Continental Aerospace Technologies Holding Limited - Proxy Solicitation & Information Statement 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action you should take, you should consult a 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 AVIC International Holding (HK) Limited , you should at once hand this circular 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.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim 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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MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION

A notice convening a special general meeting of AVIC International Holding (HK) Limited to be held at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong, on Monday, 5 December 2011 at 10:00 a.m. is set out on pages SGM-1 to SGM-2 of this circular. Whether or not you propose to attend the meeting, you are requested to read the notice and to complete the proxy form in accordance with the instructions printed thereon and return the same to the principal place of business of the Company in Hong Kong at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding of the meeting or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending and voting at the meeting should you so wish.

17 November 2011

CONTENTS

			Page
DEFINITIONS. . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			5
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	I-1
APPENDIX II	–	FINANCIAL INFORMATION OF THE TARGET
		COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE ENLARGED GROUP . . . . . .	III-1
APPENDIX IV	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
NOTICE OF SGM .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM-1

– i –

DEFINITIONS

In this circular, the following terms have the meanings set out below unless the context otherwise requires.

“Acquisition”
the proposed acquisition of the Sale Shares by the Purchaser from the Vendor at the Consideration pursuant to the terms and conditions of the Agreement
“Acquisition Completion Date”
the third Business Day after the fulfilment or (as the case may be) waiver of the conditions precedent (or such other date as the parties shall agree in writing) pursuant to the Agreement
“Agreement”
the sale and purchase agreement dated 21 September 2011 entered into among the Purchaser and the Vendor in relation to the Acquisition
“associates” has the meaning ascribed to it under the Listing Rules
“Board”
the board of Directors
“Business Day” any statutory business day in the PRC
“Company”

AVIC International Holding (HK) Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the main board of the Stock Exchange (stock code: 232)

“Completion”
completion of the Acquisition pursuant to the terms and conditions of the Agreement
“connected persons”
has the meaning ascribed to it under the Listing Rules
“Consideration”

the consideration for the Sale Shares of RMB7.0 million (equivalent to approximately HK$8.5 million) payable by the Purchaser to the Vendor

“Director(s)”

director(s) of the Company

“Enlarged Group”

the Group as enlarged by the Acquisition immediately upon Completion

“Financial Assistance”

the amounts due from the spouse of the Vendor to the Target Company which amounted to approximately RMB14.0 million (equivalent to approximately HK$17.1 million) as at 30 June 2011, which will constitute financial assistance to connected person of the Company incidental to the Completion under the Listing Rules

– 1 –

DEFINITIONS

“Group”
“Hong Kong”
“Latest Practicable Date”
“Listing Rules”
“Long Stop Date”
“Mortgage Undertaking”
“Mortgaged Properties”
“Other Receivables”
“PRC”
“Purchaser”
“Sale Shares”
the Company and its subsidiaries
the Hong Kong Special Administrative Region of the PRC
15 November 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the Rules Governing the Listing of Securities on the Stock Exchange
30 November 2011, or such other date as the parties to the Agreement may agree in writing
the mortgage undertaking in respect of the Mortgaged Properties which are created by the Vendor and his spouse in favour of the Purchaser

three real properties situated at Dongyang City, Zhejiang Province, the PRC jointly or separately owned by the Vendor and/or his spouse which have been pledged to certain banks for certain loans borrowed by the Target Company from the banks

the other receivables of the Target Company (including the Financial Assistance) which amounted to approximately RMB37.3 million (equivalent to approximately HK$45.5 million) as at 30 June 2011 according to the financial statements of the Target Company as at 30 June 2011
the People’s Republic of China, for the purpose of this circular, excludes Hong Kong, Macau Special Administrative Region of the PRC and Taiwan
上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited*), an indirect wholly-owned subsidiary of the Company established under the laws of the PRC
51% equity interest in the Target Company
For identification purpose only

– 2 –

DEFINITIONS

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“SGM” the special general meeting of the Company to be convened and held for the Shareholders to consider and, if thought fit, approve, among other things, the Agreement and the transactions contemplated thereunder
“Share(s)” ordinary share(s) of HK$0.1 each in the share capital of the Company
“Share Pledge” the share pledge in respect of (1) the remaining 49% equity interest in the Target Company provided by the Vendor, and (2) the 30% equity interest in a company established under the laws of the PRC held by the spouse of the Vendor, in favour of the Purchaser
“Shareholder(s)” holder(s) of the Share(s)
“Sino Gas” Sino Gas Group Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the main board of the Stock Exchange
“Sino Gas Transactions” the proposed disposal of the interest in a company to a subsidiary of Sino Gas and the subscription of open offer shares in the proposed open offer of Sino Gas, details of which are disclosed in an announcement of the Company dated 9 November 2011
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Target Company”
浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited*), a company established under the laws of the PRC
“Vendor”
Mr. Wu Xiaogang (吳曉綱), holding the entire equity interest in the Target Company as at the date of this circular
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“RMB” Renminbi, the lawful currency of the PRC
“%”

per cent

For identification purpose only

– 3 –

DEFINITIONS

For illustration purposes, figures in RMB in this circular have been translated into HK$ at the exchange rate of RMB1 = HK$1.221. Such conversion shall not be construed as a representation that amounts in RMB were or may have been converted into HK$ using such exchange rate or any other exchange rate or at all.

– 4 –

LETTER FROM THE BOARD

Executive Directors:

Mr. Wu Guangquan (Chairman) Mr. Jiang Wei (Deputy Chairman) Mr. Ji Guirong (Deputy Chairman and Chief Executive Officer) Mr. Liu Rongchun Mr. Pan Linwu Mr. Zhang Chuanjun

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, 15th Floor United Centre 95 Queensway Hong Kong

Independent Non-executive Directors:

Mr. Chu Yu Lin, David Mr. Li Ka Fai, David Mr. Li Zhaoxi

17 November 2011

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION

INTRODUCTION

On 21 September 2011, the Purchaser entered into the Agreement with the Vendor pursuant to which the Purchaser conditionally agreed to acquire and the Vendor conditionally agreed to sell the Sale Shares, representing 51% equity interest in the Target Company at a consideration of RMB7.0 million (equivalent to approximately HK$8.5 million). The Consideration shall be satisfied by the Purchaser in cash on the Acquisition Completion Date.

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide the Shareholders with further information in relation to the Acquisition.

THE AGREEMENT DATED 21 SEPTEMBER 2011

Parties

(i) Vendor : 吳曉綱 (Wu Xiaogang) (ii) Purchaser : 上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited*), an indirect wholly-owned subsidiary of the Company

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendor is the ultimate beneficial owner of the Target Company and a third party independent of the Company and its connected persons. The Group has not entered into any transaction with the Vendor or its associates in the last 12 months prior to the date of the Agreement which requires aggregation under Rule 14.22 of the Listing Rules.

Assets to be acquired

Pursuant to the Agreement, assets to be acquired by the Purchaser are the Sale Shares representing 51% equity interest in the Target Company.

The Consideration

The Consideration shall be RMB7.0 million (equivalent to approximately HK$8.5 million) which shall be satisfied in cash on the Acquisition Completion Date.

The Consideration was arrived at after arm’s length negotiations between the Purchaser and the Vendor and was determined taking into consideration the unaudited net asset value of the Target Company as at 30 June 2011 as adjusted by (i) certain provision of the trade and other receivables of the Target Company as considered necessary by the management of the Company; and (ii) the valuation of the properties of the Target Company of approximately RMB10.7 million as at 30 June 2011 based on the valuation report as prepared by an independent valuer using direct comparison method.

Conditions Precedent

The Completion shall be conditional upon the fulfillment or waiver of the following conditions (as the case may be):

(1) the Purchaser having confirmed that it is satisfied with the due diligence result in relation to, including but not limited to, the assets and business operations, financial conditions, sales, growth prospects and other conditions of the Target Company including but not limited to the receipt of the following documents:
For identification purpose only

– 6 –

LETTER FROM THE BOARD

a. a due diligence report at the satisfaction of the Purchaser on matters, including but not limited to (i) the legality of the establishment and valid existence of the Target Company; (ii) the titles of the properties owned by the Target Company (including but not limited to land, properties and intellectual properties); (iii) the business operations of the Target Company; (iv) the approval relating to the historical changes in shareholding and increase in share capital of the Target Company; and (v) the legality, validity and enforceability of the material contracts of the Target Company as set out in the Agreement and the legality, validity and sustainability of the Acquisition; and
b. the audited financial statements for the past three years or any other period as acceptable to the Purchaser issued by a certified public accountant firm recognized by the Purchaser on the financial conditions of the Target Company at the satisfaction of the Purchaser;
(2) the Company having obtained the approval by the Shareholders at a duly convened shareholders’ meeting of the Company approving the Agreement and the transactions contemplated thereunder;
(3) all necessary authorization, approval, consent and filings from the PRC government authorities and any independent third parties who have interests in the Target Company in relation to the Acquisition, including but not limited to the updated registration with the State Administration of Industry and Commerce, the revised business license of the Target Company, the revised articles of the Target Company and the completion of the filing of the Target Company’s members of the board of directors having been obtained;
(4) the representations and warranties as stated in the Agreement remain true and accurate in all respects at all time;
(5) the Purchaser not having discovered or being aware of any unusual matters in relation to the business, assets or operation of the Target Company, or material safety issue, material adverse change or material undisclosed risks of the Target Company since 30 June 2011; and
(6) the Share Pledge provided by the Vendor and/or his spouse having become effective and the Vendor and his spouse have issued a commitment letter in respect of the Mortgage Undertaking.

Pursuant to the Agreement, the Purchaser may at its absolute discretion to waive any of the conditions (1), (5) and (6) above at any time. In the event that the above conditions precedent (except for condition (4)) cannot be fulfilled or waived by the Purchaser (as the case may be) or condition (4) fails to be fulfilled at the time when the last condition precedent has been fulfilled or waived on or before the Long Stop Date, the Purchaser has the right to extend the Long Stop Date to no later than 31 March 2012, or the Agreement shall be automatically

– 7 –

LETTER FROM THE BOARD

terminated forthwith and cease to be of any effect and the parties to the Agreement shall have no claim against each other arising out of or in connection with the Agreement, save for the claims arising out of any antecedent breach of the Agreement. As at the Latest Practicable Date, condition (1)a has been fulfilled. The Company has no intention to waive any of the above conditions precedent as at the Latest Practicable Date.

Completion shall take place on the Acquisition Completion Date. Upon Completion, the Target Company will be owned as to 51% by the Purchaser and will become an indirect non wholly-owned subsidiary of the Company, and the remaining 49% equity interest will continue to be held by the Vendor.

The Vendor undertakes to procure the completion of collection by the Target Company of the Other Receivables on a date falling within one year after the Acquisition Completion Date, or such other date as the parties shall agree (the “Latest Receivable Date”). In the event that the Other Receivables are not being received by the Target Company by the Latest Receivable Date, the Vendor undertakes to repay the entire outstanding amount of the Other Receivables to the Target Company within 10 days from the Latest Receivable Date.

The Vendor has, pursuant to the Agreement, agreed to provide the Share Pledge and the Mortgage Undertaking as securities to the Company in respect of the above obligation.

POSSIBLE CONNECTED TRANSACTION

Following Completion, the Target Company will become a subsidiary of the Company, the Financial Assistance will constitute a connected transaction of the Company under the Listing Rules upon Completion. The Company will comply in full with the requirements under Rule 14A.41 of the Listing Rules in respect of the Financial Assistance as and when appropriate.

FINANCIAL INFORMATION OF THE TARGET COMPANY

The financial information of the Target Company for each of the two years ended 31 December 2010 as extracted from the accountants’ report on the Target Company as set out in Appendix II to this circular was as follows:

	For	the year ended	For	the year ended
	31 December 2009		31 December 2010
		audited		audited
		HK$’000		HK$’000
Revenue		75,583		110,086
Profit before taxation		701		941
Profit after taxation		269		375

As at 30 June 2011, the audited net asset value of the Target Company was approximately HK$3.3 million.

– 8 –

LETTER FROM THE BOARD

The Directors would like to draw Shareholders’ and investors’ attention that, the reporting accountants, without qualifying their opinion, have issued an emphasis of matter on material uncertainty regarding the going concern assumption of the Target Company since the Target Company had (i) net current liabilities of HK$15,337,000, HK$13,532,000, HK$15,681,000 and HK$14,447,000 as at 31 December 2008, 2009, 2010, and 30 June 2011 respectively; and (ii) contingent liabilities of HK$22,857,000, HK$31,136,000, HK$31,494,000 and HK$32,235,000 as at 31 December 2008, 2009, 2010, and 30 June 2011 respectively in respect of the financial guarantees given to banks in connection with facilities granted to companies controlled by acquaintances of the director. These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Target Company’s ability to continue as a going concern.

However, as further disclosed in note 2.1 to the financial information of the Target Company, the financial information of the Target Company has been prepared on a going concern basis since the Vendor has confirmed his intention to provide continuing financial support to the Target Company so as to enable it to meet its liabilities as and when they fall due and to enable the Target Company to continue operating for the foreseeable future. Furthermore, upon completion of the Acquisition, the Company will provide financial support to the Target Company to enable it to meet its financial or contingent liabilities as and when they fall due and to enable the Target Company to continue operating as a going concern in the foreseeable future. The Directors believe that the Acquisition offers the Group a good opportunity to diversify into textile and garment industry and to enhance the Group’s income stream. For details on the reasons for the Acquisition, please refer to the paragraph headed “Reasons for and benefits of the Acquisition” below. Having considered the above and the internal resources of the Group, the Board considers the Enlarged Group will be able to meet the funding requirements of the Target Company.

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Company will become an indirect non wholly-owned subsidiary of the Company, the results, assets and liabilities of which will be consolidated into the accounts of the Group.

Set out in Appendix III to this circular is the unaudited pro forma financial information of the Enlarged Group which illustrates the financial effects of the Acquisition on the assets and liabilities of the Group assuming Completion had taken place on 30 June 2011.

Based on the unaudited pro forma financial information of the Enlarged Group in Appendix III to this circular, the total assets of the Group would increase approximately 3% from approximately HK$3,182.5 million to approximately HK$3,285.6 million and its total liabilities would increase approximately 20% from approximately HK$487.6 million to approximately HK$585.5 million. As at 30 June 2011, the Group’s gearing ratio or total bank borrowings as a percentage of total assets, was approximately 3%. Assuming the Acquisition had been completed on 30 June 2011, the Enlarged Group’s gearing ratio would be approximately 4%.

