THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in CATIC International Holdings Limited, you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or 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.

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CATIC INTERNATIONAL HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

VERY SUBSTANTIAL DISPOSAL RELATING TO THE DISPOSAL OF FEA HOLDINGS LIMITED

A notice convening a special general meeting of CATIC International Holdings Limited to be held at Narcissus Room, 27/F., The Park Lane Hong Kong, 310 Gloucester Road, Hong Kong on 6 December 2007 at 10:00 a.m. is set out on pages 119 to 120 to this circular. Whether or not you are able to attend the meeting in person and vote at such meeting, you are advised to read the notice and complete the enclosed form of proxy in accordance with the instructions printed thereof as soon as possible and return it to the Company’s head office and principal place of business at Unit B, 15/F., United Centre, 95 Queensway, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting if you so wish.

For identification purpose only

16 November 2007

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I − Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix II – Financial Information of the Group . . . . . . . . . . . . . . . . . . . .	99
Appendix III – Unaudited Pro Forma Financial Information
of the Remaining Group. . . . . . . . . . . . . . . . . . . . . . . . . . . .	102
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	112
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	119

– i –

DEFINITIONS

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

“Agreement”	the agreement dated 29 August 2007 entered into between
	the Company and the Purchaser in relation to the sale and
	purchase of the Sale Shares
“Announcement”	the announcement dated 30 August 2007 of the Company
“Associate”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Business Day(s)”	a day other than a Saturday, Sunday or a public holiday
	on which banks in Hong Kong are open for general
	business
“BVI” “CATIC”	the British Virgin Islands China National Aero-
	Technology Import & Export Corporation, a state-owned
	enterprise in the PRC which through its subsidiaries
	indirectly holds an aggregate 38.54% equity interest in
	the Company
“Closing Accounts”	the unaudited consolidated accounts of the FEA Group
	for the period from 1 May 2007 and ended on a day
	falling on the last day of two calendar months prior to the
	Completion
“Company”	CATIC International Holdings Limited, a company
	incorporated in Bermuda with limited liability, the issued
	shares of which are listed on the main board of the Stock
	Exchange
“Completion”	completion of the Agreement
“Completion Date”	a day within fifteen Business Days following the day on
	which all the Conditions shall have been satisfied or
	waived in accordance with the Agreement or such other
	date as shall be agreed in writing by the Company and the
	Purchaser
“Conditions”	the conditions precedent of the Agreement

– 1 –

DEFINITIONS

“connected person(s)”	has the meaning ascribed to it under the Listing Rules
“Consideration”	the aggregate consideration of HK$205 million payable
	by the Purchaser to the Company for the Sale Shares
	under the Agreement
“Deposit”	a deposit of HK$20 million paid by the Purchaser to the
	Company upon the submission of the first draft
	announcement to the Stock Exchange, i.e. 29 August
	2007
“Directors”	the directors of the Company
“FEA”	FEA Holdings Limited, an investment holding company
	incorporated in the Cayman Islands with limited liability
	and a direct wholly-owned subsidiary of the Company
“FEA Group”	FEA and its subsidiaries
“Group”	the Company and its subsidiaries, including the FEA
	Group
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Third Party”	a third party independent of the Company and connected
	persons of the Company
“Latest Practicable Date”	13 November 2007, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Long Stop Date”	31 December 2007 or such later date as the Company and
	the Purchaser may otherwise agree in writing
“PRC”	the People’s Republic of China which, for the purpose of
	this circular, excludes Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan
“Purchaser”	Showmost Group Limited, a company incorporated in the
	BVI which is an Independent Third Party

– 2 –

DEFINITIONS

“Remaining Group”	the Group which has remained subsequent to the
	Completion
“Sale Shares”	18,880,000 fully paid ordinary shares, being the entire
	issued share capital of FEA which is owned by the
	Company
“SGM”	the special general meeting of the Company to be
	convened and held for the Shareholders to consider and,
	if thought fit, approve the disposal of the Sale Shares
	under the Agreement
“Share(s)”	share(s) of HK$0.10 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of the Share(s)
“Speed Profit”	Speed Profit Enterprises Limited, a company
	incorporated in BVI with limited liability and a wholly-
	owned subsidiary of Tacko
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Tacko”	Tacko International Limited, a company incorporated in
	BVI with limited liability and a wholly-owned subsidiary
	of CATIC (H.K.) Limited which in turn is wholly-owned
	by CATIC
“Vendor Debt”	a sum of HK$13 million owed by the Company to FEA as
	at the date of the Agreement
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“%”	percent

– 3 –

LETTER FROM THE BOARD

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CATIC INTERNATIONAL HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

Executive Directors: Mr. Fu Shula (Chairman) Mr. Wang Xinkuo (Deputy Chairman) Mr. Ji Guirong (Deputy Chairman and Chief Executive Officer) Mr. Ma Zhiping Mr. Diao Weicheng Mr. Liu Rongchun Mr. Ren Haifeng (Deputy Chief Executive Officer)

Non-executive Director: Mr. Ip Tak Chuen, Edmond

Registered office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Head office and principal place of business Unit B, 15/F United Centre 95 Queensway Hong Kong

Independent non-executive Directors:

16 November 2007

Mr. Chu Yu Lin, David Mr. Li Ka Cheung, Eric Mr. Li Zhaoxi

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL RELATING TO THE DISPOSAL OF FEA HOLDINGS LIMITED

INTRODUCTION

On 29 August 2007, the Company entered into the Agreement with the Purchaser pursuant to which the Company agreed to sell, and the Purchaser agreed to purchase the Sale Shares, for a Consideration of HK$205 million.

As the relevant percentage ratios calculated under Chapter 14 of the Listing Rules in respect of the disposal of the Sale Shares exceeds 75%, the entering into of the Agreement constitutes a very substantial disposal of the Company under the Listing Rules and is therefore

For identification purpose only

– 4 –

LETTER FROM THE BOARD

subject to Shareholders’ approval. The SGM will be convened and held for the Shareholders to consider and, if thought fit, to approve the disposal of the Sale Shares under the Agreement. As the Purchaser is an Independent Third Party and no Shareholder has a material interest in the Agreement which is different from the other Shareholders, no Shareholder is required to abstain from voting in respect of the relevant resolution to approve the disposal of the Sale Shares under the Agreement at the SGM. Each of Tacko and Speed Profit, indirect wholly-owned by CATIC and together being the controlling Shareholder, has undertaken to vote in favour of the aforesaid resolution.

The purpose of this circular is to provide the Shareholders with, among other things, further information on the Agreement, financial information in relation to the Group and the Remaining Group, the notice of the SGM and other information as required under the Listing Rules.

THE AGREEMENT

Date: 29 August 2007

Parties: The Company, being the vendor Showmost Group Limited, being the Purchaser

Assets to be disposed of

The Sale Shares which represents the entire issued share capital of FEA. FEA is a direct wholly-owned subsidiary of the Company which, through its subsidiaries, is principally engaged in design, manufacture and installation of curtain walls, aluminium windows and other related products for buildings. On Completion, FEA will cease to be a subsidiary of the Company.

The unaudited consolidated net assets value of the FEA Group was approximately HK$170.2 million as at 31 December 2006. For the two years ended 31 December 2006, the unaudited consolidated net profits attributable to the FEA Group before taxation were approximately HK$17.3 million and HK$20.5 million respectively. During the same period, the unaudited consolidated net profits attributable to the FEA Group after taxation were approximately HK$14.3 million and HK$18.4 million respectively.

Consideration

The Consideration of HK$205 million shall be satisfied in cash as to (i) HK$20 million as the Deposit upon submission of the first draft announcement to the Stock Exchange and (ii) the remaining HK$185 million on the Completion Date.

– 5 –

LETTER FROM THE BOARD

The Consideration was determined after arm’s length negotiations and with reference to the unaudited consolidated net assets value of the FEA Group of approximately HK$170.2 million as at 31 December 2006, which was compiled after the late adjustment on the corresponding figure of approximately HK$171.2 million as stated in the Announcement based on the unaudited management accounts of the FEA Group.

Conditions

The Completion is conditional on:

(a) resolutions in relation to the disposal of the Sale Shares under the Agreement being approved by the Shareholders in the SGM;
(b) the production of Closing Accounts by the Company to the Purchaser;
(c) all warranties given by the Company to the Purchaser being true, accurate in all material respects, and not misleading in any material respect, as at the date of the Agreement and remaining to be so upon and as at the Completion Date;
(d) the Board having passed resolutions approving the Company’s execution and performance of its obligations under the Agreement and such other documents incidental to the transactions contemplated under the Agreement;
(e) all relevant consents and approvals for the sale and purchase of the Sale Shares including any third parties and the Stock Exchange or other relevant regulatory bodies and government approvals having been obtained; and
(f) the Company’s full repayment or settlement of the Vendor Debt in clear fund or in such manner as the Purchaser may agree.

The Purchaser may at any time waive all or any of the Conditions (save for (a) and (e) above) in writing on or before 5:00 p.m. on the Completion Date (or such later date as may be agreed between the parties). As at the Latest Practicable Date, apart from the Condition (d), none of the Conditions above has been fulfilled.

If any of the Conditions is not fulfilled by the Company (or waived by the Purchaser) on or before 5:00 p.m. on the Long Stop Date, the Agreement shall automatically terminate and all obligations of the parties to the Agreement shall cease to have effect immediately upon such termination and all parties shall cease to have any claim against or liability or obligation but all rights and liabilities of the parties which have accrued before termination shall continue to exist. The Company shall return the Deposit to the Purchaser. If Condition (a) above is not fulfilled for the reasons that each of Tacko and Speed Profit has not voted in favour of the resolution approving the disposal of the Sale Shares under the Agreement at the SGM and the Agreement is terminated as a result thereof, the Company shall return the Deposit together with a sum of HK$10 million to the Purchaser being liquidated damages.

– 6 –

LETTER FROM THE BOARD

Completion

Completion shall take place before 5:00 p.m. on the Completion Date or at such other time as agreed between the Company and the Purchaser.

Termination

If the Agreement is terminated (other than due to the default of the Purchaser), the Deposit shall be refunded by the Company to the Purchaser without interest. If the Purchaser is the defaulting party and the Agreement is terminated as a result thereof, the Purchaser agrees to pay to the Company a sum of HK$10 million being liquidated damages for the Purchaser’s termination of the Agreement.

Payment of the aforesaid damages shall be satisfied by the Company’s forfeiture of 50% of the Deposit.

Undertakings

Save with the prior written consent of the Purchaser, the Company undertakes to the Purchaser that it will not, for a period of three years after the date of the Agreement, either on its own behalf or jointly with any other person, directly or indirectly be engaged, concerned or interested, whether in any capacity, in carrying on any business in competition with the business carried on by any member of the FEA Group, comprising the design, manufacture and installation of curtain walls, aluminium windows and other related products, as carried on at that date and in any territory in which such business was carried on at such date.

INFORMATION ON THE GROUP

The Group is principally engaged in the undertaking of building facade projects, generation and sale of electricity and steam power, and investments in aero-technology related businesses including helicopter manufacturing and aero-survey operations. The Group will cease to engage in the undertaking of building facade projects upon Completion.

INFORMATION ON THE PURCHASER

The Purchaser is an investment holding company jointly owned by Lotus China Fund II, L.P. and Starflash Investment Limited. Lotus China Fund II, L.P. is a private equity fund dedicated to direct investments in China and China-related businesses, including real estate investments. Starflash Investment Limited is an investment holding company wholly-owned by Mr. Kwong Wui Chun.

To the best of the Board’s knowledge, information and belief and having made all reasonable enquiries, the Purchaser, Lotus China Fund II, L.P., Starflash Investment Limited and Mr. Kwong Wui Chun are Independent Third Parties.

– 7 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF ENTERING INTO THE AGREEMENT

The turnover contributed by facade contracting works to the Group amounted to approximately HK$885.1 million in 2006, representing almost a 100% increase over that in 2005. As stated in the 2006 annual report of the Company, such substantial increase in turnover in 2006 was mainly due to new facade contracts secured in 2005. However, the increased turnover only resulted in moderate growth in gross profit. As set out in the 2006 interim report of the Company, the price of aluminium rose sharply since the second half of 2005 and notwithstanding that the price of aluminium has stabilized towards the end of 2006, it has pushed up the material costs in 2006, thereby squeezing the profit margin of the Group. Besides, two facade contracting projects suffered substantial cost overrun in 2006.

According to the Current Market Outlook 2007 published by The Boeing Company (“Boeing”), the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft, 28,600 new airplanes will be delivered over the next 20 years from 2006 and will make up almost 80% of the 36,400 airplanes in service in 2026. The intense competitiveness of the airline industry demands that these new airplanes bring substantial benefits in the closely related areas of airplane performance and economics.

Boeing further forecasted that, over the next 20 years, the center of gravity of the world airline fleet will move substantially toward the Asia-Pacific region. China leads long-term growth in domestic air travel. Its capacity growth rate of 8.1% will combine with increased load factors to propel its airline traffic from just under a fifth the size of the North American domestic market in 2006 to over half the size of the North American market in 20 years’ time.

In light of the aforesaid market environment of facade contracting business and the prospects of world aviation market, it is the long term strategy of the Group to further develop and diversify its aero-technology related business, as evidenced by signing of an agreement in relation to the proposed establishment of a joint venture company, Cac-commercial Manufacturing Ltd., in early 2006 by the Group with its indirect holding company, to engage in the research and development, design and manufacture of, and provision of technical services for, parts and components for commercial aircraft. The Board considers that the future of the aero-technology related business will benefit from the expected continuous growth of the world aviation market, in particular, the PRC aviation market.

The disposal of the Sale Shares represents an opportunity for the Group to realize its investment in the facade contracting business and allows the Group to focus its resources on the aero-technology related business. Based on the unaudited consolidated accounts of the FEA Group as at 31 December 2006, a gain on disposal of the Sale Shares of approximately HK$34.8 million (before expenses and tax) is expected to result from the disposal. The net proceeds of the disposal of the Sale Shares, after deducting relating expenses, are estimated to be approximately HK$202.8 million and are intended to be used to finance investment in aero-technology related projects should appropriate opportunities arise and/or to be applied as general working capital.

The Board considers that the terms of the Agreement are fair and reasonable, and the entering into of the Agreement is in the interests of the Company and the Shareholders as a whole.

– 8 –

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE AGREEMENT

Immediately following the Completion, FEA will cease to be a subsidiary of the Company. The financial results of the FEA Group will no longer be consolidated into the financial results of the Remaining Group. As set out in the pro forma financial information of the Remaining Group in Appendix III to this circular, the financial effects on the earnings, assets and liabilities of the Group are set out as follows:

Earnings

Upon Completion, the Remaining Group will cease to own the FEA Group and cease to engage in the undertaking of building facade projects. For the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, the Group’s segmental results in facade contracting works wholly represented the performance of the FEA Group. It is expected that there will not be any further contribution from this segment immediately after Completion.

Assuming the Completion had taken place on 1 January 2007, the Remaining Group would record a gain on the disposal of the Sale Shares of approximately HK$34.8 million (before expenses and tax).

Assets and liabilities

The disposal of the Sale Shares will reduce the Remaining Group’s total assets and total liabilities by approximately HK$221 million and HK$243 million respectively with reference to the Consideration received and receivable and unaudited net assets value of the FEA Group as at 31 December 2006.

MANAGEMENT AND DISCUSSION ANALYSIS ON THE REMAINING GROUP

Liquidity, capital structure and financial resources

Assuming that the completion had taken place on 30 June 2007, the current assets of the Remaining Group would be HK$719,153,000, including cash and bank balances and time deposits in an aggregate of HK$571,458,000. The Group’s current liabilities as at 30 June 2007 would be HK$222,394,000.

In May 2007, the Company issued 720,000,000 ordinary Shares to an existing Shareholder of the Company and granted 80,000,000 share options with an exercise price of HK$0.34 per share to certain Independent Third Parties, for an aggregate cash consideration, before placing expenses, of HK$244,800,000; and issued 68,000,000 ordinary Shares resulting from the exercise of share options at an exercise price of HK$0.34 per share for an aggregate cash consideration of HK$23,120,000. As at 30 June 2007, the Remaining Group’s equity attributable to the Shareholder would be HK$900,141,000, comprising issued capital of HK$477,330,000 and reserves of HK$422,811,000. The Remaining Group’s outstanding bank borrowings as at 30 June 2007 would be HK$87,831,000. The Remaining Group’s gearing ratio, calculated on the basis of total bank borrowings as a percentage of equity attributable to the Shareholder, was 9.8%.

– 9 –

LETTER FROM THE BOARD

The Remaining Group’s banking facilities are mainly utilised for capital expenditure and general working capital requirements.

Charges on the Remaining Group’s assets

As at 30 June 2007, the following Remaining Group’s assets were pledged to secure the Group’s bank borrowings:

(a) the Remaining Group’s investment property;
(b) certain of the Remaining Group’s land and buildings; and
(c) certain of the Remaining Group’s short term time deposits.

Exposure to fluctuations in exchange rates

The Remaining Group’s monetary assets, liabilities and transactions are principally denominated in Hong Kong dollars, Renminbi or United States dollars. No significant exposure to fluctuations in exchange rates exists. The Remaining Group will continue to monitor the movement in exchange rates and take necessary measures if the situations so justify so as to minimise any adverse impact that fluctuations of exchange rates might have on the Remaining Group.

Material acquisitions and disposals

On 4 January 2006, Sino-Aviation Investments Limited (“Sino-Aviation Investments”), a wholly-owned subsidiary of the Company, entered into a joint venture agreement (the “JV Agreement”) with CATIC, the indirect controlling Shareholder, and Chengdu Aircraft Industry (Group) Corporation Ltd. (“Chengdu Aircraft”), for the establishment of a joint venture to engage in the research and development, design and manufacture of, and provision of technical services for, parts and components for commercial aircraft. According to the JV Agreement, the total registered capital of the joint venture will be RMB100 million (equivalent to approximately HK$103 million), of which 40%, 15% and 45% respectively, will be contributed by Sino-Aviation Investments, CATIC and Chengdu Aircraft. The JV Agreement is conditional upon, (i) the internal approval obtained by each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 30 June 2007, the JV agreement was not effective as the conditions stated above have not been fulfilled.

On 25 January 2007, Billirich Investment Limited (“Billirich”), a wholly-owned subsidiary of the Company, entered into a convertible bond agreement with Sino Gas Group Limited (“Sino Gas”), pursuant to which convertible bonds with an aggregate principal amount of HK$15,600,000 were issued by Sino Gas to Billirich. The convertible bonds are interest-bearing at 2% per annum and Billirich has the right to convert the convertible bonds into ordinary shares of Sino Gas at HK$0.65 per share (subject to adjustment upon the change in the capital structure of Sino Gas) and the convertible bonds will mature at two years after

– 10 –

LETTER FROM THE BOARD

the issue of the convertible bonds. Besides, upon the occurrence of certain mandatory conversion events, Sino Gas shall have the right to require the conversion of the principal amount then outstanding and all interest accrued thereon into ordinary shares of Sino Gas at the then conversion price. Assuming full conversion of the convertible bonds at the conversion price of HK$0.65 per share, the convertible bonds can be converted into 24,000,000 ordinary shares of Sino Gas. As of 25 May 2007, the conversion price of HK$0.65 per share was adjusted to HK$0.633 per share as a result of the change in capital structure of Sino Gas.

On 15 March 2007, the Remaining Group disposed of 30,000,000 ordinary shares of Sino Gas (which were designated as equity investment at fair value through profit or loss in prior year) to an independent third party and issued a call option to that party to acquire at an exercise price of HK$0.5 per share from the Remaining Group a maximum of an additional 45,000,000 ordinary shares of Sino Gas. Such call option grants the option holder the right to acquire those shares within 24 months from the date of the issue of the option.

Save as disclosed above, the Remaining Group had no other material acquisitions or disposals during the period.

Contingent liabilities

As at 30 June 2007, the Remaining Group had contingent liabilities in respect of guarantees for banking facilities granted to major suppliers of HK$115,762,000.

Employees and remuneration policy

As at 30 June 2007, there were 281 employees in the Remaining Group. Staff remuneration packages are determined in consideration of market conditions and the performance of the individuals concerned, and are subject to review from time to time. The Remaining Group also provides other staff benefits including medical insurance and grants discretionary incentive bonuses and share options to eligible staff based on their performance and contributions to the Remaining Group.

FUTURE PROSPECTS OF THE REMAINING GROUP

As abovementioned, Boeing forecasted that the center of gravity of the world airline fleet will move substantially toward the Asia-Pacific region. More than one third of the value of new airplanes delivered will be accounted for by Asia-Pacific, compared with about a quarter by North America and a quarter for Europe and the Commonwealth of Independent States. In light of the favourable PRC aviation market and growing domestic air travel, the Board is optimistic about the future prospects of the aero-technology related business. To further develop this fast growing segment, the Group has been closely monitoring substantial aero-technology related projects in the PRC.

– 11 –

LETTER FROM THE BOARD

SGM

A proxy form for use at the SGM is enclosed with this circular. Whether or not you intend to attend the meeting in person, you are requested to complete the proxy form in accordance with the instructions printed thereon and return it to the Company’s head office and principal place of business at Unit B, 15/F., United Centre, 95 Queensway, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

PROCEDURE FOR DEMANDING A POLL

Pursuant to Article 70 of the Bye-laws of the Company, a poll (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) may be demanded by the Chairman of the meeting or:

(i) by at least three Shareholders present in person or by a duly authorized corporate representative or by proxy for the time being entitled to vote at the meeting; or
(ii) by any Shareholder present in person or by a duly authorized corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or
(iii) by any Shareholder present in person or by a duly authorized corporate 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 the shares conferring that right.

The demand for a poll may be withdrawn, with the consent of the Chairman of the meeting, at any time before the close of the meeting or the taking of the poll, whichever is the earlier.

RECOMMENDATION

For the reasons stated in the paragraph headed “Reasons for and benefits of entering into the Agreement” above, the Board considers that the terms of the Agreement are fair and reasonable as far as the Shareholders are concerned. Accordingly, the Board recommends the Shareholders to vote in favour of the relevant resolutions at the SGM to approve the Agreement.

– 12 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is also drawn to the respective financial information relating to the Group and the Remaining Group and other information set out in the appendices to this circular and the notice of the SGM.

Yours faithfully,

By Order of the Board

CATIC International Holdings Limited Fu Shula

Chairman

– 13 –

ACCOUNTANTS’ REPORT

APPENDIX I

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the Company’s independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

==> picture [147 x 39] intentionally omitted <==

18th Floor

Two International Finance Centre 8 Finance Street Central Hong Kong

16 November 2007

The Board of Directors

CATIC International Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding CATIC International Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007 (the “Relevant Periods”), prepared on the basis set out in Note 2 of Section II below, for the inclusion in the circular (the “Circular”) issued by the Company dated 16 November 2007 in connection with a very substantial disposal resulting from the proposed disposal of the Group’s entire 100% equity interests in its subsidiary, FEA Holdings Limited (“FEA”), which is also the holding company of a group of subsidiaries engaging in the business of design, manufacture, and installation of curtain walls, fabricated aluminium windows and other related products for buildings (the “Disposal Group”), pursuant to the Sale and Purchase Agreement dated 29 August 2007 entered into between Showmost Group Limited, an independent third party company incorporated in the British Virgin Islands, and the Company (the “Disposal”). The comparative unaudited financial information of the Group for the six months ended 30 June 2006 (the “Comparative Financial Information”) was prepared on the same basis for the purpose of this report.

The Company was incorporated in Bermuda with limited liability under Section 90 of the Bermuda Companies Act 1981 (as amended) on 25 October 1991 and is engaged in investment holding. As at the date of this report, the Company had direct and indirect interests in the principal subsidiaries set out in Note 4 of Section II below.

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

The financial information set out in this report, including the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Group for each of the Relevant Periods, and the consolidated balance sheets of the Group and the balance sheets of the Company as at 31 December 2004, 2005 and 2006 and 30 June 2007 together with the notes thereto (the “Financial Information”) has been prepared based on the audited financial statements of the Group and the Company, in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), after making adjustments as we consider appropriate to restate the audited financial statements of the Group and the Company

– 14 –

ACCOUNTANTS’ REPORT

APPENDIX I

to reflect the effect of the new and revised HKFRSs that had become effective at the date of this report and has been prepared on the basis set out in Note 2 of Section II below.

The directors of the Company are responsible for the preparation and the true and fair presentation of the Financial Information in accordance of HKFRSs. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of the Financial Information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion solely to you.

Procedures Performed in Respect of the Relevant Periods

We have audited the financial statements of the Group and the Company for each of the Relevant Periods, which were prepared in accordance with HKFRSs. We conducted our audits in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA.

For the purpose of this report, we have examined the audited financial statements of the Group and the Company for each of the Relevant Periods and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Procedures Performed in Respect of the Six Months Ended 30 June 2006

For the purpose of this report, we have also performed a review of the Comparative Financial Information for the six months ended 30 June 2006, for which the directors of the Company are responsible, in accordance with the Statement of Auditing Standard 700 “Engagements to Review Interim Financial Reports” issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the Comparative Financial Information in respect of the six months ended 30 June 2006.

Opinion in Respect of the Relevant Periods

In our opinion, on the basis of preparation as set out in Note 2 of Section II below, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004, 2005 and 2006 and 30 June 2007, and of the consolidated results and cash flows of the Group for each of the Relevant Periods.

Review Conclusion in Respect of the Six Months Ended 30 June 2006

On the basis of our review which does not constitute an audit, for the purpose of this report, we are not aware of any material modifications that should be made to the results and cash flows of the Group for the six months ended 30 June 2006.

