THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your Shares in CCT Telecom Holdings Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or the transfer was effected for onward transmission to the purchaser or the transferee.

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

TELECOM HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 138)

MAJOR TRANSACTION

A notice convening the Extraordinary General Meeting to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:30 a.m. is set out on pages 120 to 121 of this circular. A form of proxy for use by the Shareholders at the Extraordinary General Meeting is enclosed herein. Whether or not you intend to attend and vote at the Extraordinary General Meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as practicable but in any event, not later than 48 hours before the time appointed for holding the Extraordinary General Meeting. Such form of proxy for use at the Extraordinary General Meeting is also published on the website of the Stock Exchange (www.hkex.com.hk). Completion and return of the form of proxy will not preclude you from attending and voting at the Extraordinary General Meeting in person should you so wish.

20 August 2004

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
II. The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
III. Further information about the First Precision Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
IV. Further information about CCT Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
V. Reasons for the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
VI. Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
VII. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
VIII. Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix IA — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix IB — Financial information of the First Precision Group . . . . . . . . . . . . . . .	61
Appendix IC — Financial information of CCT Investment . . . . . . . . . . . . . . . . . . . . . .	87
Appendix ID — Unaudited pro forma financial information of
the Combined Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	103
Appendix II — Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	107
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	112
Notice of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	120

— i —

DEFINITIONS

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

“Agreement”	the conditional agreement dated 2 June 2004 entered into
	between CCT Tech as vendor and the Company as purchaser
	in respect of the Transaction
“associate”	has the same meaning as given to it in the Listing Rules
“Board”	the board of Directors
“Business Day”	a day (excluding Saturday or Sunday) on which banks are
	generally open in Hong Kong for business for more than four
	hours
“BVI”	the British Virgin Islands
“CCT HK”	CCT Telecom (HK) Limited, a company incorporated in Hong
	Kong with limited liability and an indirect wholly-owned
	subsidiary of CCT Tech
“CCT Investment”	CCT Investment Limited, a company incorporated in Hong
	Kong with limited liability and an indirect wholly-owned
	subsidiary of CCT Tech
“CCT Investment Debt”	the outstanding interest-free debt as at the date of Completion
	due from CCT Investment to CCT Telecom Product
	International Holdings Limited, a wholly-owned subsidiary of
	CCT Tech, and such debt amounted to approximately HK$45
	million as at 31 December 2003
“CCT Tech”	CCT Tech International Limited, an exempted company
	incorporated in Bermuda with limited liability and the shares
	of which are listed on the main board of the Stock Exchange
“CCT Tech Director(s)”	the director(s) of CCT Tech
“CCT Tech Group”	CCT Tech and its subsidiaries
“CCT Tech Remaining Group”	CCT Tech Group but excluding the First Precision Group and
	CCT Investment
“CCT Tech Shareholder(s)”	the holder(s) of the share(s) of CCT Tech
“Combined Group”	the Group, First Precision and CCT Investment
“Company”	CCT Telecom Holdings Limited, a company incorporated in
	the Cayman Islands with limited liability and the Shares of
	which are listed on the main board of the Stock Exchange

— 1 —

DEFINITIONS

“Completion”	completion of the Transaction
“connected person”	has the same meaning as given to it in the Listing Rules
“Consideration”	an amount of HK$139 million for the Transaction
“Convertible Note”	the convertible note due 2008 issued by CCT Tech on 30 June
	2003 in favour of Noble Team Investments Limited, an
	indirect wholly-owned subsidiary of the Company, in the
	outstanding principal amount of HK$754 million after
	conversion of an aggregate amount of HK$14 million out of
	the original principal amount of HK$768 million
“Debts”	the CCT Investment Debt and the First Precision Debt
“Director(s)”	the director(s) of the Company
“ESL”	Electronic Sales Limited, a company incorporated in Hong
	Kong with limited liability and currently an indirect
	wholly-owned subsidiary of CCT Tech and was acquired by
	CCT Tech in May 2002
“Extraordinary General Meeting”	the extraordinary general meeting of the Company to be
	convened and held at 32/F., China Merchants Tower, Shun Tak
	Centre, 168-200 Connaught Road Central, Hong Kong on
	Wednesday, 8 September 2004 at 10:30 a.m. to consider and,
	if thought fit, approve the Agreement and the Transaction or
	any adjournment thereof (as the case may be)
“First Precision”	First Precision Holdings Limited, a company incorporated in
	the BVI with limited liability and an indirect wholly-owned
	subsidiary of CCT Tech
“First Precision Debt”	the outstanding interest-free debt as at the date of Completion
	due from First Precision to CCT Tech Holdings Limited, a
	wholly-owned subsidiary of CCT Tech, and such debt
	amounted to approximately HK$68 million as at 31 December
	2003
“First Precision Group”	First Precision and its subsidiaries
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China

— 2 —

	DEFINITIONS
“Latest Practicable Date”	18 August 2004, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information contained herein
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“ODM”	original design manufacturing
“OEM”	original equipment manufacturing
“PRC”	the People’s Republic of China, excluding Hong Kong, Macau
	Special Administrative Region and Taiwan for the purpose of
	this circular
“Property”	the plot of land together with the factory complex located at
	No. 3 Hong Yie Dong San Road, Hong Yie Economic
	Development Zone, Tong Xia Zhen, Dongguan, Guangdong
	Province, the PRC
“Remaining Group”	the Group but excluding the CCT Tech Group
“Sale Shares”	one share of US$1.00 in First Precision (representing the
	entire issued share capital of First Precision) and two shares
	of HK$1.00 each in CCT Investment (representing the entire
	issued share capital of CCT Investment)
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	the ordinary share(s) of HK$0.10 each in the capital of the
	Company
“Shareholder(s)”	the holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“substantial shareholder”	has the same meaning as given to it in the Listing Rules
“Transaction”	the proposed sale and purchase of the Sale Shares and the
	assignment of the Debts by CCT Tech to the Company or its
	nominee(s)
“US$”	United States dollar(s), the lawful currency of the United
	States of America
“%”	per cent.

— 3 —

LETTER FROM THE BOARD

TELECOM HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

Executive Directors: Mak Shiu Tong, Clement Tam Ngai Hung, Terry Cheng Yuk Ching, Flora William Donald Putt

Independent non-executive Directors: Samuel Olenick Tam King Ching, Kenny Lau Ho Man, Edward

Registered office:

The offices of The Harbour Trust Co. Ltd.

P. O. Box 1787 GT One Capital Place Grand Cayman Cayman Islands British West Indies

Head office and principal place of business in Hong Kong:

32/F., China Merchants Tower Shun Tak Centre 168-200 Connaught Road Central Hong Kong

20 August 2004

To the Shareholders and, for information only, the holders of share options of the Company

Dear Sir/Madam,

MAJOR TRANSACTION

I. INTRODUCTION

The Board has announced on 2 June 2004 that the Company and CCT Tech entered into the Agreement on 2 June 2004, pursuant to which CCT Tech has agreed (i) to sell or procure the sale of the Sale Shares; and (ii) to assign or procure the assignment of the Debts to the Company or its nominee(s). The purpose of this circular is to provide you with information regarding an ordinary resolution in respect of the Agreement and the Transaction to be proposed at the Extraordinary General Meeting to enable you to make an informed decision on whether to vote for or against such ordinary resolution.

II. THE TRANSACTION

The Agreement

Date:

Vendor:

2 June 2004 CCT Tech

— 4 —

LETTER FROM THE BOARD

Purchaser: the Company Assets to be acquired: (i) the Sale Shares; and (ii) the Debts.

Consideration

The aggregate consideration for the Transaction in the amount of HK$139 million was determined after arm’s length negotiations between CCT Tech and the Company.

The consideration of HK$105 million for the acquisition of First Precision and the assignment of the First Precision Debt has been determined with reference to the unaudited combined profits after tax of the First Precision Group for the year ended 31 December 2003 of approximately HK$11 million. First Precision will be acquired at a price-earning ratio of approximately 9.3 times.

The consideration of HK$34 million for the acquisition of CCT Investment and the assignment of the CCT Investment Debt has been determined in accordance with the market value of the Property of HK$34 million as at 31 December 2003 which was valued by an independent professional valuer, Vigers Appraisal and Consulting Limited.

The face value of the Debts as at 31 December 2003 was approximately HK$113 million.

The Consideration will be satisfied by cancellation of the Convertible Note to the extent of the same amount of HK$139 million.

Conditions

Completion is conditional on:

(a) CCT Tech having complied fully with the obligations specified in the Agreement;
(b) the warranties given by CCT Tech in the Agreement remaining true and accurate and not misleading at Completion;
(c) the warranties given by the Company in the Agreement remaining true and accurate and not misleading at Completion;
(d) the requisite resolution being passed by the independent shareholders of CCT Tech at its special general meeting in compliance with the Listing Rules; and
(e) the requisite resolution being passed by the Shareholders at the Extraordinary General Meeting in compliance with the Listing Rules.

— 5 —

LETTER FROM THE BOARD

The Company may waive conditions (a) and (b) above at any time by serving a notice in writing to CCT Tech. CCT Tech may waive condition (c) above at any time by serving a notice in writing to the Company.

In the event that any of the conditions will not have been fulfilled or waived (as the case may be) prior to 31 October 2004 (or such later date as the parties to the Agreement may agree in writing), the Agreement will cease to be of any effect save in respect of claims arising out of any antecedent breach of the Agreement.

Completion

Completion is expected to take place on the third Business Day after the fulfillment of conditions (d) and (e) above.

III. FURTHER INFORMATION ABOUT THE FIRST PRECISION GROUP

First Precision is an investment holding company and the First Precision Group is principally engaged in the design, manufacture and sale of power supply components including linear and switching transformers and adaptors. First Precision is a manufacturer of power supply components to customers for the production of telecom and other consumer products in the PRC including Hong Kong. The production plant of First Precision is located in Dongguan, the PRC. As at 31 December 2003, the First Precision Group had over 1,000 staff members.

With reference to the financial information of the First Precision Group as set out in appendix IB of this circular, the audited combined turnover of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$147 million, HK$120 million and HK$65.7 million respectively. The audited combined profits before tax of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$1.4 million, HK$14.6 million and HK$5.9 million respectively. The audited combined profits after tax of the First Precision Group for the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004 were approximately HK$1.1 million, HK$12.0 million and HK$6.8 million respectively. As at 31 December 2003, the audited combined net assets of the First Precision Group amounted to approximately HK$56.7 million and the audited combined total assets of the First Precision Group amounted to approximately HK$100 million. As at 30 June 2004, the First Precision Group recorded an audited combined net assets and total assets of approximately HK$63.5 million and approximately HK$100.5 million respectively.

With a consideration of HK$105 million and an audited combined profits after tax of approximately HK$12.0 million for the year ended 31 December 2003, First Precision is being transferred to the Company (i) at a consideration that is approximately HK$48 million above the audited combined net assets of the First Precision Group as at 31 December 2003; and (ii) at a price-earning ratio of approximately 8.8 times.

— 6 —

LETTER FROM THE BOARD

IV. FURTHER INFORMATION ABOUT CCT INVESTMENT

CCT Investment is a property holding company which holds a plot of land with a three-storey factory complex located at No. 3 Hong Yie Dong San Road, Hong Yie Economic Development Zone, Tong Xia Zhen, Dongguan, Guangdong Province, the PRC which was acquired by CCT Investment in 1993 from a third party independent of and not connected with the substantial shareholders, chief executive and directors of the CCT Tech Group. The area of the land is approximately 21,611 square meters and the gross floor area of the factory complex is approximately 33,822 square meters. The Property was valued by an independent professional valuer, Vigers Appraisal and Consulting Limited, at a value of HK$34 million as at 31 May 2004.

CCT Investment has no other material assets and business besides the holding of the Property. For the two years ended 31 December 2002, 2003 and the six months ended 30 June 2004, CCT Investment recorded an audited net profit attributable to shareholders of approximately HK$2.9 million and an audited net loss attributable to shareholders of approximately HK$1.5 million and HK$0.7 million respectively.

As at 31 December 2003, both the audited total/net assets of CCT Investment before deduction of the CCT Investment Debt amounted to approximately HK$23 million and after deduction of the CCT Investment Debt amounted to an audited net deficit of approximately HK$3 million. As at 30 June 2004, CCT Investment recorded an audited total assets of approximately HK$21.9 million and an audited net deficit of approximately HK$3.5 million.

With a consideration of HK$34 million, CCT Investment is being transferred to the Company at a consideration that is approximately HK$11 million above the audited net assets of CCT Investment as at 31 December 2003 before deduction of the CCT Investment Debt.

V. REASONS FOR THE TRANSACTION

(i) The First Precision Group

First Precision was incorporated in November 2002 as an intermediate holding company for holding 100% interest in ESL by CCT Tech. The transformer business of the First Precision Group is mainly carried out by ESL. The key operating subsidiaries of the First Precision Group are ESL and its wholly-owned subsidiary, (Dongguan ESL Electronic Products Co., Ltd.).

The Company and CCT Tech have constantly been reviewing their business strategies to enhance their shareholding value. Currently, the CCT Tech Group is principally engaged in the sale, manufacture, design and development of telecom products on an ODM and OEM basis and is also engaged through the First Precision Group, in the manufacture and sale of power supply components, principally for the CCT Tech Group’s use for the production of telecom and other consumer products. At present, the Group’s principal activities can broadly be categorised into: (i) manufacture and sale of telecom and other consumer products through the CCT Tech Group; (ii) manufacture of power supply components through the First Precision Group; and (iii) manufacture and sale of plastic components and baby and health care products through the Remaining Group.

— 7 —

LETTER FROM THE BOARD

The Directors believe that it is in the interests of the Company to attach a clearer corporate identity to the Company, with a view to enabling a better evaluation of its businesses.

For the year ended 31 December 2003, the First Precision Group contributed approximately HK$16 million (after elimination of approximately HK$104 million upon consolidation of the CCT Tech Group’s accounts) of audited combined turnover and approximately HK$12.0 million of audited combined profit after tax to the CCT Tech Group. The contribution of the First Precision Group of net turnover of approximately HK$16 million and net profit of approximately HK$12.0 million represent approximately 1% of the consolidated turnover of the CCT Tech Group and approximately 16.5% of the net profit after taxation of the CCT Tech Group for the year ended 31 December 2003 respectively. As at 31 December 2003, the audited combined net assets of the First Precision Group amounted to approximately HK$56.7 million which represents approximately 40% of the consolidated net assets of the CCT Tech Group.

The acquisition of the First Precision Group by the Company complements the current plastic component operations of the Remaining Group. The Transaction will enhance management efficiency and provide synergy so that the component business (plastic and electric components) will be managed in one listed company. This will enable the Remaining Group to realign its resources to build up and expand its industrial component business. Furthermore, after Completion, the First Precision Group will be more flexible to find independent customers apart from the CCT Tech Group. Upon Completion, the Company’s interest in the Convertible Note will be reduced and its share of the interest income arising from the Convertible Note will be correspondingly reduced. However, on the other hand, the Transaction will increase the Company’s share in the profit of the First Precision Group.

After Completion, First Precision will cease to be a subsidiary of CCT Tech and the Company’s interest in the First Precision Group will be increased from approximately 35.4% to 100% as First Precision will become an indirect wholly-owned subsidiary of the Company.

(ii) CCT Investment and the Property

The Remaining Group is currently expanding its business in the manufacture of industrial components and baby and health care products. The Company intends to increase its production space and facilities for such expansion. Therefore, it is in the interests of the Remaining Group to acquire the Property as this will save time and investment costs to build a new factory. CCT Investment was acquired by CCT Tech through its acquisition of interest in the entire issued share capital of Empire Success Holdings Limited on 30 June 2003. CCT Investment will upon Completion become a wholly-owned subsidiary of the Company.

The Consideration will be satisfied by cancellation of the Convertible Note to the extent of the same amount of HK$139 million. The Transaction will reduce the liability of CCT Tech and improve its financial position and save the financial cost of CCT Tech by approximately HK$9.7 million per annum as the Convertible Note carries an interest at the rate of prime or best lending rate plus 2% per annum. After Completion, the outstanding principal amount of the Convertible Note will be reduced from HK$754 million to HK$615 million.

— 8 —

LETTER FROM THE BOARD

CCT Tech is treated as a non wholly-owned subsidiary of the Company where its results will be consolidated to the Group. The Directors believe that, after Completion, the reduction of the liabilities and the improvement of the financial position of the CCT Tech Remaining Group will strengthen and improve the operating and financial performance of the CCT Tech Remaining Group which would as a result benefit the Group directly.

Taking into account all the reasons stated in paragraphs (i) and (ii) under the section headed “Reasons for the Transaction”, the Directors believe that the Transaction is in the interests of the Company.

CCT Tech is treated as a non wholly-owned subsidiary of the Company where its results will be consolidated to the Group. The Transaction will not significantly affect the revenue and operating results of the Group. The Directors estimate that there will not be substantial gain or loss to the Group from the acquisition of First Precision and CCT Investment.

After Completion, the Remaining Group’s principal activities will include (i) power supply component business through the First Precision Group; (ii) plastic component business; and (iii) baby and health care product business. The acquisition of CCT Investment will enable the Remaining Group to increase its production space. The CCT Tech Group will focus on the ODM and OEM businesses in telecom products.

General

CCT Tech is approximately 35.4% owned by the Company and the Company is a substantial shareholder and hence a connected person of CCT Tech under the Listing Rules. CCT Tech is treated as a non wholly-owned subsidiary of the Company. The Transaction constitutes a major transaction for the Company for the purposes of the Listing Rules. The Transaction is therefore subject to the approval by the Shareholders at the Extraordinary General Meeting by way of a poll in respect of the resolution to approve the Agreement and the Transaction.

VI. EXTRAORDINARY GENERAL MEETING

The notice convening the Extraordinary General Meeting to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:30 a.m. is set out on pages 120 to 121 of this circular. A form of proxy for use by the Shareholders at the Extraordinary General Meeting is enclosed herein. Whether or not you intend to attend and vote the Extraordinary General Meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, as soon as practicable but in any event, not less than 48 hours before the time appointed for holding the Extraordinary General Meeting. Such form of proxy for use at the Extraordinary General Meeting is also published on the website of the Stock Exchange (www.hkex.com.hk). Completion and return of the form of proxy will not preclude you from attending and voting at the Extraordinary General Meeting in person should you so wish.

— 9 —

LETTER FROM THE BOARD

Pursuant to article 69 of the articles of association of the Company, every resolution submitted to a general meeting shall be determined on a show of hands in the first instance by the Shareholders present in person or by proxy or by authorised representative, but a poll may be demanded (before or on the declaration of the result of the show of hands) by the chairman of the general meeting or by:

(a) at least 3 Shareholders present in person or by proxy or by authorised representative for the time being entitled to vote at the general meeting; or
(b) any Shareholder and Shareholders present in person or by proxy or by authorised representative and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to attend and vote at the general meeting; or
(c) any Shareholder or Shareholders present in person or by proxy or by authorised representative and holding the Shares conferring a right to attend and vote at the general meeting being the Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

The votes of the Shareholders at the Extraordinary General Meeting will be taken by way of a poll.

VII. RECOMMENDATION

The Board is of the opinion that it is in the best interest of the Company and the Shareholders as a whole to approve the Agreement and the Transaction. The Board therefore recommends the Shareholders to vote in favour of the resolution to be proposed at the Extraordinary General Meeting in respect thereof.

VIII. FURTHER INFORMATION

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

Yours faithfully,

For and on behalf of the Board of CCT TELECOM HOLDINGS LIMITED Mak Shiu Tong, Clement Chairman

— 10 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

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

To the members

CCT Telecom Holdings Limited

(Incorporated in the Cayman Islands with limited liability)

We have audited the financial statements on pages 13 to 59 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective Responsibilities of Directors and Auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of Opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

— 11 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants Hong Kong 23 April 2004

— 12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31 December 2003

			2002
	Notes	2003	(Restated)
		HK$’million	HK$’million
TURNOVER	5	3,441	3,130
Cost of sales		(2,963)	(2,696)
Gross profit		478	434
Other revenue		32	41
Selling and distribution costs		(49)	(49)
Administrative expenses		(264)	(314)
Other operating expenses		(35)	(72)
Profit from operating activities before net gains/(losses) on
investments and impairment of fixed assets		162	40
Net gains/(losses) on disposal/deemed
disposal of subsidiaries		(12)	599
Net unrealised holding losses on short term investments		(1)	(383)
Net realised gains/(losses) on disposal of short term
investments		5	(12)
Impairment of long term investments		—	(313)
Impairment of fixed assets		(2)	(3)
Deficit on revaluation of investment properties		(3)	—
Net losses on disposal/deemed disposal of associates		—	(129)
PROFIT/(LOSS) FROM OPERATING ACTIVITIES	6	149	(201)
Finance costs	7	(8)	(27)
		141	(228)
Share of profits and losses of jointly-controlled entities		—	5
Share of profits and losses of associates (note)		(200)	(33)
		(200)	(28)
LOSS BEFORE TAX		(59)	(256)
Tax	10	(12)	(9)
LOSS BEFORE MINORITY INTERESTS		(71)	(265)
Minority interests		(47)	6
NET LOSS FROM ORDINARY ACTIVITIES
ATTRIBUTABLE TO SHAREHOLDERS	11	(118)	(259)
DIVIDENDS	12
Interim		6	4
Proposed final		6	8
		12	12
LOSS PER SHARE	13
Basic		HK$0.28	HK$0.61
Diluted		N/A	N/A

Note: Including a realisation of the relevant portion of the unrealised profits of approximately HK$175 million (2002: HK$6 million) arising from the disposal of subsidiaries to an associate in the prior year.

