CHK Oil Limited - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Merchants DiChain (Asia) Limited, you should at once hand this circular to the purchaser or transferee, or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 632)

VERY SUBSTANTIAL DISPOSAL

Financial adviser to China Merchants DiChain (Asia) Limited

Financial Services Group

A notice convening the SGM to be held at Unit 3207-08, 32/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong at 11:00 a.m. on Monday, 18 October 2004 is set out on pages 76 to 77 of this circular. A form of proxy for the use at the SGM is enclosed with this circular. If you are not able to attend the SGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Tengis Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

* For identification purposes only

30 September 2004

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Appendix II – Pro forma financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76

DEFINITIONS

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

“Announcement”
the announcement of the Company dated 26 August 2004 in relation to, inter alia, the Disposal and the Transfer
“Board”
the board of Directors
“Company”

China Merchants DiChain (Asia) Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange

“De Yi”
廣州市德一投資有限公司 (Guangzhou De Yi Investment Company Limited), a company incorporated in the PRC with limited liability and is interested in 5,940,000 Transfer Shares
“DiChain Systems”
深圳市招商迪辰商務系統有限公司 (DiChain Systems (ShenZhen) Co., Ltd., previously translated as “DiChain Logistics Services (ShenZhen) Co., Ltd.” in the Announcement), a company incorporated in the PRC with limited liability whose board of directors is controlled by DiChain Holdings Limited, the controlling shareholder of the Company
“Director(s)”
director(s) of the Company
“Disposal”
the disposal of the Disposal Shares by Victorison to the Purchasers under the Disposal Agreements
“Disposal Agreements”
the agreements each dated 19 August 2004 entered into between Victorison and each of the Purchasers in relation to the Disposal
“Disposal Shares”
21,000,000 shares in SEG Scientific, representing 35% of the issued share capital of SEG Scientific, currently held by Victorison
“Disposal Shares Repurchase”
the proposed repurchase of the Disposal Shares by SEG Scientific in the event that the Purchasers cannot obtain the bank borrowings in accordance with the Disposal Agreements
“Group”
the Company and its subsidiaries
“Hong Kong”
The Hong Kong Special Administrative Region of the PRC
“Hua Ke”
深圳市華科創展工貿有限公司 (Shenzhen Hua Ke Industrial Company Limited), a company incorporated in the PRC with limited liability and is interested in 1,650,000 Transfer Shares

– 1 –

DEFINITIONS

“Jie Chuang” 深圳市杰創電子有限公司 (Shenzhen Jie Chuang Electronic Company Limited), a company incorporated in the PRC with limited liability and is interested in 1,320,000 Transfer Shares

“Latest Practicable Date” 27 September 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information containing in this circular
“Listing Rules”

Rules Governing the Listing of Securities on the Stock Exchange

“Mr. Ying” 應華東 (Ying Hua Dong), a director of SEG Scientific
“PRC”

People’s Republic of China

“Purchaser(s)” Mr. Ying and 10 other PRC residents who are the management of SEG Scientific
“S&P Agreements” the sales and purchase agreements entered into between Victorison and Su Zhou on 4 February 2004, and each of De Yi, Hua Ke and Jie Chuang on 5 February 2004 pursuant to which Victorison agreed to acquire an aggregate of 10,560,000 shares in SEG Scientific, representing 17.6% of the issued share capital of SEG Scientific
“SEG” 深圳賽格股份有限公司 (Shenzhen SEG Company Limited), a joint stock company incorporated in the PRC with limited liability whose B shares are listed on the Shenzhen Stock Exchange and is currently interested in about 21.14% of the issued share capital of SEG Scientific
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SEG Scientific” 深圳市賽格導航科技股份有限公司 (Shenzhen SEG Scientific Navigations Company Limited), a joint stock company incorporated in the PRC with limited liability
“SGM”
the special general meeting of the Company to be convened for the purpose of approving, inter alia, the Disposal and the Transfer
“Share(s)”

the ordinary share(s) of HK$0.01 each in the issued share capital of the Company

“Shareholder(s)” holder(s) of the Share(s)
“Stock Exchange”

The Stock Exchange of Hong Kong Limited

– 2 –

DEFINITIONS

“Subscription”

the subscription of 21,000,000 new shares in SEG Scientific, representing 35% of the existing issued share capital in SEG Scientific, at RMB1.35 (equivalent to about HK$1.27) each by Victorison under the subscription agreement entered into between Victorison, SEG and SEG Scientific on 5 December 2003

“Su Zhou” 蘇州工業園區資產管理有限公司 (Su Zhou Industrial Park Asset Management Company Limited), a company incorporated in the PRC with limited liability and is interested in 1,650,000 Transfer Shares
“Transfer” the disposal of 8,317,500 shares and 2,242,500 shares in SEG Scientific, representing about 13.9% and 3.7% respectively of the issued share capital of SEG Scientific, to SEG and Mr. Ying respectively under the Transfer Agreements
“Transfer Agreements” the agreements dated 19 August 2004 entered into between Victorison, DiChain Systems (as the guarantor) and each of SEG and Mr. Ying in relation to the Transfer
“Transfer Shares” 10,560,000 shares in SEG Scientific, in aggregate, representing 17.6% of the issued share capital of SEG Scientific. Pursuant to the S&P Agreements, Victorison agreed to acquire the Transfer Shares from De Yi, Hua Ke, Jie Chuang and Su Zhou
“Victorison” 迪辰倉儲服務（深圳）有限公司 (Victorison Logistics Services (Shenzhen) Company Limited), a company incorporated in Shenzhen, the PRC and a wholly-owned subsidiary of the Company
“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong
“RMB”
Renminbi, the lawful currency of the PRC, and the exchange rate for RMB into HK$ for the purpose of this circular is RMB1.06 = HK$1.00
“%” per cent.

– 3 –

LETTER FROM THE BOARD

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 632)

Executive Directors: Fan Di (Chairman) Li Xinggui Wu Shiyue Zheng Yingsheng Zhou Li Yang

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of

Non-executive Directors:

Robert Fung Hing Piu Wang Shizhen Barry J. Buttifant Iain F. Bruce Victor Yang*

business in Hong Kong: Units 3207-08, 32/F.

West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

Independent non-executive Directors

30 September 2004

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

The Board announced on 26 August 2004 that Victorison entered into various agreements with Mr. Ying and several managerial persons of SEG Scientific on 19 August 2004, pursuant to which Victorison agreed to dispose of 21,000,000 Disposal Shares, in aggregate, representing 35% of the issued share capital of SEG Scientific, at RMB1.35 (equivalent to about HK$1.27) each to the Purchasers.

On 19 August 2004, Victorison also entered into two separate agreements to dispose of 8,317,500 shares and 2,242,500 shares in SEG Scientific, representing about 13.9% and 3.7% respectively of the issued share capital of SEG Scientific, to SEG and Mr. Ying, respectively. As disclosed in the announcement and the circular of the Company dated 10 February and 3 March 2004, respectively, Victorison entered

* For identification purposes only

– 4 –

LETTER FROM THE BOARD

into the S&P Agreements to acquire the Transfer Shares from De Yi, Hua Ke, Jie Chuang and Su Zhou. As at the Latest Practicable Date, the S&P Agreements had not been completed. The Transfer Shares should be transferred to Victorison prior to completion of the Transfer in accordance with the Transfer Agreements.

Upon completion of the Disposal and the Transfer, SEG will be interested in 21,000,000 shares in SEG Scientific, representing 35% of the issued share capital of SEG Scientific, and the remaining shareholding of SEG Scientific will be owned by the Purchasers (including Mr. Ying) and several other independent parties who are independent of the Company and its connected persons (as defined under the Listing Rules) and are not connected persons (as defined under the Listing Rules) of the Company. Victorison will cease to have any shareholding interest in SEG Scientific upon completion of the Disposal and the Transfer.

The Disposal and the Transfer together constitute a very substantial disposal for the Company under the Listing Rules and are therefore subject to the approval of Shareholders at the SGM. The purposes of this circular are to provide you with further information regarding the Disposal and the Transfer and to give you notice of the SGM.

THE DISPOSAL AGREEMENTS

Date

19 August 2004

Parties

(a) Victorison; and
(b) the Purchasers.

To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, each of the Purchasers is independent of the Company and its connected persons (as defined in the Listing Rules), and is not a connected person (as defined under the Listing Rules) of the Company.

The Disposal

Pursuant to the Disposal Agreements, Victorison agreed to dispose of 21,000,000 shares in SEG Scientific, in aggregate, representing 35% of the issued share capital of SEG Scientific, at the total consideration of RMB28.35 million (equivalent to about HK$26.75 million) or RMB1.35 (equivalent to about HK$1.27) per share to the Purchasers.

The consideration

The total consideration of RMB28.35 million (equivalent to about HK$26.75 million) or RMB1.35 (equivalent to about HK$1.27) per share payable by the Purchasers in respect of their respective acquired portion of the Disposal Shares under the Disposal was determined after arm’s length negotiations between

– 5 –

LETTER FROM THE BOARD

the parties and with reference to the cost of the acquisition of the Disposal Shares of RMB28.35 million (equivalent to about HK$26.75 million) or RMB1.35 (equivalent to about HK$1.27) per share, being the subscription price of the Disposal Shares pursuant to the Subscription as disclosed in the announcement and circular of the Company dated 5 and 29 December 2003, respectively. Under the Disposal Agreements, the Disposal should be funded by the personal financial resources of the Purchasers and bank borrowings to be secured by the shares respectively acquired by the Purchasers. Nevertheless, the Company has been notified by the Purchasers that the consideration will be fully funded by their personal financial resources.

Conditions

The Disposal Agreements are conditional on the simultaneous completion of all Transfer Agreements and Disposal Agreements. All Purchasers have the right to waive such requirement in the event that any other Disposal Agreements is lapsed pursuant to the terms of the Disposal Agreements.

There is no long stop date for completion under the Disposal Agreements.

Other major terms of the Disposal Agreements

Set out below are the payment terms under the Disposal Agreements:

(i) 30% of the consideration (the “First Consideration”) being deposited in an escrow account of a commercial bank (the “Commercial Bank”) in Shenzhen (the “Escrow Account”) by the Purchasers within 15 business days upon the signing of the Disposal Agreements;
(ii) the remaining 70% of the consideration (the “Second Consideration”) being transferred to the Escrow Account after the Purchasers have obtained the approval of the bank borrowings (the “Bank Borrowings”) from the Commercial Bank for financing the Second Consideration. The Purchasers shall authorise the Commercial Bank to transfer the First and Second Consideration from the Escrow Account to a guarantee fund account (the “Guarantee Fund Account”) operated by the Commercial Bank and the Commercial Bank shall issue a written notice to Victorison and the Purchasers on the same day upon such transfer;
(iii) the transfer of the Disposal Shares to the Purchasers within five business days after the receipt of the notice by Victorison and the Purchasers as mentioned in (ii) above and the receipt of 90% of the consideration payable by SEG and Mr. Ying pursuant to the Transfer Agreements. Upon completion of the transfer of Disposal Shares, the Purchasers shall obtain all necessary approvals as required from the relevant regulatory authority for the share transfer and amendment of the articles of association of SEG Scientific;
(iv) the Commercial Bank to release the First and Second Consideration in its Guarantee Fund Account to Victorison after completion of the relevant procedures for the pledge of the subject shares in SEG Scientific by the Purchasers to the Commercial Bank for financing of the Bank Borrowings within 10 days after completion of the share transfer; and
(v) the Disposal Agreements shall lapse in the event that the Bank Borrowings are not approved by the Commercial Bank within 30 days (unless otherwise extended by the parties to the Disposal Agreements) after the signing of the Disposal Agreements.

– 6 –

LETTER FROM THE BOARD

Under the Disposal Agreements, the Disposal Agreements shall lapse after 30 days upon the issue of a written reminder notice from Victorison in the event that payments of the consideration have not been made in accordance with the terms above and Victorison shall reserve the right to demand for compensation from the relevant Purchaser in relation to the breach of agreement in accordance with the relevant Disposal Agreement. The Disposal Agreements shall also lapse after 30 days upon the issue of a written reminder notice from the relevant Purchaser in the event that the Disposal Shares have not been transferred to such Purchaser in accordance with condition (iii) above and such Purchaser shall reserve the right to demand for compensation from Victorison in relation to the breach of agreement in accordance with the relevant Disposal Agreement. In such events, Victorison shall refund any consideration paid by the Purchasers and the accumulated interests within five business days pursuant to the Disposal Agreements.

The Company has been notified by the Purchasers that the consideration will be fully funded by their personal financial resources. Accordingly, 100% of the consideration will be payable in cash by the Purchasers at completion of the Disposal Agreements. As the Directors consider that the change of payment terms of the Disposal Agreements are not material for completion of the Disposal Agreements, it is not necessary to enter into any supplemental agreements. Completion of the Disposal Agreements will therefore be only subject to the approval of the Shareholders at the SGM.

THE TRANSFER AGREEMENTS

Date

19 August 2004

Parties

(a) Victorison;
(b) SEG;
(c) Mr. Ying; and
(d) DiChain Systems as guarantor.

To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, each of SEG, its ultimate beneficial owners, and Mr. Ying is independent of the Company and its connected persons (as defined under the Listing Rules), and is not a connected person (as defined under the Listing Rules) of the Company.

The Transfer

Pursuant to the Transfer Agreements, Victorison agreed to dispose of 8,317,500 shares and 2,242,500 shares in SEG Scientific, representing about 13.9% and 3.7% respectively of the issued share capital of SEG Scientific, to SEG and Mr. Ying, respectively, at the total consideration of about RMB13.9 million (equivalent to about HK$13.2 million) or RMB1.32 (equivalent to about HK$1.25) per share. As disclosed in the announcement and the circular of the Company dated 10 February and 3 March 2004, respectively, Victorison entered into the S&P Agreements to acquire the Transfer Shares from De Yi, Hua Ke, Jie Chuang and Su Zhou at RMB1.35 (equivalent to about HK$1.27), RMB1.35 (equivalent to about HK$1.27), RMB1.35 (equivalent to about HK$1.27) and RMB1.45 (equivalent to about HK$1.37) per share, respectively, or at the total consideration of RMB14,421,000 (equivalent to about HK$13,605,000).

– 7 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the S&P Agreements had not been completed. Save for condition (d), being obtaining all necessary approvals from the regulatory authorities in relation to the S&P Agreements, as disclosed in the circular of the Company dated 3 March 2004, all other conditions of the S&P Agreements have been fulfilled. A deposit of about RMB13.0 million (equivalent to about HK$12.2 million), being 90% of the consideration, was paid by Victorsion to Su Zhou, De Yi, Hua Ke and Jie Chuang pursuant to the S&P Agreements as at the Latest Practicable Date. The Transfer Shares should be transferred from Su Zhou, De Yi, Hua Ke and Jie Chuang to Victorison pursuant to the S&P Agreements prior to completion of the Transfer in accordance with the Transfer Agreements.

The consideration

The total consideration of about RMB13.9 million (equivalent to about HK$13.2 million) payable under the Transfer was determined after arm’s length negotiations between the parties and with reference to the total consideration of about RMB14.4 million (equivalent to about HK$13.6 million) for the acquisition of the Transfer Shares by Victorison under the S&P Agreements and had taken into account that the S&P Agreements have not been completed.

Pursuant to the Transfer Agreement between Victorison and SEG, the consideration of RMB1.32 (equivalent to about HK$1.25) per share should not be higher than the valuation (the “Valuation”) of the relevant Transfer Shares performed by a qualified valuer. Pursuant to the valuation report issued by such qualified valuer, net assets of SEG Scientific were valued at about RMB81.1 million (equivalent to about HK$76.5 million) as at 30 June 2004, representing about RMB1.35 (equivalent to about HK$1.27) per share. Taking into account that the consideration was determined after arm’s length negotiations between the parties and there is a risk that the S&P Agreements may not be completed, the Directors (including the independent non-executive Directors) consider that the consideration is fair and reasonable and the Transfer and is in the interests of the Company and the Shareholders as a whole.