– 15 –

ACCOUNTANTS’ REPORT

APPENDIX I

(I) FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENTS

Year 2004 HK$ 645,024,247 (582,818,749)	ended 31 December 2005 2006 HK$ HK$ 608,145,255 1,057,154,405 (528,221,117) (963,582,918)	ended 31 December 2005 2006 HK$ HK$ 608,145,255 1,057,154,405 (528,221,117) (963,582,918)	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 543,533,938 357,183,051 (498,613,107) (306,478,553) 44,920,831 50,704,498 7,076,399 12,026,509 (35,521,328) (40,805,121) (411,000) (595,320) (3,114,077) (2,679,375) – 3,015,000 – 2,970,452 16,777,318 (271,480) 4,579,980 5,573,051 – – (1,000,000) (600,000) – (10,174,569) 33,308,123 19,163,645 (4,118,346) 63,529 29,189,777 19,227,174 27,076,612 15,036,613 2,113,165 4,190,561 29,189,777 19,227,174 HK0.70 cent HK0.36 cent N/A HK0.35 cent	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 543,533,938 357,183,051 (498,613,107) (306,478,553) 44,920,831 50,704,498 7,076,399 12,026,509 (35,521,328) (40,805,121) (411,000) (595,320) (3,114,077) (2,679,375) – 3,015,000 – 2,970,452 16,777,318 (271,480) 4,579,980 5,573,051 – – (1,000,000) (600,000) – (10,174,569) 33,308,123 19,163,645 (4,118,346) 63,529 29,189,777 19,227,174 27,076,612 15,036,613 2,113,165 4,190,561 29,189,777 19,227,174 HK0.70 cent HK0.36 cent N/A HK0.35 cent
62,205,498 22,787,676 (54,211,592) (2,766,851) (3,379,886) 5,700,000 87,538 115,816 (2,477,620) – (4,000,000) – 24,060,579 (3,548,133)	79,924,138 16,289,808 (62,677,662) (2,333,772) (6,186,442) 2,150,000 2,014,487 – 4,380,463 6,069,856 (3,000,000) – 36,630,876 (6,643,372)	93,571,487 14,802,075 (74,158,017) 2,392,740 (5,366,089) – (8,444,086) 22,030,133 (22,170,693) – (4,800,000) 37,796,956 55,654,506 (4,551,391)	44,920,831 7,076,399 (35,521,328) (411,000) (3,114,077) – – 16,777,318 4,579,980 – (1,000,000) – 33,308,123 (4,118,346)	50,704,498 12,026,509 (40,805,121 (595,320 (2,679,375 3,015,000 2,970,452 (271,480 5,573,051 – (600,000 (10,174,569
				19,163,645 63,529
20,512,446	29,987,504	51,103,115	29,189,777
16,171,837 4,340,609	26,053,554 3,933,950	47,949,807 3,153,308	27,076,612 2,113,165	15,036,613 4,190,561
20,512,446 HK0.43 cent HK0.43 cent	29,987,504 HK0.70 cent N/A	51,103,115 HK1.22 cents N/A	29,189,777 HK0.70 cent N/A

– 16 –

ACCOUNTANTS’ REPORT

APPENDIX I

CONSOLIDATED BALANCE SHEETS

31 December 2004 2005 HK$ HK$ 12,750,000 14,900,000 165,103,161 174,489,261 7,332,360 28,578,268 40,498,783 40,498,783 35,725,554 113,854,477 33,759,462 30,759,462 17,780,478 10,066,600 6,906,389 4,606,389 459,763 1,200,340 42,120,000 – 21,698,113 – 10,000,000 10,000,000	31 December 2004 2005 HK$ HK$ 12,750,000 14,900,000 165,103,161 174,489,261 7,332,360 28,578,268 40,498,783 40,498,783 35,725,554 113,854,477 33,759,462 30,759,462 17,780,478 10,066,600 6,906,389 4,606,389 459,763 1,200,340 42,120,000 – 21,698,113 – 10,000,000 10,000,000	2006 HK$ 14,900,000 194,482,989 28,578,881 40,498,783 48,361,553 25,959,462 91,102,100 3,700,000 2,255,113 – – 9,360,000	30 June 2007 HK$ 17,915,000 234,918,227 29,900,159 40,498,783 53,663,124 25,359,462 101,716,641 7,722,000 2,251,219 – – 9,360,000
394,134,063 6,530,140 27,587,875 163,768,980 47,004,078 – – – – 51,026,000 144,014,574 – 439,931,647 126,757,579 57,369,408 1,404,117 12,368,283 77,745,506 – 76,734,551 196,090 352,575,534 87,356,113 481,490,176	428,953,580 11,605,365 72,904,015 212,802,210 44,569,291 38,219,995 – 11,702,100 – 44,811,621 85,266,784 – 521,881,381 103,165,723 98,447,190 3,299,061 10,230,124 64,247,841 – 156,342,048 208,857 435,940,844 85,940,537 514,894,117	459,198,881 15,623,659 70,550,508 251,727,962 58,253,066 – 79,887,500 – – 64,045,974 112,092,141 – 652,180,810 113,568,100 109,568,693 2,552,579 10,301,487 75,577,926 – 167,613,883 222,456 479,405,124 172,775,686 631,974,567	523,304,615
			14,720,959 44,210,565 171,987,504 58,306,625 – 62,235,000 – 1,709,015 89,401,055 417,407,312 1,243,689
			861,221,724
			147,146,316 138,742,230 4,391,087 10,719,864 62,383,660 4,902,470 96,735,095 170,823
			465,191,545
			396,030,179
			919,334,794

– 17 –

APPENDIX I

ACCOUNTANTS’ REPORT

Notes NON-CURRENT LIABILITIES Deferred tax liabilities 22 Finance lease payables 35 Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital 36 Reserves 38(a) Minority interests Total equity	2004 HK$ 5,593,710 489,154 6,082,864 475,407,312 374,148,100 70,794,976 444,943,076 30,464,236 475,407,312	31 December 2005 HK$ 6,084,065 280,297 6,364,362 508,529,755 374,148,100 100,310,580 474,458,680 34,071,075 508,529,755	2006 HK$ 4,511,909 57,841 4,569,750 627,404,817 398,530,300 195,801,919 594,332,219 33,072,598 627,404,817	30 June 2007 HK$ 3,514,282 –
				3,514,282
				915,820,512

				477,330,300 401,227,053
				878,557,353 37,263,159
				915,820,512

– 18 –

ACCOUNTANTS’ REPORT

APPENDIX I

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Attributable to	Attributable to	equity holders of the parent	equity holders of the parent	equity holders of the parent
Issued capital HK$ 372,068,100 – –	Share premium account HK$ 1,348,500 – –	Property, plant and equipment revaluation reserve HK$ 319,865 21,798 –	Reserve fund HK$ (note 38(a)) 2,851,777 – –	Exchange fluctuation reserve HK$ 795,539 – –	Retained profits HK$ 48,661,660 – 16,171,837	Total HK$ 426,045,441 21,798 16,171,837	Minority interests HK$ 26,123,627 – 4,340,609	Total equity HK$ 452,169,068 21,798 20,512,446
– – 2,080,000	– – 624,000	21,798 – –	– 887,892 –	– – –	16,171,837 (887,892) –	16,193,635 – 2,704,000	4,340,609 – –	20,534,244 – 2,704,000
374,148,100 – –							30,464,236 – –	475,407,312 3,483,413 (21,363)
– –	– –	(21,363) –	– –	3,483,413 –	– 26,053,554	3,462,050 26,053,554	– 3,933,950	3,462,050 29,987,504
– – –	– – –	(21,363) – –	– 861,119 –	3,483,413 – –	26,053,554 (861,119) –	29,515,604 – –	3,933,950 – (327,111)	33,449,554 – (327,111)
374,148,100	1,972,500 320,300 4,600,788 4,278,952 89,138,040* 474,458,680						34,071,075	508,529,755

– 19 –

APPENDIX I

ACCOUNTANTS’ REPORT

Attributable to equity holders of the parent

Issued capital HK$ 374,148,100 – – –	Share premium account HK$ 1,972,500 – – –	Property, plant and equipment revaluation reserve HK$ 320,300 – – 1,452,489	Available- for-sale investment revaluation reserve HK$ – – 37,184,956 –	Reserve fund HK$ (note 38(a)) 4,600,788 – – –	Exchange fluctuation reserve HK$ 4,278,952 5,959,708 – –	Retained profits HK$ 89,138,040 – – –	Total HK$ 474,458,680 5,959,708 37,184,956 1,452,489	Minority interests HK$ 34,071,075 – – –	Total equity HK$ 508,529,755 5,959,708 37,184,956 1,452,489
– –	– –	1,452,489 –	37,184,956 –	– –	5,959,708 –	– 47,949,807	44,597,153 47,949,807	– 3,153,308	44,597,153 51,103,115
– – 26,850,000 – (2,467,800) –	– – 4,027,500 (1,148,490) 65,369 –	1,452,489 – – – – –	37,184,956 – – – – –	– 1,251,808 – – – –	5,959,708 – – – – –	47,949,807 (1,251,808) – – – –	92,546,960 – 30,877,500 (1,148,490) (2,402,431) –	3,153,308 – – – – (4,151,785)	95,700,268 – 30,877,500 (1,148,490) (2,402,431) (4,151,785)
398,530,300								33,072,598	627,404,817

– 20 –

APPENDIX I

ACCOUNTANTS’ REPORT

		A	ttributable to	equity holder	s of the parent	s of the parent			Minority interests HK$ 33,072,598 – – –	Total equity HK$ 627,404,817 6,038,975 (2,898,254) 600,200
Issued capital HK$ 398,530,300 – – –	Share premium account HK$ 4,916,879 – – –	Share option reserve HK$ – – – –	Property, plant and equipment revaluation reserve HK$ 1,772,789 – – 600,200	Available- for-sale investment revaluation reserve HK$ 37,184,956 – (2,898,254) –	Reserve fund HK$ (note 38(a)) 5,852,596 – – –	Exchange fluctuation reserve HK$ 10,238,660 6,038,975 – –	Retained profits HK$ 135,836,039 – – –	Total HK$ 594,332,219 6,038,975 (2,898,254) 600,200
– –	– –	– –	600,200 –	(2,898,254) –	– –	6,038,975 –	– 15,036,613	3,740,921 15,036,613	– 4,190,561	3,740,921 19,227,174
– – 72,000,000 – 6,800,000 –	– – 155,060,084 (2,472,400) 16,320,000 15,078,929	– – 17,739,916 – – (15,078,929)	600,200 – – – – –	(2,898,254) – – – – –	– 506,816 – – – –	6,038,975 – – – – –	15,036,613 (506,816) – – – –	18,777,534 – 244,800,000 (2,472,400) 23,120,000 –	4,190,561 – – – – –	22,968,095 – 244,800,000 (2,472,400) 23,120,000 –
477,330,300	188,903,492*	2,660,987*	2,372,989*	34,286,702*	6,359,412*	16,277,635*	150,365,836*	878,557,353	37,263,159	915,820,512

These reserves comprise the consolidated reserves of HK$70,794,976, HK$100,310,580, HK$195,801,919 and HK$401,227,053 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively, in the consolidated balance sheets.

– 21 –

ACCOUNTANTS’ REPORT

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENTS

Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506 3,379,886 6,186,442 5,366,089 2,477,620 (4,380,463) 22,170,693 (1,312,249) (1,911,470) (4,698,622) (115,816) – (22,030,133) (186,842) (27,828) – (7,000) – – 11,056,813 12,738,332 13,613,312 (5,700,000) (2,150,000) – (87,538) (2,014,487) 8,444,086 – – (37,796,956) 438,898 952,671 957,163 (8,563,370) – – 2,000,000 1,586,093 (2,972,740) – (6,069,856) – – – 580,000 4,000,000 3,000,000 4,800,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506 3,379,886 6,186,442 5,366,089 2,477,620 (4,380,463) 22,170,693 (1,312,249) (1,911,470) (4,698,622) (115,816) – (22,030,133) (186,842) (27,828) – (7,000) – – 11,056,813 12,738,332 13,613,312 (5,700,000) (2,150,000) – (87,538) (2,014,487) 8,444,086 – – (37,796,956) 438,898 952,671 957,163 (8,563,370) – – 2,000,000 1,586,093 (2,972,740) – (6,069,856) – – – 580,000 4,000,000 3,000,000 4,800,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506 3,379,886 6,186,442 5,366,089 2,477,620 (4,380,463) 22,170,693 (1,312,249) (1,911,470) (4,698,622) (115,816) – (22,030,133) (186,842) (27,828) – (7,000) – – 11,056,813 12,738,332 13,613,312 (5,700,000) (2,150,000) – (87,538) (2,014,487) 8,444,086 – – (37,796,956) 438,898 952,671 957,163 (8,563,370) – – 2,000,000 1,586,093 (2,972,740) – (6,069,856) – – – 580,000 4,000,000 3,000,000 4,800,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 33,308,123 19,163,645 3,114,077 2,679,375 (4,579,980) (5,573,051) (1,824,390) (4,246,743) (16,777,318) 271,480 – – (35,000) 803,424 6,404,457 7,567,095 – (3,015,000) – (2,970,452) – 10,174,569 479,788 473,120 – – (169,000) 600,000 – – 580,000 – 1,000,000 600,000 21,500,757 26,527,462 1,000 3,894 (850,909) – (1,724,319) 902,700 2,908,787 62,452,739 (13,180,309) 79,140,458 (11,670,712) (56,702) 36,139,887 29,173,537 (489,622) 418,377 (964,473) (13,194,266) – – 31,670,087 185,368,199 (4,721,631) (3,642,450) (14,122) (7,430) (3,636,464) (4,361,279) 23,297,870 177,357,040	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 33,308,123 19,163,645 3,114,077 2,679,375 (4,579,980) (5,573,051) (1,824,390) (4,246,743) (16,777,318) 271,480 – – (35,000) 803,424 6,404,457 7,567,095 – (3,015,000) – (2,970,452) – 10,174,569 479,788 473,120 – – (169,000) 600,000 – – 580,000 – 1,000,000 600,000 21,500,757 26,527,462 1,000 3,894 (850,909) – (1,724,319) 902,700 2,908,787 62,452,739 (13,180,309) 79,140,458 (11,670,712) (56,702) 36,139,887 29,173,537 (489,622) 418,377 (964,473) (13,194,266) – – 31,670,087 185,368,199 (4,721,631) (3,642,450) (14,122) (7,430) (3,636,464) (4,361,279) 23,297,870 177,357,040
31,440,981 (76,299) (3,120,000) (2,978,367) 2,248,083 62,795,166 (35,151,593) 17,706,623 2,613,608 (11,701,516) (163,555) 63,613,131 (4,382,868) (49,705) (1,727,682) 57,452,876	44,540,310 (740,577) (3,119,995) (5,075,225) (63,994,681) (50,619,323) 2,948,355 41,077,782 (2,138,159) (13,497,665) – (50,619,178) (7,057,805) (37,718) (1,952,086) (59,666,787)	44,087,398 (1,054,773) (1,560,005) (4,018,294) 20,179,130 (35,953,012) (14,641,551) 11,121,503 71,363 11,330,085 – 29,561,844 (9,117,505) (24,951) (5,963,640) 14,455,748	21,500,757 1,000 (850,909) (1,724,319) 2,908,787 (13,180,309) (11,670,712) 36,139,887 (489,622) (964,473) – 31,670,087 (4,721,631) (14,122) (3,636,464) 23,297,870	26,527,462 3,894 – 902,700 62,452,739 79,140,458 (56,702 29,173,537 418,377 (13,194,266 –
				185,368,199 (3,642,450 (7,430 (4,361,279
				177,357,040

– 22 –

APPENDIX I

ACCOUNTANTS’ REPORT

Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ (29,455,604) (21,613,593) (39,405,544) (39,000,000) 7,020,000 39,780,000 (21,698,113) – – (3,113,600) (5,990,600) (2,340,000) – – – 12,667,562 2,030,206 11,702,100 – – – – – – – (67,678,604) (18,828,724) 1,093,127 23,186 – 1,312,249 1,911,470 4,698,622 18,692,000 6,214,379 (18,594,353)	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ (29,455,604) (21,613,593) (39,405,544) (39,000,000) 7,020,000 39,780,000 (21,698,113) – – (3,113,600) (5,990,600) (2,340,000) – – – 12,667,562 2,030,206 11,702,100 – – – – – – – (67,678,604) (18,828,724) 1,093,127 23,186 – 1,312,249 1,911,470 4,698,622 18,692,000 6,214,379 (18,594,353)	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ (29,455,604) (21,613,593) (39,405,544) (39,000,000) 7,020,000 39,780,000 (21,698,113) – – (3,113,600) (5,990,600) (2,340,000) – – – 12,667,562 2,030,206 11,702,100 – – – – – – – (67,678,604) (18,828,724) 1,093,127 23,186 – 1,312,249 1,911,470 4,698,622 18,692,000 6,214,379 (18,594,353)	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) (9,781,764) (42,947,478) 14,040,000 – – (917,310) – (16,641,404) – (1,313,605) 2,100 3,113,600 – 6,647,126 – 5,352,874 (5,527,438) – 35,000 1,145,769 1,824,390 4,246,743 (14,838,958) (25,355,081) (14,246,670) (66,668,766) 29,729,010 242,327,600 – – – 23,120,000 122,500,000 49,258,961 (118,557,692) (81,565,260) 16,091,528 (38,572,489) (102,782) (109,474) – – – – 49,660,064 194,459,338 58,711,264 305,147,612 85,266,784 112,092,141 127,171 167,559 144,105,219 417,407,312 96,402,065 135,527,659 47,703,154 281,879,653 144,105,219 417,407,312	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) (9,781,764) (42,947,478) 14,040,000 – – (917,310) – (16,641,404) – (1,313,605) 2,100 3,113,600 – 6,647,126 – 5,352,874 (5,527,438) – 35,000 1,145,769 1,824,390 4,246,743 (14,838,958) (25,355,081) (14,246,670) (66,668,766) 29,729,010 242,327,600 – – – 23,120,000 122,500,000 49,258,961 (118,557,692) (81,565,260) 16,091,528 (38,572,489) (102,782) (109,474) – – – – 49,660,064 194,459,338 58,711,264 305,147,612 85,266,784 112,092,141 127,171 167,559 144,105,219 417,407,312 96,402,065 135,527,659 47,703,154 281,879,653 144,105,219 417,407,312
(59,502,379) – – 2,704,000 70,754,717 (50,000,000) (37,074,248) (184,103) – – (13,799,634) (15,849,137) 159,863,711 –	(78,083,556) – – – 118,557,692 (70,754,717) 31,804,522 (196,090) – (327,111) 79,084,296 (58,666,047) 144,014,574 (81,743)	(22,987,899) 29,729,010 (2,402,431) – 120,137,749 (118,557,692) 9,691,778 (208,857) (4,151,785) – 34,237,772 25,705,621 85,266,784 1,119,736	(14,246,670) 29,729,010 – – 122,500,000 (118,557,692) 16,091,528 (102,782) – – 49,660,064 58,711,264 85,266,784 127,171	(66,668,766
				242,327,600 – 23,120,000 49,258,961 (81,565,260 (38,572,489 (109,474 – –
				194,459,338
				305,147,612 112,092,141 167,559
144,014,574	85,266,784	112,092,141	144,105,219
76,997,520 67,017,054	42,638,314 42,628,470	76,884,259 35,207,882	96,402,065 47,703,154	135,527,659 281,879,653
144,014,574	85,266,784	112,092,141	144,105,219

– 23 –

ACCOUNTANTS’ REPORT

APPENDIX I

BALANCE SHEETS OF THE COMPANY

31 December 2004 2005 HK$ HK$ 12,750,000 14,900,000 12,926,450 13,279,358 298,635,740 353,820,369 42,120,000 –	31 December 2004 2005 HK$ HK$ 12,750,000 14,900,000 12,926,450 13,279,358 298,635,740 353,820,369 42,120,000 –	2006 HK$ 14,900,000 13,042,851 354,706,866 –	30 June 2007 HK$ 17,915,000 12,751,269 364,552,856 –
366,432,190 2,861,801 – 28,790,228 31,652,029 985,719 – 985,719 30,666,310	381,999,727 750,131 38,219,995 5,202,494 44,172,620 901,916 35,000,000 35,901,916 8,270,704	382,649,717 4,062,024 – 41,464,405 45,526,429 1,230,807 20,000,000 21,230,807 24,295,622	395,219,125
			1,770,728 – 295,933,108
			297,703,836
			695,052 20,000,000
			20,695,052
			277,008,784
397,098,500	390,270,431	406,945,339	672,227,909

374,148,100 22,950,400	374,148,100 16,122,331	398,530,300 8,415,039	477,330,300 194,897,609
397,098,500	390,270,431	406,945,339	672,227,909

– 24 –

ACCOUNTANTS’ REPORT

APPENDIX I

(II) NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

CATIC International Holdings Limited is a limited liability company incorporated in Bermuda. The registered office of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton, HM 12, Bermuda.

During the Relevant Periods, the Group was involved in the following activities:

(i) the design, manufacture and installation of fabricated aluminium and stainless steel products for buildings, such as curtain wall and cladding systems, windows, doors, skylights and other related products;
(ii) the generation and sale of electric and steam power; and
(iii) the share of profit from the development, manufacture and distribution of EC120 helicopters.

In the opinion of the directors, China National Aero-Technology Import & Export Corporation (“CATIC”), a state-owned enterprise in the People’s Republic of China (the “PRC”), is the Company’s ultimate holding company, which is owned as to 50% by China Aviation Industry Corporation I and 50% by China Aviation Industry Corporation II, both of which are directly under the regulation of the State Council of the PRC.

2. BASIS OF PREPARATION

The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for an investment property, certain plant and equipment, equity investments at fair value through profit or loss and derivative financial instruments, which have been measured at fair value. The Financial Information has been presented in Hong Kong dollars (“HK$”) except when otherwise indicated.

Basis of consolidation

The Financial Information includes the financial statements of the Company and its subsidiaries for the Relevant Periods. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries.

3.1 ADOPTION OF NEW AND REVISED HKFRSs

The HKICPA has issued a number of new and revised HKFRSs which are effective for accounting periods beginning on or after 1 January 2005, 1 December 2005, 1 January 2006 and 1 January 2007.

For the purpose of preparing and presenting the Financial Information, the Group has adopted all these new and revised HKFRSs throughout the Relevant Periods.

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3.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HKFRSs

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

HKFRS 8 Operating Segments HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment HK(IFRIC)-Int 11 HKFRS 2 – Group and Treasury Share Transactions HK(IFRIC)-Int 12 Service Concession Arrangements HKAS 23 (Revised) Borrowing Costs (Revised)

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009. The standard specifies how an entity should report information about its operating segments in annual financial statements and, as a consequential amendment to HKAS 34 Interim Financial Reporting , requires an entity to report selected information about its operating segments in interim financial reports. It also sets out requirements for related disclosures about the products and services provided by the segments, geographical areas in which the Group operates and revenues from the Group’s major customers. This standard will supersede HKAS 14 Segment Reporting .

HK(IFRIC)-Int 11, HK(IFRIC)-Int 12 and HKAS 23 (Revised) shall be applied for annual periods beginning on or after 1 March 2007, 1 January 2008 and 1 January 2009, respectively. The Group expects that the adoption of these new and revised HKFRSs is unlikely to have a significant impact on the Group’s results of operations and financial position.

3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

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

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

Associates

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

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of associates, which was not previously eliminated or recognised in the consolidated reserves, is included as part of the Group’s interests in associates. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

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

Goodwill

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

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

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

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

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

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

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

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

Goodwill previously eliminated against consolidated retained profits

Prior to the adoption of the HKICPA’s Statement of Standard Accounting Practice 30 Business Combinations (“SSAP 30”) in 2001, goodwill arising on acquisition was eliminated against consolidated retained profits in the year of acquisition. The Group applied the transitional provisions of HKFRS 3 that permitted such goodwill to remain eliminated against consolidated retained profits and is not recognised in the income statement when all or part of the business to which the goodwill relates is disposed of or when a cash-generating unit to which the goodwill relates becomes impaired.

Excess over the cost of business combinations

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of the acquisition of associates (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement.

Impairment of non-financial assets other than goodwill

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

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

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in those expense categories consistent with the function of the impaired asset, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

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

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

Property, plant and equipment and depreciation

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

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the property, plant and equipment revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the income statement. Any subsequent revaluation surplus is credited to the income statement to the extent of the deficit previously charged. On disposal of a revalued asset, the relevant portion of the property, plant and equipment revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

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

Land and buildings	Over the lease terms
Leasehold improvements	4 years
Plant and machinery	5 years
Generation plant and related structure	15 years
Furniture, fixtures and equipment	5 years
Motor vehicles	4 years
Tools and moulds	4 years

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

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

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

Construction in progress represents property, plant and equipment which are in their acquisition phase and is stated at cost less any impairment losses, and is not depreciated. The acquisition phase of an asset includes the period when the asset is under construction, installation and testing. Cost comprises the direct costs of construction together with borrowing costs incurred during the asset acquisition period that theoretically could have been avoided if expenditure for the asset had not been made. The capitalisation of borrowing costs ceases when substantially all of the activities necessary to prepare the asset for its intended use are completed. Construction in progress is reclassified to the appropriate category of property, plant and equipment when it is completed and ready for use, notwithstanding any delays in the issue of the relevant commissioning certificates by the relevant authorities.

Investment property

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

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

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

For a transfer from investment property to owner-occupied properties or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use.

Leases

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

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ACCOUNTANTS’ REPORT

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

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

Investments and other financial assets

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

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

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

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include the financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on these investments are recognised in the income statement.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

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

Loans and receivables

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

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Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted securities and financial assets under Project EC120 as set out in notes 20 and 21 to the Financial Information, that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as separate components of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gains or losses previously reported in equity are included in the income statement.

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

Fair value

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

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

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

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

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

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

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Assets carried at cost

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

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement.

Derecognition of financial assets

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

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

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

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

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

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

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

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement.

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ACCOUNTANTS’ REPORT

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

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

Financial guarantee contracts

Financial guarantee contracts in the scope of HKAS 39 are accounted for as financial liabilities. A financial guarantee contract is recognised initially at its fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial guarantee contract, except when such contract is recognised at fair value through profit or loss. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets ; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue .

