss on disposal of an associate – (6,180 Finance costs (5,557) (5,825 Share of losses of associates (164) (1,242 Profit/(loss) before tax 16,961 (5,551 Tax (867) (1,049 Profit/(loss) for the period 16,094 (6,600 Attributable to: Equity holders of the parent 16,439 (6,577 Minority interests (345) (23 16,094 (6,600
			520,055

			10,972
		1,748 (5,336) 11,937 – – (5,557) (164) 16,961 (867)	1,177 (4,021 (92 (340 (6,180 (5,825 (1,242
			(5,551 (1,049
		16,094	(6,600

		16,439 (345)	(6,577 (23
		16,094	(6,600

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

(b) Geographical segments

Segment revenue: Sales to external customers Other income	Hong Kong Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 608,385 498,147 1,084 1,115 609,469 499,262	Macau and Mainland China Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 153,170 20,537 380 256 153,550 20,793	Consolidated Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 761,555 518,684 1,464 1,371 763,019 520,055	Consolidated Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 761,555 518,684 1,464 1,371 763,019 520,055
				520,055

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

– 90 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. OTHER INCOME

	Interest income Commission income Dividend income from listed investments Gross rental income Others FINANCE COSTS Interest on bank loans and overdrafts wholly repayable within five years	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 3,012 1,275 784 1,065 47 – 560 266 579 563 4,982 3,169 Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 5,557 5,825
4. FINANCE COSTS Interest on bank loans and overdrafts wholly repayable within five years No interest was capitalised by the Group in both periods. 5. PROFIT/(LOSS) BEFORE TAX Profit/(loss) before tax is arrived at after charging/(crediting):	FINANCE COSTS Interest on bank loans and overdrafts wholly repayable within five years

4.	FINANCE COSTS
	Interest on bank loans and overdrafts
	wholly repayable within five years
	No interest was capitalised by the Group in both periods.
5.	PROFIT/(LOSS) BEFORE TAX
	Profit/(loss) before tax is arrived at after charging/(crediting):

	Six months ended 30 June	Six months ended 30 June
	2007	2006
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
		(Restated)
Depreciation	931	787
Impairment of available-for-sale investments*	–	340
Staff costs (including directors’ emoluments)	27,666	21,242
Fair value (gains)/losses on equity investments
at fair value through profit or loss, net*	(11,937)	92
Foreign exchange difference, net*	(285)	(1,784)
Gain on disposal of available-for-sale investments*	–	(499)
Gain on disposals of items of properties, plant
and equipment*	(2)	(19)
Negative goodwill recognised*	(182)	–
Write-back of impairment of accounts receivable*	(77)	(733)

These expenses/(income) are included in “Other operating income, net” on the face of the condensed consolidated income statement.

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. TAX

Group: Current – Hong Kong Current – Elsewhere Deferred Total tax charge for the period	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 758 853 109 91 – 105 867 1,049	Six months ended 30 June 2007 2006 (Unaudited) (Unaudited) HK$’000 HK$’000 758 853 109 91 – 105 867 1,049
		1,049

Hong Kong profits tax has been provided at the rate of 17.5% (2006: 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.

7. EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic earnings/(loss) per share is based on the profit for the period attributable to ordinary equity holders of the parent of HK$16,439,000 (2006: loss of HK$6,577,000 (restated)) and the weighted average number of 396,599,497 (2006: 164,525,336 (restated)) ordinary shares in issue during the period.

The loss per share and the weighted average number of ordinary shares in issue for the six months ended 30 June 2006 have been adjusted for the effect of the open offer of new shares of the Company on the basis of three offer shares for every two shares held at a subscription price of HK$0.25 per share effective on 4 October 2006.

Diluted earnings per share for the six months ended 30 June 2007 has not been disclosed as the outstanding share options had an anti-dilutive effect on the basic earnings per share since their exercise prices were higher than the average market price of the Company’s ordinary shares during the period.

Diluted loss per share for the six months ended 30 June 2006 has not been disclosed as the share options outstanding during that period had an anti-dilutive effect on the basic loss per share for that period.

8. TRADE AND BILLS RECEIVABLES

				30 June	31 December
				2007	2006
				(Unaudited)	(Audited)
				HK$’000	HK$’000
Trade	and	bills	receivables	289,442	388,523

The Group grants credit periods to its customers ranging from cash on delivery to 60 days. A longer credit period may be allowed to customers with good business relationships. In view of the aforementioned and the fact that the 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.

– 92 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

An aged analysis of the trade and bills 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	30 June 2007 (Unaudited) HK$’000 195,251 35,914 12,573 45,704 289,442	31 December 2006 (Audited) HK$’000 253,139 67,628 15,751 52,005
		388,523

9. TRADE AND BILLS PAYABLES

Trade payables Bills payables	30 June 2007 (Unaudited) HK$’000 72,515 28,272 100,787	31 December 2006 (Audited) HK$’000 72,722 42,473
		115,195

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

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	30 June 2007 (Unaudited) HK$’000 63,243 5,404 409 3,459 72,515	31 December 2006 (Audited) HK$’000 62,510 5,642 861 3,709
		72,722

10. POST BALANCE SHEET DATE EVENT

As announced on 4 September 2007, Chinney Alliance Trading (BVI) Limited (a wholly-owned subsidiary of the Company, as purchaser), the Company (as purchaser’s guarantor), Chinney Contractors Company Limited (“Chinney Contractors”, as vendor), Chinney Investments, Limited (“CIL”) and Mr. Yuen-Keung Chan (as vendor’s guarantors) entered into a sale and purchase agreement for the acquisition of the entire issued share capital of Victory Leap Limited at a consideration of HK$92.865 million. Chinney Contractors is owned as to 86.05% by CIL, a substantial shareholder of the Company, and 13.95% by Mr. Yuen-Keung Chan, a director of the Company. A refundable deposit of HK$8 million was paid by the Group upon the signing of the sale and purchase agreement on 4 September 2007. The acquisition constitutes a major and connected transaction for the Company under the Listing Rules and is conditional to, among others, the approval by the independent shareholders of the Company by poll at general meeting to be held. Further details of the acquisition, the recommendations from the independent board committee of the Company and the independent financial advisor in respect of the acquisition and other information required by the Listing Rules will be included in a circular to all shareholders of the Company to be dispatched soon.

11. COMPARATIVE AMOUNTS

Certain comparatives amounts in relation to goodwill arising from the acquisition of Shun Cheong Investments Limited (“SCIL”) have been restated to present consistently with the Company’s audited financial statements for year ended 31 December 2006.

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. INDEBTEDNESS

As at 31 July 2007, being the latest practicable date for ascertaining certain information relating to this statement of indebtedness, the Group had outstanding secured and unsecured bank borrowings, which represented bank overdrafts, term loans and trust receipt loans, of approximately HK$32,524,000 and HK$174,345,000 respectively. Furthermore, the Group had an unsecured loan from a minority shareholder of a subsidiary of HK$6,900,000 which was unsecured, interest-free and had no fixed terms of repayment.

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

As at 31 July 2007, being the latest practicable date for ascertaining certain information relating to this statement of indebtedness, the Group had the following contingent liabilities:

(a) The Group provided corporate guarantees and indemnities to certain banks and a financial institution for an aggregate amount of approximately HK$15,166,000 for the issue of performance bonds in its ordinary course of business;
(b) On 26 October 2005, Best Treasure Limited, a wholly-owned subsidiary of the Company as the vendor, the Company as the vendor’s guarantor and Chinney Construction, an 86.05% owned subsidiary of CIL, as the 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 for a cash consideration of HK$7,800,000. In accordance with the agreement, the Company as the vendor’s guarantor and Best Treasure Limited as the vendor have undertaken to indemnify Chinney Construction up to a maximum amount of HK$7,800,000 until 8 November 2007, being two years after the date of completion of the agreement, in case there are valid claims against the Company and/or Best Treasure Limited under the agreement; and
(c) On 22 May 2007, Shun Cheong Investments Limited (“SCIL”), a wholly-owned subsidiary of the Company as the purchaser, the Company as the purchaser’s guarantor, Chinney Construction Company, Limited, a 86.05% owned subsidiary of CIL as the vendor and Chinney Contractors, a 86.05% owned subsidiary of CIL as the vendor’s guarantor, entered into an agreement in relation to the sale and purchase of the entire issued share capital of Apex Curtain Wall and Windows Company Limited (“Apex”) for a cash consideration of HK$298,356. Upon completion of the acquisition of Apex in June 2007, the Company, SCIL and Apex executed a deed of indemnity to indemnify unconditionally and irrevocably all liabilities and obligations in respect of certain corporate guarantees provided by certain subsidiaries of CIL, namely Chinney Contractors, Chinney Construction, Kin Wing Chinney and Kin Wing Machinery and Transportation Limited and cash collateral of HK$13,600,000 provided by Kin Wing Engineering Company Limited in favour of certain banks for general banking facilities extended to Apex. As at 31 July 2007, the Group’s contingent liabilities in respect of the deed of indemnity for the issue of performance bonds by a bank for Apex amounted to approximately HK$5,900,000.

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Save as the aforesaid and apart from intra-group liabilities, normal trade payables and bills payables, the Group did not have any debt securities, outstanding loan capital, other borrowings or other indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges, loans, acceptance credits, hire purchase commitments, guarantees or other material contingent liabilities as at the close of business on 31 July 2007.

For the purpose of the above statement of indebtedness, foreign currency amounts have been translated into Hong Kong dollars at the approximately exchange rates prevailing at the close of business on 31 July 2007.

5. WORKING CAPITAL

The Directors are satisfied after due and careful enquiry that following the completion of the Acquisition, 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 its present requirements, that is for at least the next twelve months from the date of publication of this circular.

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 preliminary announcement of the interim results of the Company for the six months ended 30 June 2007.

Results

The Group recorded turnover HK$762 million for the six months ended 30 June 2007 (2006: HK$519 million), an increase of 46.8% over last year. The increase was mainly attributable to the contribution of SCIL acquired on 31 March 2006. The profit for the period was HK$16.4 million, compared to the loss of HK$6.6 million for the same period of last year.

The Group’s profit of the current period included the fair value gains on equity investments at fair value through profit or loss of HK$11.9 million, while last year’s results included the loss on disposal of Shun Cheong Holdings Limited (“Shun Cheong”), a former associate of the Group, of HK$6.2 million and the share of loss of Shun Cheong as an associate up to the date of disposal of HK$1 million. The Group would have a profit of HK$4.5 million for the period under review compared to the profit of HK$0.6 million of last year if such fair value gains as well as the loss attributable to Shun Cheong were excluded in both periods.

Connected Transaction

As announced on 23 May 2007, SCIL (a wholly-owned subsidiary of the Company, as purchaser), the Company (as purchaser’s guarantor), Chinney Construction Company, Limited (an 86.05% subsidiary of CIL, as vendor) and Chinney Contractors (as vendor’s guarantor)

– 95 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

entered into a sale and purchase agreement on 22 May 2007 for the acquisition of entire issued share capital of Apex Curtain Wall and Windows Company Limited (“Apex”) for a cash consideration of approximately HK$298,000. Dr. James Sai-Wing Wong is a director of and has beneficial interest in CIL and the transaction constituted a discloseable and connected transaction of the Company, which was subject to the announcement and reporting requirements and was exempt from the approval by the independent shareholders of the Company pursuant to Rule 14A.32 of the Listing Rules. The transaction was completed on 1 June 2007. Details of the transaction has been included in a circular dated 15 June 2007 to all shareholders of the Company.

