CHK Oil Limited — Proxy Solicitation & Information Statement 2005

Mar 4, 2005

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)

MAJOR TRANSACTIONS ACQUISITION OF 60% EQUITY INTEREST IN

GUANGZHOU MEIRI LOGISTICS COMPANY LIMITED BY TRANSFER AND CAPITAL INVESTMENT AND ACQUISITION OF 60% EQUITY INTEREST IN JIANGXI DICHAIN LOGISTICS COMPANY LIMITED

A letter from the Board is set out on pages 4 to 14 of this circular.

* For identification purposes only

28 February 2005

CONTENTS

			Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
Appendix I	–	Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix II	–	Accountants’ Report of Guangzhou Meiri . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65
Appendix III	–	Accountants’ Report of Jiangxi Dichain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81
Appendix IV	–	Unaudited Pro Forma Financial Information of the Enlarged Group . . . .	88
Appendix V	–	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	93

DEFINITIONS

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

“Announcement” the announcement of the Company dated 17 November 2004 regarding the Investment Agreement, Guangzhou Meiri Acquisition Agreement and the Jiangxi Dichain Acquisition Agreement;

• “Board” the Board of Directors; “Capital Investment” the contribution of investment in the amount of RMB4.5 million (equivalent to approximately HK$4.25 million) in Guangzhou Meiri by DWS pursuant to the Investment Agreement;

• “Chen” Chen Ke Hai; “Company” China Merchants DiChain (Asia) Limited, an exempted company incorporated in Bermuda with limited liability and the shares of which are listed on the main board of the Stock Exchange;

• “Directors” directors of the Company; “DWS” 迪辰倉儲服務（深圳）有限公司 (DiChain Warehouse Services (Shenzhen) Co., Ltd), a wholly-owned foreign enterprise established in the PRC on 30 November 1993, a wholly-owned subsidiary of the Company;

• “Enlarged Group” The Group as enlarged by the Guangzhou Meiri Acquisition, completion of the Capital Investment and the Jiangxi Dichain Acquisition

• “Group” the Company and its subsidiaries;

• “Guangzhou Meiri” 廣州美日物流有限公司 (Guangzhou Meiri Logistics Company Limited), a then domestic company established in the PRC on 29 April 2001;

• “Guangzhou Meiri Acquisition” the acquisition of 24% equity interest in Guangzhou Meiri by DWS pursuant to the Guangzhou Meiri Acquisition Agreement;

• “Guangzhou Meiri Acquisition the acquisition agreement entered into by DWS as the purchaser Agreement” and the Vendors as the vendors regarding the Guangzhou Meiri Acquisition dated 13 November 2004;

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong;

• “Hong Kong”

The Hong Kong Special Administrative Region of the People’s Republic of China;

– 1 –

DEFINITIONS

• “Investment Agreement”

• “Jiangxi Dichain”

• “Jiangxi Dichain Acquisition”

• “Jiangxi Dichain Acquisition Agreement”

• “JV Agreement”

• “JV”

• “Latest Practicable Date”

• “Listing Rules”

• “Liu”

• “PRC”

• “Percentage Ratio”

• “RMB”

• “Shares”

• “Shareholders”

• “Stock Exchange”

the investment agreement entered into between DWS and the Vendors dated 13 November 2004;

江西迪辰物流有限公司 (Jiangxi Dichain Logistics Company Limited), a then domestic company established in the PRC on 9 September 2004;

• the acquisition of 60% equity interest in Jiangxi Dichain by DWS pursuant to the Jiangxi Dichain Acquisition Agreement;

• the acquisition agreement entered into by DWS as the purchaser and the Vendors as the vendors regarding the Jiangxi Dichain Acquisition dated 13 November 2004;

• the joint venture agreement entered into between Guangzhou Meiri and Jangxi Dichain regarding the formation of the JV dated 15 December 2004;

• 內蒙古迪辰物流有限公司 (Inner Mongolia Dichain Logistics Company Limited), a joint venture established by Guangzhou Meiri and Jiangxi Dichain in Inner Mongolia on 19 January 2005;

• 22 February 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information containing in this circular;

• The Rules Governing the Listing of Securities on the Stock Exchange;

Liu Xiao Hong;

• the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, Macao Special Administrative Region and Taiwan;

the percentage ratios under Rule 14.07 of the Listing Rules;

Renminbi yuan, the lawful currency of the PRC;

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

shareholders of the Company;

The Stock Exchange of Hong Kong Limited;

– 2 –

DEFINITIONS

“Subsidiary”

has the meaning ascribed to it under the Companies Ordinance (Chapter 32, Laws of Hong Kong) and “subsidiaries” shall be construed accordingly;

“Tu” Tu Zhao Lu; “Vendors” Wan, Liu, Tu, Chen and Zhu; “Wan” Wan Gui Ping; “Zhu” Zhu Mei Qi; and “%” per cent.

Unless otherwise specified in this circular, amounts denominated in RMB have been translated, for illustration only, into Hong Kong dollars at the rate of HK$1=RMB1.06.

In the event of inconsistency between the Chinese names of the PRC entities mentioned in this announcement and their English translation, the Chinese version shall prevail.

– 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

Non-executive Directors: Robert Fung Hing Piu Wang Shizhen Barry J. Buttifant Iain F. Bruce Victor Yang*

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

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

* Independent non-executive Directors

28 February 2005

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTIONS ACQUISITION OF 60% EQUITY INTEREST IN GUANGZHOU MEIRI LOGISTICS COMPANY LIMITED BY TRANSFER AND CAPITAL INVESTMENT AND ACQUISITION OF 60% EQUITY INTEREST IN JIANGXI DICHAIN LOGISTICS COMPANY LIMITED

INTRODUCTION

The Board announced on 17 November 2004 that DWS entered into (i) the Investment Agreement; (ii) the Guangzhou Meiri Acquisition Agreement and (iii) the Jiangxi Dichain Acquisition Agreement with the Vendors, pursuant to which DWS agreed to acquired (i) 60% equity interest in Guangzhou Meiri by way of transfer and capital investment; and (ii) 60% equity interest in Jiangxi Dichain.

* For identification only

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LETTER FROM THE BOARD

Pursuant to Rule 14.22 of the Listing Rules, the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment are required to be aggregated in calculating the relevant Percentage Ratio. As result of the aggregation, the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment constitute major transactions and are subject to the approval of the Shareholders. The Shareholders’ approval can be obtained either by convening a general meeting of the Company or, pursuant to Rule 14.44 of the Listing Rules, by means of a written approval by Shareholders who together hold more than 50% in nominal value of the Shares giving the right to attend and vote at such general meeting in compliance with Rules 14.44 to 14.46 of the Listing Rules.

The Vendors and their respective associates have no interest in the Company. No Shareholders or their associates will be required to abstain from voting at the relevant special general meeting to approve the transactions. A written approval dated 25 November 2004 from DiChain Holdings Limited, who holds approximately 57.17% in the nominal value of the Shares that carry voting rights has been obtained. DiChain Holdings Limited does not have any interest in the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment. Accordingly, no special general meeting of the Company will be required for the approval of the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment.

The purpose of this circular is (i) to give the Shareholders further information on the terms of the Investment Agreement, the Guangzhou Meiri Acquisition Agreement and the Jiangxi Dichain Acquisition Agreement; and (ii) to provide the Shareholders with such information concerning the Company as required by the Listing Rules.

THE INVESTMENT AGREEMENT

Date

13 November 2004

Parties

DWS, Wan, Liu, Tu, Chen and Zhu. Wan, Liu, Tu, Chen and Zhu are not associates of each other (as defined in rule 1.01 in the Listing Rules). Save and except their respective shareholding in Guangzhou Meiri and Jiangxi Dichain (which became non-wholly owned subsidiaries of the Company on 3 December 2004 and 2 December 2004 respectively), and Wan’s directorship in Guangzhou Meiri and Jiangxi Dichain, each of Wan, Liu, Tu, Chen and Zhu and their respective associates has no interest in the Company and its subsidiaries and is not connected person (as defined in the Listing Rules) of the Company and is independent of and not connected with the Company and the connected persons (as defined in the Listing Rules) of the Company.

The Investment Agreement set out the general structure of the acquisition plan which includes, the Guangzhou Meiri Acquisition, the Capital Investment, the Jiangxi Dichain Acquisition and the proposed establishment of the JV. It was understood between the parties to the Investment Agreement that the Guangzhou Meiri Acquisition and the Jiangxi Dichain Acquisition were governed by the respective acquisition agreements.

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LETTER FROM THE BOARD

Terms

Pursuant to the Investment Agreement,

• (i) DWS has conditionally agreed to acquire from the Vendors 24% and 60% equity interests in Guangzhou Meiri and Jiangxi Dichain respectively.

• (ii) The parties have agreed that after the completion of Guangzhou Meiri Acquisition, DWS shall invest RMB4.5 million (equivalent to approximately HK$4.25 million) in Guangzhou Meiri so that both of the registered capital and the total investment of Guangzhou Meiri shall be increased from RMB5 million (equivalent to approximately HK$4.72 million) to RMB9.5 million (equivalent to approximately HK$8.96 million). Subsequent to the Capital Investment, Guangzhou Meiri will be owned as to 60% by DWS and become an indirect non-wholly owned subsidiary of the Company. The results of Guangzhou Meiri will be included in the consolidated accounts of the Group from the completion of the Guangzhou Meiri Acquisition Agreement and the Capital Investment.

• (iii) The parties have agreed that Guangzhou Meiri and Jiangxi Dichain shall establish a joint venture in Inner Mongolia which will be owned as to 90% by Guangzhou Meiri and 10% by Jiangxi Dichain in due course. Subsequent to the completion of Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment, the effective interest held by the Company in the JV will be 60%. The purpose of establishing the JV is to further utilize the preferential investment policies, the vast opportunities and prospects in logistics industry bought by the western development scheme in PRC.

• (iv) The Vendors have undertaken to the Company not to dispose their remaining equity interests in Guangzhou Meiri and Jiangxi Dichain respectively within 2 years from the date of the execution of the Investment Agreement save and except the transfer contemplated in the Guangzhou Meiri Acquisition Agreement and the Jiangxi Dichain Acquisition Agreement. Such restriction was extended to 3 years to a shareholder of Guangzhou Meiri and Jiangxi Dichain who will also be a director of Guangzhou Meiri and Jiangxi Dichain, namely, Wan. DWS will not be subject to such restriction.

• (v) The Vendors have also warranted that the aggregate consolidated audited annual profit after tax for the year ended 31 December 2005 of Guangzhou Meiri, Jiangxi Dichain and the JV as prepared in accordance with the accounting principles generally accepted in Hong Kong will be not less than RMB2 million (equivalent to approximately HK$1.89 million). In the event that the profit after tax will be less than RMB2 million (equivalent to approximately HK$1.89 million), such shortfall will be paid by the Vendors (proportionate to their respective interest in Guangzhou Meiri immediately before the completion of Guangzhou Meiri Acquisition) to Guangzhou Meiri in cash within 7 days after the issue of the financial results of the relevant financial year. Since Guangzhou Meiri has a well established PRC logistics network, and is the major operating arm among Guangzhou Meiri, Jiangxi Dichain and the JV, DWS and the Vendors consider the payment to Guangzhou Meiri to the best interest of the business structure.

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LETTER FROM THE BOARD

• (vi) DWS also agreed to provide shareholder’s loan to Guangzhou Meiri in normal banking interest rate if and when necessary in the event that there will be new investment opportunity with estimated rate of return (as agreed by both DWS and the Vendors) of not less than 12%. No specific amount has yet been determined. The Company will comply with the Listing Rules requirement in respect of the grant of the shareholder’s loan.

Condition Precedent

The Investment Agreement would become effective upon the approval of the Investment Agreement by the Shareholders having been obtained. On 25 November 2004, the Company obtained the written approval from DiChain Holdings Limited, which then held approximately 57.17% in the nominal value of the voting rights of the Company. The increase of total investment and the registered capital of Guangzhou Meiri require the approval by the PRC authorities. There is no long stop date set for the Investment Agreement.

The Capital Investment was conditional upon the completion of the Guangzhou Meiri Acquisition and the approval of the Investment Agreement by the Shareholders having been obtained. The Capital Investment was completed on 3 December 2004. The formation of JV would be conditional upon the completion of Guangzhou Meiri Acquisition, the Capital Investment and the Jiangxi Dichain Acquisition. The JV was established on 19 January 2005.

THE GUANGZHOU MEIRI ACQUISITION AGREEMENT DATED 13 NOVEMBER 2004

Date

13 November 2004

Parties

1. Wan, Liu, Tu, Chen and Zhu as vendors. Wan, Liu, Tiu, Chan and Zhu are not associates of each other (as defined in Rule 1.01 in the Listing Rules). Save and except their respective shareholding in Guangzhou Meiri and Jiangxi Dichain (which became non-wholly owned subsidiaries of the Company on 3 December 2004 and 2 December 2004 respectively), and Wan’s directorship in Guangzhou Meiri and Jiangxi Dichain, each of the Vendors and their respective associates has no interest in the Company or its subsidiaries, is not connected person (as defined in the Listing Rules) of the Company and is independent of and not connected with the Company and the connected persons (as defined in the Listing Rules) of the Company.

2. DWS as purchaser

Assets to be acquired

Pursuant to the Guangzhou Meiri Acquisition Agreement, DWS has conditionally agreed to acquire from the Vendors in aggregate 24% equity interest in Guangzhou Meiri. As at the date of the Guangzhou Meiri Acquisition Agreement, Guangzhou Meiri was held as to 35% by Wan, 25% by Liu, 14% by Tu, 13% by Chen and 13% by Zhu.

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LETTER FROM THE BOARD

Consideration

The aggregate consideration of RMB2.7 million (equivalent to approximately HK$2.55 million) for the Guangzhou Meiri Acquisition, was satisfied by DWS by cash on completion of the Guangzhou Meiri Acquisition. The consideration was paid to the Vendors in proportion to the interests they respectively transferred to DWS. The consideration was paid out of the internal resources of the Group.