Derecognition of financial liabilities

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

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

Construction contracts

Construction contracts of a long term nature are stated at cost, plus any attributable profits, less any foreseeable losses, and progress payments received and receivable. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour, and an appropriate proportion of variable and fixed construction overheads, including depreciation on plant and machinery used in construction projects, and capitalised interest on loans to finance specific projects.

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

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

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

Inventories

Inventories for construction contracts, comprising raw materials and sub-materials, are stated at the lower of cost and net realisable value, after making due allowance for any obsolete or slow-moving items. Cost is determined on the first-in, first-out basis. Net realisable value is determined by reference to the underlying specific contracts in progress in which the inventories will ultimately be used.

Inventories for the generation of electric and steam power, comprising mainly coal and spare parts and consumables for repairs and maintenance of machinery and equipment, are stated at the lower of cost and net realisable value, after making due allowance for any obsolete or slow-moving items. Cost is determined on the first-in, first-out basis. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

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Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised as expenses in the income statement in the period in which they are incurred.

Provisions

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

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

Provisions for warranties granted by the Group are recognised based on past experience of the level of repairs, discounted to their present values as appropriate.

Income tax

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

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

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

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

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

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

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

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

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

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

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

Foreign currencies

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

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

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

Revenue recognition

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

(a) from the rendering of contracting works services, based on the stage of completion of the construction contracts; as further explained in the accounting policy for “Recognition of income from construction contracts”;
(b) from the sale of electric and steam power, based on actual consumption derived from the reading of meters during the year;

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ACCOUNTANTS’ REPORT

APPENDIX I

(c) from the development, manufacture and distribution of helicopters, when the Group’s right to receive its share of profit from Project EC120 has been established (note 20) ;
(d) from the rendering of services, when the services are rendered;
(e) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset;
(f) rental income, on a time proportion basis over the lease terms;
(g) government grants, on a systematic basis over the periods necessary to match the grant to the costs that it is intended to compensate;
(h) income relating to the exclusive distributorship of certain helicopter engines, on an accrual basis pursuant to the relevant agreement; and
(i) income from the sale of coal residues, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold.

Recognition of income from construction contracts

Profit on long term construction contracts is recognised in the income statement on the percentage of completion basis when the outcome of each contract can be ascertained with reasonable certainty and when a contract is at least 20% complete, by reference to the total estimated cost of such contract, after making due allowances for contingencies. When the outcome of a construction contract cannot be estimated reliably and when a contract is less than 20% complete, revenue is recognised only to the extent that contract costs incurred are recoverable. Provision is made for any foreseeable losses as soon as such losses are anticipated by management.

The Group makes claims for additional work done, which may arise either under specific circumstances provided for under the contracts, or due to variations made to the contract specifications by its customers. Where the amounts of such claims have not been formally agreed at the balance sheet date, the likely amount receivable as estimated by management, based on all of the information available at the time, is included in the contract value in determining the estimated profit or foreseeable loss on the contract.

Employee benefits

Share-based payment transactions

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

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

Pension schemes and other retirement benefits

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

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ACCOUNTANTS’ REPORT

APPENDIX I

Prior to the MPF Scheme being effective, the Group operated a defined contribution provident fund for those employees who were eligible and had elected to participate in the fund. This fund operated in a way similar to the MPF Scheme, except that when an employee left the fund prior to his/her interest in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group were reduced by the relevant amount of forfeited contributions. Upon the implementation of the MPF Scheme with effect from 1 December 2000, the provident fund was frozen and no further contributions by the Group or the eligible employees were made after that date. When eligible employees leave the Group, they receive their entitlements pursuant to the existing rules of this fund.

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Cash and cash equivalents

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

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

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the Financial Information:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property. The Group has determined that it retains all the significant risks and rewards of ownership of this property which is leased out on operating leases.

Classification between investment property and owner-occupied property

The Group determines whether a property qualifies as an investment property and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If any of these portions could be sold separately (or leased out separately under a finance lease), the Group will account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

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ACCOUNTANTS’ REPORT

APPENDIX I

Classification of equity investments between equity investment at fair value through profit or loss and available-for-sale investment

The Group determines the classification of its equity investments after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date. The Group designated the 9.99% equity interest in Sino Gas Group Limited (“Sino Gas”) out of the 19.99% interest held by the Group as at 31 December 2006 as an equity investment at fair value through profit or loss as such portion of equity interest in Sino Gas is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. The rest of the 10% equity interest in Sino Gas out of the 19.99% interest held by the Group as at 31 December 2006 is designated as an available-for-sale investment. More details are given in notes 21 and 28 to the Financial Information.

Profitability and percentage of completion of construction contracts

The Group determines the profitability of its construction contracts based on the net income that could be obtained after deducting its estimation of the total costs of the contracts. The Group also recognises its revenue from its contracts by the percentage of completion of the contracts which is measured by reference to the proportion of costs incurred to date to the estimated total costs of the relevant contract.

Judgement is also made on the contingency costs that may arise from variation orders and claims as well as the recovery of such costs from their customers.

Estimation uncertainty

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

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of goodwill on the acquisition of a subsidiary and an associate at each of the balance sheet dates were HK$40,498,783 and HK$3,162,131, respectively. More details are given in note 17 to the Financial Information on the impairment testing of goodwill on acquisition of a subsidiary.

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying amounts of recognised tax losses at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$36,633,000, HK$23,491,000, HK$13,153,200 and HK$29,122,000, respectively. The amounts of unrecognised tax losses at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$15,456,000, HK$18,447,162, HK$25,897,308 and HK$33,124,784, respectively. Further details are given in note 22 to the Financial Information.

Impairment of interests in associates

The Group determines whether interests in associates are impaired on an annual basis. Valuation techniques used was discounted future cash flows generated from the continuous operations of the associates by applying a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of the interests in associates at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$35,725,554, HK$113,854,477, HK$48,361,553 and HK$53,663,124, respectively. More details are given in note 19 to the Financial Information.

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ACCOUNTANTS’ REPORT

APPENDIX I

Impairment of a financial asset under Project EC120

The Group determines whether the financial asset under Project EC120 is impaired on an annual basis. The financial asset has been valued based on discounted future cash flows generated from the sale of helicopters covering a 9-year period by applying a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of the financial asset under Project EC120 at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$33,759,462, HK$30,759,462, HK$25,959,462 and HK$25,359,462, respectively. More details are given in note 20 to the Financial Information.

Useful lives and residual values of items of property, plant and equipment

In determining the useful lives and residual values of items of property, plant and equipment, the Group has to consider various factors, such as expected usage of the asset, expected physical wear and tear, the care and maintenance of the asset, and legal or similar limits on the use of the asset. The estimation of the useful life of the asset is based on the experience of the Group with similar assets that are used in a similar way. Additional depreciation is made if the estimated useful lives and/or the residual values of items of property, plant and equipment are different from previous estimation. Useful lives and residual values are reviewed at each financial year end date based on changes in circumstances. The carrying amounts of property, plant and equipment at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$165,103,161, HK$174,489,261, HK$194,482,989 and HK$234,918,227, respectively. More details are given in note 15 to the Financial Information.

Impairment of trade and retention receivables

The Group maintains an allowance for estimated losses arising from the inability of its customers to make the required payments. The Group makes its estimates based on the ageing of its trade and retention receivable balances, customers’ creditworthiness, and historical write-off experience. If the financial condition of its customers was to deteriorate so that the actual impairment loss might be higher than expected, the Group would be required to revise the basis of making the allowance and its future results would be affected. The carrying amounts of trade and retention receivables at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$163,768,980, HK$212,802,210, HK$251,727,962 and HK$171,987,504, respectively. More details are given in note 27 to the Financial Information.

Fair value of unlisted investments and derivative financial instruments

The valuation of the unlisted investments, including available-for-sale investments and derivative financial instruments, is subject to the limitations of the valuation techniques and the uncertainty in estimates used by the Group. Should the estimates including the volatility of underlying securities, risk-free interest rate and other factors relevant to the underlying securities be changed, there would be changes in the valuations and the corresponding fair value gains/losses recognised in the available-for-sale investment revaluation reserve or the consolidated income statement. The carrying amounts of unlisted available-for-sale investments at 31 December 2004, 2005 and 2006 and 30 June 2007 were HK$17,780,478, HK$21,768,700, HK$11,214,600 and HK$23,281,641, respectively. Besides, the carrying amounts of derivative financial asset and liability at 30 June 2007 were HK$1,709,015 and HK$4,902,470, respectively. More details are given in notes 21 and 29 to the Financial Information.

Management has estimated the potential effect of using reasonably possible alternatives as inputs to the valuation model, and considered that the differences in fair values using less or more favourable assumptions are not significantly different from the carrying value.

– 39 –

ACCOUNTANTS’ REPORT

APPENDIX I

4. PARTICULARS OF PRINCIPAL COMPANIES COMPRISING THE GROUP AND ASSOCIATES

As at the date of this report, the Company had direct and indirect interests in the following principal subsidiaries, all of which are private companies (or if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong).

Particulars of the principal subsidiaries are as follows:

	Place of incorporation/ registration and	Nominal value of issued and fully paid-up ordinary/ registered	Percentage of equity attributable to the Company	Percentage of equity attributable to the Company
Name	operations	share capital	Direct Indirect		Principal activities
FEA*	Cayman Islands/	US$18,880,000	100	–	Investment holding
	Hong Kong
CATIC Helicopter	PRC/Mainland	HK$42,000,000	–	100	Investment holding
Development (Shenzhen)	China
Limited(a)*
Billirich Investment Ltd.	British Virgin	US$1,000	100	–	Investment holding
(“Billirich”)*	Islands/Hong
	Kong
Better View Investment	Hong Kong/	HK$2	–	100	Property holding
Limited	Mainland
	China
Far East Aluminium Works	Hong Kong/	HK$2	–	100	Property holding
(Guangzhou) Company	Mainland
Limited	China
FEA Technology Limited	Hong Kong	HK$2	–	100	Provision of
					transportation
					services
Far East Aluminium Works	Hong Kong	HK$90,500,000	–	100	Design, manufacture
Company Limited					and installation of
					curtain walls,
					aluminium windows
					and other related
					products
Seniford Engineering	Hong Kong	HK$2	–	100	Design, manufacture
Limited					and installation of
					curtain walls,
					aluminium windows
					and other related
					products
Far East Aluminium Works	Singapore	SGD50,000	–	100	Design, manufacture
(Singapore) Pte. Ltd.					and installation of
					curtain walls,
					aluminium windows
					and other related
					products

– 40 –

ACCOUNTANTS’ REPORT

APPENDIX I

	Place of incorporation/ registration and	Nominal value of issued and fully paid-up ordinary/ registered	Percentage of equity attributable to the Company	Percentage of equity attributable to the Company	Percentage of equity attributable to the Company
Name	operations	share capital	Direct	Indirect		Principal activities
Netfortune Engineering	Macau	MOP25,000	–		100	Design, manufacture
(FEA) Macau Limited*						and installation of
						curtain walls,
						aluminium windows
						and other related
						products
Heng Fai International	British Virgin	HK$1,000	–		100	Manufacture of
Ltd.*	Islands/					curtain walls,
	Mainland					aluminium windows
	China					and other related
						products
Netfortune Limited	Hong Kong/	HK$500,000	–		100	Installation of curtain
	Mainland					walls and
	China					aluminium windows
Netfortune (Shanghai)	PRC/Mainland	RMB10,000,000	–	96.25		Design, manufacture
Aluminium Works	China					and installation of
Company Limited(b)*						curtain walls,
						aluminium windows
						and other related
						products
Hangzhou Sealand Electric	PRC/Mainland	RMB68,000,000	–		70	Generation and sale
Power Company Limited	China					of electric and
(“Hangzhou Sealand”)(c)*						steam power
Far East Aluminum Works	United States of	US$200,000	–		100	Design, manufacture
(U.S.) Corporation*	America					and installation of
						curtain walls,
						aluminum windows
						and other related
						products

Particulars of the principal associates are as follows:

				Percentage of	ownership
	Particulars of issued	Place of		attributable to	the Group
	shares/registered	incorporation/		31 December	30	June
Name	share capital	registration	2004	2005	2006	2007	Principal activities
China Nav-Info Co., Ltd.*	Registered share capital	PRC	28.71	28.71	28.71	27.34	Manufacture of
	of RMB66,570,000						location-based
							navigation products
							and provision of
							related services
CATIC Siwei Co., Ltd.	Registered share capital	PRC	40	40	40	40	Provision of rental
(“CATIC Siwei”)*	of RMB56,758,150						services of aero-
							photographic
							equipments and
							investment holding

– 41 –

APPENDIX I

ACCOUNTANTS’ REPORT

				Percentage of	ownership
	Particulars of issued	Place of		attributable to	the Group
	shares/registered	incorporation/		31 December	30	June
Name	share capital	registration	2004	2005	2006	2007	Principal activities
Sino Gas Group Limited**	Ordinary shares of	Hong Kong	–	26.42	–	–	Trading of conversion
(notes 21 and 28)	HK$0.02 each						parts and gas station
							equipment and the
							operation of gas
							stations
*	Registered share capital of RMB5,000,000	PRC	–	–	21	21	Trading of ironware, coal and other
							chemical products
Ning Bo Dawn Aerospace	Registered share capital	PRC	–	–	20	20	Research and
Bio-Science Developing	of RMB20,000,000						development of
Co., Ltd.*							biological products

Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.
** Not audited by Ernst & Young Hong Kong or other Ernst Young International member firms for the years ended 31 March 2004 and 2005 and the six months ended 30 June 2007.
(a) CATIC Helicopter Development (Shenzhen) Limited is registered as a wholly-foreign-owned enterprise under PRC law.
(b) Netfortune (Shanghai) Aluminium Works Company Limited is registered as a co-operative joint venture under PRC law.
(c) Hangzhou Sealand is registered as a foreign investment enterprise under PRC law.

No separate audited financial statements were issued for these companies for the six months ended 30 June 2007.

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

5. SEGMENT INFORMATION

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

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

(a) the facade contracting works segment engages in the design, manufacture and installation of fabricated aluminium and stainless steel products for buildings, such as curtain wall and cladding systems, windows, doors, skylights and other related products;
(b) the electric and steam power supply segment engages in the generation and sale of electric and steam power in the Linping industrial region of Hangzhou in the PRC; and
(c) the aero-technology related businesses segment engages in the share of profit from the development, manufacture and distribution of EC120 helicopters.

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

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ACCOUNTANTS’ REPORT

APPENDIX I

(a) Business segments

The following tables present revenue, profit/(loss) and certain asset, liability and expenditure information for the Group’s business segments for the Relevant Periods and the six months ended 30 June 2006.

Year ended 31 December 2004

Segment revenue: Sales to external customers Other income Total Segment results Interest income, rental income and unallocated gains Unallocated expenses Finance costs Gain on deemed disposal of an interest in an associate Share of profits and losses of associates Profit before tax Tax Profit for the year Segment assets Interests in associates Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated amounts Capital expenditure Unallocated amounts Surplus on revaluation of items of property, plant and equipment Impairment of a financial asset under Project EC120 Provision/(write-back of provision) for impairment of trade and retention receivables, net Provision for warranty	Facade contracting works HK$’000 523,464 32 523,496 15,383 365,602 222,686 4,499 2,213 – – 2,000 3,906	Electric and steam power supply HK$’000 121,062 8,256 129,318 17,986 276,427 56,895 9,487 27,183 (88) – (8,563) –	Aero- technology related business HK$’000 498 3,120 3,618 (775)	Consolidated HK$’000 645,024 11,408 656,432 32,594 17,079 (19,871) (3,380) 116 (2,478) 24,060 (3,548) 20,512 698,095 35,726 100,245 834,066 279,581 79,077 358,658 13,986 356 14,342 29,400 56 29,456 (88) 4,000 (6,563) 3,906
				17,079 (19,871 (3,380 116 (2,478
				24,060 (3,548
			56,066 – – 4 – 4,000 – –

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ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31 December 2005

Segment revenue: Sales to external customers Other income Total Segment results Interest income, rental income and unallocated gains Unallocated expenses Finance costs Share of profits and losses of associates Excess over cost of acquisition of an associate recognised as income Profit before tax Tax Profit for the year Segment assets Interests in associates Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated amounts Capital expenditure Unallocated amounts Surplus on revaluation of items of property, plant and equipment Impairment of a financial asset under Project EC120 Provision for impairment of trade and retention receivables, net Provision for warranty	Facade contracting works HK$’000 450,431 196 450,627 16,265 406,305 219,172 5,561 6,748 – – 1,586 435	Electric and steam power supply HK$’000 154,306 10,512 164,818 20,467 302,039 68,445 10,380 13,983 (2,014) – – –	Aero- technology related business HK$’000 3,408 3,120 6,528 2,586	Consolidated HK$’000 608,145 13,828 621,973 39,318 4,612 (11,563) (6,186) 4,380 6,070 36,631 (6,643) 29,988 764,032 113,854 72,949 950,835 288,102 154,203 442,305 15,942 801 16,743 20,731 883 21,614 (2,014) 3,000 1,586 435
				4,612 (11,563 (6,186 4,380 6,070
				36,631 (6,643
			55,688 485 1 – – 3,000 – –

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ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31 December 2006

Segment revenue: Sales to external customers Other income Total Segment results Interest income, rental income and unallocated gains Unallocated expenses Fair value gain on equity investments at fair value through profit or loss Finance costs Gain on deemed disposal of an interest in an associate Share of profits and losses of associates Profit before tax Tax Profit for the year Segment assets Interests in associates Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated amounts Capital expenditure Unallocated amounts Deficit on revaluation of items of property, plant and equipment Impairment of a financial asset under Project EC120 Impairment of available-for-sale investments Write-back of provision for impairment of trade and retention receivables, net Provision for warranty	Facade contracting works HK$’000 885,109 32 885,141 17,751 450,333 243,345 5,405 6,337 – – 580 (1,016) 3,920	Electric and steam power supply HK$’000 170,786 7,894 178,680 15,674 328,521 70,891 10,965 32,686 8,444 – – (1,957) –	Aero- technology related business HK$’000 1,259 1,560 2,819 (3,422)	Consolidated HK$’000 1,057,154 9,486 1,066,640 30,003 5,316 (11,955) 37,797 (5,366) 22,030 (22,171) 55,654 (4,551) 51,103 829,330 48,362 233,688 1,111,380 314,823 169,152 483,975 16,371 889 17,260 39,023 383 39,406 8,444 4,800 580 (2,973) 3,920
				5,316 (11,955 37,797 (5,366 22,030 (22,171
				55,654 (4,551
			50,476 587 1 – – 4,800 – – –

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ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 30 June 2006 (unaudited)

Segment revenue: Sales to external customers Other income Total Segment results Interest income, rental income and unallocated gains Unallocated expenses Finance costs Gain on deemed disposal of an interest in an associate Share of profits and losses of associates Profit before tax Tax Profit for the period Segment assets Interests in associates Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated amounts Capital expenditure Unallocated amounts Impairment of a financial asset under Project EC120 Impairment of available-for-sale investments Write-back of provision for impairment of trade and retention receivables, net Provision for warranty	Facade contracting works HK$’000 (unaudited) 461,010 71 461,081 7,990 402,050 203,131 2,487 1,935 – 580 (169) 900	Electric and steam power supply HK$’000 (unaudited) 82,603 4,001 86,604 10,895 302,800 67,075 5,291 7,502 – – – –	Aero- technology related business HK$’000 (unaudited) (79) 851 772 (681)	Consolidated HK$’000 (unaudited) 543,534 4,923 548,457 18,204 2,153 (5,292) (3,114) 16,777 4,580 33,308 (4,119) 29,189 759,238 142,337 110,147 1,011,722 270,691 177,453 448,144 7,778 441 8,219 9,437 345 9,782 1,000 580 (169) 900
				2,153 (5,292 (3,114 16,777 4,580
				33,308 (4,119
			54,388 485 – – 1,000 – – –

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ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 30 June 2007

Segment revenue: Sales to external customers Other income Total Segment results Interest income, rental income and unallocated gains Unallocated expenses Fair value loss on equity investments at fair value through profit or loss and derivative financial instruments Finance costs Loss on deemed disposal of an interest in an associate Share of profits and losses of associates Profit before tax Tax Profit for the period Segment assets Interests in associates Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information: Depreciation Unallocated amounts Capital expenditure Unallocated amounts Surplus on revaluation of items of property, plant and equipment Impairment of a financial asset under Project EC120 Provision for impairment of trade and retention receivables, net Provision for warranty	Facade contracting works HK$’000 263,978 108 264,086 7,478 426,349 246,893 2,584 28,425 – – 600 1,300	Electric and steam power supply HK$’000 92,344 7,377 99,721 17,391 362,409 118,501 6,192 14,504 (2,970) – – –	Aero- technology related business HK$’000 861 – 861 (112)	Consolidated HK$’000 357,183 7,485 364,668 24,757 7,556 (5,599) (10,174) (2,679) (271) 5,573 19,163 64 19,227 840,761 53,663 490,102 1,384,526 366,145 102,561 468,706 8,776 355 9,131 42,929 18 42,947 (2,970) 600 600 1,300
				7,556 (5,599 (10,174 (2,679 (271 5,573
				19,163 64
			52,003 751 – – – 600 – –

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ACCOUNTANTS’ REPORT

APPENDIX I

(b) Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments for Relevant Periods and the six months ended 30 June 2006.

Year ended 31 December 2004 Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure Year ended 31 December 2005 Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure Year ended 31 December 2006 Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure Six months ended 30 June 2006 (unaudited) Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure Six months ended 30 June 2007 Segment revenue: Sales to external customers Other segment information: Segment assets Capital expenditure	Hong Kong HK$’000 369,497 371,888 2,273 252,249 495,958 1,480 348,379 582,617 1,001 169,405 497,654 675 96,421 757,091 167	Mainland China HK$’000 275,527 462,178 27,183 305,579 404,402 19,955 228,666 418,066 35,551 28,879 378,392 8,541 121,559 465,808 22,008	Macau HK$’000 – – – 50,317 46,972 179 281,967 42,695 5 237,171 82,695 – 83,334 37,663 –	United States of America HK$’000 – – – – 3,503 – 155,178 65,366 2,611 96,176 46,601 – 401 89,765 20,272	Others HK$’000 – – – – – – 42,964 2,636 238 11,903 6,380 566 55,468 34,199 500	Consolidated HK$’000 645,024 834,066 29,456

						608,145 950,835 21,614

						1,057,154 1,111,380 39,406

						543,534 1,011,722 9,782

						357,183 1,384,526 42,947

– 48 –

ACCOUNTANTS’ REPORT

APPENDIX I

6. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents an appropriate proportion of contract revenue of the construction contracts; the net invoiced value of electric and steam power sold; and income from Project EC120 for the development, manufacture and distribution of helicopters.

An analysis of revenue, other income and gains is as follows:

Year 2004 HK$ 523,463,760 121,062,578 497,909 645,024,247	ended 31 December 2005 2006 HK$ HK$ 450,431,243 885,109,287 154,305,801 170,786,264 3,408,211 1,258,854 608,145,255 1,057,154,405	ended 31 December 2005 2006 HK$ HK$ 450,431,243 885,109,287 154,305,801 170,786,264 3,408,211 1,258,854 608,145,255 1,057,154,405	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 461,009,841 263,978,447 82,603,248 92,343,798 (79,151) 860,806 543,533,938 357,183,051	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 461,009,841 263,978,447 82,603,248 92,343,798 (79,151) 860,806 543,533,938 357,183,051
				357,183,051

8,563,370 3,120,000 1,312,249 2,992,570 3,605,934 1,242,709 1,036,022 720,980 22,593,834 186,842 7,000 – 193,842	– 3,119,995 1,911,470 3,039,191 2,072,896 5,321,175 550,000 247,253 16,261,980 27,828 – – 27,828	– 1,560,005 4,698,622 818,583 1,203,384 5,812,097 587,760 91,624 14,772,075 – – 30,000 30,000	– 850,909 1,824,390 28,846 769,287 3,202,248 293,880 71,839 7,041,399 – 35,000 – 35,000	– – 4,246,743 5,573,488 389,282 1,314,808 293,880 208,308
				12,026,509
				– – –
				–
22,787,676	16,289,808	14,802,075	7,076,399	12,026,509

During the year ended 31 December 2004, an amount of RMB9,077,171 (equivalent to HK$8,563,370) was received from CATIC as settlement for the receivable from (“ ”), an ex-shareholder of Hangzhou Sealand, a 70%-owned subsidiary of the Group, due to Hangzhou Sealand prior to its acquisition of interest in Hangzhou Sealand by the Group in 2000 pursuant to a previous commitment made by CATIC to Speed Profit Enterprises Limited, a shareholder of the Company and the ex-shareholder of Hangzhou Sealand which sold such 70% equity interest in Hangzhou Sealand to the Group. The full amount of the receivable was provided for at the time when its equity interest in Hangzhou Sealand was acquired by the Group. The amount was recovered and was credited to the consolidated income statement during the year ended 31 December 2004.
** Various coal prices subsidies and government grants relating to anti-pollution research activities in Hangzhou, the PRC, have been received from the government authorities in Hangzhou. There are no unfulfilled conditions or contingencies relating to these subsidies and grants.