– 9 –

LETTER FROM THE BOARD

Based on the accountants’ report on the Target Company as set out in Appendix II to this circular, the turnover and operating profit of the Target Company for the year ended 31 December 2010 were approximately HK$110.1 million and HK$0.4 million, respectively. The Directors consider that the Target Company will contribute to the revenue base of the Enlarged Group after the Completion.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Company is an investment holding company and its subsidiaries are principally engaged in the generation and sale of electric and steam power, and the aero-technology related business, including the share of profit from the development, manufacture and distribution of helicopters. The principal activity of the Target Company is the production and distribution of knitting and textile products, knitted fabrics and clothing in the PRC.

The Group has been exploring investment opportunities across various businesses and industries. The Directors consider that the Acquisition is a good opportunity for the Group to invest in other businesses with an aim to diversify the Group’s source of revenue and to increase Shareholders’ value.

The textile and garment industry is a traditional industry which generally requires economies of scale for the businesses of the industry to thrive. The Directors believe that with the abundant resources of the Group (in terms of both financial and business network), the business of the Target Company would be better developed by expanding its scale and achieving economies of scale. On the other hand, the Group can better utilise its idle resources. Thus, the Directors believe that the Acquisition represents a win-win situation for both the Group and the Target Company. The Directors are also optimistic about the prospects of the knitting and textile industry in the PRC in light of (i) the continuing economic development in the PRC; (ii) the increasing per capita disposable income in the PRC; and (iii) the extensive industrial experience and established customer base of the Target Company.

In view of the above, the Directors (including the independent non-executive Directors) consider that the terms of the Agreement are fair and reasonable and the Acquisition is in the interests of the Company and its Shareholders as a whole.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group’s aero-technology related business is expected to remain stable for the current financial year. The Directors are optimistic about the prospects of the knitting and textile business following Completion in light of the reasons for and benefits of the Acquisition as discussed above. After the Acquisition, the financial position and performance of the Enlarged Group is expected to benefit from the revenue base of the Target Company.

The Directors will continue to identify possible acquisition opportunities that are in the interest of the Company and its Shareholders as a whole. The Company will also consider its business portfolio from time to time and may consider divesting its existing business if such divestment would be in the interest of the Company and its Shareholders as a whole. The

– 10 –

LETTER FROM THE BOARD

Company commenced the preliminary discussion for the potential disposal of the electric and steam power business with certain potential buyers in April 2011. Consequently in August 2011, the Company entered into the Zhejiang Agreement (as defined hereinafter) to dispose 4% of the entire equity interest in 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-Holding Co.) (“Zhejiang Sealand”), a non wholly-owned subsidiary of the Company. Following the execution of the Zhejiang Agreement, no further negotiation regarding the disposal of the remaining interest in Zhejiang Sealand was carried out until the Company was formally approached by a potential buyer, an existing shareholder of Zhejiang Sealand, to increase its existing stake in Zhejiang Sealand. The Company subsequently commenced the negotiations for the Hangzhou Agreement and the Disposal Agreement (as defined hereinafter) on 21 October 2011. Since the date of the Agreement and up to the Latest Practicable Date, the Group has entered into the following agreements in relation to the sale of its existing business and investment, and the subscription of open offer shares in Sino Gas:

a sale and purchase agreement dated 1 November 2011 entered into between CATIC Helicopter and 杭州源和燃料有限公司 (Hangzhou Yuan He Fuel Co., Ltd.) (“Hangzhou Yuan He”) (the “Hangzhou Agreement”), pursuant to which Hangzhou Yuan He has conditionally agreed to acquire and 中航技直升機技術服務(深圳)有限公司 (CATIC Helicopter Development (Shenzhen) Limited) (“CATIC Helicopter”), an indirect wholly-owned subsidiary of the Company, has conditionally agreed to sell, (i) 3% of the entire equity interest in Zhejiang Sealand; and (ii) the indebtedness in the amount of RMB1,496,707.88 (equivalent to approximately HK$1.8 million) owed by Zhejiang Sealand to CATIC Helicopter as at the date of the Hangzhou Agreement, at a total consideration of RMB12,296,707.88 (equivalent to approximately HK$15.0 million), which will be settled by Hangzhou Yuan He to CATIC Helicopter in cash. For information purpose, a sale and purchase agreement dated 11 August 2011 entered into between CATIC Helicopter and 浙江中強化纖有限公司 (Zhejiang Zhongqiang Chemical Fiber Co., Ltd.) (“Zhejiang Zhongqiang”) (the “Zhejiang Agreement”), pursuant to which Zhejiang Zhongqiang has conditionally agreed to acquire and CATIC Helicopter has conditionally agreed to sell (i) 4% of the entire equity interest in Zhejiang Sealand; and (ii) the indebtedness in the amount of RMB1,995,610.51 (equivalent to approximately HK$2.4 million) owed by the Zhejiang Sealand to CATIC Helicopter as at the date of the Zhejiang Agreement, at a total consideration of RMB16,395,610.51 (equivalent to approximately HK$20.0 million), which was settled by Zhejiang Zhongqiang to CATIC Helicopter in cash on 25 August 2011. Such disposal was completed on 30 September 2011. Details of which are disclosed in an announcement of the Company dated 9 November 2011 in relation to very substantial disposal and connected transactions;
a sale and purchase agreement dated 1 November 2011 entered into between the Company and Hong Kong Yuanhe International Trade Group Limited (“Hong Kong Yuanhe”) (the “Disposal Agreement”), pursuant to which Hong Kong Yuanhe has conditionally agreed to acquire and the Company has conditionally agreed to sell, (i) the entire issued and paid up share capital in Polyson Investment Limited (“Polyson”), a wholly-owned subsidiary of the Company; and (ii) the indebtedness

– 11 –

LETTER FROM THE BOARD

in the amount of HK$164,958,535.82 owed by Polyson to the Company as at the date of the Disposal Agreement, at a total consideration of HK$338,993,455.38, which will be settled by Hong Kong Yuanhe to the Company in cash, details of which are disclosed in an announcement of the Company dated 9 November 2011 in relation to very substantial disposal and connected transactions;

a sale and purchase agreement dated 2 November 2011 entered into between Smartcon Investment Limited (“Smartcon”), a wholly-owned subsidiary of the Company, Dong Yuen Investment Limited (“Dong Yuen”) and Sino Gas Finance Limited (“Sino Gas Finance”) (the “Finance Leasing Disposal Agreement”), pursuant to which Smartcon and Dong Yuen have conditionally agreed to sell and Sino Gas Finance has conditionally agreed to purchase (i) Smartcon’s shares and Dong Yuen’s shares in Fidelity Finance Leasing Limited (“Fidelity Finance”), respectively; and (ii) the shareholders’ loans due and owing to Smartcon and Dong Yuen, respectively, by Fidelity Finance as at the date of the Finance Leasing Disposal Agreement, at an aggregate consideration of HK$55,328,087, details of which are disclosed in an announcement of the Company dated 9 November 2011 in relation to discloseable transactions; and
an irrevocable undertaking dated 2 November 2011 given by the Company in favour of Sino Gas in relation to the subscription of open offer shares in the proposed open offer of Sino Gas (the “Irrevocable Undertaking”), details of which are disclosed in an announcement of the Company dated 9 November 2011 in relation to discloseable transactions.

For further details of the above agreements, please refer to the announcements of the Company dated 9 November 2011 in respect of discloseable transactions and very substantial disposal and connected transactions.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, Zhejiang Zhongqiang, Dong Yuen, and their respective ultimate beneficial owners are independent of and not connected with the Company and its connected persons as at the date of the Zhejiang Agreement and the date of the Finance Leasing Disposal Agreement, respectively. Save for the approximately 28.23% interest in Sino Gas held by the Company through Billirich Investment Limited (“Billirich”), a wholly-owned subsidiary of the Company, Sino Gas Finance and its ultimate beneficial owner are independent of and not connected with the Company and its connected persons as at the date of the Finance Leasing Disposal Agreement. As at the date of the Disposal Agreement and the Hangzhou Agreement, Hong Kong Yuanhe, through its subsidiary, and Hangzhou Yuan He own 21% and 18.7% of the entire equity interest in Zhejiang Sealand, a non wholly-owned subsidiary of the Company, respectively. As such, Hong Kong Yuanhe and Hangzhou Yuan He are connected persons of the Company under Chapter 14A of the Listing Rules. Such counterparties of the Zhejiang Agreement, the Hangzhou Agreement, the Disposal Agreement, and the Sino Gas Transactions are not related to each other, and are neither the Vendor nor the Vendor’s connected persons. The Acquisition, the disposals pursuant to the Hangzhou Agreement and the Disposal Agreement, and the Sino Gas Transactions are not inter-conditional on each other.

– 12 –

LETTER FROM THE BOARD

The Company intends to apply the net proceeds from the disposals pursuant to the Zhejiang Agreement, the Hangzhou Agreement and the Disposal Agreement for general working capital of the Group and for future acquisition opportunities that are in the interests of the Company and its Shareholders as a whole. As such, the Group will continue to explore development opportunities in other industries, including but not limited to, the opportunities in the basic consumer goods industry brought by economic structure adjustments and the policies in boosting of domestic consumption in the PRC (such as the Acquisition). At the same time, the Group will also explore projects in the aviation and aero-related industry in the PRC with good prospects so as to further develop and diversify its aero-related business. As at the Latest Practicable Date, no such opportunity or project has been identified.

MAJOR TRANSACTION AND APPROVAL BY SHAREHOLDERS

As the applicable percentage ratios of the Acquisition calculated in accordance with Rule 14.07 of the Listing Rules exceeds 25% but is less than 100%, the Acquisition constitutes a major transaction for the Company under the Listing Rules. The Agreement and the transactions contemplated thereunder are subject to the approval of the Shareholders by way of poll at the SGM. As the Vendor is a third party independent of the Company and its connected persons and no Shareholder has any material interest in the Acquisition which is different from other Shareholders, no Shareholder is required to abstain from voting in respect of the ordinary resolution to be proposed at the SGM for the approval of the Agreement and the transactions contemplated thereunder.

RECOMMENDATION

The Directors consider that the terms of the Agreement are fair and reasonable so far as the Shareholders are concerned and the Acquisition is in the interests of the Company and the Shareholders as a whole and therefore recommend the Shareholders to vote in favour of the relevant resolution to be proposed at the SGM to approve the Agreement and the transactions contemplated thereunder.

GENERAL INFORMATION

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

Yours faithfully, By Order of the Board AVIC International Holding (HK) Limited Wu Guangquan Chairman

– 13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group for the six months ended 30 June 2011 and the three years ended 31 December 2010 has been published in the annual reports and interim report per below:

(i) the financial information of the Group for the six months ended 30 June 2011 is disclosed in the interim report of the Company for the six months ended 30 June 2011 published on 12 September 2011, from pages 13 to 32;
(ii) the financial information of the Group for the year ended 31 December 2010 is disclosed in the annual report of the Company for the year ended 31 December 2010 published on 29 March 2011, from pages 38 to 178;
(iii) the financial information of the Group for the year ended 31 December 2009 is disclosed in the annual report of the Company for the year ended 31 December 2009 published on 30 March 2010, from pages 38 to 190; and
(iv) the financial information of the Group for the year ended 31 December 2008 is disclosed in the annual report of the Company for the year ended 31 December 2008 published on 28 April 2009, from pages 40 to 198.

All of which have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.avic.com.hk).

2. WORKING CAPITAL

After taking into account the effect of the Acquisition, the present internal financial resources available to the Enlarged Group, including cash and bank balance as well as the available banking facilities, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirements and for at least the next 12 months from the date of this circular.

3. INDEBTEDNESS

Borrowings

At the close of business on 30 September 2011, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding secured bank borrowings of approximately HK$130,723,000.

Contingent liabilities

At the close of business on 30 September 2011, the Enlarged Group issued guarantees of approximately HK$81,205,000 for credit lines granted to major suppliers and companies controlled by acquaintances of a non-controlling shareholder of a subsidiary.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Disclaimers

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 Enlarged 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 2011.

Subsequent change of indebtedness

The Directors confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 30 September 2011.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2010, the date to which the latest published audited consolidated financial statements of the Group were made up.

– I-2 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

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17 November 2011

The Board of Directors

AVIC International Holding (HK) Limited

Dear Sirs,

We set out below our report on the financial information of 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited or “ZDJK”) comprising the statements of comprehensive income, the statements of changes in equity and the statements of cash flows of ZDJK for each of the three years ended 31 December 2008, 2009 and 2010 and the six months ended 30 June 2011 (the “Relevant Periods”), the statements of financial position of ZDJK as at 31 December 2008, 2009 and 2010, and 30 June 2011, together with the notes thereto (the “Financial Information”), and the statement of comprehensive income, the statement of changes in equity and the statement of cash flows of ZDJK for the six months ended 30 June 2010 (the “Comparative Financial Information”), prepared on the basis as set out in note 2.1 of Section II, for inclusion in the circular of AVIC International Holding (HK) Limited (the “Company”) dated 17 November 2011 (the “Circular”) in connection with the proposed acquisition of 51% equity interest in ZDJK (the “Proposed Acquisition”) by a subsidiary of the Company pursuant to an acquisition agreement dated 21 September 2011 entered into between the Company’s indirect wholly-owned subsidiary, 上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited), and Mr. Wu Xiaogang, the sole owner of ZDJK (the “Acquisition Agreement”).

ZDJK was established in the People’s Republic of China (the “PRC”) with limited liability on 1 April 1998 by 香港盈華集團有限公司 (“香港盈華”) and is engaged in the production and distribution of knitting and textile products, knitted fabrics and clothing in Zhejiang Province, the PRC. On 12 December 2008, Mr. Wu Xiaogang acquired the entire equity interest in ZDJK from 香港盈華 and became the sole owner.

The statutory financial statements of ZDJK for the year ended 31 December 2008 were audited by 東陽衡力聯合會計師事務所, certified public accountants registered in the PRC, while the statutory financial statements of ZDJK for the years ended 31 December 2009 and 2010 were audited by 東陽衡升會計師事務所有限公司, certified public accountants registered in the PRC. These statutory financial statements were prepared in accordance with generally

English translation name for identification purpose only

– II-1 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

accepted accounting principles and the relevant financial regulations of the PRC. For the purpose of this report, the director of ZDJK has prepared the financial statements of ZDJK (the “Underlying Financial Statements”) in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Underlying Financial Statements for each of the years ended 31 December 2008, 2009 and 2010, and the six months ended 30 June 2011 were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements with no adjustments made thereon.

DIRECTOR’S RESPONSIBILITY

The director of ZDJK is responsible for the preparation of the Underlying Financial Statements, the Financial Information and the Comparative Financial Information that give a true and fair view in accordance with HKFRSs, and for such internal control as the director of ZDJK determines is necessary to enable the preparation of the Underlying Financial Statements, the Financial Information and the Comparative Financial Information that are free from material misstatement, whether due to fraud or error. Further details of the basis of preparation are included in note 2.1 of Section II.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

It is our responsibility to form an independent opinion and a review conclusion on the Financial Information and the Comparative Financial Information, respectively, and to report our opinion and review conclusion thereon to you.