The consideration for the Guangzhou Meiri Acquisition was arrived at after arm’s length negotiations between all parties to the Guangzhou Meiri Acquisition Agreement by reference to 60% of the enlarged registered capital of Guangzhou Meiri of RMB9.5 million (equivalent to approximately HK$8.96 million), which equals to RMB5.7 million (equivalent to approximately HK$5.38 million). Aggregate of the consideration for the acquisition of 24% equity interest in Guangzhou Meiri (i.e. RMB2.7 million, equivalent to approximately HK$2.55 million) and the investment to be contributed by DWS for Capital Investment (i.e. RMB4.5 million, equivalent to approximately 4.25 million) represent a premium of RMB1.5 million (equivalent to approximately HK$1.42 million) of the said RMB5.7 million (equivalent to approximately HK$5.38 million) (i.e. 60% of the enlarged registered capital of Guangzhou Meiri). Taking into account the aforesaid profit guarantee in the amount of RMB2 million (equivalent to approximately HK$1.89 million) provided by the Vendors under the Investment Agreement, the Directors believe that the consideration is fair and reasonable. The Capital Investment would be conditional upon the completion of the Guangzhou Meiri Acquisition and the approval of the Investment Agreement by the Shareholders having been obtained and that the completion of the Guangzhou Meiri Acquisition Agreement is conditional upon the approval of the Guangzhou Meiri Acquisition Agreement by the Shareholders having been obtained.

Condition Precedent

Completion of the Guangzhou Meiri Acquisition Agreement was conditional upon the approval of the Guangzhou Meiri Acquisition Agreement by the Shareholders having been obtained. On 25 November 2004, the Company obtained the written approval from DiChain Holdings Limited, which then held approximately 57.17% in the nominal value of the voting rights of the Company. There is no long stop date set for the Guangzhou Meiri Acquisition Agreement. The Guangzhou Meiri Acquisition Agreement was not conditional upon the completion of the Investment Agreement and the Jiangxi Dichain Acquisition Agreement.

Completion

Completion of the Guangzhou Meiri Acquisition would take place within 10 days after the fulfillment of the abovementioned conditions and that the Vendors would arrange for the change of shareholding registration in the relevant industrial and commerce administrative bureau.

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LETTER FROM THE BOARD

Immediately following the registration, Guangzhou Meiri has been owned as to 24% by the DWS, 26.6% by Wan, 19% by Liu, 10.64% by Tu, 9.88% by Chen and 9.88% by Zhu. Any profit of Guangzhou Meiri will be shared between its shareholders according to their shareholding ratio. The following table illustrates Guangzhou Meiri’s shareholding changes as a result of the Guangzhou Meiri Acquisition and the Capital Investment:

			Immediately
			after
	Immediately	Immediately	completion of
	before	after	Guangzhou
	completion of	completion of	Meiri
	Guangzhou	Guangzhou	Acquisition
	Meiri	Meiri	and Capital
	Acquisition	Acquisition	Investment
	equity interest	equity interest	equity interest
Wan	35%	26.6%	14%
Liu	25%	19%	10%
Tu	14%	10.64%	5.6%
Chen	13%	9.88%	5.2%
Zhu	13%	9.88%	5.2%
DWS	0%	24%	60%
Total	100%	100%	100%

The Guangzhou Meiri Acquisition and the Capital Investment have been completed and Guangzhou Meiri has obtained the approval from the PRC authorities regarding the increase of total investment and the registered capital. DWS became a 60% shareholder in Guangzhou Meiri on 3 December 2004. Guangzhou Meiri has become a non-wholly owned subsidiary of the Company and the financial results of Guangzhou Meiri would be consolidated with the results of the Group since then. The registered capital and total investment of Guangzhou Meiri was also increased to RMB9.5 million (equivalent approximately HK$8.96 million) on the same day.

THE JIANGXI DICHAIN ACQUISITION AGREEMENT DATED 13 NOVEMBER 2004

Date

13 November 2004

Parties

1. Wan, Liu, Tu, Chen and Zhu as vendors. Wan, Liu, Tu, Chen and Zhu are not associates of each other (as defined in Rule 1.01 in the Listing Rules). Save and except their respective shareholding in Guangzhou Meiri and Jiangxi Dichain (which became non-wholly owned subsidiaries of the Company on 3 December 2004 and 2 December 2004 respectively), each of the Vendors is not connected person (as defined in the Listing Rules) of the Company and is independent of and not connected with the Company and the connected persons (as defined in the Listing Rules) of the Company.

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LETTER FROM THE BOARD

2. DWS as purchaser

Assets to be acquired

Pursuant to the Jiangxi Dichain Acquisition Agreement, DWS has conditionally agreed to acquire from the Vendors in aggregate 60% equity interest in Jiangxi Dichain. As at the date of the Jiangxi Dichain Acquisition Agreement, Jiangxi Dichain was owned as to 35% by Wan, 25% by Liu, 14% by Tu, 13% by Chen and 13% by Zhu.

Consideration

The aggregate consideration of RMB0.3 million (equivalent to approximately HK$0.28 million) for the Jiangxi Dichain Acquisition, was satisfied by DWS by cash on completion of the Jiangxi Dichain Acquisition. The consideration was paid to the Vendors in proportion to the interests they respectively transferred to DWS. The consideration was paid out of the internal resources of the Group.

The consideration for the Jiangxi Dichain Acquisition was arrived at after arm’s length negotiations between all parties to the Jiangxi Dichain Acquisition Agreement by reference to the amount of 60% of the registered capital of Jiangxi Dichain of RMB0.5 million (equivalent to approximately HK$0.47 million), which equals to RMB0.3 million (equivalent to approximately HK$0.28 million).

Condition Precedent

Completion of the Jiangxi Dichain Acquisition Agreement was conditional upon the approval of the Jiangxi Dichain Acquisition Agreement by the Shareholders having been obtained. On 25 November 2004, the Company obtained the written approval from Dichain Holdings Limited, which then held approximately 57.17% in the nominal value of the voting rights of the Company. There is no long stop date set for the Jiangxi Dichain Acquisition Agreement. The Jiangxi Dichain Acquisition Agreement was not conditional upon the completion of the Investment Agreement and the Guangzhou Meiri Acquisition Agreement.

Completion

Completion of the Jiangxi Dichain Acquisition would take place within 10 days after the fulfillment of the abovementioned condition and that the Vendors would arrange for the change of shareholding registration in the relevant industrial and commerce administrative bureau.

Subsequent to the registration, Jiangxi Dichain has become an indirect 60% owned subsidiary of the Company. The results of Jiangxi Dichain will be included in the consolidated account of the Group from the completion of the Jiangxi Dichain Acquisition Agreement. The remaining of the equity interest has been owned as to 14% by Wan, 10% by Liu, 5.6% by Tu, 5.2% by Chen and 5.2% by Zhu. Any profit of Jiangxi Dichain will be shared between its shareholders according to their respective shareholding ratio.

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LETTER FROM THE BOARD

The following table illustrates Jiangxi Dichain’s shareholding changes as a result of the Jiangxi Dichain Acquisition:

	Immediately	Immediately
	before	after
	completion of	completion of
	Jiangxi Dichain	Jiangxi Dichain
	Acquisition	Acquisition
	equity interest	equity interest
Wan	35%	14%
Liu	25%	10%
Tu	14%	5.6%
Chen	13%	5.2%
Zhu	13%	5.2%
DWS	0%	60%
Total	100%	100%

The Jiangxi Dichain Acquisition has been completed and DWS became a 60% shareholder in Jiangxi Dichain on 2 December 2004.

INFORMATION ON GUANGZHOU MEIRI AND JIANGXI DICHAIN

Guangzhou Meiri, a then domestic company established in the PRC, is engaged in the logistics business and operations in China, and provides a total logistics solution and value added services, such as third party warehousing, total logistics services and inventory management. The total investment of Guangzhou Meiri is amounted to RMB9.5 million (equivalent to approximately HK$8.96 million). The registered capital of Guangzhou Meiri is amounted to RMB9.5 million (equivalent to approximately HK$8.96 million) which has been fully paid-up. The total investment and the registered capital was increased from to RMB5 million (equivalent to approximately HK$4.72 million) to RMB9.5 million (equivalent to approximately HK$8.96 million) upon completion of the Capital Investment. The registered capital of Guangzhou Meiri has been fully paid up. As at the date of the Announcement, the board of Guangzhou Meiri comprised of 5 directors, namely Wan, Liu, Tu, Chen and Zhu. On 3 December 2004, Liu, Tu, Chen and Zhu resigned from the board. The board of Guangzhou Meiri is now comprising of 5 directors, in which DWS has nominated 3 directors and the Vendors together have nominated 2 directors (including Wan).

Jiangxi Dichain, a then domestic company established in the PRC, is engaged in the logistics business and operations in China, and provides a total logistics solution and value added services, such as third party warehousing, total logistics services and inventory management. The total investment of Jiangxi Dichain is amounted to 0.5 million (equivalent to approximately HK$0.47 million) and the registered capital of Jiangxi Dichain is amounted to RMB0.5 million (equivalent to approximately HK$0.47 million) which has been fully paid-up. As at the date of the Announcement, the board of Jiangxi Dichain comprised of 5 directors, Wan, Liu, Tu, Chen and Zhu. On 2 December 2004, Liu, Tu, Chen and Zhu resigned from the board. The board of Jiangxi Dichain is now comprising of 5 directors, in which DWS has nominated 3 directors and the Vendors together have nominated 2 directors (including Wan).

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LETTER FROM THE BOARD

Details of the audited net assets value as at 31 December 2004 and as at 31 December 2003 and the audited profit (loss) before and after tax of Guangzhou Meiri for each of the two financial years ended 31 December 2003 and 2004 and the audited net assets value of Jiangxi Dichain as at 31 December 2004 are set out in the table below:

For the year ended For the year ended Name of the Company/item 31 December 2004 31 December 2003 Guangzhou Meiri (Loss) profit before tax (HK$1,801,000) HK$54,000 For the year ended For the year ended 31 December 2004 31 December 2003 Guangzhou Meiri Loss after tax (HK$2,533,000) (HK$109,000) As at 31 December 2004 As at 31 December 2003 Guangzhou Meiri Net assets value HK$5,574,000 HK$98,000 As at 31 December 2004 – Jiangxi Dichain (Note 1) HK$472,000 Net assets value

Note 1: Jiangxi Dichain was established on 9 September 2004 and has not yet commenced operation, therefore, no profit or revenue has yet been earned.

As at 30 June 2004, the unaudited net assets value of Guangzhou Meiri was RMB4,959,821.26 (equivalent to approximately HK$4,679,076.67). The consideration for acquiring 24% of Guangzhou Meiri represents an approximately RMB1.5 million (equivalent to approximately HK$1.42 million) premium of the unaudited net assets value of Guangzhou Meiri as at 30 June 2004. The unaudited net asset value of Jiangxi Dichain as at 31 October 2004 was RMB500,000 (equivalent to approximately HK$471,698.11). The consideration for acquiring 60% of Jiangxi Dichain equals to 60% of the unaudited net assets value of Jiangxi Dichain as at 31 October 2004.

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LETTER FROM THE BOARD

The Company has instructed Finance and Commence Law Firm of China, a PRC Law firm to conduct the legal due diligence and Grant Thornton, certified public accountants, to conduct the financial due diligence. Such legal and financial due diligence exercises have been duly completed and the results of which are satisfactory and acceptable to the Company.

REASONS FOR THE CAPITAL INVESTMENT, THE GUANGZHOU MEIRI ACQUISITION AND THE JIANGXI DICHAIN ACQUISITION

The Group had been principally engaged in operation of bonded warehouse, provision of logistics and related services and logistics-related property investment. The Directors believe that Guangzhou Meiri is a successful logistics entity with a well-established PRC logistics network and Jiangxi Dichain will provide the Group an opportunity to develop new logistics business in regions outside the Guangdong province. With controlling shareholding interests in Guangzhou Meiri and Jiangxi Dichain, the Directors believe that the Group will be able to substantially increase its presence in the logistic business in the PRC. The Directors expected that Guangzhou Meiri and Jiangxi Dichain will act as door-to-door and last-mile service providers for the Group’s existing logistic customers and DWS will act as exporting window for Guangzhou Meiri and Jiangxi Dichain’s customers. The Directors consider that the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment will also contribute positively to the Group’s revenues and to save time and costs for the Group to become a total logistics service provider.

The Directors believe that the terms of the Investment Agreement, the Guangzhou Meiri Acquisition Agreement and the Jiangxi Dichain Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FORMATION OF JV

On 15 December 2004, Guangzhou Meiri and Jiangxi Dichain, entered into a joint venture agreement to establish the JV in Inner Mongolia. Pursuant to the JV Agreement, Guangzhou Meiri would make capital contribution of RMB4.75 million (equivalent to approximately HK$4.48 million), which represented 95% of equity interest in the JV while Jiangxi Dichain would make capital contribution of RMB0.25 million (equivalent to approximately HK$0.24 million), which represented 5% of equity interest in the JV. The JV was established on 19 January 2005 with an operating period of 20 years. The JV is engaged in logistics business and operation in the PRC. Its registered capital is RMB 5 million (equivalent to approximately HK$4.7 million). RMB2.5 million (equivalent to approximately HK$2.36 million) has been paid up. The remaining RMB2.5 million (equivalent to approximately HK$2.36 million) is required to be paid up within 2 years from 15 December 2004 and has not yet been paid up by Guangzhou Meiri and Jiangxi Dichain. The capital contribution on the JV from Guangzhou Meiri and Jiangxi Dichain has been and will be paid out of the internal resources of Guangzhou Meiri and Jiangxi Dichain.