– 49 –

ACCOUNTANTS’ REPORT

APPENDIX I

7. PROFIT BEFORE TAX

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

Year 2004 HK$ 465,418,332 3,906,000	ended 31 December 2005 2006 HK$ HK$ 389,407,431 813,304,472 435,200 3,920,000	ended 31 December 2005 2006 HK$ HK$ 389,407,431 813,304,472 435,200 3,920,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 426,403,547 226,167,635 900,000 1,300,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 426,403,547 226,167,635 900,000 1,300,000
469,324,332 113,494,417	389,842,631 138,378,486	817,224,472 146,358,446	427,303,547 71,309,560	227,467,635 79,010,918
582,818,749	528,221,117	963,582,918	498,613,107	306,478,553

14,341,579 (3,284,766) 11,056,813 3,694,110 (2,724,077) 970,033 438,898 18,385,424 3,072,568 (168,027) 2,904,541 766,851 2,000,000 – – 2,766,851	16,742,566 (4,004,234) 12,738,332 2,739,203 (2,150,956) 588,247 952,671 22,267,654 2,969,245 (71,496) 2,897,749 – 1,586,093 – 747,679 2,333,772	17,260,191 (3,646,879) 13,613,312 5,226,532 (3,695,341) 1,531,191 957,163 32,188,138 2,560,142 (97,495) 2,462,647 – (2,972,740) 580,000 – (2,392,740)	8,218,941 (1,814,484) 6,404,457 1,948,320 (1,360,073) 588,247 479,788 14,770,638 1,107,111 (4,604) 1,102,507 – (169,000) 580,000 – 411,000	9,131,170 (1,564,075
				7,567,095
				2,888,153 (2,352,153
				536,000
				473,120 18,681,628 1,232,079 (39,417
				1,192,662
				– 600,000 – (4,680
				595,320
– 900,000 (156,172) (1,036,022)	– 1,190,000 67,448 (550,000)	– 1,300,000 178,367 (587,760)	– 775,000 (14,469) (293,880)	803,424 775,000 82,970 (293,880

The Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years as at 31 December 2004, 2005 and 2006 and 30 June 2006 and 2007.

– 50 –

ACCOUNTANTS’ REPORT

APPENDIX I

8. FINANCE COSTS

Note Interest on bank overdrafts and bank loans wholly repayable within five years Less: Amounts capitalised to long term construction contracts 39(a)(i) Interest on a finance lease	Year 2004 HK$ 4,382,868 (1,052,687)	ended 31 December 2005 2006 HK$ HK$ 7,057,805 9,117,505 (909,081) (3,776,367)	ended 31 December 2005 2006 HK$ HK$ 7,057,805 9,117,505 (909,081) (3,776,367)	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 4,721,631 3,642,450 (1,621,676) (970,505	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 4,721,631 3,642,450 (1,621,676) (970,505
	3,330,181 49,705	6,148,724 37,718	5,341,138 24,951	3,099,955 14,122	2,671,945 7,430
	3,379,886	6,186,442	5,366,089	3,114,077	2,679,375

9. DIRECTORS’ REMUNERATION

Directors’ remuneration for the Relevant Periods and the six months ended 30 June 2006, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, is as follows:

Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 216,000 216,000 250,839 375,167 420,000 420,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 216,000 216,000 250,839 375,167 420,000 420,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 216,000 216,000 250,839 375,167 420,000 420,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 124,839 126,000 210,000 210,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 124,839 126,000 210,000 210,000
591,167 5,984,033 359,160 820,000 7,163,193	636,000 5,452,567 359,160 – 5,811,727	670,839 5,516,550 359,160 – 5,875,710	334,839 2,728,750 179,580 – 2,908,330	336,000
				2,982,800 179,580 –
				3,162,380
7,754,360	6,447,727	6,546,549	3,243,169	3,498,380

– 51 –

ACCOUNTANTS’ REPORT

APPENDIX I

(a) Independent Non-executive Directors

The fees paid to Independent Non-executive Directors during the Relevant Periods and the six months ended 30 June 2006 were as follows:

Chu Yu Lin, David Li Ka Cheung, Eric Li Zhaoxi	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 120,000 120,000 120,000 120,000 120,000 120,000 15,167 60,000 60,000 255,167 300,000 300,000	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 60,000 60,000 60,000 60,000 30,000 30,000 150,000 150,000

(b) Executive Directors and a Non-executive Director

Year ended 31 December 2004

Executive Directors: Fu Shula Wang Xinkuo Ji Guirong Ren Haifeng Yang Chunshu Yu Li Wang Xinyan Pan Linwu Non-executive Director: Ip Tak Chuen, Edmond	Fees HK$ 22,452 22,452 36,000 36,000 36,000 36,000 13,548 13,548	Salaries, allowances and benefits in kind HK$ – – 3,584,033 2,400,000 – – – –	Pension scheme contributions HK$ – – 219,000 140,160 – – – –	Performance related bonuses HK$ – – 250,000 570,000 – – – –	Total remuneration HK$ 22,452 22,452 4,089,033 3,146,160 36,000 36,000 13,548 13,548
	216,000 120,000	5,984,033 –	359,160 –	820,000 –	7,379,193 120,000
	336,000	5,984,033	359,160	820,000	7,499,193

– 52 –

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31 December 2005

Executive Directors: Fu Shula Wang Xinkuo Ji Guirong Diao Weicheng Liu Rongchun Ren Haifeng Yang Chunshu Yu Li Non-executive Director: Ip Tak Chuen, Edmond	Fees HK$ 36,000 36,000 36,000 26,300 26,300 36,000 9,700 9,700	Salaries, allowances and benefits in kind HK$ – – 3,362,567 – – 2,090,000 – –	Pension scheme contributions HK$ – – 219,000 – – 140,160 – –	Total remuneration HK$ 36,000 36,000 3,617,567 26,300 26,300 2,266,160 9,700 9,700
	216,000 120,000	5,452,567 –	359,160 –	6,027,727 120,000
	336,000	5,452,567	359,160	6,147,727

Year ended 31 December 2006

Executive Directors: Fu Shula Wang Xinkuo Ji Guirong Ma Zhiping Diao Weicheng Liu Rongchun Ren Haifeng Non-executive Director: Ip Tak Chuen, Edmond	Fees HK$ 36,000 36,000 36,000 34,839 36,000 36,000 36,000	Salaries, allowances and benefits in kind HK$ – – 3,360,000 – – – 2,156,550	Pension scheme contributions HK$ – – 219,000 – – – 140,160	Total remuneration HK$ 36,000 36,000 3,615,000 34,839 36,000 36,000 2,332,710
	250,839 120,000	5,516,550 –	359,160 –	6,126,549 120,000
	370,839	5,516,550	359,160	6,246,549

– 53 –

ACCOUNTANTS’ REPORT

APPENDIX I

Six months ended 30 June 2006 (unaudited)

Executive Directors: Fu Shula Wang Xinkuo Ji Guirong Ma Zhiping Diao Weicheng Liu Rongchun Ren Haifeng Non-executive Director: Ip Tak Chuen, Edmond	Fees HK$ (unaudited) 18,000 18,000 18,000 16,839 18,000 18,000 18,000	Salaries, allowances and benefits in kind HK$ (unaudited) – – 1,680,000 – – – 1,048,750	Pension scheme contributions HK$ (unaudited) – – 109,500 – – – 70,080	Total remuneration HK$ (unaudited) 18,000 18,000 1,807,500 16,839 18,000 18,000 1,136,830
	124,839 60,000	2,728,750 –	179,580 –	3,033,169 60,000
	184,839	2,728,750	179,580	3,093,169

Six months ended 30 June 2007

Executive Directors: Fu Shula Wang Xinkuo Ji Guirong Ma Zhiping Diao Weicheng Liu Rongchun Ren Haifeng Non-executive Director: Ip Tak Chuen, Edmond	Fees HK$ 18,000 18,000 18,000 18,000 18,000 18,000 18,000	Salaries, allowances and benefits in kind HK$ – – 1,680,000 – – – 1,302,800	Pension scheme contributions HK$ – – 109,500 – – – 70,080	Total remuneration HK$ 18,000 18,000 1,807,500 18,000 18,000 18,000 1,390,880
	126,000 60,000	2,982,800 –	179,580 –	3,288,380 60,000
	186,000	2,982,800	179,580	3,348,380

There were no other emoluments payable to the Independent Non-executive Directors during the Relevant Periods and the six months ended 30 June 2006.

There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods and the six months ended 30 June 2006.

– 54 –

ACCOUNTANTS’ REPORT

APPENDIX I

10. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during each of the Relevant Periods and the six months ended 30 June 2006 included two directors, respectively, details of whose remuneration are set out in directors’ remuneration disclosure above. Details of the remuneration of the remaining three non-director, highest paid employees for the Relevant Periods and the six months ended 30 June 2006 are as follows:

Basic salaries, allowances and benefits in kind Pension scheme contributions Performance related bonuses	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 3,717,500 3,298,000 3,796,960 235,206 222,139 254,478 889,000 814,000 1,020,000 4,841,706 4,334,139 5,071,438	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 1,888,250 2,156,784 127,239 133,262 – – 2,015,489 2,290,046	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 1,888,250 2,156,784 127,239 133,262 – – 2,015,489 2,290,046
			2,290,046

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

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,000,001 – HK$2,500,000	Number of employees Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 – – – 3 3 1 3 – – – 2 – 2 – – – – 1 – – 3 3 3 3 3	Number of employees Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 – – – 3 3 1 3 – – – 2 – 2 – – – – 1 – – 3 3 3 3 3
		3

11. TAX

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong during the six months ended 30 June 2007. No Hong Kong profits tax had been provided for the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 as the Group had available tax losses brought forward to offset the estimated assessable profits arising in Hong Kong during these years/period.

– 55 –

APPENDIX I

ACCOUNTANTS’ REPORT

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Current – Hong Kong – Elsewhere Deferred (note 22) Total tax charge/(credit) for the year/period	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ – – (12,934) 2,184,058 3,847,030 5,230,092 1,364,075 2,796,342 (665,767) 3,548,133 6,643,372 4,551,391	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) – 1,969,518 1,901,038 2,986,580 2,217,308 (5,019,627) 4,118,346 (63,529)

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries/jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax charge for the Relevant Periods and the six months ended 30 June 2006 is as follows:

Group

Profit before tax Tax at the statutory tax rates Lower tax rates for specific provinces Deemed income of the PRC construction business Profits and losses attributable to associates Income not subject to tax Expenses not deductible for tax Tax losses utilised from previous periods Increase in unprovided tax losses carried forward Recognition of tax losses Tax charge/(credit) for the year/period	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 24,060,579 36,630,876 55,654,506	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 33,308,123 19,163,645 7,738,338 7,100,991 (4,447,916) (2,162,023) 562,823 − 536,468 (417,979) (5,648,727) (3,317,747) 6,223,995 1,003,444 (933,580) (1,475,167) 86,945 3,759,359 − (4,554,407) 4,118,346 (63,529)	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 33,308,123 19,163,645 7,738,338 7,100,991 (4,447,916) (2,162,023) 562,823 − 536,468 (417,979) (5,648,727) (3,317,747) 6,223,995 1,003,444 (933,580) (1,475,167) 86,945 3,759,359 − (4,554,407) 4,118,346 (63,529)
	3,374,123 973,217 627,817 185,822 (4,277,193) 780,821 – 1,883,526 −	9,961,189 (6,404,082) 441,156 (507,765) (2,433,394) 3,937,565 (271,834) 1,920,537 −	10,167,669 (6,905,582) 732,065 4,126,295 (13,167,499) 7,015,056 (1,035,214) 3,618,601 −	7,738,338 (4,447,916) 562,823 536,468 (5,648,727) 6,223,995 (933,580) 86,945 −	7,100,991 (2,162,023 − (417,979 (3,317,747 1,003,444 (1,475,167 3,759,359 (4,554,407
	3,548,133	6,643,372	4,551,391	4,118,346

Certain PRC subsidiaries of the Group were eligible for exemption from corporate income tax (“CIT”) for the two years starting from the first year in which assessable profits were generated, and a 50% exemption from CIT for the following three years. In addition, another PRC subsidiary was eligible for a concessionary CIT rate of 16.5%.

The share of tax attributable to associates for the years ended 31 December 2004, 2005 and 2006 and six months ended 30 June 2006 and 2007 amounting to nil, HK$963,050, HK$1,010,171, HK$523,890 and HK$91,559, respectively, is included in “Share of profits and losses of associates” on the face of the consolidated income statements.

– 56 –

ACCOUNTANTS’ REPORT

APPENDIX I

12. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

The consolidated profit attributable to equity holders of the parent for the years ended 31 December 2004, 2005 and 2006 and six months ended 30 June 2006 and 2007 includes a loss of HK$359,486, HK$6,828,069, HK$10,651,671, HK$4,837,958 and HK$165,030, respectively, which has been dealt with in the financial statements of the Company (note 38(b)) .

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

The calculation of basic earnings per share amounts is based on the profit for the year/period attributable to ordinary equity holders of the parent and the weighted average number of ordinary shares in issue during the Relevant Periods and for the six months ended 30 June 2006.

For the six months period ended 30 June 2007 and year ended 31 December 2004, the calculation of diluted earnings per share is based on the profit for the year/period attributable to ordinary equity holders of the parent, the weighted average number of ordinary shares in issue during the year/period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

The calculations of basic and diluted earnings per share are based on:

Earnings Profit attributable to ordinary equity holders of the parent Number of shares Weighted average number of ordinary shares in issue during the year/period used in the basic earnings per share calculation Effect on dilution-weighted average number of ordinary shares: Share options	Year 2004 HK$ 16,171,837 Year 2004 3,739,555,317 15,665,215 3,755,220,532	ended 31 December Six months ended 30 June 2005 2006 2006 2007 HK$ HK$ HK$ HK$ (unaudited) 26,053,554 47,949,807 27,076,612 15,036,613 Number of shares ended 31 December Six months ended 30 June 2005 2006 2006 2007 (unaudited) 3,741,481,000 3,937,995,160 3,883,889,839 4,236,286,425 – – – 30,268,656 3,741,481,000 3,937,995,160 3,883,889,839 4,266,555,081	ended 31 December Six months ended 30 June 2005 2006 2006 2007 HK$ HK$ HK$ HK$ (unaudited) 26,053,554 47,949,807 27,076,612 15,036,613 Number of shares ended 31 December Six months ended 30 June 2005 2006 2006 2007 (unaudited) 3,741,481,000 3,937,995,160 3,883,889,839 4,236,286,425 – – – 30,268,656 3,741,481,000 3,937,995,160 3,883,889,839 4,266,555,081
			4,266,555,081

Diluted earnings per share amounts for the years ended 31 December 2005, 2006 and the six months ended 30 June 2006 have not been disclosed as the share options outstanding during these years/period had an anti-dilutive effect on the basic earnings per share for these years/period.

– 57 –

ACCOUNTANTS’ REPORT

APPENDIX I

14. INVESTMENT PROPERTY

Carrying amount at 1 January Net profit from a fair value adjustment Transfer to owner-occupied properties (note 15) Carrying amount Carrying amount at 1 January Net profit from a fair value adjustment Transfer to owner-occupied property (note 15) Carrying amount	2004 HK$ 22,891,481 5,700,000 (15,841,481) 12,750,000 2004 HK$ 19,800,000 5,700,000 (12,750,000) 12,750,000	Group 31 December 2005 2006 HK$ HK$ 12,750,000 14,900,000 2,150,000 – – – 14,900,000 14,900,000 Company 31 December 2005 2006 HK$ HK$ 12,750,000 14,900,000 2,150,000 – – – 14,900,000 14,900,000	30 June 2007 HK$ 14,900,000 3,015,000 –
			17,915,000

			30 June 2007 HK$ 14,900,000 3,015,000 –
			17,915,000

Commencing from the year ended 31 December 2004, a portion of the Group’s and the Company’s investment property situated in Hong Kong has been taken up by the Company as its office premises. Accordingly, the relevant portion of such property was transferred to land and buildings at its carrying value of HK$12,750,000, leaving the valuation of the other portion of the investment property at HK$12,750,000 as at 31 December 2004.

During the year ended 31 December 2004, the subsidiaries’ investment properties situated in Mainland China were transferred to land and buildings upon expiry of the operating lease agreements at their aggregate carrying value of HK$3,091,481 on an open market, existing use basis at the date of transfer, and also because the properties have been used by the Group as its own office premises.

The Group’s and the Company’s investment property was revalued by independently professionally qualified valuers (31 December 2004 and 2005 by Grant Sherman Appraisal Limited; 31 December 2006 and 30 June 2007 by BMI Appraisals Limited) at HK$12,750,000, HK$14,900,000, HK$14,900,000 and HK$17,915,000 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively, on an open market, existing use basis.

The Group’s and the Company’s investment property is situated in Hong Kong and is held under a medium term lease. At 31 December 2005 and 2006 and 30 June 2007, this investment property was pledged to secure a bank loan of the Group and the Company (note 34(a)(i)) and was leased to a shareholder of the Company under an operating lease, further details of which are included in notes 40(a) and 43(a)(iii) to the Financial Information.

– 58 –

ACCOUNTANTS’ REPORT

APPENDIX I

15. PROPERTY, PLANT AND EQUIPMENT

Group

Construction in progress HK$ 10,689,414 24,281,917 – (18,004,578) – –	Land and buildings Leasehold improvements HK$ HK$ 62,273,251 13,725,379 147,037 438,437 – – 3,481,003 – 15,841,481 – – –	Land and buildings Leasehold improvements HK$ HK$ 62,273,251 13,725,379 147,037 438,437 – – 3,481,003 – 15,841,481 – – –	Plant and machinery HK$ 10,890,955 531,700 (1,030,085) – – –	Generation plant and related structure HK$ 67,577,442 2,638,279 (2,885,942) 14,452,820 – (5,398,848)	Furniture, fixtures and equipment HK$ 15,456,754 773,303 (91,640) – – –	Motor vehicles HK$ 11,742,878 504,426 (329,713) 70,755 – –	Tools and moulds HK$ 1,662,575 140,505 – – – –	Total HK$ 194,018,648 29,455,604 (4,337,380) – 15,841,481 (5,398,848)
16,966,753 8,965,075 – (3,466,627) – 326,284 22,791,485 29,438,993 – (17,239,185) – 817,224 35,808,517 10,374,267 – (5,623,055) – 1,140,868	81,742,772 696,804 – 1,016,625 – 1,030,996 84,487,197 908,005 – 2,063,429 – 2,020,737 89,479,368 21,288,046 – 3,420,843 – 1,954,573	14,163,816 304,217 – – – – 14,468,033 126,070 – – – – 14,594,103 1,091,000 – – – –	10,392,570 2,952,808 – – – – 13,345,378 979,073 – – – – 14,324,451 5,590,000 (957,000) – – –	76,383,751 4,088,535 – 2,450,002 (6,059,510) 1,468,917 78,331,695 1,681,514 – 14,750,457 (15,708,830) 2,808,709 81,863,545 1,736,314 (1,997,586) 2,202,212 (1,294,485) 2,608,191	16,138,417 3,749,524 – – – 75 19,888,016 4,755,455 – – – 141 24,643,612 136,200 – – – 130	11,988,346 393,686 (231,858) – – 82,361 12,232,535 1,414,130 (993,894) 425,299 – 156,541 13,234,611 2,555,651 (155,000) – – 178,589	1,803,080 462,944 – – – – 2,266,024 102,304 – – – – 2,368,328 176,000 (1,368,000) – – –	229,579,505 21,613,593 (231,858) – (6,059,510) 2,908,633
								247,810,363 39,405,544 (993,894) – (15,708,830) 5,803,352
								276,316,535 42,947,478 (4,477,586) – (1,294,485) 5,882,351
41,700,597	116,142,830	15,685,103	18,957,451	85,118,191	24,779,942	15,813,851	1,176,328	319,374,293

– 59 –

APPENDIX I

ACCOUNTANTS’ REPORT

Analysis of cost or valuation: At 31 December 2004: At cost At 31 December 2004 valuation At 31 December 2005: At cost At 31 December 2005 valuation At 31 December 2006: At cost At 31 December 2006 valuation At 30 June 2007: At cost At 30 June 2007 valuation	Construction in progress HK$ 16,966,753 – 16,966,753 22,791,485 – 22,791,485 35,808,517 – 35,808,517 41,700,597 – 41,700,597	Land and buildings Leasehold improvements HK$ HK$ 81,742,772 14,163,816 – – 81,742,772 14,163,816 84,487,197 14,468,033 – – 84,487,197 14,468,033 89,479,368 14,594,103 – – 89,479,368 14,594,103 116,142,830 15,685,103 – – 116,142,830 15,685,103	Plant and machinery HK$ 10,392,570 – 10,392,570 13,345,378 – 13,345,378 14,324,451 – 14,324,451 18,957,451 – 18,957,451	Generation plant and related structure HK$ – 76,383,751 76,383,751 – 78,331,695 78,331,695 – 81,863,545 81,863,545 – 85,118,191 85,118,191	Furniture, fixtures and equipment HK$ 16,138,417 – 16,138,417 19,888,016 – 19,888,016 24,643,612 – 24,643,612 24,779,942 – 24,779,942	Motor vehicles HK$ 11,988,346 – 11,988,346 12,232,535 – 12,232,535 13,234,611 – 13,234,611 15,813,851 – 15,813,851	Tools and moulds HK$ 1,803,080 – 1,803,080 2,266,024 – 2,266,024 2,368,328 – 2,368,328 1,176,328 – 1,176,328	Total HK$ 153,195,754 76,383,751
								229,579,505

								169,478,668 78,331,695
								247,810,363

								194,452,990 81,863,545
								276,316,535

								234,256,102 85,118,191
								319,374,293

– 60 –

APPENDIX I

ACCOUNTANTS’ REPORT

Construction in progress HK$ – – – –	Land and buildings Leasehold improvements HK$ HK$ 17,744,555 11,133,242 2,199,403 1,004,416 – – – –	Land and buildings Leasehold improvements HK$ HK$ 17,744,555 11,133,242 2,199,403 1,004,416 – – – –	Plant and machinery HK$ 7,712,059 1,288,962 (1,030,085) –	Generation plant and related structure HK$ – 7,307,999 (1,799,815) (5,508,184)	Furniture, fixtures and equipment HK$ 13,040,311 994,795 (91,640) –	Motor vehicles HK$ 7,817,935 1,432,228 (329,713) –	Tools and moulds HK$ 1,446,100 113,776 – –	Total HK$ 58,894,202 14,341,579 (3,251,253) (5,508,184)
– – – – – – – – – – – – – – –	19,943,958 2,715,681 – – 304,934 22,964,573 2,858,113 – – 684,495 26,507,181 1,522,119 – – 680,028	12,137,658 1,024,488 – – – 13,162,146 1,029,631 – – – 14,191,777 248,000 – – –	7,970,936 1,843,747 – – – 9,814,683 1,647,953 – – – 11,462,636 1,093,000 (957,000) – –	– 8,052,634 – (8,052,634) – – 8,563,701 – (8,717,233) 153,532 – 4,834,039 (48,393) (4,865,137) 79,491	13,943,466 1,461,754 – – 7 15,405,227 1,632,169 – – 51 17,037,447 762,711 – – 65	8,920,450 1,419,789 (208,672) – 58,557 10,190,124 1,287,971 (993,894) – 125,302 10,609,503 561,301 (155,000) – 125,296	1,559,876 224,473 – – – 1,784,349 240,653 – – – 2,025,002 110,000 (1,368,000) – –	64,476,344 16,742,566 (208,672) (8,052,634) 363,498
								73,321,102 17,260,191 (993,894) (8,717,233) 963,380
								81,833,546 9,131,170 (2,528,393) (4,865,137) 884,880
– 16,966,753 22,791,485 35,808,517 41,700,597	28,709,328 61,798,814 61,522,624 62,972,187 87,433,502	14,439,777 2,026,158 1,305,887 402,326 1,245,326	11,598,636 2,421,634 3,530,695 2,861,815 7,358,815	– 76,383,751 78,331,695 81,863,545 85,118,191	17,800,223 2,194,951 4,482,789 7,606,165 6,979,719	11,141,100 3,067,896 2,042,411 2,625,108 4,672,751	767,002 243,204 481,675 343,326 409,326	84,456,066

								165,103,161

								174,489,261

								194,482,989

								234,918,227

– 61 –

ACCOUNTANTS’ REPORT

APPENDIX I

Company

Land and building HK$ – – 12,750,000	Furniture, fixtures and equipment HK$ 495,783 56,165 –	Motor vehicles HK$ 780,000 – –	Total HK$ 1,275,783 56,165 12,750,000 14,081,948 882,441 14,964,389 382,057 (780,000) 14,566,446 18,200 14,584,646 1,071,395 84,103 1,155,498 529,533 1,685,031 618,564 (780,000) 1,523,595 309,782 1,833,377 12,926,450 13,279,358 13,042,851 12,751,269
12,750,000 – 12,750,000 – – 12,750,000 –	551,948 882,441 1,434,389 50,510 – 1,484,899 18,200	780,000 – 780,000 331,547 (780,000) 331,547 –	14,081,948 882,441
			14,964,389 382,057 (780,000
			14,566,446 18,200
12,750,000	1,503,099	331,547
– – – 300,000 300,000 300,000 – 600,000 150,000	291,395 84,103 375,498 229,533 605,031 235,677 – 840,708 118,339	780,000 – 780,000 – 780,000 82,887 (780,000) 82,887 41,443	1,071,395 84,103
			1,155,498 529,533
			1,685,031 618,564 (780,000
			1,523,595 309,782
750,000 12,750,000 12,450,000 12,150,000 12,000,000	959,047 176,450 829,358 644,191 544,052	124,330 – – 248,660 207,217

– 62 –

ACCOUNTANTS’ REPORT

APPENDIX I

An analysis of the Group’s and the Company’s land and buildings is as follows:

At cost, located in: Hong Kong, held under a long term lease Hong Kong, held under a medium term lease Mainland China, held under a medium term lease United States of America, held under a medium term lease	Group 31 December 2004 2005 2006 HK$ HK$ HK$ 6,000,000 6,000,000 6,000,000 12,750,000 12,750,000 12,750,000 62,992,772 65,737,197 70,729,368 – – – 81,742,772 84,487,197 89,479,368	30 June 2007 HK$ 6,000,000 12,750,000 77,708,830 19,684,000 116,142,830	Company 31 December 2004 2005 2006 HK$ HK$ HK$ – – – 12,750,000 12,750,000 12,750,000 – – – – – – 12,750,000 12,750,000 12,750,000	30 June 2007 HK$ – 12,750,000 – –
				12,750,000

The net book value of the Group’s items of property, plant and equipment held under a hire purchase contract included in the total amount of motor vehicles at 31 December 2004, 2005 and 2006 and 30 June 2007 amounted to HK$586,777, HK$315,957, HK$45,137 and nil, respectively.