For the purpose of this report, we have carried out procedures on the Financial Information in accordance with Auditing Guideline No. 3.340 Prospectuses and the Reporting Accountant issued by the HKICPA.

We have also performed a review of the Comparative Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excluded audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope 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.

– II-2 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

In our opinion, for the purpose of this report, the Financial Information gives a true and fair view of the state of affairs of ZDJK as at 31 December 2008, 2009 and 2010, and 30 June 2011, and of the results and cash flows of ZDJK for each of the Relevant Periods.

REVIEW CONCLUSION IN RESPECT OF THE COMPARATIVE FINANCIAL INFORMATION

Based on our review, which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe that the Comparative Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

EMPHASIS OF MATTER

Without qualifying our opinion, we draw attention to note 2.1 of Section II to the Financial Information concerning the adoption of the going concern basis on which the Financial Information has been prepared which, as explained in the note, is dependent upon the continuing financial support of Mr. Wu Xiaogang and the Company. As at 31 December 2008, 2009, 2010, and 30 June 2011, ZDJK had net current liabilities of HK$15,337,000, HK$13,532,000, HK$15,681,000 and HK$14,447,000, respectively. In addition, as at 31 December 2008, 2009, 2010, and 30 June 2011, ZDJK had contingent liabilities of HK$22,857,000, HK$31,136,000, HK$31,494,000 and HK$32,235,000, respectively, in respect of financial guarantees given to banks in connection with facilities granted to companies controlled by acquaintances of the director of ZDJK. These conditions indicate the existence of a material uncertainty which may cast significant doubt on ZDJK’s ability to continue as a going concern.

– II-3 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

I. FINANCIAL INFORMATION

Statements of Comprehensive Income

							Six months ended	Six months ended	Six months ended
		Year ended 31 December					30	June
		2008	2009	2010			2010		2011
	Notes	HK$’000	HK$’000	HK$’000			HK$’000		HK$’000
						(unaudited)
REVENUE	4	108,206	75,583	110,086			53,605		62,005
Cost of sales		(101,880)	(69,260)	(100,811)			(50,339)		(57,348)
Gross profit		6,326	6,323	9,275			3,266		4,657
Other income	4	183	91		74		16		15
Selling and distribution
costs		(453)	(233)		(378)		(100)		(48)
Administrative expenses		(2,942)	(3,310)	(4,417)			(1,601)		(2,063)
Other operating
expenses, net		(2,742)	(410)	(1,025)			(658)		(219)
Finance costs	6	(1,584)	(1,760)	(2,588)			(979)		(1,367)
PROFIT/(LOSS)
BEFORE TAX	5	(1,212)	701		941		(56)		975
Income tax expense	10	(439)	(432)		(566)		(121)		(370)
PROFIT/(LOSS) FOR
THE YEAR/PERIOD		(1,651)	269		375		(177)		605
OTHER
COMPREHENSIVE
INCOME/(LOSS)
Exchange differences
on translation of
foreign operation		247	(15)		27		–		76
TOTAL
COMPREHENSIVE
INCOME/(LOSS)
FOR THE
YEAR/PERIOD		(1,404)	254		402		(177)		681

– II-4 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Statements of Financial Position

					As at
		As	at 31 December		30 June
		2008	2009	2010	2011
	Notes	HK$’000	HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and
equipment	12	16,052	13,999	16,572	16,000
Prepaid land lease payments	13	1,845	1,792	1,770	1,789
Total non-current assets		17,897	15,791	18,342	17,789

CURRENT ASSETS
Inventories	14	2,515	5,390	6,709	6,955
Trade and bills receivables	15	26,811	14,105	12,002	19,714
Prepayments, deposits and
other receivables	16	8,613	10,257	16,802	19,908
Due from the director	17	34	–	–	–
Due from related parties	18	308	12,304	12,892	23,061
Pledged deposits	19	3,200	341	4,655	4,765
Cash and cash equivalents	19	271	779	1,990	4,993
Total current assets		41,752	43,176	55,050	79,396

CURRENT LIABILITIES
Trade and bills payables	20	32,762	16,740	18,323	25,172
Other payables	21	6,019	6,582	6,853	21,418
Due to the director	17	–	540	378	504
Due to a related party	18	–	–	1,149	–
Tax payable		251	346	349	278
Interest-bearing bank
borrowings, secured	22	18,057	32,500	43,679	46,471
Total current liabilities		57,089	56,708	70,731	93,843

NET CURRENT
LIABILITIES		(15,337)	(13,532)	(15,681)	(14,447)
Net assets		2,560	2,259	2,661	3,342


EQUITY
Issued capital	23	6,400	6,400	6,400	6,400
Reserves	24	(3,840)	(4,141)	(3,739)	(3,058)
Total equity		2,560	2,259	2,661	3,342

– II-5 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Statements of Changes in Equity

		Attributable to owner	Attributable to owner	of ZDJK	of ZDJK
			Exchange
	Issued	Reserve	fluctuation	Accumulated
	capital	fund	reserve		losses	Total
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
		(note 24(ii))
At 1 January 2008	6,400	137	623		(3,196)	3,964
Loss for the year	–	–	–		(1,651)	(1,651)
Other comprehensive
income for the year:
Exchange differences
on translation of
foreign operation	–	–	247		–	247
Total comprehensive
income/(loss) for the
year	–	–	247		(1,651)	(1,404)
Transfer	–	71	–		(71)	–
At 31 December 2008
and 1 January 2009	6,400	208*	870*		(4,918)*	2,560
Profit for the year	–	–	–		269	269
Other comprehensive loss
for the year:
Exchange differences
on translation of
foreign operation	–	–	(15)		–	(15)
Total comprehensive
income/(loss) for the
year	–	–	(15)		269	254
2009 dividend (note 11)	–	–	–		(555)	(555)
Transfer	–	131	–		(131)	–
At 31 December 2009
and 1 January 2010	6,400	339*	855*		(5,335)*	2,259
Profit for the year	–	–	–		375	375
Other comprehensive
income for the year:
Exchange differences
on translation of
foreign operation	–	–	27		–	27
Total comprehensive
income for the year	–	–	27		375	402
Transfer	–	112	–		(112)	–

– II-6 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

		Attributable to owner	Attributable to owner	of ZDJK	of ZDJK
			Exchange
	Issued	Reserve	fluctuation	Accumulated
	capital	fund	reserve		losses	Total
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
		(note 24(ii))
At 31 December 2010
and 1 January 2011	6,400	451*	882*		(5,072)*	2,661
Profit for the period	–	–	–		605	605
Other comprehensive
income for the period:
Exchange differences
on translation of
foreign operation	–	–	76		–	76
Total comprehensive
income for the period	–	–	76		605	681
At 30 June 2011	6,400	451*	958*		(4,467)*	3,342


At 1 January 2010	6,400	339	855		(5,335)	2,259
Loss for the period and
total comprehensive
loss for the period
(unaudited)	–	–	–		(177)	(177)
At 30 June 2010
(unaudited)	6,400	339	855		(5,512)	2,082

These reserve accounts comprise the negative reserves of HK$3,840,000, HK$4,141,000, HK$3,739,000 and HK$3,058,000 in the statements of financial position as at 31 December 2008, 2009 and 2010, and 30 June 2011, respectively.

– II-7 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Statements of Cash Flows

							Six months ended	Six months ended	Six months ended
		Year	ended 31 December				30	June
		2008		2009	2010		2010		2011
	Notes	HK$’000		HK$’000	HK$’000		HK$’000		HK$’000
						(unaudited)
CASH FLOWS FROM
OPERATING
ACTIVITIES
Profit/(loss) before tax:		(1,212)		701	941		(56)		975
Adjustments for:
Finance costs	6	1,584		1,760	2,588		979		1,367
Bank interest income	4	(105)		(33)	(52)		(3)		(13)
Loss on disposal of
items of property,
plant and equipment	5	437		–	–		–		–
Depreciation	5	2,381		2,405	2,700		1,268		1,391
Amortisation of
prepaid land lease
payments	5	42		43	43		21		22
Waiver of balance due
from the director	5	1,170		–	–		–		–
Impairment of trade
and bills receivables	5	306		–	642		634		219
Impairment of other
receivables	5	829		403	402		–		–

		5,432		5,279	7,264		2,843		3,961
Decrease/(increase) in
inventories		(645)		(2,890)	(1,257)		1,631		(86)
Decrease/(increase) in trade
and bills receivables		(19,965)		12,554	1,623		(8,382)		(7,478)
Decrease/(increase) in
prepayments, deposits
and other receivables		1,056		(255)	(108)		(1,166)		(61)
Movement in balances with
the director, net	30	(1,151)		19	(168)		(508)		114
Increase/(decrease) in trade
and bills payables		12,730		(15,837)	1,391		2,769		6,270
Increase/(decrease) in other
payables		2,053		(1,437)	1,517		2,643		2,577
Cash generated from/
(used in) operations		(490)		(2,567)	10,262		(170)		5,297
Interest paid		(1,584)		(1,760)	(2,588)		(979)		(1,367)
Overseas tax paid		(274)		(337)	(563)		(410)		(441)
Net cash flows from/
(used in) operating
activities		(2,348)		(4,664)	7,111		(1,559)		3,489

– II-8 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

								Six months ended	Six months ended	Six months ended
		Year	ended 31 December					30	June
		2008		2009		2010		2010		2011
	Notes	HK$’000		HK$’000	HK$’000			HK$’000		HK$’000
							(unaudited)
CASH FLOWS FROM
INVESTING
ACTIVITIES
Interest received		105		33		52		3			13
Purchases of items of
property, plant and
equipment	12	(4,742)		(443)	(5,082)			(3,895)		(463)
Proceeds from disposal of
items of property, plant
and equipment		152		–		–		–			–
Net cash flows used in
investing activities		(4,485)		(410)	(5,030)			(3,892)		(450)
CASH FLOWS FROM
FINANCING
ACTIVITIES
New bank and other
borrowings		22,857		36,023	56,896			24,545		22,000
Repayment of bank and
other borrowings		(22,857)		(21,478)	(46,120)			(16,136)		(20,307)
Repayment from/(advances
to) related parties, net		5,687		(11,998)		702		2,957		(10,857)
Decrease/(increase) in
Third Parties Advances		(127)		(1,839)	(6,721)			1,632		(2,587)
Increase/(decrease) in other
payables		–		2,034	(1,322)			(1,875)		11,494
Decrease/(increase) in
pledged deposits		1,105		2,841	(4,310)			(4,204)			–
Net cash flows from/(used
in) financing activities		6,665		5,583		(875)		6,919		(257)
NET INCREASE/
(DECREASE) IN CASH
AND CASH
EQUIVALENTS		(168)		509	1,206			1,468		2,782
Cash and cash equivalents
at beginning of year		398		271		779		779		1,990
Effect of foreign exchange
rate changes, net		41		(1)		5		–		221
CASH AND CASH
EQUIVALENTS AT END
OF YEAR		271		779	1,990			2,247		4,993


ANALYSIS OF BALANCE
OF CASH AND CASH
EQUIVALENTS
Cash and bank balances	19	271		779	1,990			2,247		4,993

– II-9 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1.1 CORPORATE INFORMATION

ZDJK was incorporated in the PRC with limited liability on 1 April 1998 and is engaged in the production and distribution of knitting and textile products, knitted fabrics and clothing in Zhejiang Province, the PRC. The registered office of ZDJK is located at 28th Geshan Road, Western Economic Development Zone, Dongyang, Zhejiang, the PRC.

At the date of this report, ZDJK is wholly-owned by Mr. Wu Xiaogang, who is also the sole director of ZDJK.

2.1 BASIS OF PREPARATION

As at 31 December 2008, 2009, 2010, and 30 June 2011, ZDJK had net current liabilities of HK$15,337,000, HK$13,532,000, HK$15,681,000 and HK$14,447,000, respectively. In addition, as at 31 December 2008, 2009, 2010, and 30 June 2011, ZDJK had contingent liabilities of HK$22,857,000, HK$31,136,000, HK$31,494,000 and HK$32,235,000, respectively, in respect of financial guarantees given to banks in connection with facilities granted to companies controlled by acquaintances of the director as further detailed in note 25 to the Financial Information.

In preparing the Financial Information, the director of ZDJK has given careful consideration to the future liquidity of ZDJK and has taken consideration of the following events:

(a) Mr. Wu has confirmed his intention to provide continuing financial support to ZDJK so as to enable it to meet its liabilities as and when they fall due and to enable ZDJK to continue operating for the foreseeable future; and
(b) Upon completion of the Proposed Acquisition of 51% equity interest in ZDJK, the Company will provide financial support to ZDJK to enable it to meet its financial or contingent liabilities as and when they fall due and to enable ZDJK to continue operating as a going concern in the foreseeable future.

Consequently, the director of ZDJK is satisfied that ZDJK will be able to obtain necessary funding so as to meet its liabilities when they fall due in the foreseeable future. Accordingly, the Financial Information has been prepared on a going concern basis.

The Financial Information has been prepared in accordance with HKFRSs (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention. The Financial Information is presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

For the purpose of preparation of the Financial Information, ZDJK has adopted all the new and revised HKFRSs applicable throughout the Relevant Periods.

2.2 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

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

HKFRS 1 Amendments	Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial
	Reporting Standards – Severe Hyperinflation and Removal of Fixed
	Dates for First-time Adopters 1
HKFRS 7 Amendments	Amendments to HKFRS 7 Financial Instruments: Disclosures –Transfers
	of Financial Assets 1
HKFRS 9	Financial Instruments 4
HKFRS 10	Consolidated Financial Statements 4
HKFRS 11	Joint Arrangements 4
HKFRS 12	Disclosure of Interests in Other Entities 4
HKFRS 13	Fair Value Measurement 4
HKAS 1 Amendments	Amendments to HKAS 1 Presentation of Items of Other Comprehensive
	income 3

– II-10 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

HKAS 12 Amendments Amendments to HKAS 12 Income Taxes – Deferred Tax: Recovery of Underlying Assets[2] HKAS 19 (2011) Employee Benefits[4] HKAS 27 (2011) Separate Financial Statements[4] HKAS 28 (2011) Investments in Associates and Joint Ventures[4]

1 Effective for annual periods beginning on or after 1 July 2011

2 Effective for annual periods beginning on or after 1 January 2012

3 Effective for annual periods beginning on or after 1 July 2012

4 Effective for annual periods beginning on or after 1 January 2013

ZDJK is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, ZDJK considers that these new and revised HKFRSs are unlikely to have a significant impact on ZDJK’s results of operations and financial position.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is 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 profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, ZDJK; (ii) has an interest in ZDJK that gives it significant influence over ZDJK; or (iii) has joint control over ZDJK;
(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 ZDJK;
(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

– II-11 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(g) the party is a post-employment benefit plan for the benefit of the employees of ZDJK, or of any entity that is a related party of ZDJK.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, ZDJK recognises such parts as individual assets with specific useful lives and depreciation.