Business Review and Prospects

Trading of plastics and chemicals

DMT International Hong Kong Limited (“DMT”) and Jacobson van den Berg (Hong Kong) Limited (“Jacobson”) recorded aggregate turnover of HK$373 million for the period under review (2006: HK$385 million), a decrease of 3.1% from last year. The operating profit decreased from HK$13.1 million to HK$10.9 million. The oil price remained high which resulted in persistently high plastic resin prices. However, the increase in prices could not be fully passed on to the customers, thus gross profit margin slipped. DMT and Jacobson continue to build on quality customer and supplier bases with close monitoring on trade receivable, inventories and overhead to ensure profitability.

Trading of industrial products and equipment

Chinney Alliance Engineering Limited and its subsidiaries (“CAEL”) recorded turnover of HK$16 million for the six months ended 30 June 2007 (2006: HK$28 million). The decrease was mainly due to deferral of certain awarded contracts to the second half of the year. The loss for the period amounted to HK$1.9 million (2006: HK$1.6 million) with the effort in control of overhead despite the decrease in gross profit as a result of the decrease in turnover. The result, however, is expected to improve when the deferred contracts materialise and sales increase later on in 2007.

Building related contracting services

The building service businesses included Westco Chinney Limited, SCIL (acquired on 31 March 2006) and Apex (acquired on 1 June 2007). The operation contributed turnover of HK$373 million for the period (2006: HK$106 million). Operating profit for the period was HK$5.4 million (2006: loss of HK$0.6 million). Such increase was partly due to the consolidation of six months results of SCIL compared to only three months results of 2006 since acquisition and partly resulted from increasing contribution from the projects in Macau.

Associate

The share of losses of an associate for the period represented the share of the results of Jiangxi Kaitong New Materials Company Limited. The results of the same period of last year included share of loss of Shun Cheong HK$1 million, which ceased to be an associate of the Group in March 2006.

– 96 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Outlook

The economy of Hong Kong continues to improve. In the second quarter of 2007, the GDP increased by 6.9% in real terms over a year earlier, compared with the 5.7% growth in the first quarter. The unemployment rate declined to 4.2% in the second quarter of 2007, which is the lowest level since 1998. Although the prolonged correction of the housing market and the turmoil arising from the sub-prime mortgages in the US will remain a concern, the continued vibrant growth of the mainland China economy will nevertheless help the strong performance of the local economy. Your directors are optimistic for satisfactory results in the second half of the year.

Financial Review

Liquidity and financial resources

Total interest-bearing debts of the Group amounted to HK$204 million as at 30 June 2007 (31 December 2006: HK$257 million), of which HK$162 million (31 December 2006: HK$209 million) were trust receipt loans. Such interest-bearing debts was predominately due and repayable within one year. Current ratio of the Group at 30 June 2007, as measured by total current assets over total current liabilities, was 1.41.

Total cash at bank and on hand as at 30 June 2007 was HK$145 million, which included HK$33 million pledged time deposits. Within which HK$27 million time deposits were pledged to a bank to secure the overdraft facilities extended to certain subsidiaries of the Company and HK$6 million were pledged to certain banks to secure the issue of performance bonds for certain contracting works of the Group. The Group had a total of HK$375 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$66 million over the shareholders’ funds of HK$244 million, was 27% as at 30 June 2007.

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.

Pledge of assets

Certain properties having an aggregate book value of HK$23 million as at 30 June 2007 and time deposits of HK$33 million were pledged to secure the borrowings of the Group and the issue of performance bonds for certain contracting works of the Group.

Contingent liability

On 26 October 2005, Best Treasure Limited, a wholly-owned subsidiary of the Company as vendor, the Company as vendor’s guarantor and Chinney Construction (BVI) Limited

– 97 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(“Chinney Construction BVI”), an 86.05% owned subsidiary of CIL, as purchaser entered into an agreement in relation to the sale and purchase of the entire issued share capital of Jackson Mercantile Trading Company Limited 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 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.

In its ordinary course of business, the Group provided corporate guarantees and indemnities to certain banks and a financial institution for the issue of performance bonds to clients on contracting works of an aggregate amount of approximately HK$15,019,000.

Upon completion of the acquisition of Apex on 1 June 2007, the Company, SCIL and Apex executed a deed of indemnity to indemnify unconditionally and irrevocably all liabilities and obligations in respect of certain corporate guarantees provided by certain subsidiaries of CIL, namely Chinney Contractors, Chinney Construction BVI, Kin Wing Chinney (BVI) Limited and Kin Wing Machinery & Transportation Limited and cash collateral of HK$13,600,000 provided by Kin Wing Engineering Company Limited in favour of certain banks for general banking facilities extended to Apex. As at 30 June 2007, these banking facilities were utilized by Apex of approximately HK$18,236,000.

Save as disclosed above, the Group has no other material contingent liabilities as at 30 June 2007.

Employees and remuneration policies

The Group employed approximately 240 staff in Hong Kong and other parts of the People’s Republic of China as at 30 June 2007. 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.

Capital commitment

As at 30 June 2007, the Group had authorised and contracted capital commitments in respect of acquisition of properties amounting to approximately HK$4,443,000.

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 in the preliminary announcement of the interim results of the Company for the six months ended 30 June 2007, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, the date to which the latest audited financial statements of the Company were made up.

– 98 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

The following is a text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong. Terms defined herein apply to this report only.

==> picture [148 x 38] intentionally omitted <==

18th Floor

Two International Finance Centre 8 Finance Street, Central Hong Kong

The Board of Directors

Chinney Alliance Group Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Victory Leap Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 March 2005, 2006 and 2007 (the “Relevant Periods”), pursuant to a conditional sale and purchase agreement dated 4 September 2007 regarding the proposed acquisition of the building related contracting business of the Group (the “Acquisition”) from Chinney Contractors Company Limited as the vendor, and Chinney Investments, Limited (“CIL”) and Mr. Yuen-Keung Chan as the vendor’s guarantors, by Chinney Alliance Trading (BVI) Limited as the purchaser, and Chinney Alliance Group Limited (“CAGL”) as the purchaser’s guarantor. The Financial Information has been prepared on the basis as set out in note 2.1 of Section II below, for inclusion in the circular of CAGL dated 25 September 2007 (the “Circular”) in connection with the Acquisition.

The Company was incorporated in the British Virgin Islands with limited liability on 9 August 2007. On 28 August 2007, the Company became the holding company of the subsidiaries comprising the Group pursuant to the group reorganisation (the “Reorganisation”) as set out in note 1 of Section II. During the Relevant Periods, the principal activities of the Group consisted of superstructure construction work, sub-structure and foundation piling work for both public and private sectors in Hong Kong and Macau. The principal activity of the Company is investment holding.

We have acted as auditors of Chinney Construction (BVI) Limited (“Chinney Construction”) and Kin Wing Construction (BVI) Limited (“Kin Wing Construction”), which are the principal direct subsidiaries of the Company and the holding companies of the other subsidiaries comprising the Group, for the year ended 31 March 2007. The consolidated financial statements of Chinney Construction and Kin Wing Construction for the years ended 31 March 2005 and 2006 were audited by Deloitte Touche Tohmatsu. No statutory audited financial statements have been prepared for the Company since its incorporation.

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APPENDIX II

ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

The Financial Information set out in this report, including the combined income statements, combined cash flow statements and combined statements of changes in equity of the Group for the Relevant Periods, and the combined balance sheets of the Group as at 31 March 2005, 2006 and 2007 together with the notes thereon has been prepared based on the audited consolidated financial statements of Chinney Construction and Kin Wing Construction and the unaudited management accounts of the Company, in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and has been prepared on the basis set out in Note 2.1 of Section II below.

The directors of the Company are responsible for the preparation and the true and fair presentation of the Financial Information in accordance with HKFRSs. This responsibility includes selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion solely to you thereon.

The Financial Information set out in this report has been prepared based on the audited consolidated financial statements of Chinney Construction and Kin Wing Construction and the unaudited management accounts of the Company as if the Reorganisation had been completed as at the beginning of the Relevant Periods.

PROCEDURES PERFORMED IN RESPECT OF THE RELEVANT PERIODS

We have audited the consolidated financial statements of Chinney Construction and Kin Wing Construction for the year ended 31 March 2007, which were prepared by the directors of the subsidiaries of the Company in accordance with HKFRSs. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

For the purpose of this report, we have examined the audited consolidated financial statements of Chinney Construction and Kin Wing Construction for the Relevant Periods and the unaudited management accounts of the Company and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA. No adjustments were considered necessary to adjust the Financial Information for the Relevant Periods.

OPINION IN RESPECT OF THE RELEVANT PERIODS

In our opinion, on the basis of presentation set out in note 2.1 of Section II below, the Financial Information, for the purpose of this report, gives a true and fair view of the combined results and combined cash flows of the Group for each of the Relevant Periods, and the state of affairs of the Group as at 31 March 2005, 2006 and 2007.

– 100 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

I. FINANCIAL INFORMATION

COMBINED INCOME STATEMENTS

Notes REVENUE 5 Contract costs Gross profit Other income and gains 5 Administrative expenses Finance costs 6 Share of loss of a jointly-controlled entity 14 LOSS BEFORE TAX 7 Tax 10 LOSS FOR THE YEAR Attributable to: Equity holders of the holding company Minority interests	2005 HK$’000 561,022 (477,914) 83,108 926 (94,428) (5,459) – (15,853) 3,979 (11,874)	2006 HK$’000 691,138 (656,741) 34,397 3,178 (102,591) (5,208) (94) (70,318) 5,053 (65,265)	2007 HK$’000 843,338 (828,288) 15,050 13,226 (91,309) (1,718) (3) (64,754) (5,255) (70,009) (70,009) – (70,009)
	(11,676) (198)	(65,265) –	(70,009 –
	(11,874)	(65,265)

– 101 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

COMBINED BALANCE SHEETS

2005 HK$’000 158,073 – 1,152 – 3,515	2006 HK$’000 128,504 11,500 – 3 7,706	2007 HK$’000 106,815 20,500 – – –
162,740 48,048 37,708 44,910 44,308 68,800 10,215 – 437 – – 802 15,800 37,406 308,434 32,076 72,502 6,569 15,000 202 – – – 3,095 93,319 222,763	147,713 55,446 73,758 61,254 37,311 – 10,004 72 – – 79 511 25,748 9,246 273,429 63,171 71,030 6,246 24,200 632 – – – 2,227 84,582 252,088	127,315
		45,684 63,384 58,228 29,759 – 11,751 – 500 – 1,226 36,772 9,667
		256,971
		64,108 74,466 9,061 15,938 645 10,310 661 85 2,374 95,003
		272,651

– 102 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Notes NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Obligations under finance leases 22 Interest-bearing bank borrowings 21 Deferred tax liabilities 15 Loan from an intermediate holding company 29 Total non-current liabilities Net assets EQUITY Issued capital 23 Reserves 24 Total equity	2005 HK$’000 85,671 248,411 6,840 – 18,760 11,000 36,600 211,811 1 211,810 211,811	2006 HK$’000 21,341 169,054 4,732 – 17,776 – 22,508 146,546 1 146,545 146,546	2007 HK$’000 (15,680) 111,635 2,358 17,500 15,240 – 35,098 76,537 1 76,536 76,537

– 103 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

COMBINED STATEMENTS OF CHANGES IN EQUITY

Attributable to equity holders of the holding company

At 1 April 2004 Loss for the year At 31 March 2005 and 1 April 2005 Loss for the year At 31 March 2006 and 1 April 2006 Loss for the year At 31 March 2007	Issued capital HK$’000 1 – 1 – 1 – 1	Capital reserve HK$’000 184,672 – 184,672 – 184,672 – 184,672*	Retained profits/ (accumulated losses) Total HK$’000 HK$’000 38,814 223,487 (11,676) (11,676) 27,138 211,811 (65,265) (65,265) (38,127) 146,546 (70,009) (70,009) (108,136)* 76,537	Minority interests HK$’000 198 (198) – – – – –	Total equity HK$’000 223,685 (11,874) 211,811 (65,265) 146,546 (70,009) 76,537

* These reserve accounts comprise the combined reserves of HK$211,810,000, HK$146,545,000 and HK$76,536,000 as at 31 March 2005, 2006 and 2007, respectively.