— 13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

CONSOLIDATED BALANCE SHEET

31 December 2003

Notes 2003 2002 (Restated) HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1,497 1,412 Intangible assets 15 23 23 Goodwill 16 26 39 Interests in associates 18 297 496 Other assets 19 12 12 Long term investments 20 4 4 Deferred tax assets 31 9 3 1,868 1,989 CURRENT ASSETS Short term investments 20 3 15 Inventories 21 178 122 Trade and bills receivables 22 655 538 Prepayments, deposits and other receivables 23 63 106 Pledged time deposits 24 100 83 Cash and cash equivalents 24 873 783 1,872 1,647 CURRENT LIABILITIES Trade and bills payables 25 841 605 Tax payable 25 14 Other payables and accruals 26 198 167 Interest-bearing bank and other borrowings 27 130 205 Convertible notes 30 8 — 1,202 991 NET CURRENT ASSETS 670 656 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,645 NON-CURRENT LIABILITIES Interest-bearing bank loans 28 124 161 Finance lease payables 29 1 2 Convertible notes 30 10 20 Deferred tax liabilities 31 7 7 142 190 MINORITY INTERESTS 101 28 2,295 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(a) 2,247 2,377 Proposed final dividend 12 6 8 2,295 2,427	Notes 2003 2002 (Restated) HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1,497 1,412 Intangible assets 15 23 23 Goodwill 16 26 39 Interests in associates 18 297 496 Other assets 19 12 12 Long term investments 20 4 4 Deferred tax assets 31 9 3 1,868 1,989 CURRENT ASSETS Short term investments 20 3 15 Inventories 21 178 122 Trade and bills receivables 22 655 538 Prepayments, deposits and other receivables 23 63 106 Pledged time deposits 24 100 83 Cash and cash equivalents 24 873 783 1,872 1,647 CURRENT LIABILITIES Trade and bills payables 25 841 605 Tax payable 25 14 Other payables and accruals 26 198 167 Interest-bearing bank and other borrowings 27 130 205 Convertible notes 30 8 — 1,202 991 NET CURRENT ASSETS 670 656 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,645 NON-CURRENT LIABILITIES Interest-bearing bank loans 28 124 161 Finance lease payables 29 1 2 Convertible notes 30 10 20 Deferred tax liabilities 31 7 7 142 190 MINORITY INTERESTS 101 28 2,295 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(a) 2,247 2,377 Proposed final dividend 12 6 8 2,295 2,427	Notes 2003 2002 (Restated) HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1,497 1,412 Intangible assets 15 23 23 Goodwill 16 26 39 Interests in associates 18 297 496 Other assets 19 12 12 Long term investments 20 4 4 Deferred tax assets 31 9 3 1,868 1,989 CURRENT ASSETS Short term investments 20 3 15 Inventories 21 178 122 Trade and bills receivables 22 655 538 Prepayments, deposits and other receivables 23 63 106 Pledged time deposits 24 100 83 Cash and cash equivalents 24 873 783 1,872 1,647 CURRENT LIABILITIES Trade and bills payables 25 841 605 Tax payable 25 14 Other payables and accruals 26 198 167 Interest-bearing bank and other borrowings 27 130 205 Convertible notes 30 8 — 1,202 991 NET CURRENT ASSETS 670 656 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,645 NON-CURRENT LIABILITIES Interest-bearing bank loans 28 124 161 Finance lease payables 29 1 2 Convertible notes 30 10 20 Deferred tax liabilities 31 7 7 142 190 MINORITY INTERESTS 101 28 2,295 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(a) 2,247 2,377 Proposed final dividend 12 6 8 2,295 2,427
	1,868 3 178 655 63 100 873 1,872 841 25 198 130 8 1,202 670 2,538 124 1 10 7 142 101	1,989
		15 122 538 106 83 783
		1,647
		605 14 167 205 —
		991
		656
		2,645
		161 2 20 7
		190 28
	2,295	2,427
	42 2,247 6	42 2,377 8
	2,295	2,427

Mak Shiu Tong, Clement Chairman

Tam Ngai Hung, Terry Director

— 14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2003

Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427	Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427	Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427	Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427	Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427	Notes Issued share capital Share premium account Capital reserve (Note34(a)) Retained profits/ (accumulated losses) Proposed final dividend Total HK$’million HK$’million HK$’million HK$’million HK$’million HK$’million At 1 January 2002: As previously reported 2,110 2,069 — (1,659) — 2,520 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — 1 — 1 As restated 2,110 2,069 — (1,658) — 2,521 Capital reduction 32 (2,068) — 1,134 934 — — Transfer to accumulated losses 34(b) — (815) — 815 — — Reversal of goodwill upon disposal/deemed disposal of associates — — — 148 — 148 Reversal of goodwill upon disposal of a subsidiary — — — 21 — 21 Net loss for the year (as restated) — — — (259) — (259 2002 interim dividend 12 — (4) — — — (4 Proposed 2002 final dividend 12 — — (8) — 8 — At 31 December 2002 42 1,250 1,126 1 8 2,427 At 1 January 2003: As previously reported 42 1,250 1,126 2 8 2,428 Prior year adjustment: SSAP 12 — restatement of deferred tax 31 — — — (1) — (1 As restated 42 1,250 1,126 1 8 2,427 Net loss for the year — — — (118) — (118 2002 final dividend 12 — — — — (8) (8 2003 interim dividend 12 — — (6) — — (6 Proposed 2003 final dividend 12 — — (6) — 6 — At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Retained by: Company and subsidiaries 42 1,250 1,114 103 6 2,515 Associates — — — (220) — (220 At 31 December 2003 42 1,250 1,114 (117) 6 2,295 Company and subsidiaries 42 1,250 1,126 22 8 2,448 Associates — — — (21) — (21 At 31 December 2002 42 1,250 1,126 1 8 2,427
					2,521
(2,068) — — — — — —	— (815) — — — (4) —	1,134 — — — — — (8)	934 815 148 21 (259) — —	— — — — — — 8	— — 148 21 (259 (4 —
42	1,250	1,126	1	8	2,427
42 — 42 — — — —	1,250 — 1,250 — — — —	1,126 — 1,126 — — (6) (6)	2 (1) 1 (118) — — —	8 — 8 — (8) — 6	2,428 (1
					2,427 (118 (8 (6 —
42	1,250	1,114	(117)	6	2,295
42 —	1,250 —	1,114 —	103 (220)	6 —	2,515 (220
42	1,250	1,114	(117)	6	2,295
42 —	1,250 —	1,126 —	22 (21)	8 —	2,448 (21
42	1,250	1,126	1	8	2,427

— 15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2003

	Notes	2003	2002
		HK$’million	HK$’million
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax		(59)	(256)
Adjustments for:
Finance costs	7	8	27
Share of profits and losses of jointly-controlled
entities and associates		200	28
Interest income	5	(8)	(15)
Depreciation	6	122	122
Amortisation of goodwill	6	1	16
Amortisation of intangible assets	6	30	31
Write off of deferred development costs	6	15	41
Write off of fixed assets	6	18	—
Loss on disposal of fixed assets, net	6	1	9
Net losses/(gains) on disposal/deemed disposal of
subsidiaries		12	(599)
Net unrealised holding losses of short term investments		1	383
Net realised losses/(gains) on disposal of short term
investments		(5)	12
Impairment of long term investments		—	313
Impairment of fixed assets		2	3
Deficit on revaluation of investment properties		3	—
Impairment of other assets	6	—	2
Net losses on disposal/deemed disposal of associates		—	129
Bad and doubtful debt provisions on trade receivables	6	—	2
Bad and doubtful debt provisions on other receivables	6	—	2
Provision for slow-moving and obsolete stocks	6	8	6
Operating profit before working capital changes		349	256
Increase in inventories		(61)	(37)
Decrease in short term investments		16	106
Increase in trade and bills receivables		(122)	(154)
Decrease/(increase) in prepayments, deposits and other
receivables		55	(136)
Increase in trade and bills payables and accruals		272	171
Cash generated from operations		509	206
Interest received		8	15
Interest paid		(8)	(26)
Interest element on finance lease rental payments		—	(1)
Dividend paid		(14)	(4)
Hong Kong profits tax paid		(9)	(7)
Net cash inflow from operating activities		486	183

— 16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

	Notes	2003	2002
		HK$’million	HK$’million
Net cash inflow from operating activities		486	183
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets		(244)	(130)
Proceeds from disposal of fixed assets		9	11
Additions to intangible assets		(47)	(60)
Disposal/deemed disposal of associates		—	87
Disposal/deemed disposal of subsidiaries	35(b)	(1)	(248)
Acquisition of subsidiaries	35(c)	(3)	(7)
Decrease/(increase) in pledged time deposits		(17)	97
Net cash outflow from investing activities		(303)	(250)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of convertible notes		—	(120)
Issue of convertible notes		21	20
New bank loans		93	250
Net repayment of trust receipts		(60)	(1)
Repayment of bank loans		(141)	(253)
Capital element of finance lease rental payments		(4)	(5)
Net cash outflow from financing activities		(91)	(109)
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS		92	(176)
Cash and cash equivalents at beginning of year		781	957
CASH AND CASH EQUIVALENTS AT END OF YEAR		873	781
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	24	379	196
Non-pledged time deposits with original maturity of less
than three months when acquired	24	494	587
Bank overdrafts	28	—	(2)
		873	781

— 17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

BALANCE SHEET

31 December 2003

Notes 2003 2002 HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1 — Interests in subsidiaries 17 1,840 1,979 1,841 1,979 CURRENT ASSETS Short term investments 20 — 11 Prepayments, deposits and other receivables 23 3 1 Pledged time deposits 24 — 17 Cash and cash equivalents 24 379 428 382 457 CURRENT LIABILITIES Other payables and accruals 26 5 9 NET CURRENT ASSETS 377 448 2,218 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(b) 2,170 2,377 Proposed final dividend 12 6 8 2,218 2,427	Notes 2003 2002 HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1 — Interests in subsidiaries 17 1,840 1,979 1,841 1,979 CURRENT ASSETS Short term investments 20 — 11 Prepayments, deposits and other receivables 23 3 1 Pledged time deposits 24 — 17 Cash and cash equivalents 24 379 428 382 457 CURRENT LIABILITIES Other payables and accruals 26 5 9 NET CURRENT ASSETS 377 448 2,218 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(b) 2,170 2,377 Proposed final dividend 12 6 8 2,218 2,427	Notes 2003 2002 HK$’million HK$’million NON-CURRENT ASSETS Fixed assets 14 1 — Interests in subsidiaries 17 1,840 1,979 1,841 1,979 CURRENT ASSETS Short term investments 20 — 11 Prepayments, deposits and other receivables 23 3 1 Pledged time deposits 24 — 17 Cash and cash equivalents 24 379 428 382 457 CURRENT LIABILITIES Other payables and accruals 26 5 9 NET CURRENT ASSETS 377 448 2,218 2,427 CAPITAL AND RESERVES Issued capital 32 42 42 Reserves 34(b) 2,170 2,377 Proposed final dividend 12 6 8 2,218 2,427
	1,841 — 3 — 379 382 5 377 2,218 42 2,170 6	1,979
		11 1 17 428
		457
		9
		448
		2,427
		42 2,377 8
	2,218	2,427

Mak Shiu Tong, Clement

Chairman

Tam Ngai Hung, Terry

Director

— 18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

NOTES TO FINANCIAL STATEMENTS

31 December 2003

1. CORPORATE INFORMATION

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

the manufacture and sale of telecom products and accessories;
the manufacture and sale of baby and health care products; and
magazine publishing (disposed of during the year).

2. IMPACT OF NEW AND REVISED STATEMENTS OF STANDARD ACCOUNTING PRACTICE (“SSAP”) AND INTERPRETATIONS

The following new and revised SSAP and Interpretations are effective for the first time for the current year’s financial statements and have had a significant impact thereon:

SSAP 12 (Revised): “Income taxes”
● Interpretation 18: “Consolidation and equity method — Potential voting rights and allocation of ownership interests”
● Interpretation 20: “Income taxes — Recovery of revalued non-depreciable assets”

These SSAP and Interpretations prescribe new accounting measurement and disclosure practices. The major effects on the Group’s accounting policies and on the amounts disclosed in these financial statements of adopting these SSAP and Interpretations are summarised as follows:

SSAP 12 prescribes the accounting for income taxes payable or recoverable, arising from the taxable profit or loss for the current period (current tax); and income taxes payable or recoverable in future periods, principally arising from taxable and deductible temporary differences and the carry forward of unused tax losses (deferred tax).

The principal impact of the revision of this SSAP on these financial statements is described below:

Measurement and recognition:

deferred tax assets and liabilities relating to the differences between capital allowances for tax purposes and depreciation for financial reporting purposes and other taxable and deductible temporary differences are generally fully provided for, whereas previously the deferred tax was recognised for timing differences only to the extent that it was probable that the deferred tax asset or liability would crystallise in the foreseeable future; and
a deferred tax asset has been recognised for tax losses arising in the current/prior periods to the extent that it is probable that there will be sufficient future taxable profits against which such losses can be utilised.

Disclosures:

deferred tax assets and liabilities are presented separately on the balance sheet, whereas previously they were presented on a net basis; and

— 19 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

the related note disclosures are now more extensive than previously required. These disclosures are presented in notes 10 and 31 to the financial statements and include a reconciliation between the accounting loss and the tax expense for the year.

Further details of these changes and the prior year adjustments arising from them are included in the accounting policy for deferred tax in note 3 and in note 31 to the financial statements.

Interpretation 18 requires consideration of the existence and effect of all potential voting rights that are presently exercisable or presently convertible in preparing consolidated financial statements.

Interpretation 20 requires that a deferred tax asset or liability that arises from the revaluation of certain non-depreciable assets and investment properties is measured based on the tax consequences that would follow from the recovery of the carrying amount of that asset through sale. This policy has been applied by the Group in respect of the revaluation of its investment properties in the deferred tax calculated under SSAP 12.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the periodic remeasurement of investment properties and equity investments as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2003. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

Subsidiaries

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

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

Joint venture companies

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

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

— 20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

A joint venture company is treated as:

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

Jointly-controlled entities

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

The Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in jointly-controlled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Associates

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

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

Goodwill

Goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess of the cost of the acquisition over the Group’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of 20 years. In the case of associates and jointly-controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than a separately identified asset on the consolidated balance sheet.

Prior to the adoption of SSAP 30 “Business combinations” in 2001, goodwill arising on acquisitions was eliminated against consolidated reserves in the year of acquisition. On the adoption of SSAP 30, the Group applied the transitional provision of the SSAP that permitted such goodwill to remain eliminated against consolidated reserves. Goodwill on acquisitions subsequent to the adoption of the SSAP is treated according to the SSAP 30 goodwill accounting policy above.

— 21 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

On disposal of subsidiaries, associates or jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate. Any attributable goodwill previously eliminated against consolidated reserves at the time of acquisition is written back and included in the calculation of the gain or loss on disposal.

The carrying amount of goodwill, including goodwill remaining eliminated against consolidated reserves, is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years.

A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

Fixed assets, other than investment properties and construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset 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 fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed assets, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life, after taking into account its estimated residual value. The principal annual rates used for this purpose are as follows:

Leasehold land	2% — 6%
Buildings	2.5% — 6%
Plant and machinery	10% — 30%
Tools, moulds and equipment	10% — 20%
Furniture and office equipment	10% — 20%
Motor vehicles	15% — 30%

— 22 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress

Construction in progress represents buildings under construction. It is stated at cost less any impairment losses, and is not depreciated. Cost comprises 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 fixed assets when completed and ready for use.

Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential, any rental income being negotiated at arm’s length. Such properties are not depreciated and are stated at their open market values on the basis of annual professional valuations performed at the end of each financial year. Changes in the values of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged.

On disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuations is released to the profit and loss account.

Intangible assets

Publishing rights

Purchased publishing rights are stated at cost less accumulated amortisation and any impairment losses, and are amortised on the straight-line basis over their estimated useful lives of 20 years.

Deferred development costs

All research costs are charged to the profit and loss account as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably; there is reasonable certainty that the projects are technically feasible; and the products have commercial value. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less accumulated amortisation and any impairment losses, and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding four years, commencing from the date when the products are put into commercial production.

Club memberships

Club memberships are intended to be held for long term purposes. They are stated at cost less any impairment losses, on an individual membership basis.

— 23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Long term investments

Long term investments are stated at cost less any impairment losses, on an individual investment basis.

Short term investments

Short term investments are investments in equity securities held for trading purposes. Listed securities are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. Unlisted securities are stated at their estimated fair values on an individual basis, as determined by the directors having regard to the prices of the most recent reported sales or purchases of the securities, or professional valuations performed at the end of each financial year. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account for the period in which they arise.

Inventories

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

Income tax

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

Deferred tax liabilities are recognised for all taxable temporary differences:

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

— 24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

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

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

Leased assets

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

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

Employee benefits

Paid leave carried forward

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A contingent liability is disclosed in respect of possible future long service payments to employees, as a number of current employees have achieved the required number of years of service to the Group, to the balance sheet date, in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated in the circumstances specified. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

Share option scheme

The Company operates two share option schemes for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option schemes are not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise

— 25 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

Pension scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

In addition to the MPF Scheme, the Group operates a separate defined contribution retirement benefits scheme for those employees who are eligible to participate in this scheme. This scheme operates in a similar way to the MPF Scheme, except that when an employee leaves this scheme before his/her interest in the Group’s employer contributions vesting fully, the ongoing contributions payable by the Group are reduced by the relevant amount of the forfeited employer contributions.

Foreign currencies

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries, jointly-controlled entities and associates are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries, jointly-controlled entities and associates are translated to Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated to Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

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

Cash and cash equivalents

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

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

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Revenue recognition

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

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) circulation income, when the magazines are delivered;
(c) rental income, on a time proportion basis over the lease terms;
(d) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable; and
(e) dividend income, when the shareholders’ right to receive payment has been established.

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profits or capital reserve within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

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

Related parties

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

4. SEGMENT INFORMATION

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

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

(a) the telecom products segment engages in the manufacture and sale of telecom products, accessories and components;
(b) the baby and health care products segment engages in the manufacture and sale of baby and health care products; and

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

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

(a) Business segments

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

Group

			Baby and		Corporate	Corporate
HK$’million	Telecom	products	health care products		and	others	Eliminations		Consolidated
	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002
										(Restated)
Segment revenue:
Sales to external
customers	3,224	2,864	157	166	52	85	—	—	3,433	3,115
Other revenue	—	—	—	—	32	41	—	—	32		41
Total revenue	3,224	2,864	157	166	84	126	—	—	3,465	3,156
Segment results	215	167	19	6	(86)	(847)	—	—	148	(674)
Interest income									8		15
Unallocated revenue									5		599
Unallocated expenses									(12)	(141)
Profit/(loss) from operating
activities									149	(201)
Finance costs									(8)		(27)
Share of profits and losses of:
Jointly-controlled entities	—	—	—	—	—	5			—		5
Associates	—	—	—	—	(200)	(33)			(200)		(33)
Loss before tax									(59)	(256)
Tax									(12)		(9)
Loss before minority interests									(71)	(265)
Minority interests									(47)		6
Net loss from ordinary
activities attributable to
shareholders									(118)	(259)
			Baby and		Corporate
HK$’million	Telecom	products	health care products		and	others	Eliminations		Consolidated
	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002
										(Restated)
Segment assets	2,335	2,847	98	87	5,500	5,657	(4,499)	(5,454)	3,434	3,137
Interests in associates	—	—	—	—	297	496	—	—	297		496
Unallocated assets									9		3
Total assets									3,740	3,636
Segment liabilities	2,190	2,621	37	24	3,311	3,581	(4,499)	(5,454)	1,039		772
Unallocated liabilities									305		409
Total liabilities									1,344	1,181
Other segment information:
Capital expenditure	149	153	6	5	137	34	—	—	292		192
Depreciation	92	84	3	2	27	36	—	—	122		122
Amortisation	30	31	—	—	1	16	—	—	31		47
Impairment losses
recognised directly in
the profit and loss
account	—	—	—	2	2	316	—	—	2		318
Other non-cash expenses	42	56	—	—	16	528	—	—	58		584

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

(b) Geographical segments

The following table presents revenue information for the Group’s geographical segments. Over 90% of the Group’s assets are located in the People’s Republic of China (the “PRC”) including Hong Kong. Accordingly, no analysis of assets and capital expenditures by geographical segments is presented.

Group

	United States of	United States of		PRC,
HK$’million	America			including	HK	European	Union		Others		Consolidated
	2003	2002		2003	2002	2003	2002		2003	2002	2003	2002
Segment revenue:
Sales to external
customers	3,224	2,864		157	166	52	85		—	—	3,433	3,115
Other revenue	—		—	—	—	32	41		—	—	32	41
Total revenue	3,224	2,864		157	166	84	126		—	—	3,465	3,156
Segment results	215	167		19	6	(86)	(847)		—	—	148	(674)
Interest income											8	15
Unallocated revenue											5	599
Unallocated expenses											(12)	(141)
Profit/(loss) from operating
activities											149	(201)
Finance costs											(8)	(27)
Share of profits and losses of:
Jointly-controlled entities	—		—	—	—	—		5			—	5
Associates	—		—	—	—	(200)	(33)				(200)	(33)
Loss before tax											(59)	(256)
Tax											(12)	(9)
Loss before minority interests											(71)	(265)
Minority interests											(47)	6
Net loss from ordinary
activities attributable to
shareholders											(118)	(259)
	United States of			PRC,
HK$’million	America			including	HK	European	Union		Others		Consolidated
	2003	2002		2003	2002	2003	2002		2003	2002	2003	2002
Segment revenue:
Sales to external
customers	2,222	2,198		637	447	119	155		455	315	3,433	3,115
Other revenue	—		—	32	41	—	—		—	—	32	41
Total revenue	2,222	2,198		669	488	119	155		455	315	3,465	3,156

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

5. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts and the value of services rendered.