Conditions

The Transfer Agreements are conditional on the simultaneous completion of all Transfer Agreements and Disposal Agreements (or a share repurchase agreement to be entered into between SEG Scientific and Victorison in relation to the Disposal Shares Repurchase within 31 days after the Disposal Agreements are terminated). Completion of the Transfer Agreements is also subject to the completion of the transfer of the Transfer Shares from Su Zhou, De Yi, Hua Ke and Jie Chuang to Victorison pursuant to the S&P Agreements.

The Transfer Agreement between Victorison and SEG is also conditional on the filing of the report of the Valuation with the appropriate authorities in accordance with the relevant asset management regulations in the PRC within 25 days after the signing of the agreement. However, there is no such condition under the Transfer Agreement between Victorison and Mr. Ying. The valuation report was submitted to the relevant authority on 29 August 2004.

Other major terms of the Transfer Agreements

Pursuant to the Transfer Agreements, 90% of the consideration shall be payable by SEG and Mr. Ying within three business days either (a) upon the receipt of notice to be issued by the Commercial Bank in accordance with payment term (ii) of the Disposal Agreements and receipt of a consent letter to

– 8 –

LETTER FROM THE BOARD

be issued by Victorison to SEG, as requested by SEG, authorising SEG to exercise the rights under the Transfer Shares on behalf of Victorison (the “Consent Letter”), and authorisation letters to be issued by Su Zhou, De Yi, Hua Ke and Jie Chuang, being the original holders of the Transfer Shares, authorising the disposal of the Transfer Shares by Victorison to SEG and Mr. Ying (the “Authorisation Letters”); or (b) upon completion of the Disposal Shares Repurchase by SEG Scientific and receipt of the Consent Letter and the Authorisation Letters in the event that the Bank Borrowings cannot be obtained by the Purchasers. Details of the Disposal Shares Repurchase are set out in the paragraph headed “The Disposal Shares Repurchase” below. The remaining 10% of the consideration shall be payable within 10 business days after completion of the Transfer.

Pursuant to the Transfer Agreements, Victorison, SEG and Mr. Ying agreed that they will use their best endeavour to procure to complete the Transfer before 30 April 2005. Otherwise, both SEG and Mr. Ying may elect to terminate the Transfer and Victorison shall refund any consideration paid by SEG and Mr. Ying and the accumulated interests within five business days pursuant to the Transfer Agreements.

THE DISPOSAL SHARES REPURCHASE

On 19 August 2004, Victorison and SEG also entered into an agreement, pursuant to which, both Victorison and SEG, currently together holding about 56.14% of the issued share capital of SEG Scientific, agreed to vote in favour of a resolution to be proposed at a shareholders’ meeting of SEG Scientific for approving SEG Scientific to repurchase the Disposal Shares at RMB1.35 (equivalent to about HK$1.27) and to settle 90% of the consideration within 10 business days from the day of signing a share repurchase agreement between SEG Scientific and Victorison in the event that the Bank Borrowings cannot be obtained by the Purchasers.

The Disposal Shares Repurchase may constitute a notifiable transaction for the Company under the Listing Rules. The Company will comply with the Listing Rules and make further announcement(s) in respect of the Disposal Shares Repurchase as and when appropriate if the Disposal Shares Repurchase materialise.

INFORMATION OF SEG SCIENTIFIC

SEG Scientific is a joint stock company incorporated in the PRC on 29 June 1999. SEG Scientific is a manufacturer of automatic vehicle locator of global positioning system in the PRC. It also provides global positioning system vehicle tracking and monitoring services in the Southern China region. Victorison and SEG are currently interested in 35% and about 21.14%, respectively, of the shareholding interests of SEG Scientific. All other existing shareholders of SEG Scientific are not connected persons (as defined in the Listing Rules) of the Company. As detailed in the circular of the Company dated 3 March 2004, the Board announced on 10 February 2004 that Victorison entered into the S&P Agreements to acquire a further 17.6% shareholding interest in SEG Scientific from various independent third parties.

SEG is a joint stock company incorporated in the PRC with limited liability whose B shares are listed on the Shenzhen Stock Exchange. It is principally engaged in the manufacture and sale of cathoderay tubes products. Upon completion of the Disposal and the Transfer, SEG will be interested in 21,000,000 shares in SEG Scientific, representing 35% of the issued share capital of SEG Scientific, and the remaining shareholding of SEG Scientific will be owned by the Purchasers (including Mr. Ying) and several other

– 9 –

LETTER FROM THE BOARD

independent parties who are independent of the Company and its connected persons (as defined under the Listing Rules) and are not connected persons (as defined under the Listing Rules) of the Company. Victorison will cease to have any shareholding interest in SEG Scientific upon completion of the Disposal and the Transfer.

SEG Scientific recorded an audited net profit before and after tax of about RMB3.5 million (equivalent to about HK$3.3 million) and RMB3.3 million (equivalent to about HK$3.1 million) respectively for the year ended 31 December 2002. The audited net profit before tax and after tax of SEG Scientific were about RMB4.5 million (equivalent to about HK$4.2 million) and RMB4.1 million (equivalent to about HK$3.9 million) respectively for the year ended 31 December 2003. The audited net assets of SEG Scientific was about RMB40.6 million (equivalent to about HK$38.3 million) as at 31 December 2003.

A loss of about HK$0.3 million is expected to be recognised by the Group in its financial statements upon completion of the Disposal and the Transfer. It was calculated by netting off the net proceeds of about HK$39.7 million with the book value of HK$26.4 million of the share of 35% of the net assets of SEG Scientific and the expected book value of about HK$13.6 million of the share of 17.6% of the net assets of SEG Scientific upon completion of the S&P Agreements. Based on the audited consolidated balance sheet of the Group as at 31 March 2004, the unaudited pro forma net assets of the Group upon completion of the Disposal and the Transfer are estimated to be about HK$118.8 million. Details of the Group’s unaudited pro forma financial statements are set out in appendix II to this circular.

SHAREHOLDING STRUCTURE OF SEG SCIENTIFIC

Set out below is the current shareholding structure of SEG Scientific:

==> picture [433 x 100] intentionally omitted <==

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

Victorison SEG The Purchasers Mr. Ying Other independent
(excluding Mr. Ying) third parties
35% 21.1% 6.3% 0.6% 37%
SEG Scientific
----- End of picture text -----

The following diagram illustrates the shareholding structure of SEG Scientific immediately after completion of the Disposal and the Transfer:

==> picture [390 x 108] intentionally omitted <==

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

The Purchasers Other independent
SEG Mr. Ying
(excluding Mr. Ying) third parties
35% 36.3% 9.3% 19.4%
SEG Scientific
----- End of picture text -----

– 10 –

LETTER FROM THE BOARD

The following diagram illustrates the shareholding structure of SEG Scientific immediately after completion of the Transfer and the Disposal Shares Repurchase:

==> picture [411 x 114] intentionally omitted <==

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

The Purchasers Other independent
SEG Mr. Ying
(excluding Mr. Ying) third parties
53.9% 9.7% 6.6% 29.8%
SEG Scientific
----- End of picture text -----

REASONS FOR THE DISPOSAL AND TRANSFER

The Group is principally engaged in the distribution of electronic household appliances, operating bonded warehouse, provision of logistics and related services, and property investment.

As stated in the annual report of the Company for the year ended 31 March 2004, during the year ended 31 March 2004, the Group completed the restructuring of its logistics operation in Futian, the PRC and, as a result, turnover from the logistics operation increased significantly as compared with that of the previous year. In view of the improved performance of logistics business during the last financial year, the Directors considered that it is necessary to further develop its core business in logistics. As such, the Directors (including the independent non-executive Directors) believe that the Disposal and the Transfer provide the Group an ideal opportunity to relocate and focus its resources in its core business.

The Group intends to use the net proceeds of about HK$39.7 million from the Disposal and the Transfer as general working capital and thereby strengthening the cash flow and liquidity position of the Group.

SGM

The Disposal and the Transfer together constitute a very substantial disposal for the Company under the Listing Rules and are therefore subject to the approval of Shareholders at the SGM.

A notice convening the SGM is set out on pages 76 to 77 of this circular. The SGM will be held at Unit 3207-08, 32/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong at 11:00 a.m. on Monday, 18 October 2004 at which ordinary resolution will be proposed to consider and, if thought fit, to approve the Disposal and the Transfer. As the Purchasers and SEG are not connected persons (as defined under the Listing Rules) of the Company, no Shareholder will be required to abstain from voting at the SGM.

– 11 –

LETTER FROM THE BOARD

RECOMMENDATION

In view of the aforesaid, the Board consider that the terms of the Disposal and the Transfer are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM in respect of the Disposal and the Transfer.

GENERAL

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

Yours faithfully, By order of the Board Fan Di Chairman

– 12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. ACCOUNTANTS’ REPORT

==> picture [70 x 54] intentionally omitted <==

==> picture [93 x 33] intentionally omitted <==

30 September 2004

The Directors China Merchants DiChain (Asia) Limited

We set out below our report on the financial information regarding China Merchants DiChain (Asia) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 March 2004 (the “Relevant Periods”) for inclusion in the circular of the Company dated 30 September 2004 in connection with a very substantial disposal.

The Company was incorporated in Bermuda with limited liability on 5 March 2002 and is engaged in investment holding. Through a group reorganisation, the Company has since 26 August 2002 become the holding company of the Group.

As at the date of this report, particulars of the Company’s principal subsidiaries are as follows:

	Place of	Issued and	Proportion of	Proportion of
	incorporation/	fully paid	issued share capital/
	registration	share capital/	registered capital
Name of company	/operation	registered capital	held by the Company		Principal activities
			Directly	Indirectly
Dransfield Electrical	Hong Kong	HK$10,000	–	100%	Trading of electronic
Appliances Limited					household appliances
Dransfield Holdings Limited	Bermuda	HK$100,000	100%	–	Investment holding
Dransfield Services Limited	British Virgin	US$1	–	100%	Provision of logistics
	Islands/The People’s				services
	Republic of China
	(the “PRC”)
DiChain (Asia) Logistics	British Virgin	US$1	–	100%	Provision of logistics
Holdings Limited	Islands/PRC				services
DiChain Logistics Services	PRC_(Note)_	HK$35,000,000	–	100%	Provision of logistics
(Shenzhen) Co., Ltd.					services and property
(formerly known as					and investment
Victorison Logistics Services					holding
(Shenzhen) Co., Ltd.)

– 13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Place of Issued and Proportion of incorporation/ fully paid issued share capital/ registration/ share capital/ registered capital Name of company operation registered capital held by the Company Principal activities Directly Indirectly Victorison Logistics Limited Hong Kong HK$100,000 – 100% Provision of secretarial and management services

Name of company

Note: Wholly foreign owned enterprise

We have acted as auditors of the Group for the Relevant Periods.

We have audited the financial statements of the Group for each of the three years ended 31 March 2004 (the “Underlying Financial Statements”) in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” recommended by the HKICPA.

The financial information of the Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 1 to Section I below.

The Underlying Financial Statements are the responsibility of the Directors of the Company who approved their issue. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group and the Company as at the respective balance sheet dates presented and of the results and cash flows of the Group for each of the three years ended 31 March 2004.

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION

Consolidated income statements

Notes Turnover 3 Cost of sales Gross profit Other operating income Selling expenses Administrative expenses Gain on disposal of investments in securities Unrealised holding (loss) gain on investments in securities (Allowance) reversal of allowance for amount due from an investee Waiver of other payables Loss on disposal of investment properties Revaluation increase on investment properties Loss on disposal of property, plant and equipment Impairment loss (recognised) reversed in respect of property, plant and equipment 12 Reversal of allowances (allowances) for doubtful debts (Loss) profit from operations 5 Interest on bank borrowings wholly repayable within five years Finance lease charges Gain on disposal of interests in subsidiaries Gain (loss) on disposal of discontinued operations 6 Loss on disposal of interest in an associate Gain on disposal of interest in a jointly controlled entity Share of results of an associate 15 Share of results of a jointly controlled entity (Loss) profit before taxation Taxation 8 (Loss) profit before minority interests Minority interests Net (loss) profit for the year (Loss) earnings per share 9 Basic Diluted	Year 2002 HK$’000 62,811 (53,705) 9,106 1,388 (2,501) (29,875) – (20,208) (7,644) – (12,823) – (5,555) (35,954) – (104,066) (10,601) – 839 – (10,143) – (464) (4,815) (129,250) (131) (129,381) 89 (129,292) (7.0 cents) N/A	ended 31 March 2003 2004 HK$’000 HK$’000 36,337 27,769 (35,364) (18,867) 973 8,902 1,994 5,423 (2,368) (1,082) (29,899) (25,923) – 16,208 359 7,027 (75) 6,671 9,297 684 – (416) 105 – (125) (7) 26,840 – 3,081 (4,077) 10,182 13,410 (4,152) (6,274) (5) (13) – 816 8,877 (4,629) – – – 2,033 – (326) (2,509) 6,441 12,393 11,458 – 326 12,393 11,784 1,060 2,478 13,453 14,262 0.39 cents 0.31 cents 0.34 cents 0.27 cents

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheets

Notes
Non-current assets
Investment properties
11
Property, plant and equipment
12
Interest in a jointly controlled entity
14
Interest in an associate
15
Deposit paid for acquisition of additional
interest in an associate
16
Loan to a minority shareholder of a subsidiary
17
Current assets
Inventories
18
Trade and other receivables
19
Amount due from a minority shareholder
of a subsidiary
Loans receivable
20
Investments in securities
21
Amount due from an investee
22
Amount due from ultimate holding company
23
Bank balances and cash
Current liabilities
Trade and other payables
24
Amount due to a jointly controlled entity
14
Amounts due to related companies
23
Amounts due to directors
23
Amounts due to minority shareholders of
subsidiaries
23
Tax payable
Obligations under a finance lease
– due within one year
25
Bank borrowings – due within one year
26
Net current (liabilities) assets
Total assets less current liabilities

As at 31 March
2002
2003
2004
HK$’000
HK$’000
HK$’000
2,900
3,327
700
143,543
146,642
124,703
3,388
1,146
–
–
–
26,388
–
–
12,613
7,630
–
–
157,461
151,115
164,404
7,284
2,576
168
11,521
15,828
6,408
7,581
–
–
–
–
10,500
6,394
6,753
32,486
–
–
3,881
–
–
23
6,658
36,439
25,365
39,438
61,596
78,831
46,649
16,323
16,028
–
716
–
6,069
2,315
2,426
3,114
–
–
1,868
1,868
1,813
941
988
205
–
78
78
74,091
27,484
78,037
132,732
49,772
98,587
(93,294)
11,824
(19,756)
64,167
162,939
144,648

– 16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheets – continued

Notes Non-current liabilities Amount due to ultimate holding company Loan from a minority shareholder of a subsidiary 17 Obligations under a finance lease – due after one year 25 Bank borrowings – due after one year 26 Capital and reserves Share capital 27 Reserves Minority interests	As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 71 – 7,630 – – – 203 125 – 49,619 25,334 7,630 49,893 25,459 56,537 113,046 119,189 183,065 45,365 45,365 (134,299) 60,970 73,824 48,766 106,335 119,189 7,771 6,711 – 56,537 113,046 119,189	As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 71 – 7,630 – – – 203 125 – 49,619 25,334 7,630 49,893 25,459 56,537 113,046 119,189 183,065 45,365 45,365 (134,299) 60,970 73,824 48,766 106,335 119,189 7,771 6,711 – 56,537 113,046 119,189
		25,459
		119,189

		45,365 73,824
		119,189 –
		119,189

– 17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance sheets of the Company