The capital reserve represents the difference between the nominal value of share capital issued by the subsidiaries and the combined net assets acquired on acquisition of the subsidiaries prior to the Relevant Period.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

COMBINED CASH FLOW STATEMENTS

2005 HK$’000 (15,853) 5,459 (246) (218) 33,476 793 – – – – – –	2006 HK$’000 (70,318) 5,208 (906) – 30,766 (384) 94 – – 15,546 67 –	2007 HK$’000 (64,754) 1,718 (1,085) – 27,541 207 3 104 1,105 4,332 – (9,000) (39,829) 13,576 10,270 1,921 3,220 (1,747) 72 – (500) 740 937 3,436 2,815 (2,336) 13 310 (7,102) (715) (7,817)
23,411 (153) 28,960 5,934 (23,462) (46) 1,000 – – – (53,858) (10,004) (4,250) 5,000 – – (27,468) (2,257) (29,725)	(19,927) (2,999) (35,621) (15,600) (8,549) 211 (72) 437 – (79) 31,095 (1,472) (992) 9,200 430 – (43,938) 159 (43,779)	(39,829 13,576 10,270 1,921 3,220 (1,747 72 – (500 740 937 3,436 2,815 (2,336 13 310
		(7,102 (715
		(7,817

– 105 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

2005 HK$’000 246 218 (11,024) 250 – – 51,200 358 9,978	2006 HK$’000 906 – (5,674) 591 (7,061) (97) 68,800 1,152 (9,948)	2007 HK$’000 1,085 – (10,107) 234 – – – – (11,024) (19,812) (58,275) 64,979 – 10,000 (7,644) – (2,227) 6,833 (20,796) (4,197) (24,993) 9,667 (48,260) 13,600 (24,993)
51,226 (71,607) 18,483 11,000 – (5,459) (7,000) (1,620) (56,203) (34,702) 65,618	48,669 (72,604) 51,914 (11,000) – (5,208) – (3,105) (40,003) (35,113) 30,916	(19,812
		(58,275 64,979 – 10,000 (7,644 – (2,227
		6,833
		(20,796 (4,197
30,916	(4,197)
37,406 (20,090) 13,600	9,246 (27,043) 13,600	9,667 (48,260 13,600
30,916	(4,197)

– 106 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION AND REORGANISATION

The Company was incorporated as a company with limited liability in the British Virgin Islands on 9 August 2007. Pursuant to the Reorganisation to rationalise the structure of the Group in preparation for the conditional sale and purchase agreement dated 4 September 2007 regarding the proposed Acquisition, on 28 August 2007, the Company acquired the entire paid-up capital of Chinney Construction and Kin Wing Construction, companies incorporated in the British Virgin Islands, which are the immediate holding companies of the other subsidiaries comprising the Group.

The registered office of the Company is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

The Group is principally engaged in superstructure construction work and sub-structure and foundation piling work for both public and private sectors in Hong Kong and Macau.

The holding company and the ultimate holding company of the Company are Chinney Contractors Company Limited and Lucky Year Finance Limited, respectively, which are incorporated in the British Virgin Islands.

2.1 BASIS OF PRESENTATION

The Reorganisation involved companies under common control, and the Group is regarded and accounted for as a continuing group. Accordingly, the Financial Information has been prepared on the principles of merger accounting in accordance with Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA. On this basis, the Company has been treated as the holding company of its subsidiaries acquired through the Reorganisation for the three years ended 31 March 2005, 2006 and 2007. Accordingly, the combined income statements and combined cash flow statements of the Group for the three years ended 31 March 2005, 2006 and 2007 include the results and cash flows of its subsidiaries with effect from 1 April 2004 or since their respective dates of incorporation, where this is a shorter period. For subsidiaries historically acquired by or disposed of by the Group during the Relevant Periods, their financial statements are consolidated from or to their effective dates of acquisition or disposal.

The Financial Information has been prepared in accordance with all applicable HKFRSs, (which also include HKASs and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong, 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 Financial Information has been prepared under the historical cost convention, except for an investment property which has been measured at fair value, as further explained below. The Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand 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, thereafter 1 December 2005 and 1 January 2006. For the purpose of preparing and presenting in the Financial Information, the Group has adopted all these new and revised HKFRSs throughout the Relevant Periods.

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

	Place of	Nominal value of
	incorporation/	issued ordinary/	Percentage	of equity
	registration and	registered share	attributable to		the	Principal
Name	operations	capital	Company			activities
			Direct	Indirect
Apex Aluminium	Hong Kong	HK$9,160,000	–		100	Contracting of
Fabricator Company						building
Limited*						aluminium work

– 107 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

	Place of	Nominal value of
	incorporation/	issued ordinary/	Percentage	of equity
	registration and	registered share	attributable to		the	Principal
Name	operations	capital	Company			activities
			Direct	Indirect
Chinney Builders and	Hong Kong	HK$2	–		100	Building
Foundation Company						construction
Limited*
Chinney Construction	British Virgin	US$10,000	100		–	Investment holding
(BVI) Limited*	Islands
Chinney Construction	Hong Kong	HK$18,000,000	–		100	Building
Company, Limited*						construction
Chinney Timfai	Macau	MOP1,500,000	–		100	Building
Construction						construction and
(Macau) Company						foundation
Limited#						piling
Chinney Timwill	Macau	MOP1,500,000	–		100	Building
Construction						construction and
(Macau) Company						foundation
Limited#						piling
DrilTech Geotechnical	Hong Kong	HK$10,000	–		100	Drilling, site
Engineering						investigation and
Limited*						related ground
						engineering
						construction
DrilTech Ground	Hong Kong	HK$12,500,000	–		100	Drilling, site
Engineering						investigation and
Limited*						related ground
						engineering
						construction
Driltech Ground	Macau	MOP1,000,000	–		100	Drilling, site
Engineering (Macau)						investigation and
Limited#						related ground
						engineering
						construction
Jackson Mercantile	Hong Kong	Ordinary:	–		100	Property holding
Trading Company		HK$2,000
Limited*		Non-Voting
		deferred:
		HK$5,000,000
Kin Wing Chinney	British Virgin	US$208	100		–	Investment holding
(BVI) Limited*	Islands
Kin Wing Engineering	Hong Kong	HK$20,000,000	–		100	Foundation piling
Company Limited*
Kin Wing Foundations	Hong Kong	HK$10,000	–		100	Foundation piling
Limited*

– 108 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

	Place of	Nominal value of
	incorporation/	issued ordinary/	Percentage	of equity
	registration and	registered share	attributable to		the	Principal
Name	operations	capital	Company			activities
			Direct	Indirect
Kin Wing Machinery &	Hong Kong	HK$100	–		100	Equipment and
Transportation						machinery
Limited*						leasing
Kin Wing Treasury	Hong Kong	HK$10,000	–		100	Financing
Limited*
Kinwing Engineering	Macau	MOP1,000,000	–		100	Foundation piling
(Macau) Company
Limited#

# No statutory audited financial statements were issued for the years ended 31 March 2005, 2006 and 2007.
The consolidated financial statements/financial statements were audited by Deloitte Touche Tohmatsu for the years ended 31 March 2005 and 2006.

2.2 NET CURRENT LIABILITIES

As at 31 March 2007, the current liabilities of the Group exceeded its current assets by approximately HK$15.7 million. The directors have prepared the Financial Information on a going concern basis notwithstanding the net current liabilities position because an intermediate holding company has agreed to provide adequate funds for the Group to meet in full its financial obligations as they fall due in the foreseeable future.

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKAS 1 Amendment	Capital Disclosures
HKAS 23 (Revised)	Borrowing Costs
HKFRS 7	Financial Instruments: Disclosures
HKFRS 8	Operating Segments
HK(IFRIC)-Int 8	Scope of HKFRS 2
HK(IFRIC)-Int 9	Reassessment of Embedded Derivatives
HK(IFRIC)-Int 10	Interim Financial Reporting and Impairment
HK(IFRIC)-Int 11	HKFRS 2 – Group and Treasury Share Transactions
HK(IFRIC)-Int 12	Service Concession Arrangements
HK(IFRIC)-Int 13	Customer Loyalty Programmes
HK(IFRIC)-Int 14	HKAS19 – The Limit on a Defined Benefit Asset,
	Minimum Funding Requirements and their Interaction

The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objectives, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKAS 23 (Revised) is applicable for annual periods beginning on or after 1 January 2009 and supersedes HKAS 23 issued in 2004. The revisions to HKAS 23 are principally concerned with the elimination of one of the two treatments that exist for borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. This HKFRS replaces HKAS 14 Segment Reporting and has main impacts on the identification of segments and the measurement of segment information.

HK(IFRIC)-Int 8, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10, HK(IFRIC)-Int 11, HK(IFRIC)-Int 12, HK(IFRIC)-Int 13 and HK(IFRIC)-Int 14 shall be applied for annual periods beginning on or after 1 May 2006, 1 June 2006, 1 November 2006, 1 March 2007, 1 January 2008, 1 July 2008 and 1 January 2008, respectively.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of the HKAS 1 Amendment, HKFRS 7 and HKFRS 8 may result in new or amended disclosures, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of combination

The Financial Information incorporates the consolidated financial statements of its subsidiaries for the Relevant Periods and the management accounts of the Company. As explained in note 2.1 of Section II above, the acquisition of subsidiaries under common control has been accounted for using the merger method of accounting. The acquisition of all other subsidiaries during the Relevant Periods is accounted for using the purchase method of accounting.

The merger method of accounting involves incorporating the financial statement items of the combining entities or businesses in which the common control combination occurs in the Relevant Periods as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirers’ interests in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The combined income statements include the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

The purchase method of accounting involves allocating the cost of a business combination to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of acquisition is measured at the aggregate fair value of the assets given and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Subsidiaries

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

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

A joint venture is treated as:

(a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture;
(b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or
(d) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

Jointly-controlled entity

A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s share of the post-acquisition results and reserves of a jointly-controlled entity is included in the combined income statements and combined reserves, respectively. The Group’s interest in a jointly-controlled entity is stated in the combined balance sheets at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill on acquisitions for which the agreement date is on or after 1 January 2005

Goodwill arising on acquisition is recognised in the combined balance sheets as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 Segment Reporting .

An impairment loss recognised for goodwill is not reversed in a subsequent period.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Goodwill previously eliminated against combined reserves

Prior to the adoption of the HKICPA’s Statement of Standard Accounting Practice 30 “Business Combinations” in 2001, goodwill arising on acquisition was eliminated against combined reserves in the year of acquisition. On the adoption of HKFRS 3, such goodwill remains eliminated against combined reserves and is not recognised in the income statements 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.

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, construction contract assets, deferred tax assets, financial assets, investment property, goodwill and non-current 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.