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

Buildings	5%
Plant and machinery	10% – 20%
Furniture, fixtures and equipment	20% – 33%
Motor vehicles	20% – 25%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment and any significant part initially recognised 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 profit or loss 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 the construction of building, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under the operating leases net of any incentives received from the lessor are charged to profit or loss 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 respective periods of the rights.

Investments and other financial assets

Initial recognition and measurement

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit and loss, loans and receivables and available-for-sale financial investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. ZDJK determines the reclassification of its financial assets at initial recognition. 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.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that ZDJK 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.

– II-12 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

ZDJK’s financial assets include cash and cash equivalents, pledged deposits, trade and bills receivables, deposits and other receivables, amounts due from the director and related parties.

Subsequent measurement

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in profit or loss. The loss arising from impairment is recognised in profit or loss in other losses.

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

When ZDJK has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, 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 ZDJK’s continuing involvement in the asset. In that case, ZDJK also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that ZDJK has retained.

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 ZDJK could be required to repay.

Impairment of financial assets

ZDJK assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a Group of financial assets is impaired. A financial asset or a Group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or ZDJK of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a Group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, ZDJK first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If ZDJK determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Group of financial assets with similar credit risk characteristics and collectively assesses them 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 there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future

– II-13 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to ZDJK.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in profit or loss.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings or as derivatives designated as hedging instruments in an effective hedge, as appropriate. ZDJK determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

ZDJK’s financial liabilities include trade and bills payables, other payables, amounts due to the director and a related party, and interest-bearing bank borrowings.

Subsequent measurement

After initial recognition, interest-bearing bank and other borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate method amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss.

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 profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Inventories

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

– II-14 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, 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 ZDJK’s cash management.

For the purpose of the statement of financial position, 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.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or 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, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which ZDJK operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period 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 the initial recognition of goodwill or 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 investment in a subsidiary, 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 taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, 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.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period 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. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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 by the end of the reporting period.

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.

– II-15 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Revenue recognition

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

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that ZDJK maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; and
(b) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Other employee benefits

Pension scheme

As stipulated by the regulations of the PRC government, ZDJK is required to make specific contributions to the state-controlled retirement plan at rates ranging from 0.6% to 14% of the total salaries of the employees. The PRC government is responsible for the pension liability to the retired employees. The employees of ZDJK are entitled to a monthly pension at their retirement dates. ZDJK has no further obligation for post-retirement benefits beyond the annual contributions.

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. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Dividends are simultaneously proposed and declared, because ZDJK’s memorandum and articles of association grant the director the authority to declare dividends. Consequently, dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currency transactions

The functional currency of ZDJK is RMB. As at the end of the reporting period, the assets and liabilities of ZDJK are translated into HK$ at the exchange rate ruling at the end of the reporting period and its statement of comprehensive income is translated into HK$ at the weighted average exchange rate for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve.

For the purpose of the statement of cash flows, the cash flows of ZDJK are translated into HK$ at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of ZDJK which arise throughout the year are translated into HK$ at the weighted average exchange rate for the year.

– II-16 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

3. SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of ZDJK’s Financial Information requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, 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 non-financial assets

ZDJK assesses whether there are any indicators of impairment for all non-financial assets at each reporting period. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculation of fair value less costs to sell is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Impairment of property, plant and equipment

The impairment loss for property, plant and equipment is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount of the assets, or, where appropriate, the cash-generating unit to which they belong, is the higher of its fair value less costs to sell and value in use. The recoverable amounts are determined based on fair value less costs to sell which are based on the best information available to reflect the amount obtainable at the reporting date, from the disposal of the asset in an arm’s length transaction between knowledgeable and willing parties, after deducting the costs of disposal. For the estimation of value in use, ZDJK’s management estimates future cash flows from the cash-generating unit and chooses a suitable discount rate in order to calculate the present value of those cash flows.

Depreciation of property, plant and equipment

ZDJK depreciates the assets on the straight-line basis over their estimated useful lives, and after taking into account of their estimated residual values, at rates ranging from 5% to 33% per annum, commencing from the date the property, plant and equipment is placed into productive use. The estimated useful lives and the dates that ZDJK places the property, plant and equipment into productive use reflect the director’s estimate of the periods that ZDJK intends to derive future economic benefits from the use of ZDJK’s property, plant and equipment.

Impairment of trade and other receivables

The policy for provision for impairment loss of ZDJK is based on the evaluation of collectability and the ageing analysis of the trade receivables and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor. If the financial conditions of debtors of ZDJK were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

– II-17 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

4. REVENUE AND OTHER INCOME

Revenue, which is also ZDJK’s turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts during the Relevant Periods.

Revenue

					Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Sales of goods	108,206		75,583	110,086	53,605		62,005


Other income
					Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Bank interest income	105		33	52	3		13
Others	78		58	22	13		2

	183		91	74	16		15

5. PROFIT/(LOSS) BEFORE TAX

ZDJK’s profit/(loss) before tax is arrived at after charging:

							Six months ended	Six months ended	Six months ended	Six months ended
		Year	ended 31 December				30	June
		2008		2009	2010		2010			2011
	Notes	HK$’000		HK$’000	HK$’000		HK$’000		HK$’000
						(unaudited)
Cost of inventories sold		101,880		69,260	100,811		50,339			57,348
Depreciation	12	2,381		2,405	2,700		1,268			1,391
Amortisation of prepaid
land lease payments	13	42		43	43		21			22
Auditors’ remuneration		10		10	10		5			12
Employee benefit
expense:
Wages, salaries,
allowances and
benefits in kind
(including director’s
remuneration
(note 7)):		1,771		1,950	2,196		933			1,134
Pension scheme
contributions		126		94	170		49			79

		1,897		2,044	2,366		982			1,213

Waiver of balance due
from the director^	17	1,170		–	–		–			–
Impairment of trade and
bills receivables^	15	306		–	642		634			219
Impairment of other
receivables^	16	829		403	402		–			–
Loss on disposal of items
of property, plant and
equipment^		437		–	–		–			–

^ These amounts are included in “Other operating expenses, net” on the face of the statements of comprehensive income.

– II-18 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

6. FINANCE COSTS

An analysis of finance costs is as follows:

					Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Interest expense on bank
borrowings wholly
repayable within one
year	1,584		1,760	2,588	979		1,367

7. DIRECTOR’S REMUNERATION

Director’s remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance is as follows:

					Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Fee	–		–	–	–		–
Other emoluments:
Salaries, allowances
and benefits in kind	66		68	69	34		34
Pension scheme
contributions	6		7	6	4		4

	72		75	75	38		38

8. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the Relevant Periods included the director, details of whose remuneration are set out in note 7 above. Details of the remuneration of the remaining four non-director, highest paid employees for the Relevant Periods are as follows:

					Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Salaries, allowances and
benefits in kind	182		196	230	114		126
Pension scheme
contributions	25		27	31	14		15

	207		223	261	128		141

– II-19 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

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

							Six months ended	Six months ended	Six months ended
			Year	ended 31 December			30	June
			2008		2009	2010	2010		2011
			HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
							(unaudited)
Nil	to	HK$1,000,000	4		4	4	4		4

9. OPERATING SEGMENT INFORMATION

For management purposes, ZDJK has only one reportable segment, which is the production and distribution of knitting and textile products, knitted fabrics and clothing.

Geographic information is not presented as all of ZDJK’s revenue from external customers is generated in the PRC and all of the assets of ZDJK are located in the PRC.

None of the transactions ZDJK made with individual external customers derived revenue amounting to 10% or more of the revenue of ZDJK during each of the Relevant Periods.

10. INCOME TAX

The statutory corporate income tax rate applicable to ZDJK is 25% of taxable profits.

					Six months ended	Six months ended	Six months ended
	Year	ended 31 December			30	June
	2008		2009	2010	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
					(unaudited)
Current – PRC
Charge for the year	392		432	566	121		370
Underprovision in prior
years	47		–	–	–		–
Total tax charge for the
year/period	439		432	566	121		370

– II-20 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

A reconciliation of the tax expense/(credit) applicable to profit/(loss) before tax at the statutory rate for the jurisdiction in which ZDJK is domiciled to the tax charge at the effective rate is as follows:

			Year ended 31	December	December				Six	months	ended 30 June
	2008		2009			2010			2010		2011
	HK$’000	%	HK$’000	%	HK$’000		%		HK$’000	%	HK$’000	%
								(unaudited)
Profit/(loss) before tax	(1,212)		701			941			(56)		975

Tax at the statutory tax
rate of 25%	(303)	25.0	175	25.0		235	25.0		(14)	25.0	244	25.0
Adjustment in respect of
current tax of previous
period	47	(3.9)	–	–		–	–		–	–	–	–
Expenses not deductible
for tax	695	(57.3)	257	36.7		331	35.1		135	(241.1)	126	12.9

Tax charge at the effective
rate	439	(36.2)	432	61.7		566	60.1		121	(216.1)	370	37.9

There was no significant unprovided deferred tax during and as at the end of each of the Relevant Periods.

11. DIVIDEND

						Six months ended	Six months ended	Six months ended
		Year	ended 31 December			30	June
		2008		2009	2010	2010		2011
		HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
						(unaudited)
Final	dividend	–		555	–	–		–

– II-21 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

12. PROPERTY, PLANT AND EQUIPMENT

			Furniture,
			fixtures		Construction
		Plant and	and	Motor		in
	Buildings	machinery	equipment	vehicles		progress	Total
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
At 1 January 2008:
Cost	3,740	14,209	383	2,600		237	21,169
Accumulated depreciation	(836)	(6,138)	(109)	(1,170)		–	(8,253)
Net carrying amount	2,904	8,071	274	1,430		237	12,916

At 1 January 2008, net of
accumulated depreciation	2,904	8,071	274	1,430		237	12,916
Additions	–	4,684	58	–		–	4,742
Disposals	–	(589)	–	–		–	(589)
Depreciation provided
during the year	(181)	(1,726)	(68)	(406)		–	(2,381)
Exchange realignment	319	845	28	146		26	1,364
At 31 December 2008, net
of accumulated
depreciation	3,042	11,285	292	1,170		263	16,052


At 31 December 2008 and
1 January 2009:
Cost	4,159	19,080	483	2,891		263	26,876
Accumulated depreciation	(1,117)	(7,795)	(191)	(1,721)		–	(10,824)
Net carrying amount	3,042	11,285	292	1,170		263	16,052

At 1 January 2009, net of
accumulated depreciation	3,042	11,285	292	1,170		263	16,052
Additions	–	272	30	141		–	443
Depreciation provided
during the year	(186)	(1,702)	(86)	(431)		–	(2,405)
Transfers	262	–	–	–		(262)	–
Exchange realignment	(17)	(64)	(2)	(7)		(1)	(91)
At 31 December 2009, net
of accumulated
depreciation	3,101	9,791	234	873		–	13,999


At 31 December 2009 and
1 January 2010:
Cost	4,397	19,243	510	3,016		–	27,166
Accumulated depreciation	(1,296)	(9,452)	(276)	(2,143)		–	(13,167)
Net carrying amount	3,101	9,791	234	873		–	13,999

– II-22 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

			Furniture,
			fixtures
		Plant and	and	Motor
	Buildings	machinery	equipment	vehicles	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January 2010, net of
accumulated depreciation	3,101	9,791	234	873	13,999
Additions	–	1,506	37	3,539	5,082
Depreciation provided during the
year	(201)	(1,662)	(94)	(743)	(2,700)
Exchange realignment	34	109	2	46	191
At 31 December 2010, net of
accumulated depreciation	2,934	9,744	179	3,715	16,572


At 31 December 2010 and
1 January 2011:
Cost	4,448	20,977	553	6,627	32,605
Accumulated depreciation	(1,514)	(11,233)	(374)	(2,912)	(16,033)
Net carrying amount	2,934	9,744	179	3,715	16,572


At 1 January 2011, net of
accumulated depreciation	2,934	9,744	179	3,715	16,572
Additions	–	463	–	–	463
Depreciation provided during
the period	(100)	(649)	(50)	(592)	(1,391)
Exchange realignment	67	214	2	73	356
At 30 June 2011, net of accumulated
depreciation	2,901	9,772	131	3,196	16,000


At 30 June 2011:
Cost	4,552	21,933	566	6,784	33,835
Accumulated depreciation	(1,651)	(12,161)	(435)	(3,588)	(17,835)
Net carrying amount	2,901	9,772	131	3,196	16,000

At 31 December 2008, 2009 and 2010, and 30 June 2011, ZDJK’s buildings situated in the Mainland China and established on land held under a long term lease (note 13) with net carrying amount of approximately HK$3,042,000, HK$3,101,000, HK$2,934,000, and HK$2,901,000 respectively, were pledged to secure ZDJK’s interest-bearing bank borrowings (note 22(a)(i)) .

– II-23 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

13. PREPAID LAND LEASE PAYMENTS

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Carrying amount at 1 January	1,737	1,888	1,835	1,813
Recognised during the year/period
(note 5)	(42)	(43)	(43)	(22)
Exchange realignment	193	(10)	21	42
Carrying amount at 31 December/
30 June	1,888	1,835	1,813	1,833
Current portion classified as
current assets	(43)	(43)	(43)	(44)

Non-current portion	1,845	1,792	1,770	1,789

The leasehold land is situated in Mainland China and is held under a long term lease.

At 31 December 2008, 2009 and 2010, and 30 June 2011, ZDJK’s prepaid land lease payments with aggregate carrying amount of approximately HK$1,888,000, HK$1,835,000, HK$1,813,000 and HK$1,833,000, respectively were pledged to secure ZDJK’s interest-bearing bank borrowings (note 22(a)(ii)) .

14. INVENTORIES

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Raw materials	1,478	4,207	4,305	4,941
Finished goods	1,037	1,183	2,404	2,014
	2,515	5,390	6,709	6,955

15. TRADE AND BILLS RECEIVABLES

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills receivables	30,673	17,946	16,529	24,355
Impairment	(3,862)	(3,841)	(4,527)	(4,641)
	26,811	14,105	12,002	19,714

ZDJK’s trading terms with its customers are mainly on credit, except for new customers where payment in advance is normally required. The credit period is generally one month, extending up to two months for major customers. Each customer has a maximum credit limit. ZDJK seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the ZDJK’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.