Revenue from the following activities has been included in turnover:

	2003	2002
	HK$’million	HK$’million
Manufacture and sale of telecom products and accessories	3,224	2,864
Trading of telecom and network equipment and provision of related
consultancy services	—	2
Manufacture and sale of baby and health care products	157	166
Provision of multimedia content and services, and magazine publishing	52	83
Interest income	8	15
	3,441	3,130

6. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

The Group’s profit/(loss) from operating activities is arrived at after charging:

			Group
	Notes	2003	2002
		HK$’million	HK$’million
Depreciation	14	122	122
Minimum lease payments under operating leases in respect
of land and buildings		5	15
Research and development costs:
Deferred expenditure amortised*	15	30	31
Current year expenditure	15	47	60
Amortisation of goodwill**	16	1	16
Auditors’ remuneration		5	5
Staff costs (excluding directors’ remuneration — note 8)***
Wages and salaries		275	252
Pension scheme contributions		5	9
Bad and doubtful debt provisions on trade receivables		—	2
Bad and doubtful debt provisions on other receivables		—	2
Loss on disposal of fixed assets, net		1	9
Write off of fixed assets		18	—
Write off of deferred development costs**	15	15	41
Provision for slow-moving and obsolete stocks*		8	6
Impairment of other assets		—	2
and after crediting:

Gross rental income from investment properties 1 3

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

The amortisation of deferred development costs and the provision for slow-moving and obsolete stocks are included in “Cost of sales” on the face of the consolidated profit and loss account.
** The amortisation of goodwill and write off of deferred development costs for the year are included in “Other operating expenses” on the face of the consolidated profit and loss account.
*** The effect of forfeited contributions on the Group’s contributions to the pension schemes for the year, and the amounts of forfeited contributions available to reduce contributions in future years, were not material.

7. FINANCE COSTS

				Group
			2003	2002
			HK$’million	HK$’million
Interest	on	bank loans and overdrafts wholly repayable within five years	3	15
Interest	on	bank loans repayable after five years	4	3
Interest	on	convertible notes	1	8
Interest	on	finance leases	—	1
			8	27

8. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance, is as follows:

Group 2003 2002 HK$’million HK$’million Fees: Executive directors — — Independent non-executive directors — — — — Executive directors’ other emoluments: Salaries, allowances and benefits in kind 14 18 Performance related bonuses 12 8 Pension scheme contributions 1 1 27 27	Group 2003 2002 HK$’million HK$’million Fees: Executive directors — — Independent non-executive directors — — — — Executive directors’ other emoluments: Salaries, allowances and benefits in kind 14 18 Performance related bonuses 12 8 Pension scheme contributions 1 1 27 27	Group 2003 2002 HK$’million HK$’million Fees: Executive directors — — Independent non-executive directors — — — — Executive directors’ other emoluments: Salaries, allowances and benefits in kind 14 18 Performance related bonuses 12 8 Pension scheme contributions 1 1 27 27
	— 14 12 1	—
		18 8 1
	27	27

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

The number of directors whose remuneration fell within the following bands is as follows:

Nil - HK$1,000,000 HK$2,500,001 - HK$3,000,000 HK$3,500,001 - HK$4,000,000 HK$6,000,001 - HK$6,500,000 HK$6,500,001 - HK$7,000,000 HK$17,000,001 - HK$17,500,000 HK$17,500,001 - HK$18,000,000	Number of directors 2003 2002 4 5 — 1 1 — — 1 1 — 1 — — 1 7 8	Number of directors 2003 2002 4 5 — 1 1 — — 1 1 — 1 — — 1 7 8
		8

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

During the year, 10,500,000 share options were granted to the directors in respect of their services to the Group, and the details of which are set out in note 33 to the financial statements. No value in respect of the share options granted during the year has been charged to the profit and loss account, or is otherwise included in the above directors’ remuneration disclosures.

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2002: three) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2002: two) non-director, highest paid employees for the year are as follows:

		Group
	2003	2002
	HK$’million	HK$’million
Salaries, allowances and benefits in kind	6	6
Performance related bonuses	2	2
Pension scheme contributions	—	—
	8	8

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

HK$3,000,001 - HK$3,500,000 HK$3,500,001 - HK$4,000,000 HK$4,000,001 - HK$4,500,000 HK$4,500,001 - HK$5,000,000	Number of employees 2003 2002 1 — — 1 1 — — 1 2 2	Number of employees 2003 2002 1 — — 1 1 — — 1 2 2
		2

— 32 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

During the year, 1,000,000 share options were granted to a non-director, highest paid employee in respect of his service to the Group, further details of which are included in the disclosures in note 33 to the financial statements. No value in respect of the share options granted during the year has been charged to the profit and loss account, or is otherwise, included in the above non-director, highest paid employees’ remuneration disclosures.

10. TAX

The Company is exempted from tax in the Cayman Islands until 2010. Hong Kong profits tax has been provided at the rate of 17.5% (2002: 16%) on the estimated assessable profits arising in Hong Kong during the year. The increased Hong Kong profits tax rate became effective from the year of assessment 2003/2004, and so is applicable to the assessable profits arising in Hong Kong for the whole of the year ended 31 December 2003. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Certain PRC subsidiaries of the Group, which are categorised as wholly foreign-owned enterprises, are entitled to preferential tax treatments including full exemption from the PRC income tax for two years starting from their first profit-making year following by a 50% reduction for the next three consecutive years.

		Group
	2003	2002
		(Restated)
	HK$’million	HK$’million
Group:
Current — Hong Kong:
Charge for the year	14	8
Overprovision in prior years	—	(1)
Current — Elsewhere	5	—
Deferred — note 31	(6)	2
	13	9
Share of tax attributable to associates	(1)	—
Total tax charge for the year	12	9

A reconciliation of the tax expense applicable to loss before tax using the statutory rates for the countries in which the Company and its subsidiaries and associates are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows:

Group — 2003

Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (290) 231 Tax at the statutory or applicable tax rate (51) 17.5 55 Income not subject to tax (3) 1.0 (48) Expenses not deductible for tax 57 (19.6) 5 Tax losses recognised as deferred tax assets (6) 2.1 — Tax losses not recognised 11 (3.8) — Tax exemption — — (8) Tax charge at the Group’s effective rate 8 (2.8) 4	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (290) 231 Tax at the statutory or applicable tax rate (51) 17.5 55 Income not subject to tax (3) 1.0 (48) Expenses not deductible for tax 57 (19.6) 5 Tax losses recognised as deferred tax assets (6) 2.1 — Tax losses not recognised 11 (3.8) — Tax exemption — — (8) Tax charge at the Group’s effective rate 8 (2.8) 4	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (290) 231 Tax at the statutory or applicable tax rate (51) 17.5 55 Income not subject to tax (3) 1.0 (48) Expenses not deductible for tax 57 (19.6) 5 Tax losses recognised as deferred tax assets (6) 2.1 — Tax losses not recognised 11 (3.8) — Tax exemption — — (8) Tax charge at the Group’s effective rate 8 (2.8) 4	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (290) 231 Tax at the statutory or applicable tax rate (51) 17.5 55 Income not subject to tax (3) 1.0 (48) Expenses not deductible for tax 57 (19.6) 5 Tax losses recognised as deferred tax assets (6) 2.1 — Tax losses not recognised 11 (3.8) — Tax exemption — — (8) Tax charge at the Group’s effective rate 8 (2.8) 4	China Total % HK$’million % (59) 24.0 4 (6.8) (20.8) (51) 86.5 2.1 62 (105.1) — (6) 10.2 — 11 (18.6) (3.6) (8) 13.5 1.7 12 (20.3)	China Total % HK$’million % (59) 24.0 4 (6.8) (20.8) (51) 86.5 2.1 62 (105.1) — (6) 10.2 — 11 (18.6) (3.6) (8) 13.5 1.7 12 (20.3)	China Total % HK$’million % (59) 24.0 4 (6.8) (20.8) (51) 86.5 2.1 62 (105.1) — (6) 10.2 — 11 (18.6) (3.6) (8) 13.5 1.7 12 (20.3)
	(51) (3) 57 (6) 11 —	17.5 1.0 (19.6) 2.1 (3.8) —	55 (48) 5 — — (8)	24.0 (20.8) 2.1 — — (3.6)	4 (51) 62 (6) 11 (8)	(6.8 86.5 (105.1 10.2 (18.6 13.5
	8	(2.8)	4	1.7	12

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Group — 2002

Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (347) 91 Tax at the statutory or applicable tax rate (56) 16.0 22 Adjustment in respect of current tax of previous periods (1) 0.3 — Income not subject to tax (101) 29.1 — Expenses not deductible for tax 157 (45.1) 7 Tax losses not recognised 10 (2.9) — Tax exemption — — (29) Tax charge at the Group’s effective rate 9 (2.6) —	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (347) 91 Tax at the statutory or applicable tax rate (56) 16.0 22 Adjustment in respect of current tax of previous periods (1) 0.3 — Income not subject to tax (101) 29.1 — Expenses not deductible for tax 157 (45.1) 7 Tax losses not recognised 10 (2.9) — Tax exemption — — (29) Tax charge at the Group’s effective rate 9 (2.6) —	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (347) 91 Tax at the statutory or applicable tax rate (56) 16.0 22 Adjustment in respect of current tax of previous periods (1) 0.3 — Income not subject to tax (101) 29.1 — Expenses not deductible for tax 157 (45.1) 7 Tax losses not recognised 10 (2.9) — Tax exemption — — (29) Tax charge at the Group’s effective rate 9 (2.6) —	Hong Kong Mainland HK$’million % HK$’million Profit/(loss) before tax (347) 91 Tax at the statutory or applicable tax rate (56) 16.0 22 Adjustment in respect of current tax of previous periods (1) 0.3 — Income not subject to tax (101) 29.1 — Expenses not deductible for tax 157 (45.1) 7 Tax losses not recognised 10 (2.9) — Tax exemption — — (29) Tax charge at the Group’s effective rate 9 (2.6) —	China Total % HK$’million % (256)	China Total % HK$’million % (256)	China Total % HK$’million % (256)
	(56) (1) (101) 157 10 —	16.0 0.3 29.1 (45.1) (2.9) —	22 — — 7 — (29)	24.0 — — 7.7 — (31.7)	(34) (1) (101) 164 10 (29)	13.3 0.4 39.5 (64.1) (3.9) 11.3
	9	(2.6)	—	—	9	(3.5)

11. NET LOSS FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net loss from ordinary activities attributable to shareholders for the year ended 31 December 2003 dealt with in the financial statements of the Company, was approximately HK$195 million (2002: net profit of HK$1 million). The Group’s share of the profits and losses for the year retained by the associates amounted to losses of HK$200 million (2002: HK$33 million).

12. DIVIDENDS

	2003	2002
	HK$’million	HK$’million
Interim - HK$0.015 (2002: HK$0.01) per ordinary share	6	4
Proposed final - HK$0.015 (2002: HK$0.02) per ordinary share	6	8
	12	12

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

13. LOSS PER SHARE

The calculation of basic loss per share is based on the net loss attributable to shareholders for the year of approximately HK$118 million (2002 (restated): HK$259 million), and the weighted average number of 422,105,230 (2002: 422,105,230) ordinary shares in issue during the year.

The diluted loss per share amount for the year ended 31 December 2003 is not shown as the potential ordinary shares outstanding during the year had an anti-dilutive effect on the basic loss per share for the year.

The diluted loss per share amount for the year ended 31 December 2002 is not shown as the potential ordinary shares outstanding during that year had no dilution effect on the basic loss per share for that year.

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

14. FIXED ASSETS

Group

		Leasehold		Tools,	Furniture
	Investment	land and	Plant and	moulds and	and office	Motor	Construction
	properties	buildings	machinery	equipment	equipment	vehicles		in progress	Total
	HK$’million	HK$’million	HK$’million	HK$’million	HK$’million	HK$’million		HK$’million	HK$’million
Cost or valuation:
At 1 January 2003	13	1,459	259	100	113	17		—	1,961
Additions	—	12	48	26	18	5		136	245
Acquisition of
subsidiaries	—	—	—	—	1	—		—	1
Disposals	(3)	(8)	—	—	(1)	(3)		—	(15)
Write off	—	(19)	—	—	—	—		—	(19)
Disposal of
subsidiaries	—	—	—	—	(10)	—		—	(10)
Reclassification	—	(2)	—	—	2	—		—	—
Deficit on
revaluation	(3)	—	—	—	—	—		—	(3)
Transfers	—	136	—	—	—	—		(136)	—
At 31 December 2003	7	1,578	307	126	123	19		—	2,160
Analysis of cost or
valuation:
At cost	—	1,578	307	126	123	19		—	2,153
At 31 December
2003 valuation	7	—	—	—	—	—		—	7
	7	1,578	307	126	123	19		—	2,160
Accumulated
depreciation and
impairment:
At 1 January 2003	—	298	124	56	62	9		—	549
Depreciation
provided
during the year	—	49	38	16	16	3		—	122
Impairment during
the year
recognised in
the profit and
loss account	—	2	—	—	—	—		—	2
Disposals	—	(3)	—	—	(1)	(1)		—	(5)
Write off	—	(1)	—	—	—	—		—	(1)
Disposal of
subsidiaries	—	—	—	—	(4)	—		—	(4)
At 31 December 2003	—	345	162	72	73	11		—	663
Net book value:
At 31 December
2003	7	1,233	145	54	50	8		—	1,497
At 31 December
2002	13	1,161	135	44	51	8		—	1,412

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Company

	Furniture and
	office equipment
	HK$’million
Cost:
Transfer from subsidiaries and at 31 December 2003	1
Accumulated depreciation:
Depreciation provided during the year and at 31 December 2003	—
Net book value:
At 31 December 2003	1

The net book value of the fixed assets of the Group held and under finance leases included in the total amounts of tools, moulds and equipment and motor vehicles as at 31 December 2003, amounted to approximately HK$1,600,000 (2002: HK$3,800,000) and HK$1,900,000 (2002: HK$2,600,000), respectively.

The Group’s land and buildings included above are held under the following lease terms:

	Hong Kong	Elsewhere	Total
	HK$’million	HK$’million	HK$’million
Long term leases	194	—	194
Medium term leases	63	976	1,039
	257	976	1,233

The Group’s investment properties are situated in Hong Kong and held under long term leases.

The Group’s investment properties were revalued on 31 December 2003 by E. N. Surveyors & Co., independent professionally qualified valuers, on an open market, existing use basis.

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

15. INTANGIBLE ASSETS

Group

	Deferred
	development	Publishing
	costs	rights	Total
	HK$’million	HK$’million	HK$’million
Cost:
At 1 January 2003	76	2	78
Additions	47	—	47
Write off	(38)	—	(38)
Disposal of subsidiaries	—	(2)	(2)
At 31 December 2003	85	—	85
Accumulated amortisation:
At 1 January 2003	55	—	55
Amortisation provided during the year	30	—	30
Write back	(23)	—	(23)
At 31 December 2003	62	—	62
Net book value:
At 31 December 2003	23	—	23
At 31 December 2002	21	2	23

16. GOODWILL

The amounts of the goodwill capitalised as an asset or recognised in the consolidated balance sheet, arising from the acquisition of subsidiaries, are as follows:

Group

	HK$’million
Cost:
At 1 January 2003	41
Acquisition of subsidiaries	11
Deemed disposal/disposal of subsidiaries	(25)
At 31 December 2003	27
Accumulated amortisation:
At 1 January 2003	2
Amortisation provided during the year	1
Deemed disposal/disposal of subsidiaries	(2)
At 31 December 2003	1
Net book value:
At 31 December 2003	26
At 31 December 2002	39

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

As detailed in note 3 to the financial statements, on the adoption of SSAP 30 in 2001, the Group applied the transitional provision of SSAP 30 that permitted goodwill in respect of acquisitions which occurred prior to the adoption of the SSAP, to remain eliminated against consolidated reserves.

The net amount of goodwill remaining in consolidated reserves, arising from the acquisition of subsidiaries prior to the adoption of SSAP 30 in 2001, was approximately HK$103,000,000 as at 1 January 2003 and 31 December 2003. The net amount of goodwill is stated at its cost of HK$783,000,000, less cumulative impairment of approximately HK$680,000,000 which arose in prior years.

17. INTERESTS IN SUBSIDIARIES

	Company
	2003	2002
	HK$’million	HK$’million
Unlisted shares, at cost	424	—
Due from subsidiaries	4,118	4,477
Due to subsidiaries	(600)	(600)
	3,942	3,877
Provision for impairment	(2,102)	(1,898)
	1,840	1,979

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

As at 31 December 2002, the unlisted shares, at cost, amounted to HK$85.

— 38 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

Particulars of the principal subsidiaries are as follows:

	Place of	Nominal value of
	incorporation/	issued ordinary/	Percentage of equity
	registration and	registered share	attributable to			Principal
Name	operations	capital	the Company			activities
			Direct	Indirect
CCT Marketing Limited	British Virgin	US$1 Ordinary	—	34.25#		Trading of telecom
	Islands/					products
	Hong Kong
CCT Telecom (HK) Limited	Hong Kong	HK$2,600,000	—	34.25#		Sourcing of
		Ordinary				telecom products
CCT Tech International	Bermuda/	HK$131,384,226	—	34.25#		Investment Holding
Limited (“CCT Tech”)@	Hong Kong	Ordinary
Electronic Sales Limited	Hong Kong	HK$5,948,000	—	34.25#		Sale of Telecom
		Ordinary				Products
Full Triumph International	British Virgin	US$1 Ordinary	—		100	Property Holding
Limited	Islands/
	Hong Kong
Goldbay Investments	Hong Kong	HK$2 Ordinary	—		100	Property holding
Limited
Huge Partner Limited	Hong Kong	HK$10,000	—		100	Property holding
		Ordinary
Neptune Holding Limited	Hong Kong	HK$10,000,000	—		100	Trading of plastic
		Non-voting*				casings and
		class ‘A’ shares				parts
		HK$1,000,000
		Voting
		class ‘B’ shares
Wiltec Industries Limited	Hong Kong	HK$100 Ordinary	—		100	Sale of baby care
		HK$1,000,000				products
		Deferred**
Huiyang CCT	People’s Republic	HK$80,000,000	—	34.25#		Manufacturing of
Telecommunications	of China	Registered^				telecom products
Products Co., Ltd.
Huiyang CCT Plastic	People’s Republic	HK$48,600,000	—		100	Manufacturing of
Products Co., Ltd.	of China	Registered^				plastic casings
						and parts
Innovative Industrial	Hong Kong	HK$1,000,000	—		60	Sale of soft toys
Limited~		Ordinary
Pollister Limited~	British Virgin	US$10,000	—		60	Investment holding
	Islands	Ordinary

The non-voting shares carry no rights to dividends and no rights to vote at general meetings.
** The non-voting deferred shares carry no rights to dividends, to receive notice of or to attend or vote at any general meeting of the company or to participate in any distribution on winding-up.
@ Listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

~ Acquired during the year.
^ Registered as a wholly foreign-owned enterprise under the PRC laws.
These companies are accounted for as subsidiaries by virtue of the Company’s control over them.

During the year, the Group acquired Pollister Limited and Innovative Industrial Limited. Further details of the acquisitions are included in note 35(c) to the financial statements.

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

18. INTERESTS IN ASSOCIATES

	Group
	2003	2002
	HK$’million	HK$’million
Share of net assets	543	917
Unrealised profits arising from the disposal of subsidiaries (Note)	(246)	(421)
	297	496

Note: These unrealised profits arose from the Group’s disposal of certain subsidiary companies to an associate at a gain in the prior year. The attributable amount of unrealised profits is released to the consolidated profit and loss account to the extent that the corresponding goodwill recorded by the associate is amortised or impaired.

Particulars of the associate, held indirectly through subsidiaries, are as follows:

					Percentage of
		Place of		Nominal	ownership
		incorporation		value of	interest
	Business	and		issued share	attributable to	Principal
Name	structure	operations		capital	the Group	activities
					2003 2002
Haier-CCT Holdings Limited	Corporate	Bermuda/	HK$996,401,657		43.6 43.6	Investment
(“Haier-CCT”)*		Hong Kong		Ordinary		holding

Listed on the Stock Exchange.

— 40 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

Included in the Group’s share of the net assets of its associates are the share of net assets of Haier-CCT which, in the opinion of the directors, is material in the context of the Group’s financial statements. Details of the net assets of Haier-CCT and its subsidiaries (collectively referred to as the “Haier-CCT Group”) and their respective results are set out below:

	As at	As at
	31 December	31 December
	2003	2002
		(Restated)
	HK$’million	HK$’million
Non-current assets	1,144	1,791
Current assets	1,197	832
Current liabilities	(1,019)	(438)
Minority interests	(76)	(83)
	1,246	2,102
	Year ended	Year ended
	31 December	31 December
	2003	2002
		(Restated)
	HK$’million	HK$’million
Turnover	1,665	500
Loss before tax	(866)	(73)
Tax	2	1
Loss before minority interests	(864)	(72)
Minority interests	8	6
Net loss from ordinary activities attributable to shareholders	(856)	(66)

The above amounts are extracted from the published audited financial statements of Haier-CCT for the year ended 31 December 2003.