Related parties

A party is considered to be related to the 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 Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the 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 Group or its holding companies;
(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 the employees of the Group, or of any entity that is a related party of the Group.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

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 item of property, plant and equipment 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 where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

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:

Leasehold land and buildings	2% or over the unexpired term of the leases,
	whichever is shorter
Leasehold improvements	20% or over the unexpired term of leases
Plant and machinery	10% to 25%
Motor vehicles	25%
Furniture, fixtures and equipment	20%

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.

Investment property

Investment property is an interest in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the balance sheet date.

Gains or losses arising from changes in the fair values of an investment property are included in the income statement in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the 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.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

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 lessor, assets leased by the 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 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.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as loans and receivables and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell 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.

Loans and receivables

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in the other category. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses 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 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.

Impairment of financial assets

The 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.

Assets carried at amortised cost

– 114 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement.

Assets carried at cost

Available-for-sale financial assets

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;
the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities including trade and other payables and interest-bearing loans and borrowings are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Construction contracts

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 period 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.

Cash and cash equivalents

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

Income tax

– 116 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

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 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 an interest in a joint venture, 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.

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 an interest in a joint venture, 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.

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 construction contracts, on the percentage of completion basis, as further explained in the accounting policy for “Construction contracts” above;
(b) rental income, on a time proportion basis over the lease terms;
(c) dividend income, when the shareholders’ right to receive payment has been established; 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 asset.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Employee benefits – Pension schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees. 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 assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Foreign currencies

This Financial Information is presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the Financial Information of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the dates 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 the income statement. 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.

The functional currencies of certain subsidiaries and a jointly-controlled entity are currencies other than the Hong Kong dollar. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date, and their income statements are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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

3 SIGNIFICANT ACCOUNTING ESTIMATE

Estimation uncertainty

Outcome of construction contracts

The Company determines whether the outcome of a construction contract can be estimated reliably. This requires a continuous estimation of the total contract revenue and costs and stage of completion with reference to the work certified by architects and the assessment of the probability of the future economic flows to the Company. The amount of the contract costs incurred plus recognised profits less recognised losses to date is approximately HK$6,598 million (2005: HK$5,472 million; 2006: HK$5,815 million). Further details are contained in note 16 to the Financial Information.

4. SEGMENT INFORMATION

The directors consider that the Group’s primary segment is business segment and the secondary segment is geographical segment.

The Group’s revenue and assets are related to the superstructure construction work and sub-structure and foundation piling work in Hong Kong and Macau. The directors consider that the Group’s activities constitute one business segment since these activities are related and subject to common risk and returns.

– 118 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

In determining the Group’s geographical segments, revenues and results 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 transactions are determined between the subsidiaries.

The following table provides an analysis of the Group’s turnover by geographical area:

Hong Kong Macau	2005 HK$’000 561,022 – 561,022	Turnover 2006 HK$’000 509,628 181,510 691,138	2007 HK$’000 628,117 215,221
			843,338

The following is an analysis of the carrying amount of the segment assets and expenditure information analysed by geographical area in which the assets are located:

Hong Kong Macau Segment assets	Carrying amount of segment assets 2005 2006 2007 HK$’000 HK$’000 HK$’000 471,171 353,170 342,600 3 67,972 41,686 471,174 421,142 384,286	Capital expenditure 2005 2006 2007 HK$’000 HK$’000 HK$’000 19,990 3,629 9,801 174 2,174 306 20,164 5,803 10,107	Capital expenditure 2005 2006 2007 HK$’000 HK$’000 HK$’000 19,990 3,629 9,801 174 2,174 306 20,164 5,803 10,107
			10,107

5. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents an appropriate proportion of contract revenue of construction contracts received and receivable during the Relevant Periods.

An analysis of other income and gains is as follows:

2005 HK$’000 200 46 218 48 405	2006 HK$’000 427 479 – 278 1,384	2007 HK$’000 1,085 – – 900 2,199
917 – – 9 9	2,568 384 – 226 610	4,184
		– 9,000 42
		9,042
926	3,178	13,226

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

6. FINANCE COSTS

Interest on bank loans and overdrafts wholly repayable within five years Interest on an amount due to an intermediate holding company Interest on an amount due to a related company Interest on finance leases Refund of interest expense from an intermediate holding company Others	2005 HK$’000 3,172 – – 86 – 2,201 5,459	2006 HK$’000 4,629 146 – 433 – – 5,208	2007 HK$’000 6,813 – 438 393 (5,926) – 1,718

7. LOSS BEFORE TAX

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

2005 HK$’000 37,964 (4,488)	2006 HK$’000 35,165 (4,399)	2007 HK$’000 31,355 (3,814) 27,541 839 101,058 3,647 104,705 (70,297) 34,408 1,970 34 2,004 104 1,105 4,332 – 207 (1,085)
33,476 511 96,373 3,536 99,909 (65,957) 33,952 1,348 26 1,374	30,766 712 89,313 843 90,156 (59,455) 30,701 1,877 31 1,908	27,541
		839 101,058 3,647
		104,705 (70,297
		34,408
		1,970 34
		2,004
– – – – 793 (246)	– – 15,546 67 (384) (906)

The impairment of goodwill, trade receivables, retention monies receivable and other receivables are included in administrative expenses on the face of combined income statements.

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

8. DIRECTORS’ REMUNERATION

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme contributions	2005 HK$’000 – – – –	2006 HK$’000 – – – –	2007 HK$’000 – – –
			–

No directors of the Company received remuneration during the Relevant Periods for their services rendered to the Group.

9 FIVE HIGHEST PAID EMPLOYEES

Details of the remuneration of the five highest paid employees, who are non-directors, during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions	2005 HK$’000 4,665 1,705 242 6,612	2006 HK$’000 4,657 1,869 217 6,743	2007 HK$’000 4,427 1,083 239
			5,749

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

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000	Number of employees 2005 2006 2007 2 1 3 2 3 1 – – 1 1 1 – 5 5 5	Number of employees 2005 2006 2007 2 1 3 2 3 1 – – 1 1 1 – 5 5 5
		5

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APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

10. TAX

Hong Kong profits tax has been provided at the rate of 17.5% (2005: 17.5%; 2006: 17.5%) on the estimated assessable profits arising in Hong Kong during the Relevant Periods.

Group: Current – Hong Kong Charge for the year Underprovision in prior years Deferred (note 15) Total tax charge/(credit) for the year	2005 HK$’000 44 3,174 (7,197) (3,979)	2006 HK$’000 22 110 (5,185) (5,053)	2007 HK$’000 85 – 5,170
			5,255

A reconciliation of the tax credit applicable to loss before tax using the statutory rate for the Group to the tax expense/(credit) at the effective tax rates is as follows:

2005 HK$’000 (15,853)	2006 HK$’000 (70,318)	2007 HK$’000 (64,754

(2,774) 3,174 533 (77) 4,426 – (16) (9,245)	(12,306) 110 2,970 (7,641) 11,461 – (908) 1,261	(11,332 – 348 (72 12,739 6,563 (2,082 (909
(3,979)	(5,053)	5,255

– 122 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

11. PROPERTY, PLANT AND EQUIPMENT

Leasehold land and buildings Leasehold improvements HK$’000 HK$’000 14,140 1,067 (1,477) (942) 12,663 125	Leasehold land and buildings Leasehold improvements HK$’000 HK$’000 14,140 1,067 (1,477) (942) 12,663 125	Plant and machinery HK$’000 377,377 (216,391) 160,986	Motor vehicles HK$’000 4,982 (3,912) 1,070	Furniture, fixtures and equipment HK$’000 11,130 (9,058) 2,072	Total HK$’000 408,696 (231,780) 176,916 176,916 20,164 (1,043) (37,964) 158,073 426,600 (268,527) 158,073 426,600 (268,527) 158,073 158,073 5,803 (207) (35,165) 128,504
12,663 – – (296)	125 170 (10) (96)	160,986 19,062 (844) (36,182)	1,070 492 (186) (499)	2,072 440 (3) (891)	176,916 20,164 (1,043 (37,964
12,367	189	143,022	877	1,618
14,140 (1,773)	1,220 (1,031)	395,219 (252,197)	4,519 (3,642)	11,502 (9,884)	426,600 (268,527
12,367	189	143,022	877	1,618
14,140 (1,773)	1,220 (1,031)	395,219 (252,197)	4,519 (3,642)	11,502 (9,884)	426,600 (268,527
12,367	189	143,022	877	1,618
12,367 – – (296)	189 1,444 – (500)	143,022 3,141 (134) (33,205)	877 342 – (381)	1,618 876 (73) (783)	158,073 5,803 (207 (35,165
12,071	1,133	112,824	838	1,638

– 123 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Leasehold land and buildings Leasehold improvements HK$’000 HK$’000 14,140 2,664 (2,069) (1,531) 12,071 1,133	Leasehold land and buildings Leasehold improvements HK$’000 HK$’000 14,140 2,664 (2,069) (1,531) 12,071 1,133	Plant and machinery HK$’000 397,593 (284,769) 112,824	Motor vehicles HK$’000 4,630 (3,792) 838	Furniture, fixtures and equipment HK$’000 12,241 (10,603) 1,638	Total HK$’000 431,268 (302,764) 128,504 431,268 (302,764) 128,504 128,504 10,107 (441) (31,355) 106,815 439,702 (332,887) 106,815
14,140 (2,069)	2,664 (1,531)	397,593 (284,769)	4,630 (3,792)	12,241 (10,603)	431,268 (302,764
12,071	1,133	112,824	838	1,638
12,071 – – (298)	1,133 26 (78) (522)	112,824 9,551 (325) (29,488)	838 – – (365)	1,638 530 (38) (682)	128,504 10,107 (441 (31,355
11,773	559	92,562	473	1,448
14,140 (2,367)	2,539 (1,980)	406,253 (313,691)	4,630 (4,157)	12,140 (10,692)	439,702 (332,887
11,773	559	92,562	473	1,448

The net book value of the Group’s property, plant and machinery held under finance leases contracts included in the total amount of property, plant and equipment at 31 March 2005, 2006 and 2007 were HK$12,542,000, HK$11,249,000 and HK$8,448,000, respectively.

The Group’s leasehold land and buildings are all situated in Hong Kong and held under medium term leases.

At 31 March 2005, 2006 and 2007, certain of the Group’s leasehold land and buildings, and plant and machinery with aggregate net carrying values of HK$105,522,000, HK$11,343,000 and HK$56,035,000, respectively, were pledged to secure general banking facilities granted to the Group (note 21).

– 124 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

12. INVESTMENT PROPERTY

Carrying amount at 1 April Arising on acquisition of a subsidiary (note 25) Net profit from a fair value adjustment Carrying amount at 31 March	2005 HK$’000 – – – –	2006 HK$’000 – 11,500 – 11,500	2007 HK$’000 11,500 – 9,000
			20,500

The investment property is situated in Hong Kong and held under a medium term lease.

At 31 March 2007, the investment property was revalued at open market value, based on its existing use by Memfus Wong Surveyors Limited, independent qualified professional valuer. At 31 March 2006, the investment property was revalued by the directors of the Company by reference to recent market prices for similar properties. The investment property is leased to a related company under an operating lease, further summary details of which are included in note 28 to the Financial Information.

At 31 March 2007, the Group’s investment property with a carrying value of HK$20,500,000 (2006: HK$11,500,000), was pledged to secure general banking facilities granted to the Group (note 21).

13. AVAILABLE-FOR-SALE INVESTMENT

				2005	2006	2007
				HK$’000	HK$’000	HK$’000
Capital	contribution,	at	cost	1,152	–	–

As at 31 March 2005, the investment represented an 8% equity interest in the registered capital of Gansu Longhai Chinney Construction Engineering Co., Ltd., a company established in the People’s Republic of China. In 2006, the HK$1,152,000 registered capital was repatriated to the Group.