Notes Non-current assets Property, plant and equipment 12 Interests in subsidiaries 13 Current assets Other receivables Amount due from a jointly controlled entity of the Group 14 Bank balances and cash Current liabilities Other payables Amount due to a related company 23 Net current assets Total assets less current liabilities Non-current liabilities Amount due to ultimate holding company Amounts due to subsidiaries 13 Capital and reserves Share capital 27 Reserves 29	As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 406 – – 79,966 81,517 – 80,372 81,517 – 1,141 471 – 208 – – 1,039 200 – 2,388 671 – 30 33 – – 100 – 30 133 – 2,358 538 – 82,730 82,055 – 71 – – 24,053 24,468 – 24,124 24,468 – 58,606 57,587 – 45,365 45,365 – 13,241 12,222 – 58,606 57,587	As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 406 – – 79,966 81,517 – 80,372 81,517 – 1,141 471 – 208 – – 1,039 200 – 2,388 671 – 30 33 – – 100 – 30 133 – 2,358 538 – 82,730 82,055 – 71 – – 24,053 24,468 – 24,124 24,468 – 58,606 57,587 – 45,365 45,365 – 13,241 12,222 – 58,606 57,587
		81,517
		471 – 200
		671
		33 100
		133
		538
		82,055
		– 24,468
		24,468
		57,587

		45,365 12,222
		57,587

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated statements of changes in equity

Share capital HK$’000 At 1 April 2001 182,515 Exchange differences arising on the translation of financial statements of overseas operations – Share of reserve of a jointly controlled entity – Net gain not recognised in the consolidated income statement – Exercise of share options pursuant to share option scheme of Dransfield Holdings Limited 550 Release upon disposal – Net loss for the year – At 31 March 2002 183,065 Exchange differences arising on the translation of financial statements of overseas operations – Share of reserve of a jointly controlled entity – Net loss not recognised in the consolidated income statement – Exercise of share options pursuant to share option scheme of Dransfield Holdings Limited 2,340 Share capital eliminated on the Group Reorganisation (185,405) Initial share capital of the Company 100 Issue of shares pursuant to the Group Reorganisation 18,540 Issue of shares pursuant to the share subscription 26,725 Release upon disposal of subsidiaries – Net profit for the year – At 31 March 2003 45,365 Exchange differences arising on the translation of financial statements of overseas operations not recognised in the consolidated income statement – Release upon disposal of subsidiaries – Net profit for the year – At 31 March 2004 45,365	Share premium HK$’000 214,157 – – – – – – 214,157 – – – 1,148 (215,305) – – 26,725 – – 26,725 – – – 26,725	Capital reserve HK$’000 (note 29) 19,931 – – – – – – 19,931 – – – – 400,710 – (18,540) – – – 402,101 – 1,450 – 403,551	Goodwill Revaluation reserve reserve HK$’000 HK$’000 11,989 1,835 – – – – – – – – – (1,835) – – 11,989 – – – – – – – – – – – – – – – – – (11,268) – – – 721 – – – (721) – – – – –	Translation Accumulated reserve losses HK$’000 HK$’000 5,987 (260,071) 1,067 – 98 – 1,165 – – – – 1,835 – (129,292) 7,152 (387,528) (1,173) – 11 – (1,162) – – – – – – – – – – – (492) – – 13,453 5,498 (374,075) (905) – (1,232) – – 14,262 3,361 (359,813)	Total HK$’000 176,343 1,067 98 1,165 550 – (129,292) 48,766 (1,173) 11 (1,162) 3,488 – 100 – 53,450 (11,760) 13,453 106,335 (905) (503) 14,262 119,189

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated cash flow statements

OPERATING ACTIVITIES (Loss) profit from operations Adjustments for: Bank interest income Interest from loans receivable Interest from debt securities Depreciation and amortisation of property, plant and equipment Impairment loss recognised (reversed) in respect of property, plant and equipment Waiver of other payables (Reversal of allowances) allowances for doubtful debts Revaluation increase on investment properties Allowance (reversal of allowance) for amount due from an investee Unrealised holding loss (gain) on investments in securities Gain on disposal of investments in securities Loss on disposal of property, plant and equipment Loss on disposal of investment properties Exchange differences Operating cash flows before movements in working capital Decrease in inventories Decrease (increase) in trade and other receivables Increase (decrease) in trade and other payables Increase in amount due from an investee Net cash from (used in) operations Interest received from banks Tax paid Tax refunded NET CASH FROM (USED IN) OPERATING ACTIVITIES	Year 2002 HK$’000 (104,066) (13) – – 13,193 35,954 – – – 7,644 20,208 – 5,555 12,823 (1,361) (10,063) 5,284 6,632 13,354 (2,701) 12,506 13 – 790 13,309	ended 31 March 2003 2004 HK$’000 HK$’000 10,182 13,410 (141) (227) – (344) – (1,357) 11,154 5,588 (26,840) – (9,297) (684) (3,081) 4,077 (105) – 75 (6,671) (359) (7,027) – (16,208) 125 7 – 416 – – (18,287) (9,020) 1,761 920 (3,115) (5,879) (8,613) 4,563 (75) (2,955) (28,329) (12,371) 141 227 – (988) 47 531 (28,141) (12,601)

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated cash flow statements – continued

Note INVESTING ACTIVITIES Acquisition of interest in an associate Purchases of investments in securities Deposit paid on acquisition of additional interest in an associate New loans receivable Purchases of property, plant and equipment (Advance to) repayment from a minority shareholder of a subsidiary Decrease in pledged bank deposits Proceeds from disposal of interest in an associate Proceeds from disposal of investments in securities Proceeds from disposal of interest in a jointly controlled entity Proceeds from disposal of investment properties Proceeds from disposal of property, plant and equipment Interest received from debt securities Interest received from loans receivable Net cash (outflow) inflow on disposal of subsidiaries 31 NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES New bank loans raised Advance from (repayment to) related companies Net proceeds from issue of shares Advance from a jointly controlled entity Repayment of bank loans Interest and finance lease charges paid Advance from (repayment to) ultimate holding company Repayment of obligations under a finance lease Advance from (repayment to) directors NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, representing bank balances and cash	Year 2002 HK$’000 – – – – (6,323) (6,635) 8,799 3,198 – – 55,177 6,514 – – (14,992) 45,738 – 564 550 – (57,800) (10,601) – – 2,721 (64,566) (5,519) 12,159 18 6,658	ended 31 March 2003 2004 HK$’000 HK$’000 – (26,714) – (25,948) – (12,613) – (10,500) (2,837) (2,810) 7,581 (55) – – – – – 29,195 – 9,609 – 2,211 2,913 – – 1,357 – 344 (304) 736 7,353 (35,188) 56,130 89,601 (3,754) 111 57,038 – 716 – (52,268) (46,634) (4,157) (6,287) 71 (94) (33) (78) (3,114) – 50,629 36,619 29,841 (11,170) 6,658 36,439 (60) 96 36,439 25,365

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial information

1. BASIS OF PRESENTATION

The financial information, which is based on the Underlying Financial Statements, includes the consolidated results, statements of changes in equity and cash flows for the Relevant Periods and the consolidated balance sheets of the Group as at 31 March 2002, 2003 and 2004.

Pursuant to a scheme of arrangement (the “Scheme”) sanctioned by the Supreme Court of Bermuda which became effective on 26 August 2002, the Company issued shares to the shareholders of Dransfield Holdings Limited (“Dransfield”), the then ultimate holding company of the Group, in exchange for the entire issued share capital of Dransfield. Dransfield then became a wholly owned subsidiary of the Company (the “Group Reorganisation”).

The Group resulting from the Group Reorganisation is regarded as a continuing entity. Accordingly, the financial statements of the Group have been prepared using the principles of merger accounting in accordance with Statement of Standard Accounting Practice (“SSAP”) No. 27 “Accounting for Group Reconstructions” issued by the HKICPA.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of investments in securities and investment properties, and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

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

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, an associate or a jointly controlled entity at the date of acquisition.

Goodwill arising on acquisition prior to 1 April 2001 continues to be held in reserves, and will be charged to the income statement at the time of disposal of the relevant subsidiary, associate or jointly controlled entity or at such time as the goodwill is determined to be impaired.

Goodwill arising on acquisition after 1 April 2001 is capitalised and amortised on a straight line basis over its useful economic life. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or the jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

On disposal of a subsidiary, an associate or a jointly controlled entity, the attributable amount of unamortised goodwill and goodwill previously eliminated against reserves is included in the determination of the profit or loss on disposal.

Investments in subsidiaries

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

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Interest in an associate

The consolidated income statement includes the Group’s share of the post-acquisition results of its associate for the year. In the consolidated balance sheet, the interest in associate is stated at the Group’s share of the net assets of the associate plus the goodwill in so far as it has not already been amortised, less any identified impairment losses.

Interest in a jointly controlled entity

Joint venture arrangement which involves the establishment of a separate entity in which each venturer has an interest is referred to as a jointly controlled entity.

The Group’s interest in a jointly controlled entity is included in the consolidated balance sheet at the Group’s share of the net assets of the jointly controlled entity less any identified impairment losses. The Group’s share of the post-acquisition results of a jointly controlled entity is included in the consolidated income statement.

Revenue recognition

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

Service income is recognised when services are rendered.

Rental income, including rental invoiced in advance from properties under operating leases, is recognised on a straight line basis over the terms of the relevant lease.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Revenue from the disposal of investments are recognised on the trade-date when a sale and purchase contract is entered into.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market value. Any revaluation increase or decrease arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve is charged to the income statement. Where a decrease has previously been charged to the income statement and a revaluation increase subsequently arises, this increase is credited to the income statement to the extent of the decrease previously charged.

On the disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is twenty years or less.

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Property, plant and equipment

Property, plant and equipment other than construction in progress are stated at cost less depreciation, amortisation and accumulated impairment losses.

Depreciation and amortisation are provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight line method, at the following rates per annum:

Freehold land	Nil
Leasehold land and buildings held in Hong Kong	Over the terms of the leases
Leasehold land and buildings held in the PRC	Over the terms of the land use rights
Leasehold improvements	Over the shorter of the terms of the lease,
	land use rights or 5 years
Brewery plant and machinery	2 – 10%
Other plant and machinery	5 – 20%
Equipment	15 – 20%
Furniture, fixtures and office equipment	20 – 25%
Motor vehicles	25 – 33%

Construction in progress is carried at cost, less any identified impairment loss. Cost includes professional fees capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other assets, commences when the assets are ready for their intended use.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as assets owned by the Group or, where shorter, the terms of the respective leases.

The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in the income statement for the year.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Foreign currencies

Transactions in foreign currencies are translated at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

On consolidation, the assets and liabilities of the Group’s foreign operations, which are denominated in currencies other than the Hong Kong dollars, are translated into Hong Kong dollars at the exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as an expense in the year in which the operation is disposed of.

Taxation

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

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

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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 asset to be recovered.

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

Leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the period of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight line basis over the relevant lease terms.

Retirement benefits schemes

Payments to state-managed retirement benefits schemes and the Mandatory Provident Fund Scheme are charged as expenses as they fall due.

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. TURNOVER

Continuing operations Sales of goods Logistics and other services Discontinued operations Sales of edible oil Sales of food and beverage Property investment Brewery production	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 7,214 4,777 2,991 5,103 6,972 13,713 12,317 11,749 16,704 14,561 21,588 10,660 5,833 2,763 405 6,452 237 – 23,648 – – 50,494 24,588 11,065 62,811 36,337 27,769	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 7,214 4,777 2,991 5,103 6,972 13,713 12,317 11,749 16,704 14,561 21,588 10,660 5,833 2,763 405 6,452 237 – 23,648 – – 50,494 24,588 11,065 62,811 36,337 27,769
		16,704
		10,660 405 – –
		11,065
		27,769

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into two operating divisions. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Logistics – provision of logistics and related services Electronic household appliances – distribution of electronic household appliances

In prior years, the Group was also involved in the production and distribution of edible oil, trading of food and beverage products, property investment and brewery production. Those operations were discontinued during the Relevant Periods; details are set out in note 6.

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

Segment information about these businesses is presented below:

For the year ended 31 March 2002

TURNOVER External sales Inter-segment sales Total RESULT Segment result Unrealised holding loss on investments in securities Unallocated corporate income Loss from operations Finance costs Gain on disposal of interest in a subsidiary Loss on disposal of interest in an associate Share of results of an associate Share of results of a jointly controlled entity Loss before taxation Taxation Loss before minority interests	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 7,214 3,906 1,197 – 869 – 7,214 4,775 1,197 (21) (11,560 ) (27,839 )	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 7,214 3,906 1,197 – 869 – 7,214 4,775 1,197 (21) (11,560 ) (27,839 )		Discontinued	operations	Property investment HK$’000 6,452 – 6,452 (17,133)	Elimination Consolidated HK$’000 HK$’000 – 62,811 (1,717) – (1,717) 62,811 – (90,927) (20,208) 7,069 (104,066) (10,601) 839 (10,143) (464) (4,815) (129,250) (131) (129,381)
	Electronic household appliances HK$’000 7,214 – 7,214 (21)	Logistics HK$’000 3,906 869 4,775 (11,560 )	Brewery production HK$’000 23,648 848 24,496 (28,753)	Edible oil HK$’000 14,561 – 14,561 (4,503 )	Food and beverage HK$’000 5,833 – 5,833 (1,118)

Inter-segment sales are charged at prevailing market rates.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

As at 31 March 2002

Discontinued operations Brewery Edible Food and Property production oil beverage investment Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 14,984 37,540 3,555 2,900 186,008 6,394 3,388 1,109 196,899 12,417 13,723 2,832 1,727 45,329 941 74,091 20,001 140,362 11 6,260 46 – 6,323 700 7,591 21 127 13,193 27,347 – – – 35,954 – – – 12,823 12,823 – – – – 5,555	Discontinued operations Brewery Edible Food and Property production oil beverage investment Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 14,984 37,540 3,555 2,900 186,008 6,394 3,388 1,109 196,899 12,417 13,723 2,832 1,727 45,329 941 74,091 20,001 140,362 11 6,260 46 – 6,323 700 7,591 21 127 13,193 27,347 – – – 35,954 – – – 12,823 12,823 – – – – 5,555	Discontinued operations Brewery Edible Food and Property production oil beverage investment Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 14,984 37,540 3,555 2,900 186,008 6,394 3,388 1,109 196,899 12,417 13,723 2,832 1,727 45,329 941 74,091 20,001 140,362 11 6,260 46 – 6,323 700 7,591 21 127 13,193 27,347 – – – 35,954 – – – 12,823 12,823 – – – – 5,555
Brewery production HK$’000 14,984 12,417 11 700 27,347 – –	Edible oil HK$’000 37,540 13,723 6,260 7,591 – – –
		196,899

		45,329 941 74,091 20,001
		140,362

		6,323 13,193 35,954 12,823 5,555

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

For the year ended 31 March 2003

TURNOVER External sales Inter-segment sales Total RESULT Segment result Unallocated corporate expenses Profit from operations Finance costs Gain on disposal of discontinued operations Share of results of a jointly controlled entity Profit before taxation Taxation Profit before minority interests	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 4,777 6,936 36 119 1,518 1,418 4,896 8,454 1,454 329 13,977 1,148 – – –	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 4,777 6,936 36 119 1,518 1,418 4,896 8,454 1,454 329 13,977 1,148 – – –	Brewery production HK$’000 – – – – 8,877	Discontinued operations	Discontinued operations	Property investment HK$’000 237 – 237 1,507 –	Elimination Consolidated HK$’000 HK$’000 – 36,337 (3,134) – (3,134) 36,337 (2,209) 17,566 (7,384) 10,182 (4,157) – 8,877 (2,509) 12,393 – 12,393
	Electronic household appliances HK$’000 4,777 119 4,896 329 –	Logistics HK$’000 6,936 1,518 8,454 13,977 –		Edible oil HK$’000 21,588 – 21,588 8,699 –	Food and beverage HK$’000 2,763 79 2,842 (5,885) –

Inter-segment sales are charged at prevailing market rates.