– 13 –

LETTER FROM THE BOARD

FINANCIAL AND TRADING PROSPECTS

Benefit from the rapid growth of exports from southern China region, a strong demand for third party logistics services is expected in the coming years. To capture this opportunity and enhance its presence in the industry, the Group is striven to become a total logistics services provider. To achieve this objective, the Group has taken its first step by acquiring the equity interest in Guangzhou Meiri and Jiangxi Dichain. Together with the servicing network of Guangzhou Meiri and Jiangxi Dichain, the Group will provide national wide services across the PRC. The Directors are of the view that the Group will be well-positioned to benefit from the future strong demand for third party logistics services.

LISTING RULES IMPLICATIONS FOR THE COMPANY

Pursuant to Rule 14.22 of the Listing Rules, the Company is required to aggregate the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment in calculating the relevant Percentage Ratio, as a result of which, the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment constitute major transactions of the Company and are therefore subject to the approval of the Shareholders. The Shareholders’ approval can be obtained either by convening a general meeting of the Company or, pursuant to Rule 14.44 of the Listing Rules, by means of a written approval by Shareholders who together hold more than 50% in nominal value of the Shares giving the right to attend and vote at such general meeting in compliance with Rules 14.44 to 14.46 of the Listing Rules. The Vendors and their respective associates have no interest in the Company. No Shareholders or their associates will be required to abstain from voting at the relevant special general meeting to approve the transaction. The Company has obtained a written approval dated 25 November 2004 from DiChain Holdings Limited, which then held approximately 57.17% in the nominal value of the Shares that carry voting rights. DiChain Holdings Limited does not have any interest in the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment. Accordingly, no special general meeting of the Company will be required for the approval of the Guangzhou Meiri Acquisition, the Jiangxi Dichain Acquisition and the Capital Investment.

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

– 14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. 1. THREE-YEAR FINANCIAL SUMMARY

A summary of the consolidated income statements and the consolidated balance sheets of the Group for the last three financial years, as extracted from the published audited financial statements for the year ended 31 March 2002, 2003 and 2004 and reclassified as appropriate, is set out below:

Consolidated income statements

Turnover 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 Reversal of allowances (allowances) for doubtful debts (Loss) profit from operations 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 Loss on disposal of interest in an associate Gain on disposal of interest in a jointly controlled entity Share of results of an associate Share of results of a jointly controlled entity (Loss) profit before taxation Taxation (Loss) profit before minority interests Minority interests Net (loss) profit for the year (Loss) earnings per share Basic Diluted

Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 62,811 36,337 27,769 (53,705) (35,364) (18,867) 9,106 973 8,902 1,388 1,994 5,423 (2,501) (2,368) (1,082) (29,875) (29,899) (25,923) – – 16,208 (20,208) 359 7,027 (7,644) (75) 6,671 – 9,297 684 (12,823) – (416) – 105 – (5,555) (125) (7) (35,954) 26,840 – – 3,081 (4,077) (104,066) 10,182 13,410 (10,601) (4,152) (6,274) – (5) (13) 839 – 816 – 8,877 (4,629) (10,143) – – – – 2,033 (464) – (326) (4,815) (2,509) 6,441 (129,250) 12,393 11,458 (131) – 326 (129,381) 12,393 11,784 89 1,060 2,478 (129,292) 13,453 14,262 (7.0 cents) 0.39 cents 0.31 cents N/A 0.34 cents 0.27 cents

– 15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheets

Non-current assets Investment properties Property, plant and equipment Interest in a jointly controlled entity Interest in an associate Deposit paid for acquisition of additional interest in an associate Loan to a minority shareholder of a subsidiary Current assets Inventories Trade and other receivables Amount due from a minority shareholder of a subsidiary Loans receivable Investments in securities Amount due from an investee Amount due from ultimate holding company Bank balances and cash Current liabilities Trade and other payables Amount due to a jointly controlled entity Amounts due to related companies Amounts due to directors Amounts due to minority shareholders of subsidiaries Tax payable Obligations under a finance lease – due within one year Bank borrowings – due within one year 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

Non-current liabilities Amount due to ultimate holding company Loan from a minority shareholder of a subsidiary Obligations under a finance lease – due after one year Bank borrowings – due after one year Capital and reserves Share capital 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

2. AUDITED FINANCIAL INFORMATION

Set out below are the audited consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement and notes to financial statements of the Group extracted from the annual report of the Company for the year ended 31 March 2004.

Consolidated Income Statement

Notes Turnover 5 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 (allowance) for amount due from an investee Waiver of other payables Impairment loss reversed in respect of property, plant and equipment (Allowances) reversal of allowances for doubtful debts Profit from operations 7 Interest on bank borrowings wholly repayable within five years Finance lease charges Gain on disposal of interests in subsidiaries (Loss) gain on disposal of discontinued operations 8 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 10 Profit before minority interests Minority interests Net profit for the year Earnings per share 11 Basic Diluted

For the year ended 31 March 2004 2003 HK$’000 HK$’000 27,769 36,337 (18,867) (35,364) 8,902 973 5,423 2,099 (1,082) (2,368) (26,346) (30,024) 16,208 – 7,027 359 6,671 (75) 684 9,297 – 26,840 (4,077) 3,081 13,410 10,182 (6,274) (4,152) (13) (5) 816 – (4,629) 8,877 2,033 – (326) – 6,441 (2,509) 11,458 12,393 326 – 11,784 12,393 2,478 1,060 14,262 13,453 0.31 cents 0.39 cents 0.27 cents 0.34 cents

– 18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

Notes Non-current assets Investment properties 12 Property, plant and equipment 13 Interest in a jointly controlled entity 15 Interest in an associate 16 Deposit paid for acquisition of additional interest in an associate 17 Current assets Inventories 18 Trade and other receivables 19 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 15 Amounts due to related companies 23 Amount due to a minority shareholder of a subsidiary 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	At 31 March 2004 2003 HK$’000 HK$’000 700 3,327 124,703 146,642 – 1,146 26,388 – 12,613 – 164,404 151,115 168 2,576 6,408 15,828 10,500 – 32,486 6,753 3,881 – 23 – 25,365 36,439 78,831 61,596 16,028 16,323 – 716 2,426 2,315 1,813 1,868 205 988 78 78 78,037 27,484 98,587 49,772 (19,756) 11,824 144,648 162,939	At 31 March 2004 2003 HK$’000 HK$’000 700 3,327 124,703 146,642 – 1,146 26,388 – 12,613 – 164,404 151,115 168 2,576 6,408 15,828 10,500 – 32,486 6,753 3,881 – 23 – 25,365 36,439 78,831 61,596 16,028 16,323 – 716 2,426 2,315 1,813 1,868 205 988 78 78 78,037 27,484 98,587 49,772 (19,756) 11,824 144,648 162,939
		151,115
		2,576 15,828 – 6,753 – – 36,439
		61,596
		16,323 716 2,315 1,868 988 78 27,484
		49,772
		11,824
		162,939

– 19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet – continued

Notes Non-current liabilities Amount due to ultimate holding company 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	At 31 March 2004 2003 HK$’000 HK$’000 – 71 125 203 25,334 49,619 25,459 49,893 119,189 113,046 45,365 45,365 73,824 60,970 119,189 106,335 – 6,711 119,189 113,046	At 31 March 2004 2003 HK$’000 HK$’000 – 71 125 203 25,334 49,619 25,459 49,893 119,189 113,046 45,365 45,365 73,824 60,970 119,189 106,335 – 6,711 119,189 113,046
		49,893
		113,046
		45,365 60,970
		106,335 6,711
		113,046

– 20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

Notes Non-current assets Property, plant and equipment 13 Interests in subsidiaries 14 Current assets Other receivables Amount due from a jointly controlled entity of the Group 15 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 14 Capital and reserves Share capital 27 Reserves 29	At 31 March 2004 2003 HK$’000 HK$’000 – 406 81,517 79,966 81,517 80,372 471 1,141 – 208 200 1,039 671 2,388 33 30 100 – 133 30 538 2,358 82,055 82,730 – 71 24,468 24,053 24,468 24,124 57,587 58,606 45,365 45,365 12,222 13,241 57,587 58,606	At 31 March 2004 2003 HK$’000 HK$’000 – 406 81,517 79,966 81,517 80,372 471 1,141 – 208 200 1,039 671 2,388 33 30 100 – 133 30 538 2,358 82,055 82,730 – 71 24,468 24,053 24,468 24,124 57,587 58,606 45,365 45,365 12,222 13,241 57,587 58,606
		80,372
		1,141 208 1,039
		2,388 30 –
		30
		2,358
		82,730
		71 24,053
		24,124
		58,606
		45,365 13,241
		58,606

– 21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2004

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

– 22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

OPERATING ACTIVITIES 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 reversed recognised in respect of property, plant and equipment Waiver of other payables Allowances (reversal of allowances) for doubtful debts Revaluation increase on investment properties (Reversal of allowance) allowance for amount due from an investee Unrealised holding 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 Operating cash flows before movements in working capital Decrease in inventories Increase in trade and other receivables Increase (decrease) in trade and other payables Increase in amount due from an investee Net cash used in operations Interest received from banks Tax paid Tax refunded NET CASH USED IN OPERATING ACTIVITIES

For the year ended 31 March 2004 2003 HK$’000 HK$’000 13,410 10,182 (227) (141) (344) – (1,357) – 5,588 11,154 – (26,840) (684) (9,297) 4,077 (3,081) – (105) (6,671) 75 (7,027) (359) (16,208) – 7 125 416 – (9,020) (18,287) 920 1,761 (5,879) (3,115) 4,563 (8,613) (2,955) (75) (12,371) (28,329) 227 141 (988) – 531 47 (12,601) (28,141)

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement – 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 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 (outflow) on discontinued operations/ disposal of subsidiaries 31 Interest received from loans receivable Proceeds from disposal of property, plant and equipment NET CASH (USED IN) FROM 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 (Repayment to) advance from ultimate holding company Repayment of obligations under a finance lease Repayment to directors 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

For the year ended 31 March 2004 2003 HK$’000 HK$’000 (26,714) – (25,948) – (12,613) – (10,500) – (2,810) (2,837) (55) 7,581 29,195 – 9,609 – 2,211 – 1,357 – 736 (304) 344 – – 2,913 (35,188) 7,353 89,601 56,130 111 (3,754) – 57,038 – 716 (46,634) (52,268) (6,287) (4,157) (94) 71 (78) (33) – (3,114) 36,619 50,629 (11,170) 29,841 36,439 6,658 96 (60) 25,365 36,439

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to The Financial Statements

For the year ended 31 March 2004

1. GENERAL

The Company is an exempted company incorporated in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its ultimate holding company is DiChain Holdings Limited (“DiChain Holdings”), a limited company incorporated in Hong Kong.

The principal activity of the Company is investment holding and the principal activities of its principal subsidiaries are set out in note 40.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

In preparing the financial statements, the directors of the Company have given careful consideration to the future liquidity of the Group in light of its net current liabilities of HK$19,756,000 at 31 March 2004. The directors are satisfied that the Group has sufficient funding and facilities to be able to meet in full its liabilities as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has adopted, for the first time, Statement of Standard Accounting Practice (“SSAP”) 12 (Revised) “Income taxes” under Hong Kong Financial Reporting Standard (“HKFRS”) issued by the Hong Kong Society of Accountants (“HKSA”); the term of HKFRS is inclusive of SSAPs and Interpretations approved by the HKSA. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision would be made for deferred tax using the income statement liability method, i.e. a liability would be recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary 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, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. The adoption of SSAP 12 (Revised ) has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

4.

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 and associates 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 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.

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

Goodwill – Continued

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.

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.

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

Investment properties – Continued

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.

Property, plant and equipment

Property, plant and equipment 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:

Land and buildings held in the	Over the terms of the land use rights
People’s Republic of China (“PRC”)
Leasehold improvements	Over the shorter of the terms of the lease,
	land use rights or 5 years
Plant and machinery	5 – 20%
Equipment	15 – 20%
Furniture, fixtures and office equipment	20 – 25%
Motor vehicles	25 – 33%

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.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. 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 dollar, 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.

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. TURNOVER

Turnover represents the net amounts received and receivable for goods sold and services provided by the Group to outside customers, less returns and allowances, and rental income for the year, and is analysed as follows:

Continuing operations Logistics and other services Sales of goods Others Discontinued operations Sales of edible oil Sales of food and beverage	2004 HK$’000 13,713 2,991 – 16,704 10,660 405 11,065 27,769	2003 HK$’000 6,972 4,777 237
		11,986
		21,588 2,763
		24,351
		36,337

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into two (2003: four) 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 and trading of food and beverage products. Those operations were discontinued during the year; details are set out in note 8.

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. BUSINESS AND GEOGRAPHICAL SEGMENTS – Continued

Business segments – Continued

Segment information about these businesses is presented below:

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$’000 2,991 13,713 – – 234 – 2,991 13,947 – (315) 615 (574) (315) – 1,131 – – – – – – – – –		Discontinued operations Edible Food and oil beverage HK$’000 HK$’000 10,660 405 – – 10,660 405 (4,698) (622) – – (4,776) 147 – 2,033 – 6,441	Elimination Consolidated HK$’000 HK$’000 – 27,769 (234) – (234) 27,769 – (5,594) 16,208 7,027 9,445 (13,676 ) 13,410 (6,287) – 816 – (4,629) – 2,033 (326) – 6,441 11,458 326 11,784
			Edible oil HK$’000 10,660 – 10,660 (4,698) – (4,776) – –

Inter-segment sales are charged at prevailing market rates.