19. OTHER ASSETS

	Group
	2003	2002
	HK$’million	HK$’million
Club memberships, at cost	14	14
Provision for impairment	(2)	(2)
	12	12

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

20. INVESTMENTS

Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Long term investments Unlisted equity investments, at cost 317 317 — — Provision for impairment (313) (313) — — 4 4 — — Short term investments Listed equity investments, at market value: Hong Kong 3 4 — — Elsewhere — 11 — 11 3 15 — 11	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Long term investments Unlisted equity investments, at cost 317 317 — — Provision for impairment (313) (313) — — 4 4 — — Short term investments Listed equity investments, at market value: Hong Kong 3 4 — — Elsewhere — 11 — 11 3 15 — 11	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Long term investments Unlisted equity investments, at cost 317 317 — — Provision for impairment (313) (313) — — 4 4 — — Short term investments Listed equity investments, at market value: Hong Kong 3 4 — — Elsewhere — 11 — 11 3 15 — 11	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Long term investments Unlisted equity investments, at cost 317 317 — — Provision for impairment (313) (313) — — 4 4 — — Short term investments Listed equity investments, at market value: Hong Kong 3 4 — — Elsewhere — 11 — 11 3 15 — 11
			—
3 —	4 11	— —	— 11
3	15	—	11

As at 31 December 2003, the number of shares of the following companies held by the Group exceeded 20% of their respective total issued shares:

		Description and value
Name	Place of incorporation	of shares held	Percentage holding
Tradeeasy Holdings Limited*	Cayman Islands	HK$4,201,183	23.34
		Ordinary
Sendo Holdings PLC	United Kingdom	GBP31,526,000	32.1
		Ordinary
		GBP31,474,000
		Preference

Listed on the Growth Enterprise Market of the Stock Exchange.

21. INVENTORIES


	2003	2002
	HK$’million	HK$’million
Raw materials	45	41
Work in progress	47	34
Finished goods	86	47
	178	122

The carrying amount of inventories carried at net realisable value included in the above balance was nil (2002: Nil) as at the balance sheet date.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

22. TRADE AND BILLS RECEIVABLES

An aged analysis of the trade and bills receivables as at the balance sheet date is as follows:

			Group
	2003	2002
	Balance	Percentage		Balance	Percentage
	HK$’million	HK$’million	HK$’million		HK$’million
Current to 30 days	274	42		212	40
31 to 60 days	199	30		162	30
61 to 90 days	164	25		140	26
Over 90 days	18	3		24	4
	655	100		538	100

The Group allows an average credit period of 30-90 days to its trade customers.

23. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

		Group	Company	Company
	2003	2002	2003	2002
	HK$’million	HK$’million	HK$’million	HK$’million
Prepayments	36	42	—	—
Deposits and other receivables	27	64	3	1
	63	106	3	1

24. CASH AND CASH EQUIVALENTS AND PLEDGED TIME DEPOSITS

Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Cash and bank balances 379 196 18 7 Time deposits 594 670 361 438 973 866 379 445 Less: Time deposits pledged for bank borrowings (100) (83) — (17 873 783 379 428	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Cash and bank balances 379 196 18 7 Time deposits 594 670 361 438 973 866 379 445 Less: Time deposits pledged for bank borrowings (100) (83) — (17 873 783 379 428	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Cash and bank balances 379 196 18 7 Time deposits 594 670 361 438 973 866 379 445 Less: Time deposits pledged for bank borrowings (100) (83) — (17 873 783 379 428	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Cash and bank balances 379 196 18 7 Time deposits 594 670 361 438 973 866 379 445 Less: Time deposits pledged for bank borrowings (100) (83) — (17 873 783 379 428	Group Company 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Cash and bank balances 379 196 18 7 Time deposits 594 670 361 438 973 866 379 445 Less: Time deposits pledged for bank borrowings (100) (83) — (17 873 783 379 428
	973 (100)	866 (83)	379 —	445 (17
	873	783	379	428

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to HK$13 million (2002: HK$20 million). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

25. TRADE AND BILLS PAYABLES

An aged analysis of the trade and bills payables as at the balance sheet date is as follows:

			Group
		2003			2002
	Balance	Percentage		Balance	Percentage
	HK$’million	HK$’million	HK$’million		HK$’million
Current to 30 days	212	25		198	32
31 to 60 days	227	27		114	19
61 to 90 days	164	20		113	19
Over 90 days	238	28		180	30
	841	100		605	100

26. OTHER PAYABLES AND ACCRUALS

		Group	Company	Company
	2003	2002	2003	2002
	HK$’million	HK$’million	HK$’million	HK$’million
Other payables	67	62	—	5
Accruals	131	105	5	4
	198	167	5	9

27. INTEREST-BEARING BANK AND OTHER BORROWINGS


	Notes	2003	2002
		HK$’million	HK$’million
Bank overdrafts — secured		—	2
Current portion of bank loans		129	200
	28	129	202
Current portion of finance lease payables	29	1	3
		130	205

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

28. INTEREST-BEARING BANK LOANS AND OVERDRAFTS

Group 2003 2002 HK$’million HK$’million Bank overdrafts: Secured — 2 Bank loans: Secured 253 361 253 363 Bank overdrafts repayable within one year or on demand — 2 Bank loans repayable: Within one year or on demand 129 200 In the second year 18 37 In the third to fifth years, inclusive 44 47 Beyond five years 62 77 253 361 253 363 Portion classified as current liabilities — note 27 (129) (202 Non-current portion 124 161	Group 2003 2002 HK$’million HK$’million Bank overdrafts: Secured — 2 Bank loans: Secured 253 361 253 363 Bank overdrafts repayable within one year or on demand — 2 Bank loans repayable: Within one year or on demand 129 200 In the second year 18 37 In the third to fifth years, inclusive 44 47 Beyond five years 62 77 253 361 253 363 Portion classified as current liabilities — note 27 (129) (202 Non-current portion 124 161	Group 2003 2002 HK$’million HK$’million Bank overdrafts: Secured — 2 Bank loans: Secured 253 361 253 363 Bank overdrafts repayable within one year or on demand — 2 Bank loans repayable: Within one year or on demand 129 200 In the second year 18 37 In the third to fifth years, inclusive 44 47 Beyond five years 62 77 253 361 253 363 Portion classified as current liabilities — note 27 (129) (202 Non-current portion 124 161
		363
	— 129 18 44 62 253 253 (129)	2
		200 37 47 77
		361
		363 (202
	124	161

29. FINANCE LEASE PAYABLES

The Group leases certain of its tools, moulds and equipment and motor vehicles for business use. These leases are classified as finance leases and have remaining lease terms ranging from one to two years.

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

Group

Minimum lease payments Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Amounts payable: Within one year 1 3 1 3 In the second year 1 3 1 2 Total minimum finance lease payments 2 6 2 5 Future finance charges — (1) Total net finance lease payables 2 5 Portion classified as current liabilities — note 27 (1) (3) Non-current portion 1 2	Minimum lease payments Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Amounts payable: Within one year 1 3 1 3 In the second year 1 3 1 2 Total minimum finance lease payments 2 6 2 5 Future finance charges — (1) Total net finance lease payables 2 5 Portion classified as current liabilities — note 27 (1) (3) Non-current portion 1 2	Minimum lease payments Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Amounts payable: Within one year 1 3 1 3 In the second year 1 3 1 2 Total minimum finance lease payments 2 6 2 5 Future finance charges — (1) Total net finance lease payables 2 5 Portion classified as current liabilities — note 27 (1) (3) Non-current portion 1 2	Minimum lease payments Minimum lease payments Present value of minimum lease payments Present value of minimum lease payments 2003 2002 2003 2002 HK$’million HK$’million HK$’million HK$’million Amounts payable: Within one year 1 3 1 3 In the second year 1 3 1 2 Total minimum finance lease payments 2 6 2 5 Future finance charges — (1) Total net finance lease payables 2 5 Portion classified as current liabilities — note 27 (1) (3) Non-current portion 1 2
			5
	)	(1) 5 (3)
2 (1
1		2

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

30. CONVERTIBLE NOTES

		Group
	2003	2002
	HK$’million	HK$’million
2004 Convertible notes — note (a)	8	20
2005 Convertible notes — note (b)	10	—
	18	20
Portion classified as current liabilities	(8)	—
Non-current portion	10	20

(a) On 19 July 2002, CCT Technology Holdings Limited, an indirect non-wholly owned subsidiary of the Company, issued convertible notes with aggregate principal amounts of HK$20 million to an independent third party and which were subsequently replaced by the convertible notes in the same amount issued by CCT Tech on 4 November 2002. The convertible notes provide the holder the option right to convert the principal amount into ordinary shares of CCT Tech of HK$0.01 each on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.01 per share.

The principal amounts of the convertible notes bear interest at 5% per annum and the convertible notes will mature on the second anniversary of the date of their issue.

In June 2003, a principal amount of HK$12 million convertible notes were converted into 1,200,000,000 shares of CCT Tech of HK$0.01 each at conversion price of HK$0.01 per share.

(b) On 14 May 2003, CCT Tech issued convertible notes with aggregate principal amounts of HK$21 million through a placing agent to several independent places. The convertible notes provide the holders option right to covert the principal amount into ordinary shares of CCT Tech at HK$0.01 each on any business day being five business days prior to the maturity of the convertible notes at a conversion price of HK$0.01 per share.

The principal amounts of the convertible notes bear interest at 2% per annum and the convertible notes will mature on the second anniversary of the date of their issue.

In June 2003, a principal amount of HK$11 million convertible notes were converted into 1,100,000,000 shares of CCT Tech of HK$0.01 each at a conversion price of HK$0.01 per share.

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

31. DEFERRED TAX

The movement in deferred tax liabilities and assets during the year is as follows:

Deferred tax liabilities

Group

	2003
	Accelerated tax
	depreciation
	HK$’million
At 1 January 2003
As previously reported	3
Prior year adjustment:
SSAP 12 — restatement of deferred tax	4
As restated	7
Deferred tax charged to the profit and loss account
during the year — note 10	—
Gross deferred tax liabilities at 31 December 2003	7

Deferred tax assets

Group

	2003
	Losses
	available for
	offset against
	future taxable
	profit
	HK$’million
At 1 January 2003
As previously reported	—
Prior year adjustment:
SSAP 12 — restatement of deferred tax	3
As restated	3
Deferred tax credited to the profit and loss account
during the year — note 10	6
Gross deferred tax assets at 31 December 2003	9
Net deferred tax assets at 31 December 2003	2

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

Deferred tax liabilities

Group

	2002
	Accelerated tax
	depreciation
	HK$’million
At 1 January 2002
As previously reported	3
Prior year adjustment:
SSAP 12 — restatement of deferred tax	4
As restated	7
Deferred tax charged to the profit and loss account during the year — note 10	—
Gross deferred tax liabilities at 31 December 2002	7

Deferred tax assets
Group
	2002
	Losses
	available for
	offset against
	future taxable
	profit
	HK$’million
At 1 January 2002
As previously reported	—
Prior year adjustment:
SSAP 12 — restatement of deferred tax	5
As restated	5
Deferred tax charged to the profit and loss account
during the year — note 10	(2)
Gross deferred tax assets at 31 December 2002	3
Net deferred tax liabilities at 31 December 2002	4

The Group has tax losses arising in Hong Kong of HK$281 million (2002: HK$313 million) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time.

At 31 December 2003, there is no significant unrecognised deferred tax liability (2002: nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, associates or joint ventures as the Group has no liability to additional tax should such amounts be remitted.

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

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

SSAP 12 (revised) was adopted during the year, as further explained in note 2 to the financial statements. This change in accounting policy has resulted in an increase in the Group’s deferred tax assets as at 31 December 2003 and 2002 by HK$9 million and HK$3 million, respectively and an increase in the Group’s deferred tax liabilities as at 31 December 2003 and 2002 by HK$4 million and HK$4 million, respectively. As a consequence, the consolidated net losses attributable to shareholders for the years ended 31 December 2003 and 2002 have been decreased and increased by HK$6 million and HK$2 million, respectively, and the consolidated retained profits at 1 January 2003 and accumulated losses at 1 January 2002 have been decreased by HK$1 million and HK$1 million, respectively, as detailed in the consolidated statement of changes in equity.

32. SHARE CAPITAL

		Company
	2003	2002
	HK$’million	HK$’million
Authorised:
2,000,000,000 (2002: 2,000,000,000) ordinary
shares of HK$0.10 (2002: HK$0.10) each	200	200
Issued and fully paid:
422,105,230 (2002: 422,105,230) ordinary shares
of HK$0.10 (2002: HK$0.10) each	42	42

A summary of the transactions involving the Company’s issued ordinary share capital during the two years is as follows:

	Number of
	ordinary shares	Issued share
	of HK$0.10 each	capital
	(in millions)	HK$’million
At 1 January 2002	422	2,110
Capital reduction (Note)	—	(2,068)
As 31 December 2002 and 2003	422	42

Note:

Pursuant to a special resolution passed at an extraordinary general meeting of the Company held on 8 April 2002, the nominal value of each of the 422,105,230 issued ordinary shares of the Company was reduced by HK$4.90, from HK$5.00 to HK$0.10 per ordinary share (the “Capital Reduction”). Accordingly, the Company’s then existing issued share capital of HK$2,110 million was reduced by HK$2,068 million to HK$42 million.

The credit arising from the Capital Reduction, in the sum of HK$2,068 million, was first applied towards the elimination of the accumulated losses of up to HK$934 million of the Company and the balance of such credit was credited to the capital reserve of the Company.

— 49 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

The 377,894,770 unissued ordinary shares of the Company was cancelled and the authorised share capital of the Company was immediately thereafter increased to HK$200,000,000 by the subsequent creation of 1,577,894,770 unissued new ordinary shares of HK$0.10 each that the authorised share capital of the Company thereafter consists of 2,000,000,000 ordinary shares of HK$0.10 each.

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 33 to the financial statements.

33. SHARE OPTION SCHEME

The share option scheme adopted by the Company on 25 May 2001 (the “Old Share Option Scheme”) was terminated and a new share option scheme (the “New Share Option Scheme”) was adopted by the Company on 28 February 2002 to comply with the new amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) in respect of the share option schemes of a listed company. As a result, the Company may no longer grant any further shares options under the Old Share Option Scheme. However, all shares options granted prior to the termination of the Old Share Option Scheme will remain in full force and effect. Unless otherwise cancelled or amended, the New Share Option Scheme will remain in force for 10 years from the date of the adoption. As at 31 December 2003, there were 42,200,000 share options outstanding under the New Share Option Scheme and there were no outstanding share options under the Old Share Option Scheme. Based on these outstanding share options, the total number of shares available for issue is 42,200,000, which represents approximately 10% of the existing issued share capital of the Company as at the date of this report.

The purpose of the New Share Option Scheme is to provide incentives and rewards to the eligible participants who contribute to the success of the Group’s operation. Eligible participants of the New Share Option Scheme include any employee, executive or officer of the Group (including executive and nonexecutive directors of the Group) and any supplier, consultant, agent, adviser, shareholder, customer, partner or business associate who, at the sole discretion of the board of directors of the Company (the “Board”), has contributed to the Group.

Pursuant to the New Share Option Scheme, the maximum number of shares in respect of which share options may be granted under the New Share Option Scheme is such number of shares, when aggregated with shares subject to any other share option scheme(s) of the Company (which, for this purpose, excludes the Old Share Option Scheme), must not exceed 10% of the issued share capital of the Company as at the date of adoption of the New Share Option Scheme. The maximum number of shares issuable upon exercise of the share options granted under the New Share Option Scheme and any other share option scheme(s) of the Company (including exercised, cancelled and outstanding share options) to each eligible participant in any 12-month period is limited to 1% of the shares of the Company in issue as at the date of grant. Any further grant of share options in excess of this 1% limit shall be subject to the issue of a circular by the Company and the shareholders’ approval of the Company at a general meeting.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their respective associates, are subject to the approval in advance by the independent non-executive directors of the Company, excluding the independent non-executive director(s) of the Company who is/are the grantee(s) of the share options. In addition, any share option granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their respective associates, in excess of 0.1% of the shares of the Company in issue as at the date of grant or with an aggregate value (based on the closing price of the Company’s shares as at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to the issue of a circular by the Company and the shareholders’ approval of the Company in advance at a general meeting.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

The offer of a grant of share options may be accepted within 28 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the Board, and commences on a specified date and ends on a date which is not later than 10 years from the date of grant of the share options or the expiry date of the New Share Option Scheme, whichever is earlier.

The exercise price of the share options is determinable by the Board, but may not be less than the highest of (i) the closing price of the Company’s shares as stated in the daily quotation sheet of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on the date of grant, which must be a trading day; (ii) the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of grant; and (iii) the nominal value of the Company’s shares.

Details of the movements of the share options under the Old Share Option Scheme during the year were as follows:

			Number	of share options	of share options	of share options		Date of
	Outstanding					Lapsed/	Outstanding	grant of	Exercise	Exercise
		as at	Granted	Exercised		Cancelled	as at	share	period of	price per
Name or category		1 January	during the	during the		during the	31 December	options	share	share
of participant		2003	year		year	year	2003	(Note 1)	options	(Note 2)
										HK$
Executive directors
Mak Shiu Tong, Clement		5,000,000	—		—	(5,000,000)	—	13/8/2001	16/8/2001	2.936
									-15/8/2003
Cheng Yuk Ching, Flora		1,250,000	—		—	(1,250,000)	—	13/8/2001	16/8/2001	2.936
									-15/8/2003
Tam Ngai Hung, Terry		750,000	—		—	(750,000)	—	11/6/2001	13/6/2001	3.732
									-12/6/2003
		1,250,000	—		—	(1,250,000)	—	13/8/2001	16/8/2001	2.936
									-15/8/2003
		8,250,000	—		—	(8,250,000)	—
Other employees
In aggregate		625,000	—		—	(625,000)	—	27/6/2001	29/12/2001	3.553
									-28/6/2003
		250,000	—		—	(250,000)	—	30/6/2001	30/6/2001	3.533
									-30/12/2003
		750,000	—		—	(750,000)	—	8/8/2001	8/2/2002	3.085
									-7/8/2003
		3,975,000	—		—	(3,975,000)	—	13/8/2001	16/2/2002	2.936
									-15/8/2003
		5,600,000	—		—	(5,600,000)	—
	13,850,000		—		—	(13,850,000)	—

Notes:

The vesting period of the share options is from the date of grant until the commencement of the exercise period.
The exercise price of the share options is subject to adjustment(s) in the case of rights or bonus share issues, or other similar changes in the share capital of the Company.

— 51 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

Details of the movements of the share options under the New Share Option Scheme during the year were as follows:

			Number of	share options	share options					Price	of the
										shares	of the
	Outstanding			Lapsed/		Outstanding	Date of	Exercise	Exercise	Company at
	as at	Granted	Exercised	Cancelled		as at	grant of	period of	price per	grant date of
Name or category of	1 January	during the	during the	during the		31 December	share	share	share	share options
participant	2003	year	year		year	2003	options	options	(Note 1)	(Note 2)
									HK$		HK$
Executive directors
Mak Shiu Tong, Clement	—	420,000	—		—	420,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
Cheng Yuk Ching, Flora	—	4,200,000	—		—	4,200,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
Tam Ngai Hung, Terry	—	4,200,000	—		—	4,200,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
William Donald Putt	—	420,000	—		—	420,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
	—	9,240,000	—		—	9,240,000
Independent non-executive
directors
Samuel Olenick	—	420,000	—		—	420,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
Tam King Ching,
Kenny	—	420,000	—		—	420,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
Lau Ho Man, Edward	—	420,000	—		—	420,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
	—	1,260,000	—		—	1,260,000
Other employees
In aggregate	—	31,700,000	—		—	31,700,000	17/3/2003	17/3/2003	0.750		0.760
								-16/3/2008
	—	31,700,000	—		—	31,700,000
	—	42,200,000	—		—	42,200,000

Notes:

The exercise price of the share options is subject to adjustment(s) in the case of rights or bonus share issues, or other similar changes in the share capital of the Company.
The price of the shares of the Company as at the date of grant of the share options is the closing price of the shares of the Company as listed on the Stock Exchange on the trading day immediately before the date on which the share options were granted.

The financial impact of the share options granted is not recorded in the balance sheet of the Company or the Group until such time as the share options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Share options which are lapsed or are cancelled prior to their exercise date are deleted from the register of outstanding share options.

The directors of the Company do not consider it appropriate to disclose a theoretical value of the share options granted to the directors and the employees of the Company during the year because a number of factors crucial for the valuation cannot be determined. Accordingly, any valuation of the share options based on various speculative assumptions would not be meaningful, but would be misleading to the shareholders of the Company.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

34. RESERVES

(a) Group

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 38 of the financial statements.

Certain amounts of goodwill arising on the acquisition of subsidiaries and associates in prior years remain eliminated against consolidated retained profits, as further detailed in note 16 to the financial statements.

The Group’s capital reserve was created from the reduction of share capital on 8 April 2002. Further details are set out in note 32 to the financial statements.

(b) Company

				Retained
		Share		profits/
		premium	Capital	(accumulated
	Note	account	reserve	losses)	Total
		HK$’million	HK$’million	HK$’million	HK$’million
Balance at 1 January 2002		2,069	—	(1,749)	320
Capital reduction	32	—	1,134	934	2,068
Transfer to accumulated losses		(815)	—	815	—
Profit for the year		—	—	1	1
2002 interim dividend		(4)	—	—	(4)
Proposed 2002 final dividend		—	(8)	—	(8)
At 31 December 2002 and beginning of year		1,250	1,126	1	2,377
Loss for the year		—	—	(195)	(195)
2003 interim dividend		—	(6)	—	(6)
Proposed 2003 final dividend		—	(6)	—	(6)
At 31 December 2003		1,250	1,114	(194)	2,170

Note:

Under the Companies Law (2002 Revision) Chapter 22 of the Cayman Islands, the share premium account of the Company is available for distribution of dividends to shareholders subject to the provisions of the Company’s Memorandum and Articles of Association and provided that immediately following the distribution of dividends, the Company is able to pay its debts as and when they fall due in the ordinary course of business.

In accordance with the Company’s Articles of Association, dividends can only be distributed out of the profits and reserves available for distribution, including the share premium account and capital reserve of the Company. As at 31 December 2003, the Company had a net credit balance of approximately HK$2,176 million (2002: HK$2,385 million) maintained in the reserve accounts which is available for distribution.

The Company’s capital reserve was created from the reduction of share capital on 8 April 2002. Further details are set out in note 32 to the financial statements.