– II-24 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The movements in the provision for impairment of trade and bills receivables are as follows:

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January	3,189	3,862	3,841	4,527
Impairment losses recognised
(note 5)	306	–	642	219
Amount written off as uncollectible	–	–	–	(211)
Exchange realignment	367	(21)	44	106
At 31 December/30 June	3,862	3,841	4,527	4,641

Included in the above provision for impairment of trade and bills receivables is a provision for individually impaired trade and bills receivables as at 31 December 2008, 2009 and 2010, and 30 June 2011, of approximately HK$3,862,000, HK$3,841,000, HK$4,527,000 and HK$4,641,000, respectively, with the same carrying amounts before provision.

The individually impaired trade and bills receivables relate to customers that were in financial difficulties or were in default in principal payment and only a portion of the receivables is expected to be recorded. ZDJK does not hold any collateral or other credit enhancements over these balances.

The aged analysis of the trade and bills receivables that are not considered to be impaired is as follows:

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Neither past due nor impaired	16,678	8,440	10,067	16,061
Less than 1 month past due	7,429	818	–	59
Over 1 month past due	2,704	4,847	1,935	3,594
	26,811	14,105	12,002	19,714

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with ZDJK. Based on past experience, the director is of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. ZDJK does not hold any collateral or other credit enhancements over these balances.

– II-25 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

16. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

				As at
	Year	ended 31 December		30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Prepayments	43	43	43	53
Deposits	277	524	639	708
Other receivables	9,150	10,946	17,792	20,858
Impairment	(857)	(1,256)	(1,672)	(1,711)
	8,613	10,257	16,802	19,908

Other receivables related to advances to the director’s or his spouse’s acquaintances, or companies controlled by their acquaintances, which are independent third parties (“Third Party Advances”). These advances are unsecured, interest-free and have no fixed terms of repayment.

The movements in the provision for impairment of other receivables are as follows:

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
At 1 January	–	857	1,256	1,672
Impairment losses recognised
(note 5)	829	403	402	–
Exchange realignment	28	(4)	14	39
At 31 December/30 June	857	1,256	1,672	1,711

Included in the above provision for impairment of other receivables is a provision for individually impaired other receivables as at 31 December 2008, 2009 and 2010, and 30 June 2011, of approximately HK$857,000, HK$1,256,000, HK$1,672,000 and HK$1,711,000, respectively, with the same carrying amounts before provision. The individually impaired other receivables relate to Third Party Advances aged over two years. ZDJK does not hold any collateral or other credit enhancements over these balances.

Except for the balances which were impaired, the financial assets included in the above balances relate to receivables for which there was no recent history of default.

Pursuant to the Acquisition Agreement, Mr. Wu Xiaogang and his spouse, Ms. Du Jianping, have provided guarantees in respect of the Third Party Advances as well as other balances with related parties (note 18) as at 30 June 2011, as further detailed in note 27(a)(iii) to the Financial Information.

– II-26 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

17. BALANCES WITH THE DIRECTOR

Particulars of an amount due from the director, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

Year ended 31 December 2008

		Maximum
		amount
		outstanding
	31 December	during the	1 January
Name	2008	year	2008
	HK$’000	HK$’000	HK$’000
Mr. Wu Xiaogang	34	1,741*	49


Year ended 31 December 2009
		Maximum
		amount
		outstanding
	31 December	during the	1 January
Name	2009	year	2009
	HK$’000	HK$’000	HK$’000
Mr. Wu Xiaogang	–	137	34

Balances with the director are unsecured, interest-free and have no fixed terms of repayment.

The maximum amount outstanding during the year ended 31 December 2008 arose mainly from an advance made to Mr. Wu for the settlement of the amount he owed to 香港盈華, the predecessor owner of ZDJK, upon his acquisition of ZDJK’s equity from 香港盈華. A difference in the purchase consideration of HK$1,170,000 arose due to exchange difference, which was paid by ZJDK on behalf of Mr. Wu. The amount was subsequently waived by ZDJK (note 27(c)(i)) .

18. BALANCES WITH RELATED PARTIES

Particulars of amounts due from related parties, disclosed pursuant to Section 161B of the Hong Kong Companies Ordinance, are as follows:

Year ended 31 December 2008

		Maximum
		amount
		outstanding
	31 December	during the	1 January
Name	2008	year	2008
	HK$’000	HK$’000	HK$’000
Ms. Du Jianping	308	6,988	5,566


Year ended 31 December 2009
		Maximum
		amount
		outstanding
	31 December	during the	1 January
Name	2009	year	2009
	HK$’000	HK$’000	HK$’000
Ms. Du Jianping	12,304	14,020	308

– II-27 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Year ended 31 December 2010

		Maximum
		amount
		outstanding
	31 December	during the	1 January
Name	2010	year	2010
	HK$’000	HK$’000	HK$’000
Ms. Du Jianping	12,892	13,070	12,304

Period ended 30 June 2011

		Maximum
		amount
		outstanding
	30 June	during the	1 January
Name	2011	period	2011
	HK$’000	HK$’000	HK$’000
Ms. Du Jianping	16,414	17,713	12,892
東台怡源製衣有限公司	6,647	6,647	–


	23,061		12,892

Ms. Du Jianping, who directly holds 30% equity interest in 東台怡源製衣有限公司, is the spouse of Mr. Wu Xiaogang, the director of ZDJK.

Balances with related parties are unsecured, interest-free and have no fixed terms of repayment. Pursuant to the Acquisition Agreement, Mr. Wu Xiaogang and his spouse, Ms. Du Jianping, have provided guarantees in respect of the balances as well as other Third Party Advances (note 16) as at 30 June 2011, as further detailed in note 27(a)(iii) to the Financial Information.

19. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

					As at
		As at 31 December			30 June
		2008	2009	2010	2011
	Notes	HK$’000	HK$’000	HK$’000	HK$’000
Cash and bank balances		271	779	1,990	4,993
Time deposits		3,200	341	4,655	4,765
		3,471	1,120	6,645	9,758
Less: Pledged time deposits:
Pledged for bank borrowings	22	–	–	(4,310)	(4,411)
Pledged for banking facilities	20	(3,200)	(341)	(345)	(354)
Cash and cash equivalents		271	779	1,990	4,993

At the end of the reporting period, the cash and bank balances of ZDJK were all denominated in RMB. 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, ZDJK is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

– II-28 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

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 three months and one year depending on the immediate cash requirements of ZDJK, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

20. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

					As at
	As at 31 December			30 June
	2008	2009	2010		2011
	HK$’000	HK$’000	HK$’000	HK$’000
Within 1 month	14,783	10,288	12,238		14,938
1 to 2 months	10,188	4,254	2,833		3,989
2 to 3 months	2,413	144	1,685		2,911
Over 3 months	5,378	2,054	1,567		3,334

	32,762	16,740	18,323		25,172

The trade payables are non-interest-bearing and are normally settled on 60-day terms.

ZDJK’s bills payable facilities granted by banks are secured by the pledge of certain of ZDJK’s time deposits amounting to HK$3,200,000, HK$341,000, HK$345,000 and HK$354,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively (note 19) .

21. OTHER PAYABLES

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Deposits received	3,170	3,061	4,676	7,579
Other payables	2,849	3,521	2,177	13,839
	6,019	6,582	6,853	21,418

Other payables are non-interest-bearing and have no fixed terms of repayment.

22. INTEREST-BEARING BANK BORROWINGS, SECURED

				At	31 December	31 December							As at 30 June	As at 30 June
		2008			2009				2010				2011
	Contractual			Contractual		Contractual				Contractual
	interest			interest				interest				interest
	rate (%)	Maturity	HK$’000	rate (%)	Maturity	HK$’000	rate (%)		Maturity	HK$’000	rate (%)		Maturity	HK$’000
Current
Bank loans,	8.54% to			2.31% to			4.37% to				4.78% to		2011-
secured	9.71%	2009	18,057	7.17%	2010	32,500		7.43%	2011	43,679		7.43%	2012	46,471

– II-29 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Notes:

(a) Certain of ZDJK’s bank borrowings are secured by:
(i) ZDJK’s buildings situated in the Mainland China, which had net carrying amount of HK$3,042,000, HK$3,101,000, HK$2,934,000 and HK$2,901,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively (note 12) ;
(ii) ZDJK’s prepaid land lease payments situated in Mainland China, which had aggregate carrying amount of HK$1,888,000, HK$1,835,000, HK$1,813,000 and HK$1,833,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively (note 13) ;
(iii) the pledge of certain of ZDJK’s time deposits amounting to HK$4,310,000 and HK$4,411,000 as at 31 December 2010 and 30 June 2011, respectively (note 19) ;
(iv) the pledge of two properties jointly-owned by the director and his spouse during the Relevant Periods (note 27(a)(ii)) ;
(v) the pledge of a property owned by the director’s spouse (note 27(a)(ii)) and a property owned by a family member of the director’s spouse as at 30 June 2011; and
(vi) the pledge of a property owned by an acquaintance of the director as at 31 December 2010.

In addition, ZDJK’s director and his spouse have guaranteed certain of ZDJK’s bank borrowings amounting to HK$7,200,000, HK$16,023,000, HK$28,736,000 and HK$31,294,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively (note 27(a)(i)) . Besides, the director and his spouse’s acquaintances or companies controlled by these acquaintances have guaranteed certain of ZDJK’s bank borrowings amounting to HK$3,543,000, HK$14,886,000, HK$23,103,000 and HK$21,176,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively.

(b) All the bank loans are denominated in RMB.

23. ISSUED CAPITAL

						As at
		As at 31 December			30 June
	2008		2009	2010		2011
	HK$’000		HK$’000	HK$’000	HK$’000
Registered and fully paid of
RMB5,652,480 (equivalent to
HK$6,400,000)	6,400		6,400	6,400		6,400

24. RESERVES

(i) The amounts of ZDJK’s reserves and the movements therein for the Relevant Periods are presented in the statements of changes in equity on pages II-6 to II-7 of this circular.
(ii) Pursuant to the relevant PRC laws and regulations for the PRC incorporated enterprises, ZDJK makes appropriations to reserve fund not less than 10% of their net profit after tax as reported in the statutory financial statements, until the balance of the fund reaches 50% of the registered capital.

– II-30 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

25. FINANCIAL GUARANTEES

At the end of the reporting period, contingent liabilities not provided for in the Financial Information were as follows:

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Guarantees given to banks in
connection with facilities
granted to:
Companies controlled by
acquaintances of the director	22,857	31,136	31,494	32,235

As at 31 December 2008, 2009 and 2010, and 30 June 2011, the banking facilities granted to the companies controlled by acquaintances of the director subject to guarantees given to banks by ZDJK were utilised to the extent of HK$17,943,000, HK$26,250,000, HK$26,552,000 and HK$26,250,000, respectively. The fair value of these guarantees was minimal and is not recognised in the Financial Information. Mr. Wu Xiaogang has agreed to provide financial support to ZDJK in respect of these contingent liabilities. The Company has also agreed to provide financial support to ZDJK in respect of these contingent liabilities upon completion of the Proposed Acquisition.

26. PLEDGE OF ASSETS

Details of ZDJK’s bills payable and bank borrowings which are secured by the assets of ZDJK are included in notes 20 and 22 to the Financial Information, respectively.

27. RELATED PARTY TRANSACTIONS

(a) Other transactions with related parties:
(i) ZDJK’s director and his spouse have guaranteed certain bank borrowings made to ZDJK of HK$7,200,000, HK$16,023,000, HK$28,736,000 and HK$31,294,000 as at 31 December 2008, 2009, 2010, and 30 June 2011, respectively, as further detailed in note 22(a)(vi) to the Financial Information.
(ii) Two properties jointly-owned by ZDJK’s director and his spouse and a property owned by the director’s spouse (the “Mortgaged Properties”) were pledged to secure certain of ZDJK’s bank borrowings as further detailed in notes 22(a)(iv) and 22(a)(v) to the Financial Information, respectively.
(iii) Pursuant to the Acquisition Agreement, Mr. Wu Xiaogang and his spouse have provided guarantees in favour of the Company in respect of the balances due from Third Party Advances (note 16) and related parties (note 18) amounting to HK$37,973,000 with the following items:
- a pledge of 49% equity interest in ZDJK held by Mr. Wu Xiaogang which was valued at HK$6,644,000 as at 30 June 2011 based on valuation performed by independent professionally qualified valuers;
- a pledge of 30% equity interest in 東台怡源製衣有限公司 held by Ms. Du Jianping which was valued at HK$1,120,000 as at 31 August 2011 based on the company’s then net asset value; and
- a mortgage undertaking in respect of the Mortgaged Properties in favour of the Company which were valued at HK$25,916,000 as at 30 August 2011 based on valuation performed by independent professionally qualified valuers.
(iv) Mr. Wu has confirmed his intention to provide continuing financial support to ZDJK so as to enable it to meet its financial and contingent liabilities as and when they fall due and to enable ZDJK to continue operating for the foreseeable future.
(v) Upon completion of the Proposed Acquisition, the Company will provide financial support to ZDJK to enable it to meet its financial or contingent liabilities as and when they fall due and to enable ZDJK to continue operating in the foreseeable future.

– II-31 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(b) Outstanding balances with related parties:
(i) Details of balances with the director are included in note 17 to the Financial Information.
(ii) Details of the balances with related parties are included in note 18 to the Financial Information.
(c) ZDJK had the following transactions with related parties during the Relevant Periods:
(i) During the year ended 31 December 2008, an amount of HK$1,170,000 due from the sole owner was waived as agreed by the parties as detailed in note 17 to the Financial Information.
(d) Compensation of key management personnel of ZDJK:

								As at
				As	at	31 December		30 June
				2008		2009	2010	2011
				HK$’000		HK$’000	HK$’000	HK$’000
Short	term	employee	benefits	279		298	36	179

Further details of director’s emoluments are included in note 7 to the Financial Information.

28. FINANCIAL INSTRUMENTS CATEGORY

The carrying amounts of each of the categories of financial instruments as at as at 31 December 2008, 2009 and 2010, and 30 June 2011 are as follows:

Financial assets

		Loans and receivables	Loans and receivables
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills receivables	26,811	14,105	12,002	19,714
Financial assets included in
prepayments, deposits and other
receivables (note 16)	8,570	10,214	16,759	19,855
Due from the director	34	–	–	–
Due from related parties	308	12,304	12,892	23,061
Pledged deposits	3,200	341	4,655	4,765
Cash and cash equivalents	271	779	1,990	4,993
	39,194	37,743	48,298	72,388

– II-32 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Financial liabilities

		Financial liabilities	Financial liabilities
		at amortised cost
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills payables	32,762	16,740	18,323	25,172
Other payables (note 21)	2,849	3,521	2,177	13,839
Due to the director	–	540	378	504
Due to a related party	–	–	1,149	–
Interest-bearing bank borrowings,
secured	18,057	32,500	43,679	46,471

	53,668	53,301	65,706	85,986

29. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

ZDJK’s principal financial instruments comprise cash and cash equivalents and interest-bearing bank borrowings. The main purpose of these financial instruments is to raise finance for ZDJK’s operations. ZDJK has various other financial assets and liabilities such as trade and bills receivables, and trade and bills payables, which arise directly from its operations.