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. 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$’000 ASSETS Segment assets 1,189 140,917 597 Investments in securities Interest in an associate Loans receivable Deposit paid for acquisition of additional interest in an associate Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 56 3,920 5,431 Tax payable Obligations under a finance lease Bank borrowings Unallocated corporate liabilities Consolidated total liabilities Other information: Allowances for doubtful debts – – – Capital additions 23 2,032 755 Depreciation and amortisation 26 4,110 1,452 Loss on disposal of investment properties – – 1,357 Loss on write off of property, plant and equipment – – 7	Discontinued operations Edible Food and oil beverage Consolidated HK$’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 – – 1,357 – – 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 – – 1,357 – – 7
		243,235
		9,407 205 203 103,371 10,860
		124,046
		4,077 2,810 5,588 1,357 7

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. BUSINESS AND GEOGRAPHICAL SEGMENTS – Continued

Business segments – Continued

For the year ended 31 March 2003

TURNOVER External sales Inter-segment sales Total RESULTS Segment results Unallocated corporate expenses Profit from operations Finance costs Gain on disposal of discontinued operation 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$’000 4,777 6,936 273 119 1,518 1,418 4,896 8,454 1,691 329 13,977 2,655 – – –		Discontinued operations Edible Food and oil beverage HK$’000 HK$’000 21,588 2,763 – 79 21,588 2,842 8,699 (5,885 ) – (2,509 )	Elimination Consolidated HK$’000 HK$’000 – 36,337 (3,134) – (3,134) 36,337 (2,209) 17,566 (7,384) 10,182 (4,157) 8,877 – (2,509) 12,393 – 12,393
			Edible oil HK$’000 21,588 – 21,588 8,699 –

Inter-segment sales are charged at prevailing market rates.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. 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 Loss on disposal of property, plant and equipment Reversal of impairment loss recognised	Continuing operations Electronic household appliances Logistics Others HK$’000 HK$’000 HK$’000 1,230 161,825 4,306 – – – 403 2,937 1,794 – 74 825 23 3,351 654 – 125 – – (17,078) (32)	Discontinued operations Edible Food and oil beverage Consolidated HK$’000 HK$’000 HK$’000 32,497 1,290 201,148 6,753 – 1,146 1,146 3,664 212,711 1,577 353 7,064 988 281 77,103 14,229 99,665 1,925 327 3,151 1,956 5,170 11,154 – – 125 (9,730) – (26,840 )

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. 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	Sales revenue by geographical market 2004 2003 HK$’000 HK$’000 2,412 4,776 25,357 31,561 27,769 36,337	Sales revenue by geographical market 2004 2003 HK$’000 HK$’000 2,412 4,776 25,357 31,561 27,769 36,337
		36,337

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	Carrying amount of segment assets 2004 2003 HK$’000 HK$’000 39,736 17,386 203,499 195,325 243,325 212,711	Additions to property, plant and equipment 2004 2003 HK$’000 HK$’000 730 185 2,080 2,966 2,810 3,151	Additions to property, plant and equipment 2004 2003 HK$’000 HK$’000 730 185 2,080 2,966 2,810 3,151
			3,151

7. PROFIT FROM OPERATIONS

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 Loss on disposal/write off of: Investment properties Property, plant and equipment and after crediting: Interest income from: Bank Loans receivable Debt securities Revaluation increase on investment properties	2004 HK$’000 9,101 382 9,483 776 584 12,042 5,588 416 7 227 344 1,357 –	2003 HK$’000 7,423 259
		7,682
		750 – 28,041 11,154 – 125 141 – – 105

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. DISCONTINUED OPERATIONS

During the year, 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.

The carrying amounts of the assets and liabilities of the food and beverage products trading business and the edible oil production and distribution business at the date of disposal and at 31 March 2003 and the gain (loss) arising from the disposals are as follows:

Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Bank borrowings Tax payable Minority interests Capital reserve realised Translation reserve realised Gain (loss) on disposal Consideration received	Food and beverage At At 4 July 31 March 2003 2003 HK$’000 HK$’000 204 334 145 597 53 202 10 157 (109) (353) – – – – – – – – – – 303 937 147 N/A 450 N/A	Edible oil At At 31 March 31 March 2004 2003 HK$’000 HK$’000 18,533 18,968 1,220 1,808 9,093 13,354 568 130 (2,613) (1,577) (16,490) (16,538) – (83) (4,253) (6,648) 1,450 – (1,232) – 6,276 9,414 (4,776) N/A 1,500 N/A	Edible oil At At 31 March 31 March 2004 2003 HK$’000 HK$’000 18,533 18,968 1,220 1,808 9,093 13,354 568 130 (2,613) (1,577) (16,490) (16,538) – (83) (4,253) (6,648) 1,450 – (1,232) – 6,276 9,414 (4,776) N/A 1,500 N/A
			9,414 N/A
			N/A

The operating results of these businesses are disclosed in note 6. The food and beverage products trading business and the edible oil production and distribution business did not have a material contribution to the net cash flows of the Group for the year ended 31 March 2004.

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 “Redruth Disposal”). Redruth was principally engaged in the production and distribution of brewery products in the United Kingdom with its major customers located in Europe. The Redruth Disposal was effected for the purpose of debt reduction of the Group.

The Redruth Disposal was completed on 12 April 2002, when control of Redruth was passed to the acquirer. The operating results for the brewery production and distribution business for the period from 1 April 2002 to 12 April 2002 was insignificant, and the brewery production and distribution 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.

The carrying amounts of the assets and liabilities of the brewery production and distribution business at the date of disposal and the gain arising from the disposal are disclosed in note 31.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. 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	2004 HK$’000 – – 130 130 1,752 243 12 2,007 – 2,137	2003 HK$’000 – 33 48
		81
		1,009 94 12
		1,115
		–
		1,196

The aggregate emoluments of each of the directors during both years were below HK$1,000,000.

Employees’ emoluments

During the year, the five highest paid individuals in the Group included three directors (2003: a director) of the Company, details of whose emoluments are set out above. The emoluments of the remaining two (2003: four) individuals were as follows:

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

The aggregate emoluments of each of the highest paid individuals during the year were below HK$1,000,000.

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 in both years.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. TAXATION

The tax credit for 2004 represented over provision of Hong Kong Profits Tax in prior years.

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group incurred a tax loss for both years.

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

Profit before taxation Tax at domestic tax rate of 15% (2003: 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 Overprovision of taxation in prior years Tax credit for the year	2004 HK$’000 11,458 1,719 (917) (17,177) 12,753 3,622 (326) (326)	2003 HK$’000 12,393
		1,858 376 (16,745) 12,599 1,912 –
		–

Details of deferred tax are set out in note 30.

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

11. EARNINGS PER SHARE

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

Earnings for the purpose of calculating basic and diluted earnings per share: Net 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 earnings per share (in thousands)	2004 HK$’000 14,262 4,536,565 764,459 25,897 5,326,921	2003 HK$’000 13,453
		3,460,237 477,141 –
		3,937,378

For the year ended 31 March 2003, the weighted average number of shares for the purpose of basic earnings per share was based on the assumption that the group reorganisation on 26 August 2002 had been completed at 1 April 2002.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. INVESTMENT PROPERTIES

VALUATION At 1 April 2003 Disposal At 31 March 2004	THE GROUP Properties situated in Hong Kong PRC HK$’000 HK$’000 700 2,627 – (2,627) 700 –
		Total HK$’000 3,327 (2,627)
		700

The investment property situated in Hong Kong and held under a medium-term lease was under the possession of a bank during the year and had not been disposed of at the balance sheet date. In the opinion of the directors, the investment property was carried at the net realisable value, which approximated its open market value at the balance sheet date.

13. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST At 1 April 2003 Exchange realignment Additions Disposal of subsidiaries Write off At 31 March 2004 DEPRECIATION AND AMORTISATION AND IMPAIRMENT At 1 April 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 2004 At 31 March 2003	Leasehold land and buildings Leasehold in the PRC improvements HK$’000 HK$’000 141,758 4,785 (404) (1 ) – 188 (5,235 ) – – – 136,119 4,972 24,390 4,147 (68 ) – (1,104 ) – 3,038 402 – – 26,256 4,549 109,863 423 117,368 638	Plant and machinery HK$’000 23,793 (65 ) – (23,728 ) – – 9,517 (23 ) (9,719) 225 – – – 14,276	Equipment HK$’000 9,601 – – (2,449) – 7,152 9,398 – (2,256) 10 – 7,152 – 203	Furniture, fixtures and office equipment HK$’000 29,035 (49 ) 1,741 (185) – 30,542 16,019 (13 ) (157) 1,320 – 17,169 13,373 13,016	Motor vehicles HK$’000 3,868 (5 ) 881 (1,619) (46 ) 3,079 2,727 (3 ) (1,243) 593 (39 ) 2,035 1,044 1,141	Total HK$’000 212,840 (524) 2,810 (33,216 ) (46 )
						181,864
						66,198 (107) (14,479 ) 5,588 (39 )
						57,161
						124,703
						146,642

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. PROPERTY, PLANT AND EQUIPMENT – Continued

Leasehold improvements HK$’000 THE COMPANY COST At 1 April 2003 454 Transfer to a subsidiary (454) At 31 March 2004 – DEPRECIATION At 1 April 2003 158 Transfer to a subsidiary (158) At 31 March 2004 – NET BOOK VALUE At 31 March 2004 – At 31 March 2003 296	Furniture, fixtures and office equipment HK$’000 128 (128) – 18 (18) – – 110	Total HK$’000 582 (582)
		–
		176 (176)
		–
		–
		406

The land and buildings of the Group are held under medium-term land use rights in the PRC.

The net book value of property, plant and equipment of the Group includes an amount of HK$220,000 (2003: HK$329,000) in respect of assets held under a finance lease.

14. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries Allowances on amount due from subsidiaries	THE COMPANY 2004 2003 HK$’000 HK$’000 63,988 63,988 37,776 69,575 101,764 133,563 (20,247) (53,597) 81,517 79,966	THE COMPANY 2004 2003 HK$’000 HK$’000 63,988 63,988 37,776 69,575 101,764 133,563 (20,247) (53,597) 81,517 79,966
		133,563 (53,597)
		79,966

Details of the Company’s principal subsidiaries at 31 March 2004 are set out in note 40.

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.

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INTEREST IN A JOINTLY CONTROLLED ENTITY

Share of net assets of a jointly controlled entity	THE GROUP 2004 2003 HK$’000 HK$’000 – 1,146

The balance at 31 March 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.

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

16. INTEREST IN AN ASSOCIATE

							THE GROUP
						2004	2003
						HK$’000	HK$’000
Share of net assets						24,391	–
Goodwill						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
(“Shenzhen SEG”)							locator of global
							positioning system

The goodwill arose on the acquisition of Shenzhen SEG during the year. Amortisation charged in the current year amounting to HK$51,000 has been included in the consolidated income statement. Goodwill is amortised over a period of 10 years.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. INTEREST IN AN ASSOCIATE – Continued

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

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

Turnover Profit from ordinary activities Profit from ordinary activities attributable to the Group Financial position 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

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

The deposit was paid for the acquisition of an additional 17.6% equity interest in Shenzhen SEG. Details of the proposed acquisition are set out in a circular issued by the Company on 3 March 2004.

18. INVENTORIES

Finished goods	THE GROUP 2004 2003 HK$’000 HK$’000 168 2,576

At 31 March 2003, included above were inventories of HK$162,000 which were carried at net realisable value (2004: Nil).

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 date is as follows:

Less than 3 months 3 to 6 months 6 to 12 months Over 1 year Other receivables	THE GROUP 2004 2003 HK$’000 HK$’000 2,482 3,561 175 2,836 67 – 10 – 2,734 6,397 3,674 9,431 6,408 15,828	THE GROUP 2004 2003 HK$’000 HK$’000 2,482 3,561 175 2,836 67 – 10 – 2,734 6,397 3,674 9,431 6,408 15,828
		6,397 9,431
		15,828

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 2004 2003 HK$’000 HK$’000 8,929 6,753 23,557 – 32,486 6,753 8,929 6,753	THE GROUP 2004 2003 HK$’000 HK$’000 8,929 6,753 23,557 – 32,486 6,753 8,929 6,753
		6,753
		6,753

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, A FELLOW SUBSIDIARY, RELATED COMPANIES AND A MINORITY SHAREHOLDER OF A SUBSIDIARY

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

24. TRADE AND OTHER PAYABLES

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

Less than 3 months 3 to 6 months 6 to 12 months Over 1 year Other payables	THE GROUP 2004 2003 HK$’000 HK$’000 793 668 10 904 2 355 425 509 1,230 2,436 14,798 13,887 16,028 16,323	THE GROUP 2004 2003 HK$’000 HK$’000 793 668 10 904 2 355 425 509 1,230 2,436 14,798 13,887 16,028 16,323
		2,436 13,887
		16,323

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. OBLIGATIONS UNDER A FINANCE LEASE

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	THE GROUP Minimum Present value of lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 91 91 78 78 144 235 125 203 235 326 203 281 (32) (45) N/A N/A 203 281 203 281 (78) (78) 125 203	THE GROUP Minimum Present value of lease payments minimum lease payments 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 91 91 78 78 144 235 125 203 235 326 203 281 (32) (45) N/A N/A 203 281 203 281 (78) (78) 125 203
		281 N/A
		281
		(78)
		203

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.

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 2004 2003 HK$’000 HK$’000 60,968 70,015 42,403 7,088 103,371 77,103 78,037 27,484 25,334 49,619 103,371 77,103 (78,037) (27,484) 25,334 49,619	THE GROUP 2004 2003 HK$’000 HK$’000 60,968 70,015 42,403 7,088 103,371 77,103 78,037 27,484 25,334 49,619 103,371 77,103 (78,037) (27,484) 25,334 49,619
		77,103
		27,484 49,619
		77,103 (27,484)
		49,619

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 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.

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. SHARE CAPITAL

Note Shares of HK$0.01 each Authorised: On date of incorporation (a) Increase in authorised share capital (b) At 31 March 2003 and 31 March 2004 Issued and fully paid: Initial share capital on date of incorporation (a) Issue of shares pursuant to group reorganisation (c)(i) Issue of shares pursuant to share subscription (c)(ii) At 31 March 2003 and 31 March 2004	Number of shares 10,000,000 7,990,000,000 8,000,000,000 10,000,000 1,854,050,000 2,672,515,000 4,536,565,000	Amount HK$’000 100 79,900
		80,000
		100 18,540 26,725
		45,365

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.