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

35. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Major non-cash transactions

During the year, the Group entered into finance lease arrangements in respect of fixed assets with a total capital value at the inception of the finance leases of HK$1 million (2002: HK$2 million).

(b) Disposal/deemed disposal of subsidiaries

	2003	2002
	HK$’million	HK$’million
Net assets disposed of:
Fixed assets	6	22
Intangible assets	2	—
Interests in jointly-controlled entities	—	124
Interests in associates	—	61
Goodwill	—	359
Cash and bank balances	2	305
Trade and bills receivables	10	13
Inventories	—	30
Prepayments, deposits and other receivables	2	117
Trade and bills payables	(11)	(58)
Other payables and accruals	(4)	(127)
Finance lease payables	—	(1)
Tax payable	—	(1)
Minority interests	(4)	(810)
	3	34
Reclassification to interests in associates	—	(597)
Reversal of goodwill upon disposal/deemed disposal of subsidiaries	23	21
Net gains/(losses) on disposal/deemed disposal of subsidiaries	(12)	599
	14	57
Satisfied by:
Cash	1	57
Other receivables	13	—
	14	57

— 54 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

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

	2003	2002
	HK$’million	HK$’million
Cash consideration	1	57
Cash and bank balances disposed of	(2)	(305)
Net outflow of cash and cash equivalents in respect of the disposal/deemed
disposal of subsidiaries	(1)	(248)

The results of the subsidiary disposed of during the year had no significant impact on the Group’s consolidated turnover or loss after tax before minority interests for the year ended 31 December 2003.

The subsidiaries disposed of in the prior year contributed HK$223 million to the Group’s consolidated turnover and HK$37 million to the Group’s consolidated loss after tax and before minority interests for the year ended 31 December 2002.

(c) Acquisition of subsidiaries

	2003	2002
	HK$’million	HK$’million
Net assets acquired:
Fixed assets	1	10
Cash and bank balances	9	18
Trade receivables	5	5
Inventories	3	—
Deposits and other receivables	8	—
Trade payables	(2)	(10)
Bank loan	—	(2)
Other payables and accruals	(5)	(2)
Tax payable	(1)	—
Minority interests	(7)	(17)
	11	2
Goodwill on acquisition — note 16	11	29
	22	31
Satisfied by:
Cash	12	20
Cash paid for incidental acquisition costs	—	5
Reclassification from interests in associates	—	6
Other receivables	7	—
Other payables	3	—
	22	31

— 55 —

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

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

	2003	2002
	HK$’million	HK$’million
Cash paid	(12)	(25)
Cash and bank balances acquired	9	18
Net outflow of cash and cash equivalents in respect of the acquisition of
subsidiaries	(3)	(7)

The subsidiaries acquired during the year had no significant contribution to the Group’s consolidated turnover and loss after tax and before minority interests for the year ended 31 December 2003.

The subsidiaries acquired in the prior year contributed approximately HK$106 million to the Group’s consolidated turnover and a post-acquisition profit of approximately HK$98 million to the consolidated loss after tax before minority interests for the year ended 31 December 2002.

36. CONTINGENT LIABILITIES

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

		Group	Company	Company
	2003	2002	2003	2002
	HK$’million	HK$’million	HK$’million	HK$’million
Corporate guarantees given to banks in
connection with facilities granted to
subsidiaries	—	—	183	646
Guarantee given to an independent third
party in respect of a rental arrangement	45	40	45	40
	45	40	228	686

As at 31 December 2003, the bank facilities granted to the subsidiaries subject to guarantees given to the banks by the Company were utilised to the extent of approximately HK$142 million (2002: HK$360 million).

(b) The Group has a contingent liability in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of HK$8 million as at 31 December 2003 (2002: HK$7 million), as further explained in note 3 to the financial statements. The contingent liability has arisen as a number of current employees have achieved the required number of years of service to the Group in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated under certain circumstances. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the Group.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

37. PLEDGE OF ASSETS

At the balance sheet date, the Group’s bank borrowings were secured by:

(i) Pledges of the Group’s fixed deposits amounting to approximately HK$100 million (2002: HK$83 million); and
(ii) Fixed charges over certain of the Group’s leasehold land and buildings with an aggregate net book value amounting to approximately HK$255 million (2002: HK$277 million).

38. OPERATING LEASE ARRANGEMENTS

As lessee

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for an average term of two years.

At the balance sheet date, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings in Hong Kong falling due as follows:


	2003	2002
	HK$’million	HK$’million
Within one year	2	5
In the second to fifth years, inclusive	2	3
	4	8

At the balance sheet date, the Group had total future minimum lease payments under non-cancellable operating leases with initial lease terms ranging from 50 to 51 years in respect of land on which certain of the Group’s factories are situated falling due as follows:


	2003	2002
	HK$’million	HK$’million
Within one year	1	1
In the second to fifth years, inclusive	8	5
After five years	117	76
	126	82

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

39. COMMITMENTS

In addition to the operating lease commitments detailed in note 38 above, the Group had the following commitments at the balance sheet date:

Capital commitments:


	2003	2002
	HK$’million	HK$’million
Contracted, but not provided for
Construction in progress	60	56
Purchases of plant and machinery and equipment	2	4
	62	60

In addition, the Group’s share of the associates’ own capital commitments, which are not included in the above, were as follows:


				2003	2002
				HK$’million	HK$’million
Contracted,	but	not	provided for	8	20
Authorised,	but	not	contracted for	—	81
				8	101

At the balance sheet date, the Company had no significant commitments.

40. POST BALANCE SHEET EVENTS

(a) On 14 January 2004, the Group entered into a sale and purchase agreement with an independent third party to dispose of certain of its land and buildings situated in Hong Kong for a cash consideration of approximately HK$84,000,000. This transaction was completed on 27 February 2004.
(b) On 2 March 2004, the Company entered into a sale and purchase agreement with New Capital Industrial Limited (“NCIL”), a company controlled by Mr. Mak Shiu Tong, Clement, the Chairman of the Company, and his associates to dispose of the HK$45 million zero coupon convertible note issued to the Company by CCT Tech for a cash consideration of HK$45 million. This transaction was approved by the independent shareholders of the Company on 15 April 2004.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

On 15 April 2004, the Company announced that a board meeting of the Company will be convened on 28 April 2004 to consider the declaration and payment of a special interim dividend in the amount of approximately HK$0.10 per share of the Company, subject to adjustment. The special dividend is to be paid out of the net sale proceeds from the disposal of the abovementioned convertible note to NCIL.

(c) On 5 March 2004, Haier-CCT, an associate of the Group, has conditionally agreed with Haier Group, a substantial shareholder of Haier-CCT, for (i) the transfer by Haier Group of the washing machine business to Haier-CCT and; (ii) the exercise of the call option to acquire the remaining 35.5% interest in Pegasus Telecom (Qingdao) Co., Ltd. (collectively referred to as the “Asset Injection”), in exchange of cash, shares in Haier-CCT and the convertible notes at an aggregate consideration of HK$1,503,407,200. The consideration for the acquisition of the washing machine business and the proportion between the number of the consideration shares and the principal amount of the convertible notes are subject to adjustment. Upon completion of the Asset Injection but before conversion of the convertible notes to be issued by Haier-CCT, the Company’s shareholding in Haier-CCT will be diluted from approximately 43.62% to approximately 26.61%.

Further details of this event are set out in Haier-CCT’s press announcement dated 2 April 2004.

41. COMPARATIVE AMOUNTS

As further explained in note 2 to the financial statements, due to the adoption of a revised SSAP during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain prior year adjustments have been made and certain comparative amounts have been reclassified to conform with the current year’s presentation.

42. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 23 April 2004.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX IA

INDEBTEDNESS

(a) Statement of indebtedness of the Group

As at the close of business on 30 June 2004 (being the Latest Practicable Date for the ascertaining information regarding this indebtedness statement) and based on the unaudited management accounts of the Group (other than the First Precision Group and CCT Investment) as at 30 June 2004, the audited accounts of the First Precision Group as at 30 June 2004 and the audited accounts of CCT Investment as at 30 June 2004, the Group (including the First Precision Group and CCT Investment through CCT Tech Group) had outstanding borrowings of approximately HK$255 million. The borrowings comprised secured bank loans of approximately HK$200 million, secured trust receipt loans of approximately HK$49 million and obligations under finance lease contracts of approximately HK$6 million. The Group’s borrowings were secured by (i) fixed charges over certain freehold land and buildings held by the Group; (ii) the fixed deposits of approximately HK$100 million. In addition, as at the same date, the Group had outstanding convertible notes with a principal sum of HK$57 million.

As at 30 June 2004, the Group had contingent liabilities in respect of a guarantee in lieu of property rental of HK$45 million and possible future long service payments to employees under the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), with a maximum possible amount of approximately HK$9 million.

Save as aforesaid and as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have any bank loans, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 June 2004.

(b) Statement of indebtedness of the First Precision Group and CCT Investment

As at the close of business on 30 June 2004, the First Precision Group and CCT Investment did not have any outstanding borrowings.

As at 30 June 2004, the First Precision Group and CCT Investment had contingent liabilities in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of approximately HK$236,000.

WORKING CAPITAL

The Directors are of the opinion that taking account the Group’s internal, resources, available banking and other borrowing facilities, the Group has sufficient working capital for its present requirement.

— 60 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

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

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

20 August 2004

The Directors

First Precision Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding First Precision Holdings Limited (“First Precision”) and its subsidiaries (hereinafter collectively referred to as the “First Precision Group”), for each of the three years ended 31 December 2003 and the six months ended 30 June 2004 (the “Relevant Periods”), prepared on the basis set out in Section 1 below, for inclusion in the circular of CCT Telecom Holdings Limited (“CCT”), the ultimate holding company of First Precision, dated 20 August 2004 (the “Circular”) in relation to the proposed acquisition of the entire issued capital of First Precision by CCT (the “Proposed Acquisition”).

First Precision was incorporated with limited liability in the British Virgin Islands under the International Business Companies Act on 26 November 2002.

The statutory auditors of (Dongguan ESL Electronic Products Co., Ltd.) were (Dongguan City De Zheng Certified Public Accountants) for each of the Relevant Periods. For the purpose of this report, we have performed independent audits in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (the “HKSA”) on the management accounts of (Dongguan ESL Electronic Products Co., Ltd.) for the Relevant Periods.

As at the date of this report, no audited financial statements have been prepared for First Precision, Terrison Limited and Canova Limited for each of the Relevant Periods or since the dates of their incorporation, where this is a shorter period. We have, however, performed our own independent review of all the relevant transactions of these companies for each of the Relevant Periods or since the dates of their incorporation, where this is a shorter period, and carried out such procedures as we considered necessary for inclusion of the financial information relating to these companies in this report.

We have acted as auditors of Electronic Sales Limited for each of the Relevant Periods.

— 61 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the management accounts of each of the companies now comprising the First Precision Group for each of the Relevant Periods or from the dates of their incorporation/registration, where this is a shorter period, in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the HKSA.

The summaries of the combined results, combined statements of changes in equity and combined cash flow statements of the First Precision Group for the Relevant Periods and of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003, and 30 June 2004 (the “First Precision Summaries”) set out in this report have been prepared from the audited financial statements or, where appropriate, the management accounts of the companies now comprising the First Precision Group, after making such adjustments as we consider appropriate, and are presented on the basis set out in Section 1 below.

The directors of First Precision are responsible for the preparation of the First Precision Summaries. In preparing the First Precision Summaries, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion on the First Precision Summaries.

In our opinion, the First Precision Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the combined results and cash flows of the First Precision Group for each of the Relevant Periods and of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003 and 30 June 2004.

1. BASIS OF PRESENTATION

The First Precision Summaries, which are based on the audited financial statements or, where appropriate, the management accounts of the companies now comprising the First Precision Group, after making such adjustments as we consider appropriate, include the results, statements of changes in equity, cash flow statements and balance sheets of the companies now comprising the First Precision Group as if the current First Precision Group structure had been in existence throughout the Relevant Periods, or since the dates of their incorporation/registration, where this is a shorter period.

All material intra-group transactions and balances have been eliminated on combination.

— 62 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

At the date of this report, First Precision had direct or indirect interests in the following subsidiaries, all of which are private companies (or, if incorporated/registered outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong), the particulars of which are set out below:

			Nominal value
			of issued and
		Place and date of	fully-paid/	Percentage of
		incorporation/	registered share	equity attributable		Principal
Company name		registration	capital	to First	Precision	activities
				Direct	Indirect
Electronic Sales	Limited	Hong Kong	HK$5,948,000	100	—	Sale of telecom
		2 July 1972 Mainland China	Ordinary HK$60,000,000	—	100	products Manufacture of
(Dongguan ESL Electronic		5 February 2001	Registered			telecom products
Products Co.,	Ltd.)
Terrison Limited		Hong Kong	HK$2 Ordinary	—	100	Dormant
		3 July 1994
Canova Limited		Hong Kong	HK$2 Ordinary	—	100	Dormant
		26 October 1994

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by the First Precision Group in arriving at the financial information set out in this report, which conform with accounting principles generally accepted in Hong Kong, are set out below:

Subsidiaries

A subsidiary is a company whose financial and operating policies First Precision controls, directly or indirectly, so as to obtain benefits from its activities.

Related parties

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any assets, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the assets’ recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

— 63 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the combined profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of depreciation/amortisation), had no impairment loss been recognised in prior years.

A reversal of an impairment loss is credited to the combined profit and loss account in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset 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 fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the combined profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Plant and machinery	15%
Tools, moulds and equipment	15%
Furniture and office equipment	15%
Motor vehicles	15% - 30%

The gain or loss on disposal or retirement of a fixed asset recognised in the combined profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Deferred development costs

All research costs are charged to the combined profit and loss account as incurred.

— 64 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

Deferred development costs are stated at cost less accumulated amortisation and any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding four years, commencing from the date when the products are put into commercial production.

Income tax

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred tax.

Deferred tax liabilities are provided in full on all taxable temporary differences while deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Leased assets

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

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

— 65 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

Inventories

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

Cash equivalents

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

For the purpose of the combined balance sheet, cash and cash equivalents comprise cash on hand and at banks, including time deposits, which are not restricted as to use.

Revenue recognition

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

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the First Precision Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) rental income, on a time proportion basis over the lease terms; and
(c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Employee benefits

Paid leave carried forward

The First Precision Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the balance sheet date is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the balance sheet date for the expected future cost of such paid leave earned during the year by the employees and carried forward.

— 66 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

Employment Ordinance long service payments

Certain of the First Precision Group’s employees have completed the required number of years of service to the First Precision Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The First Precision Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A contingent liability is disclosed in respect of possible future long service payments to employees, as a number of current employees have achieved the required number of years of service to the First Precision Group, to the balance sheet date, in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated in the circumstances specified. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the First Precision Group.

Pension scheme

The First Precision Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for certain of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the combined profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the First Precision Group in an independently administered fund. The First Precision Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the First Precision Group’s employer voluntary contributions, which are refunded to the First Precision Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

In addition to the MPF Scheme, the First Precision Group operates a separate defined contribution retirement benefits scheme for those employees who are eligible to participate in this scheme. This scheme operates in a similar way to the MPF Scheme, except that when an employee leaves the scheme before his/her interest in the First Precision Group’s employer contributions vesting fully, the ongoing contributions payable by the First Precision Group are reduced by the relevant amount of the forfeited employer contributions.

Foreign currencies

— 67 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

On combination, the financial statements of overseas subsidiaries are translated into Hong Kong dollars using the net investment method. The profit and loss accounts of overseas subsidiaries are translated into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated to Hong Kong dollars at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

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

3. COMBINED RESULTS

The following is a summary of the combined results of the First Precision Group for the Relevant Periods, prepared on the basis set out in Section 1 “Basis of presentation” above:

Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 144,830 146,906 120,404 65,653 (120,454) (129,558) (99,521) (58,523) 24,376 17,348 20,883 7,130 875 1,014 800 750 (696) (723) (633) (244) (17,751) (10,539) (6,142) (1,719) (585) (5,661) (345) — 6,219 1,439 14,563 5,917 (688) (74) (2) — 5,531 1,365 14,561 5,917 (828) (282) (2,543) 890 4,703 1,083 12,018 6,807 — — — —
24,376 875 (696) (17,751) (585) 6,219 (688) 5,531 (828)	17,348 1,014 (723) (10,539) (5,661) 1,439 (74) 1,365 (282)	20,883 800 (633) (6,142) (345) 14,563 (2) 14,561 (2,543)	7,130 750 (244 (1,719 —
			5,917 —
			5,917 890
4,703 —	1,083 —	12,018 —

— 68 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

Notes:

(a) Turnover, other revenue and gains

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts, during the Relevant Periods.

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

				Six months
				ended
		Year ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover
Manufacture and sale of telecom products
and accessories	144,777	146,814	120,358	65,647
Interest income	53	92	46	6
	144,830	146,906	120,404	65,653
Other revenue
Exchange gains, net	—	—	—	258
Rental income for mould and equipment	—	309	—	—
Sale of scrap materials	776	482	535	490
Others	45	223	230	2
	821	1,014	765	750
Gains
Gain on disposal of fixed assets, net	54	—	35	—
	875	1,014	800	750

— 69 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

(b) Profit from operating activities

The First Precision Group’s profit from operating activities is arrived at after charging/(crediting):

Depreciation Minimum lease payments under operating leases in respect of land and buildings Bad and doubtful debt provisions on trade receivables Bad and doubtful debt provisions on amount due from a fellow subsidiary Provision for slow-moving and obsolete stock Amortisation of deferred development costs Write off of deferred development costs** Staff costs: Wages and salaries Pension scheme contributions Less: Forfeited contributions Net pension contribution Auditors’ remuneration Write off of fixed assets Exchange losses, net	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,804 3,037 3,147 1,767 2,352 1,621 2,123 911 585 380 — — — 1,305 — — 2,748 6,103 628 — 769 318 366 — — 2,969 345 — 22,300 13,778 10,198 5,178 592 218 128 72 — — — (409
	592	218	128	(337
	22,892 200 — 432	13,996 120 1,007 136	10,326 120 — 93	4,841 60 — —

The amortisation of deferred development costs and provision for slow-moving and obsolete stocks for the Relevant Periods are included in “Cost of sales” on the face of the combined results.

** The write off of deferred development costs for the Relevant Periods is included in “Other operating expenses” on the face of the combined results.

(c) Finance costs

Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 614 23 2 — 74 51 — — 688 74 2 —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 614 23 2 — 74 51 — — 688 74 2 —
		—

— 70 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

(d) Directors’ remuneration

Details of the directors’ remuneration are as follows:

Fees Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —
		—

The number of directors whose remuneration fell within the following bands is as follows:

					Number of directors	Number of directors
							Six months
							ended
				Year	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	3		3	3	4

During the Relevant Periods, no remuneration was paid by the First Precision Group to any of the directors as an inducement to join or upon joining the First Precision Group, or as compensation for loss of office. No director waived or agreed to waive any remuneration during the Relevant Periods.

(e) Five highest paid employees

The five highest paid employees of the First Precision Group did not include any director during the Relevant Periods. Details of the remuneration of the five non-director, highest paid individuals during each of the Relevant Periods are as follows:

				Six months
				ended
		Year ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Salaries, housing benefits and other
allowances	3,003	1,963	1,384	694
Pension scheme contributions	192	131	75	33
	3,195	2,094	1,459	727

— 71 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

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

Nil - HK$1,000,000 HK$1,000,001 - HK$1,500,000	Number of employees Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 4 5 5 5 1 — — — 5 5 5 5	Number of employees Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 4 5 5 5 1 — — — 5 5 5 5
		5

During the Relevant Periods, no remuneration was paid by the First Precision Group to any of the non-director, highest paid employees as an inducement to join or upon joining the First Precision Group, or as compensation for loss of office.

(f) Tax

Hong Kong profits tax has been provided at the rate of 17.5% in the six months period ended 30 June 2004 and the year ended 31 December 2003, and 16% in the two years ended 31 December 2002 on the estimated assessable profits arising in Hong Kong. The increased Hong Kong profits tax rate became effective from the year of assessment 2003/2004, and so is applicable to the assessable profits arising in Hong Kong for the whole of the year ended 31 December 2003 and the six months ended 30 June 2004.

(Dongguan ESL Electronic Products Co., Ltd.) is entitled to preferential tax treatments including full exemption from the corporate income tax in the PRC for two years starting from the first profit-making year, followed by a 50%-reduction for the next consecutive three years.