The Group’s generation plant and related structure was revalued at HK$76,383,751, HK$78,331,695, HK$81,863,545 and HK$85,118,191 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively. The revaluation was performed by Grant Sherman Appraisal Limited as at 31 December 2004 and 2005 and BMI Appraisals Limited as at 31 December 2006 and 30 June 2007. The revaluation was performed on an open market, existing use basis at each of the balance sheet dates, resulting in a revaluation surplus of HK$109,336, a surplus of HK$1,993,124, a deficit of HK$6,991,597 and a surplus of HK$3,570,652 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively, and of which a surplus of HK$21,798, a deficit of HK$21,363, a surplus of HK$1,452,489 and a surplus of HK$600,200 were charged/credited to the property, plant and equipment revaluation reserve whereas the remaining surplus of HK$87,538, the surplus of HK$2,014,487, the deficit of HK$8,444,086 and the surplus of HK$2,970,452 were charged/credited to the consolidated income statements for the Relevant Periods, respectively.

Had these generation plant and related structure been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been HK$53,628,348, HK$56,065,927, HK$68,816,073 and HK$70,868,239 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively.

As at 31 December 2004, 2005 and 2006 and 30 June 2007, certain of the Group’s land and buildings with a net book value of approximately HK$20,236,045, HK$32,825,835, HK$41,938,104 and HK$43,375,227, respectively, were pledged to secure general banking facilities granted to the Group (note 34(a)(ii)) .

Certain of the Group’s generation plant and related structure with net book values of approximately HK$7,456,181 and HK$7,599,569, respectively, had been pledged to secure general banking facilities granted to the Group as at 31 December 2004 and 2005 (note 34(a)(iii)) .

– 63 –

ACCOUNTANTS’ REPORT

APPENDIX I

16. PREPAID LAND LEASE PAYMENTS

Group

Carrying amount at 1 January Exchange realignment Addition Recognised during the year/period (note 7) Carrying amount at end of year/period Current portion included in prepayments, deposits and other receivables Non-current portion	2004 HK$ 8,217,266 – – (438,898)	31 December 2005 HK$ 7,778,368 1,014,034 21,698,113 (952,671)	2006 HK$ 29,537,844 958,538 – (957,163)	30 June 2007 HK$ 29,539,219 873,945 917,310 (473,120
	7,778,368 (446,008)	29,537,844 (959,576)	29,539,219 (960,338)	30,857,354 (957,195
	7,332,360	28,578,268	28,578,881	29,900,159

The prepaid land lease payments are related to leasehold land situated in Mainland China and held under medium term leases.

17. GOODWILL

Group

	HK$
Cost and carrying amount at 1 January 2004, 31 December 2004,
1 January 2005, 31 December 2005, 1 January 2006,
31 December 2006, 1 January 2007 and 30 June 2007	40,498,783

As further detailed in note 3.3 to the Financial Information, the Group applied the transitional provisions of HKFRS 3 that permitted goodwill in respect of business combinations which occurred prior to 2001, to remain eliminated against consolidated retained profits.

The amount of goodwill remaining in consolidated retained profits, arising from the acquisition of subsidiaries prior to the adoption of SSAP 30 in 2001, was HK$162,134 as at 31 December 2004, 2005 and 2006 and 30 June 2007.

Impairment testing of goodwill

Goodwill arising from the acquisition of Hangzhou Sealand has been allocated to the electric and steam power supply cash-generating unit, one of the reporting segments of the Group, for impairment testing.

The recoverable amount of the electric and steam power supply cash-generating unit has been determined based on a value-in-use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rates applied to the cash flow projections are 12%, 10%, 11% and 11% respectively, as at 31 December 2004, 2005 and 2006 and 30 June 2007 and cash flows beyond the first five-year period are extrapolated using a zero growth rate.

– 64 –

ACCOUNTANTS’ REPORT

APPENDIX I

Key assumptions used in its cash flow projections to undertake impairment testing of goodwill are as follows:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year, increased for expected efficiency improvements.

Discount rates – The discount rates used are before tax and reflect specific risks relating to the relevant units.

18. INTERESTS IN SUBSIDIARIES

Company

Unlisted shares, at cost* Due from subsidiaries Due to subsidiaries Less: Provision for impairment and amounts due from subsidiaries	2004 HK$ 43,659,910 498,352,327 –	31 December 2005 HK$ 277,877,800 332,319,066 (13,000,000)	2006 HK$ 277,877,823 333,205,540 (13,000,000)	30 June 2007 HK$ 277,877,808 343,051,545 (13,000,000
	542,012,237 (243,376,497)	597,196,866 (243,376,497)	598,083,363 (243,376,497)	607,929,353 (243,376,497
	298,635,740	353,820,369	354,706,866	364,552,856

During the year ended 31 December 2005, an amount due from a subsidiary of HK$234,217,890 was capitalised as the Company’s investment cost of that subsidiary.

The balances with the subsidiaries are unsecured, interest-free and are not expected to be repaid within one year. In the opinion of the Company’s directors, the amounts due from the subsidiaries are considered as quasi-equity loans to the subsidiaries.

19. INTERESTS IN ASSOCIATES

Group

Share of net assets Goodwill on acquisition	2004 HK$ 32,563,423 3,162,131 35,725,554	31 December 2005 HK$ 110,692,346 3,162,131 113,854,477	2006 HK$ 45,199,422 3,162,131 48,361,553	30 June 2007 HK$ 50,500,993 3,162,131
				53,663,124

– 65 –

ACCOUNTANTS’ REPORT

APPENDIX I

During the year ended 31 December 2005, Billirich, a wholly-owned subsidiary of the Company, through acquisitions and a subsequent subscription arrangement, acquired an aggregate of 2,655,000,000 ordinary shares of Sino Gas, representing approximately 26.42% of the then issued share capital of Sino Gas which was then accounted for as an associate of the Group as at 31 December 2005.

The total consideration paid by the Group for the above acquisitions together with the direct professional fee amounting to HK$67,678,604 and the related excess over the costs of acquisition of this associate of HK$6,069,856 was recognised as income in the consolidated income statement during the year ended 31 December 2005.

During the year ended 31 December 2006, the Group’s interest in Sino Gas had been diluted to 19.99% through various capital transactions of Sino Gas, including certain placement of shares, and the exercise of certain options by its employees and consultants. A gain on deemed disposal of the Group’s interest in Sino Gas amounting to HK$22,030,133 was derived and was credited to the Group’s consolidated income statement for the year ended 31 December 2006.

Having considered that the Group can no longer exercise significant influence over Sino Gas, the Group discontinued the use of the equity method to account for the Group’s interest in Sino Gas during the year ended 31 December 2006 and the Group’s investment in Sino Gas shares had therefore been accounted for as a financial asset as at 31 December 2006 (notes 21 and 28) .

For details of the associates, please refer to note 4 to the Financial Information.

The following table illustrates the summarised financial information of the Group’s associates at the balance sheet dates and for the Relevant Periods:

				Six months
				ended
	Year	ended 31 December		30 June
	2004	2005	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000
Assets	141,948	633,207	236,709	259,073
Liabilities	(23,714)	(180,788)	(68,676)	(16,051)
Revenues	56,788	225,448	155,406	80,538
Profit/(loss)	(7,369)	21,789	(113,478)	20,985

20. FINANCIAL ASSET UNDER PROJECT EC120

The balance represents the carrying value of the Group’s interest in 80% of CATIC’s interest in the net income in relation to Project EC120 which was acquired from CATIC in 2002. Project EC120 is a jointly-controlled operation established in October 1992 by CATIC in co-operation with Eurocopter S.A. and Singapore Aerospace Ltd., both independent third parties, to develop, manufacture and globally distribute the multi-purpose EC120 helicopters.

CATIC’s net income derived from Project EC120 is limited to CATIC’s share of income, net of all expenses, to be derived from its interest in Project EC120 in relation to (i) the sale and production of parts and spares of helicopters and profits accrued to CATIC from the sale of helicopters globally; (ii) the recovery of non-recurring costs accrued to CATIC; (iii) commission income accrued to CATIC from the sale of helicopters by CATIC; and (iv) administrative income accrued to CATIC from the operations of Project EC120.

As the investment represents a contractual right to receive cash in the future from another enterprise, the investment has been classified as a non-current available-for-sale financial asset and stated at fair value, by using discounted cash flow analysis.

Having considered the future cash flows and profit forecasts of Project EC120, the directors made provisions for impairment of HK$4,000,000, HK$3,000,000, HK$4,800,000, HK$1,000,000 and HK$600,000, to the consolidated income statements, for the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2006 and 2007, respectively.

– 66 –

ACCOUNTANTS’ REPORT

APPENDIX I

The cost less accumulated impairment losses of the financial asset is analysed as follows:

Group

2004 HK$ 39,759,462	31 December 2005 HK$ 39,759,462	2006 HK$ 39,759,462	30 June 2007 HK$ 39,759,462
2,000,000 4,000,000 6,000,000	6,000,000 3,000,000 9,000,000	9,000,000 4,800,000 13,800,000	13,800,000 600,000
			14,400,000
	30,759,462 31 December 2005 HK$ – – 960,000 9,106,600 10,066,600 11,702,100	25,959,462 2006 HK$ 79,887,500 – 380,000 10,834,600 91,102,100 –	25,359,462

			30 June 2007 HK$ 78,435,000 12,840,641 380,000 10,061,000
			101,716,641

			–

As a result of the Group’s loss of significant influence over Sino Gas during the year ended 31 December 2006 as detailed in note 19 to the Financial Information, the directors have designated the Group’s investment in Sino Gas according to its investment strategy such that 10% equity interest in Sino Gas out of the 19.99% interest stated at the then carrying value of HK$42,090,544 was designated as an available-for-sale investment. According to the Group’s accounting policy, the fair value gain of HK$37,796,956 and fair value loss of HK$1,452,500 of such investments had been recognised directly in equity during the year ended 31 December 2006 and six months ended 30 June 2007, respectively.

– 67 –

APPENDIX I

ACCOUNTANTS’ REPORT

On 25 January 2007, Billirich entered into a convertible bond agreement with Sino Gas to purchase a convertible bond issued by Sino Gas with a principal amount of HK$15,600,000. The convertible bond is interest-bearing at 2% per annum and Billirich has the right to convert the convertible bond into ordinary shares of Sino Gas at HK$0.65 per share (subject to adjustment upon the change in capital structure of Sino Gas) and the convertible bond will mature at two years after the issue of the convertible bond. Besides, Sino Gas shall have the right to require the conversion of certain portion of the principal amount then outstanding and all interest accrued thereon into ordinary shares of Sino Gas at the then conversion price when the market price of Sino Gas reaches certain predetermined prices. Assuming a full conversion was made by Billirich at the conversion price of HK$0.65 per share, the convertible bond can be converted into 24,000,000 ordinary shares of Sino Gas. On 25 May 2007, the conversion price of HK$0.65 per share was adjusted to HK$0.633 per share as a result of the issuance of the share capital of Sino Gas pursuant to a share placement during the six months ended 30 June 2007.

The convertible bond of Sino Gas is a hybrid instrument that includes a non-derivative host contract and an embedded derivative. The non-derivative host contract, representing the Sino Gas convertible bond (the “Sino Gas Convertible Bond”), has been designated as an available-for-sale investment. The embedded derivative, being a derivative financial instrument, represents the conversion option (the “Embedded Derivative Asset”), which allows Billirich to convert the convertible bond into ordinary shares of Sino Gas at an established conversion rate (i.e., HK$0.633 per share) before the maturity date of the convertible bond.

As at 19 March 2007 (the issue date of the convertible bond), the fair values of the Sino Gas Convertible Bond and the Embedded Derivative Asset were stated at HK$14,286,395 and HK$1,313,605, respectively, based on valuation performed by independent professionally qualified valuers.

As at 30 June 2007, the fair values of the Sino Gas Convertible Bond and the Embedded Derivative Asset were stated at HK$12,840,641 and HK$1,709,015, respectively, based on valuation done by independent professionally qualified valuers. Accordingly, a fair value loss of HK$1,445,754 was charged to the consolidated available-for-sale investment revaluation reserve and a fair value gain of the Embedded Derivative Asset of HK$395,410 was credited to the consolidated income statement for the six months ended 30 June 2007.

The above investments consist of investments in equity securities which were designated as available-for-sale investments and have no fixed maturity date or coupon rate. During the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, the aggregate fair value losses for all available-for-sale investments recognised directly in equity amounted to nil, nil, HK$37,184,956 and HK$2,898,254, respectively.

The fair value of a listed equity investment is based on quoted market value. The fair values of unlisted available-for-sale equity investments have been estimated using valuation techniques based on assumptions that are not supported by observable market prices or rates. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated balance sheets, and the related changes in fair values and impairment loss, which are recorded in the consolidated statements of changes in equity and income statements, respectively, are reasonable, and that they are the most appropriate values at each of the balance sheet dates.

Certain of the Group’s unlisted investments amounting to HK$14,818,100, HK$20,808,700, HK$10,834,600 and HK$10,061,000 have been pledged to banks to secure certain banking facilities granted to the Group as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively (note 34(a)(iv)) .

– 68 –

ACCOUNTANTS’ REPORT

APPENDIX I

22. DEFERRED TAX

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

Deferred tax assets

Group

Losses available for offset against future taxable profit HK$ 8,614,500 (2,203,638)	Others HK$ 591,889 (96,362)	Total HK$ 9,206,389 (2,300,000) 6,906,389 (2,300,000) 4,606,389 (906,389) 3,700,000 4,022,000 7,722,000
6,410,862 (2,300,000) 4,110,862 (410,862) 3,700,000 3,814,592	495,527 – 495,527 (495,527) – 207,408	6,906,389 (2,300,000
		4,606,389 (906,389
		3,700,000 4,022,000
7,514,592	207,408

– 69 –

ACCOUNTANTS’ REPORT

APPENDIX I

Deferred tax liabilities

Group

Revaluation of property, plant and equipment HK$ 6,840,957 (935,925)	Others HK$ (311,322) –	Total HK$ 6,529,635 (935,925) 5,593,710 496,342 (5,987) 6,084,065 (1,572,156) 4,511,909 (997,627) 3,514,282 1,312,679 (1,477,676) (811,909) 4,207,718
5,905,032 496,342 – 6,401,374 (1,889,465) 4,511,909 (997,627)	(311,322) – (5,987) (317,309) 317,309 – –	5,593,710 496,342 (5,987
		6,084,065 (1,572,156
		4,511,909 (997,627
3,514,282	–

During the years ended 31 December 2004 and 2005, the net deferred tax charged to the consolidated income statements was HK$1,364,075 and HK$2,796,342, respectively. During the year ended 31 December 2006 and six months ended 30 June 2007, the net deferred tax credited to the consolidated income statements was HK$665,767 and HK$5,019,627, respectively.

At 31 December 2004, 2005 and 2006 and 30 June 2007, the Group had tax losses arising in Hong Kong of HK$36,633,000, HK$23,491,000, HK$1,961,200 and HK$2,857,000, respectively, and in the United States of nil, nil, HK$11,192,000 and HK$26,265,000, respectively, that are available indefinitely for offsetting against future taxable profits of certain subsidiaries in which the losses arose. As the Group expects that the subsidiary will have sufficient taxable profits generated in the future to utilise these tax losses, a deferred tax asset has been recognised.

At 31 December 2004, 2005 and 2006 and 30 June 2007, the Group also had aggregate tax losses arising in Hong Kong, in the PRC and in the United States of HK$15,456,000, HK$18,447,162, HK$25,897,308 and HK$33,124,784, respectively, that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

– 70 –

ACCOUNTANTS’ REPORT

APPENDIX I

At each of the balance sheet dates, there was no significant unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries or associates as the Group has no liability to additional tax should such amounts be remitted.

At each of the balance sheet dates, the Company did not have any significant temporary differences for which deferred tax assets/liabilities were not provided.

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

23. PREPAYMENT AND RELATED RECEIVABLE IN RESPECT OF AN EXCLUSIVE DISTRIBUTORSHIP

The amount related to a payment of US$5,000,000 (equivalent to approximately HK$39,000,000) (the “Prepayment”) made by the Company and the Group in January 2004 with a third party pursuant to an agreement for the exclusive distributorship of 20 helicopter engines produced and sold until 31 December 2006.

Pursuant to the agreement, a discount of US$300,000 was made by the third party to the Group for each of the first 20 helicopter engines sold by the Group such that the Group would have at least recovered a total of US$6,000,000 from the third party for sale under the exclusive distributorship with annual return accruable at not less than 8% per annum. According to such terms, income of HK$3,120,000, HK$3,119,995 and HK$1,560,005 (note 6) was recorded during the years ended 31 December 2004, 2005 and 2006, respectively. The exclusive distributorship expired on 31 December 2006 and all the related receivables were settled.

The receivable in respect of the exclusive distributorship as at each balance sheet dates represented the Prepayment and accumulated accrued income, less accumulated cash receipts received from CATIC who was designated by the third party to receive the receivable on behalf of the Company.

24. DEPOSIT PAID FOR A LAND USE RIGHT

As at 31 December 2004, a deposit was paid by Hangzhou Sealand for the purchase of a land use right in the Mainland China. The related land use right, which has a lease term of 42 years, had been used for the construction of a generation plant during the year ended 31 December 2005 and, was then reclassified to prepaid land lease payments as at 31 December 2005.

25. INVENTORIES

Group

Raw materials Sub-materials	2004 HK$ 6,527,615 2,525 6,530,140	31 December 2005 HK$ 11,604,022 1,343 11,605,365	2006 HK$ 15,431,748 191,911 15,623,659	30 June 2007 HK$ 14,647,010 73,949
				14,720,959

– 71 –

ACCOUNTANTS’ REPORT

APPENDIX I

26. AMOUNTS DUE FROM/(TO) CONTRACT CUSTOMERS

Group

2004 HK$ 27,587,875 (126,757,579) (99,169,704)	31 December 2005 HK$ 72,904,015 (103,165,723) (30,261,708)	2006 HK$ 70,550,508 (113,568,100) (43,017,592)	30 June 2007 HK$ 44,210,565 (147,146,316
			(102,935,751

2,632,551,593 (2,731,721,297)	2,753,915,461 (2,784,177,169)	2,677,170,878 (2,720,188,470)	2,483,081,576 (2,586,017,327
(99,169,704)	(30,261,708)	(43,017,592)	(102,935,751

27. TRADE AND RETENTION RECEIVABLES

Group

Trade receivables Retention receivables	2004 HK$ 75,802,120 87,966,860 163,768,980	31 December 2005 HK$ 136,287,180 76,515,030 212,802,210	2006 HK$ 169,903,692 81,824,270 251,727,962	30 June 2007 HK$ 78,840,649 93,146,855
				171,987,504

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

Group

Current 31-60 days 61-90 days Over 90 days	2004 HK$ 70,483,661 5,195,055 27,991 95,413 75,802,120	31 December 2005 HK$ 112,643,036 21,522,318 1,277,929 843,897 136,287,180	2006 HK$ 130,271,356 35,819,695 2,082,328 1,730,313 169,903,692	30 June 2007 HK$ 58,380,350 13,440,423 6,403,104 616,772
				78,840,649

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ACCOUNTANTS’ REPORT

APPENDIX I

Retention receivables represent certified contract payments in respect of works performed, for which payments are withheld by customers for retention purposes, and are released to the Group pursuant to the provisions of the relevant contracts after the completion of the projects in question. No aged analysis of retention receivables is presented as the amount retained is provided for on each payment up to a maximum amount calculated on a prescribed percentage of the contract sum.

The Group’s trade receivables mainly represent progress payments receivable from facade building contracting works. The Group adopts credit policies which are consistent with the trade practices prevalent in the building industry in Hong Kong. The Group recognises its trade receivables when the value of the subcontract works is certified by the architect. Pursuant to the trade practices, the main contractor from time to time makes applications for payment certificates which include the certified value of the nominated subcontract works. Normally within 14 days of receipt by the main contractor of the payment from the employer against the payment certificate from the architect, the main contractor shall pay to the subcontractors the certified value of their subcontract works, less amounts previously paid and retentions attributable to the subcontract works as explained above.

The normal credit term of trade receivables from the sale of electric and steam power is 60 days.

Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing. The carrying amounts of the trade receivables approximate to their fair values.

28. EQUITY INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS

		31 December		30 June
	2004	2005	2006	2007
	HK$	HK$	HK$	HK$
Listed equity investment in Hong
Kong, at fair value (notes 19, 21)	–	–	79,887,500	62,235,000

As a result of the Group’s loss of significant influence over Sino Gas during the year ended 31 December 2006 as detailed in notes 19 and 21 to the Financial Information, the directors have designated 9.99% equity interest in Sino Gas out of the 19.99% interest stated at the then carrying value of HK$42,090,544 as an equity investment at fair value through profit or loss. Such equity investment, upon initial recognition, was designated as a financial asset at fair value through profit or loss as it was managed and its performance was evaluated on a fair value basis, in accordance with a documented investment strategy of the Group to re-focus on the aero-technology related business. Such designation was in line with the Group’s strategy and increased its flexibility on resources allocation. Any fair value gains or losses on these investments are recognised in the income statement. During the year ended 31 December 2006, a fair value gain of HK$37,796,956 had been credited to the consolidated income statement. The fair value of the listed equity investment was based on quoted market prices.

On 15 March 2007, Billirich disposed of 30,000,000 ordinary shares of Sino Gas (which were designated as an equity investment at fair value through profit or loss in the prior year) to an independent third party at HK$0.4 per share for a total aggregate consideration of HK$12,000,000. In addition, Billirich issued a call option to that party to acquire a maximum of an additional 45,000,000 ordinary shares of Sino Gas from Billirich at an exercise price of HK$0.5 per share on or before 14 March 2009.

The consideration of HK$12,000,000 received represented total consideration received for the sale of 30,000,000 ordinary shares of Sino Gas as well as the call option issued to acquire 45,000,000 ordinary shares of Sino Gas from Billirich. Based on the valuation performed by independent professionally qualified valuers, the total fair value of the call option issued on 15 March 2007 (the date of call option granted) amounted to HK$5,352,874, and accordingly the total consideration received of HK$12,000,000 was allocated to the consideration for the sale of 30,000,000 ordinary shares of Sino Gas of HK$6,647,126 and the fair value of the call option issued for acquiring the 45,000,000 ordinary shares of Sino Gas of HK$5,352,874. Accordingly, a derivative liability (the “Derivative Liability”) of HK$5,352,874 was recognised in respect of the said option issued.

– 73 –

APPENDIX I

ACCOUNTANTS’ REPORT

The Derivative Liability, being a financial liability at fair value through profit or loss, is measured at fair value with gain or loss being recognised through the income statement. Based on the valuation performed by independent professionally qualified valuers, the fair value of the call option issued as at 30 June 2007 amounted to HK$4,902,470 and accordingly a fair value gain of HK$450,404 was credited to the consolidated income statement for the six months ended 30 June 2007.

As a result of the Group’s disposal of 30,000,000 ordinary shares of Sino Gas during the six months ended 30 June 2007, the Group incurred a loss on disposal of equity investments at fair value through profit or loss of HK$10,467,883, which was being charged to the consolidated income statement for the six months ended 30 June 2007. The fair value loss of the remaining Sino Gas shares was HK$552,500 during the six months ended 30 June 2007, which was charged to the consolidated income statement for the six months ended 30 June 2007.

29. DERIVATIVE FINANCIAL INSTRUMENTS

Group

Asset: Embedded Derivative Asset (note 21)* Liability: Derivative Liability (note 28)#	2004 HK$ – –	31 December 2005 HK$ – –	2006 HK$ – –	30 June 2007 HK$ 1,709,015 (4,902,470)

The Embedded Derivative Asset was acquired as a result of the purchase of the Sino Gas Convertible Bonds on 19 March 2007 as detailed in note 21. The asset was stated as a derivative financial instrument at HK$1,709,015 as at 30 June 2007 based on the valuation done by independent professionally qualified valuers. The Embedded Derivative Asset was designated as a derivative financial instrument upon initial recognition as it is managed and its performance is evaluated on a fair value basis. Any fair value gains or losses are recognised in the income statement. A fair value gain of HK$395,410 has been credited to the consolidated income statement for the six months ended 30 June 2007.
The Derivative Liability arose as a result of the issue of a call option for the acquisition of 45,000,000 ordinary shares of Sino Gas to an independent third party during the six months ended 30 June 2007 as detailed in note 28. The Derivative Liability was stated as a derivative financial instrument at HK$4,902,470 as at 30 June 2007 based on the valuation done by independent professionally qualified valuers. The Derivative Liability was designated as derivative financial instrument upon initial recognition as it is managed and its performance is evaluated on a fair value basis. Any fair value gains or losses are recognised in the income statement. A fair value gain of HK$450,404 has been charged to the consolidated income statement.

The fair values of derivative financial instruments have been estimated using valuation techniques based on assumptions that are not supported by observable market prices or rates. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the consolidated balance sheet, and the related changes in fair values and impairment loss, which are recorded in the consolidated income statement are reasonable, and that they are the most appropriate values at the balance sheet date.