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

As at 31 March 2003

ASSETS Segment assets Investments in securities Interest in a jointly controlled entity Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Tax payable Obligations under a finance lease Bank borrowings Unallocated corporate liabilities Consolidated total liabilities Other Information: Capital additions Depreciation and amortisation Reversal of impairment loss Loss on disposal of property, plant and equipment Reversal of allowances for doubtful debts	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 1,230 161,825 2,001 403 2,937 1,748 – 74 825 23 3,351 654 – (17,078) (32) – 125 – (670) – –	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 1,230 161,825 2,001 403 2,937 1,748 – 74 825 23 3,351 654 – (17,078) (32) – 125 – (670) – –	Discontinued operations Edible Food and Property oil beverage investment Consolidated HK$’000 HK$’000 HK$’000 HK$’000 32,497 1,290 2,305 201,148 6,753 1,146 3,664 212,711 1,577 353 46 7,064 988 281 77,103 14,229 99,665 1,925 327 – 3,151 1,956 5,170 – 11,154 (9,730) – – (26,840) – – – 125 (2,394) (17) – (3,081)
	Electronic household appliances HK$’000 1,230 403 – 23 – – (670)	Logistics HK$’000 161,825 2,937 74 3,351 (17,078) 125 –	Edible oil HK$’000 32,497 1,577 1,925 1,956 (9,730) – (2,394)

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

For the year ended 31 March 2004

TURNOVER External sales Inter-segment sales Total RESULTS Segment results Gain on disposal of investments in securities Unrealised holding gain on investments in securities Unallocated corporate income Unallocated corporate expenses Profit from operations Finance costs Gain on disposal of interests in subsidiaries (Loss) gain on disposal of discontinued operations Gain on disposal of interest in a jointly controlled entity Share of results of an associate Share of results of a jointly controlled entity Profit before taxation Taxation Profit before minority interests	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 2,991 13,713 – – 234 – 2,991 13,947 – (315) 615 (574) (315) – 1,131 – – – – – – – – –	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 2,991 13,713 – – 234 – 2,991 13,947 – (315) 615 (574) (315) – 1,131 – – – – – – – – –	Discontinued	operations Food and beverage Elimination Consolidated HK$’000 HK$’000 HK$’000 405 – 27,769 – (234) – 405 (234) 27,769 (622) – (5,594) 16,208 7,027 2,774 (7,005) 13,410 (6,287) – – 816 147 – (4,629) 2,033 – 2,033 (326) 6,441 – 6,441 11,458 326 11,784
	Electronic household appliances HK$’000 2,991 – 2,991 (315) (315) – – –	Logistics HK$’000 13,713 234 13,947 615 – – – –	Edible oil HK$’000 10,660 – 10,660 (4,698) – (4,776) – –

Inter-segment sales are charged at prevailing market rates.

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Business segments – continued

As at 31 March 2004

Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 1,189 140,917 597 56 3,920 5,431 – – – 23 2,032 755 26 4,110 1,452 – – 416 – – 7	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 1,189 140,917 597 56 3,920 5,431 – – – 23 2,032 755 26 4,110 1,452 – – 416 – – 7	Discontinued operations Edible Food and oil beverage Consolidated HK$’000 HK$’000 HK$’000 – – 142,703 32,486 26,388 10,500 12,613 18,545 243,235 – – 9,407 205 203 103,371 10,860 124,046 4,077 – 4,077 – – 2,810 – – 5,588 – – 416 – – 7	Discontinued operations Edible Food and oil beverage Consolidated HK$’000 HK$’000 HK$’000 – – 142,703 32,486 26,388 10,500 12,613 18,545 243,235 – – 9,407 205 203 103,371 10,860 124,046 4,077 – 4,077 – – 2,810 – – 5,588 – – 416 – – 7
Electronic household appliances HK$’000 1,189 56 – 23 26 – –	Logistics HK$’000 140,917 3,920 – 2,032 4,110 – –	Edible oil HK$’000 – – 4,077 – – – –
			243,235

			9,407 205 203 103,371 10,860
			124,046

			4,077 2,810 5,588 416 7

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

Geographical segments

The Group’s operations are principally located in Hong Kong and the PRC. The Group’s administrative function is carried out in Hong Kong and the PRC and the manufacturing activities are carried out in the PRC.

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods:

Hong Kong PRC Europe - brewery production	Turnover by geographical market Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 15,474 4,776 2,412 23,689 31,561 25,357 23,648 – – 62,811 36,337 27,769	Turnover by geographical market Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 15,474 4,776 2,412 23,689 31,561 25,357 23,648 – – 62,811 36,337 27,769
		27,769

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment, analysed by the geographical area in which the assets are located:

Hong Kong PRC Europe - brewery production	Carrying amount of segment assets As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 23,861 17,386 39,736 158,054 195,325 203,499 14,984 – – 196,899 212,711 243,235	Additions to property, plant and equipment Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 46 185 730 6,266 2,966 2,080 11 – – 6,323 3,151 2,810	Additions to property, plant and equipment Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 46 185 730 6,266 2,966 2,080 11 – – 6,323 3,151 2,810
			2,810

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. (LOSS) PROFIT FROM OPERATIONS

(Loss) profit from operations has been arrived at after charging: Staff costs Retirement benefits schemes contributions Total staff costs, including directors’ emoluments Auditors’ remuneration: Current year Underprovision in previous year Cost of inventories recognised as an expense Depreciation and amortisation and after crediting: Interest income from: Bank Loans receivable Debt securities	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,030 7,423 9,101 327 259 382 8,357 7,682 9,483 800 750 776 143 – 584 42,996 28,041 12,042 13,193 11,154 5,588 13 141 227 – – 344 – – 1,357	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 8,030 7,423 9,101 327 259 382 8,357 7,682 9,483 800 750 776 143 – 584 42,996 28,041 12,042 13,193 11,154 5,588 13 141 227 – – 344 – – 1,357
		9,483
		776 584 12,042 5,588 227 344 1,357

6. DISCONTINUED OPERATIONS

During the year ended 31 March 2003, the Group disposed of its entire interest in a subsidiary, Redruth Brewery (1742) Limited (“Redruth”) for a cash consideration of HK$1 (the “Disposal”). Redruth was principally engaged in the production of brewery products in the United Kingdom with its major customers located in Europe. The Disposal was effected for the purpose of debt reduction of the Group. Further details of the Disposal were also set out in a circular issued by Dransfield dated 31 May 2002.

The Disposal was completed on 12 April 2002, when control of Redruth passed to the acquirer. The operating results for the brewery production business for the period from 1 April 2002 to 12 April 2002 was insignificant, and, the brewery production business did not contribute any cash flows in respect of the Group’s operating, investing and financing activities for the year ended 31 March 2003. During the year ended 31 March 2002, the brewery production business contributed net cash outflow of HK$323,000 to the Group’s operations, paid HK$5,171,000 in respect of investing activities and received HK$1,420,000 in respect of financing activities.

During the year ended 31 March 2004, the Group disposed of its entire interests in two subsidiaries, Dransfield Food and Beverage Limited (“DFB”) and Shenyang Dransfield Industrial Development Ltd. (“SDID”) for a cash consideration of HK$450,000 (the “DFB Disposal”) and a consideration by waiver of other payables of HK$1,500,000 (the “SDID Disposal”), respectively. The DFB Disposal and SDID Disposal were effected for the purpose of maintaining a more focused view in the Group’s logistics operations.

DFB was principally engaged in the trading of food and beverage products in Hong Kong. The DFB Disposal was completed on 4 July 2003, when control of DFB was passed to the acquirer.

SDID was principally engaged in the production and distribution of edible oil in the PRC. The SDID Disposal was completed on 31 March 2004, when control of SDID was passed to the acquirer.

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. DISCONTINUED OPERATIONS – continued

The carrying amounts of the assets and liabilities of the discontinued operations at the date of disposal and the gain (loss) arising from the disposal are as follows:

Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Bank borrowings Minority interests Goodwill reserve realised Capital reserve realised Translation reserve realised Gain (loss) on disposal Consideration received	Brewery production HK$’000 10,159 2,947 1,889 304 (12,416) – – (11,268) – (492) (8,877) 8,877 –	Food and beverage HK$’000 204 145 53 10 (109) – – – – – 303 147 450	Edible oil HK$’000 18,533 1,220 9,093 568 (2,613 (16,490 (4,253 – 1,450 (1,232
			6,276 (4,776
			1,500

The carrying amounts of assets and liabilities of the discontinued operations at their respective comparable balance sheet dates are disclosed in note 4.

The operating results of these businesses are disclosed in note 4. The businesses disposed of during each of the three years ended 31 March 2004 did not have a material contribution to the net cash flows of the Group.

7. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments

Fees: Executive directors Non-executive directors Independent non-executive directors Other emoluments: Executive directors – Salaries and other benefits – Bonus – Retirement benefits schemes contributions Non-executive directors – Salaries and other benefits	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 25 – – – 33 – 32 48 130 57 81 130 1,033 1,009 1,752 – 94 243 29 12 12 1,062 1,115 2,007 721 – – 1,840 1,196 2,137	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 25 – – – 33 – 32 48 130 57 81 130 1,033 1,009 1,752 – 94 243 29 12 12 1,062 1,115 2,007 721 – – 1,840 1,196 2,137
		130
		1,752 243 12
		2,007
		–
		2,137

The aggregate emoluments of each of the directors during each of the three years ended 31 March 2004 were below HK$1,000,000.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS – continued

Employees’ emoluments

The five highest paid individuals in the Group included five directors, a director and three directors for each of the three years ended 31 March 2004, respectively, details of whose emoluments are set out above. The emoluments of the remaining four and two individuals for each of the two years ended 31 March 2004, respectively, were as follows:

Salaries and other benefits Bonus Retirement benefits schemes contributions	Year ended 2003 HK$’000 2,523 92 42 2,657	31 March 2004 HK$’000 917 76 24
		1,017

The aggregate emoluments of each of the highest paid individuals during each of the three years ended 31 March 2004 were below HK$1,000,000.

During each of the three years ended 31 March 2004, no emoluments were paid by the Group to the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office, and no director waived any emoluments during each of the three years ended 31 March 2004.

8. TAXATION

Current tax Under(over)provision in prior years – Hong Kong Profits Tax Deferred tax_(note 30)_ Credit for the year Taxation attributable to the Company and its subsidiaries	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 431 – (326 (300) – – 131 – (326	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 431 – (326 (300) – – 131 – (326
		(326

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group incurred a tax loss for each of the three years ended 31 March 2004.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. TAXATION – continued

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

(Loss) profit before taxation Tax at domestic tax rate of 15% Tax effect of share of results of an associate and a jointly controlled entity Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Tax effect of tax loss not recognised Under(over)provision of taxation in prior years Tax charge (credit) for the year	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 (129,250) 12,393 11,458 (19,388) 1,858 1,719 792 376 (917) (1,236) (16,745) (17,177) 18,386 12,599 12,753 1,146 1,912 3,622 431 – (326) 131 – (326)	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 (129,250) 12,393 11,458 (19,388) 1,858 1,719 792 376 (917) (1,236) (16,745) (17,177) 18,386 12,599 12,753 1,146 1,912 3,622 431 – (326) 131 – (326)

		1,719 (917) (17,177) 12,753 3,622 (326)
		(326)

Details of deferred tax are set out in note 30.

Note: The domestic income tax rate of 15% is the preferential tax rate for special regions in the PRC where the Group’s operations are substantially based.

9. (LOSS) EARNINGS PER SHARE

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

(Loss) earnings for the purpose of calculating basic and diluted (loss) earnings per share: Net (loss) profit for the year Weighted average number of shares for the purpose of calculating basic earnings per share (in thousands) Effect of dilutive potential shares (in thousands): Warrants Share options Weighted average number of shares for the purpose of calculating diluted (loss) earnings per share (in thousands)	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 (129,292) 13,453 14,262 1,854,050 3,460,237 4,536,565 477,141 764,459 – 25,897 3,937,378 5,326,921	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 (129,292) 13,453 14,262 1,854,050 3,460,237 4,536,565 477,141 764,459 – 25,897 3,937,378 5,326,921

		4,536,565 764,459 25,897
		5,326,921

For each of the two years ended 31 March 2003, the weighted average number of shares for the purpose of basic earnings (loss) per share was based on the assumption that the Group Reorganisation had been completed at 1 April 2001.

For the year ended 31 March 2002, the share options of Dransfield were anti-dilutive as the exercise of the share options resulted in a decrease in loss per share.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. DIVIDENDS

No dividend was paid or proposed during the three years ended 31 March 2004, nor has any dividend been proposed since 31 March 2004.

11. INVESTMENT PROPERTIES

VALUATION At 1 April 2001 Disposal At 31 March 2002 Transfer from property, plant and equipment Revaluation increase At 31 March 2003 Disposal At 31 March 2004	THE GROUP Properties situated in Hong Kong PRC HK$’000 HK$’000 68,700 2,200 (68,000) – 700 2,200 – 322 – 105 700 2,627 – (2,627) 700 –	Total HK$’000 70,900 (68,000)
		2,900 322 105
		3,327 (2,627)
		700

During the year ended 31 March 2002, the Group entered into a conditional sales and purchase agreement to dispose of the properties situated in the PRC at an agreed amount of HK$2,200,000. The disposal was subsequently cancelled during the year ended 31 March 2003. In the opinion of the directors of the Company, the investment properties were carried at their net realisable value, which approximated their open market value at 31 March 2002.

Investment properties situated in the PRC are held under long leases and were valued at their open market values at 31 March 2003 by Shenzhen International Real Estate Consultant Co., Ltd, an independent firm of qualified professional valuers. This valuation gave rise to a revaluation increase of HK$105,000 which was credited to the income statement to reverse a deficit recognised in prior years.