Current - Hong Kong Charge for the year/period Overprovision in prior periods Current - Elsewhere Deferred tax - note 4(k) Total tax charge/(credit) for the year/period	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 604 752 2,550 878 — — — (1,898) — — 51 76 224 (470) (58) 54 828 282 2,543 (890)	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 604 752 2,550 878 — — — (1,898) — — 51 76 224 (470) (58) 54 828 282 2,543 (890)
		(890)

— 72 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries in which First Precision and its subsidiaries are domiciled to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e., the statutory tax rates) to the effective tax rates, are as follows:

2001

Hong Kong HK$’000 % 4,743	Hong Kong HK$’000 % 4,743	Mainland China HK$’000 % 788	Mainland China HK$’000 % 788	Total HK$’000 % 5,531 948 17.1 24 0.4 (9) (0.1) 78 1.4 (213) (3.8) 828 15.0 Total HK$’000 % 1,365 286 20.9 26 1.9 (8) (0.6) 208 15.3 (230) (16.8) 282 20.7 Total HK$’000 % 14,561 2,573 17.7 11 0.1 18 0.1 (8) (0.1) (51) (0.3) 2,543 17.5	Total HK$’000 % 5,531 948 17.1 24 0.4 (9) (0.1) 78 1.4 (213) (3.8) 828 15.0 Total HK$’000 % 1,365 286 20.9 26 1.9 (8) (0.6) 208 15.3 (230) (16.8) 282 20.7 Total HK$’000 % 14,561 2,573 17.7 11 0.1 18 0.1 (8) (0.1) (51) (0.3) 2,543 17.5
759 — (9) 78 —	16.0 — (0.2) 1.7 —	189 24 — — (213)	24.0 3.0 — — (27.0)	948 24 (9) 78 (213)	17.1 0.4 (0.1 1.4 (3.8
828 17.5 Hong Kong HK$’000 % 514		— — Mainland China HK$’000 % 851
82 — (8) 208 —	16.0 — (1.6) 40.4 —	204 26 — — (230)	24.0 3.0 — — (27.0)	286 26 (8) 208 (230)	20.9 1.9 (0.6 15.3 (16.8
282 54.8 Hong Kong HK$’000 % 14,181		— — Mainland China HK$’000 % 380
2,482 — 18 (8) —	17.5 — 0.2 (0.1) —	91 11 — — (51)	24.0 3.0 — — (13.5)	2,573 11 18 (8) (51)	17.7 0.1 0.1 (0.1 (0.3
2,492	17.6	51	13.5	2,543

— 73 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

Six months ended 30 June 2004

Profit before tax Tax at the statutory or appropriate tax rate Higher tax rate for specific provinces or local authority Adjustments in respect of current tax of previous periods Income not subject to tax Tax exemption Others Tax charge	Hong Kong HK$’000 % 5,321 931 17.5 — — (1,898) (35.7) 1 0.1 — — — — (966) (18.1)	Mainland China HK$’000 % 596 143 24.0 18 3.0 — — 1 0.2 (80) (13.4) (6) (1.0) 76 12.8	Total HK$’000 % 5,917 1,074 18.2 18 0.3 (1,898) (32.1) 2 0.1 (80) (1.4) (6) (0.1) (890) (15.0)

(g) Dividend

No dividend had been paid or declared by First Precision since the date of its incorporation.

(h) Earnings per share

No basic and diluted earnings per share amount is presented as its inclusion, for the purpose of this report, is not considered meaningful.

— 74 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(i) Related party transactions

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

					Six months
					ended
		Year	ended 31	December	30 June
	Notes	2001	2002	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000
Sales of products to fellow subsidiaries	(i)	83,122	99,544	103,767	57,454
Purchases of raw materials from fellow
subsidiaries	(ii)	1,333	24,037	24,427	12,381
Management fee expenses paid to a fellow
subsidiary	(iii)	—	1,600	1,200	—
Factory rental expense	(iv)	—	1,200	1,800	750
Office rental expenses	(v)	625	323	323	161

Notes:

(i) The sales of products included transformers, AC/DC adaptors and custom built-in power supply. The prices of which were determined based on the direct material costs plus a mark-up of up to 50% of such direct material costs.
(ii) The purchases of raw materials included plastic moulds and materials and tooling charges for specific models of telecom products. The prices of which were determined based on direct material costs plus a mark-up of up to 50% of such direct material costs.
(iii) The management fee expenses were paid for the provision of general administration, management information system consultation and hardware maintenance services and were determined based on actual costs incurred.
(iv) The factory rental expense was charged to Electronic Sales Limited (“ESL”), a wholly-owned subsidiary of First Precision, by CCT Properties (Dongguan) Limited (“CCT Prop”), a wholly-owned subsidiary of CCT, for the provision of factory spaces in Dongguan, the PRC. The rates were determined in accordance with the terms and conditions set out in three tenancy agreements entered into between ESL and CCT Prop on 12 April 2002, 15 April 2003 and 14 January 2004, respectively.
(v) The office rental expense was charged to ESL by Goldbay Investment Limited (“Goldbay”), a wholly-owned subsidiary of CCT, for the provision of office spaces in Hong Kong. The rates were determined in accordance with the terms and conditions set out in four tenancy agreements entered into between ESL and Goldbay on 1 September 2000, 7 October 2000, 11 February 2002 and 20 January 2003, respectively.

In the opinion of the directors of First Precision, all of the above transactions were conducted in the ordinary course of the First Precision Group’s business.

In addition, ESL guaranteed certain banking facilities granted to a fellow subsidiary of the First Precision Group up to HK$50,000,000 (2001: nil; 2002: nil; 2003: HK$50,000,000) as at 30 June 2004.

— 75 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

4. COMBINED BALANCE SHEETS

The following is a summary of the combined balance sheets of the First Precision Group as at 31 December 2001, 2002 and 2003 and 30 June 2004 prepared on the basis set out in Section 1 “Basis of presentation” above:

As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533	As at 31 December As at 30 June Notes 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 NON-CURRENT ASSETS Fixed assets (a) 12,893 11,365 12,597 11,778 Deferred development costs (b) 3,545 496 — — 16,438 11,861 12,597 11,778 CURRENT ASSETS Inventories (c) 11,531 1,849 4,492 5,513 Trade and bills receivables (d) 38,240 31,467 40,415 44,382 Prepayments, deposits and other receivables 533 1,025 496 140 Due from fellow subsidiaries (e) 31,226 443 6,988 1,922 Pledged time deposits (f) — 5,043 — — Cash and cash equivalents (f) 22,460 27,019 34,543 36,792 103,990 66,846 86,934 88,749 CURRENT LIABILITIES Trade and bills payables (g) 26,030 25,682 32,623 29,571 Tax payable 772 770 3,371 1,063 Other payables and accruals (h) 6,644 5,751 6,336 5,851 Due to fellow subsidiaries (e) 31,858 1,600 337 317 Interest-bearing bank and other borrowings (i) 10,507 — — — 75,811 33,803 42,667 36,802 NET CURRENT ASSETS 28,179 33,043 44,267 51,947 TOTAL ASSETS LESS CURRENT LIABILITIES 44,617 44,904 56,864 63,725 NON-CURRENT LIABILITIES Finance lease payables (j) 326 — — — Deferred tax (k) 666 196 138 192 992 196 138 192 43,625 44,708 56,726 63,533 CAPITAL AND RESERVES Issued capital 5 5,948 5,948 5,948 5,948 Reserves 37,677 38,760 50,778 57,585 43,625 44,708 56,726 63,533
16,438 11,531 38,240 533 31,226 — 22,460 103,990 26,030 772 6,644 31,858 10,507 75,811 28,179 44,617 326 666 992	11,861 1,849 31,467 1,025 443 5,043 27,019 66,846 25,682 770 5,751 1,600 — 33,803 33,043 44,904 — 196 196	12,597 4,492 40,415 496 6,988 — 34,543 86,934 32,623 3,371 6,336 337 — 42,667 44,267 56,864 — 138 138	11,778
			5,513 44,382 140 1,922 — 36,792
			88,749
			29,571 1,063 5,851 317 —
			36,802
			51,947
			63,725 — 192
			192
43,625	44,708	56,726	63,533
5,948 37,677	5,948 38,760	5,948 50,778	5,948 57,585
43,625	44,708	56,726	63,533

— 76 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

Notes:

(a) Fixed assets

As 2001 HK$’000 18,454 3,900 6,357 2,001 30,712	at 31 December 2002 2003 HK$’000 HK$’000 15,490 18,641 4,861 5,443 5,055 5,649 2,750 2,270 28,156 32,003	at 31 December 2002 2003 HK$’000 HK$’000 15,490 18,641 4,861 5,443 5,055 5,649 2,750 2,270 28,156 32,003	As at 30 June 2004 HK$’000 18,777 6,201 5,697 2,274
			32,949
11,390 2,440 2,691 1,298	10,262 2,773 2,120 1,636	11,925 3,215 2,808 1,458	12,916 3,502 3,187 1,566
17,819	16,791	19,406	21,171
7,064 1,460 3,666 703	5,228 2,088 2,935 1,114	6,716 2,228 2,841 812	5,861 2,699 2,510 708
12,893	11,365	12,597	11,778

The net book value of the fixed assets of the First Precision Group held under finance leases included in the total amounts of fixed assets is as follows:

Furniture and office equipment Motor vehicles	As 2001 HK$’000 426 13 439	at 31 December 2002 2003 HK$’000 HK$’000 — — — — — —	As at 30 June 2004 HK$’000 — —
			—

— 77 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(b) Deferred development costs

				As at
		As at 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Cost	6,506	762	434	—
Accumulated amortisation	(2,961)	(266)	(434)	—
Net book value	3,545	496	—	—

(c) Inventories

Raw materials Work in progress Finished goods At cost	As 2001 HK$’000 8,700 1,187 1,644 11,531	at 31 December 2002 2003 HK$’000 HK$’000 193 579 98 438 1,558 3,475 1,849 4,492	As at 30 June 2004 HK$’000 1,614 854 3,045
			5,513

(d) Trade and bills receivables

The First Precision Group allows an average credit period of 30 to 120 days to its trade customers. An aged analysis of the trade and bills receivables as at the balance sheet date, based on payment due date and net of provisions, is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	As 2001 HK$’000 27,023 7,553 2,871 793 38,240	at 31 December 2002 2003 HK$’000 HK$’000 29,859 39,902 1,464 276 99 118 45 119 31,467 40,415	As at 30 June 2004 HK$’000 44,168 32 69 113
			44,382

Included in the above balances are trade receivables from fellow subsidiaries of the First Precision Group of approximately HK$23,891,000, HK$24,007,000, HK$37,750,000 and HK$43,037,000 as at 31 December 2001, 2002, 2003 and 30 June 2004, respectively, which are repayable within 120 days.

— 78 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(e) Due from/(to) fellow subsidiaries

The balances with fellow subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

(f) Cash and cash equivalents and pledged time deposits

Cash and bank balances Time deposits Less: Pledged time deposits for bank borrowings Cash and cash equivalents	As 2001 HK$’000 22,460 —	at 31 December 2002 2003 HK$’000 HK$’000 27,019 34,543 5,043 —	at 31 December 2002 2003 HK$’000 HK$’000 27,019 34,543 5,043 —	As at 30 June 2004 HK$’000 36,792 —
	22,460 —	32,062 (5,043)	34,543 —	36,792 —
	22,460	27,019	34,543	36,792

(g) Trade and bills payables

An aged analysis of the trade and bills payables as at the balance sheet date is as follows:

Current to 30 days 31 to 60 days 61 to 90 days Over 90 days	As 2001 HK$’000 4,296 5,476 7,168 9,090 26,030	at 31 December 2002 2003 HK$’000 HK$’000 18,995 25,464 4,118 4,590 2,386 1,497 183 1,072 25,682 32,623	As at 30 June 2004 HK$’000 28,568 425 394 184
			29,571

Included in the above balances are trade payables to fellow subsidiaries of the First Precision Group of approximately HK$752,000, HK$5,794,000, HK$9,102,000 and HK$9,363,000 as at 31 December 2001, 2002, 2003 and 30 June 2004, respectively, which are repayable within 120 days.

— 79 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(h) Other payables and accruals

					As at
		As at 31 December		30 June
	2001	2002	2003		2004
	HK$’000	HK$’000	HK$’000	HK$’000
Other payables	165	165	684		819
Accruals	6,479	5,586	5,652		5,032
	6,644	5,751	6,336		5,851

(i) Interest-bearing bank and other borrowings

Current portion of bank loans Current portion of finance lease payables — note 4(j)	As 2001 HK$’000 10,206 301 10,507	at 31 December 2002 2003 HK$’000 HK$’000 — — — — — —	As at 30 June 2004 HK$’000 — —
			—

At 31 December 2001, the First Precision Group’s bank loans were secured by:

(i) the pledge of certain fixed deposits of a fellow subsidiary of the First Precision Group; and
(ii) fixed charges over certain of the leasehold land and buildings of a fellow subsidiary of the First Precision Group.

In addition, First Precision’s ultimate holding company executed guarantees in favour of certain banks for the First Precision Group’s banking facilities as at 31 December 2001.

— 80 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

(j) Finance lease payables

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

Minimum lease payments 31 December 2001 HK$’000 337 255 86	Minimum lease payments 31 December 2002 HK$’000 — — —	Minimum lease payments 31 December 2003 HK$’000 — — —	Minimum lease payments 30 June 2004 HK$’000 — — —	Present value of minimum lease payments 31 December 2001 HK$’000 301 242 84	Present value of minimum lease payments 31 December 2002 HK$’000 — — —	Present value of minimum lease payments 31 December 2003 HK$’000 — — —	Present value of minimum lease payments 30 June 2004 HK$’000 — — —
678 (51)	—	—	—	627	—	—	—
	—	—	—
627 (301)	— —	— —	— —
326	—	—	—

(k) Deferred tax

The movement in deferred tax liabilities during the Relevant Periods is as follows:

31 December 2001

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 62 380 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) (40) 264 Deferred tax liabilities at the end of the year 22 644	Total HK$’000 442 224
	666

— 81 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

31 December 2002

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 22 644 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) 50 (520) Deferred tax liabilities at the end of the year 72 124	Total HK$’000 666 (470)
	196

31 December 2003

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the year 72 124 Deferred tax charged/(credited) to the profit and loss account during the year — note 3(f) 66 (124) Deferred tax liabilities at the end of the year 138 —	Total HK$’000 196 (58)
	138

30 June 2004

Accelerated tax depreciation Deferred development costs HK$’000 HK$’000 At beginning of the period 138 — Deferred tax charged to the profit and loss account during the period — note 3(f) 54 — Deferred tax liabilities at the end of the period 192 —	Total HK$’000 138 54
	192

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

(l) Operating lease arrangements

First Precision leases its office premises under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to three years.

— 82 —

APPENDIX IB

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

At the balance sheet date, First Precision had total future minimum lease payments under non-cancellable operating leases as follows:

Within one year In the second to fifth years, inclusive	As 2001 HK$’000 146 98 244	at 31 December 2002 2003 HK$’000 HK$’000 323 323 — — 323 323	As at 30 June 2004 HK$’000 161 —
			161

(m) Commitments

At 30 June 2004, First Precision had no significant commitments (2001: nil; 2002: nil; 2003: nil).

(n) Contingent liabilities

The First Precision Group had a contingent liability in respect of possible future long service payments to employees under the Hong Kong Employment Ordinance, with a maximum possible amount of approximately HK$236,000 as at 30 June 2004 (2001: HK$236,000; 2002: HK$215,000; 2003: HK$552,000), as further explained under the heading “Employee benefits” in note 2 of this report. The contingent liability has arisen because, at the balance sheet date, a number of current employees have achieved the required number of years of service to the First Precision Group in order to be eligible for long service payments under the Employment Ordinance if their employment is terminated under certain circumstances. A provision has not been recognised in respect of such possible payments, as it is not considered probable that the situation will result in a material future outflow of resources from the First Precision Group.

5. COMBINED STATEMENTS OF CHANGES IN EQUITY

Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533	Issued share capital Share premium account Retained profits Total HK$’000 HK$’000 HK$’000 HK$’000 At 1 January 2001 5,948 276 32,698 38,922 Net profit for the year — — 4,703 4,703 At 31 December 2001 and 1 January 2002 5,948 276 37,401 43,625 Net profit for the year — — 1,083 1,083 At 31 December 2002 and 1 January 2003 5,948 276 38,484 44,708 Net profit for the year — — 12,018 12,018 At 31 December 2003 and 1 January 2004 5,948 276 50,502 56,726 Net profit for the period — — 6,807 6,807 At 30 June 2004 5,948 276 57,309 63,533
5,948 — 5,948 — 5,948 —	276 — 276 — 276 —	37,401 1,083 38,484 12,018 50,502 6,807	43,625 1,083
			44,708 12,018
			56,726 6,807
5,948	276	57,309	63,533

— 83 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

6. COMBINED CASH FLOW STATEMENTS

The following is a summary of the combined cash flow statements of the First Precision Group for the Relevant Periods, prepared on the basis set out in Section 1 “Basis of presentation” above:

				Six months
				ended
	Year ended 31 December			30 June
	2001	2002	2003	2004
	_HK$’000 _	_HK$’000 _	HK$’000	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	5,531	1,365	14,561	5,917
Adjustments for:
Finance costs	688	74	2	—
Interest income	(53)	(92)	(46)	(6)
Depreciation	2,804	3,037	3,147	1,767
Amortisation of deferred development costs	769	318	366	—
Write off of deferred development costs	—	2,969	345	—
Write off of fixed assets	—	1,007	—	—
Bad and doubtful debt provisions on trade
receivables	585	380	—	—
Bad and doubtful debt provisions on amount
due from a fellow subsidiary	—	1,305	—	—
Provision for slow-moving and obsolete stocks	2,748	6,103	628	—
Gain on disposal of fixed assets, net	(54)	—	(35)	—
Operating profit before working capital changes	13,018	16,466	18,968	7,678
Decrease/(increase) in inventories	2,555	3,579	(3,271)	(1,021)
Decrease/(increase) in trade and bills receivables	32,313	6,393	(8,948)	(3,967)
Decrease/(increase) in prepayments, deposits and
other receivables	274	(492)	529	356
Decrease/(increase) in due from fellow
subsidiaries	(31,186)	29,817	(6,545)	5,066
Increase/(decrease) in trade and bills payables	302	(348)	6,941	(3,052)
Increase/(decrease) in other payables and
accruals	1,907	(893)	585	(485)
Increase/(decrease) in due to fellow subsidiaries	3,249	(30,258)	(1,263)	(20)
Cash generated from operations	22,432	24,264	6,996	4,555
Interest received	53	92	46	6
Interest paid	(614)	(23)	(2)	—
Interest element on finance lease rental payments	(74)	(51)	—	—
Hong Kong profits tax paid	(259)	(754)	—	(1,364)
Net cash inflow from operating activities	21,538	23,528	7,040	3,197

— 84 —

FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

APPENDIX IB

Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (4,313) (2,855) (4,783) (948 Proceeds from disposals of fixed assets 68 — 439 — Additions to deferred development costs (2,420) (238) (215) — Decrease/(increase) in pledged time deposits — (5,043) 5,043 — Net cash inflow/(outflow) from investing activities (6,665) (8,136) 484 (948 CASH FLOWS FROM FINANCING ACTIVITIES Capital element of finance lease rental payments (524) (627) — — Net additions/(repayment) of trust receipt loans 3,477 (10,206) — — Net cash inflow/(outflow) from financing activities 2,953 (10,833) — — NET INCREASE IN CASH AND CASH EQUIVALENTS 17,826 4,559 7,524 2,249 Cash and cash equivalents at beginning of year/period 4,634 22,460 27,019 34,543 CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 22,460 27,019 34,543 36,792 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 22,460 27,019 34,543 36,792	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (4,313) (2,855) (4,783) (948 Proceeds from disposals of fixed assets 68 — 439 — Additions to deferred development costs (2,420) (238) (215) — Decrease/(increase) in pledged time deposits — (5,043) 5,043 — Net cash inflow/(outflow) from investing activities (6,665) (8,136) 484 (948 CASH FLOWS FROM FINANCING ACTIVITIES Capital element of finance lease rental payments (524) (627) — — Net additions/(repayment) of trust receipt loans 3,477 (10,206) — — Net cash inflow/(outflow) from financing activities 2,953 (10,833) — — NET INCREASE IN CASH AND CASH EQUIVALENTS 17,826 4,559 7,524 2,249 Cash and cash equivalents at beginning of year/period 4,634 22,460 27,019 34,543 CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 22,460 27,019 34,543 36,792 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 22,460 27,019 34,543 36,792	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (4,313) (2,855) (4,783) (948 Proceeds from disposals of fixed assets 68 — 439 — Additions to deferred development costs (2,420) (238) (215) — Decrease/(increase) in pledged time deposits — (5,043) 5,043 — Net cash inflow/(outflow) from investing activities (6,665) (8,136) 484 (948 CASH FLOWS FROM FINANCING ACTIVITIES Capital element of finance lease rental payments (524) (627) — — Net additions/(repayment) of trust receipt loans 3,477 (10,206) — — Net cash inflow/(outflow) from financing activities 2,953 (10,833) — — NET INCREASE IN CASH AND CASH EQUIVALENTS 17,826 4,559 7,524 2,249 Cash and cash equivalents at beginning of year/period 4,634 22,460 27,019 34,543 CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 22,460 27,019 34,543 36,792 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 22,460 27,019 34,543 36,792	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of fixed assets (4,313) (2,855) (4,783) (948 Proceeds from disposals of fixed assets 68 — 439 — Additions to deferred development costs (2,420) (238) (215) — Decrease/(increase) in pledged time deposits — (5,043) 5,043 — Net cash inflow/(outflow) from investing activities (6,665) (8,136) 484 (948 CASH FLOWS FROM FINANCING ACTIVITIES Capital element of finance lease rental payments (524) (627) — — Net additions/(repayment) of trust receipt loans 3,477 (10,206) — — Net cash inflow/(outflow) from financing activities 2,953 (10,833) — — NET INCREASE IN CASH AND CASH EQUIVALENTS 17,826 4,559 7,524 2,249 Cash and cash equivalents at beginning of year/period 4,634 22,460 27,019 34,543 CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 22,460 27,019 34,543 36,792 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 22,460 27,019 34,543 36,792
(6,665) (524) 3,477 2,953 17,826 4,634	(8,136) (627) (10,206) (10,833) 4,559 22,460	484 — — — 7,524 27,019	(948
			— —
			—
			2,249 34,543
22,460 22,460	27,019 27,019	34,543 34,543	36,792
			36,792

Note:

Major non-cash transactions

				Six months
				ended
	Year	ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Transfer of fixed assets at net book value
to a fellow subsidiary	—	339	—	—

— 85 —

APPENDIX IB FINANCIAL INFORMATION OF THE FIRST PRECISION GROUP

7. SEGMENT INFORMATION

No business segment and geographical segment information are presented as over 90% of the First Precision Group’s revenue and assets related to manufacture and sale of telecom products and accessories and based in the PRC including Hong Kong.

8. SUBSEQUENT EVENT

No significant event has taken place subsequent to 30 June 2004.

9. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by First Precision or any of the companies now comprising the First Precision Group in respect of any period subsequent to 30 June 2004.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

— 86 —

FINANCIAL INFORMATION OF CCT INVESTMENT

APPENDIX IC

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

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

20 August 2004

The Directors CCT Investment Limited

Dear Sirs,

We set out below our report on the financial information regarding CCT Investment Limited (“CCT Investment”), for each of the three years ended 31 December 2003 and the six months ended 30 June 2004 (the “Relevant Periods”), prepared on the basis set out in Section 2 below, for inclusion in the circular of CCT Telecom Holdings Limited (“CCT”), the ultimate holding company of CCT Investment, dated 20 August 2004 (the “Circular”) in relation to the proposed acquisition of the entire issued capital of CCT Investment by CCT (the “Proposed Acquisition”).

CCT Investment was incorporated with limited liability in Hong Kong on 10 December 1991.

We have acted as auditors of CCT Investment for each of the Relevant Periods. For the purpose of this report, we have examined the audited financial statements of CCT Investment for each of the three years ended 31 December 2003 and the management accounts of CCT Investment for the six months ended 30 June 2004 in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the Hong Kong Society of Accountants.

The summaries of the results, statements of changes in equity and cash flow statements of CCT Investment for the Relevant Periods and of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003, and 30 June 2004 (the “CCT Investment Summaries”) set out in this report have been prepared from the audited financial statements or, where appropriate, the management accounts of CCT Investment after making such adjustments as we consider appropriate, and are presented on the basis set out in Section 2 below.

The directors of CCT Investment are responsible for the preparation of the CCT Investment Summaries. In preparing the CCT Investment Summaries, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion on the CCT Investment Summaries.

In our opinion, the CCT Investment Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of CCT Investment for each of the Relevant Periods and of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003, and 30 June 2004, which have been prepared on the basis set out in Section 2 below.

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1. PRINCIPAL ACTIVITIES

At the date of this report, the principal activity of CCT Investment is the holding of a plot of land with a factory building situated thereon in Dongguan (“Dongguan Factory”), the People’s Republic of China (the “PRC”).

During the Relevant Periods, CCT Investment had two wholly-owned subsidiaries namely, Huiyang CCT Plastic Products Co., Ltd. (“HCT”) and Dongguan Eswire Electronics Co., Ltd. (“DEL”), which were principally engaged in the manufacture of plastic casings, cordless phones and related parts.

On 25 June 2002, CCT Investment disposed of its entire interest in HCT to CCT Plastic Products Limited, a fellow subsidiary of CCT Investment, at a consideration determined based on CCT Investment’s carrying cost of investment in HCT of HK$40,000,000. On 20 May 2004, CCT Investment disposed of its entire interest in DEL to Techno Faith Holdings Limited, a fellow subsidiary of CCT Investment, at a consideration determined based on CCT Investment’s carrying cost of investment in DEL of HK$40,057,000.

2. BASIS OF PRESENTATION

The CCT Investment Summaries, which are based on the audited financial statements or, where appropriate, the management accounts of CCT Investment, after making such adjustments as we consider appropriate, include the results, statements of changes in equity, cash flow statements and the balance sheets of CCT Investment.

For the purpose of this report, all the related results, assets and liabilities of HCT and DEL were excluded from the CCT Investment Summaries as if the disposals had been completed on 31 December 2000.

In addition to the above, on 1 January 2003, Dongguan CCT Telecommunications Products Co., Ltd., a fellow subsidiary of CCT Investment, transferred the building cost of the Dongguan Factory to CCT Investment at a consideration of approximately HK$25,270,000, determined based on its carrying value at 31 December 2002. The CCT Investment Summaries were prepared as if CCT Investment had recorded the building cost of the Dongguan Factory since 1 January 2001.

The CCT Investment Summaries have been prepared under the going concern concept because CCT Tech International Limited, a holding company of CCT Investment, has agreed to provide adequate funds for CCT Investment to meet its liabilities until the completion of the Proposed Acquisition. CCT has agreed to provide adequate funds for CCT Investment to meet its liabilities subsequent to the Proposed Acquisition.

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3. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by CCT Investment in arriving at the financial information set out in this report, which conform with accounting principles generally accepted in Hong Kong are set out below:

Impairment of assets

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/ amortisation), had no impairment loss been recognised for the asset in prior years.

Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset 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 fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

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Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land and buildings 5% Motor vehicle 20%

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Income tax

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to CCT Investment, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Lease where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where CCT Investment is the lessor, assets leased by the Company under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the profit and loss account on the straight-line basis over the lease terms.

Cash equivalents

For the purpose of the cash flow statements, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily

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APPENDIX IC

convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of CCT Investment’s cash management.

For the purpose of the balance sheet, cash and bank balances comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to CCT Investment and when revenue can be measured reliably. Rental income is recognised on a time proportion basis over the lease terms.

Related parties

4. RESULTS

The following is a summary of the results of CCT Investment for the Relevant Periods, prepared on the basis set out in Section 2 “Basis of presentation” above:

					Six months
					ended
		Year	ended 31 December		30 June
	Notes	2001	2002	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000
Turnover		—	—	—	—
Other revenue		—	4,347	1,800	3,000
Administrative expenses		(1,376)	(1,408)	(3,234)	(3,694)
Other operating expenses		—	—	(41)	—
Profit/(loss) from operating activities	(a)	(1,376)	2,939	(1,475)	(694)
Finance costs	(b)	(2)	(11)	—	—
Profit/(loss) before tax		(1,378)	2,928	(1,475)	(694)
Tax	(e)	—	—	—	—
Net profit/(loss) from ordinary
activities attributable to shareholders		(1,378)	2,928	(1,475)	(694)
Dividend	(f)	—	—	—	—

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Notes:

(a) Profit/(loss) from operating activities

CCT Investment’s profit/(loss) from operating activities is arrived at after charging/(crediting):

				Six months
				ended
		Year ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Depreciation	1,370	1,400	1,391	681
Auditors’ remuneration	—	—	20	10
Minimum lease payments under operating
leases in respect of land and buildings	—	—	1,800	3,000
Staff costs	—	—	—	—
Loss on disposal of a fixed asset	—	—	41	—
Rental income	—	—	(1,800)	(3,000)
Waiver of amount due to a fellow subsidiary	—	(4,347)	—	—

Auditors’ remuneration has been absorbed by CCT Investment’s fellow subsidiaries during the year ended 31 December 2001 and 2002.

(b) Finance costs

								Six months
								ended
					Year	ended 31 December		30 June
				2001		2002	2003	2004
				HK$’000		HK$’000	HK$’000	HK$’000
Interest	on	finance	leases	2		11	—	—

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(c) Directors’ remuneration

Details of the directors’ remuneration are as follows:

Fees Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — —
		—

The number of directors whose remuneration fell within the following bands is as follows:

					Number of directors	Number of directors
							Six months
							ended
				Year	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	3		3	2	2

During the Relevant Periods, no remuneration was paid by CCT Investment to any of the directors as an inducement to join or upon joining the Company, or as compensation for loss of office. No director waived or agreed to waive any remuneration during the Relevant Periods.

(d) Five highest paid employees

The five highest paid employees of CCT Investment did not include any director during the Relevant Periods. Details of the remuneration of the five non-director, highest paid individuals during each of the Relevant Periods are as follows:

Salaries, housing benefits and other allowances Pension scheme contributions	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — —	Year ended 31 December Six months ended 30 June 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — —
		—

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FINANCIAL INFORMATION OF CCT INVESTMENT

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

					Number of employees	Number of employees
							Six months
							ended
				Year	ended 31 December		30 June
			2001		2002	2003	2004
Nil	-	HK$1,000,000	5		5	5	5

During the Relevant Periods, no remuneration was paid by CCT Investment to any of the non-director, highest paid employees as an inducement to join or upon joining the Company, or as compensation for loss of office.

(e) Tax

No provision for Hong Kong profits tax has been made as CCT Investment did not generate any assessable profits arising in Hong Kong during the Relevant Periods.

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rate to the tax expense at the effective tax rate are as follows:

Profit/(loss) before tax Tax at the statutory tax rate Income not subject to tax Expenses not deductible for tax Tax charge	2001 HK$’000 % (1,378)	2001 HK$’000 % (1,378)	Year ended 31 December 2002 2003 HK$’000 % HK$’000 % 2,928 (1,475)	Year ended 31 December 2002 2003 HK$’000 % HK$’000 % 2,928 (1,475)	Year ended 31 December 2002 2003 HK$’000 % HK$’000 % 2,928 (1,475)	Year ended 31 December 2002 2003 HK$’000 % HK$’000 % 2,928 (1,475)	Six months ended 30 June 2004 HK$’000 % (694)	Six months ended 30 June 2004 HK$’000 % (694)
	(220) — 220	(16.0) — 16.0	468 (695) 227	16.0 (23.7) 7.7	(258) (315) 573	(17.5) (21.3) 38.8	(121) (525) 646	(17.5) (75.6) 93.1
	—	—	—	—	—	—	—	—

There was no unprovided deferred tax for the Relevant Periods and as at 31 December 2001, 2002 and 2003 and 30 June 2004.

(f) Dividend

No dividend had been paid or declared by CCT Investment during the Relevant Periods.

(g) Earnings/(loss) per share

No basic and diluted earnings/(loss) per share amount is presented as its inclusion, for the purpose of this report, is not considered meaningful.

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(h) Related party transactions

During the Relevant Periods, CCT Investment had the following material transactions with related parties:

							Six months
							ended
				Year	ended 31	December	30 June
			Notes	2001	2002	2003	2004
				HK$’000	HK$’000	HK$’000	HK$’000
Factory	rental	expense	(i)	—	—	1,800	3,000
Factory	rental	income	(ii)	—	—	1,800	3,000

(i) The factory rental expense was charged to CCT Investment by CCT Properties (Dongguan) Limited (“CCT Prop”), a wholly-owned subsidiary of CCT, for the provision of factory space in Dongguan, the PRC, at a rate determined in accordance with the terms and conditions set out two tenancy agreements entered into between CCT Investment and CCT Prop on 15 May 2003 and 14 January 2004, respectively.
(ii) The factory rental income was received from DEL for sub-leasing the Dongguan Factory to DEL with the same terms as set out in the aforementioned tenancy agreements.

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5. BALANCE SHEETS

The following is a summary of the balance sheets of CCT Investment as at 31 December 2001, 2002 and 2003 and 30 June 2004, prepared on the basis set out in Section 2 “Basis of presentation” above.

					As at
		As	at 31 December		30 June
	Notes	2001	2002	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Fixed assets	(a)	25,483	24,083	22,581	21,900
CURRENT ASSETS
Other receivables		19	—	—	—
Cash and cash equivalents	(b)	1	—	712	6
		20	—	712	6
CURRENT LIABILITIES
Accruals		—	—	—	10
Due to immediate holding company	(c)	29,584	25,397	26,082	25,379
Current portion of finance lease payables	(d)	69	—	—	—
		29,653	25,397	26,082	25,389
NET CURRENT LIABILITIES		(29,633)	(25,397)	(25,370)	(25,383)
TOTAL ASSETS LESS CURRENT
LIABILITIES		(4,150)	(1,314)	(2,789)	(3,483)
NON-CURRENT LIABILITIES
Non-current portion of finance lease
payables	(d)	92	—	—	—
		(4,242)	(1,314)	(2,789)	(3,483)
DEFICIENCIES IN ASSETS
Issued capital	6	1	1	1	1
Accumulated losses		(4,243)	(1,315)	(2,790)	(3,484)
		(4,242)	(1,314)	(2,789)	(3,483)

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Notes:

(a) Fixed assets

As 2001 HK$’000 27,276 179 27,455	at 31 December 2002 2003 HK$’000 HK$’000 27,276 27,276 179 — 27,455 27,276	at 31 December 2002 2003 HK$’000 HK$’000 27,276 27,276 179 — 27,455 27,276	As at 30 June 2004 HK$’000 27,276 —
			27,276
1,966 6	3,330 42	4,695 —	5,376 —
1,972	3,372	4,695	5,376
25,310 173	23,946 137	22,581 —	21,900 —
25,483	24,083	22,581	21,900

The net book value of the fixed assets of CCT Investment held under finance leases included in the total amounts of motor vehicle as at 31 December 2001, 2002 and 2003, and 30 June 2004 are HK$173,000, nil, nil and nil, respectively.

CCT Investment’s leasehold land and buildings are situated in the PRC and held under medium term leases.

(b) Cash and cash equivalents

								As at
					As	at 31 December		30 June
				2001		2002	2003	2004
				HK$’000		HK$’000	HK$’000	HK$’000
Cash	and	bank	balances	1		—	712	6

(c) Due to immediate holding company

The amounts due to immediate holding company are unsecured, interest-free and have no fixed terms of repayment.

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(d) Finance lease payables

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

Minimum lease payments 31 December 2001 HK$’000 78 78 25 181 (20) 161 (69)	Minimum lease payments 31 December 2001 HK$’000 78 78 25 181 (20) 161 (69)	Minimum lease payments 31 December 2002 HK$’000 — — — —	Minimum lease payments 31 December 2003 HK$’000 — — — —	Minimum lease payments 30 June 2004 HK$’000 — — — —	Present value of minimum lease payments 30 June 2004 HK$’000 — — —
					—
	) )	— — —	— — —	— — —
161 (69
92		—	—	—

(e) Contingent liabilities

At 30 June 2004, CCT Investment had no significant contingent liabilities.

(f) Commitments

At 30 June 2004, CCT Investment had no significant commitments.

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6. STATEMENTS OF CHANGES IN EQUITY

	Issued	Accumulated
	capital	losses	Total
	HK$’000	HK$’000	HK$’000
At 1 January 2001	1	(2,865)	(2,864)
Loss for the year	—	(1,378)	(1,378)
At 31 December 2001 and 1 January 2002	1	(4,243)	(4,242)
Profit for the year	—	2,928	2,928
At 31 December 2002 and 1 January 2003	1	(1,315)	(1,314)
Loss for the year	—	(1,475)	(1,475)
At 31 December 2003 and 1 January 2004	1	(2,790)	(2,789)
Loss for the period	—	(694)	(694)
At 30 June 2004	1	(3,484)	(3,483)

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7. CASH FLOW STATEMENTS

The following is a summary of the cash flow statements of CCT Investment for the Relevant Periods, prepared on the basis set out in Section 2 “Basis of presentation” above:

				Six months
				ended
	Year	ended 31 December		30 June
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit/(loss) before tax	(1,378)	2,928	(1,475)	(694)
Adjustments for:
Finance costs	2	11	—	—
Depreciation	1,370	1,400	1,391	681
Loss on disposal of a fixed asset	—	—	41	—
Waiver of amount due to a fellow
subsidiary	—	(4,347)	—	—
Operating loss before working capital
changes	(6)	(8)	(43)	(13)
Decrease/(increase) in other receivables	(19)	19	—	—
Increase in accruals	—	—	—	10
Increase/(decrease) in amount due to
immediate holding company	45	160	685	(703)
Cash generated/(used) from operations	20	171	642	(706)
Interest element on finance lease rental
payments	(2)	(11)	—	—
Net cash inflow/outflow from operating
activities	18	160	642	(706)
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from disposal of fixed assets	—	—	70	—
Net cash inflow from investing activities	—	—	70	—

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					Six months
					ended
	Year	ended 31 December			30 June
	2001	2002	2003		2004
	HK$’000	HK$’000	HK$’000		HK$’000
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital element of finance lease rental
payments	(18)	(161)		—	—
Net cash outflow from financing
activities	(18)	(161)		—	—
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS	—	(1)	712		(706)
Cash and cash equivalents
at beginning of year/period	1	1		—	712
CASH AND CASH EQUIVALENTS
AT END OF YEAR/PERIOD	1	—	712		6
ANALYSIS OF BALANCES OF CASH
AND CASH EQUIVALENTS
Cash and bank balances	1	—	712		6

Note:

Major non-cash transaction

During the year ended 31 December 2001, CCT Investment entered into finance lease arrangements in respect of fixed assets with a total capital value at inception of the finance leases of HK$179,000.

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8. SEGMENT INFORMATION

No business segment and geographical segment information are presented as over 90% of the Company’s revenue and assets related to property holding and based in the PRC including Hong Kong.

9. SUBSEQUENT EVENT

No significant event has taken place subsequent to 30 June 2004.

10. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by CCT Investment in respect of any period subsequent to 30 June 2004.

Yours faithfully Ernst & Young Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE COMBINED GROUP

APPENDIX ID

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

20 August 2004

The Directors

CCT Telecom Holdings Limited

Dear Sirs

CCT Telecom Holdings Limited (“CCT”) and its subsidiaries (the “Group”)

We report on the unaudited pro forma financial information (the “Pro Forma Financial Information”) set out on pages 105 to 106 in Appendix ID to the circular of CCT dated 20 August 2004 (the “Circular”), which has been prepared, for illustrative purposes only, to provide information about how the proposed Transaction (as defined in the Circular) might have affected the financial information presented in respect of the Group.

Responsibilities

It is the responsibility solely of the directors of CCT to prepare the Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

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

Basis of opinion

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

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APPENDIX ID

Our work does not constitute an audit or review in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, and accordingly, we do not express any such assurance on the Pro Forma Financial Information.

The Pro Forma Financial Information is for illustrative purpose only, based on the directors’ judgements and assumptions, and because of its nature, it does not provide an 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 31 December 2003 or at any future date.

Opinion

In our opinion:

(a) the Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of CCT; and
(c) the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully

Ernst & Young Certified Public Accountants Hong Kong

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE COMBINED GROUP

APPENDIX ID

Unaudited pro forma statement of assets and liabilities of the Combined Group

The pro forma statement of assets and liabilities of the Combined Group set out below has been prepared to illustrate the effect of the Transaction on the net assets of the Combined Group, as if the Transaction had taken place on 31 December 2003, and is based on the historical consolidated/ combined net assets of CCT Telecom Group, First Precision Group and CCT Investment with further adjustments as explained in the notes below. The pro forma statement of assets and liabilities has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the financial position of the Combined Group.

The consolidated/combined nets assets of CCT Telecom Group, First Precision Group and CCT Investment, have been extracted from their respective audited financial statements/management accounts as at 31 December 2003.

CCT Telecom Group Adjustments Combined Group HK$’million HK$’million Note HK$’million NON-CURRENT ASSETS Fixed assets 1,497 — 1,497 Intangible assets 23 — 23 Goodwill 26 — 26 Interests in associates 297 — 297 Other assets 12 — 12 Long term investments 4 — 4 Deferred tax assets 9 — 9 1,868 1,868 CURRENT ASSETS Short term investments 3 — 3 Inventories 178 — 178 Trade and bills receivables 655 — 655 Prepayment, deposits and other receivables 63 — 63 Pledged time deposits 100 — 100 Cash and cash equivalents 873 — 873 1,872 1,872 CURRENT LIABILITIES Trade and bills payables 841 — 841 Tax payable 25 — 25 Other payables and accruals 198 — 198 Interest-bearing bank and other borrowings 130 — 130 Covertible notes 8 — 8 1,202 1,202 NET CURRENT ASSETS 670 670 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,538 NON-CURRENT LIABILITES Interest-bearing bank loans 124 — 124 Finance lease payables 1 — 1 Covertible notes 10 — 10 Deferred tax liabilities 7 — 7 142 142 MINORITY INTERESTS 101 — 101 NET ASSETS 2,295 2,295	CCT Telecom Group Adjustments Combined Group HK$’million HK$’million Note HK$’million NON-CURRENT ASSETS Fixed assets 1,497 — 1,497 Intangible assets 23 — 23 Goodwill 26 — 26 Interests in associates 297 — 297 Other assets 12 — 12 Long term investments 4 — 4 Deferred tax assets 9 — 9 1,868 1,868 CURRENT ASSETS Short term investments 3 — 3 Inventories 178 — 178 Trade and bills receivables 655 — 655 Prepayment, deposits and other receivables 63 — 63 Pledged time deposits 100 — 100 Cash and cash equivalents 873 — 873 1,872 1,872 CURRENT LIABILITIES Trade and bills payables 841 — 841 Tax payable 25 — 25 Other payables and accruals 198 — 198 Interest-bearing bank and other borrowings 130 — 130 Covertible notes 8 — 8 1,202 1,202 NET CURRENT ASSETS 670 670 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,538 NON-CURRENT LIABILITES Interest-bearing bank loans 124 — 124 Finance lease payables 1 — 1 Covertible notes 10 — 10 Deferred tax liabilities 7 — 7 142 142 MINORITY INTERESTS 101 — 101 NET ASSETS 2,295 2,295	CCT Telecom Group Adjustments Combined Group HK$’million HK$’million Note HK$’million NON-CURRENT ASSETS Fixed assets 1,497 — 1,497 Intangible assets 23 — 23 Goodwill 26 — 26 Interests in associates 297 — 297 Other assets 12 — 12 Long term investments 4 — 4 Deferred tax assets 9 — 9 1,868 1,868 CURRENT ASSETS Short term investments 3 — 3 Inventories 178 — 178 Trade and bills receivables 655 — 655 Prepayment, deposits and other receivables 63 — 63 Pledged time deposits 100 — 100 Cash and cash equivalents 873 — 873 1,872 1,872 CURRENT LIABILITIES Trade and bills payables 841 — 841 Tax payable 25 — 25 Other payables and accruals 198 — 198 Interest-bearing bank and other borrowings 130 — 130 Covertible notes 8 — 8 1,202 1,202 NET CURRENT ASSETS 670 670 TOTAL ASSETS LESS CURRENT LIABILITIES 2,538 2,538 NON-CURRENT LIABILITES Interest-bearing bank loans 124 — 124 Finance lease payables 1 — 1 Covertible notes 10 — 10 Deferred tax liabilities 7 — 7 142 142 MINORITY INTERESTS 101 — 101 NET ASSETS 2,295 2,295
	1,868 3 — 178 — 655 — 63 — 100 — 873 — 1,872 841 — 25 — 198 — 130 — 8 — 1,202 670 2,538 124 — 1 — 10 — 7 — 142 101 —	1,868
		3 178 655 63 100 873
		1,872
		841 25 198 130 8
		1,202
		670
		2,538
		124 1 10 7
		142 101
	2,295	2,295

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE COMBINED GROUP

APPENDIX ID

Note:

First Precision Group and CCT Investment are indirect wholly-owned subsidiaries of CCT Tech, which is an indirect 35.4% owned subsidiary of CCT Telecom. The assets and liabilities of First Precision Group and CCT Investment have already been consolidated in CCT Telecom Group’s consolidated balance sheet.