14. INTEREST IN A JOINTLY-CONTROLLED ENTITY

				2005	2006	2007
				HK$’000	HK$’000	HK$’000
Share	of	net	assets	–	3	–

The balances with a jointly-controlled entity included in current assets and current liabilities are unsecured, interest-free and repayable on demand. The carrying amounts of the balances approximate to their fair values.

Particulars of the jointly-controlled entity are as follows:

	Place of		Percentage of
	incorporation	Ownership	Voting	Profit	Principal
Name	registration	interest	power	sharing	activities
Chinney Double Mechanical	Macau	50	50	50	Building
Engineering Company					construction and
Limited					mechanical
					engineering

The above investment in the jointly-controlled entity is indirectly held by the Company.

– 125 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

The following table illustrates the summarised financial information of the Group’s jointly-controlled entity:

Share of the jointly-controlled entity’s assets and liabilities: Total current assets Total non-current assets Total current liabilities Total non-current liabilities Net assets/(liabilities) Share of the jointly-controlled entity’s net assets The jointly-controlled entity’s results: Total revenue Total expenses Loss for the year Share of loss of the jointly-controlled entity	2005 HK$’000 – – – – – –	2006 HK$’000 1,331 3 (1,331) – 3 3	2007 HK$’000 5,253 3 (5,832) – (576) – 1,162 (1,939) (777) (3)
	– –	318 (412)	1,162 (1,939
	– –	(94) (94)

* The share of losses of the jointly-controlled entity is limited to the Group’s investment cost in the jointly-controlled entity, as in the opinion of directors, the Group will not continue to provide further financial support or capital injection to the jointly-controlled entity.

15. DEFERRED TAX

The movements in deferred tax liabilities and assets during the Relevant Periods are as follows:

Deprecation allowance in excess of related depreciation HK$’000 (25,252) 3,646	Revaluation of properties HK$’000 – –	Tax losses HK$’000 2,810 3,551	Total HK$’000 (22,442) 7,197 (15,245) (10) 5,185 (10,070) (5,170) (15,240)
(21,606) (10) 3,936 (17,680) 3,545	– – – – (1,827)	6,361 – 1,249 7,610 (6,888)	(15,245 (10 5,185
			(10,070 (5,170
(14,135)	(1,827)	722

– 126 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

The following is an analysis of the deferred tax balances for financing reporting purpose:

Deferred tax assets Deferred tax liabilities	2005 HK$’000 3,515 (18,760) (15,245)	2006 HK$’000 7,706 (17,776) (10,070)	2007 HK$’000 – (15,240)
			(15,240)

The Group has tax losses arising in Hong Kong of HK$88,122,000 (2005: HK$27,082,000; 2006: HK$52,382,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. The Group also has tax losses arising in Macau of HK$64,053,000 (2005: HK$4,358,000; 2006: HK$692,000) that can be used to offset against future taxable profits of the companies in which the losses arose for a maximum of three years. 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 and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

At 31 March 2005, 2006 and 2007, there was no significant unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group has no liability to additional tax should such amounts be remitted.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

16. CONSTRUCTION CONTRACTS

2005 HK$’000 48,048 (32,076) 15,972	2006 HK$’000 55,446 (63,171) (7,725)	2007 HK$’000 45,684 (64,108)
		(18,424)

5,471,838 (5,455,866)	5,815,398 (5,823,123)	6,597,670 (6,616,094)
15,972	(7,725)	(18,424)

17. TRADE RECEIVABLES

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

Within 1 month 1 to 2 months 2 to 3 months Over 3 months	2005 HK$’000 27,662 4,949 99 4,998 37,708	2006 HK$’000 44,942 10,288 2,731 15,797 73,758	2007 HK$’000 45,532 7,588 230 10,034
			63,384

– 127 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally one month, extending up to three months for major customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing. The carrying amounts of the balances approximate to their fair values.

18. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

Cash and bank balances Time deposits Less: Pledged time deposits: Pledged for bank overdraft facilities Pledged for surety bonds and letter of credit Cash and cash equivalents	2005 HK$’000 37,406 15,800	2006 HK$’000 9,246 25,748	2007 HK$’000 9,667 36,772
	53,206 (13,600) (2,200)	34,994 (13,600) (12,148)	46,439 (13,600 (23,172
	37,406	9,246	9,667

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The carrying amounts of the cash and cash equivalents and the pledged deposits approximate to their fair values.

19. TRADE, BILLS AND RETENTION MONIES PAYABLES

Included in trade, bills and retention monies payables are trade and bills payables of HK$56,022,000 (2005: HK$53,714,000; 2006: HK$52,907,000). An aged analysis of the trade, and bills payables as at the balance sheet dates, based on the invoice date, is as follows:

Within 1 month 1 to 2 months 2 to 3 months Over 3 months	2005 HK$’000 22,144 19,973 3,806 7,791 53,714	2006 HK$’000 22,961 15,103 1,993 12,850 52,907	2007 HK$’000 18,573 5,513 6,239 25,697
			56,022

The trade payables are non-interest-bearing and normally settled on 30-day terms and the bills payables are interest-bearing at market rates and repayable within one month. The carrying amounts of trade, bills and retention monies payables approximate to their fair values.

20. BALANCES WITH RELATED COMPANIES

Except for an amount due to a related company amounting to HK$10,000,000 (2005: Nil; 2006: Nil) which bears interest at the Hong Kong dollar prime rate per annum, the balances with related companies are unsecured, interest-free, and have no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values.

– 128 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Particulars of the amount due from a related company, Shun Cheong Building Services (Macau) Limited, over which one of the Company’s intermediate holding companies has significant influence, are as follows:

Balance as at year end Maximum amount outstanding during the year	2005 HK$’000 – –	2006 HK$’000 – 679	2007 HK$’000 500

			500

21. INTEREST-BEARING BANK AND OTHER BORROWINGS

2005		2006		2007
Effective interest rate Maturity (%) 3.5 Up to March 2006 6.0 On demand 6.0 On demand 4.0 On demand 4.0 Up to March 2006	HK$’000 3,095 2,296 17,794 10,000 63,229 93,319	Effective interest rate Maturity (%) 4.3 Up to March 07 7.1 On demand 7.1 On demand 4.4-4.8 On demand 4.4-4.8 On demand	HK$’000 2,227	Effective interest rate Maturity (%) 6.4 Up to March 2008 8.6 On demand 8.6 On demand 5.9-6.3 On demand 5.9-6.3 Up to March 2008	HK$’000 2,374
			17,482 9,561 45,000 12,539		22,455 25,805 23,000 23,743
			84,582		95,003
3.5 Up to March 2007	96,414		86,809		97,377

	6,840 –	4.3 Up to March 09	4,732	6.4 Up to March 2009 5.9-6.3 Up to December 2009	2,358
			–		17,500
	6,840 103,254		4,732		19,858

			91,541		117,235

– 129 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Analysed into: Bank loans and overdrafts repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Other borrowings repayable: Within one year In the second year In the third to fifth years, inclusive	2005 HK$’000 93,319 – – 93,319 3,095 2,278 4,562 9,935 103,254	2006 HK$’000 84,582 – – 84,582 2,227 2,374 2,358 6,959 91,541	2007 HK$’000 95,003 10,000 7,500
			112,503 2,374 2,313 45
			4,732
			117,235

Notes:

(a) Certain of the Group’s bank loans and overdrafts are secured by:
(i) mortgages over the Group’s investment property, which had an aggregate carrying value at the balance sheet date of HK$20,500,000 (2005: Nil; 2006: HK$11,500,000);
(ii) mortgages over certain of the Group’s leasehold land and buildings and plant and equipment which had an aggregate carrying value at the balance sheet date of HK$56,035,000 (2005: HK$105,522,000; 2006: HK$11,343,000); and
(iii) the pledge of certain of the Group’s time deposits amounting to HK$36,772,000 (2005: HK$15,800,000; 2006: HK$25,748,000).
(b) All bank borrowings and other borrowings were denominated in Hong Kong dollars. The bank borrowings bore interest at floating rates at the balance sheet dates.

The carrying amounts of the Group’s current and non-current bank and other borrowings approximate to their fair values.

– 130 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

22. OBLIGATIONS UNDER FINANCE LEASES

The Group leases certain of its plant and machinery for its construction business. These leases are classified as finance leases and have remaining lease terms ranging from two to three years.

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

Group

Minimum lease payments 2005 HK$’000 3,380 2,518 4,676 10,574 (639) 9,935 (3,095)	Minimum lease payments 2005 HK$’000 3,380 2,518 4,676 10,574 (639) 9,935 (3,095)	Minimum lease payments 2006 HK$’000 2,625 2,625 2,481 7,731	Minimum lease payments 2007 HK$’000 2,619 2,404 70 5,093	Present value of minimum lease payments 2007 HK$’000 2,374 2,313 45
				4,732

	) )	(772) 6,959 (2,227)	(361) 4,732 (2,374)
9,935 (3,095
6,840		4,732	2,358

23. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1.00 each Issued and fully paid: 1 ordinary share of US$1.00 each	2005 HK$’000 390 1	2006 HK$’000 390 1	2007 HK$’000 390

			1

For the purpose of the combined balance sheets, the share capital presented is that of the Company as at the date of Reorganisation.

– 131 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

24. RESERVES

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the combined statements of changes in equity of the Financial Information.

25. BUSINESS COMBINATION

During the year ended 31 March 2006, the Group acquired 100% of the issued share capital of Jackson Mercantile Trading Company Limited for a consideration of HK$7,800,000. This acquisition has been accounted for by the purchase method of accounting. The amount of goodwill arising from the acquisition was of HK$67,000 and was written off to the combined income statements during the year ended 31 March 2006.

Notes
Investment property
12
Trade receivables and prepayments
Retention monies receivable
Cash and bank balances
Trade payables and accrued charges
Deferred tax liabilities
15
Interest-bearing bank borrowings
Goodwill on acquisition
Satisfied by cash
Analysis of the net cash outflow of cash and cash equivalents
in respect of the acquisition of a subsidiary is as follows:
Cash consideration
Cash and bank balances acquired

Carrying
amounts and
fair values of
net assets
acquired
HK$’000
11,500
429
744
739
(669)
(10)
(5,000)
7,733
67
7,800
(7,800)
739
(7,061)

The subsidiary acquired during the year ended 31 March 2006 did not have any significant impact on the Group’s operating results and cash flows.

26. MAJOR NON-CASH TRANSACTION

During the year ended 31 March 2005 and 2006, the Group entered into finance lease arrangements in respect of plant and machinery with a total capital value at the inception of the contracts of HK$9,140,000 and HK$129,000. During the year ended 31 March 2007, the Group obtained a refund of interest expense from an intermediate holding company amounting to HK$5,926,000 which was settled through intercompany current account.

27. CONTINGENT LIABILITIES

Chinney Construction Company, Limited, a subsidiary of the Company, was involved in legal proceedings and claims against it in the ordinary course of its business. The aggregate amount of claims, including the estimated legal costs, resulting from such contingent liabilities was approximately HK$31,004,000 as at 31 March 2007 (2005: HK$41,011,000; 2006: HK$31,004,000). The directors of the Company consider that, after taking into account of the legal advice obtained, these proceedings and claims were made without valid grounds and accordingly, no provision for any potential liabilities is considered necessary.

– 132 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

28. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment property (note 12) to a related company over which an intermediate holding company has significant influence under an operating lease arrangement, with the lease negotiated for a term of one year.