The investment property situated in Hong Kong and held under a medium-term lease was under the possession of a bank during the three years ended 31 March 2004 and had not been disposed of at 31 March 2004. In the opinion of the directors of the Company, the investment property was carried at the net realisable value, which approximated its open market value at each of the balance sheet dates.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. PROPERTY, PLANT AND EQUIPMENT

Freehold land HK$’000 THE GROUP COST At 1 April 2001 5,372 Exchange realignment – Additions – Disposal of subsidiaries – Reclassifications – Disposals (1,136) At 31 March 2002 4,236 Exchange realignment – Additions – Disposal of subsidiaries – Transfer to investment properties – Reclassifications – Disposals (4,236) At 31 March, 2003 – Exchange realignment – Additions – Disposal of subsidiaries – Write off – At 31 March 2004 – DEPRECIATION AND AMORTISATION AND IMPAIRMENT At 1 April 2001 – Exchange realignment – Disposal of subsidiaries – Provided for the year – Impairment loss recognised in the income statement 2,236 Eliminated on disposals – At 31 March 2002 2,236 Exchange realignment – Disposal of subsidiaries – Provided for the year – Impairment loss (reversed) recognised in the income statement – Transfer to investment properties – Reclassifications – Eliminated on disposals (2,236) At 31 March, 2003 – Exchange realignment – Eliminated on disposal of subsidiaries – Provided for the year – Eliminated on write off – At 31 March 2004 – NET BOOK VALUE At 31 March 2002 2,000 At 31 March 2003 – At 31 March 2004 –	Leasehold land and buildings in the PRC HK$’000 144,216 2,338 – – – – 146,554 (1,885) – – (1,048) (1,863) – 141,758 (404) – (5,235) – 136,119 29,079 (906) – 2,931 8,607 – 39,711 (216) – 2,519 (16,954) (726) 56 – 24,390 (68) (1,104) 3,038 – 26,256 106,843 117,368 109,863	Leasehold land and buildings in Hong Kong HK$’000 8,000 – – – – (8,000) – – – – – – – – – – – – – – – – 138 – (138) – – – – – – – – – – – – – – – – –	Leasehold improve- ments HK$’000 9,775 3 – (191) 183 (5,328) 4,442 (3) 627 (281) – – – 4,785 (1) 188 – – 4,972 6,733 3 (98) 429 – (3,099) 3,968 (1) (281) 461 – – – – 4,147 – – 402 – 4,549 474 638 423	Brewery plant and machinery HK$’000 43,904 523 11 – – – 44,438 – – (44,438) – – – – – – – – – 8,377 91 – 700 25,111 – 34,279 – (34,279) – – – – – – – – – – – 10,159 – –	Other plant and machinery HK$’000 16,729 97 6,213 – – – 23,039 (214) 833 – – 433 (298) 23,793 (65) – (23,728) – – 10,427 1,410 – 7,344 – – 19,181 (151) – 1,431 (10,243) – (694) (7) 9,517 (23) (9,719) 225 – – 3,858 14,276 –	Equipment HK$’000 9,376 – 32 – – (15) 9,393 – 208 – – – – 9,601 – – (2,449) – 7,152 4,267 – – – – (7) 4,260 – – 5,138 – – – – 9,398 – (2,256) 10 – 7,152 5,133 203 –	Furniture, fixtures and office equipment HK$’000 34,658 345 53 (198) – (4,362) 30,496 (284) 166 (810) – 30 (563) 29,035 (49) 1,741 (185) – 30,542 17,814 48 (134) 1,550 – (3,572) 15,706 (59) (810) 1,178 137 – (3) (130) 16,019 (13) (157) 1,320 – 17,169 14,790 13,016 13,373	Motor Construction vehicles in progress HK$’000 HK$’000 2,773 179 18 4 14 – – – – (183) (239) – 2,566 – (8) – 1,317 – (596) – – – 1,400 – (811) – 3,868 – (5) – 881 – (1,619) – (46) – 3,079 – 2,363 – 11 – – – 101 – – – (195) – 2,280 – (4) – (596) – 427 – 220 – – – 641 – (241) – 2,727 – (3) – (1,243) – 593 – (39) – 2,035 – 286 – 1,141 – 1,044 –	Total HK$’000 274,982 3,328 6,323 (389) – (19,080)
									265,164 (2,394) 3,151 (46,125) (1,048) – (5,908)
									212,840 (524) 2,810 (33,216) (46)
									181,864
									79,060 657 (232) 13,193 35,954 (7,011)
									121,621 (431) (35,966) 11,154 (26,840) (726) – (2,614)
									66,198 (107) (14,479) 5,588 (39)
									57,161
									143,543

									146,642

									124,703

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. PROPERTY, PLANT AND EQUIPMENT – continued

Furniture, fixtures and Leasehold office improvements equipment HK$’000 HK$’000 THE COMPANY COST Acquisition during the period and balance at 31 March 2003 454 128 Transfer to a subsidiary (454) (128) At 31 March 2004 – – DEPRECIATION Provided for the period and balance at 31 March 2003 158 18 Transfer to a subsidiary (158) (18) At 31 March 2004 – – NET BOOK VALUE At 31 March 2003 296 110 At 31 March 2004 – – The net book value of land and buildings held by the Group at the balance sheet date comprises: As at 31 March 2002 2003 HK$’000 HK$’000 Long lease land use rights held in the PRC 210 – Medium-term land use rights held in the PRC 106,633 117,368 Freehold land held in the United Kingdom 2,000 – 108,843 117,368	Total HK$’000 582 (582)
	–
	176 (176)
	–
	406

	–

	2004 HK$’000 – 109,863 –
	109,863

The directors of the Company reviewed the carrying value of the property, plant and equipment of the Group at 31 March 2002 and identified that:

(a) the recoverable amount of the plant and machinery for the manufacturing of the brewery products determined by reference to the net selling price were estimated to be lower than their carrying amount. An impairment loss of HK$25,111,000 was recognised in the income statement for the year ended 31 March 2002.

(b) the recoverable amount of the freehold land situated in the United Kingdom and the leasehold land and buildings situated in the PRC were lower than their carrying amounts by reference to open market values of the properties at 31 March 2002 in considering of the deteriorating performance of the Group. An impairment loss of HK$10,843,000 was recognised in the income statement.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. PROPERTY, PLANT AND EQUIPMENT – continued

The directors of the Company reviewed the carrying value of the property, plant and equipment of the Group at 31 March 2003 and identified that:

(a) the recoverable amounts of the leasehold land and buildings situated in the PRC were higher than their carrying amounts by reference to open market values or projected discounted cash flows with a discount rate of 8% per annum of the properties at 31 March 2003 in view of the improving performance and the change in management of the Group.

(b) the recoverable amounts of other plant and machinery were higher than their carrying amounts by reference to depreciated replacement costs of the plant and machinery at 31 March 2003 in view of the improving performance and the change in management of the Group.

Accordingly, a reversal of impairment loss of HK$26,840,000 recognised in prior years was made in the income statement.

The net book value of property, plant and equipment of the Group includes an amount of HK$329,000 and HK$220,000 in respect of assets held under a finance lease at 31 March 2003 and 2004, respectively.

13. INTERESTS IN SUBSIDIARIES

Unlisted shares Amounts due from subsidiaries Allowances for amounts due from subsidiaries	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 63,988 63,988 – 69,575 37,776 – 133,563 101,764 – (53,597) (20,247) – 79,966 81,517	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 63,988 63,988 – 69,575 37,776 – 133,563 101,764 – (53,597) (20,247) – 79,966 81,517
		101,764 (20,247)
		81,517

The amounts due from/to subsidiaries are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the amounts due from subsidiaries are unlikely to be repaid within twelve months from the balance sheet date and are therefore shown as non-current.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INTEREST IN A JOINTLY CONTROLLED ENTITY

Share of net assets of a jointly controlled entity Unrealised profit on disposal of property, plant and equipment to a jointly controlled entity	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 3,644 1,146 (256) – 3,388 1,146	2004 HK$’000 – –
		–

The balance at 31 March 2002 and 2003 represented the interest of 57% in Wuxi Dransfield Broadsino Beverage Co., Ltd (“WDBB”), which was engaged in the manufacture of beverage products. The Group disposed of its entire interest in WDBB to a third party during the year ended 31 March 2004.

The amount due from the jointly controlled entity was unsecured, interest-free and repayable on demand.

The amount due to the jointly controlled entity was unsecured, interest-free and was reclassified as other payables as at 31 March 2004.

15. INTEREST IN AN ASSOCIATE

Share of net assets Goodwill	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 – – – – – –	2004 HK$’000 24,391 1,997
		26,388

Particulars of the Group’s associate at 31 March 2004 are as follows:

				Proportion of
	Form of			nominal value of
	business	Place of	Class of	registered capital
Name of entity	structure	establishment	share held	held by Group	Principal activity
				%
Shenzhen SEG Scientific	Incorporated	PRC	Registered	35	Manufacture of
Navigations Co. Ltd.					automatic vehicle
(“SEG Scientific”)					locator of global
					positioning system

In August 2004, the Group entered into various agreements to dispose of its entire interest in SEG Scientific. The details of this event are set out in note 40.

The Group’s interest in DF China Technology Inc. (“DFCT”) was decreased from 29.67% at 1 April 2001 to 19.76% at 31 March 2002. Accordingly, the investment in DFCT was reclassified from interest in an associate to investment in securities during the year ended 31 March 2002. The Group’s share of results of an associate included in the consolidated income statement for the year ended 31 March 2002 represents the Group’s share of results of DFCT from 1 April 2001 to the date it ceased to be an associate of the Group.

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INTEREST IN AN ASSOCIATE – continued

The goodwill arose on the acquisition of SEG Scientific during the year ended 31 Mach 2004. Amortisation charged in the year ended 31 March 2004 amounting to HK$51,000 had been included in the consolidated income statement. Goodwill is amortised over a period of 10 years.

The following details have been extracted from the audited financial statements of SEG Scientific:

Results for the period from 1 January 2004 (date of acquisition) to 31 March 2004

Turnover Loss from ordinary activities Loss from ordinary activities attributable to the Group Financial position as at 31 March 2004 Non-current assets Current assets Current liabilities Minority interests Net assets Net assets attributable to the Group	HK$’000 13,673

	(785)

	(275)

	HK$’000 10,144 78,573 (16,585) (2,442)
	69,690

	24,391

16. DEPOSIT PAID FOR ACQUISITION OF ADDITIONAL INTEREST IN AN ASSOCIATE

The amount represents the aggregate of a deposit of HK$12,245,000 and professional fees of HK$368,000 paid for the acquisition of an additional 17.6% equity interest in SEG. Details of the proposed acquisition are set out in a circular issued by the Company on 3 March 2004.

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. LOAN TO (FROM) A MINORITY SHAREHOLDER OF A SUBSIDIARY

THE GROUP

At 31 March 2002, the loan to a minority shareholder of a subsidiary was unsecured, bore compound interest at a rate of 6% per annum and had no fixed terms of repayment. Pursuant to an agreement signed by the Group and the minority shareholder of a subsidiary in prior years, the minority shareholder re-invested the loan to another subsidiary of the Company, in which the minority shareholder has a 20% equity interest, in the form of an interest-free loan. The minority shareholder had undertaken to apply any amount, including dividends, which may be distributed by the subsidiary to the minority shareholder to repay, in full, the loan advanced by the Group. The loan advanced from the minority shareholder to the subsidiary was classified as a loan from a minority shareholder, the loan was unsecured and non-interest bearing.

During the year ended 31 March 2003, the Group entered into an agreement with the minority shareholder of a subsidiary for the settlement of a loan to the minority shareholder. Pursuant to the agreement, the minority shareholder assigned to the Group its title and interest in the loan to a subsidiary of the Company together with its beneficial interest in the share capital of the subsidiary as full and final settlement of the loan to the minority shareholder (the “Settlement Arrangement”).

The loan advanced from the minority shareholder was set off against the loan to the minority shareholder during the year ended 31 March 2003, pursuant to the Settlement Arrangement.

At 31 March 2002 and 2003, the Group was entitled to interest income receivable of HK$2,322,000 and HK$2,513,000, respectively, derived from the loan to the minority shareholder, which has not been received and its recovery being doubtful, accordingly, the revenue has not been recognised in the consolidated income statement.

18. INVENTORIES

Raw materials Work in progress Finished goods	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 3,725 – 180 – 3,379 2,576 7,284 2,576	2004 HK$’000 – – 168
		168

Included above were inventories of HK$2,018,000 and HK$162,000, which were carried at net realisable value as at 31 March 2002 and 2003, respectively.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. TRADE AND OTHER RECEIVABLES

The Group has defined credit terms with an average credit period of 90 days which are agreed with its trade customers individually. The aged analysis of trade receivables at the balance sheet dates is as follows:

Less than 3 months 3 to 6 months 6 to 12 months Over 1 year Other receivables	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 6,346 3,561 30 2,836 35 – – – 6,411 6,397 5,110 9,431 11,521 15,828	2004 HK$’000 2,482 175 67 10
		2,734 3,674
		6,408

20. LOANS RECEIVABLE

The loans receivable of the Group are secured by the listed securities held by the borrower, bear interest at 5% per annum and are repayable within one year.

21. INVESTMENTS IN SECURITIES

Other investments, equity securities listed overseas Trust funds, unlisted Market value of listed securities	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 6,394 6,753 – – 6,394 6,753 8,597 6,753	2004 HK$’000 8,929 23,557
		32,486

		8,929

During the year ended 31 March 2002, the Group entered into a conditional agreement to dispose of its entire investments in securities to a third party. In the opinion of directors, the carrying value of the investments in securities as at 31 March 2002 approximated its fair value at that date. However, the disposal agreement was cancelled during the ended 31 March 2003 and the investments in securities at 31 March 2003 were stated at their market value.

22. AMOUNT DUE FROM AN INVESTEE

The amount due from an investee of the Group is unsecured, interest-free and repayable on demand.

23. AMOUNTS DUE FROM/TO ULTIMATE HOLDING COMPANY, RELATED COMPANIES, DIRECTORS AND MINORITY SHAREHOLDERS OF SUBSIDIARIES

The amounts are unsecured, interest-free and repayable on demand.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER PAYABLES

The aged analysis of trade payables at the balance sheet dates is as follows:

Less than 3 months 3 to 6 months 6 to 12 months Over 1 year Other payables	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 4,667 668 696 904 1,331 355 2,908 509 9,602 2,436 37,047 13,887 46,649 16,323	2004 HK$’000 793 10 2 425
		1,230 14,798
		16,028

25. OBLIGATIONS UNDER A FINANCE LEASE

THE GROUP

The maturity of obligations under a finance lease is as follows: Within one year In the second to fifth year inclusive Less: Future finance charges Present value of lease obligations Less: Amount due within one year shown under current liabilities	Minimum lease payments As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 91 91 – 235 144 – 326 235 – (45) (32) – 281 203	Present value of minimum lease payments As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 78 78 – 203 125 – 281 203 – N/A N/A – 281 203 – (78) (78 – 203 125	Present value of minimum lease payments As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – 78 78 – 203 125 – 281 203 – N/A N/A – 281 203 – (78) (78 – 203 125
			203 N/A
			203 (78
			125

The lease term is 3 years and the interest rate was fixed at the contract date. The lease is on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The Group’s obligations under the finance lease are secured by the lessor’s charge over the leased asset.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. BANK BORROWINGS

Secured Unsecured The maturity of the bank borrowings is as follows: On demand or within one year More than one year, but not exceeding two years Less: Amount due within one year shown under current liabilities	THE GROUP As at 31 March 2002 2003 HK$’000 HK$’000 51,651 70,015 22,440 7,088 74,091 77,103 74,091 27,484 – 49,619 74,091 77,103 (74,091)* (27,484) – 49,619	2004 HK$’000 60,968 42,403
		103,371

		78,037 25,334
		103,371 (78,037)
		25,334

At 31 March 2002, included in the amount was HK$19,316,000 which was originally due for repayment after more than one year. As events of default had arisen under the loan agreement, the loan had become repayable on demand and the referent loan was fully repaid during the year ended 31 March 2003.

At 31 March 2002, unsecured loans of HK$7,200,000 were guaranteed by minority shareholders of a subsidiary.

The secured bank loans were secured by certain leasehold land and buildings, investment properties and plant and machinery of the Group (note 35).

On 8 July 2004, the Group had entered into an agreement with a bank to renew its short term unsecured bank borrowings amounting to approximately HK$28 million for a period of one year.

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. SHARE CAPITAL

Number of shares Note Shares of HK$0.01 each Authorised: On date of incorporation and balance at 31 March 2002 (a) 10,000,000 Increase in authorised share capital (b) 7,990,000,000 At 31 March 2003 and 31 March 2004 8,000,000,000 Issued and fully paid: Initial share capital on date of incorporation and balance at 31 March 2002 (a) 10,000,000 Issue of shares pursuant to the Group Reorganisation (c)(i) 1,854,050,000 Issue of shares pursuant to share subscription (c)(ii) 2,672,515,000 At 31 March 2003 and 31 March 2004 4,536,565,000	Amount HK$’000 100 79,900
	80,000

	100 18,540 26,725
	45,365

The amount shown in the consolidated balance sheet as at 31 March 2002 represented the issued share capital of Dransfield, the former ultimate holding company of the Group, divided into 1,830,650,000 shares of HK$0.10 each.

Details of changes in the authorised and issued share capital of the Company for the period from 5 March 2002 (date of incorporation) to 31 March 2003 are as follows:

(a) The Company was incorporated on 5 March 2002 with an authorised share capital of HK$100,000 divided into 10,000,000 shares of HK$0.01 each, all of which were allotted and issued at par on 5 March 2002.

(b) Pursuant to a written resolution of the sole shareholder of the Company passed on 21 June 2002, the authorised share capital of the Company was increased by HK$79,900,000 by the creation of an additional 7,990,000,000 shares of HK$0.01 each.