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ACCOUNTANTS’ REPORT

APPENDIX I

30. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

Time deposits Less: Pledged long term time deposits (note 34(a)(v)) Pledged short term time deposits (note 34(a)(vi)) Cash and bank balances Cash and cash equivalents	2004 HK$ 128,043,054 (10,000,000) (51,026,000)	Group 31 December 2005 2006 HK$ HK$ 97,440,091 108,613,856 (10,000,000) (9,360,000) (44,811,621) (64,045,974)	Group 31 December 2005 2006 HK$ HK$ 97,440,091 108,613,856 (10,000,000) (9,360,000) (44,811,621) (64,045,974)	30 June 2007 HK$ 380,640,708 (9,360,000) (89,401,055)	2004 HK$ – – –	Company 31 December 2005 2006 HK$ HK$ – 35,207,882 – – – –	Company 31 December 2005 2006 HK$ HK$ – 35,207,882 – – – –	30 June 2007 HK$ 281,879,653 – –
	67,017,054 76,997,520	42,628,470 42,638,314	35,207,882 76,884,259	281,879,653 135,527,659	– 28,790,228	– 5,202,494	35,207,882 6,256,523	281,879,653 14,053,455
	144,014,574	85,266,784	112,092,141	417,407,312	28,790,228	5,202,494	41,464,405	295,933,108

As at 31 December 2004, 2005 and 2006 and 30 June 2007, the cash and bank balances and the time deposits of the Group denominated in Renminbi (“RMB”) amounted to HK$82,084,678, HK$69,989,668, HK$61,986,600 and HK$80,918,965, respectively. The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

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

31. TRADE AND BILLS PAYABLES

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

Current 31-60 days 61-90 days Over 90 days	2004 HK$ 51,882,761 3,063,928 114,600 2,308,119 57,369,408	Group 31 December 2005 2006 HK$ HK$ 94,738,570 99,604,768 1,028,196 5,600,765 198,465 434,094 2,481,959 3,929,066 98,447,190 109,568,693	30 June 2007 HK$ 133,271,596 1,680,452 407,464 3,382,718
			138,742,230

The trade payables are non-interest-bearing and are normally settled on 90-day terms. The carrying amounts of the trade payables approximate to their fair values.

– 75 –

ACCOUNTANTS’ REPORT

APPENDIX I

32. WARRANTY PROVISION

At 1 January Additional provision (note 7) Amount utilised during the year/period At end of year/period	2004 HK$ 9,754,675 3,906,000 (1,292,392) 12,368,283	Group 31 December 2005 2006 HK$ HK$ 12,368,283 10,230,124 435,200 3,920,000 (2,573,359) (3,848,637) 10,230,124 10,301,487	30 June 2007 HK$ 10,301,487 1,300,000 (881,623)
			10,719,864

The Group provides warranties to its customers on facade contracting works in accordance with terms and conditions as stipulated in contracts, under which defective works are rectified or replaced. The amount of the warranty provision is estimated based on the past experience of the level of defective works and the estimation basis is reviewed on an ongoing basis and revised where appropriate.

33. OTHER PAYABLES AND ACCRUALS

Other payables are non-interest-bearing and have an average term of three months. The carrying amounts of other payables approximate to their fair values.

34. INTEREST-BEARING BANK BORROWINGS

Effective interest rate Maturity (%) Import loans – secured Prime – 0.5 Within one year or on demand Bank loans – secured HIBOR + 1.75 to 6.73 Within one year or on demand	2004 HK$ 5,979,834 70,754,717 76,734,551	Group 31 December 2005 2006 HK$ HK$ 37,784,356 47,476,134 118,557,692 120,137,749 156,342,048 167,613,883	30 June 2007 HK$ 8,903,646 87,831,449 96,735,095	2004 HK$ – – –	Company 31 December 2005 2006 HK$ HK$ – – 35,000,000 20,000,000 35,000,000 20,000,000	30 June 2007 HK$ – 20,000,000
						20,000,000

Notes:

(a) The Group’s banking facilities are secured by:
(i) a pledge of the Group’s and the Company’s investment property with carrying values of HK$14,900,000, HK$14,900,000 and HK$17,915,000 as at 31 December 2005 and 2006 and 30 June 2007, respectively (note 14) ;
(ii) pledges of certain of the Group’s land and buildings with an aggregate net book values of approximately HK$20,236,045, HK$32,825,835 HK$41,938,104 and HK$43,375,227 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively (note 15) ;
(iii) pledges of certain of the Group’s generation plant and related structure with an aggregate net book values of approximately HK$7,456,181 and HK$7,599,569, as at 31 December 2004 and 2005, respectively (note 15) ;

– 76 –

ACCOUNTANTS’ REPORT

APPENDIX I

(iv) pledges of certain of the Group’s unlisted available-for-sale investments amounting to HK$14,818,100, HK$20,808,700, HK$10,834,600 and HK$10,061,000 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively (note 21) ;
(v) pledges of certain of the Group’s long term time deposits amounting to HK$10,000,000, HK$10,000,000, HK$9,360,000 and HK$9,360,000 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively (note 30) ;
(vi) pledges of certain of the Group’s short term time deposits amounting to HK$51,026,000, HK$44,811,621, HK$64,045,974 and HK$89,401,055 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively (note 30) ;
(vii) corporate guarantees executed by the Company amounting to an aggregate of HK$196,000,000, HK$185,000,000, HK$185,000,000 and HK$185,000,000 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively, (note 42) ; and
(viii) The Group’s short terms bank loans of RMB52,000,000 (equivalent to approximately HK$49,056,604) as at 31 December 2004 were guaranteed by , , , and
, independent third parties;

The Group’s short term bank loans of RMB76,500,000 (equivalent to approximately HK$73,557,692) as at 31 December 2005 were guaranteed by , , , , , and , independent third parties;

The Group’s short term bank loans of RMB71,500,000 (equivalent to approximately HK$71,215,139) as at 31 December 2006 were guaranteed by , , , , , and , independent third parties; The Group’s short term bank loans of RMB50,000,000 (equivalent to approximately HK$51,387,461) as at 30 June 2007 were guaranteed by , and , independent third parties.

As at 31 December 2004, 2005 and 2006 and 30 June 2007, except for the Group’s secured bank loans of RMB75,000,000 (equivalent to HK$70,754,717), RMB76,500,000 (equivalent to HK$73,557,692), RMB100,538,300 (equivalent to HK$100,137,749) and RMB66,000,000 (equivalent to HK$67,831,449), respectively, which are denominated in RMB, all other bank borrowings are in Hong Kong dollars.

– 77 –

ACCOUNTANTS’ REPORT

APPENDIX I

(b) Other interest rate information:

Import loans – secured Bank loans – secured Bank loans – secured	2004 Fixed rate Floating rate HK$ HK$ – 5,979,834 70,754,717 – 2004 Fixed rate Floating rate HK$ HK$ – –	Group 2005 2006 Fixed rate Floating rate Fixed rate Floating rate HK$ HK$ HK$ HK$ – 37,784,356 – 47,476,134 73,557,692 45,000,000 100,137,749 20,000,000 Company 2005 2006 Fixed rate Floating rate Fixed rate Floating rate HK$ HK$ HK$ HK$ – 35,000,000 – 20,000,000	2007 Fixed rate Floating rate HK$ HK$ – 8,903,646 67,831,449 20,000,000 2007 Fixed rate Floating rate HK$ HK$ – 20,000,000

The carrying amounts of the Group’s and the Company’s bank borrowings approximate to their fair values.

35. FINANCE LEASE PAYABLES

The Group leases one of its motor vehicles under a hire purchase arrangement which is repayable by instalments over 60 months and is classified as a finance lease.

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

Group

Minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 233,808 233,808 233,808 175,356 233,808 233,808 58,452 – 292,260 58,452 – – 759,876 526,068 292,260 175,356 (74,632) (36,914) (11,963) (4,533) 685,244 489,154 280,297 170,823 (196,090) (208,857) (222,456) (170,823)	Minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 233,808 233,808 233,808 175,356 233,808 233,808 58,452 – 292,260 58,452 – – 759,876 526,068 292,260 175,356 (74,632) (36,914) (11,963) (4,533) 685,244 489,154 280,297 170,823 (196,090) (208,857) (222,456) (170,823)	Minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 233,808 233,808 233,808 175,356 233,808 233,808 58,452 – 292,260 58,452 – – 759,876 526,068 292,260 175,356 (74,632) (36,914) (11,963) (4,533) 685,244 489,154 280,297 170,823 (196,090) (208,857) (222,456) (170,823)	Minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 233,808 233,808 233,808 175,356 233,808 233,808 58,452 – 292,260 58,452 – – 759,876 526,068 292,260 175,356 (74,632) (36,914) (11,963) (4,533) 685,244 489,154 280,297 170,823 (196,090) (208,857) (222,456) (170,823)	Minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 233,808 233,808 233,808 175,356 233,808 233,808 58,452 – 292,260 58,452 – – 759,876 526,068 292,260 175,356 (74,632) (36,914) (11,963) (4,533) 685,244 489,154 280,297 170,823 (196,090) (208,857) (222,456) (170,823)	Present value of minimum lease payments 31 December 30 June 2004 2005 2006 2007 HK$ HK$ HK$ HK$ 196,090 208,857 222,456 170,823 208,857 222,456 57,841 – 280,297 57,841 – – 685,244 489,154 280,297 170,823
					170,823

	) )	(36,914) 489,154 (208,857)	(11,963) 280,297 (222,456)	(4,533) 170,823 (170,823)
685,244 (196,090
489,154		280,297	57,841	–

– 78 –

APPENDIX I

ACCOUNTANTS’ REPORT

The Group’s hire purchase arrangement bears interest at a fixed rate and its carrying amount approximates to its fair value.

36. SHARE CAPITAL

Authorised: 6,000,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 31 December 2004: 3,741,481,000; 31 December 2005: 3,741,481,000; 31 December 2006: 3,985,303,000; 30 June 2007: 4,773,303,000 ordinary shares of HK$0.10 each	2004 HK$ 600,000,000 374,148,100	Company 31 December 2005 2006 HK$ HK$ 600,000,000 600,000,000 374,148,100 398,530,300	30 June 2007 HK$ 600,000,000

			477,330,300

During the Relevant Periods, the movements in share capital were as follows:

(a) During the year ended 31 December 2004, the subscription rights attaching to options in respect of 20,800,000 shares were exercised at an exercise price of HK$0.13 per share, resulting in the issue of 20,800,000 shares of HK$0.10 each for a total cash consideration of HK$2,704,000, represented by the increase in the issued share capital and share premium of HK$2,080,000 and HK$624,000, respectively.
(b) On 27 March 2006, pursuant to a share placement arrangement, the Company issued 268,500,000 ordinary shares to an existing shareholder of the Company, at a price of HK$0.115 per share, which resulted in the increase of the issued share capital and share premium, before share issue expenses, of HK$26,850,000 and HK$4,027,500, respectively, for an aggregate cash consideration of approximately HK$30,877,500. Share issue expenses of HK$1,148,490 was charged to the share premium account accordingly.
(c) During the period from 10 August 2006 to 16 August 2006, the Company repurchased 24,678,000 of its own shares through The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) at prices ranging from HK$0.092 to HK$0.099 per share, for an aggregate cash consideration of HK$2,402,431.
All the shares repurchased by the Company were cancelled by the Company and, accordingly, the issued share capital of the Company was reduced by the nominal value of these shares. The discount received on the repurchase was credited to the share premium account.
(d) On 1 May 2007, pursuant to a share placement arrangement, the Company issued 720,000,000 ordinary shares to Tacko International Limited (“Tacko”), an existing shareholder of the Company, at a price of HK$0.34 per share. Tacko then sold these 720,000,000 ordinary shares to certain independent third parties. Besides, the Company also granted 80,000,000 share options with an exercise price of HK$0.34 per share to these independent third parties. The aggregate cash consideration received, before share issue expenses, is approximately HK$244,800,000. These transactions resulted in the increase of the issued share capital, share premium and share options reserve of HK$72,000,000, HK$155,060,084 and HK$17,739,916, respectively. Share issue expenses of HK$2,472,400 was charged to the share premium account accordingly.
(e) During the six months ended 30 June 2007, the subscription rights attaching to options in respect of 68,000,000 shares were exercised at an exercise price of HK$0.34 per share, resulting in the issue of 68,000,000 shares of HK$0.10 each, for a total cash consideration, before share issue expenses, of HK$23,120,000, represented by the increase in issued the share capital and share premium of HK$6,800,000 and HK$16,320,000, respectively. Accordingly, share option reserve of HK$15,078,929 was transferred to the share premium account.

– 79 –

APPENDIX I

ACCOUNTANTS’ REPORT

A summary of the transactions during the Relevant Periods with reference to the above movements in the Company’s issued share capital is as follows:

Number of shares in issue 3,720,681,000 20,800,000	Issued capital HK$ 372,068,100 2,080,000	Share premium account HK$ 1,348,500 624,000	Share option reserve HK$ – –	Total HK$ 373,416,600 2,704,000 376,120,600 30,877,500 (1,148,490) (2,402,431) 403,447,179 244,800,000 (2,472,400) 23,120,000 – 668,894,779
3,741,481,000 268,500,000 – (24,678,000) 3,985,303,000 720,000,000 – 68,000,000 –	374,148,100 26,850,000 – (2,467,800) 398,530,300 72,000,000 – 6,800,000 –	1,972,500 4,027,500 (1,148,490) 65,369 4,916,879 155,060,084 (2,472,400) 16,320,000 15,078,929	– – – – – 17,739,916 – – (15,078,929)	376,120,600 30,877,500 (1,148,490 (2,402,431
				403,447,179 244,800,000 (2,472,400 23,120,000 –
4,773,303,000	477,330,300	188,903,492	2,660,987

37. SHARE OPTIONS

(a) Employees’ share option schemes

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations.

At the annual general meeting held on 14 May 2001, the share option scheme adopted in 1991 (the “1991 Scheme”) with a life span of 10 years was terminated and concurrently a new share option scheme (the “2001 Scheme”) was adopted. Subsequent to the adoption of the 2001 Scheme on 14 May 2001, the Stock Exchange introduced a number of changes to Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) on share option schemes. These new rules came into effect on 1 September 2001. In compliance with the amended Chapter 17 of the Listing Rules, a new share option scheme (the “Existing Scheme”) was adopted by the Company at the annual general meeting held on 13 May 2003 and at the same time the 2001 Scheme was terminated. Since the adoption of the Existing Scheme, no options have been granted thereunder.

Major terms of the Existing Scheme include:

The purpose of the Existing Scheme is to provide incentives to the participants.
The participants of the Existing Scheme are individuals being employees, officers or consultants of the Company or any of its subsidiaries including any executive or non-executive directors thereof.

– 80 –

ACCOUNTANTS’ REPORT

APPENDIX I

The total number of shares which may be issued upon exercise of all options to be granted under the Existing Scheme, the 2001 Scheme and the 1991 Scheme (collectively the “Schemes”) must not in aggregate exceed 10% of the share capital of the Company in issue as at the date of approval of the Existing Scheme. The Company may refresh this 10% limit at any time subject to prior approval from its shareholders in a general meeting. The overall limit on the total number of shares which may be issued upon exercise of all outstanding options and yet to be exercised under the Schemes must not exceed 30% of the issued share capital of the Company at any time. No options may be granted if this will result in such limit being exceeded. The total number of shares available for issue under the Existing Scheme is 367,573,100 shares which represent 9.82%, 9.82%, 9.22% and 7.7%, respectively, of the issued share capital of the Company as at each of the balance sheet dates.
The total number of shares issued and to be issued upon exercise of all options (whether exercised, cancelled or outstanding) granted under the Schemes in any 12-month period immediately preceding any proposed date of grant of options to each participant must not exceed 1% of the share capital of the Company in issue as at the proposed grant date.
Options may be exercised at any time during a period of 10 years commencing on the date falling three to six months after the date of grant.
A grant of an option must be accepted within 28 days from the date of grant together with a non-refundable payment of HK$1.00.
The exercise price of an option to subscribe for shares granted pursuant to the Existing Scheme shall be the highest of:
(a) the closing price of the shares as stated in the Stock Exchange daily quotation sheet on the date of grant, which must be a business day;
(b) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheets for the five business days immediately proceeding the date of grant; and
(c) the nominal value of the shares of the Company.
The Existing Scheme shall be valid and effective for a period of 10 years commencing on 13 May 2003 and thereafter for as long as there are outstanding options granted and accepted pursuant thereto prior to the expiration of the said 10-year period and in order to give effect to the exercise of any such options.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

– 81 –

ACCOUNTANTS’ REPORT

APPENDIX I

Notwithstanding the termination of the 1991 Scheme and the 2001 Scheme, the relevant provisions thereof remain in full force and effect to the extent necessary to give effect to the exercise of any outstanding share options granted thereunder prior to its respective expiry. Details of share options granted under the 1991 Scheme and the 2001 Scheme prior to their expiry and outstanding at each of the balance sheet dates are as follows:

Year ended 31 December 2004

			Numb	Numb	Numb	Numb	Numb	Numb	Numb
	Outstanding at 1 January 2004		Granted during the year		Exercised during the year		Cancelled/ lapsed during the year Outstanding at 31 December 2004
	8,160,000 5,400,000 13,560,000 912,000			– – – –	– – – –			– – – –	8,160,000 5,400,000 13,560,000 912,000

	14,472,000			– Numb	– er of share options			–


Outstanding at 1 January 2004		Granted during the year		Exercised during the year Cancelled/ lapsed during the year				Transfer during y	red the ear Outstanding at 31 December 2004
20,000,000 20,000,000 20,000,000 20,000,000 20,000,000 100,000,000 3,550,000		– – – – – – –		– – – 20,000,000 (20,000,000)(iii) – – – – – – 20,000,000 – – – 20,000,000 – – (20,000,000)(vi) – (20,000,000) – (20,000,000) 60,000,000 (800,000)(iv) (750,000)(v) 20,000,000 22,000,000
103,550,000		–		(20,800,000)		(750,000)		–

– 82 –

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31 December 2005

	Numb	er of share options Exercised during the year Cancelled/ lapsed during the year Outstanding at 31 December 2005 Date of grant Exercise period (i) Exercise price per share (ii) HK$ – (8,160,000)(vii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (5,400,000)(vii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (13,560,000) – – (912,000)(viii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (14,472,000) – er of share options Exercised during the year Cancelled/ lapsed during the year Outstanding at 31 December 2005 Date of grant Exercise period (i) Exercise price per share (ii) HK$ – – 20,000,000 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (20,000,000)(vii) – 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (20,000,000)(vii) – 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (40,000,000) 20,000,000 – – 22,000,000 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (40,000,000) 42,000,000	er of share options Exercised during the year Cancelled/ lapsed during the year Outstanding at 31 December 2005 Date of grant Exercise period (i) Exercise price per share (ii) HK$ – (8,160,000)(vii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (5,400,000)(vii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (13,560,000) – – (912,000)(viii) – 28/1/2000 28/7/2000 to 27/7/2005 0.17 – (14,472,000) – er of share options Exercised during the year Cancelled/ lapsed during the year Outstanding at 31 December 2005 Date of grant Exercise period (i) Exercise price per share (ii) HK$ – – 20,000,000 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (20,000,000)(vii) – 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (20,000,000)(vii) – 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (40,000,000) 20,000,000 – – 22,000,000 25/2/2003 25/8/2003 to 24/8/2008 0.13 – (40,000,000) 42,000,000
Outstanding at 1 January 2005	Granted during the year	Exercised during the year	Cancelled/ lapsed during the year Outstanding at 31 December 2005
8,160,000 5,400,000 13,560,000 912,000	– – – –	– – – –	(8,160,000)(vii) – (5,400,000)(vii) – (13,560,000) – (912,000)(viii) –
14,472,000	– Numb	– (14,472,000) er of share options
Outstanding at 1 January 2005	Granted during the year	Exercised during the year	Cancelled/ lapsed during the year Outstanding at 31 December 2005
20,000,000 20,000,000 20,000,000 60,000,000 22,000,000	– – – – –	– – – – –	– 20,000,000 (20,000,000)(vii) – (20,000,000)(vii) – (40,000,000) 20,000,000 – 22,000,000
82,000,000	–	–	(40,000,000)

– 83 –

ACCOUNTANTS’ REPORT

APPENDIX I

Year ended 31 December 2006

Number of share options

	Number of share options	Number of share options	Number of share options	Number of share options	Number of share options	Number of share options

Eligible person 2001 Scheme Directors Ji Guirong Other employees	Outstanding at 1 January 2006		Granted during the year	Exercised during the year	Cancelled/ lapsed during the year Outstanding at 31 December 2006
		20,000,000 22,000,000	– –	– –	– –	20,000,000 22,000,000
		42,000,000	–	–	–

Six months ended 30 June 2007

Number of share options

	Number of share options	Number of share options	Number of share options	Number of share options	Number of share options	Number of share options

Eligible person 2001 Scheme Directors Ji Guirong Other employees	Outstanding at 1 January 2007		Granted during the period	Exercised during the period	Cancelled/ lapsed during the period Outstanding at 30 June 2007
		20,000,000 22,000,000	– –	– –	– –	20,000,000 22,000,000
		42,000,000	–	–	–

Notes:

(i) Share options must be held for a minimum of six months before exercise. Exercise period shall not exceed a period of five years commencing on the expiry of a period of not less than six months after the date the option is accepted.
(ii) The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.
(iii) The weighted average closing price of the shares immediately before the date the option was exercised was HK$0.238 per share.
(iv) The weighted average closing price of the shares immediately before the date the option was exercised was HK$0.276 per share.
(v) These employees resigned during the year ended 31 December 2004 and accordingly their share options were cancelled.
(vi) Wang Xinyan resigned as a director of the Company during the year ended 31 December 2004 and remained as a director of a subsidiary of the Company.
(vii) Yang Chunshu and Yu Li resigned as directors of the Company during the year ended 31 December 2005 and accordingly their share options were cancelled.
(viii) These share options lapsed after 27 July 2005.

– 84 –

ACCOUNTANTS’ REPORT

APPENDIX I

(b) Other share option scheme

Further detailed in notes 36(d) and 36(e) to the Financial Information, 80,000,000 share options were granted to certain independent third parties as a result of the issue of shares and 68,000,000 share options were exercised, which resulted in the issue of 68,000,000 ordinary shares of the Company, during the six months ended 30 June 2007. The details of this share option scheme are as follows:

		Numb	er of share options Exercised during the period Cancelled/ lapsed during the period Outstanding at 30 June 2007 Date of grant Exercise period Exercise price per share * HK$ (68,000,000) – 12,000,000 1/5/2007 1/5/2007 to 30/4/2008 0.34 (68,000,000) – 12,000,000	er of share options Exercised during the period Cancelled/ lapsed during the period Outstanding at 30 June 2007 Date of grant Exercise period Exercise price per share * HK$ (68,000,000) – 12,000,000 1/5/2007 1/5/2007 to 30/4/2008 0.34 (68,000,000) – 12,000,000	er of share options Exercised during the period Cancelled/ lapsed during the period Outstanding at 30 June 2007 Date of grant Exercise period Exercise price per share * HK$ (68,000,000) – 12,000,000 1/5/2007 1/5/2007 to 30/4/2008 0.34 (68,000,000) – 12,000,000
Outstanding at 1 January 2007		Granted during the period	Exercised during the period	Cancelled/ lapsed during the period Outstanding at 30 June 2007
	–	80,000,000	(68,000,000)	–	12,000,000
	–	80,000,000	(68,000,000)	–

The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.

At 31 December 2004, 2005 and 2006 and 30 June 2007, the Company had 96,472,000, 42,000,000, 42,000,000 and 54,000,000 share options outstanding under the share option schemes in (a) and (b) above, which represented approximately 2.6%, 1.1%, 1.1% and 1.1% of the Company’s share in issue as at those dates, respectively.

At 30 June 2007, the exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 54,000,000 additional ordinary shares of the Company and the additional share capital and share premium, before issue expenses, of HK$5,400,000 and HK$4,140,000, respectively.

At the date of approval of this report, the Company had 42,000,000 share options outstanding under the 2001 Scheme, which represent approximately 0.88% of the Company’s shares in issue as at that date.

38. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the Relevant Periods are presented in the consolidated statements of changes in equity on pages 19 to 21.

Pursuant to the articles of association of a subsidiary operating as a Foreign Investment Enterprise in Mainland China and the relevant PRC Company Law, the subsidiary shall make an allocation from its profit after tax at the rate of 10% to the statutory surplus reserve fund, until such reserve reaches 50% of the registered capital of the subsidiary. Part of the statutory surplus reserve may be capitalised as the subsidiary’s registered capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital of the subsidiary. The statutory reserve is non-distributable other than in the event of liquidation.

Certain amounts of goodwill arising on the acquisition of subsidiaries in prior years remain eliminated against consolidated retained profits, as explained in note 17 to the Financial Information.

– 85 –

APPENDIX I

ACCOUNTANTS’ REPORT

(b) Company

Share premium account HK$ 1,348,500 624,000 –	Share option reserve HK$ – – –	Contributed surplus Retained profits/ (accumulated losses) HK$ HK$ 5,243,300 16,094,086 – – – (359,486)	Contributed surplus Retained profits/ (accumulated losses) HK$ HK$ 5,243,300 16,094,086 – – – (359,486)	Total HK$ 22,685,886 624,000 (359,486) 22,950,400 (6,828,069) 16,122,331 4,027,500 (1,148,490) 65,369 (10,651,671) 8,415,039 172,800,000 (2,472,400) 16,320,000 – (165,030) 194,897,609
1,972,500 – 1,972,500 4,027,500 (1,148,490) 65,369 – 4,916,879 155,060,084 (2,472,400) 16,320,000 15,078,929 –	– – – – – – – – 17,739,916 – – (15,078,929) –	5,243,300 – 5,243,300 – – – – 5,243,300 – – – – –	15,734,600 (6,828,069) 8,906,531 – – – (10,651,671) (1,745,140) – – – – (165,030)	22,950,400 (6,828,069
				16,122,331 4,027,500 (1,148,490 65,369 (10,651,671
				8,415,039 172,800,000 (2,472,400 16,320,000 – (165,030
188,903,492	2,660,987	5,243,300	(1,910,170)

The contributed surplus of the Company represents the difference between the consolidated net asset value of Far East Aluminium (B.V.I.) Limited on 20 November 1991 when its entire issued share capital was acquired by the Company pursuant to a group reorganisation, and the nominal value of the Company’s shares issued in consideration for such acquisition net of accumulated losses of the Company set off in the prior years. Under the Companies Act of 1981 of Bermuda (as amended), the contributed surplus of the Company is distributable to shareholders under certain circumstances.