At 31 March 2005, 2006 and 2007, the Group had total future minimum lease receivables under a non-cancellable operating lease with its tenants falling due as follows:

			2005	2006	2007
			HK$’000	HK$’000	HK$’000
Within	one	year	–	600	600

(b) As lessee

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

At 31 March 2005, 2006 and 2007, the Group had total future minimum lease payments under a non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2005 HK$’000 1,151 1,130 2,281	2006 HK$’000 2,170 3,372 5,542	2007 HK$’000 1,119 2,354
			3,473

29. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions detailed elsewhere in this report, the Group had the following material transactions with related parties during the Relevant Periods:

		2005	2006	2007
	Notes	HK$’000	HK$’000	HK$’000
Interest income received from an
intermediate holding company	(i)	46	479	–
Rental income received from a related
company	(ii)	–	278	900
Management fee paid to an intermediate
holding company	(iii)	5,000	5,000	–
Interest expense paid to an intermediate
holding company	(iv)	–	146	–
Interest expense paid to a related
company	(iv)	–	–	438
Rental expense paid to a related
company	(ii)	300	150	–
Refund of interest expense from an
intermediate holding company	(v)	–	–	5,926

– 133 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Notes:

(i) The interest income received from an intermediate holding company was charged at the Hong Kong dollar prime rate per annum on the outstanding interest-bearing balance.
(ii) The rental income/expense were charged on bases agreed by the parties concerned.
(iii) The management fee paid to an intermediate holding company was determined between the Group and the party concerned.
(iv) The interest expenses paid to an intermediate holding company and a related company were charged at the Hong Kong dollar prime rate per annum on the outstanding interest-bearing balances.
(v) The interest expense was refunded as agreed by the parties concerned.
(b) Outstanding balances with related parties:

As disclosed in the combined balance sheets, the Group had outstanding balances with its holding companies, a fellow subsidiary, a jointly-controlled entity, related companies and a minority shareholder of the immediate holding company as at the balance sheet dates.

Particulars of the balances with related companies are set out in note 20 to the Financial Information.

Except for an amount due from an intermediate holding company amounting to HK$20,000,000 as at 31 March 2005 which was interest-bearing at the Hong Kong dollar prime rate per annum and an amount due to an intermediate holding company amounting to HK$11,000,000 at 31 March 2005 which was not repayable by the Company within twelve months of that day, the balances with an intermediate holding company, immediate holding company, a fellow subsidiary, a jointly-controlled entity and a minority shareholder of the immediate holding company are unsecured, interest-free and repayable on demand.

Short term employee benefits Pension scheme contributions	2005 HK$’000 950 – 950	2006 HK$’000 500 – 500	2007 HK$’000 967 15
			982

Further details of directors’ emoluments are included in note 8 to the Financial Information.

30. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include retention monies receivable, trade receivables, amounts due from holding companies, gross amounts due from contract customers, other receivables, pledged deposits, cash and cash equivalents, trade, bills and retention monies payable, other payables, gross amounts due to contract customers, amount due to related companies, and interest-bearing bank borrowings. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Cash flow interest rate risk

The Group’s cash flow interest rate risk relates primarily to variable-rate bank borrowings. The Group currently does not have any policy on cash flow hedges of interest rate risk. However, management monitors interest rate exposure and will consider hedging significant interest rate risk should the need arise.

– 134 –

APPENDIX II ACCOUNTANTS’ REPORT OF THE VICTORY LEAP GROUP

Credit risk

The Group trades only with recognised and creditworthy third parties with a diversified range, for which no credit is given to the customers. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

With respect to credit risk arising from the other financial assets of the Group, which comprise trade receivables, cash and cash equivalents, gross amounts due from contract customers, retention monies receivable, and amounts due from holding companies, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. The Group’s credit risk exposure spreads over a number of counterparties and customers, thus there is no significant concentration of credit risk.

Liquidity risk

The Group finances its operations by a combination of borrowings. Adequate lines of credit are maintained to ensure that the necessary liquidity is available when required. Management monitors the liquidity position of the Group on a periodical basis to ensure the availability of sufficient liquid funds to meet all obligations.

31. POST BALANCE SHEET EVENT

On 22 May 2007, a subsidiary of the Group, Chinney Construction Company, Limited, as the vendor, entered into a sale and purchase agreement with Shun Cheong Investments Limited, a wholly-owned subsidiary of CAGL for the disposal of the entire issued share capital of Apex Curtain Wall and Windows Company Limited for a cash consideration of approximately HK$298,000. The above transaction was completed on 1 June 2007.

32. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group in respect of any period subsequent to 31 March 2007.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong 25 September 2007

– 135 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The accompanying unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the proposed Acquisition.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group as at 30 June 2007 (the “Pro Forma Financial Information”) gives effect to the Acquisition as if the Acquisition had been completed on 30 June 2007.

The accompanying unaudited Pro Forma Financial Information is based upon the historical consolidated balance sheets of the Group and the Victory Leap Group as extracted from the respective preliminary announcement of the interim results for the six months ended 30 June 2007 and the audited financial statements for the year ended 31 March 2007, respectively, as set out in Appendices I and II to the Circular. A narrative description of the pro forma adjustments of the Acquisition that are (i) directly attributable to the transactions; (ii) expected to have a continuing impact on the Group; and (iii) factually supportable, are summarised in the accompanying notes.

The accompanying unaudited Pro Forma Financial Information is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying unaudited Pro Forma Financial Information does not purport to describe the financial position that would have been presented had the Acquisition been completed. Further, the accompanying unaudited Pro Forma Financial Information does not purport to predict the Enlarged Group’s future financial position.

The accompanying unaudited Pro Forma Financial Information should be read in conjunction with the audited financial statements of the Group as set out in Appendix I and other financial information elsewhere in the Circular.

– 136 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group

The Group as at 30 Jun 07 HK$ 28,051 19,830 – 1,265 8,922 679 282 20,490 79,519 60,113 61,027 289,442 17,788 – 14,436 40,831 23,967 2,897 33,192 111,800 655,493			Pro Forma Adjustments
	(Note 1) The Victory Leap Group as at 31 Mar 07 HK$ 106,815 20,500 – – – – – – 127,315 – 45,684 63,384 58,228 11,751 500 29,759 – 1,226 36,772 9,667 256,971	Total HK$ 134,866 40,330 – 1,265 8,922 679 282 20,490 206,834 60,113 106,711 352,826 76,016 11,751 14,936 70,590 23,967 4,123 69,964 121,467 912,464	(Note 2) (Note 3) (Note 4) Fair value adjustments Acquisition of Victory Leap Group Elimination of investment in Victory Leap Group HK$ HK$ HK$ 12,136 38,514 8,200 92,527 (92,527) (9,137) (44,928)	Pro Forma Enlarged Group HK$ 193,716 40,330 – 1,265 8,922 679 282 20,490
79,519				265,684
60,113 61,027 289,442 17,788 – 14,436 40,831 23,967 2,897 33,192 111,800				60,113 106,711 352,826 76,016 2,614 14,936 70,590 23,967 4,123 69,964 76,539
655,493				858,399

– 137 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group as at 30 Jun 07 HK$ 98,920 100,787 162,460 24,290 1,951 – – – 37,562 2,167 – 35,923 464,060 191,433 270,952 6,000 – – 6,900 944 2,607 16,451			Pro Forma Adjustments
	(Note 1) The Victory Leap Group as at 31 Mar 07 HK$ 64,108 56,022 3,743 18,444 10,310 661 15,938 645 9,061 85 2,374 91,260 272,651 (15,680) 111,635 17,500 2,358 – – – 15,240 35,098	Total HK$ 163,028 156,809 166,203 42,734 12,261 661 15,938 645 46,623 2,252 2,374 127,183 736,711 175,753 382,587 23,500 2,358 – 6,900 944 17,847 51,549	(Note 2) (Note 3) (Note 4) Fair value adjustments Acquisition of Victory Leap Group Elimination of investment in Victory Leap Group HK$ HK$ HK$ 38,462 10,299	Pro Forma Enlarged Group HK$ 163,028 156,809 166,203 42,734 12,261 661 15,938 645 46,623 2,252 2,374 127,183
				736,711
				121,688
				387,372 23,500 2,358 38,462 6,900 944 28,146
				100,310
254,501	76,537	331,038		287,062

39,660 204,382 244,042 10,459	1 76,536 76,537 –	39,661 280,918 320,579 10,459	(1) 58,850 (125,087) (10,299) 32,561	39,660 236,943
				276,603 10,459
254,501	76,537	331,038		287,062

– 138 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

This column represents the historical audited financial information of the Victory Leap Group as at 31 March 2007 as set out in the Accountants’ Report of the Victory Leap Group in Appendix II to the Circular. Certain balances have been reclassified in order to conform with the classification used by the Group.
The adjustments represent the excess of fair values of the Victory Leap Group’s buildings and certain plant and machinery over their carrying amounts as at 31 March 2007. The buildings were valued on 30 June 2007 by DTZ Debenham Tie Leung Limited, independent qualified professional valuers, with an adjustment of fair value gain of HK$12,136,000. Certain plant and machinery were valued on 30 June 2007 by independent professional appraisers with an adjustment of fair value gain of HK$38,514,000. Furthermore, an additional fair value adjustment of HK$8,200,000 is made which represented a gain on disposal of a few items of plant and machinery with nil net book value as at 31 March 2007. The directors of the Company are in the opinion that the above valuations and the gain on disposal of a few items of plant and machinery give close estimates to the fair values of those assets as at 31 March 2007. Deferred tax liabilities on the fair value adjustments, calculated at the Hong Kong profits tax rate of 17.5%, amounted to HK$10,299,000 have been recognised accordingly.
The adjustments represent the Acquisition by the Group of 100% equity interests in Victory Leap for a consideration of HK$92,527,000 to be satisfied as to (i) HK$43,728,000 by cash payments to the Vendor; (ii) HK$9,137,000 to be set off against net balance to be payable by the Vendor to the Victory Leap Group; (iii) the issue of a 5% promissory note with a face value of HK$40,000,000 which has a fair value of HK$38,462,000; and (iv) the related acquisition cost of approximately HK$1,200,000.
The adjustments represent the elimination of the acquisition cost incurred by the Group and the pre-acquisition reserves of the Victory Leap Group. The excess amount of the fair value of the identifiable assets and liabilities of the Victory Leap Group over the fair value of consideration given by the Group of HK$32,561,000 (the “Excess Amount”) is recognised immediately in the income statement. This adjustment is for illustrative purpose and the actual Excess Amount at date of completion may be different.
There are outstanding balances between the Group and the Victory Leap Group, which have not been eliminated in the Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group. As at 30 June 2007, the Group had receivables of approximately HK$ HK$24,585,000 and HK$101,000 from the Victory Leap Group grouped under “Trade and bills receivables” and “Due from related companies”, respectively. As at 31 March 2007, the Victory Leap Group had a payable of approximately HK$24,280,000 to the Group included under “Gross amount due to contract customers”.

– 139 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

The following is the text of a report received from Ernst & Young, Certified Public Accountants, Hong Kong, for the sole purpose of inclusion in this circular.

==> picture [148 x 38] intentionally omitted <==

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

Dear Sirs

ACCOUNTANTS’ REPORT ON PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF CHINNEY ALLIANCE GROUP LIMITED

We report on the unaudited pro forma financial information (“Pro Forma Financial Information”) of Chinney Alliance Group Limited (the “Company”) and its subsidiaries (collectively the “Group”) set out on pages 136 to 139 in Appendix III to the Company’s circular dated 25 September 2007 (the “Circular”) in connection with the acquisition (the “Acquisition”) of the entire issued share capital of Victory Leap Limited (“Victory Leap”, together with its subsidiaries, the “Victory Leap Group”). The Pro Forma Financial Information 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 2007.