(i) the Company allotted and issued 1,854,050,000 new shares of HK$0.01 each credited as fully paid in consideration for the acquisition of the entire issued share capital of Dransfield. Dransfield then became a wholly owned subsidiary of the Company and the Company became the holding company of the companies now comprising the Group; and

(ii) pursuant to a subscription agreement dated 8 January 2002, the Company issued 2,500,000,000 and 172,515,000 new shares of HK$0.01 each in the Company at HK$0.02 per share to DiChain Holdings Limited and Farsight Holdings Limited, respectively. The proceeds from the shares issued were used to discharge part of the Group’s outstanding indebtedness and used as general working capital of the Group.

All the shares issued during each of the two years ended 31 March 2003 ranked pari passu with the then existing shares in all respects.

There were no charges in the share capital for the year ended 31 March 2004.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. WARRANTS

Pursuant to the Scheme which became effective on 26 August 2002, the Company issued 901,533,000 warrants and each warrant carries the right to subscribe in cash for one share in the Company, credited as fully paid, at a subscription price of HK$0.023 each.

The warrants can be exercised at any time during the two years from the date of issue of the warrants up to and including 25 August 2004. No warrants were exercised during each of the two years ended 31 March 2004. Exercise in full of such warrants would result in the issue of 901,533,000 shares of HK$0.01 each.

29. RESERVES

THE COMPANY Contributed surplus arising from the Group Reorganisation Issue of shares pursuant to the share subscription Net loss for the period At 31 March 2003 Net loss for the year At 31 March 2004	Share premium HK$’000 – 26,725 – 26,725 – 26,725	Contributed Accumulated surplus losses HK$’000 HK$’000 45,348 – – – – (58,832) 45,348 (58,832) – (1,019) 45,348 (59,851)	Total HK$’000 45,348 26,725 (58,832)
			13,241 (1,019)
			12,222

The contributed surplus of the Company represents the excess of the fair value of the shares of the subsidiary acquired pursuant to the Group Reorganisation, over the nominal value of the Company’s shares issued in exchange thereof. Under the Companies Act 1981 of Bermuda, the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or

(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium.

In the opinion of the directors, at 31 March 2003 and 2004, the Company did not have any reserves available for distribution to shareholders.

THE GROUP

The capital reserve of the Group mainly represented the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the group reorganisations on 29 October 1992 and 26 August 2002 and the nominal value of the Company’s shares and Dransfield’s shares issued in exchange thereof respectively.

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. DEFERRED TAX

The following are the major deferred tax liabilities and assets recognised and movements thereon during the current and prior years:

THE GROUP At 1 April 2001 Credit to income statement for the year At 31 March 2002 (Charge) credit to income statement for the year At 31 March 2003 (Charge) credit to income statement for the year Change in tax rate At 31 March 2004	Accelerated tax depreciation HK$’000 (300) 262 (38) (34) (72) (5) (7) (84)	Tax losses HK$’000 – 38 38 34 72 5 7 84	Total HK$’000 (300) 300
			– –
			– – –
			–

At 31 March 2002, 2003 and 2004, the Group had unused tax losses of approximately HK$128,463,000, HK$141,166,000 and HK$119,909,000, respectively, available for offset against future profits. A deferred tax asset has been recognised in respect of approximately HK$253,000, HK$450,000 and HK$480,000 of such losses, respectively as at 31 March 2002, 2003 and 2004. No deferred tax asset has been recognised in respect of the remaining HK$128,210,000, HK$140,716,000 and HK$119,429,000 due to the unpredictability of future profit streams. Included in the unrecognised tax losses are losses of approximately HK$65,993,000, HK$74,044,000 and HK$40,403,000 that will expire before year 2007, 2008 and 2009, respectively as at 31 March 2002, 2003 and 2004. Other tax losses may be carried forward indefinitely.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. DISPOSAL OF SUBSIDIARIES

Net assets disposed of: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Bank borrowings Taxation payable Minority interests Capital reserve realised Goodwill reserve realised Translation reserve realised Gain (loss) on disposal of subsidiaries Total consideration Satisfied by: Cash Waiver of other payables Analysis of net cash inflow (outflow) in respect of the disposal of subsidiaries: Cash consideration received Bank balances and cash disposed of	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 157 10,159 18,737 – 2,947 1,488 5,485 1,889 10,460 16,222 304 634 (7,689) (12,416) (3,390) – – (16,490) (6,905) – – (6,879) – (4,253) 391 2,883 7,186 – – 1,450 – (11,268) (721) – (492) (1,232) 391 (8,877) 6,683 839 8,877 (3,813) 1,230 – 2,870 1,230 – 1,370 – – 1,500 1,230 – 2,870 1,230 – 1,370 (16,222) (304) (634) (14,992) (304) 736	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 157 10,159 18,737 – 2,947 1,488 5,485 1,889 10,460 16,222 304 634 (7,689) (12,416) (3,390) – – (16,490) (6,905) – – (6,879) – (4,253) 391 2,883 7,186 – – 1,450 – (11,268) (721) – (492) (1,232) 391 (8,877) 6,683 839 8,877 (3,813) 1,230 – 2,870 1,230 – 1,370 – – 1,500 1,230 – 2,870 1,230 – 1,370 (16,222) (304) (634) (14,992) (304) 736
		7,186 1,450 (721) (1,232)
		6,683 (3,813)
		2,870

		1,370 1,500
		2,870

		1,370 (634)
		736

As explained in note 6, the Group discontinued certain of its businesses at the time of disposal of certain subsidiaries. The operating results of these discontinued operations are disclosed in note 4.

The subsidiaries disposed of during the Relevant Periods did not have a significant impact on the Group’s turnover and operating results for the Relevant Periods.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 March 2003:

(a) the Group entered into a finance lease arrangement in respect of a motor vehicle with a total capital value at the inception of the lease of HK$314,000; and

(b) the proceeds on settlement of a loan to a minority shareholder of a subsidiary amounting to HK$7,630,000 were set off against a loan from a minority shareholder of a subsidiary and the consideration for the acquisition of the remaining 20% of the issued share capital of a subsidiary, Dransfield Broadsino Food and Beverage Limited, by the Group from the minority shareholder. No goodwill arose as a result of the acquisition of this additional interest.

During the year ended 31 March 2004:

(a) the Group entered into a settlement agreement with an investee, in which the investee settled an amount due to the Group amounting to HK$5,745,000 by the issue of additional shares of the investee to the Group with fair value of the same amount; and

(b) the Group reclassified an amount due to a jointly controlled entity of HK$716,000 to other payables upon disposal of the jointly controlled entity.

33. OPERATING LEASE ARRANGEMENTS

The Group as lessee

Minimum lease payments paid under operating leases during the year in respect of premises	THE GROUP Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 511 1,003 979

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

Within one year In the second to fifth year inclusive	THE GROUP As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 4 1,077 216 – 222 – 4 1,299 216	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 198 – – – – – 198	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 198 – – – – – 198
			198

Operating lease payments represent rentals payable by the Group for certain of its office premises and warehouse. Leases are negotiated for an average term of one year and rentals are fixed over the lease terms.

The Group as lessor

Rental income earned during each of the two years ended 31 March 2002 and 2003, net of outgoings, was approximately HK$5,914,000 and HK$237,000, respectively. There were no committed tenants at each of the balance sheet dates.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. CAPITAL COMMITMENTS

Capital expenditure contracted but not provided for in the financial statements in respect of – acquisition of additional interest in an associate – acquisition of property, plant and equipment – investment projects	THE GROUP As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 1,362 – 24 132 – 1,229 – – 1,253 1,494	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – – – – – – 1,229 – – 1,229 –	THE COMPANY As at 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – – – – – – 1,229 – – 1,229 –
			–

35. PLEDGE OF ASSETS

At 31 March 2002, 2003 and 2004, certain of the Group’s investment properties of HK$700,000, HK$700,000 and HK$700,000, respectively, and leasehold land and buildings with an aggregate carrying value of HK$100,000,000, HK$113,041,000 and HK$109,863,000, respectively, were pledged to banks to secure loan facilities granted to the Group.

At 31 March 2002 and 2003, certain of the Group’s plant and machinery and equipment with an aggregate carrying value of HK$29,309,000 and HK$16,906,000, respectively, were also pledged to a bank to secure loan facilities granted to the Group.

At 31 March 2002, the Company’s indirect interests in two wholly-owned subsidiaries. Good Value Holdings Limited and Well Assessed Limited, were also pledged to a bank to secure loan facilities granted to the Group.

36. CONTINGENT LIABILITIES

At 31 March 2002, 2003 and 2004, the Company had given guarantees of approximately HK$125,329,000, HK$56,700,000 and HK$98,945,000, respectively, to banks in respect of banking facilities granted to a subsidiary. The extent of such facilities utilised by the subsidiary at 31 March 2002, 2003 and 2004 amounted to approximately HK$57,291,000, HK$56,130,000 and HK$98,940,000, respectively.

37. SHARE OPTIONS SCHEMES

(a) Share option scheme of the Company

Pursuant to a written resolution of the sole shareholder passed on 21 June 2002, the Company’s share option scheme (the “CM DiChain Scheme”) was set up for the primary purpose of providing incentives to directors and eligible employees, and will expire on 20 June 2012. Under the CM DiChain Scheme, the directors of the Company may grant options to eligible employees, including directors of the Company and its subsidiaries, to subscribe for shares in the Company.

The total number of shares in respect of which options may be granted under the CM DiChain Scheme is not permitted to exceed 30% of the issued share capital of the Company from time to time, without prior approval from shareholders of the Company. The number of shares in respect of which options may be granted to any individual in any one year is not permitted to exceed 1% of the Company’s issued share capital or with a value in excess of HK$5 million, otherwise it must be approved by the shareholders of the Company.

Options granted must be taken up within 21 days from the date of grant, upon payment of HK$1 per option. Options may be exercised at any time from 12 months from the date of acceptance of the offer to the tenth anniversary of the date of grant. The exercise price is determined by the directors of the Company, and shall not be less than the higher of the closing price of the Company’s shares on the date of grant, the average closing price of the shares for the five business days immediately preceding the date of grant and the nominal value of the shares of the Company. The vesting period is 12 months from the date of grant.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. SHARE OPTIONS SCHEMES – continued

(a) Share option scheme of the Company – continued

The following table discloses the total entitlement of the employees (including directors) of the Company under the CM DiChain Scheme and movements in such holdings during the year ended 31 March 2004:

Number of share options of the Company	Number of share options of the Company	Number of share options of the Company	Number of share options of the Company
Outstanding at 1.4.2003 – – – – – – – – – – – –	Granted during the year 45,000,000 20,000,000 25,000,000 7,500,000 10,000,000 5,000,000 1,500,000 1,500,000 1,500,000	Exercised during the year – – – – – – – – – – – –	Outstanding at 31.3.2004 45,000,000 20,000,000 25,000,000 7,500,000 10,000,000 5,000,000 1,500,000 1,500,000 1,500,000
	117,000,000 32,500,000		117,000,000 32,500,000
	149,500,000		149,500,000

Total consideration received during the year ended 31 March 2004 for options granted was HK$17.

There were no options granted under the CM DiChain Scheme during the year ended 31 March 2003 or outstanding at 31 March 2003.

(b) Share option scheme of Dransfield

Pursuant to Dransfield’s share option scheme (the “Dransfield Scheme”) adopted on 3 April 1993, the directors and employees of that company may, at the discretion of Dransfield’s directors, be granted options to subscribe for shares in Dransfield for the primary purpose of providing incentives to directors and eligible employees. The Dransfield Scheme was cancelled on 26 August 2002.

Options granted must be taken up within 28 days from the date of grant, upon payment of HK$10 per option. Options may be exercised at any time from 12 months from the date of acceptance of the offer to the third anniversary of the date of acceptance. The exercise price was determined by the directors of Dransfield. The vesting period was 12 months from the date of grant.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. SHARE OPTIONS SCHEMES – continued

(b) Share option scheme of Dransfield – continued

The following table discloses the total entitlement of the employees (including directors) of the Company under the Dransfield Scheme and movements in such holdings during the year ended 31 March 2002:

Number of share options of the Dransfield	Number of share options of the Dransfield	Number of share options of the Dransfield
Exercised during the year – – (5,500,000 ) – – – (5,500,000 ) (5,500,000 )	Lapsed during the year – (2,000,000 ) (19,000,000 ) – (2,400,000 ) (975,000 ) (24,375,000 ) (24,375,000 )	Outstanding at 31.3.2002 2,000,000
		50,000 9,000,000 12,350,000 – –
		21,400,000
		23,400,000

The weighted average closing price of Dransfield’s shares immediately before and on the dates on which the options were exercised during the year ended 31 March 2002 was HK$0.14.

Number of share options of the Dransfield	Number of share options of the Dransfield	Number of share options of the Dransfield
Granted during the year – – – – – –	Exercised during the year (2,000,000 ) (50,000 ) (9,000,000 ) (12,350,000 ) (21,400,000 ) (23,400,000 )	Outstanding at 31.3.2003 and 31.3.2004 –
		– – –
		–
		–

The weighted average closing price of Dransfield’s shares immediately before the dates on which the options were exercised during the year ended 31 March 2003 was HK$0.28.

The financial impact of share options granted is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recognised in the income statement in respect of the value of options granted in the year. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. RETIREMENT BENEFITS SCHEMES

The Group operates a Mandatory Provident Fund Scheme for all its qualifying employees in Hong Kong. The assets of the scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes 5% of relevant payroll costs to the scheme, which is matched by employees. At the balance sheet dates, there is no forfeited contribution for the reduction in contributions payable in the future years.

Employees of subsidiaries in the PRC are members of a state-managed retirement benefits scheme operated by the relevant local government authorities in the PRC. The Group is required to contribute 8% to 23.5% of payroll costs to retirement benefits scheme to fund the benefits.

The only obligation of the Group with respect to the Mandatory Provident Fund Scheme and the retirement benefits scheme is to make the specified contributions.

39. RELATED PARTY TRANSACTIONS

During the Relevant Periods, the Group had the following transactions with related parties:

Name of related party Interested person(s)(Note) Nature of transaction KPFF Holdings Limited Cyril Fung Hing Chiu Servicing income Group companies under Horace Yao Yee Cheong Logistics income an investee and Thomas John Kenan Management fee income	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 11 – – 362 – – – – 2,200

Other than the above, at 31 March 2002, the Group also had a loan from a minority shareholder of HK$7,630,000, details of which are disclosed in note 17. The loan invested by the minority shareholder to the related subsidiary was made in the proportion of its interest in the subsidiary.

These transactions were carried out at terms determined and agreed by the relevant parties.

Note: They were former directors of Dransfield.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. SUBSEQUENT EVENTS

In August 2004, the Group entered into various agreements to dispose of its 35% interest in SEG Scientific (note 15) and to transfer the interest on the proposed acquisition of the additional 17.6% equity interest in SEG Scientific (note 16). As at the date of this report, the disposal and transfer are subject to approval by shareholders of the Company in a general meeting.

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 31 March 2004.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. MANAGEMENT DISCUSSION AND ANALYSIS

Performance of operating divisions

Bonded warehouse

Management has put much effort to improve the operation in increasing customers, widening and improving efficiency of our logistics and other related services and keeping tighter credit control. The turnover of this operation increased approximately 100% compared to that of the previous year and it has become a profitable operation for the Group. The bonded warehouse in Futian, the PRC, contributed a substantial increase to the Group’s revenue during the year. With continued efforts of Management, the Company will increase quality clients for the coming year with an increasing contribution to the Group. During the year Management secured multi-national corporation clients like Procter & Gamble and LG (Korea).

Home appliances sales

This operation is comparatively small scale and sustained a decline of revenue and incurred a small loss due to the outbreak of SARS in the second quarter of 2003. In light of the recent gradual recovery of local economy, Management has deferred a decision as to whether this operation should be discontinued.