• (c) Pursuant to written resolutions of the sole shareholder of the Company passed on 21 June 2002 and the Scheme of Arrangement (the “Scheme”) sanctioned by the Supreme Court of Bermuda which became effective on 26 August 2002:

• (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 Holdings Limited (“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 (the “Group Reorganisation”); 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 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 the period ended 31 March 2003 ranked pari passu with the then existing shares in all respects.

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 the year. Exercise in full of such warrants would result in the issue of 901,533,000 shares of HK$0.01 each.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. RESERVES

THE COMPANY Contributed surplus arising from the Group Reorganisation Issue of shares pursuant to the 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 the balance sheet dates, the Company did not have any reserves available for distribution to shareholders.

THE GROUP

The capital reserve of the Group 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 over the nominal value of the Company’s shares and Dransfield’s shares issued in exchange thereof respectively.

30. DEFERRED TAX

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

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

At the balance sheet date, the Group had unused tax losses of HK$119,909,000 (2003: HK$141,166,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$480,000 (2003: HK$450,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$119,429,000 (2003: HK$140,716,000) due to the unpredictability of future profit streams. Included in the unrecognised tax losses are losses of HK$40,403,000 (2003: HK$74,044,000) that will expire before year 2009 (2003: year 2008). Other tax losses may be carried forward indefinitely.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. DISPOSAL OF DISCONTINUED OPERATIONS/SUBSIDIARIES

Net assets (liabilities) disposed of: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Bank borrowings Minority interests Capital reserve realised Goodwill reserve realised Translation reserve realised (Loss) gain on disposal of discontinuing operations/subsidiaries Total consideration Satisfied by: Cash Waiver of other payables Analysis of net cash inflow (outflow) in respect of the disposal of discontinuing operations/subsidiaries: Cash consideration received Bank balances and cash disposed of	2004 HK$’000 18,737 1,488 10,460 634 (3,390) (16,490) (4,253) 7,186 1,450 (721) (1,232) 6,683 (3,813) 2,870 1,370 1,500 2,870 1,370 (634) 736	2003 HK$’000 10,159 2,947 1,889 304 (12,416) – –
		2,883 – (11,268) (492)
		(8,877) 8,877
		–
		– –
		–
		– (304)
		(304)

As explained in note 8 in 2004, the Group discontinued its businesses in production and distribution of edible oil and trading of food and beverage products at the time of disposal of certain subsidiaries. The operating results of these discontinued operations are disclosed in note 6.

In 2003, the Group discontinued its brewery production and distribution business at the time of disposal of Redruth.

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

32. MAJOR NON-CASH TRANSACTIONS

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;

• (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.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. MAJOR NON-CASH TRANSACTIONS – Continued

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.

33. OPERATING LEASE ARRANGEMENTS

The Group as lessee

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

At the balance sheet date, 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 2004 HK$’000 216 – 216	GROUP 2003 HK$’000 1,077 222 1,299	THE COMPANY 2004 2003 HK$’000 HK$’000 198 – – – 198 –	THE COMPANY 2004 2003 HK$’000 HK$’000 198 – – – 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 the year ended 31 March 2003, net of negligible outgoings, was approximately HK$237,000 (2004: Nil). There were no committed tenants at the balance sheet dates.

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 2004 HK$’000 1,362 132 – 1,494	GROUP 2003 HK$’000 – 24 1,229 1,253	THE COMPANY 2004 2003 HK$’000 HK$’000 – – – – – 1,229 – 1,229	THE COMPANY 2004 2003 HK$’000 HK$’000 – – – – – 1,229 – 1,229
				1,229

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. PLEDGE OF ASSETS

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

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

36. CONTINGENT LIABILITIES

At 31 March 2004, the Company had given guarantees of approximately HK$98,945,000 (2003: HK$56,700,000) to banks in respect of banking facilities granted to a subsidiary. The extent of such facilities utilised by the subsidiary at 31 March 2004 amounted to approximately HK$98,940,000 (2003: HK$56,130,000).

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 which 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 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.

– 48 –

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:

Exercise Exercisable Name of director price period HK$ Fan Di 0.12 20.5.2004 – 21.6.2012 Li Xinggui 0.12 20.5.2004 – 21.6.2012 Wu Shiyue 0.12 20.5.2004 – 21.6.2012 Zheng Yingsheng 0.12 20.5.2004 – 21.6.2012 Zhu Xiaojun 0.12 20.5.2004 – 21.6.2012 Wang Shizhen 0.12 20.5.2004 – 21.6.2012 Robert Fung Hing Piu 0.12 20.5.2004 – 21.6.2012 Iain Ferguson Bruce 0.12 20.5.2004 – 21.6.2012 Barry John Buttifant 0.12 20.5.2004 – 21.6.2012 Employees 0.12 20.5.2004 – 21.6.2012 Total	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 1,500,000 117,000,000 32,500,000 149,500,000	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
				149,500,000

(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.

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:

Exercise Exercisable Name of director price period HK$ Robert Fung Hing Piu 0.18 6.3.2002 to 2.4.2003 Employees 0.10 21.6.2000 to 2.4.2003 0.10 1.12.2001 to 2.4.2003 0.18 6.3.2002 to 2.4.2003 Total	Number of share options of Dransfield	Number of share options of Dransfield	Number of share options of Dransfield	Number of share options of Dransfield
	Outstanding at 1.4.2002 2,000,000 50,000 9,000,000 12,350,000 21,400,000 23,400,000	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 and on the dates which the options were exercised was HK$0.28.

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. SHARE OPTIONS SCHEMES – Continued

Total consideration received during the year for options granted was HK$17 (2003: Nil).

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.

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 benefit 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 benefit scheme is to make the specified contributions.

39. CONNECTED AND RELATED PARTY TRANSACTIONS

During the year, the Group received management fee income of HK$2,200,000 (2003: nil) from an investee. The management fee was charged in accordance with the agreement entered into by the relevant parties.

At 31 March 2004, the ultimate holding company had given corporate guarantees amounting HK$14,135,000 (2003: Nil) to a bank in respect of banking facilities granted to the Group.

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. PARTICULARS OF PRINCIPAL SUBSIDIARIES

Details of the Company’s principal subsidiaries at 31 March 2004 are as follows:

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

Note: Wholly foreign owned enterprise

None of the subsidiaries had issued any debt securities during the year or at the end of the year.

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

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED INTERIM RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004

The following is an extract of the unaudited financial information of the Group from its interim report for the six months ended 30 September 2004.

CONDENSED CONSOLIDATED INCOME STATEMENT

Note Turnover 2 Cost of sales Gross profit Other operating incomes Selling expenses Administrative expenses Gain on disposal of investments in securities Unrealized holding (loss) gain on investments in securities Loss on disposal of property, plant and equipment Write back or waiver of other payables Allowance for doubtful debts Write back of allowance for amount due from an investee (Loss) profit from operations 3 Interest on bank borrowings wholly repayable within five years Share of results of an associate (Loss) profit before taxation Taxation 4 (Loss) profit before minority interests Minority interests Net (loss) profit for the period (Loss) earnings per share 5 Basic Diluted

Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 9,097 22,499 (4,175) (16,942) 4,922 5,557 3,051 1,174 (380) (1,348) (11,280) (17,399) – 10,375 (7,871) 28,287 – (387) – 8,494 – (2,950) – 6,671 (11,558) 38,474 (2,858) (2,830) 1,082 – (13,334) 35,644 (119) – (13,453) 35,644 – 794 (13,453) 36,438 HK$(0.28)cent HK$0.80 cent N/A HK$0.66 cent

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 September 2004 (Unaudited) Note HK$’000 Non-current assets Investment property 700 Property, plant and equipment 122,493 Interest in an associate 27,470 Deposit paid for acquisition of additional interest in an associate 6 12,613 163,276 Current assets Inventories 180 Trade and other receivables 7 7,661 Loans receivable 17,000 Investments in securities 39,638 Amounts due from an investee 7,195 Amount due from ultimate holding company 16 Amount due from a related company 24 Bank balances and cash 43,459 115,173 Current Liabilities Deposit received for disposal of interest in an associate 8 35,865 Trade and other payables 9 15,182 Amounts due to related companies 2,426 Amounts due to a minority shareholder of a subsidiary 1,813 Tax payable 207 Obligations under a finance lease – due within one year 78 Bank borrowings – due within one year 96,022 151,593 Net current liabilities (36,420) Total assets less current liabilities 126,856 Non-current liabilities Obligations under a finance lease – due after one year 86 Bank borrowings – due after one year – 86 126,770 Capital and reserves Share capital 10 54,381 Reserves 12 72,389 126,770

At 31 March 2004 (Audited) HK$’000 700 124,703 26,388 12,613 164,404 168 6,408 10,500 32,486 3,881 23 – 25,365 78,831 – 16,028 2,426 1,813 205 78 78,037 98,587 (19,756) 144,648 125 25,334 25,459 119,189 45,365 73,824 119,189

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Net cash outflow from operating activities Net cash in(out)flow from investing activities Net cash in(out)flow before financing activities Net cash inflow from financing activities Increase in cash and cash equivalents Cash and cash equivalents brought forward Cash and cash equivalents carried forward	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 (7,146) (10,093) 14,382 (21,630) 7,236 (31,723) 10,858 36,645 18,094 4,922 25,365 37,053 43,459 41,975

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES

• The unaudited condensed interim consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Statement of Standard Accounting Practice (“SSAP”) No.25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants.

The unaudited condensed interim consolidated financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain properties and investments in securities.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2004.

2. SEGMENT INFORMATION

By principal activity: Logistics Brewery production Edible oil Food and beverage Electronic household appliances Others Gain on disposal of investments in securities Unrealised holding (loss) gain on investments in securities Unallocated corporate expenses (Loss) profit from operations By geographical area: Hong Kong The People’s Republic of China	Turnover Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 8,260 6,467 – 8,442 – 5,162 – 405 837 2,023 – – 9,097 22,499 837 1,444 8,260 21,055 9,097 22,499	Profit (loss) from operations Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 95 (288) – 2,842 – (1,370) – (622) (178) 70 – 5,561 (83) 6,193 – 10,375 (7,871) 28,287 (3,604) (6,381) (11,558) 38,474	Profit (loss) from operations Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 95 (288) – 2,842 – (1,370) – (622) (178) 70 – 5,561 (83) 6,193 – 10,375 (7,871) 28,287 (3,604) (6,381) (11,558) 38,474
			6,193 10,375 28,287 (6,381)
			38,474

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. (LOSS) PROFIT FROM OPERATIONS

The Group’s (loss) profit from operations has been arrived at after charging: Depreciation and amortisation (Loss) gain on disposal of subsidiaries and after crediting: Interest income from: Loans receivable Bank Debt securities TAXATION The charge comprises: Hong Kong profits tax Overseas	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 2,325 4,586 432 (142) 219 109 28 89 1,102 524 Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 119 – – – 119 –	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 2,325 4,586 432 (142) 219 109 28 89 1,102 524 Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 119 – – – 119 –
		–

4. TAXATION

The tax debit for 2004 represented payment of Hong Kong Profits Tax underprovided in prior years. Other than this, no provision for Hong Kong Profits Tax has been made in the financial statements as the Group incurred tax loss for both years.

Overseas taxation is provided on the profits of overseas subsidiaries in accordance with the tax laws of the countries in which the subsidiaries operate.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted earnings (loss) 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 period Weighted average number of shares for the purpose of calculating basic loss (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 earnings per share (in thousands)	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 (13,453) 36,438 4,777,320 4,536,565 – 901,533 – 110,071 N/A 5,548,169	Six months ended 30 September 2004 2003 (Unaudited) (Unaudited) HK$’000 HK$’000 (13,453) 36,438 4,777,320 4,536,565 – 901,533 – 110,071 N/A 5,548,169
		4,536,565
		901,533 110,071
		5,548,169

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

The Company held a 35% equity interest in an associate, Shenzhen SEG Scientific Navigations Co. Ltd (“Shenzhen SEG”). The deposit was paid for the acquisition of an additional 17.6% equity interest. Details of the acquisition were set out in a circular issued by the Company on 3 March 2004.

7. TRADE AND OTHER RECEIVABLES

The following is an aged analysis of accounts receivable at the reporting date:

At 30 September 2004 (Unaudited) HK$’000 Less than 3 months 3,224 3 to 6 months 147 6 to 12 months 179 Over 1 year – 3,550 Other receivables 4,111 7,661	At 31 March 2004 (Audited) HK$’000 2,482 175 67 10
	2,734 3,674
	6,408

8. DEPOSIT RECEIVED FOR DISPOSAL OF INTEREST IN AN ASSOCIATE

The deposit was received for the disposal of the entire equity interest in Shenzhen SEG. Details of the disposal were set out in a circular issued by the Company on 30 September 2004.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9.

TRADE AND OTHER PAYABLES

The following is an aged analysis of accounts payable at the reporting date:

At 30 September 2004 (Unaudited) HK$’000 Less than 3 months 1,112 3 to 6 months – 6 to 12 months 2 Over 1 year 175 1,289 Other payables 13,893 15,182 SHARE CAPITAL Number of Ordinary shares Ordinary shares of HK$0.01 each Authorized: At 30 September, 2004 8,000,000,000 Issued and fully paid: At 31 March 2004 4,536,565,000 Issue of shares on exercise of warrants 901,533,000 At 30 September 2004 5,438,098,000	At 31 March 2004 (Audited) HK$’000 793 10 2 425
	1,230 14,798
	16,028
	Amount HK$’000 80,000
	45,365 9,016
	54,381

10. SHARE CAPITAL

During the period, the ultimate holding company exercised 901,553,000 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. Exercise in full of such warrants resulted in the issue of 901,533,000 shares of HK$0.01 each.