The Company’s share premium account of HK$1,972,500, HK$1,972,500, HK$4,916,879 and HK$188,903,492 as at 31 December 2004, 2005 and 2006 and 30 June 2007, respectively, may be distributed in the form of fully paid bonus shares.

– 86 –

ACCOUNTANTS’ REPORT

APPENDIX I

39. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS

(a) Major non-cash transactions

(i) The Group capitalised depreciation charges amounting to HK$3,284,766, HK$4,004,234, HK$3,646,879, HK$1,814,484 and HK$1,564,075 (note 7) and interest expense of HK$1,052,687, HK$909,081, HK$3,776,367, HK$1,621,676 and HK$970,505 (note 8) in long term construction contracts as at 31 December 2004, 2005 and 2006, 30 June 2006 and 30 June 2007, respectively.
(ii) On 22 December 2006, the Group’s interest in an associate with carrying amount of HK$84,181,088 was reclassified as an available-for-sale investment of HK$42,090,544 and an equity investment at fair value through profit or loss of HK$42,090,544, respectively (notes 19, 21 and 28) .

(b) Restricted cash and cash equivalent balances

Certain of the Group’s time deposits are pledged to banks to secure banking facilities granted to the Group, as further explained in notes 34(a)(v) and 34(a)(vi).

Certain of the Group’s cash and cash equivalent balances are not freely convertible into Hong Kong dollars (note 30) .

40. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group and the Company lease their investment property (note 14) under an operating lease arrangement with a lease negotiated for a term of two years.

At each of the balance sheet dates, the Group and the Company had total future minimum lease receivables under a non-cancellable operating lease with its tenant falling due as follows:

Within one year In the second to fifth years, inclusive	Group 31 December 2004 2005 2006 HK$ HK$ HK$ – 587,760 587,760 – 587,760 – – 1,175,520 587,760	30 June 2007 HK$ 293,880 – 293,880	Company 31 December 2004 2005 2006 HK$ HK$ HK$ – 587,760 587,760 – 587,760 – – 1,175,520 587,760	30 June 2007 HK$ 293,880 –
				293,880

– 87 –

ACCOUNTANTS’ REPORT

APPENDIX I

(b) As lessee

The Group and the Company lease its office premises under non-cancellable operating lease arrangements with terms ranging from one to five years.

At each of the balance sheet dates, the Group and the Company had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 31 December 2004 2005 2006 HK$ HK$ HK$ 837,619 766,090 1,550,808 – 686,798 331,416 837,619 1,452,888 1,882,224	30 June 2007 HK$ 1,787,351 1,869,996 3,657,347	Company 31 December 2004 2005 2006 HK$ HK$ HK$ 476,133 504,850 127,500 – – – 476,133 504,850 127,500	30 June 2007 HK$ 246,300 –
				246,300

41. COMMITMENTS

In addition to the operating lease commitments in note 40(b) above, the Group had the following commitments at each of the balance sheet dates:

Contracted, but not provided for: Acquisition of plant and machinery Acquisition of land Acquisition of an associate Establishment of a joint venture Authorised, but not contracted for: Establishment of a joint venture	2004 HK$ 14,663,962 – 30,975,000 –	Group 31 December 2005 2006 HK$ HK$ 14,332,692 2,990,035 – 19,598,530 – – – 39,840,637	Group 31 December 2005 2006 HK$ HK$ 14,332,692 2,990,035 – 19,598,530 – – – 39,840,637	30 June 2007 HK$ 9,424,166 – – 41,109,969
	45,638,962 –	14,332,692 38,461,538	62,429,202 –	50,534,135 –
	45,638,962	52,794,230	62,429,202	50,534,135

On 4 January 2006, Sino-Aviation Investments Limited (“Sino-Aviation Investments”), a wholly-owned subsidiary of the Company, entered into a joint venture agreement (the “JV Agreement”) with CATIC and Chengdu Aircraft Industry (Group) Corporation Ltd. (“Chengdu Aircraft”) for the establishment of a joint venture to engage in the research and development, design and manufacture of, and the provision of technical services for, parts and components for commercial aircrafts. According to the JV Agreement, the total registered capital of the joint venture will be RMB100 million (equivalent to approximately HK$103 million), of which 40%, 15% and 45% respectively, will be contributed by Sino-Aviation Investments, CATIC and Chengdu Aircraft. The JV Agreement in conditional upon (i) the internal approval obtained from each of the three parties; and (ii) the approvals from the relevant PRC authorities. As at 30 June 2007, the JV Agreement has not become effective as the conditions stated above have not been fulfilled.

– 88 –

ACCOUNTANTS’ REPORT

APPENDIX I

42. CONTINGENT LIABILITIES

The contingent liabilities of the Group and the Company at each of the balance sheet dates were as follows:

Corporate guarantees for banking facilities granted to a subsidiary (note 34(a)(vii))* Guarantees under performance bonds for construction contracts Guarantees for banking facilities granted to major suppliers	2004 HK$ – 142,051,436 – 142,051,436	Group 31 December 2005 2006 HK$ HK$ – – 58,815,035 89,502,970 44,230,769 96,221,614 103,045,804 185,724,584	30 June 2007 HK$ – 111,780,987 115,762,076 227,543,063	2004 HK$ 196,000,000 – – 196,000,000	Company 31 December 2005 2006 HK$ HK$ 185,000,000 185,000,000 – – – – 185,000,000 185,000,000	30 June 2007 HK$ 185,000,000 – –
						185,000,000

As at each of the balance sheet dates, the banking facilities granted to the subsidiary subject to guarantees given to the banks by the Company were utilised as follows:

Import loans Guarantees under performance bonds for construction contracts	2004 HK$ 5,979,834 122,232,436 128,212,270	31 December 2005 HK$ 37,784,356 58,815,035 96,599,391	2006 HK$ 47,476,134 89,502,970 136,979,104	30 June 2007 HK$ 8,903,646 111,780,987
				120,684,633

The securities for the banking facilities are set out in note 34(a) to the Financial Information.

– 89 –

ACCOUNTANTS’ REPORT

APPENDIX I

43. RELATED PARTY TRANSACTIONS

(a) In addition to the transactions described elsewhere in this report, the Group had the following material transactions with related parties during the Relevant Periods and for the six months ended 30 June 2006:

Notes Rental expenses paid to a fellow subsidiary (i) Recovery of a receivable (ii) Rental income received from a shareholder (iii) Net income/(loss) from Project EC120 (iv) Interest received from an associate (v)	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 HK$ HK$ HK$ HK$ HK$ (unaudited) (468,000) – – – – 8,563,370 – – – – – 550,000 587,760 293,880 293,880 497,909 3,408,211 1,258,854 (79,151) 860,806 – 62,999 – – –	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 HK$ HK$ HK$ HK$ HK$ (unaudited) (468,000) – – – – 8,563,370 – – – – – 550,000 587,760 293,880 293,880 497,909 3,408,211 1,258,854 (79,151) 860,806 – 62,999 – – –

		–

		293,880

		860,806

		–

Notes:

(i) On 5 November 2003, the Company entered into a tenancy agreement with Karlane Investment Limited (“Karlane”), a wholly-owned subsidiary of CATIC, for a term of one year commencing on 5 November 2003 at a total monthly rental of HK$39,000 (exclusive of rates, management fees and air-conditioning charges). The premises were used as the office of the Company. No formal renewal of the tenancy agreement was made upon the expiry of the agreement on 4 November 2004 but both parties verbally agreed to extend the rental period to 31 December 2004. The monthly rentals paid were determined with reference to open market rentals.
(ii) During the year ended 31 December 2004, an amount of RMB9,077,171 (equivalent to HK$8,563,370) was received from CATIC as settlement for the receivable from , an ex-shareholder of Hangzhou Sealand, a 70%-owned subsidiary of the Group. Further details are set out in note 6 to the Financial Information.
(iii) The Company entered into a tenancy agreement with CATIC (H.K.) Limited (“CATIC (H.K.)”), a deemed shareholder of the Company, to lease the Company’s investment property to CATIC (H.K.) for a term of two years at a monthly rental of HK$48,980 (year ended 31 December 2005: monthly rental of HK$45,833; six months ended 30 June 2006 and year ended 31 December 2006: monthly rental of HK$48,980) for the six months ended 30 June 2007 (exclusive of rates, management fees and air-conditioning charges). The rental was determined with reference to open market rentals.
(iv) Balance represented net cash proceeds received or receivable from CATIC generated from Project EC120. Further details are set out in note 20 to the Financial Information.
(v) During the year ended 31 December 2005, the Company granted loans in aggregate of HK$5,350,000 to Sino Gas. The loans bore interest at 2.5% over the 3-month Hong Kong Interbank Offered Rate (“HIBOR”) per annum, which was either equal to or above the cost of fund of the Company. The loans and the related interest expenses had been fully settled during the year ended 31 December 2005.

– 90 –

ACCOUNTANTS’ REPORT

APPENDIX I

(vi) During the year ended 31 December 2005, the Group granted a loan of RMB3,000,000 to , a subsidiary of Sino Gas registered in the PRC. The loan
was interest-free and had been fully repaid during the year ended 31 December 2005.
(b) Other related party transactions include:

On 29 March 2004, Florex Investment Limited (“Florex”), a wholly-owned subsidiary of the Company, entered into an agreement (the “Agreement”) with CATIC (H.K.), to acquire from CATIC (H.K.) (1) its 45% equity interest (the “Shares”) in CATIC International Support Limited (“CISL”), an exclusive overseas agent of CATIC for the distribution and trading of aircraft components and the provision of related services; and (2) its 45% interest in a shareholder’s loan (the “Loan”), with an aggregate sum of HK$50 million, to be advanced by CATIC (H.K.) to CISL. Pursuant to the Agreement, the aggregate consideration for the acquisition, which was limited to a maximum of HK$100 million, was to be determined on the basis of a price-earning ratio of 6.7 times of 45% of the average audited net income of CISL for the two years ended 31 December 2006.

Pursuant to the Agreement, a put option was granted by CATIC (H.K.) to Florex, under which Florex was entitled to sell back to CATIC (H.K.) the Shares and the Loan at Florex’s absolute discretion at any time commencing on the completion date and up to the fifth anniversary of the date of completion.

The Agreement was conditional upon (i) the Loan being firstly advanced by CATIC (H.K.) to CISL; and (ii) the approval from the independent shareholders of the Company at a special general meeting.

The Agreement was lapsed during the year ended 31 December 2005 and both parties were released from their respective rights and obligation under the Agreement.

Short term employee benefits Post-employment benefits Total compensation paid to key management personnel	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 8,909,033 7,820,567 9,804,550 464,280 464,280 569,490 9,373,313 8,284,847 10,374,040	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 3,276,402 3,318,800 213,820 179,580 3,490,222 3,498,380	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) 3,276,402 3,318,800 213,820 179,580 3,490,222 3,498,380
			3,498,380

Further details of directors’ emoluments are included in note 9 to the Financial Information.

The related party transactions in respect of items (a)(i) and (a)(iv) above also constitute continuing connected transactions as defined in Chapter 14A of the Listing Rules.

44. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments, comprise bank loans, a finance lease, and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade and retention receivables and trade and bills payables, which arise directly from its operations.

It is, and has been, throughout the Relevant Periods, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.

– 91 –

ACCOUNTANTS’ REPORT

APPENDIX I

Interest rate risk

The Group’s borrowings from banks during the Relevant Periods will either mature within one year or are repayable on demand and all the bank borrowings bear interest at interest rates with reference to the HIBOR or the prime rate. In view of the Group’s short term bank borrowings and the fact that the prime rate in Hong Kong basically changes in line with the HIBOR, the Group’s exposure to the risk of changes in market interest rates is minimal.

The following table demonstrates the sensitivity to a reasonable possible change in interest rate, with all other variable held constant, of the Group’s profit before tax (through the impact of floating rate borrowings).

Market indices Change in variables HIBOR +1% HIBOR –1%	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ (235,133) (513,491) (797,087) 235,133 513,491 797,087	Six months ended 30 June 2006 2007 HK$ HK$ (unaudited) (405,730) (227,822) 405,730 227,822

Foreign currency risk

The Group’s foreign currency exposures primarily arising from certain sales or purchases by operating units in currencies other than the units’ functional currency, which are mainly denominated in United States dollars. In view of the fact that the Hong Kong dollar is pegged to the United States dollar and that the Group tries to match its assets and liabilities with the same currency, the Group’s exposure to foreign currency risk is minimal.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, equity instruments at fair value through profit or loss and available-for-sale financial assets, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance leases. The Group’s policy is to minimise borrowings.

Capital management

The Group’s objectives when managing capital are:

to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

– 92 –

ACCOUNTANTS’ REPORT

APPENDIX I

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

45. POST BALANCE SHEET EVENTS

(a) On 29 August 2007, the Company entered into an agreement with an independent third party (the “Purchaser”) to sell the entire issued share capital in FEA, a direct wholly-owned subsidiary of the Company, which is the holding company of a group of subsidiaries engaging in the business of design, manufacture, and installation of curtain walls, aluminium windows and other related products for buildings, at a consideration of HK$205,000,000 (the “Sale and Purchase Agreement”). On completion, FEA will cease to be a subsidiary of the Company. The Sale and Purchase Agreement is conditional upon (i) the approval obtained from the Stock Exchange; and (ii) the approval of an ordinary resolution obtained from the shareholders of the Company in a special general meeting to be held on 6 December 2007.

The consolidated income statements, consolidated balance sheets, consolidated cash flow statements and consolidated statement of changes in equity of FEA and its subsidiaries (the “FEA Group”) are set out as follows:

(i) Consolidated income statements of the FEA Group

Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 523,463,760 450,431,243 885,109,287 (469,324,332) (389,842,631) (817,224,472)	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 523,463,760 450,431,243 885,109,287 (469,324,332) (389,842,631) (817,224,472)	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 523,463,760 450,431,243 885,109,287 (469,324,332) (389,842,631) (817,224,472)	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) 461,009,841 263,978,447 (427,303,546) (227,467,635) 33,706,295 36,510,812 1,405,000 1,618,000 (25,376,272) (28,540,932) (411,000) (600,000) (244,076) (4,000) 9,079,947 8,983,880 (2,000,000) 1,452,482 7,079,947 10,436,362 7,079,947 10,436,362	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) 461,009,841 263,978,447 (427,303,546) (227,467,635) 33,706,295 36,510,812 1,405,000 1,618,000 (25,376,272) (28,540,932) (411,000) (600,000) (244,076) (4,000) 9,079,947 8,983,880 (2,000,000) 1,452,482 7,079,947 10,436,362 7,079,947 10,436,362
54,139,428 1,410,873 (36,418,786) (2,766,851) (105,650) 16,259,014 (3,117,817)	60,588,612 1,491,649 (42,185,908) (2,333,772) (574,729) 16,985,852 (2,963,457)	67,884,815 3,010,099 (50,601,242) 435,791 (251,312) 20,478,151 (2,098,737)	33,706,295 1,405,000 (25,376,272) (411,000) (244,076) 9,079,947 (2,000,000)	36,510,812 1,618,000 (28,540,932 (600,000 (4,000
				8,983,880 1,452,482
13,141,197 13,141,197	14,022,395 14,022,395	18,379,414 18,379,414	7,079,947 7,079,947

– 93 –

ACCOUNTANTS’ REPORT

APPENDIX I

(ii) Consolidated balance sheets of the FEA Group

2004 HK$ 19,242,920 3,216,706 17,780,478 6,906,389 280,752 10,000,000	31 December 2005 HK$ 20,429,797 2,936,698 10,066,600 4,606,389 1,133,206 10,000,000	2006 HK$ 21,361,541 2,656,691 11,214,600 3,700,000 2,187,977 9,360,000	30 June 2007 HK$ 47,203,139 2,516,688 10,441,000 7,722,000 2,182,683 9,360,000
57,427,245 258,148 27,587,875 147,915,602 14,024,528 – − 51,026,000 67,362,950 308,175,103 126,757,579 19,680,047 212,989 12,368,283 63,667,509 234,217,879 – 5,979,834 462,884,120 (154,709,017)	49,172,690 220,929 72,904,015 188,465,416 9,259,023 13,000,002 11,702,100 44,811,621 29,768,992 370,132,098 103,165,723 52,255,832 306,963 10,230,124 53,213,076 – 961,538 47,784,356 267,917,612 102,214,486	50,480,809 191,911 70,550,508 222,543,668 21,719,406 13,000,002 − 38,189,400 46,656,957 412,851,852 113,568,100 54,260,498 1,276,444 10,301,487 63,938,835 – 1,992,032 47,476,134 292,813,530 120,038,322	79,425,510
			73,949 44,210,565 147,454,208 17,034,741 13,000,002 − 38,969,400 99,180,539
			359,923,404
			147,146,316 35,021,385 3,845,962 10,719,864 50,159,233 – 2,055,499 8,903,645
			257,851,904
			102,071,500
(97,281,772)	151,387,176	170,519,131	181,497,010

46,800 (97,936,062) (97,889,262) 607,490	147,264,000 3,842,796 151,106,796 280,380	147,264,000 22,974,751 170,238,751 280,380	147,264,000 33,952,630
			181,216,630 280,380
(97,281,772)	151,387,176	170,519,131	181,497,010

– 94 –

ACCOUNTANTS’ REPORT

APPENDIX I

(iii) Consolidated statement of changes in equity of the FEA Group

		Attributable	to equity hold	ers of FEA
Issued captial HK$ 46,800 − 46,800 − − − − 147,217,200 − 147,264,000 − − − − 147,264,000 – –	Share premium account HK$ 43,605,215 − 43,605,215 − − − − 87,000,681 − 130,605,896 − − − − 130,605,896 – –	Available- for-sale investment revaluation reserve HK$ − − − − − − − − − − − (612,000) (612,000) − (612,000) – –	Reserve fund HK$ − − − − − − 12,134 − − 12,134 − − − − 12,134 – –	Exchange fluctuation reserve HK$ − − − 755,782 − 755,782 − − − 755,782 1,364,541 − 1,364,541 − 2,120,323 541,517 –	Retained profits HK$ (154,682,474) 13,141,197 (141,541,277) − 14,022,395 14,022,395 (12,134) − − (127,531,016) − − − 18,379,414 (109,151,602) – 10,436,362	Total HK$ (111,030,459) 13,141,197 (97,889,262) 755,782 14,022,395 14,778,177 − 234,217,881 − 151,106,796 1,364,541 (612,000) 752,541 18,379,414 170,238,751 541,517 10,436,362	Minority interest HK$ 607,490 − 607,490 − − − − − (327,110) 280,380 − − − − 280,380 – –	Total equity HK$ (110,422,969) 13,141,197
								(97,281,772) 755,782 14,022,395
								14,778,177 − 234,217,881 (327,110)
								151,387,176 1,364,541 (612,000)
								752,541 18,379,414
								170,519,131 541,517 10,436,362
147,264,000	130,605,896	(612,000)	12,134	2,661,840	(98,715,240)	181,216,630	280,380	181,497,010

– 95 –

ACCOUNTANTS’ REPORT

APPENDIX I

(iv) Consolidated cash flow statements of the FEA Group

Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 16,259,014 16,985,852 20,478,151 105,650 574,729 251,312 (982,261) (1,295,587) (2,978,428) (186,842) (27,828) – (7,000) − − 1,214,378 1,557,134 1,758,547 280,008 280,008 280,007 2,000,000 1,586,093 (1,015,791) − − 580,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 16,259,014 16,985,852 20,478,151 105,650 574,729 251,312 (982,261) (1,295,587) (2,978,428) (186,842) (27,828) – (7,000) − − 1,214,378 1,557,134 1,758,547 280,008 280,008 280,007 2,000,000 1,586,093 (1,015,791) − − 580,000	Year ended 31 December 2004 2005 2006 HK$ HK$ HK$ 16,259,014 16,985,852 20,478,151 105,650 574,729 251,312 (982,261) (1,295,587) (2,978,428) (186,842) (27,828) – (7,000) − − 1,214,378 1,557,134 1,758,547 280,008 280,008 280,007 2,000,000 1,586,093 (1,015,791) − − 580,000	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) 9,079,947 8,983,880 244,076 4,000 (1,329,000) (1,510,000) – – (5,000) (2,000) 672,513 1,019,922 140,004 140,003 (169,000) 600,000 580,000 −	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) 9,079,947 8,983,880 244,076 4,000 (1,329,000) (1,510,000) – – (5,000) (2,000) 672,513 1,019,922 140,004 140,003 (169,000) 600,000 580,000 −
18,682,947 (104,150) (51,937) 2,248,083 56,095,399 (6,377,184) (20,035,529) 35,529 (19,335,076) 2,613,608 (16,583,034) – 17,188,656 (1,158,337) (627,817) 15,402,502	19,660,401 (852,454) 37,219 (63,994,681) (42,135,907) 4,765,505 (13,000,000) – 32,575,785 (2,138,159) (10,454,433) 961,538 (74,575,186) (1,483,810) (569,483) (76,628,479)	19,353,798 (1,054,771) 29,018 20,179,130 (33,062,461) (12,460,383) – – 2,004,666 71,363 10,725,759 1,030,494 6,816,613 (4,027,679) (222,867) 2,566,067	9,213,540 1,002 (124,667) 2,908,787 (16,569,292) (11,525,239) – – 36,414,086 (489,622) (330,201) – 19,498,394 (1,865,752) (222,300) 17,410,342	9,235,805 5,294 117,962 62,452,739 74,489,460 4,684,665 – – (19,239,113) 418,377 (13,779,602) 63,467
				118,449,054 (974,505) −
				117,474,549

– 96 –

ACCOUNTANTS’ REPORT

APPENDIX I

Year 2004 HK$ (2,212,939) (3,113,600) 12,667,562 7,000 982,261 18,692,000	ended 31 December 2005 2006 HK$ HK$ (6,748,245) (6,337,170) (5,990,600) (2,340,000) 2,030,206 11,702,100 − − 1,295,587 2,978,428 6,214,379 7,262,221	ended 31 December 2005 2006 HK$ HK$ (6,748,245) (6,337,170) (5,990,600) (2,340,000) 2,030,206 11,702,100 − − 1,295,587 2,978,428 6,214,379 7,262,221	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) (1,935,000) (28,425,000 − (2,340,000 2,100 3,113,600 5,000 2,000 1,329,000 1,510,000 (426,728) (780,000	Six months ended 30 June 2006 2007 HK$ HK$ (Unaudited) (1,935,000) (28,425,000 − (2,340,000 2,100 3,113,600 5,000 2,000 1,329,000 1,510,000 (426,728) (780,000
27,022,284 − − (37,074,248) − (37,074,248) 5,350,538 62,012,412 −	(3,198,673) 10,000,000 − 31,804,522 (327,110) 41,477,412 (38,349,740) 67,362,950 755,782	13,265,579 − (10,000,000) 9,691,778 − (308,222) 15,523,424 29,768,992 1,364,541	(1,025,628) − (10,000,000) 16,091,528 − 6,091,528 22,476,242 29,768,992 56,346	(26,919,400
				− − (38,572,489 −
				(38,572,489
				51,982,660 46,656,957 540,922
67,362,950	29,768,992	46,656,957	52,301,580	99,180,539

48,182,031 19,180,919	19,746,291 10,022,701	46,656,957 −	52,301,580 −	99,180,539 −
67,362,950	29,768,992	46,656,957	52,301,580	99,180,539

– 97 –

APPENDIX I

ACCOUNTANTS’ REPORT

(b) On 7 November 2007, the Group entered into an agreement with CATIC to further acquire 29.4% equity interest in CATIC Siwei, a 40% owned associate of the Group, for a consideration of RMB18.4 million. The Group’s equity interest in CATIC Siwei will increase to 69.4% at the completion date of the aforesaid acquisition.

46. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 30 June 2007.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

I. SUMMARY OF FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2006 AND THE SIX MONTHS ENDED 30 JUNE 2007

The following is a summary of the audited consolidated financial information of the Group for each of the three years ended 31 December 2006 and six months ended 30 June 2007, as extracted from the accountants’ report set out in Appendix I of this circular which are not subject to any qualified opinion:

Consolidated Income Statements

				Six months
	Year	ended 31 December		ended 30 June
	2004	2005	2006	2007
	HK$	HK$	HK$	HK$
Revenue	645,024,247	608,145,255	1,057,154,405	357,183,051
Profit before tax	24,060,579	36,630,876	55,654,506	19,163,645
Tax	(3,548,133)	(6,643,372)	(4,551,391)	63,529
Profit for the
year/period	20,512,446	29,987,504	51,103,115	19,227,174
Minority interests	4,340,609	3,933,950	3,153,308	4,190,561
Profit attributable to
equity holders
of the parent	16,171,837	26,053,554	47,949,807	15,036,613
Consolidated Balance	Sheets
		31 December		30 June
	2004	2005	2006	2007
	HK$	HK$	HK$	HK$
Non-current assets	394,134,063	428,953,580	459,198,881	523,304,615
Current assets	439,931,647	521,881,381	652,180,810	861,221,724
Current liabilities	(352,575,534)	(435,940,844)	(479,405,124)	(465,191,545)
Non-current liabilities	(6,082,864)	(6,364,362)	(4,569,750)	(3,514,282)
Total equity	475,407,312	508,529,755	627,404,817	915,820,512

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

II. INDEBTEDNESS

As at 30 September 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had the following indebtedness:

(a) secured import loans of approximately HK$20,940,000 and secured bank loans of approximately HK$92,970,195, which were secured by:
(i) a pledge of the Group’s investment property;
(ii) pledges of certain of the Group’s land and buildings;
(iii) pledges of certain of the Group’s available-for-sale investments;
(iv) pledges of certain of the Group’s long term time deposits;
(v) pledges of certain of the Group’s short term time deposits;
(vi) corporate guarantees executed by the Company; and
(b) finance lease payables of HK$114,778.