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

The main risks arising from ZDJK’s financial instruments are credit risk and liquidity risk. The director reviews policies for managing each of these risks and they are summarised below.

(a) Credit risk

ZDJK trades only with recognised and creditworthy third parties. It is ZDJK’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 ZDJK’s exposure to bad debts is not significant.

The credit risk of ZDJK’s other financial assets, which comprise trade and bills receivables, deposits and other receivables, amounts due from director and related parties, cash and cash equivalents, and pledged deposits, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

In respect of Third Party Advances (note 16) and amounts due from related parties (note 18) , individual credit evaluations are performed on all borrowers. These evaluations focus on the borrowers’ past history of making payments and current ability to pay, and take into account information specific to the borrowers. All Third Party Advances and amounts due from related parties were guaranteed by Mr. Wu Xiaogang and his spouse pursuant to the Acquisition Agreement as detailed in note 27(a)(iii) to the Financial Information.

ZDJK is also exposed to credit risk through the giving financial guarantees, further details of which are disclosed in note 25 to the Financial Information.

Since ZDJK trades only with recognised and creditworthy third parties, there is no requirement for collateral. There are no significant concentrations of credit risk within ZDJK due to its large customer base.

Further quantitative data in respect of ZDJK’s exposure to credit risk arising from trade and other receivables are disclosed in notes 15 and 16 to the Financial Information, respectively.

– II-33 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(b) Liquidity risk

ZDJK monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g. trade receivables) and projected cash flows from operations.

ZDJK’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank borrowings.

The maturity profile of ZDJK’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

31 December 2008

		Less than	3 to less than
	On demand	3 months	12 months	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills payables	–	32,762	–	32,762
Other payables	2,849	–	–	2,849
Interest-bearing bank
borrowings, secured	–	9,879	8,638	18,517
Guarantees given to banks in
connection with facilities
granted to companies
controlled by acquaintances
of the director	22,857	–	–	22,857

	25,706	42,641	8,638	76,985


31 December 2009
		Less than	3 to less than
	On demand	3 months	12 months	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills payables	–	16,740	–	16,740
Other payables	3,521	–	–	3,521
Due to the director	540	–	–	540
Interest-bearing bank
borrowings, secured	–	15,545	17,566	33,111
Guarantees given to banks in
connection with facilities
granted to companies
controlled by acquaintances
of the director	31,136	–	–	31,136

	35,197	32,285	17,566	85,048

– II-34 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

31 December 2010

		Less than	3 to less than
	On demand	3 months	12 months	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills payables	–	18,323	–	18,323
Other payables	2,177	–	–	2,177
Due to the director	378	–	–	378
Due to a related party	1,149	–	–	1,149
Interest-bearing bank
borrowings, secured	–	11,674	33,136	44,810
Guarantees given to banks in
connection with facilities
granted to companies
controlled by acquaintances
of the director	31,494	–	–	31,494

	35,198	29,997	33,136	98,331

30 June 2011

			3 to less
		Less than	than 12	1 to 5
	On demand	3 months	months	years	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Trade and bills
payables	–	25,172	–	–	25,172
Other payables	13,839	–	–	–	13,839
Due to the director	504	–	–	–	504
Interest-bearing
bank borrowings,
secured	–	3,817	38,851	4,370	47,038
Guarantees given to
banks in
connection with
facilities granted
to companies
controlled by
acquaintances of
the director	32,235	–	–	–	32,235

	46,578	28,989	38,851	4,370	118,788

(c) Capital management

The primary objective of ZDJK’s capital management are to safeguard its ability to continue as a going concern and to maintain a healthy capital ratios in order to support its business and maximise owner’s value.

ZDJK manages its capital structure and makes adjustments to it in light of changes in economic conditions and risk characteristics of underlying assets. To maintain or adjust the capital structure, ZDJK may adjust the dividend payment to the owner, return capital to the owner or issue new capital. ZDJK is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods.

– II-35 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

ZDJK monitors capital using a gearing ratio, which is bank borrowings divided by total assets. The gearing ratios as at the end of each of the Relevant Periods were as follows:

				As at
	As at 31 December			30 June
	2008	2009	2010	2011
	HK$’000	HK$’000	HK$’000	HK$’000
Interest-bearing bank borrowings,
secured	18,057	32,500	43,679	46,471


Total non-current assets	17,897	15,791	18,342	17,789
Total current assets	41,752	43,176	55,050	79,396

Total assets	59,649	58,967	73,392	97,185


Gearing ratio	30%	55%	60%	48%

30. MAJOR NON-CASH TRANSACTION

The 2009 dividend of HK$555,000 was settled through balance with the sole owner who is also the director of ZDJK.

31. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by ZDJK in respect of any period subsequent to 30 June 2011.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– II-36 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

III. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY

The Target Company is principally engaged in the production and distribution of knitting and textile products, knitted fabrics and clothing in Zhejiang Province, the PRC.

The following is the management discussion and analysis of the performance of the Target Company for each of the three years ended 31 December 2008, 31 December 2009 and 31 December 2010, and for the six months ended 30 June 2011.

For the year ended 31 December 2008

Financial review

For the year ended 31 December 2008, the Target Company recorded revenue and net loss of approximately HK$108,206,000 and HK$1,651,000, respectively. The gross profit margin of the Target Company for the year ended 31 December 2008 was approximately 6%. Other income amounted to approximately HK$183,000 for the year ended 31 December 2008. Such income mainly represented bank interest income.

For the year ended 31 December 2008, the total operating expenses of the Target Company amounted to approximately HK$7,721,000. During the year ended 31 December 2008, the applicable tax rate in the PRC for the Target Company was 25%. The income tax expense for the year ended 31 December 2008 was approximately HK$439,000.

For the year ended 31 December 2008, the Target Company’s order book recorded sales orders amounted to approximately HK$108,800,000.

Capital structure, liquidity and financial resources

The Target Company funded its operations mainly with internally generated cashflows and banking facilities. As at 31 December 2008, the cash and bank balances and time deposits of the Target Company were approximately HK$3,471,000. The total amount of bank borrowings as at 31 December 2008 was approximately HK$18,057,000. The gearing ratio of the Target Company as at 31 December 2008, which was calculated on the basis of total bank borrowings divided by total assets, was approximately 30%.

Contingent liabilities

As at 31 December 2008, the Target Company had given financial guarantees to banks in connection with facilities granted to companies controlled by acquaintances of the director of HK$22,857,000 which were utilised to the extent of HK$17,943,000.

– II-37 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

Capital commitments

There was no capital commitments as at 31 December 2008.

Material acquisitions and disposals

The Target Company had no material acquisitions or disposals during the year ended 31 December 2008.

Analysis of segmental information

The Target Company had only one reportable segment during the year ended 31 December 2008, which was the production and distribution of knitting and textile products, knitted fabrics and clothing. All of its revenue, with reference to locations of external customers, was generated from the PRC.

During the year ended 31 December 2008, the Target Company had not engaged in any new business.

Foreign currency risk and interest rate risk

As most of the Target Company’s transactions, assets and liabilities were denominated in RMB, the operations of the Target Company were not subject to significant foreign currency risk. Accordingly, no financial instrument for hedging of foreign currency risk was used by the Target Company during the year ended 31 December 2008.

The Target Company had no bank loan exposed to floating interest rates. As at 31 December 2008, the contractual interest rates on the bank loans ranged from 8.54% to 9.71% per annum.

Staff and remuneration policies

The number of employees of the Target Company as at 31 December 2008 was 73. For the year ended 31 December 2008, total staff costs (including salaries and other benefits and pension scheme contributions) of the Target Company amounted to approximately HK$1,897,000.

The Target Company remunerated its employees with respect to their employment terms, individual performance and the prevailing industry practice and maintains pension schemes for the retirement benefits of their employees.

– II-38 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Charges on assets

As at 31 December 2008, the Target Company’s bank borrowings were secured by the pledge of:

(i) the Target Company’s buildings with net carrying amount of HK$3,042,000; and
(ii) the Target Company’s prepaid land lease payments with aggregate carrying amount of HK$1,888,000.

Future plans for material investments or capital assets

As at 31 December 2008, the Target Company had no significant investment and future plans for material investments or capital assets.

For the year ended 31 December 2009

Financial review

For the year ended 31 December 2009, the Target Company recorded revenue and net profit of approximately HK$75,583,000 and HK$269,000, respectively. Revenue of the Target Company for the year ended 31 December 2009 decreased by approximately HK$32,623,000, or by approximately 30%, as compared to the year ended 31 December 2008, mainly due to the impact of the global financial tsunami. Net profit of the Target Company increased by approximately HK$1,920,000 as compared to the year ended 31 December 2008. Such increase was mainly as a result of a drop in the total operating expenses.

The gross profit margin of the Target Company for the year ended 31 December 2009 was approximately 8%. Other income amounted to HK$91,000 for the year ended 31 December 2009 which mainly represented bank interest income.

For the year ended 31 December 2009, the total operating expenses of the Target Company amounted to approximately HK$5,713,000. As compared to that for the year ended 31 December 2008, the total operating expenses decreased by approximately HK$2,008,000, mainly due to the decrease in doubtful debts as a result of stringent control on receivables.

For the year ended 31 December 2009, the applicable tax rate in the PRC for the Target Company was 25% and the income tax expense was approximately HK$432,000.

For the year ended 31 December 2009, the Target Company’s order book recorded sales orders amounted to approximately HK$89,091,000.

– II-39 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Capital structure, liquidity and financial resources

The Target Company funded its operations mainly with internally generated cashflows and banking facilities. As at 31 December 2009, the cash and bank balances and time deposits of the Target Company were approximately HK$1,120,000. The total amount of bank borrowings as at 31 December 2009 was approximately HK$32,500,000. The gearing ratio of the Target Company as at 31 December 2009, which was calculated on the basis of total bank borrowings divided by total assets, was approximately 55%.

Contingent liabilities

As at 31 December 2009, the Target Company had given financial guarantees to banks in connection with facilities granted to companies controlled by acquaintances of the director of HK$31,136,000 which were utilised to the extent of HK$26,250,000.

Capital commitments

There was no capital commitments as at 31 December 2009.

Material acquisitions and disposals

The Target Company had no material acquisitions or disposals during the year ended 31 December 2009.

Analysis of segmental information

The Target Company had only one reportable segment during the year ended 31 December 2009, which was the production and distribution of knitting and textile products, knitted fabrics and clothing. All of its revenue, with reference to locations of external customers, was generated from the PRC.

During the year ended 31 December 2009, the Target Company had not engaged in any new business.

Foreign currency risk and interest rate risk

The Target Company had no bank loan exposed to floating interest rates. As at 31 December 2009, the contractual interest rates on the bank loans ranged from 2.31% to 7.17% per annum.

– II-40 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Staff and remuneration policies

The number of employees of the Target Company as at 31 December 2009 was 88. For the year ended 31 December 2009, total staff costs (including salaries and other benefits and pension scheme contributions) of the Target Company amounted to approximately HK$2,044,000.

Charges on assets

As at 31 December 2009, the Target Company’s bank borrowings were secured by the pledge of:

(i) the Target Company’s buildings with net carrying amount of HK$3,101,000; and
(ii) the Target Company’s prepaid land lease payments with aggregate carrying amount of HK$1,835,000.

Future plans for material investments or capital assets

As at 31 December 2009, the Target Company had no significant investment and future plans for material investments or capital assets.

For the year ended 31 December 2010

Financial review

For the year ended 31 December 2010, the Target Company recorded revenue and net profit of approximately HK$110,086,000 and HK$375,000, respectively. Revenue of the Target Company for the year ended 31 December 2010 increased by approximately HK$34,503,000, or by approximately 46%, as compared to that for the year ended 31 December 2009, mainly attributable to the recovery from the global financial tsunami. Net profit increased by approximately HK$106,000 as compared to that for the year ended 31 December 2009.

The gross profit margin of the Target Company for the year ended 31 December 2010 was approximately 8%, which was in line with that for the year ended 31 December 2009. The other income amounted to HK$74,000 for the year ended 31 December 2010 which mainly represented bank interest income.

For the year ended 31 December 2010, the total operating expenses of the Target Company amounted to approximately HK$8,408,000. As compared to that for the year

– II-41 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

ended 31 December 2009, the total operating expenses increased by approximately HK$2,695,000, mainly due to an overall increase in administrative expenses and an increase in finance cost.

For the year ended 31 December 2010, the applicable tax rate in the PRC for the Target Company was 25% and the income tax expense was approximately HK$566,000.

For the year ended 31 December 2010, the Target Company’s order book recorded sales orders amounted to approximately HK$135,632,000.

Capital structure, liquidity and financial resources

The Target Company funded its operations mainly with internally generated cashflows and banking facilities. As at 31 December 2010, the cash and bank balances and time deposits of the Target Company were approximately HK$6,645,000. The total amount of bank borrowings as at 31 December 2010 was approximately HK$43,679,000. The gearing ratio of the Target Company as at 31 December 2010, which was calculated on the basis of total bank borrowings divided by total assets, was approximately 60%.

Contingent liabilities

As at 31 December 2010, the Target Company had given financial guarantees to banks in connection with facilities granted to companies controlled by acquaintances of the director of HK$31,494,000 which were utilised to the extent of HK$26,552,000.

Capital commitments

There were no capital commitments as at 31 December 2010.

Material acquisitions and disposals

The Target Company had no material acquisitions or disposals during the year ended 31 December 2010.

Analysis of segmental information

The Target Company had only one reportable segment during the year ended 31 December 2010, which was the production and distribution of knitting and textile products, knitted fabrics and clothing. All of its revenue, with reference to locations of external customers, was generated from the PRC.

During the year ended 31 December 2010, the Target Company had not engaged in any new business.

Foreign currency risk and interest rate risk

As most of the Target Company’s transactions, assets and liabilities were denominated in RMB, the operations of the Target Company were not subject to

– II-42 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

significant foreign currency risk. Accordingly, no financial instrument for hedging of foreign currency risk was used by the Target Company during the year ended 31 December 2010.

The Target Company had no bank loan exposed to floating interest rates. As at 31 December 2010, the contractual interest rates on the bank loans ranged from 4.37% to 7.43% per annum.

Staff and remuneration policies

The number of employees of the Target Company as at 31 December 2010 was 85. For the year ended 31 December 2010, total staff costs (including salaries and other benefits and pension scheme contributions) of the Target Company amounted to approximately HK$2,366,000.