11. SHARE OPTION SCHEME

The Company adopted the new share option scheme on 21 June 2002 (the “Scheme”). The Scheme enables the Company to grant share options to eligible persons as an incentive or reward for their contributions to the Company. The terms of the Scheme fully comply with the provisions of Chapter 17 of the Listing Rules. On 18 August 2004, options amounting to 85,000,000 shares were granted to eligible persons including the directors of the Company. No share options were exercised under the Scheme during the six months ended 30 September 2004. At 30 September 2004, the Company had 234,500,000 share options outstanding under the Scheme.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. RESERVES

At 1 April 2004 Issue of shares on exercise of warrants Exchange differences arising on translation of financial statements of overseas operations Release upon disposal of a subsidiary Net loss for the period At 30 September 2004	Share premium HK$’000 26,725 11,720 – – – 38,445	Capital reserve HK$’000 403,551 – – 300 – 403,851	Exchange Accumulated reserve loss HK$’000 HK$’000 3,361 (359,813) – – (2) – – – – (13,453) 3,359 (373,266)	Total HK$’000 73,824 11,720 (2) 300 (13,453
				72,389

13. CAPITAL COMMITMENTS

At 30 September 2004 (Unaudited) HK$’000 Capital expenditure contracted but not provided for in the financial statements in respect of: acquisition of additional interest in an associate 1,362 acquisition of property, plant and equipment – 1,362	At 31 March 2004 (Audited) HK$’000 1,362 132
	1,494

14. PLEDGE OF ASSETS

At 30 September 2004, certain of the Group’s investment property and leasehold land and buildings with an aggregate carrying value of HK$700,000 (31 March 2004: HK$700,000) and HK$108,435,060 (31 March 2004: HK$109,863,000) respectively, were pledged to banks to secure loan facilities granted to the Group.

15. POST BALANCE SHEET EVENTS

On 18 October 2004, shareholders of the Company approved the disposal of the investment in Shenzhen SEG at a special general meeting. The disposal of 35% of shares of SEG Scientific was completed in October 2004 while the remaining 17.6% will be completed in early 2005.

On 13 November 2004, the Group entered into three agreements to acquire for 60% of the equity of Guangzhou Meiri Logistics Company Limited and Jiangxi DiChain Logistics Company Limited (collectively called “Meiri Logistics”). Details of the transaction are disclosed in the announcement issued by the Company on 17 November 2004.

16. RELATED PARTY TRANSACTIONS

During the period, the Group charged an investee management fee income of HK$1,200,000. The transaction was carried out at terms determined and agreed by the relevant parties.

17. INTERIM DIVIDEND

The Directors do not recommend the payment of an interim dividend for the period (2003: nil).

– 59 –

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.

– 60 –

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.

On 18 October 2004, shareholders of the Company approved the disposal and transfer of the shares of SEG Scientific in a Special General Meeting.

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.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Results

For the year ended 31 March 2004, the Company has recorded a turnover of HK$27.77 million (2003: HK$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.

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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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 meal and traveling 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. INDEBTEDNESS

At the close of business on 31 December 2004 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Enlarged Group had outstanding bank borrowings of approximately HK$97,935,000, of which approximately HK$69,665,000 were secured by charges over certain of the Enlarged Group’s leasehold land and buildings, investment property and bank deposits. In addition, the Enlarged Group had outstanding at that date obligations under a finance lease of approximately HK$144,000, other loan of approximately HK$943,000, 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 other loan is unsecured, bears interest at a monthly rate of 2% and repayable on or before 31 August 2005. The amounts due to related companies and minority shareholders of subsidiaries are unsecured, interest-free and repayable on demand.

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

Disclaimer

Save as aforesaid and apart from intra-group liabilities, the Enlarged Group did not have, at the close of business on 31 December 2004, any outstanding mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase or other finance lease commitments, guarantees or other significant contingent liabilities.

As at the latest practicable date, the Directors were not aware of any material change in respect of the indebtedness or other contingent liabilities of the Enlarged Group since 31 December 2004.

Foreign currency transactions

Foreign currency amounts have been, for the purpose of the above indebtedness statement, translated into Hong Kong dollars at the applicable rate of exchange ruling at the close of business on 31 December 2004.

D. WORKING CAPITAL

The Directors, after due and careful consideration, are of the opinion that, after taking into account the internal resources available to the Group, the present available banking facilities and the total consideration to be given for the Guangzhou Meiri Acquisition and the Jiangxi Dichain Acquisition and the Capital Investment, 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 since 31 March 2004, the date of which the latest audited financial statements of the Group were made up.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

Certified Public Accountants Hong Kong Member Firm of Grant Thornton International

==> picture [117 x 34] intentionally omitted <==

28 February 2005

The Directors

China Merchants DiChain (Asia) Limited Units 3207-8, 32/F. West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding 廣州美日物流有限公司 (“Guangzhou Meiri”) for the years ended 31 December 2002, 2003 and 2004 (the “Relevant Periods”). This report is for the purpose of inclusion in the circular (the “Circular”) dated 28 February 2005 issued by China Merchants DiChain (Asia) Limited (the “Company”) in connection with the acquisition of 60% equity interest in Guangzhou Meiri (the “Acquisition”) by 迪辰倉儲服務（深圳）有限公司 (“DWS”), a wholly owned subsidiary of the Company. The Acquisition is made through the acquisition of 24% equity interest in Guangzhou Meiri by DWS pursuant to an acquisition agreement dated 13 November 2004 entered into among DWS and Wan Gui Ping, Liu Xiao Hong, Tu Zhao Lu, Chen Ke Hai and Zhu Mei Qi (collectively, the “Vendors”) and a capital investment in the amount of RMB4.5 million (approximately HK$4.2 million) in Guangzhou Meiri by DWS pursuant to an investment agreement dated 13 November 2004 entered into between DWS and the Vendors.

Guangzhou Meiri is a domestic company established in the People’s Republic of China (the “PRC”) on 29 April 2001. Guangzhou Meiri is engaged in the logistics business and operations in the PRC.

No audited financial statements have been prepared for Guangzhou Meiri since its establishment. For the purpose of the Acquisition, the directors of Guangzhou Meiri have prepared the management accounts of Guangzhou Meiri for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong and in compliance with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Accounts”). We have, for the purpose of this report, performed an independent audit of the Accounts in accordance with Statements of Auditing Standards and have examined the Accounts in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the HKICPA.

The summaries of the income statements, the statements of changes in equity and cash flow statements for the Relevant Periods and of the balance sheets of Guangzhou Meiri as at 31 December 2002, 2003 and 2004 (the “Summaries”) set out in this report have been prepared based on the Accounts.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

The directors of Guangzhou Meiri are responsible for preparing the Accounts which give a true and fair view. In preparing the Accounts, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of the Company are responsible for the Summaries. It is our responsibility to form an independent opinion, based on our examination and review, on such information and to report our opinion to you.

In our opinion, the Summaries set out below together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of Guangzhou Meiri for the Relevant Periods and of the states of its affairs as at 31 December 2002, 2003 and 2004.

I. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by Guangzhou Meiri in arriving at the Summaries as set out in this report are as follows:

1. Basis of preparation

The Summaries have been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong and comply with all applicable Hong Kong Financial Reporting Standards issued by the HKICPA.

2. Revenue recognition

Revenue from rendering of services is recognised when the agreed services have been provided.

Rental income under operating leases is recognised on a straight-line basis over the terms of the relevant leases.

Interest income is recognised on a time proportion basis by reference to the principal outstanding and the rate applicable.

3. Fixed assets

• (i) Depreciation

Depreciation is provided to write off the cost of fixed assets over their estimated useful lives, using the straight-line method, at the following rates per annum:

Leasehold improvement	Over the lease terms
Furniture and office equipment	20% – 331/3%
Computer equipment and software	20% – 331/3%

(ii) Measurement bases

Fixed assets are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

expenditure relating to the fixed assets is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets.

When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.

4. Trade receivables

Trade receivables, which generally have credit terms of not more than 60 days, are recognised and carried at original invoiced amount less provision for doubtful debts, when collection of the full amount is no longer probable. Bad debts are written off as incurred.

5. Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Annual rentals applicable to such operating leases are charged to the income statement on a straight-line basis over the lease terms.

6. Foreign currencies

Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Gains and losses arising on exchange are dealt with in the income statement.

7. Income tax

Income tax comprises current and deferred tax.

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

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.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

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

Deferred tax assets and liabilities are not discounted. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

8. Related parties

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

9. Cash and cash equivalents

Cash comprises cash on hand and demand deposits repayable on demand with any bank or other financial institution. Cash includes deposits denominated in foreign currencies.

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of Guangzhou Meiri’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

10. Impairments

The carrying amounts of Guangzhou Meiri’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(ii) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

II. RESULTS

The following is a summary of the income statements of Guangzhou Meiri for the Relevant Periods:

Notes Turnover (a) Cost of services Gross profit Administrative expenses Profit/(loss) from operating activities (b) Finance costs (c) Profit/(loss) before taxation Taxation (d) Net loss for the year	Years ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 2,924 5,694 23,876 (2,388) (4,044) (20,120) 536 1,650 3,756 (871) (1,596) (5,464) (335) 54 (1,708) – – (93) (335) 54 (1,801) (82) (163) (732) (417) (109) (2,533)

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(a) Turnover

Revenue from the provision of logistics services Rental income from warehousing (b) Profit/(loss) from operating activities Profit/(loss) from operating activities is arrived at after charging: Auditors’ remuneration Depreciation Operating lease rental for buildings Staff costs, including directors’ emoluments Provision for doubtful debts Bad debts written off (c) Finance costs Interest on other loan wholly repayable within five years

Years ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 1,751 4,562 18,336 1,173 1,132 5,540 2,924 5,694 23,876 Years ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – – 32 65 205 915 1,443 4,723 461 851 2,510 – – 334 – 26 45 Years ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 93

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(d) Taxation and deferred taxation

No provision for Hong Kong profits tax has been made as Guangzhou Meiri has no assessable profits derived in Hong Kong during the Relevant Periods. Taxes on profits assessable elsewhere have been calculated at the applicable rates of tax prevailing in the jurisdiction in which Guangzhou Meiri operates, based on existing legislation, interpretations and practices in respect thereof during the Relevant Periods.

During the Relevant Periods, Guangzhou Meiri was subject to the PRC corporate income tax (“CIT”) at a deemed rate ranging from 2.5% to 3.3% on the amount of gross income. Its tax expenses had no relationship with its accounting profit/(loss).

	Years	ended 31 December	ended 31 December
	2002	2003	2004
	HK$’000	HK$’000	HK$’000
CIT	82	163	732

There were no material deferred tax assets or liabilities as of 31 December 2002, 2003 and 2004.

(e) Loss per share

The loss per share information for each of the Relevant Periods has not been presented as the directors of the Company consider such presentation not meaningful.

(f) Directors’ emoluments

The aggregate amounts of emoluments payable to the directors of Guangzhou Meiri during the Relevant Periods are as follows:

	Years	ended 31 December	ended 31 December
	2002	2003	2004
	HK$’000	HK$’000	HK$’000
Basic salaries, allowances and benefits in kind	122	108	322

The emoluments of the directors fell within the RMBnil – RMB1,000,000 band.

During the Relevant Periods, no emoluments were paid by Guangzhou Meiri to any of the directors as an inducement to join or upon joining Guangzhou Meiri, or as compensation for loss of office.

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

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(g) Five highest paid individuals

The five individuals whose emoluments were the highest in Guangzhou Meiri during the Relevant Periods include two directors in 2002, one director in 2003 and three directors in 2004 whose emoluments are reflected in Note II(f) above. The emoluments paid to the three remaining highest paid, non-director individuals in 2002, the four remaining highest paid, non-director individuals in 2003 and the two remaining highest paid, non-director individuals in 2004 are as follows:

	Years	ended 31 December	ended 31 December
	2002	2003	2004
	HK$’000	HK$’000	HK$’000
Basic salaries, allowances and benefits in kind	90	177	158

The emoluments of the highest paid, non-director individuals fell within the RMBnil – RMB1,000,000 band.

During the Relevant Periods, no emoluments were paid by Guangzhou Meiri to any of the five highest paid individuals as an inducement to join or upon joining Guangzhou Meiri, or as compensation for loss of office.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

III. BALANCE SHEETS

The following is a summary of the balance sheets of Guangzhou Meiri as at 31 December 2002, 2003 and 2004:

Notes ASSETS AND LIABILITIES Non-current assets Fixed assets (a) Prepaid capital contribution (b) Current assets Trade receivables (c) Prepayments, deposits and other receivables Amounts due from equity-holders (d) Bank and cash balances Current liabilities Trade payables (e) Accrued liabilities and other payables Amounts due to equity-holders (d) Amount due to a fellow subsidiary (f) Other loan (g) Provision for tax Net current assets/(liabilities) Total assets less current liabilities CAPITAL AND RESERVES Paid-in capital (h) Accumulated losses Equity-holders’ funds

As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 33 278 887 – – 2,123 33 278 3,010 581 1,565 5,340 104 332 2,644 2 – 47 80 423 794 767 2,320 8,825 452 321 2,375 71 563 2,142 – 1,406 – – – 50 – – 943 70 210 751 593 2,500 6,261 174 (180) 2,564 207 98 5,574 953 953 8,962 (746) (855) (3,388) 207 98 5,574

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(a) Fixed assets

Cost At 1 January 2002 Additions At 31 December 2002 and 1 January 2003 Additions At 31 December 2003 and 1 January 2004 Additions At 31 December 2004 Accumulated depreciation At 1 January 2002 Charge for the year At 31 December 2002 and 1 January 2003 Charge for the year At 31 December 2003 and 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2002 At 31 December 2003 At 31 December 2004	Computer Leasehold Furniture and equipment and improvement office equipment software HK$’000 HK$’000 HK$’000 – 18 79 – 2 – – 20 79 168 30 112 168 50 191 228 270 316 396 320 507 – 7 27 – 6 26 – 13 53 11 13 41 11 26 94 71 41 93 82 67 187 – 7 26 157 24 97 314 253 320	Total HK$’000 97 2
		99 310
		409 814
		1,223
		34 32
		66 65
		131 205
		336
		33
		278
		887

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(b) Prepaid capital contribution

On 15 December 2004, Guangzhou Meiri and 江西迪辰物流有限公司 (“Jiangxi Dichain”), a fellow subsidiary of Guangzhou Meiri, entered into a joint venture agreement (“JV Agreement”) to establish a joint venture in Inner Mongolia, namely, 內蒙古迪辰物流有限公司 (“Inner Mongolia Dichain”). Pursuant to the JV Agreement, Guangzhou Meiri would make capital contribution of RMB4,750,000 (approximately HK$4,481,000), which represented 95% of equity interest in Inner Mongolia Dichain while Jiangxi Dichain would make capital contribution of RMB250,000 (approximately HK$236,000), which represented 5% of equity interest in Inner Mongolia Dichain. As at the balance sheet date, Guangzhou Meiri made capital contribution of RMB2,250,000 (approximately HK$2,123,000).