As at 30 September 2007, the Group had given guarantees of approximately HK$144,027,000 for performance bonds for construction contracts and approximately HK$116,276,000 for banking facilities granted to major suppliers, respectively.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities and normal accounts payable and bills payables in the ordinary course of business, the Group did not have any outstanding mortgages, charges, debentures, loan capital and overdrafts or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptance of acceptance credits or any guarantees of other material contingent liabilities as at the close of business on 30 September 2007.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

III. WORKING CAPITAL

The Directors are of the opinion that after taking into account the proceeds from the Disposal, the credit facilities and financial resources available to the Group, the Group has sufficient working capital for at least 12 months from date of this circular.

The Directors are not aware of any matter or fact which will render the Group not having sufficient working capital for its requirement after the completion of the Sale and Purchase Agreement.

IV. MATERIAL CHANGE

As at the Latest Practicable Date, the Board confirmed that there was no material adverse change in the financial or trading position or outlook of the Group since 30 June 2007, the date to which the latest published audited consolidated financial statements of the Group were made up.

– 101 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. Unaudited Pro Forma Consolidated Income Statement

The following is the unaudited pro forma consolidated income statement of CATIC International Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) assuming that the Group’s entire 100% equity interests in FEA Holdings Limited (“FEA”) and its subsidiaries (collectively the “FEA Group”) had been disposed of for a consideration of HK$205,000,000 (the “Disposal”) at the commencement of the six months ended 30 June 2007. The unaudited pro forma consolidated income statement was prepared based on the audited consolidated income statement of the Group for the six months ended 30 June 2007 as set out in the accountants’ report on the Group in Appendix I to this Circular, after adjusting mainly for the exclusion of the revenue, cost and expenses generated from the operations of the FEA Group and the inclusion of the gain relating to the Disposal.

The unaudited pro forma consolidated income statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the results of the Group excluding the FEA Group, (collectively referred to as the “Remaining Group”), for the six months ended 30 June 2007, had the Disposal taken place on 1 January 2007, or for any future financial periods.

Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 357,183 4(a) (263,978) (306,479) 4(a) 227,467	Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 357,183 4(a) (263,978) (306,479) 4(a) 227,467	Adjusted balances of the Remaining Group HK$’000 93,205 (79,012) 14,193 10,408 (12,264) 4 (2,675) 3,015 2,970 32,561 (271) 5,573 (600) (10,174) 42,740 (1,388) 41,352 37,162 4,190 41,352
50,704 4(a) 12,026 4(a) (40,805) 4(a) (596) 4(a) (2,679) 4(a) 3,015 2,970 – 4(b) (271) 5,573 (600) (10,174) 19,163 64 4(a)	(36,511) (1,618) 28,541 600 4 – – 32,561 – – – – 23,577 (1,452)	14,193 10,408 (12,264 4 (2,675 3,015 2,970 32,561 (271 5,573 (600 (10,174
		42,740 (1,388
19,227	22,125
15,037 4(a) 4,190	22,125 –	37,162 4,190
19,227	22,125

– 102 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

2. Unaudited Pro Forma Consolidated Balance Sheet

The following is the unaudited pro forma consolidated balance sheet of the Group assuming that the Group’s entire 100% equity interests in the FEA Group had been disposed of as at 30 June 2007. The unaudited pro forma consolidated balance sheet was prepared based on the audited consolidated balance sheet of the Group as at 30 June 2007 as set out in the accountants’ report on the Group in Appendix I to this circular, after adjusting mainly for the exclusion of the carrying values of assets and liabilities of the FEA Group as at 30 June 2007.

The unaudited pro forma consolidated balance sheet was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the Remaining Group as at 30 June 2007, had the Disposal taken place on 30 June 2007, or at any future dates.

30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 17,915 – 234,918 4(c) (47,203) 29,900 4(c) (2,517) 40,499 – 53,663 – 25,360 – 101,717 4(c) (10,441) 7,722 4(c) (7,722) 2,251 4(c) (2,182) 9,360 4(c) (9,360)	30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 17,915 – 234,918 4(c) (47,203) 29,900 4(c) (2,517) 40,499 – 53,663 – 25,360 – 101,717 4(c) (10,441) 7,722 4(c) (7,722) 2,251 4(c) (2,182) 9,360 4(c) (9,360)	Adjusted balances of the Remaining Group HK$’000 17,915 187,715 27,383 40,499 53,663 25,360 91,276 – 69 –
523,305 14,721 4(c) 44,211 4(c) 171,987 4(c) s 58,306 4(c),(g) 62,235 1,709 89,401 4(c) 417,407 4(c),(f) 1,244 861,221	(79,425) (74) (44,211) (147,454) (14,979) – – (38,970) 103,620 – (142,068)	443,880
		14,647 – 24,533 43,327 62,235 1,709 50,431 521,027 1,244
		719,153

– 103 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 147,146 4(c) (147,146) 138,742 4(c) (35,021) 4,391 4(c) (3,846) 10,720 4(c) (10,720) 62,384 4(c),(g) (37,160) 4,902 – 96,735 4(c) (8,904) 171 –	30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 147,146 4(c) (147,146) 138,742 4(c) (35,021) 4,391 4(c) (3,846) 10,720 4(c) (10,720) 62,384 4(c),(g) (37,160) 4,902 – 96,735 4(c) (8,904) 171 –	Adjusted balances of the Remaining Group HK$’000 – 103,721 545 – 25,224 4,902 87,831 171
465,191 396,030 919,335 3,514	(242,797) 100,729 21,304 –	222,394
		496,759
		940,639
		3,514
915,821	21,304	937,125

477,330 401,228 4(d) 878,558 37,263	– 21,583 21,583 (279)	477,330 422,811
		900,141 36,984
915,821	21,304	937,125

– 104 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

3. Unaudited Pro Forma Consolidated Cash Flow Statement

The following is the unaudited pro forma consolidated cash flow statement of the Group assuming that the Group’s entire 100% equity interests in the FEA Group had been disposed of at the commencement of the six months ended 30 June 2007. The unaudited pro forma consolidated cash flow statement was prepared based on the audited consolidated cash flow statement of the Group for the six months ended 30 June 2007 as set out in the accountants’ report on the Group in Appendix I to this circular, after adjusting mainly for the exclusion of the cash flows arising from the activities of the FEA Group and the inclusion of the cash flows relating to the Disposal.

The unaudited pro forma consolidated cash flow statement was prepared for illustrative purposes only and because of its nature, it may not give a true picture of the cash flows of the Remaining Group for the six months ended 30 June 2007, had the Disposal taken place on 1 January 2007, or for any future financial periods.

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Share of profit and losses of associates Bank interest income Loss on deemed disposal of an interest in an associate Loss on disposal of items of property, plant and equipment Depreciation, net of amounts capitalised to long term construction contracts Surplus on revaluation of an investment property Surplus on revaluation of items of property, plant and equipment Fair value loss on equity investments at fair value through profit or loss and derivative financial instruments Recognition of prepaid land lease payments Provision for impairment of trade and retention receivables, net Impairment of a financial asset under Project EC120	Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 19,163 4(b),(e) (8,984) 2,679 4(e) (4) (5,573) – (4,247) 4(e) 1,510 272 – 804 4(e) 2 7,567 4(e) (1,020) (3,015) – (2,970) – 10,174 – 473 4(e) (140) 600 4(e) (600) 600 –	Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 19,163 4(b),(e) (8,984) 2,679 4(e) (4) (5,573) – (4,247) 4(e) 1,510 272 – 804 4(e) 2 7,567 4(e) (1,020) (3,015) – (2,970) – 10,174 – 473 4(e) (140) 600 4(e) (600) 600 –	Adjusted balances of the Remaining Group HK$’000 10,179 2,675 (5,573) (2,737) 272 806 6,547 (3,015) (2,970) 10,174 333 – 600 17,291
	26,527	(9,236)	17,291

– 105 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 4 4(e) (5) 903 4(e) (118) 62,453 4(e) (62,453) 79,140 4(e) (74,489) (57) 4(e) (4,685) 29,174 4(e) 19,239 418 4(e) (418) (13,194) 4(e) 13,779	Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 4 4(e) (5) 903 4(e) (118) 62,453 4(e) (62,453) 79,140 4(e) (74,489) (57) 4(e) (4,685) 29,174 4(e) 19,239 418 4(e) (418) (13,194) 4(e) 13,779	Adjusted balances of the Remaining Group HK$’000 (1) 785 – 4,651 (4,742) 48,413 – 585 66,982 (2,668) (7) (4,361) 59,946 (14,523) (917) (14,301) – 6,647 (1,314) 5,353 1,144 202,800 2,737 (24,575) 163,051
185,368 (3,643) 4(e) (7) (4,361) 177,357 (42,948) 4(e) (917) (16,641) 3,113 4(e) 6,647 (1,314) 5,353 1,146 4(e) – 4(f) 4,247 4(e) (25,355) 4(e) (66,669)	(118,386) 975 – – (117,411) 28,425 – 2,340 (3,113) – – – (2) 202,800 (1,510) 780 229,720	66,982 (2,668 (7 (4,361
		59,946
		(14,523 (917 (14,301 – 6,647 (1,314 5,353 1,144 202,800 2,737 (24,575
		163,051

– 106 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 242,327 – 23,120 – 49,259 – (120,138) 4(e) 38,572 (109) –	Six months ended 30 June 2007 Pro forma adjustments HK$’000 Notes HK$’000 242,327 – 23,120 – 49,259 – (120,138) 4(e) 38,572 (109) –	Adjusted balances of the Remaining Group HK$’000 242,327 23,120 49,259 (81,566) (109) 233,031 456,028 65,435 (436) 521,027 239,147 281,880 521,027
194,459 305,147 112,092 4(e) 168	38,572 150,881 (46,657) (604)	233,031
		456,028 65,435 (436
417,407	103,620
135,527 4(e) 281,880	103,620 –	239,147 281,880
417,407	103,620

– 107 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

4. Notes to the Unaudited Pro Forma Financial Information

a. The adjustments reflect the effect of the Disposal, which represents the elimination of the revenue, cost and expenses generated from the operations of the FEA Group of approximately HK$10.4 million for the six months ended 30 June 2007.
b. The adjustment represents the gain arising from the Disposal, which was calculated based on the estimated net cash proceeds of approximately HK$202.8 million (after expenses) net of the consolidated net asset value of the FEA Group of approximately HK$170.2 million as at 1 January 2007.
c. The adjustments reflect the carrying values of assets and liabilities of the FEA Group to be disposed of in relation to the Disposal as at 30 June 2007.
d. The adjustment reflects the effect of the Disposal, which represent an increase in net assets of approximately HK$21.6 million on the Group’s balance sheet as at 30 June 2007, being the gain arising from the Disposal calculated as 4(b) above, net of the current account due to the FEA Group as at 30 June 2007.
e. The adjustments reflect the cash flow effect from the Disposal for the six months ended 30 June 2007. The net cash inflow from the Disposal represents cash consideration less cash and bank balances of the FEA Group to be disposed of.
f. The adjustment reflects the net proceeds of the Disposal of approximately HK$202.8 million.
g. The adjustments reflect the amount due from the FEA Group of HK$2.1 million and the amount due to the FEA Group of HK$13.0 million, which are reclassified as an other receivable and an other payable upon the disposal of the FEA Group.
h. The above pro forma adjustments have no continuing effect on the Group.

– 108 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

(B) LETTER FROM THE REPORTING ACCOUNTANTS

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

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

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

16 November 2007

The Board of Directors CATIC International Holdings Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of CATIC International Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”), excluding FEA Holdings Limited (“FEA”) and its subsidiaries (collectively the “FEA Group”) (hereinafter referred to as the “Remaining Group”), set out on pages 102 to 108 in this Appendix to the circular dated 16 November 2007 (the “Circular”) issued by the Company in connection with a very substantial disposal resulting from the proposed disposal (the “Disposal”) of the Group’s entire 100% equity interests in the FEA Group, which is also the holding company of a group of subsidiaries engaging in the business of the design, manufacture, and installation of curtain walls, aluminium windows and other related products for the buildings, pursuant to the Sale and Purchase Agreement dated 29 August 2007 entered into between Showmost Group Limited, an independent third party company incorporated in the British Virgin Islands, and the Company. The pro forma financial information is unaudited and has been prepared by the directors of the Company, solely for illustrative purposes, to provide information about how the Disposal and the transactions as described in the accompanying introduction to the Unaudited Pro Forma Financial Information of the Remaining Group might have affected the historical financial information in respect of the Group presented in the accountants’ report on the historical financial information set out in Appendix I to this Circular.

The historical financial information is derived from the audited historical financial information of the Group, where applicable, appearing elsewhere in the Circular. The basis of preparation of the Unaudited Pro Forma Financial Information is set out in the accompanying introduction and the notes to the Unaudited Pro Forma Financial Information of the Remaining Group.

– 109 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Respective Responsibilities of Directors of the Company and Reporting Accountants

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

It is our responsibility to form an opinion, as required by Rule 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of Opinion

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

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

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company and, because of its nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of:

the Remaining Group had the transactions actually occurred as at the dates indicated therein; or
the Remaining Group as at 30 June 2007 or at any future dates or for the six months ended 30 June 2007 or for any future periods.

– 110 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Opinion

In our opinion:

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

Yours faithfully, ERNST & YOUNG Certified Public Accountants Hong Kong

– 111 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Directors and chief executives

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange were as follows:

				Percentage
Name of	Interests in Shares/		Type of	of issued
Director	underlying Shares	Capacity	interest	capital
Mr. Ji Guirong	20,000,000 share	Beneficial	Personal	0.41%
	options (L)	owner

Note: The letter “L” stands for long position. The above-mentioned share options are granted by the Company pursuant to its share option schemes.

Certain directors have non-beneficial personal equity interests in certain subsidiaries held for the benefit of the Company.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any interest or short position in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which are required, pursuant to section 352 of the SFO to be entered in the register referred to therein or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

– 112 –

GENERAL INFORMATION

APPENDIX IV

Substantial Shareholders

As at the Latest Practicable Date, as far as is known to the Directors and chief executives of the Company, the following person (not being a Director 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 provisions of Divisions 2 and 3 of Part XV of the SFO:

		Percentage of
	Number of	the Company’s
	ordinary	issued share
Name of shareholders (Note)	shares held	capital
Speed Profit	508,616,000*	10.63
Tacko	1,335,767,000*	27.91
	508,616,000#	10.63
CATIC (H.K.) Limited (“CATIC
(H.K.)”)	1,844,383,000#	38.54
CATIC	1,844,383,000#	38.54
China Aviation Industry Corporation I
(“AVIC I”)	1,844,383,000#	38.54
China Aviation Industry Corporation II
(“AVIC II”)	1,844,383,000#	38.54
Atlantis Investment Management Ltd.	402,000,000*	8.40

These shares were directly beneficially owned by these shareholders.

These shares were owned through controlled corporations.

Note: Speed Profit is a wholly-owned subsidiary of Tacko, which is in turn a wholly-owned subsidiary of CATIC (H.K.). CATIC (H.K.) is a wholly-owned subsidiary of CATIC, which is in turn owned as to 50% by AVIC I and as to 50% by AVIC II. Pursuant to the SFO, Tacko is deemed to be interested in the shares held by Speed Profit; and each of CATIC (H.K.), CATIC, AVIC I and AVIC II is deemed to be interested in the aggregate shares directly held by Speed Profit and Tacko.

– 113 –

APPENDIX IV

GENERAL INFORMATION

Saved as disclosed above, the Directors and chief executives of the Company are not aware of any person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had any interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Interest in other members of the Group

Save as disclosed below, as at the Latest Practicable Date, so far as is known to the Directors and chief executives of the Company, no other person was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of other members of the Group or has any option in respect of such capital:

		% of
Name of Owner	Name of subsidiary	shares held
Asia Capital Financial	Hangzhou Sealand Electric	30%
Group Limited	Power Company Limited

Note: Asia Capital Financial Group Limited is an independent third party not related to the Company.
(b) As at the Latest Practicable Date, none of the Directors has any existing or proposed service contract with any member of the Group which is not terminable by the employer within one year without payment of compensation other than statutory compensation.
(c) None of the Directors is materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group taken as a whole.
(d) None of the Directors has any direct and indirect interest in any assets acquired or disposed of by or leased to any member of the Group or is proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2006, being the date to which the latest published audited accounts of the Group were made up.

– 114 –

GENERAL INFORMATION

APPENDIX IV

3. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or chief executives of the Company or their respective associates has any beneficial interest in other businesses which compete or are likely to compete with business of the Group.

4. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was involved in any litigation or claim of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened against the Company and any of its subsidiaries.

5. MATERIAL CONTRACTS

Save as disclosed below, the Group has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular which are or may be material:

A termination letter dated 29 December 2005 in relation to the agreement dated 29 March 2004 entered into between Florex Investment Limited, a wholly-owned subsidiary of the Company, and CATIC (H.K.) Limited relating to the sale and purchase of certain shares in, and assignment of shareholder’s loan owned by CATIC International Support Limited;
An agreement dated 4 January 2006 entered into between Sino-Aviation Investments Limited, a wholly-owned subsidiary of the Company, Chengdu Aircraft Industry (Group) Corporation Limited and CATIC for the establishment of a joint venture;
A placing agreement relating to certain shares of Sino Gas Group Limited dated 15 March 2006 entered into between Billirich Investment Limited, a wholly-owned subsidiary of the Company, Sino Gas Group Limited and ABN Amro Bank N.V., Hong Kong Branch;
A subscription agreement relating to the shares of Sino Gas Group Limited dated 15 March 2006 entered into between Sino Gas Group Limited and Billirich Investment Limited;
A placing agreement relating to certain shares of the Company dated 24 March 2006 entered into between Tacko, the Company and Kingsway Financial Services Group Limited;

– 115 –

GENERAL INFORMATION

APPENDIX IV

A subscription agreement relating to shares in the capital of the Company dated 24 March 2006 entered into between Tacko and the Company;
A subscription agreement relating to certain shares of Sino Gas Group Limited dated 10 July 2006 entered into between Billirich Investment Limited and Sino Gas Group Limited;
A subscription agreement in respect of the issue of convertible bonds by Sino Gas Group Limited dated 25 January 2007 entered into between Billirich Investment Limited and Sino Gas Group Limited;
A sale and purchase agreement relating to certain shares in the capital of Sino Gas Group Limited dated 15 March 2007 entered into between Billirich Investment Limited and Universal Vantage Limited;
A call option deed relating to certain shares in the capital of Sino Gas Group Limited dated 15 March 2007 entered into between Billirich Investment Limited and Universal Vantage Limited;
A placing agreement relating to certain shares of the Company with options dated 1 May 2007 entered into between Tacko, the Company and CITIC Securities Corporate Finance (HK) Limited;
A subscription agreement relating to shares in the capital of the Company dated 1 May 2007 entered into between Tacko and the Company;
A placing agreement relating to certain shares of Sino Gas Group Limited with options dated 25 May 2007 entered into between Billirich Investment Limited, Sino Gas Group Limited and CITIC Securities Corporate Finance (HK) Limited;
A subscription agreement relating to shares in the capital of Sino Gas Group Limited dated 25 May 2007 entered into between Billirich Investment Limited and Sino Gas Group Limited;
The Agreement; and
An agreement in respect of the transfer of certain shares in CATIC Siwei Co., Ltd. dated 7 November 2007 entered into between CATIC General Aviation Holdings Limited, a wholly-owned subsidiary of the Company, and CATIC.

– 116 –

GENERAL INFORMATION

APPENDIX IV

6. EXPERT

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

Name

Qualification

Ernst & Young Certified Public Accountants

As at the Latest Practicable Date, the expert above is not beneficially interested in the share capital of any member of the Group nor has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group and does not have any interest, either directly or indirectly, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

The expert above has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter and references to its names in the form and context in which it is included.

7. GENERAL

(i) The principal place of business of the Company is Unit B, 15/F., United Centre, 95 Queensway, Hong Kong.
(ii) The secretary of the Company is Ms. Leung Yuen Chee, Sara (associate member of The Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and Administrators).
(iii) The qualified accountant of the Company is Ms. Wong, Anne (associate member of the Hong Kong Institute of Certified Public Accountants).
(iv) The transfer office of the Company is situated at the office of its branch share registrars, Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(v) The English text of this document shall prevail over the Chinese text.

– 117 –

GENERAL INFORMATION

APPENDIX IV

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the office of the Company at Unit B, 15/F., United Centre, 95 Queensway, Hong Kong up to and including 30 November 2007:

(a) the memorandum of association and bye-laws of the Company;
(b) the material contracts referred to in the section headed “MATERIAL CONTRACTS” in this appendix;
(c) the annual reports (containing the audited consolidated financial statements of the Group) of the Group for each of the two financial years ended 31 December 2006;
(d) the accountants’ report prepared by Ernst & Young, the text of which is set out in Appendix I of this circular;
(e) the unaudited pro forma financial information of the Remaining Group and the letter from Ernst & Young, the text of which is set out in Appendix III of this circular;
(f) the statement of adjustments to the consolidated income statement of the Group for the year ended 31 December 2004 and the consolidated balance sheets of the Group as at 31 December 2004, 2005 and 2006 prepared by Ernst & Young; and
(g) the letter of consent given by Ernst & Young referred to in the section headed “EXPERT” in this appendix.

– 118 –

NOTICE OF SGM

==> picture [78 x 64] intentionally omitted <==

CATIC INTERNATIONAL HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 232)

NOTICE IS HEREBY GIVEN that a special general meeting of the holders of ordinary shares of HK$0.10 each in the issued share capital of CATIC International Holdings Limited (the “ Company ”) will be held at Narcissus Room, 27/F., The Park Lane Hong Kong, 310 Gloucester Road, Hong Kong on 6 December 2007 at 10:00 a.m. (or after any adjournment thereof) for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolution:

ORDINARY RESOLUTION

“ THAT:

(a) the agreement dated 29 August 2007 entered into between Showmost Group Limited (“ Showmost ”) and the Company (the “ Agreement ”) (a copy of which has been produced to the meeting marked “A” and initialed by the Chairman of the meeting for the purpose of identification) in relation to the sale of 18,880,000 fully-paid ordinary shares, being the entire issued share capital of FEA Holdings Limited by the Company to Showmost pursuant to the Agreement and all transactions contemplated thereunder (details of which are set out in the circular of the Company dated 16 November 2007) be and is hereby approved, ratified and confirmed; and
(b) any one director of the Company, or any one director and the secretary or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/her/them to be incidental to, ancillary to or in connection with the matters contemplated in the Agreement as he/she/they may consider necessary, desirable or expedient.”

By order of the Board CATIC International Holdings Limited Fu Shula

Chairman

Hong Kong, 16 November 2007

for identification purpose only

– 119 –

NOTICE OF SGM

Notes:

Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.
In order to be valid, a proxy form and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s head office and principal place of business at Unit B, 15/F., United Centre, 95 Queensway, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof. Completion and return of the proxy form will not preclude any member from attending and voting in person at the meeting or any adjourned meeting should he so wish.
In case of joint shareholding, the vote of the senior joint shareholder who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the votes of the other joint shareholder(s) and for this purpose seniority will be determined by the order in which the names stand on the register of members of the Company in respect of the joint shareholding.

– 120 –

AI assistant

Continental Aerospace Technologies Holding Limited — Proxy Solicitation & Information Statement 2007

49054_rns_2007-11-15_d82acd04-aa16-45e4-b604-11e48c8ed0e9.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CATIC INTERNATIONAL HOLDINGS LIMITED

*

VERY SUBSTANTIAL DISPOSAL RELATING TO THE DISPOSAL OF FEA HOLDINGS LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

CATIC INTERNATIONAL HOLDINGS LIMITED

VERY SUBSTANTIAL DISPOSAL RELATING TO THE DISPOSAL OF FEA HOLDINGS LIMITED

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Assets to be disposed of

Consideration

LETTER FROM THE BOARD

Conditions

LETTER FROM THE BOARD

Completion

Termination

Undertakings

INFORMATION ON THE GROUP

INFORMATION ON THE PURCHASER

REASONS FOR AND BENEFITS OF ENTERING INTO THE AGREEMENT

FINANCIAL EFFECTS OF THE AGREEMENT

Earnings

Assets and liabilities

MANAGEMENT AND DISCUSSION ANALYSIS ON THE REMAINING GROUP

Liquidity, capital structure and financial resources

LETTER FROM THE BOARD

Charges on the Remaining Group’s assets

Exposure to fluctuations in exchange rates

Material acquisitions and disposals

LETTER FROM THE BOARD

Contingent liabilities

Employees and remuneration policy

FUTURE PROSPECTS OF THE REMAINING GROUP

SGM

PROCEDURE FOR DEMANDING A POLL

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

CATIC International Holdings Limited Fu Shula

The Board of Directors

Dear Sirs,

Procedures Performed in Respect of the Relevant Periods

Procedures Performed in Respect of the Six Months Ended 30 June 2006

Opinion in Respect of the Relevant Periods

Review Conclusion in Respect of the Six Months Ended 30 June 2006

(I) FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENTS

CONSOLIDATED BALANCE SHEETS

APPENDIX I

ACCOUNTANTS’ REPORT

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

APPENDIX I

ACCOUNTANTS’ REPORT

Attributable to equity holders of the parent

ACCOUNTANTS’ REPORT

CONSOLIDATED CASH FLOW STATEMENTS

APPENDIX I

ACCOUNTANTS’ REPORT

BALANCE SHEETS OF THE COMPANY

(II) NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

2. BASIS OF PREPARATION

Basis of consolidation

3.1 ADOPTION OF NEW AND REVISED HKFRSs

3.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HKFRSs

3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

Associates

Goodwill

Goodwill previously eliminated against consolidated retained profits

Excess over the cost of business combinations

Impairment of non-financial assets other than goodwill

Related parties

Property, plant and equipment and depreciation

Continental Aerospace Technologies Holding Limited Proxy Solicitation & Information Statement 2007