Charges on assets

As at 31 December 2010, the Target Company’s bank borrowings were secured by the pledge of:

(i) the Target Company’s buildings with net carrying amount of HK$2,934,000;
(ii) the Target Company’s prepaid land lease payments with aggregate carrying amount of HK$1,813,000; and

(iii) certain time deposits of the Target Company amounting to HK$4,310,000.

Future plans for material investments or capital assets

As at 31 December 2010, the Target Company had no significant investment and future plans for material investments or capital assets.

For the period ended 30 June 2011

Financial review

For the six months ended 30 June 2011, the Target Company recorded revenue and net profit of approximately HK$62,005,000 and HK$605,000, respectively. Revenue of the Target Company for the six months ended 30 June 2011 increased by approximately 16%, as compared to that for the corresponding period in 2010, mainly attributable to the success in expanding its customer base. Net profit increased by approximately HK$782,000 as compared to that for the corresponding period in 2010.

– II-43 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The gross profit margin of the Target Company for the six months ended 30 June 2011 was approximately 8%, which was higher than that of approximately 6% for the corresponding period in 2010. The other income amounted to approximately HK$15,000 for the six months ended 30 June 2011 which mainly represented bank interest income.

For the six months ended 30 June 2011, the total operating expenses of the Target Company amounted to approximately HK$3,697,000. As compared to that for the corresponding period in 2010, the total operating expenses increased by approximately HK$359,000.

For the six months ended 30 June 2011, the applicable tax rate in the PRC for the Target Company was 25% and the income tax expense was approximately HK$370,000.

For the six months ended 30 June 2011, the Target Company’s order book recorded sales orders amounted to approximately HK$73,118,000.

Capital structure, liquidity and financial resources

The Target Company funded its operations mainly with internally generated cashflows and banking facilities. As at 30 June 2011, the cash and bank balances and time deposits of the Target Company were approximately HK$9,758,000. The total amount of bank borrowings as at 30 June 2011 was approximately HK$46,471,000. The gearing ratio of the Target Company as at 30 June 2011, which was calculated on the basis of total bank borrowings divided by total assets, was approximately 48%.

Contingent liabilities

As at 30 June 2011, the Target Company had given financial guarantees to banks in connection with facilities granted to companies controlled by acquaintances of the director of HK$32,235,000 which were utilised to the extent of HK$26,250,000.

Capital commitments

There were no capital commitments as at 30 June 2011.

Material acquisitions and disposals

The Target Company had no material acquisitions or disposals during the six months ended 30 June 2011.

Analysis of segmental information

The Target Company had only one reportable segment during the six months ended 30 June 2011, which was the production and distribution of knitting and textile products, knitted fabrics and clothing. All of its revenue, with reference to locations of external customers, was generated from the PRC.

– II-44 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

During the six months ended 30 June 2011, the Target Company had not engaged in any new business.

Foreign currency risk and interest rate risk

The Target Company had no bank loan exposed to floating interest rates. As at 30 June 2011, the contractual interest rates on the bank loans ranged from 4.78% to 7.43% per annum.

Staff and remuneration policies

The number of employees of the Target Company as at 30 June 2011 was 86. For the six months ended 30 June 2011, total staff costs (including salaries and other benefits and pension scheme contributions) of the Target Company amounted to approximately HK$1,213,000.

Charges on assets

As at 30 June 2011, the Target Company’s bank borrowings were secured by the pledge of:

(i) the Target Company’s buildings with net carrying amount of HK$2,901,000;
(ii) the Target Company’s prepaid land lease payments with aggregate carrying amount of HK$1,833,000; and
(iii) certain time deposits of the Target Company amounting to HK$4,411,000.

Future plans for material investments or capital assets

As at 30 June 2011, the Target Company had no significant investment and future plans for material investments or capital assets.

– II-45 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

I. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the unaudited pro forma financial information of AVIC International Holding (HK) Limited (the “Company”) and its subsidiaries (collectively the “Group”) assuming that the proposed acquisition (“Proposed Acquisition”) of 51% equity interest in 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited or “ZDJK”) by the Company pursuant to an acquisition agreement dated 21 September 2011 entered into between the Company’s indirect wholly-owned subsidiary, 上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited), and Mr. Wu Xiaogang, the sole owner of ZDJK had been completed on 30 June 2011. The unaudited pro forma financial information was prepared based on the unaudited consolidated financial statements of the Group for the six months ended 30 June 2011 included in the published interim report of the Group for the period then ended and the financial information of ZDJK as set out in the accountants’ report in Appendix II to this circular, after giving effect to the pro forma adjustments as described in the accompanying notes.

The accompanying unaudited pro forma financial information should be read in conjunction with the financial information of the Group as set out in Appendix II and other financial information elsewhere in this circular.

The unaudited pro forma financial information of the Group including ZDJK (hereinafter referred to as the “Enlarged Group”) is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying unaudited pro forma financial information does not purport to describe the financial information of the Enlarged Group that would have been attained had the Proposed Acquisition been completed on 30 June 2011. Furthermore, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to predict the Enlarged Group’s future financial position.

Subsequent to 30 June 2011, the Group has entered into sale and purchase agreements in respect of the disposals of the Group’s equity interest in a non wholly-owned subsidiary, 浙江海聯熱電股份有限公司 (Zhejiang Sealand Thermoelectric Share-Holding Co. or “ZSTS”) (the “ZSTS Disposals”), details of which are disclosed in the Company’s announcement dated 9 November 2011 in relation to very substantial disposal and connected transactions.

Subsequent to 30 June 2011, the Company has given an irrevocable undertaking to Sino Gas Group Limited (“Sino Gas”), an associate of the Company, among other things, to subscribe for 343,865,000 offer shares as proposed in an open offer by Sino Gas (the “Sino Gas Subscription”). The Group has also entered into a sale and purchase agreement for the disposal of the Group’s equity interest in an associate, Fidelity Finance Leasing Limited (“Fidelity Finance”), to Sino Gas Finance Limited, a subsidiary of Sino Gas (the “Finance Leasing Disposal”). Details of the Sino Gas Subscription and the Finance Leasing Disposal are disclosed in the Company’s announcement dated 9 November 2011 in relation to discloseable transactions.

English translation name for identification purpose only

– III-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

As the ZSTS Disposals, the Sino Gas Subscription and the Finance Leasing Disposal (the “Post June 30 Transactions”) are not directly related to the Proposed Acquisition concerned, no pro forma adjustment in relation to the Post June 30 Transactions is prepared. Accordingly, the unaudited pro forma financial information has not reflected the effect of the Post June 30 Transactions on the Group’s financial position. Upon the completion of the ZSTS Disposals, ZSTS will cease to be consolidated as a subsidiary in the Group’s consolidated financial statements. Upon the completion of the Sino Gas Subscription, the Group’s equity interest in Sino Gas shall be maintained and Sino Gas will continue to be equity accounted for as an associate of the Group. Upon the completion of the Finance Leasing Disposal, Fidelity Finance will cease to be equity accounted for as an associate in the Group’s consolidated financial statements. As such, the financial position of the Group may be different from the unaudited pro forma financial information as set out on pages III-3 to III-6 of this circular.

– III-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group as at 30 June 2011

NON-CURRENT ASSETS Property, plant and equipment Prepaid land lease payments Goodwill Intangible asset Investment in a jointly- controlled entity Investments in associates Available-for-sale investments Total non-current assets CURRENT ASSETS Inventories Trade and bills receivables Prepayments, deposits and other receivables Loans to a jointly-controlled entity Loans to associates Loans to related parties Pledged time deposits Cash and cash equivalents Total current assets	The Group HK$’000 (Note 1) 308,100 29,126 30,493 – 755,823 245,996 1,246,090 2,615,628 31,680 35,765 97,108 36,145 37,072 18,072 21,687 289,363 566,892	ZDJK Pro Forma adjustments Notes HK$’000 HK$’000 (Note 2) 16,000 7,217 5(c) 1,789 2,929 5(d) – 1,519 3, 5 – 2,554 5(e) – – – 17,789 6,955 19,714 19,908 23,133 5(d), 7 – – 23,061 (23,061) 7 4,765 4,993 (8,434) 4 79,396	Unaudited pro forma Enlarged Group HK$’000 331,317 33,844 32,012 2,554 755,823 245,996 1,246,090 2,647,636 38,635 55,479 140,149 36,145 37,072 18,072 26,452 285,922 637,926

– III-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

					Unaudited
					pro forma
			Pro Forma		Enlarged
	The Group	ZDJK	adjustments	Notes	Group
	HK$’000	HK$’000	HK$’000		HK$’000
	(Note 1)	(Note 2)
CURRENT LIABILITIES
Trade and bills payables	37,581	25,172			62,753
Other payables and accruals	44,856	21,418	1,472	6	67,746
Due to the director	–	504	(504)	8	–
Due to non-controlling
shareholders of subsidiaries	287	–	504	8	791
Tax payable	5,181	278			5,459
Interest-bearing bank
borrowings	84,940	46,471			131,411
Total current liabilities	172,845	93,843			268,160

NET CURRENT
ASSETS/(LIABILITIES)	394,047	(14,447)			369,766
TOTAL ASSETS LESS
CURRENT LIABILITIES	3,009,675	3,342			3,017,402

NON-CURRENT LIABILITIES
Deferred tax liabilities	314,777	–	2,555	5(f)	317,332
Net assets	2,694,898	3,342			2,700,070

Notes:

The balances are extracted from the unaudited consolidated statement of financial position of the Group as at 30 June 2011 included in the published interim report of the Group for the six months ended 30 June 2011.
The balances are extracted from the audited statement of financial position of ZDJK as at 30 June 2011 included in the accountants’ report of ZDJK, which is set out in Appendix II to this circular.
In accordance with Hong Kong Financial Reporting Standard 3 Business Combinations , the Group will apply the purchase method to account for the acquisition of ZDJK. Under the purchase method, the identifiable assets and liabilities of ZDJK will be recorded on the consolidated statement of financial position of the Group at their fair values at the date of completion. Excess of the Group’s purchase price over the interests in the net fair value of the identifiable assets and liabilities of ZDJK is recognised as goodwill in the unaudited pro forma consolidated statement of financial position as if the Proposed Acquisition had taken place on 30 June 2011.

The total consideration for the Proposed Acquisition is RMB7,000,000 (equivalent to HK$8,434,000), which will be satisfied in cash upon completion of the Proposed Acquisition.

– III-4 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The pro forma adjustment of HK$8,434,000 represents the payment of cash as described in Note 3 above.
The fair value adjustments are to reflect the effect of the Proposed Acquisition on the consolidated statement of financial position of the Enlarged Group as if the Proposed Acquisition had taken place on 30 June 2011.

The fair values of the identifiable assets and liabilities of ZDJK from the Proposed Acquisition are as follows:

		Fair value
		adjustments
		on		Fair value of
		identifiable		net
	Carrying	assets and		identifiable
	value of	liabilities of		assets
	ZDJK	ZDJK	Notes	acquired
	HK$’000	HK$’000		HK$’000
	(Note a)
Property, plant and equipment	16,000	7,217	(c)	23,217
Prepaid land lease payments	1,789	2,929	(d)	4,718
Intangible asset	–	2,554	(e)	2,554
Inventories	6,955			6,955
Trade and bills receivables	19,714			19,714
Prepayments, deposits and other
receivables	19,908	72	(d)	19,980
Due from related parties	23,061			23,061
Pledged deposits	4,765			4,765
Cash and cash equivalents	4,993			4,993
Trade and bills payables	(25,172)			(25,172)
Other payables	(21,418)			(21,418)
Due to the director	(504)			(504)
Tax payable	(278)			(278)
Interest-bearing bank borrowings,
secured	(46,471)			(46,471)
Deferred tax liability	–	(2,555)	(f)	(2,555)
Total identifiable net assets	3,342			13,559
Non-controlling interest				(6,644)
Identifiable net assets at fair value
acquired by the Group				6,915
Consideration				8,434

Goodwill			(b)	1,519

Notes:

(a) The balances are extracted from the audited statement of financial position of ZDJK as at 30 June 2011 included in the accountants’ report of ZDJK, which is set out in Appendix II to this circular.
(b) An impairment testing conducted in accordance with Hong Kong Accounting Standard 36 Impairment of Assets involves the determination of the recoverable amount of the fair value of the cash generating unit to which the goodwill has been allocated, being the higher of the cash generating unit less costs to sell and its value in use. For the purpose of the preparation of the unaudited pro forma financial information, the Directors have estimated the value in use of ZDJK, and assessed that there was no indication of impairment of goodwill arising from the Proposed Acquisition and hence no impairment was required. In addition, the Directors will adopt consistent accounting policies and principal assumptions in the preparation of the consolidated financial statements of the Group after completion of the Proposed Acquisition.

– III-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

	HK$’000
Fair value of property, plant and equipment based on valuation performed
by independent professionally qualified valuers as at 30 June 2011	23,217
Carrying value of property, plant and equipment as at 30 June 2011	16,000
Fair value adjustment	7,217

(d) The fair value adjustments on non-current and current portions of prepaid land lease payments of HK$2,929,000 and HK$72,000, respectively, are calculated as follows:

	HK$’000
Fair value of the land in Zhejiang based on valuation performed by
independent professionally qualified valuers as at 30 June 2011	4,834
Carrying value of the land in Zhejiang as at 30 June 2011	1,833
Fair value adjustment	3,001
Less: Fair value adjustment for current portion classified as current assets	(72)
Fair value adjustment, non-current portion	2,929

(e) The fair value adjustment on intangible asset represents the fair value of ZDJK’s customer relationships amounting to HK$2,554,000 based on valuation performed by independent professionally qualified valuers as at 30 June 2011.
(f) The adjustment on deferred tax liability of HK$2,555,000 is calculated at the corporate income tax rate of 25% of The People’s Republic of China’s on the fair value adjustments on property, plant and equipment and prepaid land lease payments of HK$7,217,000 and HK$3,001,000 as referred to in (c) and (d) above.
The adjustment represents the accrual for estimated legal and professional costs directly attributable to the Proposed Acquisition, which amounts to approximately HK$1,472,000. The pro forma adjustment is not expected to have continuing effect on the Enlarged Group.
The adjustment represents reclassification of amounts due from related parties of ZDJK, which amounting to HK$23,061,000 before the completion of the Proposed Acquisition, to other receivables of the Group, on the basis that the Proposed Acquisition had been completed on 30 June 2011.
The adjustment represents reclassification of an amount due to Mr. Wu Xiaogang, the equity holder of ZDJK before the completion of the Proposed Acquisition, to amount due to a non-controlling shareholder of a subsidiary of the Group, on the basis that the Proposed Acquisition had been completed on 30 June 2011.

– III-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

II. COMFORT LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong in respect of the unaudited pro forma statement of assets and liabilities as set out in Section I of Appendix III to this circular.