Discontinued operations

During the year, the Group has disposed of two subsidiaries, Dransfield Food and Beverage Limited (“DFB”) for a consideration of HK$450,000 and Shenyang Dransfield Industrial Development Ltd (“SDID”) for a consideration of HK$1,500,000.

DFB was principally engaged in the trading of food and beverage products in Hong Kong by vending machines. The disposal was completed in July 2003.

SDID was principally engaged in the production and distribution of edible oil in the PRC. The disposal was completed in March 2004.

Wuxi Dransfield Broadsino Beverage Co., Ltd (“Yixing Brewery”)

Yixing Brewery was a jointly controlled entity and, after further acquiring the remaining 40% equity interest in Yixing Brewery in July 2003, Management successfully obtained a substantial amount of compensation from the Yixing government for plant relocation. Management considered that the operation is not the core business of the Group and it was disposed of in March 2004. As a result, the Group’s gain arising on disposal was approximately HK$2 million.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

DF China Technology Inc. (“DFCT”)

On 30 April 2003, the Company, together with some other shareholders of DFCT, a corporation at present listed on the OTC Bulletin Board in the US, holding in aggregate in excess of 50% of DFCT’s voting rights, resolved to change certain directors on that company’s board and Dr. Fan Di was appointed Chairman and Chief Executive Officer of DFCT. The Company then realized part of its investment in DFCT and generated a gain of HK$16 million.

At 31 March 2004, the Company owned 2.2% in DFCT. Due to restructuring of DFCT in a merger involving the issue of new capital in DFCT on 25 May 2004, the holding of this investment of the Company in DFCT was diluted to approximately 0.4%. Management will realize this remaining holding when the market price of DFCT is appropriate.

Shenzhen SEG Scientific Navigations Company Limited (“SEG Scientific”)

On 5 December 2003, a wholly-owned subsidiary of the Company subscribed for 21 million shares in SEG Scientific, representing 35% of the enlarged share capital of SEG Scientific, for a cash consideration of HK$26.75 million. The subscription was completed in December 2003.

On 4 and 5 February 2004, the wholly-owned subsidiary of the Company further entered into agreements with certain shareholders of SEG Scientific to acquire an additional 17.6% equity interest in SEG Scientific for a consideration of HK$13.6 million. Completion is subject to the fulfillment of certain conditions of the agreement on or before 31 March 2005, otherwise it will lapse.

SEG Scientific is a joint stock company incorporated in the PRC and is engaged in the manufacturing of automatic vehicle locator of global positioning system in the PRC and the provision of global positioning system vehicle tracking and monitoring services in the Southern China region.

Business development

Looking ahead, we shall continue to focus our efforts in the logistics business to achieve expansion by horizontal expansion, vertical integration and joint venture opportunities.

We anticipate the coming year will provide exciting opportunities for us as supported by the encouraging global economic growth and expect to see a continuing improvement in our logistics business performance. We shall also continue to look for possible co-operations, mergers and acquisitions in the PRC as and when opportunities arise.

Results

For the year ended 31 March 2004, the company has recorded a turnover of HK$27.77 million (2003: 36.34 million) and a net profit for the year of HK$14.26 million (2003: HK$13.45 million). The decrease in turnover compared with the previous year was due to the discontinued edible oil and vending machine businesses. Return on average capital employed for the year was 4% as compared to 5% for fiscal 2003. Return on average equity for the year is 13% as compared to 17% for fiscal 2003.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The profit was mainly attributable to the realisation of part of the Company’s investment in DFCT together with the revaluation, to market value, of the remaining holding in that company.

Revenue

During the year, the Group disposed of two non-core businesses established by Dransfield Holding Limited. They were engaged in the production and distribution of edible oil, and the trading of food and beverage products. The remaining continuing operations reported total revenues increased by 39% to HK$17 million (2003: HK$12 million.)

By segment, revenue for the logistics operation increased by 100% to HK$14 million (2003: HK$7 million) whilst the distribution of household appliances operation decreased by 36% to HK$3 million (2003: HK$5 million). The utilisation level of the Futian bonded warehouse continued to rise from only 40% in March 2003 to 75% in March 2004. Excluding the revaluation gain of the warehouse reported in last fiscal year, the logistics operation had a promising increase in operating result from the loss of HK$3 million in fiscal 2003 to a gain of HK$1 million in fiscal 2004.

Owing to the outbreak of SARS, the electronic household appliances distribution recorded a reduction in revenue and operating result in fiscal 2004.

Profit for the year

The Group realised part of its investment in DFCT, a legacy of Dransfield Holdings Ltd. Together with the revaluation of the remaining holding in that company to market value at 31 March 2004, it generated a gain of HK$23 million. On the other hand, the Group also disposed of a jointly controlled entity, another non-core operation engaged in the manufacture of beverage products. Having received local government’s compensation for plant relocation, the Group’s gain arising on disposal was approximately HK$2 million.

The net loss on disposal of all non-core operations as stated above totalled HK$2 million. The Group has no substantial non-core business remaining and Management can fully focus on core businesses.

Liquidity and financial resources

At 31 March 2004, the Group’s bank borrowings totalled HK$103 million (2003: HK$77 million), HK$78 million (2003: HK$27 million) of which were due within one year. Recently Management has successfully renegotiated a bank loan repayment of HK$28 million by one more year. This will alleviate short-term cash flow pressure. Taking into account of this HK$28 million as a long-term loan, adjusted current liabilities at the close of fiscal 2004 amounted to HK$71 million.

The Group’s quick ratio lowered to 1.1 times (adjusted to exclude the reclassified bank loan of HK$28 million as mentioned above) (2003: 1.2 times) – being current assets minus stock over current liabilities – as a result of the increase of bank borrowings and the acquisition of SEG Scientific. The Group gearing ratio was 46% (2003:41%), expressed as a percentage of total bank borrowings to the sum of shareholders’ funds, minority interest and bank borrowings.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees

At 31 March 2004, the Group had a total 81 employees, 59 of whom were employed in the Chinese mainland and 22 were employed in Hong Kong. The Group provides competitive remuneration packages to employees commensurate with the level and market trend of pay in the business sector in which the Group operates, including insurance and medical cover, mandatory provident fund schemes and share options schemes. Other employee benefits include mean and travelling allowance and discretionary bonuses.

Share option scheme

The Company adopted a share option scheme on 21 June 2002, which enables the Company to grant share options to eligible persons as an incentive or reward for their contribution to the Group. The terms of the new share option scheme fully comply with the provisions of Chapter 17 of the Listing Rules. 149,500,000 options had been granted under the option scheme during the year.

Strategies and prospects

In light of the fast expanding logistics industry in the PRC and the encouraging performance of our logistics business, we will seek to further improve the utilisation of our Futian bonded warehouse and generally expand our logistics operations.

We will also look for possible co-operations, mergers and acquisitions in the Mainland when appropriate opportunities arise and are confident that the Company will further improve performance and returns for our shareholders.

C. INDEBTEDNESS

At the close of business on 31 July 2004 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Group had outstanding bank borrowings of approximately HK$103,371,000 (of which approximately HK$60,968,000 was secured by charges over certain of the Group’s leasehold land and buildings and investment properties). In addition, the Group had outstanding at that date obligations under a finance lease of approximately HK$176,000, amounts due to related companies of approximately HK$2,426,000 and amounts due to minority shareholders of subsidiaries of approximately HK$1,813,000. The amounts due to related companies and minority shareholders of subsidiaries are unsecured, interest-free and repayable on demand.

In addition, as at 31 July 2004, the Group had contingent liabilities in respect of the litigation as set out under the section headed “Litigation” in Appendix III to this circular.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital and overdraft or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities as at the close of business on 31 July 2004.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate exchange rates prevailing at the close of business on 31 July 2004.

D. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the internal resources available to the Group and the estimated proceeds from the disposal of SEG Scientific, the Group will have sufficient working capital for its present requirements.

E. MATERIAL CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group as 31 March 2004, the date of which the latest audited financial statements of the Group were made up.

– 62 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

A. PRO FORMA FINANCIAL STATEMENTS

I. Pro forma consolidated income statement

The following is the pro forma consolidated income statement of the Group excluding interest in SEG Scientific (the “Remaining Group”) assuming that the Group’s 35% interest in SEG Scientific had been disposed of at the commencement of the year ended 31 March 2004 at the price of RMB1.35 (equivalent to about HK$1.27) per SEG Scientific share. The pro forma consolidated income statement was prepared based on the audited consolidated income statement of the Group for the year ended 31 March 2004 as set out in the accountants’ report on the Group in Appendix I to this circular.

The pro forma consolidated income statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the results of the Group for any future financial periods.

Turnover Cost of sales Gross profit Other operating income Selling expenses Administrative expenses Gain on disposal of investments in securities Unrealised holding gain on investments in securities Reversal of allowance for amount due from an investee Waiver of other payables Allowance for doubtful debts Profit from operations Interest on bank borrowing wholly repayable within five years Finance lease charges Gain on disposal of interests in subsidiaries Loss on disposal of discontinued operations Gain on disposal of interest in a jointly controlled entity Share of results of an associate Share of results of a jointly controlled entity Profit before taxation Taxation Profit before minority interests Minority interests Net profit for the year	Pro forma 2004 adjustments HK$’000 HK$’000 Notes 27,769 (18,867) 8,902 5,423 (1,082) (26,346) 16,208 7,027 6,671 684 (4,077) 13,410 (6,274) (13) 816 (4,629) 2,033 (326) 326 1 6,441 11,458 326 11,784 2,478 14,262	Adjusted balances HK$’000 27,769 (18,867) 8,902 5,423 (1,082) (26,346) 16,208 7,027 6,671 684 (4,077) 13,410 (6,274) (13) 816 (4,629) 2,033 – 6,441 11,784 326 12,110 2,478 14,588

– 63 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

II. Pro forma consolidated balance sheet

The following is the pro forma consolidated balance sheet of the Remaining Group assuming the Group’s 35% interest in SEG Scientific had been disposed of as at 31 March 2004 at the price of RMB1.35 (equivalent to about HK$1.27) per SEG Scientific share. The pro forma consolidated balance sheet was prepared based on the audited consolidated balance sheet of the Group as at 31 March 2004 as set out in the accountants’ report on the Group in Appendix I to this circular.

The pro forma consolidated balance sheet was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Group at any future date.

Pro forma 2004 adjustments HK$’000 HK$’000 Notes Non-current assets Investment properties 700 Property, plant and equipment 124,703 Interest in an associate 26,388 (26,388) 2 Deposit paid for acquisition of additional interest in an associate 12,613 (12,613) 3 164,404 Current assets Inventories 168 Trade and other receivables 6,408 Loans receivable 10,500 Investments in securities 32,486 Amount due from an investee 3,881 Amount due from ultimate holding company 23 Bank balances and cash 25,365 39,950 4 78,831 Current liabilities Trade and other payables 16,028 1,362 5 Amounts due to related companies 2,426 Amount due to a minority shareholder of a subsidiary 1,813 Tax payable 205 Obligations under a finance lease – due within one year 78 Bank borrowings – due within one year 78,037 98,587 Net current (liabilities) assets (19,756) Total assets less current liabilities 144,648 Non-current liabilities Obligations under a finance lease – due after one year 125 Bank borrowings – due after one year 25,334 25,459 Net assets 119,189 Shareholders’ funds 119,189 (413) 1	Adjusted balances HK$’000 700 124,703 – –
	125,403
	168 6,408 10,500 32,486 3,881 23 65,315
	118,781
	17,390 2,426 1,813 205 78 78,037
	99,949
	18,832
	144,235
	125 25,334
	25,459
	118,776

	118,776

– 64 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

III. Pro forma consolidated cash flow statement

The following is the pro forma consolidated cash flow statement of the Remaining Group assuming that the Group’s 35% interest in SEG Scientific had been disposed of at the commencement of the year ended 31 March 2004 at the price of RMB1.35 (equivalent to about HK$1.27) per SEG Scientific share. The pro forma consolidated cash flow statement was prepared based on the audited consolidated cash flow statement of the Group for the year ended 31 March 2004 as set out in the accountants’ report on the Group in Appendix I to this circular.

The pro forma consolidated cash flow statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the cash flows of the Group for any future financial periods.

Pro forma
2004
adjustments
HK$’000
HK$’000
Notes
OPERATING ACTIVITIES
Profit from operations
13,410
Adjustments for:
Bank interest income
(227)
Interest from loans receivable
(344)
Interest from debt securities
(1,357)
Depreciation and amortisation of
properly, plant and equipment
5,588
Waiver of other payables
(684)
Allowances for doubtful debts
4,077
Reversal of allowance for amount
due from an investee
(6,671)
Unrealised holding gain on investments
in securities
(7,027)
Gain on disposal of investments in securities
(16,208)
Loss on disposal of property,
plant and equipment
7
Loss on disposal of investment properties
416
Operating cash flows before movements
in working capital
(9,020)
Decrease in inventories
920
Increase in trade and other receivables
(5,879)
Increase in trade and other payables
4,563
1,362
5
Increase in amount due from an investee
(2,955)
Net cash used in operations
(12,371)
Interest received from banks
227
Tax paid
(988)
Tax refunded
531
NET CASH USED IN OPERATING
ACTIVITIES
(12,601)

Adjusted
balances
HK$’000
13,410
(227)
(344)
(1,357)
5,588
(684)
4,077
(6,671)
(7,027)
(16,208)
7
416
(9,020)
920
(5,879)
5,925
(2,955)
(11,009)
227
(988)
531
(11,239)

– 65 –

APPENDIX II

PRO FORMA FINANCIAL STATEMENTS

INVESTING ACTIVITIES Acquisition of interest in an associate Purchases of investments in securities Deposit paid on acquisition of additional interest in an associate New loans receivable Purchases of property, plant and equipment Advance to a minority shareholder of a subsidiary Proceeds on disposal of investments in securities Proceeds from disposal of interest in a jointly controlled entity Proceeds from disposal of investment properties Interest received from debt securities Net cash inflow on disposal of subsidiaries Interest received from loans receivable NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES New bank loans raised Advance from related companies Repayment of bank loans Interest and finance lease charges paid Repayment to ultimate holding company Repayment of obligations under a finance lease NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, representing bank balances and cash	Pro forma 2004 adjustments HK$’000 HK$’000 Notes (26,714) 26,714 2 (25,948) (12,613) 12,613 3 (10,500) (2,810) (55) 29,195 9,609 2,211 1,357 736 344 (35,188) 89,601 111 (46,634) (6,287) (94) (78) 36,619 (11,170) 36,439 (739) 6 96 25,365	Adjusted balances HK$’000 – (25,948) – (10,500) (2,810) (55) 29,195 9,609 2,211 1,357 736 344 4,139 89,601 111 (46,634) (6,287) (94) (78) 36,619 29,519 35,700 96 65,315

– 66 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

IV. Notes to pro forma financial information

The adjustment reflects the reduction of share of results of SEG Scientific as a result of the disposal of the Group’s interest in SEG Scientific.
The adjustment represents the disposal of the Group’s 35% interest in SEG Scientific.
The adjustment reflects the transfer of the Group’s interest in the proposed acquisition of 17.6% in SEG Scientific amounted to HK$12,245,000 and the write-off of professional fees paid of HK$368,000.
The adjustment represents the cash proceeds (before expenses) generated from the disposal and the transfer of the Group’s interest in SEG Scientific of HK$26.75 million and HK$13.2 million respectively.
The adjustment reflects the outstanding payment on the acquisition of additional 17.6% interest in SEG Scientific.
The adjustment reflects the reduction in cash and cash equivalents as a result of the disposal and the transfer of the Group’s interest in SEG Scientific, being the difference between the total cash proceeds (before expenses) generated from the disposal and the transfer of the Group’s interest in SEG Scientific of HK$39,950,000 and the aggregate of acquisition cost of the Group’s 35% interest in SEC Scientific of HK$26,714,000, deposit and professional fees paid on the acquisition of 17.6% in SEG Scientific of HK$12,613,000 and the outstanding consideration payable of HK$1,362,000.