Particulars of Inner Mongolia Dichain are as follows:

			Percentage
	Place of		of equity
	registration and	Registered	attributable to	Principal
Name	operation	capital	Guangzhou Meiri	activities
內蒙古迪辰物流有限公司	PRC	RMB5,000,000	95%	Engaged in
		(Note)		logistics
				business and
				operation
				in the PRC

Note: Inner Mongolia Dichain is a domestic company with an operating period of twenty years commencing on 19 January 2005. The registered capital is RMB5,000,000 at the date of establishment. RMB2,500,000 was paid up as at 31 December 2004, of which RMB2,250,000 was contributed by Guangzhou Meiri and the remaining amount of RMB250,000 was contributed by Jiangxi Dichain.

Inner Mongolia Dichain was not established until 19 January 2005 and therefore no consolidation of Inner Mongolia Dichain’s financial results, assets and liabilities was made by the directors of the Company in the Summaries.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(c) Trade receivables

The ageing analysis of Guangzhou Meiri’s trade receivables is as follows:

Within 60 days 61 – 180 days Less: Provision for doubtful debts	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 417 866 4,091 164 699 1,583 581 1,565 5,674 – – (334 581 1,565 5,340	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 417 866 4,091 164 699 1,583 581 1,565 5,674 – – (334 581 1,565 5,340
		5,674 (334
		5,340

(d) Amounts due from/(to) equity-holders

The balances with equity-holders are unsecured, interest-free and repayable on demand.

(e) Trade payables

The ageing analysis of Guangzhou Meiri’s trade payables is as follows:

Within 60 days 61 – 180 days	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 452 277 2,335 – 44 40 452 321 2,375	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 452 277 2,335 – 44 40 452 321 2,375
		2,375

(f) Amount due to a fellow subsidiary

The amount due to a fellow subsidiary is unsecured, interest-free and repayable on demand.

(g) Other loan

The other loan is unsecured, bears interest at a monthly rate of 2% and repayable within one year.

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

(h) Paid-in capital

As at 1 January 2002, 31 December 2002 and 2003 Capital contributions during the year As at 31 December 2004	RMB’000 1,010 8,490 9,500	HK$’000 953 8,009
		8,962

The registered capital of Guangzhou Meiri was RMB1,010,000 at the date of establishment, which was fully paid up. During the year ended 31 December 2004, the registered capital of Guangzhou Meiri increased by RMB8,490,000 to RMB9,500,000 which was fully paid in that year.

(i) Operating lease commitments

As lessee

Guangzhou Meiri leases its properties under operating lease arrangements for terms ranging from one to three years.

The total future minimum lease payments under non-cancellable operating leases are payable as follows:

Payable within one year Payable in the second to fifth years, inclusive	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 792 1,840 5,685 256 1,218 5,874 1,048 3,058 11,559	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 792 1,840 5,685 256 1,218 5,874 1,048 3,058 11,559
		11,559

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

As lessor

Guangzhou Meiri sub-leases its properties under operating leases with lease terms of one to three years. The total future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

Receivable within one year Receivable in the second to fifth years, inclusive	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 520 704 4,910 259 133 29 779 837 4,939	As at 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 520 704 4,910 259 133 29 779 837 4,939
		4,939

(j) Capital commitments

At 31 December 2004, Guangzhou Meiri had commitments in respect of equity injection into its joint venture amounting to RMB2,500,000 (2002 and 2003: Nil), details of which have been disclosed in Note III(b).

IV. STATEMENTS OF CHANGES IN EQUITY

The statements of changes in equity of Guangzhou Meiri for the Relevant Periods are as follows:

Accumulated Paid-in capital losses HK$’000 HK$’000 Balance at 1 January 2002 953 (329) Net loss for the year – (417) Balance at 31 December 2002 and 1 January 2003 953 (746) Net loss for the year – (109) Balance at 31 December 2003 and 1 January 2004 953 (855) Capital contributions 8,009 – Net loss for the year – (2,533) Balance at 31 December 2004 8,962 (3,388)	Total HK$’000 624 (417
	207 (109
	98 8,009 (2,533
	5,574

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

V. CASH FLOW STATEMENTS

The cash flow statements of Guangzhou Meiri for the Relevant Periods are as follows:

Profit/(loss) before taxation Adjustments for: Finance costs Depreciation Operating profit/(loss) before working capital changes Increase in trade receivables Decrease/(increase) in prepayments, deposits and other receivables (Increase)/decrease in balances with equity-holders Increase/(decrease) in trade payables (Decrease)/increase in accrued liabilities and other payables Increase in amount due to a fellow subsidiary Cash generated from/(used in) operations PRC tax paid Interest paid Net cash generated from/(used in) operating activities Cash flows from investing activities Purchases of fixed assets Capital contribution made for establishment of a joint venture Net cash used in investing activities Cash flows from financing activities Capital contributions made by equity-holders Proceeds from other loan Net cash generated from financing activities Increase in bank and cash balances Bank and cash balances at beginning of year Bank and cash balances at end of year Analysis of balances of cash and cash equivalents Bank and cash balances

Years ended 31 December 2002 2003 2004 HK$’000 HK$’000 HK$’000 (335) 54 (1,801) – – 93 32 65 205 (303) 119 (1,503) (513) (984) (3,775) 471 (228) (2,312) (2) 1,408 (1,453) 433 (131) 2,054 (31) 492 1,579 – – 50 55 676 (5,360) (12) (23) (191) – – (93) 43 653 (5,644) (2) (310) (814) – – (2,123) (2) (310) (2,937) – – 8,009 – – 943 – – 8,952 41 343 371 39 80 423 80 423 794 80 423 794

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ACCOUNTANTS’ REPORT OF GUANGZHOU MEIRI

APPENDIX II

VI. SEGMENT INFORMATION

All the assets and liabilities of Guangzhou Meiri are located in the PRC and its operations are considered by the directors to belong to one business segment of logistics business and operations in the PRC. Consequently, no further analysis of Guangzhou Meiri’s business and geographical segments is disclosed.

VII. ULTIMATE HOLDING COMPANY

As at 31 December 2004, the ultimate holding company of Guangzhou Meiri was DiChain Holdings Limited, a limited company incorporated in Hong Kong.

VIII. SIGNIFICANT SUBSEQUENT EVENT

Subsequent to the balance sheet date, Inner Mongolia Dichain was established with an operating period of twenty years commencing on 19 January 2005.

IX. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Guangzhou Meiri in respect of any period subsequent to 31 December 2004.

Yours faithfully, Grant Thornton

Certified Public Accountants Hong Kong

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

Certified Public Accountants Hong Kong Member Firm of Grant Thornton International

==> picture [117 x 34] intentionally omitted <==

28 February 2005

The Directors

China Merchants DiChain (Asia) Limited Units 3207-8, 32/F. West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding 江西迪辰物流有限公司 (“Jiangxi Dichain”) for the period from 9 September 2004 (date of establishment) to 31 December 2004 (the “Period”). The report is for the purpose of inclusion in the circular (the “Circular”) dated 28 February 2005 issued by China Merchants DiChain (Asia) Limited (the “Company”) in connection with the acquisition of 60% equity interest in Jiangxi Dichain (the “Acquisition”) by 迪辰 倉儲服務 (深圳)有限公司 (“DWS”), a wholly owned subsidiary of the Company. The Acquisition is made through the acquisition of 60% equity interest in Jiangxi Dichain by DWS pursuant to an acquisition agreement entered into among DWS, Wan Gui Ping, Liu Xiao Hong, Tu Zhao Lu, Chen Ke Hai and Zhu Mei Qi, who are the vendors, dated 13 November 2004.

Jiangxi Dichain is a domestic company established in the People’s Republic of China (the “PRC”) on 9 September 2004. During the Period, Jiangxi Dichain has not yet commenced operation.

No audited financial statements have been prepared for Jiangxi Dichain since its establishment. For the purpose of the Acquisition, the directors of Jiangxi Dichain have prepared the management accounts of Jiangxi Dichain for the Period in accordance with accounting principles generally accepted in Hong Kong and in compliance with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Accounts”). We have, for the purpose of this report, performed an independent audit of the Accounts in accordance with Statements of Auditing Standards and have examined the Accounts in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the HKICPA.

The Financial Information set out in this report has been prepared based on the Accounts.

The directors of Jiangxi Dichain are responsible for preparing the Accounts which give a true and fair view. In preparing the Accounts, it is fundamental that appropriate accounting policies are selected and applied consistently. The directors of the Company are responsible for the Financial Information. It is our responsibility to form an independent opinion, based on our examination and review, on such information and to report our opinion to you.

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

In our opinion, the Financial Information set out below together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of Jiangxi Dichain for the Period and of the state of its affairs as at 31 December 2004.

I. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by Jiangxi Dichain in arriving at the Financial Information as set out in this report are as follows:

1. Basis of preparation

The Financial Information has been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong and comply with all applicable Hong Kong Financial Reporting Standards issued by the HKICPA.

2. Income tax

Income tax comprises current and deferred tax.

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

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.

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

Deferred tax assets and liabilities are not discounted. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

3. Foreign currencies

Transactions in foreign currencies are translated into Hong Kong dollars at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Gains and losses arising on exchange are dealt with in the income statement.

4. Related parties

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

5. Cash and cash equivalents

Cash comprises cash on hand and demand deposits repayable on demand with any bank or other financial institution. Cash includes deposits denominated in foreign currencies.

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of Jiangxi Dichain’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

II. RESULTS

The income statement of Jiangxi Dichain has not been presented in this report as Jiangxi Dichain did not have any material income nor expenses during the Period.

No director received any fees or other emoluments in respect of services rendered to Jiangxi Dichain during the Period.

No auditors’ remuneration was incurred by Jiangxi Dichain as no audited financial statements have been prepared for Jiangxi Dichain since its establishment.

No provision for Hong Kong profits tax and PRC corporate income tax has been made as Jiangxi Dichain did not generate any taxable profits in Hong Kong and in the PRC for the Period. Consequently, no reconciliation between tax expense and accounting profit has been presented.

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

III. BALANCE SHEET

The balance sheet of Jiangxi Dichain as at 31 December 2004 is as follows:

Notes ASSETS Non-current asset Prepaid capital contribution (a) Current assets Amount due from an equity-holder (b) Amount due from a fellow subsidiary (c) Bank balance Net assets CAPITAL AND RESERVES Paid-in capital (d) Equity-holders’ funds	HK$’000 236 70 50 116
	236
	472
	472
	472

(a) Prepaid capital contribution

On 15 December 2004, Jiangxi Dichain and 廣州美日物流有限公司 (“Guangzhou Meiri”), a fellow subsidiary of Jiangxi Dichain, entered into a joint venture agreement (“JV Agreement”) to establish a joint venture in Inner Mongolia, namely, 內蒙古迪辰物流有限公司 (“Inner Mongolia Dichain”). Pursuant to the JV Agreement, Jiangxi Dichain would make capital contribution of RMB250,000 (approximately HK$236,000), which represented 5% of equity interest in Inner Mongolia Dichain while Guangzhou Meiri would make capital contribution of RMB4,750,000 (approximately HK$4,481,000), which represented 95% of equity interest in Inner Mongolia Dichain. As at the balance sheet date, Jiangxi Dichain made capital contribution of RMB250,000 (approximately HK$236,000).

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

Particulars of Inner Mongolia Dichain are as follows:

			Percentage
	Place of		of equity
	registration and	Registered	attributable to	Principal
Name	operation	capital	Jiangxi Dichain	activities
內蒙古迪辰物流有限公司	PRC	RMB5,000,000	5%	Engaged in
		(Note)		logistics
				business and
				operation
				in the PRC

Note: Inner Mongolia Dichain is a domestic company with an operating period of twenty years commencing on 19 January 2005. The registered capital is RMB5,000,000 at the date of establishment. RMB2,500,000 was paid up as at 31 December 2004, of which RMB250,000 was contributed by Jiangxi Dichain and the remaining amount of RMB2,250,000 was contributed by Guangzhou Meiri.

(b) Amount due from an equity-holder

The amount due from an equity-holder is unsecured, interest-free and repayable on demand.

(c) Amount due from a fellow subsidiary

The amount due from a fellow subsidiary is unsecured, interest-free and repayable on demand.

(d) Paid-in capital

	RMB’000	HK$’000
Capital contribution as at date of establishment
and 31 December 2004	500	472

The registered capital of Jiangxi Dichain was RMB500,000 at the date of establishment, which was fully paid up during the Period.