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The Board of Directors

AVIC International Holding (HK) Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (the “Unaudited Pro Forma Statement of Assets and Liabilities”) of AVIC International Holding (HK) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which have been prepared by the directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how the proposed acquisition of 51% equity interest in 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited* or “ZDJK”) might have affected the financial information presented, for inclusion in Appendix III to the circular dated 17 November 2011 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Statement of Assets and Liabilities is set out in the Section I of Appendix III to the Circular.

Respective responsibilities of the Directors and Reporting Accountants

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

English translation name for identification purpose only

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Statement of Assets and Liabilities 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 Statement of Assets and Liabilities 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 engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 Accountants’ Reports on Pro Form 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. This engagement did not involve independent examination of any of the underlying financial information.

Our work did not constitute an audit or a review made in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Statement of Assets and Liabilities.

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 Pro Forma Statement of Assets and Liabilities has been properly compiled by the Directors 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 Statement of Assets and Liabilities as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Statement of Assets and Liabilities is for illustrative purposes only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 June 2011 or any future dates.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Statement of Assets and Liabilities has been properly compiled by the Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and

– III-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Statement of Assets and Liabilities as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

17 November 2011

– III-9 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

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

Long positions in share options of associated corporation of the Company:

						Approximate
						percentage
						of the
						associated
						corporation’s
						issued share
						capital as at
		Name of	Relationship	Number of	Capacity	the Latest
		associated	with the	share	and nature	Practicable
Name of director	Notes	corporation	Company	options held	of interest	Date
Ji Guirong	(a)	Sino Gas	Associate	34,900,000	Directly	1.43
					beneficially
					owned
Zhang Chuanjun	(b)	Sino Gas	Associate	30,000,000	Directly	1.23
					beneficially
					owned

Notes:

(a) (i) On 23 August 2007, Mr. Ji was granted options to subscribe for an aggregate of 14,900,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.35 per share.
(ii) On 31 August 2010, Mr. Ji was granted options to subscribe for an aggregate of 20,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.341 per share.

– IV-1 –

GENERAL INFORMATION

APPENDIX IV

The exercise periods of the options are as follows:

Number of share options

Exercise period

4,966,667 1/10/2007 to 31/1/2015 4,966,667 1/1/2008 to 31/1/2015 4,966,666 1/7/2008 to 31/1/2015 20,000,000 31/8/2010 to 30/8/2020 34,900,000

No options have been exercised, cancelled or lapsed during the period. All the above options are remaining outstanding as at the Latest Practicable Date.

(b) (i) On 3 January 2006, Mr. Zhang was granted options to subscribe for an aggregate of 10,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.20 per share.
(ii) On 31 August 2010, Mr. Zhang was granted options to subscribe for an aggregate of 20,000,000 ordinary shares of HK$0.20 each in Sino Gas at an exercise price of HK$0.341 per share.

The exercise periods of the options are as follows:

Number of share options 5,000,000 5,000,000 20,000,000 30,000,000

Exercise period

1/7/2006 to 31/1/2015 1/1/2007 to 31/1/2015 31/8/2010 to 30/8/2020

No options have been exercised, cancelled or lapsed during the period. All the above options are remaining outstanding as at the Latest Practicable Date.

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 registered an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) that was 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 were required to be recorded pursuant to Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers.

– IV-2 –

GENERAL INFORMATION

APPENDIX IV

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as the Directors and chief executive of the Company were aware, the following persons (other than a director or chief executive of the Company) who had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of other members of the Group or has any option in respect of such capital were as follows:

Long positions in the Shares and underlying Shares:

				Approximate
				percentage
				of the
				Company’s
				issued share
				capital as at
			Number of	the Latest
		Capacity and	ordinary shares	Practicable
Name of shareholders	Notes	nature of interest	held	Date
Speed Profit Enterprises Limited	(a)	Beneficial owner	508,616,000	10.83
(“Speed Profit”)
Tacko International Limited	(a)	Beneficial owner	1,386,943,000	29.52
(“Tacko”)		Through a controlled	508,616,000	10.83
		corporation
AVIC International (HK) Group	(a)	Through a controlled	1,895,559,000	40.35
Limited (“AVIC International		corporation
(HK) Group”)
AVIC International Holding	(a)	Through a controlled	1,895,559,000	40.35
Corporation (“AVIC		corporation
International”)
Aviation Industry Corporation of	(a)	Through a controlled	1,895,559,000	40.35
China (“AVIC”)		corporation
Atlantis Capital Holdings Limited	(b)	Through a controlled	400,000,000	8.52
(“Atlantis Capital”)		corporation
Liu Yang	(b)	Through a controlled	400,000,000	8.52
		corporation

Notes:

(a) Speed Profit is a wholly-owned subsidiary of Tacko, which is in turn a wholly-owned subsidiary of AVIC International (HK) Group. AVIC International (HK) Group is a wholly-owned subsidiary of AVIC International, which is in turn a non wholly-owned subsidiary of AVIC. Accordingly, Tacko is deemed to be interested in the shares held by Speed Profit; and each of AVIC International (HK) Group, AVIC International and AVIC is deemed to be interested in the aggregate Shares directly held by Speed Profit and Tacko.
(b) Pursuant to the disclosure of interests notices filed by Atlantis Capital and Ms. Liu Yang on 9 September 2011 and 12 September 2011 respectively, Atlantis Investment Management (Hong Kong) Limited (“Atlantis Investment”) was disclosed as having direct interest in 400,000,000 Shares and was wholly-owned by Atlantis Capital, which in turn was wholly-owned by Ms. Liu Yang. Therefore, Atlantis Capital and Ms. Liu Yang are deemed to be interested in the Shares held by Atlantis Investment. Nonetheless, the Company noted an inconsistency whereby pursuant to the disclosure of interests notice filed by Atlantis Investment on even date, Atlantis Investment was disclosed to cease to have interest in the 400,000,000 Shares.

– IV-3 –

GENERAL INFORMATION

APPENDIX IV

Interests in other members of the Group

		% of
Name of Owner	Name of subsidiary	shares held
杭州源和燃料有限公司	Zhejiang Sealand	18.7
(Hangzhou Yuan He Fuel Co., Ltd.*)	Thermoelectric
	Share-Holding Co.
Asia Capital Financial Group Limited	Zhejiang Sealand	21
	Thermoelectric
	Share-Holding Co.

Save as disclosed above, the Directors and chief executive of the Company were not aware of any other persons who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of other members of the Group or has any option in respect of such capital.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no Directors had any existing or proposed service contracts with the Company or any member of the Enlarged Group which is not determinable within one year without payment of compensation other than statutory compensation.

5. MATERIAL CONTRACTS

The following contract has been entered into by the Enlarged Group (not being contracts entered into in the ordinary course of business) within the two years preceding the date of this circular and is or may be material:

(a) an agreement dated 14 December 2009 entered into between the Company and Hentak Investment Limited (now known as AVIC International Investment Limited, “AVIC Int’l Inv”), a subsidiary of a substantial shareholder of the Company, in relation to the sale and purchase of 100% equity interests in Loyalty Resources Limited;
(b) an agreement dated 14 December 2009 entered into between the Company and AVIC Int’l Inv in relation to the sale and purchase of certain equity interests and shareholders’ loan in each of Honwin Investment Limited and Teampro Resources Limited;
For identification purpose only

– IV-4 –

GENERAL INFORMATION

APPENDIX IV

(c) a placing agreement dated 12 April 2010 entered into between Billirich, a wholly-owned subsidiary of the Company, Sino Gas, an associate of the Company, and Kingsway Financial Services Group Limited in relation to certain shares of Sino Gas;
(d) a subscription agreement dated 12 April 2010 entered into between Billirich and Sino Gas in relation to certain shares of Sino Gas;
(e) a conditional subscription agreement dated 12 April 2010 entered into between Billirich and Sino Gas in relation to certain shares of Sino Gas;
(f) the Agreement;
(g) the Zhejiang Agreement;
(h) the Hangzhou Agreement;
(i) the Disposal Agreement;
(j) the Finance Leasing Disposal Agreement; and
(k) the Irrevocable Undertaking.

6. LITIGATION

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

7. COMPETING INTERESTS

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors or their respective associates had any interest in any business which competed or was likely to compete with the business of the Group.

8. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors had any interest, either direct or indirect, in any assets which had been since 31 December 2010 (being the date to which the latest published audited accounts were made up) acquired or disposed of by or leased to any member of the Enlarged Group, or were proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

So far as the Directors were aware, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the date hereof which was significant in relation to the business of the Enlarged Group.

– IV-5 –

GENERAL INFORMATION

APPENDIX IV

9. EXPERT AND CONSENT

The following is the qualification of the expert who had given opinion contained in this circular:

Name

Qualification

Ernst & Young Certified public accountants

As at the Latest Practicable Date, the expert above did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor any interest, either direct or indirect, in any assets which had been since the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or were 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 consents to the issue of this circular with the respective reports, letters and references to its names in the form and context in which it is included.

10. GENERAL

(a) 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.
(b) The registered office of the Company is Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.
(c) The share registrar and transfer office of the Company in Bermuda is Butterfield Fulcrum Group (Bermuda) Limited at Rosebank Centre, 11 Bermudiana Road, Pembroke HM 08, Bermuda.
(d) The share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(e) In the event of inconsistency, the English text shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong up to and including 1 December 2011:

(a) this circular;

– IV-6 –

GENERAL INFORMATION

APPENDIX IV

(b) the memorandum of association and Bye-laws of the Company;
(c) the consolidated unaudited financial statements of the Group for the six months ended 30 June 2011;
(d) the consolidated audited financial statements of the Group for each of the two years ended 31 December 2010;
(e) the accountant’s report on the Target Company, the text of which is set out in Appendix II to the circular;
(f) the letter from Ernst & Young on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(g) the material contracts referred to under the section headed “Material Contracts” in this appendix; and
(h) the letters of consents referred to under the section headed “Expert and Consent” in this appendix.

– IV-7 –

NOTICE OF SGM

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of AVIC International Holding (HK) Limited (the “ Company ”) will be held at Unit B, 15th Floor, United Centre, 95 Queensway, Hong Kong on Monday, 5 December 2011 at 10:00 a.m. (the “ SGM ”) for the purpose of considering and, if thought fit, passing with or without modification, the following resolution:

ORDINARY RESOLUTION

“ THAT

(a) the entering into of the sale and purchase agreement dated 21 September 2011 (the “ Agreement ”, a copy of which has been produced to the SGM marked “A” and initialed by the Chairman of the meeting for the purpose of identification) between 上海瑞爾通投資顧問有限公司 (Shanghai RET Investment Consulting Company Limited), an indirect wholly-owned subsidiary of the Company (the “ Purchaser ”) and 吳曉綱 (Mr. Wu Xiaogang) (the “ Vendor ”), pursuant to which the Purchaser conditionally agreed to acquire and the Vendor conditionally agreed to sell his 51% equity interest in 浙江東陽金牛針織製衣有限公司 (Zhejiang Dongyang Jinniu Knitting and Garment Company Limited) (the “ Acquisition ”) at a consideration of RMB7.0 million (equivalent to approximately HK$8.5 million) to be satisfied in cash payment, be and is hereby approved, confirmed and ratified, and the performance by the Company of all the transactions contemplated under the Agreement be and are hereby approved, confirmed and ratified; and

* For identification purposes only

– SGM-1 –

NOTICE OF SGM

(b) the directors of the Company (the “ Directors ”) be and are hereby authorized to do all such acts and things, and to sign and execute all such further documents and to take all steps as the Directors may in their absolute discretion consider necessary, appropriate, desirable or expedient or implement and/or give full effect to or in connection with the Agreement and the transactions contemplated thereunder.”

By Order of the Board AVIC International Holding (HK) Limited Wu Guangquan Chairman

Hong Kong, 17 November 2011

Registered Office: Head Office and Principal Place of Canon’s Court Business in Hong Kong: 22 Victoria Street Unit B, 15th Floor Hamilton HM 12 United Centre Bermuda 95 Queensway Hong Kong

Notes:

(1) A member entitled to attend and vote at the SGM is entitled to appoint one or more proxies (if a member who is the holder of two or more shares) to attend and vote in his stead. A proxy need not be a member of the Company.
(2) To be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be deposited at the Company’s Hong Kong share registrar and transfer office, Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM (or any adjournment thereof). Completion and delivery of the form of proxy will not preclude a member from attending and voting at the SGM if the member so desires.
(3) Where there are joint registered holders of any share, any one of such persons may vote at the SGM, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the SGM personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect of thereof.
(4) The voting on the above resolution at the SGM will be conducted by way of a poll.

– SGM-2 –

AI assistant

Continental Aerospace Technologies Holding Limited — Proxy Solicitation & Information Statement 2011

49054_rns_2011-11-16_985d06be-f47c-48f3-8b40-64b8b05a41ec.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION

INTRODUCTION

THE AGREEMENT DATED 21 SEPTEMBER 2011

Parties

Assets to be acquired

The Consideration

Conditions Precedent

POSSIBLE CONNECTED TRANSACTION

FINANCIAL INFORMATION OF THE TARGET COMPANY

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

REASONS FOR AND BENEFITS OF THE ACQUISITION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

MAJOR TRANSACTION AND APPROVAL BY SHAREHOLDERS

RECOMMENDATION

GENERAL INFORMATION

1. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

2. WORKING CAPITAL

3. INDEBTEDNESS

Borrowings

Contingent liabilities

Disclaimers

Subsequent change of indebtedness

4. MATERIAL ADVERSE CHANGE

The Board of Directors

AVIC International Holding (HK) Limited

Dear Sirs,

DIRECTOR’S RESPONSIBILITY

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

REVIEW CONCLUSION IN RESPECT OF THE COMPARATIVE FINANCIAL INFORMATION

EMPHASIS OF MATTER

I. FINANCIAL INFORMATION

Statements of Comprehensive Income

Statements of Financial Position

Statements of Changes in Equity

Statements of Cash Flows

II. NOTES TO THE FINANCIAL INFORMATION

1.1 CORPORATE INFORMATION

2.1 BASIS OF PREPARATION

2.2 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impairment of non-financial assets

Related parties

Property, plant and equipment and depreciation

Leases

Investments and other financial assets

Initial recognition and measurement

Subsequent measurement

Derecognition of financial assets

Impairment of financial assets

Financial assets carried at amortised cost

Financial liabilities

Initial recognition and measurement

Subsequent measurement

Derecognition of financial liabilities

Offsetting of financial instruments

Inventories

Cash and cash equivalents

Income tax

Revenue recognition

Other employee benefits

Pension scheme

Borrowing costs

Dividends

Foreign currency transactions

3. SIGNIFICANT ACCOUNTING ESTIMATES

Estimation uncertainty

Impairment of non-financial assets

Impairment of property, plant and equipment

Continental Aerospace Technologies Holding Limited Proxy Solicitation & Information Statement 2011