– 67 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

B. REPORT FROM DELOITTE TOUCHE TOHMATSU

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [70 x 54] intentionally omitted <==

==> picture [93 x 33] intentionally omitted <==

30 September 2004

The Directors

China Merchants DiChain (Asia) Limited

Dear Sirs,

We report on the pro forma financial information of China Merchants DiChain (Asia) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) (“Pro forma Financial Information”) set out in Section A of Appendix II to the circular dated 30 September 2004 issued by the Company in connection with a very substantial disposal (the “Circular”), which has been prepared for illustrative purpose only to provide information about how the proposed disposal might have affected the financial information presented.

RESPONSIBILITIES

It is the sole responsibility of the directors of the Company to prepare the Pro forma Financial Information in accordance with Rule 14.68(2)(a)(ii) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

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

BASIS OF OPINION

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

– 68 –

PRO FORMA FINANCIAL STATEMENTS

APPENDIX II

Because the above work does not constitute an audit or a review performed in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, we do not express any such assurance on the Pro forma Financial Information.

The Pro forma Financial Information has been prepared in accordance with the basis set out in Section A of Appendix II to the Circular for illustrative purpose only and, because of its nature, it may not give an indicative financial position of the Group as at 31 March 2004 or at any future date or the results and cash flows of the Group for the year then ended or any future period.

OPINION

In our opinion:

a. the Pro forma Financial Information has been properly compiled on the basis set out in Section A of Appendix II to the Circular;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Pro forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

DELOITTE TOUCHE TOHMATSU Certified Public Accountants Hong Kong

– 69 –

GENERAL INFORMATION

APPENDIX III

A. RESPONSIBILITY

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.

B. DIRECTORS’ INTERESTS IN SECURITIES

As at the Latest Practicable Date, the interests (including short positions) of the Directors (including their respective spouses, infant children, related trusts and companies controlled by them) in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company and its associated corporations (within the meaning of the SFO), which require notification pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short position in which any such director is taken or deemed to have under such provisions of the SFO) or which were required to be entered in the register kept 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 Model Code for Securities Transactions by Directors of Listing Companies in the Listing Rules, were as follows:

Long positions in Shares:

Name of Director Capacity Fan Di Held by controlled corporation_(Note 1) Robert Fung Hing Piu Beneficial owner Held by trust(Note 2)_ Iain Ferguson Bruce Beneficial owner Barry John Buttifant Beneficial owner	Number of Shares 3,352,553,083 72,795,437 63,604,530 136,399,967 1,000,000 1,000,000	Percentage of issued share capital 61.65% 1.34% 1.17%
		2.51% 0.02% 0.02%

Notes:

243,854,189 Shares are held by Farsight Holdings Limited (“Farsight”) and 3,108,698,894 Shares are held by DiChain Holdings Limited (“DiChain Holdings). Dr. Fan is beneficially interested in 38.57% of the voting shares of Farsight and is deemed to be interested in 40.96% of the voting shares of DiChain Holdings and Dr. Fan therefore is deemed to have an interest in these Shares.
Mr. Fung is deemed to be interested in 63,604,530 Shares as he is one of the trustees of Sir Kenneth Fung Ping Fan Foundation Trust I, a charitable foundation.

– 70 –

GENERAL INFORMATION

APPENDIX III

Rights to acquire Shares:

Pursuant to the share option scheme of the Company adopted on 21 June 2002, certain Directors were granted share options to subscribe for Shares, details of which as at the Latest practicable Date were as follows:

			Number of
		Number of	underlying
Name of directors	Capacity	share options	shares
Fan Di	Beneficial owner	67,000,000	67,000,000
Li Xinggui	Beneficial owner	23,000,000	23,000,000
Wu Shiyue	Beneficial owner	35,000,000	35,000,000
Zheng Yingsheng	Beneficial owner	10,500,000	10,500,000
Zhou Li Yang	Beneficial owner	15,500,000	15,500,000
Wang Shizhen	Beneficial owner	7,000,000	7,000,000
Robert Fung Hing Piu	Beneficial owner	3,500,000	3,500,000
Iain Ferguson Bruce	Beneficial owner	3,500,000	3,500,000
Barry John Buttifant	Beneficial owner	3,500,000	3,500,000

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in any equity or debt securities of the Company or any associated corporations (within the meaning 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 position in which any such director is taken or deemed to have under such provisions of the SFO) or which were required to be entered in the register kept by the Company pursuant to Section 352 of the SFO, to be entered in the registered referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

– 71 –

GENERAL INFORMATION

APPENDIX III

C. SHAREHOLDERS WITH NOTIFIABLE INTERESTS

As at the Latest Practicable Date, so far as is known to the Directors, the following persons had interests or short positions in the shares and underlying shares of the Company which are required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, 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 members of the Group:

Name of				Percentage of
substantial	Long/short		Number of	issued share
shareholder	position	Capacity	Shares	capital
Farsight_(Note)_	Long	Beneficial owner	243,854,189	4.48%
	Long	Interest in corporation	3,108,698,894	57.17%
DiChain Holdings	Long	Beneficial owner	3,108,698,894	57.17%

Note: Farsight is interested in more than one-third of the voting shares of DiChain Holdings and is therefore deemed to be interested in the 3,108,698,894 Shares beneficially owned by DiChain Holdings.

Save as disclosed above, so far as known to the Directors, as at the Latest Practicable Date, no person, 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 and Part XV of the SFO, and/or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any other member of the Group, or in any options in respect of such share capital.

D. DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or dispose of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 March 2004, the date to which the latest published audited financial statements of the Group were made up.

E. DIRECTORS’ INTERESTS IN CONTRACTS

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group.

F. SERVICE CONTRACTS

Each of Dr. Fan Di and Mr. Wu Shiyue has entered into a service agreement with the Company for an initial period of one year commencing 1 April 2003 and 28 August 2002 respectively, which will continue thereafter until terminated by either party by three months’ prior written notice. Under the

– 72 –

GENERAL INFORMATION

APPENDIX III

service contract of Dr. Fan Di, he is entitled to receive an annual executive compensation of HK$700,000 and a discretionary year-end bonus of an amount not exceeding 500% of his annual compensation and 25% of the net profits after of the Group as reflected in the audited consolidated financial statements of the Group. Mr. Wu Shiyue is entitled to receive an annual executive compensation of HK$420,000, an annual housing allowance of HK$56,000 and a discretionary year-end bonus of an amount not exceeding 300% of his annual compensation and 25% of the net profits after of the Group as reflected in the audited consolidated financial statements of the Group pursuant to his service contract.

Save as disclosed above, none of the Directors had service contract with any member of the Group which is not expiring or determinable within one year without payment of compensation (other than statutory compensation) as at the Latest Practicable Date.

G. LITIGATION

As at the Latest Practicable Date, the Group was involved in the following material litigation:

a. A former director of the Dransfield Holdings Limited (“Dransfield”), the former holding company of the Group prior to 26 August 2002 and currently a wholly-owned subsidiary of the Group, has claimed against Dransfield for damage resulted from that Dransfield has disallowed the former director to exercise the share options granted on 6 September 2001. The Company has sought to achieve compromise settlement. The directors of Dransfield, having taken legal advice, believe that the options granted is not a valid ones and no material losses to be arose from such proceedings.
b. A minority shareholder of Dransfield Food & Beverage Holdings Limited (“DFBH”), a nonwholly owned subsidiary of the Group, who was also a minority shareholder of DFBH, has claimed against Dransfield for breach of a shareholders’ agreement.

Save as disclosed above, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

H. MATERIAL CONTRACTS

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

(a) the subscription agreement entered into between Victorison, SEG and SEG Scientific on 5 December 2003, pursuant to which Victorison and SEG respectively agreed to subscribe for 21,000,000 and 6,000,000 million new shares in SEG Scientific at RMB1.35 (equivalent to about HK$1.27) each;
(b) the S&P Agreements entered into between Victorison and Su Zhou on 4 February 2004, and each of De Yi, Hua Ke and Jie Chuang on 5 February 2004, pursuant to which Victorison agreed to acquire an aggregate of 10,560,000 shares in SEG Scientific at a total consideration of RMB14,421,000 (equivalent to about HK$13,605,000);

– 73 –

GENERAL INFORMATION

APPENDIX III

(c) the Disposal Agreements; and
(d) the Transfer Agreements.

I. PROCEDURES FOR DEMANDING A POLL

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

(a) by the chairman of such meeting; or
(b) by 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
(c) by a Shareholder or Shareholders present in person (or in the case of a Member 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
(d) by a Shareholder or Shareholders present in person (or in the case of a Member 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.

J. QUALIFICATION OF EXPERT

The following is the qualification of the expert who has given opinions or advice which are contained in this circular:

Deloitte Touche Tohmatsu

Certified Public Accountants

As at the Latest Practicable Date, Deloitte Touche Tohmatsu was not interested beneficially in the securities of the Company or its subsidiaries and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any members of the Group.

As at the Latest Practicable Date, Deloitte Touche Tohmatsu did not have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to the Company or its subsidiaries or are proposed to be acquired or disposed of by or leased to the Company or its subsidiaries since 31 March 2004, being the date up to which the latest published audited consolidated accounts of the Company were made.

– 74 –

GENERAL INFORMATION

APPENDIX III

Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its reports and/or references to its name, in the form and context in which they respectively appear.

K. GENERAL

(i) The company secretary of the Company is Mr. Kwok Yam Sheung. Mr. Kwok is a fellow member of the Institute of Chartered Secretaries and Administrators in the United Kingdom and a fellow member of the Hong Kong Institute of Company Secretaries.
(ii) The qualified accountant of the Company is Mr. Wilson Tong Wan Sze. Mr. Tong is a fellow of the Association of Chartered Certified Accountants and an associate of the Hong Kong Society of Accountants.
(iii) The principal share registrar and transfer office of the Company is Codan Services Limited at 2 Church Street, Hamilton HM 11, Bermuda.
(iv) The branch share registrar and transfer office of the Company is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong.
(v) The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese text in case of any inconsistency.

L. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal office at Units 3207-08, 32/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong from the date of this circular up to and including the date of the SGM.

(i) the memorandum of association and bye-laws of the Company;
(ii) the service contracts referred to in paragraph F above;
(iii) the material contracts referred to in paragraph H above;
(iv) the accountants’ report of the Group, the text of which is set out in appendix I to this circular;
(v) the letter from Deloitte Touche Tohmatsu in respect of the pro forma financial information of the Group as set out in Appendix II to this circular; and
(vi) the letter of consent from Deloitte Touche Tohmatsu referred to in paragraph J above.

– 75 –

NOTICE OF SGM

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 632)

NOTICE IS HEREBY GIVEN that a special general meeting of China Merchants DiChain (Asia) Limited (the “Company”) will be held at Unit 3207-08, 32/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong at 11:00 a.m. on 18 October 2004, for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the Disposal (as defined in the circular (“Circular”) dated 30 September 2004 and despatched to shareholders of the Company, a copy of which has been produced to this meeting marked “A” and signed by the Chairman hereof for the purpose of identification) pursuant to the Disposal Agreements (as defined in the Circular, a copy of each of which has been produced to this meeting marked “B”, “C”, “D”, “E”, “F”, “G”, “H”, “I”, “J”, “K” and “L” respectively and signed by the Chairman hereof for the purpose of identification), be and is hereby approved and confirmed; and the Transfer (as defined in the Circular) pursuant to the Transfer Agreements (as defined in the Circular, a copy of each of which has been produced to this meeting marked “M” and “N” respectively and signed by the Chairman hereof for the purpose of identification) be and is hereby approved and confirmed; and any one director of the Company be and is hereby authorised on behalf of the Company to sign, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as he may in his discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Disposal and/or the Transfer or the exercise or enforcement of any of the Company’s rights under the Disposal Agreements and/or Transfer Agreements and to make and agree such variations of a non-material nature in the terms of the same as he may in his discretion consider to be desirable and in the interests of the Company and any two directors of the Company be and are hereby authorised to sign autographically any instrument to which a seal may be required to be affixed for the above purposes.”

As at the date of this notice, the board of directors of the Company comprises five executive directors, namely Dr. Fan Di, Mr. Li Xinggui, Mr. Wu Shiyue, Mr. Zheng Yingsheng and Mr. Zhou Li Yang, two non-executive directors, namely Messrs. Robert Fung Hing Piu and Wang Shizhen, three independent non-executive directors, namely Messrs. Barry J. Buttifant, Iain F. Bruce and Victor Yang.

By order of the Board Fan Di Chairman

30 September 2004

* For identification purposes only

– 76 –

NOTICE OF SGM

Head office and principal place of

business in Hong Kong:

Units 3207-08, 32/F West Tower, Shun Tak Centre 168-200 Connaught Road Central

Hong Kong

Notes:

Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person (who must be an individual) as his proxy to attend and vote instead of him. On a poll votes may be given either personally or by proxy. A proxy need not be a member of the Company. A member may appoint more than one proxy to attend in his stead.
The form of proxy and (if required by the Directors) the power of attorney or other authority (if any), under which it is signed, or a notarially certified copy of such power or authority shall be deposited at the Company’s branch share registrar and transfer office, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than forty-eight hours before the time appointed for holding the above meeting or adjourned meeting at which the person named in the enclosed form of proxy proposes to vote, or, in the case of a poll taken subsequently to the date of the above meeting or adjourned meeting, not less than forth-eight hours before the time appointed for the taking of the poll, and in default the enclosed form of proxy shall not be treated as valid provided always that the chairman of the meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of telex or cable or facsimile confirmation from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. Delivery of any instrument of proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument of proxy shall be deemed to be revoked.
Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, then one of the said persons so present being the most, or as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding.
The form of proxy must be signed by the appointor or by his attorney authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorized to sign the same.

– 77 –

AI assistant

CHK Oil Limited — Proxy Solicitation & Information Statement 2004

49354_rns_2004-09-30_b587f8fb-dd98-4235-aa06-6956d1569027.pdf

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

VERY SUBSTANTIAL DISPOSAL

Financial adviser to China Merchants DiChain (Asia) Limited

Financial Services Group

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

VERY SUBSTANTIAL DISPOSAL

INTRODUCTION

THE DISPOSAL AGREEMENTS

Date

Parties

The Disposal

The consideration

LETTER FROM THE BOARD

Conditions

Other major terms of the Disposal Agreements

THE TRANSFER AGREEMENTS

Date

Parties

The Transfer

LETTER FROM THE BOARD

The consideration

Conditions

Other major terms of the Transfer Agreements

LETTER FROM THE BOARD

THE DISPOSAL SHARES REPURCHASE

INFORMATION OF SEG SCIENTIFIC

SHAREHOLDING STRUCTURE OF SEG SCIENTIFIC

REASONS FOR THE DISPOSAL AND TRANSFER

SGM

RECOMMENDATION

GENERAL

A. ACCOUNTANTS’ REPORT

Name of company

I. FINANCIAL INFORMATION

Consolidated income statements

Consolidated balance sheets

Consolidated balance sheets – continued

Balance sheets of the Company

APPENDIX I

Consolidated statements of changes in equity

Consolidated cash flow statements

Consolidated cash flow statements – continued

Notes to the financial information

1. BASIS OF PRESENTATION

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Goodwill

Investments in subsidiaries

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Interest in an associate

Interest in a jointly controlled entity

Revenue recognition

Investment properties

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Property, plant and equipment

Impairment

Investments in securities

Inventories

2. SIGNIFICANT ACCOUNTING POLICIES – continued

Foreign currencies

Taxation

Leases

Retirement benefits schemes

3. TURNOVER

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

APPENDIX I

4. BUSINESS AND GEOGRAPHICAL SEGMENTS – continued

CHK Oil Limited Proxy Solicitation & Information Statement 2004