The historical financial information is derived from the unaudited and audited historical financial information of the Group and the Victory Leap 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 Unaudited Pro Forma Financial Information of the Enlarged Group.

Respective responsibilities of directors of the Company and the reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited Pro Forma Financial Information 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 unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 140 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the unaudited evidence supporting the adjustments and discussing the unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 June 2007 or any future date.

Opinion

In our opinion:

(a) the unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Ernst & Young

Certified Public Accountants Hong Kong 25 September 2007

– 141 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE VICTORY LEAP GROUP

APPENDIX IV

Set out below is the management discussion and analysis of the results of the Victory Leap Group, which should be read in conjunction with the accountants’ report of the Victory Leap Group set out in Appendix II to this circular.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE VICTORY LEAP GROUP

Financial results for the year ended 31 March 2007 and 2006

Turnover for the year ended 31 March 2007 increased by approximately 22.0% to HK$843 million from HK$691 million during the year ended 31 March 2006. Gross profit for the year ended 31 March 2007 amounted to HK$15 million, representing a decrease of 56.2% compared with the prior year of HK$34 million. Net loss attributable to equity holders of the holding Company for the year ended 31 March 2007 increased to HK$70 million from the prior year’s net loss of HK$65.3 million. The persistent loss was due to the difficult operating environment faced by the construction industry in Hong Kong. The loss included depreciation charges of HK$28 million relating to plant and machinery and a one-off loss of HK$39 million relating to one of the completed projects in Macau.

Financial results for the year ended 31 March 2006 and 2005

Turnover of Victory Leap Group for the year ended 31 March 2006 increased by HK$130 million to HK$691 million from HK$561 million for the year ended 31 March 2005. Gross profit for the year ended 31 March 2006 decreased by approximately 58.6% to HK$34 million from HK$83 million in the prior year. Net loss attributable to equity holders for the year ended 31 March 2006 amounted to HK$65 million, representing an increase from its loss of HK$12 million in the prior year. The loss was widened as there was margin pressure in the substructure business and continued loss of the superstructure business in Hong Kong and the Middle East.

Capital structure, financial resources and liquidity

As at 31 March 2007, the combined net assets attributable to equity holders of the Victory Leap Group was approximately HK$77 million. The Victory Leap Group had total borrowings of HK$117 million as at 31 March 2007, which represented obligations under finance leases, bank loans and overdrafts of HK$5 million, HK$64 million and HK$48 million, respectively.

The gearing ratio (defined as combined net borrowings of HK$108 million divided by shareholders’ fund of HK$77 million) was 140.5% as at 31 March 2007. In terms of liquidity, the net current liabilities as at 31 March 2007 amounted to HK$16 million with the current ratio at 0.94. The cash and bank balances amounted to HK$46 million, comprising pledged time deposit of HK$37 million to secure bank overdrafts facilities, surety bonds and letter of credit of the Victory Leap Group.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE VICTORY LEAP GROUP

APPENDIX IV

Chinney Construction Company, Limited, a wholly-owned subsidiary of Victory Leap, was involved in legal proceedings and claims against it in the ordinary course of its business. The aggregate amount of the claims, including estimated legal costs, resulting from such contingent liabilities was approximately HK$31,004,000 as at 31 March 2007. After taking into account of the legal advices obtained, the directors of Chinney Construction Company, Limited considered that these proceedings and claims were made without valid grounds and accordingly, no provision for any potential liabilities was considered necessary.

The Victory Leap Group did not have any significant capital and financial commitments and other contingent liabilities as at 31 March 2007.

Staff

As at 31 March 2007, the Victory Leap Group employed about 361 staff in Hong Kong and Macau. The remuneration policies are determined with reference to prevailing market practice on the basis of qualifications and experience of the individual employees and that the salaries are reviewed on an annual basis. Other benefits including retirement benefits scheme, medical insurance and education subsidies are provided to all eligible staff.

Others

As most of the assets and liabilities are denominated in Hong Kong dollars, there is no significant exposure to foreign currency fluctuation currently. The policy of the companies is to closely monitor the currency and interest rate exposures and will hedge against such risks should the needs arise.

– 143 –

PROPERTY VALUATION

APPENDIX V

The following is a reproduction of the text of a letter and valuation certificate addressed to CIL prepared for the purpose of inclusion in this circular from DTZ Debenham Tie Leung Limited, an independent valuer, in connection with their opinion of value of the Properties as at 30 June 2007.

==> picture [86 x 83] intentionally omitted <==

25 September 2007

The Directors

Chinney Investments, Limited 23rd Floor, Wing On Centre 111 Connaught Road Central Hong Kong

Dear Sirs,

In accordance with your instruction for us to value a property which is held by the subsidiaries of Chinney Investments, Limited (together referred to as the “Group”), we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of such property as at 30 June 2007 (the “date of valuation”).

Our valuation of the property represents its market value which in accordance with the Valuation Standards on Properties of the Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

Our valuation of the property excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of any onerous nature which could affect its value.

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APPENDIX V

PROPERTY VALUATION

We have valued the property by direct comparison approach assuming sale of the property in its existing state with the benefit of immediate vacant possession by making reference to comparable sales transactions as available in the relevant market.

We have relied to a very considerable extent on the information given by you and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, identification of property, particulars of occupancy, floor areas and all other relevant matters. Dimensions and measurements are based on the copies of documents or other information provided to us by you and are therefore only approximations. No on-site measurement has been carried out.

In valuing the property the Government Lease of which expired before 30 June 1997, we have taken into account the provisions contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the Question of Hong Kong as well as in the New Territories Leases (Extension) Ordinance under which such lease has been extended without premium until 30 June 2047 and that Government rents of three per cent. of the rateable value are charged per annum from the date of extension.

We have not been provided with copies of the title documents relating to the property but have caused searches to be made at the Land Registry. However, we have not searched the original documents to verify ownership or to ascertain any amendments. All documents have been used for reference only and all dimensions, measurements and areas are approximate.

We have inspected the exterior of the property. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the property is free of rot, infestation or any other structural defects. No test was carried out on any of the services.

We enclose herewith our valuation certificate.

Yours faithfully,

For and on behalf of

DTZ Debenham Tie Leung Limited K. B. Wong Registered Professional Surveyor (General Practice Division) M.R.I.C.S., M.H.K.I.S. Director

Note: Mr. K. B. Wong is a registered professional surveyor who has 23 years of experience in the valuation of properties in Hong Kong.

– 145 –

PROPERTY VALUATION

APPENDIX V

VALUATION CERTIFICATE

Capital value in Particulars of existing state as at occupancy 30 June 2007

Property Description and tenure occupancy 30 June 2007 Workshops A, B and C The property comprises all 3 The property is HK$43,700,000 on 9th Floor, Car Parking industrial units on the 9th floor, currently partly owner Space Nos. L4 and P15 1 lorry parking space, 1 car occupied and partly on 4th Floor, and parking space and 1 cooling let to a related Cooling Tower Space tower space on the 4th floor of a company of the Group No.4 on 4th Floor, Hong 11-storey industrial building with at a monthly rental of Kong Spinners Industrial parking facilities located on the HK$75,000 exclusive Building Phase VI, 4th floor. The property was of management and 481-483 Castle Peak completed in 1980. rates due to expire on Road, Kowloon 9 December 2007. The property (excluding parking 769/11133th shares of spaces and cooling tower space) and in Section C of New has a gross floor area of Kowloon Inland Lot No. approximately 2,434 sq.m. 3516 (26,200 sq.ft.). The property is held from the Government for a term of 75 years renewable for 24 years less 3 days. The terms have been statutorily extended until 30 June 2047. The current Government rent payable for the property is an amount equal to 3% of the rateable value for the time being of the property per annum.

Notes:

(1) The registered owner of Workshops A and B on 9th Floor, Car Parking Space No. P15 on 4th Floor and Cooling Tower Space No.4 on 4th Floor is Chinney Construction Company, Limited.
(2) The registered owner of Workshop C on 9th Floor, Car Parking Space No. L4 on 4th Floor is Jackson Mercantile Trading Company Limited.
(3) Workshops A and B on 9th Floor, Car Parking Space No. P15 on 4th Floor and Cooling Tower Space No.4 on 4th Floor are subject to a Mortgage in favour of DBS Bank (Hong Kong) Limited dated 4 January 2007 vide Memorial No. 0702020220175.
(4) Workshop C on 9th Floor, Car Parking Space No. L4 on 4th Floor are subject to a Mortgage in favour of DBS Bank (Hong Kong) Limited dated 4 January 2007 vide Memorial No. 07020202220199.
(5) The property is currently zoned for “Other Specified Uses (Business)” purpose under Draft Cheung Sha Wan Outline Zoning Plan No. S/K5/30.

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GENERAL INFORMATION

APPENDIX VI

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

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 were 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 Companies, were as follows:

(i) Directors’ interests in the Shares

Name of Directors James Sai-Wing Wong Frank Kwok-Kit Chu	Number of Shares held, capacity and nature of interest Percentage of the Company’s issued share capital Personal interests Family interests Corporate interests Total – – 218,138,283 (Note) 218,138,283 55.00% 48,240 47,840 – 96,080 0.02%

All the interests stated above represent long positions.

Note: Among these shares, 115,395,797 shares are held by Multi-Investment Group Limited and 102,742,486 shares are held by EIL, in both of which Dr. James Sai-Wing Wong is a director and have beneficial interests.

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GENERAL INFORMATION

APPENDIX VI

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

					Percentage
					of the
			Exercise	Number of	Company’s
			price per	options	issued share
Name of Directors	Date of grant	Exercise period	share	outstanding	capital
			HK$
Sek-Kee Yu	16 July 1999	16 July 1999 to	0.70	1,200,000	0.3%
		15 July 2009
Frank Kwok-Kit Chu	13 July 1999	13 July 1999 to	0.70	800,000	0.2%
		12 July 2009
Herman Man-Hei Fung	13 July 1999	13 July 1999 to	0.70	800,000	0.2%
		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.

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GENERAL INFORMATION

APPENDIX VI

Substantial Shareholders

(i) As at the Latest Practicable Date, so far as was known to any Director, the following persons had interests or short positions 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
		Capacity and nature	Number of	issued share
Name of Shareholder	Notes	of interest	Shares held	capital
James Sai-Wing Wong	1 & 2	Interest through	218,138,283	55.00%
		controlled
		corporations
Madeline May-Lung	1	Interest through a	115,395,797	29.10%
Wong		controlled corporation
Lucky Year Finance	1	Interest through a	115,395,797	29.10%
Limited		controlled corporation
Chinney Holdings	1	Interest through a	115,395,797	29.10%
Limited		controlled corporation
CIL	1	Interest through a	115,395,797	29.10%
		controlled corporation
Newsworthy Resources	1	Interest through a	115,395,797	29.10%
Limited		controlled corporation
Multi-Investment Group	1	Beneficial owner	115,395,797	29.10%
Limited
EIL	2	Beneficial owner	102,742,486	25.90%

All the interests stated above represent long positions.

Notes:

Dr. James Sai-Wing Wong, Ms. Madeline May-Lung Wong, Lucky Year Finance Limited, Chinney Holdings Limited, CIL, Newsworthy Resources Limited and Multi-Investment Group Limited are deemed to be interested in the same parcel of 115,395,797 shares by virtue of Section 316 of the SFO.
EIL is beneficially owned by Dr. James Sai-Wing Wong solely.