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

IV. STATEMENT OF CHANGES IN EQUITY

The statement of changes in equity of Jiangxi Dichain for the Period is as follows:

Paid-in capital HK$’000 Balance at 9 September 2004 (date of establishment) – Capital contribution 472 Balance at 31 December 2004 472	Total HK$’000 – 472
	472

V. CASH FLOW STATEMENT

The cash flow statement of Jiangxi Dichain for the Period is as follows:

Cash flows from operating activities Increase in amount due from an equity-holder Increase in amount due from a fellow subsidiary Net cash outflow from operating activities Cash flow from investing activity Capital contribution made for establishment of a joint venture Net cash outflow from investing activity Cash flow from financing activity Capital contributions made by the equity-holders Net cash generated from financing activity Increase in bank balance Bank balance at 9 September 2004 (date of establishment) Bank balance at 31 December 2004 Analysis of balances of cash and cash equivalents Bank balance	HK$’000 (70 (50
	(120
	(236
	(236
	472
	472
	116 –
	116
	116

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ACCOUNTANTS’ REPORT OF JIANGXI DICHAIN

APPENDIX III

VI. ULTIMATE HOLDING COMPANY

As at 31 December 2004, the ultimate holding company of Jiangxi Dichain was DiChain Holdings Limited, a limited company incorporated in Hong Kong.

VII. SIGNIFICANT SUBSEQUENT EVENT

Subsequent to the balance sheet date, Inner Mongolia Dichain was established with an operating period of twenty years commencing on 19 January 2005.

VIII. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Jiangxi Dichain in respect of any period subsequent to 31 December 2004.

Yours faithfully, Grant Thornton Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENALRGED GROUP

Certified Public Accountants Hong Kong Member Firm of Grant Thornton International

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28 February 2005

The Directors China Merchants DiChain (Asia) Limited Units 3207-8, 32/F. West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

Dear Sirs,

• Re: China Merchants DiChain (Asia) Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and 廣州美日物流有限公司 (“Guangzhou Meiri”) and 江西迪辰 物流有限公司 (“Jiangxi Dichain”) (collectively together with the Group referred to as the “Enlarged Group”)

We report on the unaudited pro forma statement of assets and liabilities of the Enlarged Group (the “Pro Forma Balance Sheet”) set out on pages 90 to 92 in Appendix IV of the circular dated 28 February 2005 (the “Circular”), which has been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the acquisition of 60% equity interest in Guangzhou Meiri and the acquisition of 60% equity interest in Jiangxi Dichain might have affected the assets and liabilities of the Group as at 30 September 2004. The basis of preparation of the Pro Forma Balance Sheet is set out on page 90 of the Circular.

RESPONSIBILITIES

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

It is our responsibility to form an opinion as required by Paragraph 4.29 of the Listing Rules on the Pro Forma Balance Sheet and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Balance Sheet beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

BASIS OF OPINION

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Balance Sheet with the directors of the Company.

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

The Pro Forma Balance Sheet is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it may not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group had the transaction actually occurred on 30 September 2004 or of the Enlarged Group at any future date or for any future periods.

OPINION

In our opinion:

• a. the Pro Forma Balance Sheet has been properly compiled by the directors of the Company on the basis stated;

• b. such basis is consistent with the accounting policies of the Group; and

• c. the adjustments are appropriate for the purposes of the Pro Forma Balance Sheet as disclosed pursuant to the Paragraph 4.29 of the Listing Rules.

Yours faithfully, Grant Thornton Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Enlarged Group, assuming the acquisition of 60% equity interest in Guangzhou Meiri and the acquisition of 60% equity interest in Jiangxi Dichain had been completed as at 30 September 2004 for the purpose of illustrating how these acquisitions might have affected the financial position of the Group. As it is prepared for illustrative purpose only, it may not purport to represent what the assets and liabilities of the Enlarged Group are on the completion of the acquisitions.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the unaudited consolidated balance sheet of the Group as at 30 September 2004 extracted from the interim report of the Company for the six months ended 30 September 2004, the audited balance sheet of Guangzhou Meiri as at 31 December 2004 extracted from the accountants’ report on Guangzhou Meiri set out in Appendix II of this circular, and the audited balance sheet of Jiangxi Dichain as at 31 December 2004 extracted from the accountants’ report on Jiangxi Dichain set out in Appendix III of this circular and adjusted for the acquisitions.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes: Non-current assets Investment property Property, plant and equipment Prepaid capital contribution Interest in an associate Deposit paid for acquisition of additional interest in an associate Goodwill Current assets Inventories Trade receivables, prepayments, deposits and other receivables Loans receivable Investments in securities Amount due from an investee Amount due from ultimate holding company Amounts due from equity-holders Amount due from a related company Amount due from a fellow subsidiary Bank balances and cash Current liabilities Deposit received for disposal of interest in an associate Trade payables, accrued liabilities and other payables Amounts due to related companies Amount due to a fellow subsidiary Amounts due to minority shareholders of subsidiaries Tax payable Obligations under a finance lease – due within one year Other loan – due within one year Bank borrowings – due within one year Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Obligations under a finance lease – due after one year Bank borrowings – due after one year Minority interests Net assets Shareholders’ funds	– 91 – Guangzhou The Group Meiri HK$’000 HK$’000 700 – 122,493 887 – 2,123 27,470 – 12,613 – – – 163,276 3,010 180 – 7,661 7,984 17,000 – 39,638 – 7,195 – 16 – – 47 24 – – – 43,459 794 115,173 8,825 35,865 – 15,182 4,517 2,426 – – 50 1,813 – 207 751 78 – – 943 96,022 – 151,593 6,261 (36,420) 2,564 126,856 5,574 86 – – – 86 – – – 126,770 5,574 126,770 5,574	Jiangxi Dichain Pro forma adjustments HK$’000 HK$’000 HK$’000 HK$’000 (a) (b) (c) – – 236 – – – 3,448 236 – – – – – – 70 – 50 (50) 116 (6,792) (283) 236 – – – – (50) – – – – – – 236 472 – – – – 2,230 189 472 472 (5,574) (472)	The Enlarged Group HK$’000 700 123,380 2,359 27,470 12,613 3,448 169,970 180 15,645 17,000 39,638 7,195 16 117 24 – 37,294 117,109 35,865 19,699 2,426 – 1,813 958 78 943 96,022 157,804 (40,695) 129,275 86 – 86 2,419 126,770 126,770

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes:

• (a) The adjustment reflects:

• (1) the acquisition of the 24% equity interest in 廣州美日物流有限公司 (“Guangzhou Meiri”) and represents the excess of consideration of RMB2.7 million (approximately HK$2.5 million) satisfied in cash, over the Group’s share of the fair value of the identified assets and liabilities acquired.

• (2) the capital contribution of RMB4.5 million (approximately HK$4.2 million) in Guangzhou Meiri after the acquisition of the 24% equity interest in Guangzhou Meiri. Subsequent to the contribution, Guangzhou Meiri will be owned as to 60% by the Group and become an indirect subsidiary of the Company.

• (b) The adjustment reflects the acquisition of the 60% equity interest in 江西迪辰物流有限公司 (“Jiangxi Dichain”) at a consideration of RMB0.3 million (approximately HK$0.3 million) satisfied in cash.

• (c) The adjustment reflects the elimination of current accounts between Guangzhou Meiri and Jiangxi Dichain.

• (d) The cost of the acquisitions and the fair value of the Group’s share of the identified assets and liabilities acquired to be recognised by the Group in its accounting books and records will have to be assessed in accordance with the Hong Kong Generally Accepted Accounting Principles upon completion of the acquisitions. As a result of the assessment, the cost of the acquisitions to be incurred by the Group and the fair value of the Group’s share of the identified assets and liabilities acquired may be different from the amounts stated in notes (a) & (b) above for the purpose of preparation of the unaudited pro forma statement of assets and liabilities.

– 92 –

GENERAL INFORMATION

APPENDIX V

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(Note 2) Held by trust(Note 3)_ Iain Ferguson Bruce Beneficial owner Barry John Buttifant Beneficial owner	Number of Shares 3,096,553,083 64,305,437 63,604,530 127,909,967 1,000,000 1,000,000	Percentage of issued share capital 56.94% 1.18% 1.17%
		2.35% 0.02% 0.02%

Notes:

1. 63,854,189 Shares are held by Farsight Holdings Limited (“Farsight”) and 3,032,698,894 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.

2. 60,000,000 Shares of the 64,305,437 Shares are held by First Horizon Limited, which is 100% owned by Dr. Fung, therefore, Dr. Fung is deemed to be interested in the 60,000,000 Shares.

3. Dr. 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.

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GENERAL INFORMATION

APPENDIX V

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:

				Percentage of
				the existing issued
				share capital (without
				taking into account
				the increase in issued
			Number of	share capital which
		Number of	underlying	may result from the
Name of directors	Capacity	share options	shares	exercise of the options)
Fan Di	Beneficial owner	67,000,000	67,000,000	1.23%
Li Xinggui	Beneficial owner	23,000,000	23,000,000	0.42%
Wu Shiyue	Beneficial owner	35,000,000	35,000,000	0.64%
Zheng Yingsheng	Beneficial owner	10,500,000	10,500,000	0.19%
Zhou Li Yang	Beneficial owner	15,500,000	15,500,000	0.29%
Wang Shizhen	Beneficial owner	7,000,000	7,000,000	0.13%
Robert Fung Hing Piu	Beneficial owner	3,500,000	3,500,000	0.06%
Iain Ferguson Bruce	Beneficial owner	3,500,000	3,500,000	0.06%
Barry John Buttifant	Beneficial owner	3,500,000	3,500,000	0.06%
Victor Yang	Beneficial owner	2,000,000	2,000,000	0.04%

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 register 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.

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GENERAL INFORMATION

APPENDIX V

C. SHAREHOLDERS WITH NOTIFIABLE INTERESTS

As at the Latest Practicable Date, so far as is known to the Directors, the following persons other than the Directors or chief executive of the Company 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	63,854,189	1.17%
	Long	Interest in corporation	3,032,698,894	55.77%
DiChain Holdings	Long	Beneficial owner	3,032,698,894	55.77%

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 3,032,698,894 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 (other than the Directors or chief executive of the Company), had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 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. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors and his/her associates was interested in any business apart from the Group’s businesses which competes or is likely to compete, either directly or indirectly, with business of the Group.

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GENERAL INFORMATION

APPENDIX V

G. 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 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 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.

H. 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 to subscribe for 20,000,000 Shares 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 are not valid ones and no material losses to be arose from such proceedings.

• (b) A former director of the Company prior to October 2001, a company controlled by this director and a trust company with the former director’s family members as the beneficiaries claimed against Dransfield in May 2004 for unpaid remuneration and expenses and working capital in the aggregate amount of HK$6,974,502.44. The proceeding of the plaintiff’s application for summary judgement is pending filing affirmation by the parties.

• (c) In August 2003, Bank of China (Hong Kong) Limited has claimed against (i) Dransfield Secretarial & Administrative Services Limited; and (ii) Dransfield Finance Limited, wholly owned subsidiaries of the Company, for amount due under a mortgage in the sum of HK$5,707,652.21 and further interest and vacant possession of a property owned by Dransfield Secretarial & Administrative Services Limited. Vacant possession of the property has already been taken in August 2001. The proceeding is pending filing of affirmation in reply by Bank of China (Hong Kong) Limited since November 2003.

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.

– 96 –

GENERAL INFORMATION

APPENDIX V

I. MATERIAL CONTRACTS

The following contracts (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 DWS, Shenzhen SEG Company Limited (“SEG”) and Shenzhen SEG Scientific Navigations Company Limited (“SEG Scientific”) on 5 December 2003, pursuant to which DWS 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 sale and purchase agreements entered into between DWS and Su Zhou Industrial Park Asset Management Company Limited on 4 February 2004, and each of Guangzhou De Yi Investment Company Limited, Shenzhen Hua Ke Industrial Company Limited and Shenzhen Jie Chuang Electronic Company Limited on 5 February 2004, pursuant to which DWS 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);

• (c) the disposal agreements each dated 19 August 2004 entered into between DWS and each of Mr. Ying Hua Dong (“Mr. Ying”) and 10 other PRC residents who are the management of SEG Scientific in relation to the disposal of the 21,000,000 shares in SEG Scientific at a total consideration of RMB28.35 million (equivalent to about HK$26.75 million) or RMB1.35 (equivalent to about HK$1.27) per share;

• (d) the transfer agreements dated 19 August 2004 entered into between DWS, DiChain Systems (Shenzhen) Company Limited as the guarantor and each of SEG and Mr. Ying in relation to the disposal of 8,317,500 shares and 2,242,500 shares in SEG Scientific to SEG and Mr. Ying at a total consideration of about RMB13.9 million (equivalent to about HK$13.2 million);

• (e) the Investment Agreement;

• (f) the Guangzhou Meiri Acquisition Agreement;

• (g) the Jiangxi Dichain Acquisition Agreement; and

• (h) the JV Agreement.

J. 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

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• (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 Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

• (d) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

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

K. QUALIFICATION OF EXPERT

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

Name Qualification

Grant Thornton Certified Public Accountants

As at the Latest Practicable Date, Grant Thornton 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, Grant Thornton did not have any direct or indirect interests 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 accounts of the Group were made.

Grant Thornton 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.

L. GENERAL

• (i) The company secretary and the qualified accountant of the Company is Mr. Yu Wai Kit. Mr. Yu is a member of Australian Society of Certified Practising Accountants and a member of Hong Kong Institute of Certified Public Accountant.

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• (ii) The English text of this circular shall prevail over their respective Chinese text in case of any inconsistency.

M. 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 14 March 2005.

• (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 financial information of the Group, the text of which is set out in Appendix I to this circular;

• (v) the accountants’ reports of Guangzhou Meiri and Jiangxi Dichain, the text of which are set out in Appendix II and III to this circular;

• (vi) the letter from Grant Thornton report on unaudited pro forma statement of assets and liabilities of the Enlarged Group, the text of which is set out in Appendix IV to this circular;

• (vii) the letter of consent from Grant Thornton referred to in paragraph K above;

• (viii) the circular regarding the disposal of the Group’s interests in Shenzhen SEG Scientific Navigations Company Limited dated 30 September 2004;

• (ix) the annual report of the Company for each of the two years ended 31 March 2004; and

• (x) the interim report of the Company for the six months ended 30 September 2004.

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