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APPENDIX VI

GENERAL INFORMATION

(ii) So far as was known to any Director, as at the Latest Practicable Date, the following persons were 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 members of the Group other than the Company and the amount of such persons’ interests in such securities were as follows:

		Approximate
Name of person having 10%		percentage of
or more interest	Name of member of the Group	interest held
Howing Engineering Limited	Shun Wing Construction &	49.90%
	Engineering Company Limited
Shu-Lin Lin	Shun Cheong Shenzhen Jianda	30.00%
	Joint Venture Company Limited
Koon-Hung Lo	Shun Cheong Automation Systems	15.00%
	Limited

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 members 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

As disclosed in the Company’s circular dated 15 June 2007, Chinney Construction Company, Limited, an indirect 86.05% owned subsidiary of CIL, agreed to sell and Shun Cheong Investments Limited, a wholly-owned subsidiary of the Company, agreed to purchase the entire issued share capital of Apex Curtain Wall and Windows Company Limited for a cash consideration of HK$298,356 pursuant to the sale and purchase agreement dated 22 May 2007. The transaction was completed on 1 June 2007. Dr. James Wong is a director of and has a beneficial interest in CIL. This sale and purchase agreement constituted a disclosable and connected transaction of the Company, which was subject to the announcement and reporting requirements and was exempt from the approval by the Independent Shareholders pursuant to Rule 14A.32 of the Listing Rules.

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GENERAL INFORMATION

APPENDIX VI

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 2006, 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 (as defined in the Listing Rules) had any interest in a business which competes or is likely to 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 deed of indemnity dated 1 June 2007 executed by the Company, Shun Cheong Investments Limited and Apex Curtain Wall and Windows Company Limited, which agree to indemnify unconditionally and irrevocably all liabilities and obligations in respect of certain corporate guarantees provided by Chinney Contractors, Chinney Construction, Kin Wing Chinney and Kin Wing Machinery & Transportation Limited and cash collateral of HK$13,600,000 provided by Kin Wing Engineering Company Limited in favour of certain banks for general banking facilities extended to Apex Curtain Wall and Windows Company Limited;
(iii) a sale and purchase agreement dated 22 May 2007 entered into among Chinney Construction Company, Limited (as vendor), Chinney Contractors (as vendor’s guarantor), Shun Cheong Investments Limited (as purchaser) and the Company (as purchaser’s guarantor) in relation to the acquisition of the entire issued share capital of Apex Curtain Wall and Windows Company Limited for a cash consideration of HK$298,356 (as refer to in the Company’s circular dated 15 June 2007);
(iv) the underwriting agreement dated 18 August 2006 entered into between the Company and EIL in relation to the underwriting by EIL of the open offer of new shares of the Company on the basis of three offer shares for every two shares held at a subscription price of HK$0.25 per offer share;

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GENERAL INFORMATION

APPENDIX VI

(v) a deed of indemnity dated 31 March 2006 executed by the Company in favour of Shun Cheong Holdings Limited (“Shun Cheong”) to guarantee and indemnify unconditionally and irrevocably all liabilities and obligations of CATBVI as purchaser of a sale and purchase agreement dated 26 January 2006 for the acquisition of the entire issued share capital of Shun Cheong Investments Limited and of Shun Cheong under the corporate guarantees provided by Shun Cheong to certain banks for general banking facilities extended to certain subsidiaries of Shun Cheong Investments Limited;
(vi) a sale and purchase agreement dated 26 January 2006 entered into between Shun Cheong (as vendor), CATBVI (as purchaser) and the Company as purchaser’s guarantor in relation to the acquisition of Shun Cheong Investments Limited and its subsidiaries for a cash consideration of HK$35,000,000 (as refer to in the Company’s circular dated 10 March 2006);
(vii) 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, an 86.05% owned subsidiary of CIL (as purchaser) and the Company as vendor’s guarantor in relation to the disposal of the entire issued share capital of Jackson Mercantile Trading Company Limited for a cash consideration of HK$7,800,000 (as refer to in the Company’s circular dated 11 November 2005); and
(viii)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. Yee-Cheong Lung (as purchaser) in relation to the disposal of a 30% interest in DMT PVC Compounding Ltd. (a then 70% owned direct subsidiary of DMT International Hong Kong Limited) at a consideration of HK$888,000 (as announced on 27 September 2005).

5. DIRECTOR’S SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered or is proposing to enter into any service contract with any member of the Group (excluding contracts expiring or determinable within one year without payment of compensation (other than statutory compensation)).

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and in litigation or claim of material importance was known to the Director to be pending or threatened against any member of the Group.

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GENERAL INFORMATION

APPENDIX VI

7. EXPERT AND CONSENT

The following are the qualification of the experts who have issued letters which are contained in the circular:

Name

Qualification

DTZ Debenham Tie Leung Professional surveyors and valuer Limited Ernst & Young Certified Public Accountants Veda Capital a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO

Each of DTZ Debenham Tie Leung Limited, Ernst & Young and Veda Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its reports and letters and the reference to its name in the form and context in which it respectively appears.

As at the Latest Practicable Date, neither DTZ Debenham Tie Leung Limited, Ernst & Young nor Veda Capital had any beneficially interests in the share capital of any member of the Group or had any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group; nor had 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 2006, being the date to which the latest published audited financial statements of the Company were made up.

8. GENERAL

(a) The registered office of the Company is situated at Clarendon House, Church Street, Hamilton HM 11, Bermuda.
(b) The head office and principal place of business of the Company is at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.
(c) The Hong Kong branch share registrar and transfer office of the Company is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The company secretary of the Company is Mr. Yun-Sang Lo, BBA, CPA, FCCA.
(e) The qualified accountant of the Company is Miss Pui-Shan Chan, CPA.
(f) The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

– 153 –

GENERAL INFORMATION

APPENDIX VI

9. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at 23rd Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong during normal business hours of any business day up to and including the date of the SGM:

(a) the Sale and Purchase Agreement;
(b) the memorandum of association and the bye-laws of the Company;
(c) the published audited consolidated financial statements of the Company for each of the two financial years ended 31 December 2005 and 2006;
(d) the preliminary announcement of the interim results of the Company for the six months ended 30 June 2007;
(e) the accountants’ report of Ernst & Young of the Victory Leap Group, the text of which is set out in Appendix II to this circular;
(f) the report dated 25 September 2007 on the unaudited pro forma financial information of the Enlarged Group from Ernst & Young, the text of which is set out in section 2 of Appendix III to this circular;
(g) the letter and valuation certificate prepared by DTZ Debenham Tie Leung Limited as set out in Appendix V to this circular;
(h) the written consent from each of Ernst & Young, Veda Capital and DTZ Debenham Tie Leung Limited as referred to in the paragraph headed “Expert and Consent” in this appendix;
(i) each of the material contracts, as referred to in the paragraph headed “Material Contracts” in this appendix;
(j) a circular of the Company dated 15 June 2007 in relation to the Company’s acquisition of the entire issued share capital of Apex Curtain Wall and Windows Company Limited from Chinney Construction Company, Limited for a cash consideration of HK$298,356; and
(k) this circular.

– 154 –

NOTICE OF SGM

==> picture [327 x 46] 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 Full Moon Shanghai Restaurant, 4/F., East Wing, Shun Tak Centre, 200 Connaught Road Central, Hong Kong on Tuesday, 16 October 2007 at 4:00 p.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT (i) the sale and purchase agreement dated 4 September 2007 (the “Sale and Purchase Agreement”) entered into among Chinney Alliance Trading (BVI) Limited as purchaser, the Company as purchaser’s guarantor, Chinney Contractors Company Limited as vendor and Chinney Investments, Limited and Mr. Yuen-Keung Chan as vendor’s guarantors for the sale and purchase of the entire issued share capital of Victory Leap Limited at a total consideration of HK$92,865,000 (a copy of which has been produced to the Meeting marked “A” and signed by the chairman of the Meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed, and (ii) any director of the Company be and is hereby authorized for and on behalf of the Company to execute (whether under the seal or under hand) all such documents, instruments and agreements and to do all such acts or things considered or deemed by him to be incidental to, ancillary to or in connection with the matters relating to the Sale and Purchase Agreement and completion thereof as he may consider necessary, desirable or expedient to give effect to the Sale and Purchase Agreement and the transactions contemplated thereunder.”

By order of the Board Yun-Sang Lo Company Secretary

Hong Kong, 25 September 2007

Head office and principal place of business: 23rd Floor Wing On Centre 111 Connaught Road Central Hong Kong

Registered office: Clarendon House Church Street Hamilton HM11 Bermuda

– 155 –

NOTICE OF SGM

Notes:

A shareholder of the Company entitled to attend and vote at the Meeting (or any adjournment thereof) is entitled to appoint one or more proxies to attend and, subject to the provisions of the bye-laws of the Company, vote instead of the shareholder. A proxy need not be a member of the Company.
In order to be valid, a form or proxy in the prescribed form, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or other authority must be completed, signed and deposited with the Company’s Hong Kong branch share registrar, Tricor Tengis Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, not later than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
Completion and delivery of the form of proxy will not preclude a member from attending and voting in person at the Meeting if the member so desires and in such case, any instrument appointing a proxy will be automatically deemed to be 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 nine directors, of which five are executive directors, namely, Dr. James Sai-Wing Wong, Mr. Sek-Kee Yu, Mr. Frank Kwok-Kit Chu, Mr. Yuen-Keung Chan and Mr. Wai-Hong Ling; 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. Sou-Tung Chan.

– 156 –

AI assistant

Chinney Alliance Group Limited — Proxy Solicitation & Information Statement 2007

49180_rns_2007-09-24_dc6950fe-6ec3-4cbd-a1ed-7c67a0f7d2e1.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

INTRODUCTION

LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

Date

Parties

Guarantees given by the Vendor’s guarantors and the Purchaser’s guarantor

Assets to be acquired by the Company

Consideration

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Completion

Information on the Victory Leap Group

Information on the CIL Group and the Group

LETTER FROM THE BOARD

Financial effect of the Acquisition

Earnings

LETTER FROM THE BOARD

Net assets

Reasons for and benefits of the Acquisition

Requirements of the Listing Rules

SGM

PROCEDURE FOR DEMANDING A POLL

LETTER FROM THE BOARD

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

(Stock Code: 385)

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

RECOMMENDATION

Yours faithfully,

For and on behalf of

Chinney Alliance Group Limited

LETTER FROM VEDA CAPITAL

Veda Capital Limited

MAJOR AND CONNECTED TRANSACTION ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF VICTORY LEAP LIMITED

INTRODUCTION

LETTER FROM VEDA CAPITAL

BASIS OF OUR ADVICE

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. Reasons for the Acquisition

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

B. Conditions Precedent

LETTER FROM VEDA CAPITAL

C. Consideration

(a) Price-earnings multiples basis

(b) Net asset value basis

LETTER FROM VEDA CAPITAL

LETTER FROM VEDA CAPITAL

(c) Settlement of the Consideration

(i) Net balance set off

(ii) Promissory Note

(iii) Cash resources

D. Financial effects of the Acquisition on the Enlarged Group

(1) Earnings

(2) Net assets value

(3) Gearing

LETTER FROM VEDA CAPITAL

RECOMMENDATION

Veda Capital Limited

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2004, 2005 AND 2006

Results

Assets, liabilities and minority interests

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR EACH OF THE TWO YEARS ENDED 31 DECEMBER 2005 AND 2006

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

Chinney Alliance Group Limited Proxy Solicitation & Information Statement 2007