No pro forma adjustment has been made because the Transaction is an intragroup transaction within CCT Telecom Group and should be eliminated in full in CCT Telecom Group’s consolidated balance sheet.

— 106 —

APPENDIX II

PROPERTY VALUATION

The following is the text of a letter with a valuation certificate, prepared for the purpose of inclusion in this circular, from Vigers Appraisal and Consulting Limited, the independent property valuer, in connection with its valuation as at 31 May, 2004 of the property held by CCT Investment.

Vigers Appraisal & Consulting Limited International Assets Appraisal Consultants

10th Floor, The Grande Building 398 Kwun Tong Road Kowloon Hong Kong

==> picture [72 x 72] intentionally omitted <==

20 August, 2004

The Directors

CCT Tech International Limited

32nd Floor, China Merchants Tower

Shun Tak Centre

168-200 Connaught Road Central

Hong Kong

Dear Sirs,

A factory complex located at No. 3 Hong Yie Dong San Road Hong Yie Economic Development Zone Tong Xia Zhen Dongguan Guangdong Province, the People’s Republic of China

In accordance with your instructions for us to value the above property interest (the “Property”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out an inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of such the property interest as at 31 May, 2004.

Our valuation is our opinion of the open market value which we would define as intended to mean � “the best price at which the sale of an interest in property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation assuming:

(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

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PROPERTY VALUATION

APPENDIX II

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a special purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

In our valuation, we have adopted a combination of the market and depreciated replacement cost approaches in assessing the land portion of the property and the buildings and structures standing on the site of the property respectively. Hence, the sum of the two results represents the market value of the property as a whole. In the valuation of the land portions, reference has been made to the standard land price in Tong Xia Zhen determined by the Dongguan City Land Administration Bureau and the sales evidence as available to us in the locality. Due to the nature of the buildings and structures comprised in the property, there are no readily identifiable market sale comparables, and the buildings and structures cannot be valued on the basis of open market value. They have therefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar property in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property interest in the absence of a known market based on comparable sales.

We have not caused searches to be made of the title of the property and in some instances we have been provided with extracts from title documents relating to the property. We have not, however, searched the original documents to verify ownership or to verify the existence of any lease amendments which do not appear on the copies handed to us. All documents and leases have been used for reference only. All dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by you and therefore only approximations.

In undertaking our valuation of the property interest, we have relied on the legal opinion provided by (Zhu Ming Lawer Office of GuangDong), the Group’s PRC legal advisers (“the PRC Legal Opinion”).

For the PRC Legal Opinion, we understand that the status of titles, grant of major approvals, licences and documents for the Property are as follows:-

a. Land Use Rights Certificate
a. Land Use Rights Certificate Yes b. Red-Line Drawings Yes c. Real Estate Ownership Certificates Yes

In the course of our valuation, we have assumed that all consents, approvals and licences from relevant PRC government authorities for development of the Property will be granted without any onerous conditions or undue delay.

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APPENDIX II

PROPERTY VALUATION

We have relied to a considerable extent on information provided by you and have accepted advice given to us by you on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, site and floor areas. We have also been advised by you that no material factors had been concealed or omitted in the information provided to us and we have independently verified the information provided by you.

Our valuation have been made on the assumption that the owner sells the property interest in the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the property interest. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the property interest and no forced sale situation in any manner is assumed in our valuation.

In valuing the property interest, we have assumed free and uninterrupted rights to use, occupy or assign the Property for the whole of the unexpired term as granted.

We have inspected the property, but no structural survey has been made and we are therefore unable to report whether the property is free from rot, infestation or any structural defects. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the instructing party. The instructing party has also advised us that no material facts have been omitted from the information supplied to us to reach an informed view, and we have no reason to suspect that any material information has been withheld.

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

Unless otherwise stated, all amounts stated are in Renminbi. The exchange rate used in valuing the property interest on 31 May, 2004 was HK$1 = RMB1.06. There has no significant in exchange rate between that date and the date of this letter.

We enclose herewith our valuation certificate.

Yours faithfully, For and on behalf of Vigers Appraisal and Consulting Limited Raymond Ho Kai Kwong Registered Professional Surveyor MRICS MHKIS MSc (e-com) Executive Director

Note : Raymond Ho Kai Kwong, Chartered Surveyor, MRICS, MHKIS, MSc (e-com) has extensive experience in undertaking valuations of properties in Hong Kong and has over ten years’ experience in the valuation of properties in the PRC.

— 109 —

PROPERTY VALUATION

APPENDIX II

VALUATION CERTIFICATE

Property

Description and Tenure

Capital value Particulars of in existing state as at Occupancy 31 May, 2004

A factory complex located at No. 3 Hong Yie Dong San Road, Hong Yie Economic

Development Zone, Tong Xia Zhen, Dongguan, Guangdong Province, the PRC.

The property comprises one piece of land with a total site area of approximately 21,611 sq.m.. At present, a factory complex is erected on the property.

The total gross floor area of the factory complex is approximately 33,822 sq.m. and detail as follows:

	No. of	Gross	Year of
Block Storey		Floor Area	Completion
		(sq.m.)
1. Main Factory	3	25,541	1992
2. 2# Staff Dormitory	5	1,940	1992
3. 3# Staff Dormitory	5	1,940	1992
4. 5# Staff Dormitory	5	1,167	1992
5. 6# Staff Dormitory	5	1,167	1992
6. 7# Staff dormitory	5	1,167	1992
7. 4# Canteen	2	900	1992
TOTAL:		33,822

The property RMB36,000,000 is at present vacant (equivalent to HK$34,000,000)

According to a State-owned Land Use Rights Certificate (Document No. (1993) 159 (Dongfuguoyong (1993) zidite 159), the property is granted with a land use rights for a term of 50 years commencing from April 1993 to April 2043 for industrial uses.

Notes:

Pursuant to the Land Use Right Certificate No. (1993) 159 (Dongfuguoyong (1993) zidite 159) dated April, 1993 issued by Dongguan City Government, the site with a site area of approximately 21,611 sq.m. was granted to CCT Investment Limited ( ) (an indirectly wholly-owned subsidiary of CCT Tech International Limited). The permitted use of the site is for industrial and the land use right term is 50 years up to April, 2043.
Pursuant to seven Real Estate Ownership Certificates Nos.Yuefangdizhengzidi 1578125, 1578126, 1578127, 1578128, 1578129, 1578130, 1578131, CCT Investment Limited ( ) has the right to use block Nos. 1, 2, 3, 4, 5, 6 and 7 of the property for a term from April, 1993 to April, 2043.
Pursuant to the PRC Legal Opinion, we understand that the status of titles, grant of major approvals, licences and documents for the Property are as follows:
a. Land Use Rights Certificate
b. Red-Line Drawings
c. Real Estate Ownership Certificates

Yes Yes Yes

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PROPERTY VALUATION

APPENDIX II

In the course of our valuation, we have assumed that all consents, approvals and licences from relevant government authorities for development of the property have been granted without any onerous conditions or undue delay.
The PRC legal advisers have inspected the original of the Land Use Right Certificate and the Real Estate Ownership Certificates of the property and the Company has confirmed that the conformity to the original documents of all copy documents supplied to the PRC legal advisers. Based on the foregoing, the PRC legal advisers have issued the legal opinion dated 15th June, 2004 (the “PRC Legal Opinion”). Pursuant to the PRC Legal Opinion prepared by (Zhu Ming Lawer Office Of GuangDong), it states that:
(i) CCT Investment Limited has obtained the legal title of the land use rights and the building ownership of the property and CCT Investment Limited had already fully settled all the land premium of the property.
(ii) CCT Investment Limited is entitled to freely transfer, let or mortgage the property to any party thereof without payment of any land grant premium.
At the date of our recent inspection, we noted that two staff dormitories (Block 5 and Block 6) and a canteen (Block 7) have been demolished.

— 111 —

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement contained herein misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised share capital: HK$ 2,000,000,000 Shares 200,000,000 Issued and fully paid or credited as fully paid Shares: 422,105,230 Shares 42,210,523

3. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations

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

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GENERAL INFORMATION

APPENDIX III

(1) Interests and short positions in the Shares, underlying Shares and debentures of the Company
(i) Long positions in the Shares:

		Number of Shares	Number of Shares	Approximate
		beneficially	held and	percentage
		nature of interest		of total
Name of Director	Notes	Personal	Corporate	shareholding
				(%)
Mak Shiu Tong, Clement	(a)	—	86,261,941	20.44
Cheng Yuk Ching, Flora		9,876,713	—	2.34
William Donald Putt		171,500	—	0.04
Samuel Olenick	(b)	—	125,000	0.03

Notes:

(a) The Shares were held by Capital Force International Limited and Capital Interest Limited, which are corporations controlled by Mr. Mak Shiu Tong, Clement. These interests in the Shares have also been disclosed under the section headed “Substantial Shareholders’ Interests” below.
(b) Mr. Samuel Olenick was deemed to be interested in 125,000 Shares under the provisions of Part XV of the SFO.
(ii) Long positions in underlying Shares of equity derivatives of the Company:

		Share options in the Company	Share options in the Company	Share options in the Company	Share options in the Company
	Date of	Exercise		Number	Number	Approximate
	grant of	period of	Exercise	of share	of total	percentage
	share	share	price	options	underlying	of total
Name of Director	options	options	per Share	outstanding	Shares	shareholding
			HK$			(%)
Mak Shiu Tong, Clement	17/3/2003	17/3/2003 -	0.750	420,000	420,000	0.10
		16/3/2008
Cheng Yuk Ching, Flora	17/3/2003	17/3/2003 -	0.750	4,200,000	4,200,000	1.00
		16/3/2008
Tam Ngai Hung, Terry	17/3/2003	17/3/2003 -	0.750	4,200,000	4,200,000	1.00
		16/3/2008
William Donald Putt	17/3/2003	17/3/2003 -	0.750	420,000	420,000	0.10
		16/3/2008
Samuel Olenick	17/3/2003	17/3/2003 -	0.750	420,000	420,000	0.10
		16/3/2008
Tam King Ching, Kenny	17/3/2003	17/3/2003 -	0.750	420,000	420,000	0.10
		16/3/2008
Lau Ho Man, Edward	17/3/2003	17/3/2003 -	0.750	420,000	420,000	0.10
		16/3/2008

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GENERAL INFORMATION

APPENDIX III

(2) Interests and short positions in the shares, underlying shares and debentures of associated corporations
(i) Long positions in the shares, underlying shares and debentures of Haier-CCT Holdings Limited (“Haier-CCT”):

(1) Shares in Haier-CCT:

		Number of shares in	Number of shares in	Approximate
		Haier-CCT beneficially held		percentage
		and nature	of interest	of total
Name of Director	Notes	Personal	Corporate	shareholding
				(%)
Mak Shiu Tong, Clement	(a)	—	107,219,667	1.076
Cheng Yuk Ching, Flora		19,312,498	—	0.194
Tam Ngai Hung, Terry		10,000,000	—	0.100
William Donald Putt		179,112	—	0.002
Samuel Olenick	(b)	—	130,548	0.001

Notes:

(a) The shares in Haier-CCT were held by Capital Winner Investments Limited and Capital Interest Limited, which are corporations controlled by Mr. Mak Shiu Tong, Clement.
(b) Mr. Samuel Olenick was deemed to be interested in 130,548 shares in Haier-CCT under the provisions of Part XV of the SFO.

(2) Share options in Haier-CCT:

	Date of	Exercise		Number	Number	Approximate
	grant of	period of	Exercise	of share	of total	percentage
	share	share	price	options	underlying	of total
Name of Director	options	options	per share	outstanding	shares	shareholding
			HK$			(%)
Mak Shiu Tong, Clement	16/8/2002	16/8/2003 -	0.156	89,000,000	89,000,000	0.89
		15/8/2007
Cheng Yuk Ching, Flora	16/8/2002	16/8/2003 -	0.156	89,000,000	89,000,000	0.89
		15/8/2007
Tam Ngai Hung, Terry	16/8/2002	16/8/2003 -	0.156	89,000,000	89,000,000	0.89
		15/8/2007
William Donald Putt	16/8/2002	16/8/2003 -	0.156	5,000,000	5,000,000	0.05
		15/8/2007

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GENERAL INFORMATION

APPENDIX III

(ii) Long positions in the underlying shares of equity derivatives of CCT Tech:
(1) Share options in CCT Tech:

	Date of	Exercise		Number	Number	Approximate
	grant of	period	Exercise	of share	of total	percentage
	share	of share	price per	options	underlying	of total
Name of Director	options	options	share	outstanding	shares	shareholding
			HK$			(%)
Mak Shiu Tong, Clement	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008
Cheng Yuk Ching, Flora	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008
Tam Ngai Hung, Terry	30/4/2003	30/4/2003 -	0.014	100,000,000	100,000,000	0.64
		29/4/2008

(2) Convertible note in CCT Tech:

		Number	Approximate
		of total	percentage
	Description of equity	underlying	of total
Name of Director	derivatives held	shares	shareholding
			(%)
Mak Shiu Tong,	HK$45 million zero coupon	4,500,000,000	28.96
Clement (Note)	convertible note due 2005

Note: The HK$45 million zero coupon convertible note due 2005 was held by New Capital Industrial Limited, which is a corporation controlled by Mr. Mak Shiu Tong, Clement.

(b) Particulars of Directors’ other interests

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into a service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

(c) Save as disclosed above, as at the Latest Practicable Date

(i) none of the Directors and the chief executive of the Company and their respective associates held any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of the SFO) which had 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,

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GENERAL INFORMATION

APPENDIX III

pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or which were required, pursuant to Part XV of the SFO or the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange; and

(ii) none of the Directors was interested in any business that was in competition with the Company.

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as was known to, or could be ascertained after reasonable enquiries by, the Directors, the following persons (other than the Directors or the chief executive of the Company) had interests or short positions in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO:

Long positions in the Shares:

		Approximate
		percentage
	Number of	of total
Name of Shareholder	Shares held	shareholding
		(%)
Capital Force International Limited (Note)	56,850,093	13.47
Capital Interest Limited (Note)	29,411,848	6.97
		20.44

Note: Capital Force International Limited and Capital Interest Limited are corporations controlled by Mr. Mak Shiu Tong, Clement. These interests in the Shares have also been disclosed under the section headed “Disclosure of Interests” above.

Save as disclosed above, so far as was known to the Directors, as at the Latest Practicable Date, no other person (other than the Directors or the chief executive of the Company) had any interests or short positions in the Shares and underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO.

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GENERAL INFORMATION

APPENDIX III

5. MATERIAL ADVERSE CHANGES

Save as disclosed herein, as at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 31 December 2003, being the date to which the latest published audited financial statements of the Company were made up.

6. INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had, since 31 December 2003, being the date of the latest published audited accounts of the Group were made up, been 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.

As at the Latest Practicable Date, none of the Directors was materially interested in any contract entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group taken as a whole.

7. MATERIAL CONTRACTS

In the two years immediately preceding the Latest Practicable Date, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by the Company or its subsidiaries which are or may be material:

(i) a conditional agreement dated 15 May 2003 made between the Company and CCT Tech relating to the disposal of the entire equity interest in Empire Success Holdings Limited, a then indirect wholly-owned subsidiary of the Company, and the assignment of a shareholder’s loan; and
(ii) the Agreement.

8. LITIGATION

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

9. QUALIFICATIONS AND CONSENTS OF EXPERTS

Each of Ernst & Young, the PRC Legal Advisers (as defined below) and Vigers Appraisal and Consulting Limited has given and has not withdrawn its written consent to the issue of this circular with copies of its report or valuation certificate (as the case may be) and the references to its name included herein in the form and context in which they appear.

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GENERAL INFORMATION

APPENDIX III

The following are the qualifications of the experts who have given opinion or advice to the Company and which opinion or advice is contained in this circular:

Name

Qualification

Ernst & Young Certified public accountants Vigers Appraisal and Consulting Limited Property valuer (Zhu Ming Lawyer Office Registered law firm in the PRC of Guangdong) (“PRC Legal Advisers”)

Save as disclosed in this circular, none of the PRC Legal Advisers, Vigers Appraisal and Consulting Limited or Ernst & Young is interested in any Share or share in any member of the Group nor does it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Share or share in any member of the Group.

10. GENERAL

(a) The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(b) The company secretary of the Company is Ms. Low Pui Man, Jaime, who is a fellow of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.
(c) None of the experts named in paragraph 9 in this appendix has any direct or indirect interest in any asset which had, since 31 December 2003, being the date of the latest published audited accounts of the Group were made up, been 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.
(d) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the head office and the principal place of business of the Company in Hong Kong at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong during normal business hours on any Business Day from the date of this circular up to and including the date of the Extraordinary General Meeting:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two financial years ended 31 December 2002 and 2003;

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GENERAL INFORMATION

APPENDIX III

(c) the material contracts referred to in the section headed “Material contracts” in this appendix;
(d) the Agreement;
(e) the accountants’ reports prepared by Ernst & Young, the text of which are set out in appendices IB to ID to this circular;
(f) the property valuation report prepared by Vigers Appraisal and Consulting Limited, the text of which is set out in appendix II to this circular;
(g) the PRC Legal Opinion referred to in appendix II to this circular;
(h) the written consents referred to in paragraph 9 in this appendix; and
(i) a copy of each circular issued pursuant to the requirements set out in Chapter 14 and/or Chapter 14A since 31 December 2003, being the date of the latest published audited accounts of the Company were made up.

— 119 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

TELECOM HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of CCT Telecom Holdings Limited (the “ Company ”) will be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong on Wednesday, 8 September 2004 at 10:30 a.m. for the purpose of considering and, if thought fit, passing with or without modification the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT

(a) the agreement (the “ Agreement ”) dated 2 June 2004 entered into between the Company and CCT Tech International Limited (“ CCT Tech ”), a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purpose, pursuant to which CCT Tech has agreed (i) to sell or procure the sale of the entire issued share capital of each of First Precision Holdings Limited (“ First Precision ”) and CCT Investment Limited (“ CCT Investment ”), both being wholly-owned subsidiaries of CCT Tech; and (ii) to assign or procure the assignment of the outstanding debts as at the date of completion of the Agreement due from CCT Investment to CCT Telecom Product International Holdings Limited, a wholly-owned subsidiary of CCT Tech, and the outstanding debts as at the date of completion of the Agreement due from First Precision to CCT Tech Holdings Limited, a wholly-owned subsidiary of CCT Tech, to the Company or its nominee(s), for an aggregate consideration of HK$139 million to be satisfied by cancellation of the Convertible Note (as defined in the circular of the Company dated 20 August 2004, a copy of which is tabled at the meeting and marked “B” and initialled by the chairman of the meeting for identification purpose) to the extent of the same amount of the aggregate consideration and the terms of and the transactions contemplated under the Agreement and the implementation thereof be and are hereby approved, ratified and confirmed; and
(b) any one director of the Company, or any two directors of the Company if the affixation of the common seal is necessary, be and is/are hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/them to be incidental to, ancillary to or in connection with the matters contemplated in or relating to the completion of the Agreement as he/they may consider necessary, desirable or expedient.”

By Order of the Board of CCT TELECOM HOLDINGS LIMITED Mak Shiu Tong, Clement Chairman

Hong Kong, 20 August 2004

— 120 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Head office and principal place of business in Hong Kong: 32/F., China Merchants Tower

Shun Tak Centre

168-200 Connaught Road Central

Hong Kong

Notes:

1. A form of proxy for use at the meeting is enclosed herewith.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either executed under its common seal or under the hand of any officer, attorney or other person duly authorised to sign the same.

3. Any member entitled to attend and vote at the meeting is entitled to appoint not more than two proxies (who must be an individual(s)) to attend and vote instead of him/her on the same occasion. A proxy need not be a member of the Company but must attend the meeting in person to represent him/her.

4. In order 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 lodged at the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof (as the case may be).

5. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the form of proxy shall be deemed to be revoked.

6. Where there are joint registered holders of any share(s), any one of such joint holders may attend and vote at the meeting, either in person or by proxy, in respect of such share(s) as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the meeting or any adjourned meeting thereof (as the case may be), the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

— 121 —

TELECOM HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 138)

FORM OF PROXY FOR THE EXTRAORDINARY GENERAL MEETING TO BE HELD ON WEDNESDAY, 8 SEPTEMBER 2004 AND ANY ADJOURNMENT THEREOF

I/We[1]

being the registered holder(s) of[2]

shares (the “ Shares ”) of HK$0.10 each in

the capital of CCT Telecom Holdings Limited (the “ Company ”), HEREBY APPOINT THE CHAIRMAN OF THE MEETING[3] , or

of

as my/our proxy to attend and act for me/us and on my/our behalf at the extraordinary general meeting of the Company to be held at 32/F., China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong, on Wednesday, 8 September 2004 at 10:30 a.m. (and at any adjournment thereof, as the case may be) (the “ Meeting ”) for the purpose of considering and, if thought fit, passing the ordinary resolution as set out in the notice convening the Meeting and at the Meeting to vote for me/us and in my/our name(s) in respect of such resolution as hereunder indicated, and, if no such indication is given, as my/our proxy thinks fit. My/our proxy will also be entitled to vote on any matter properly put to the Meeting in such manner as he/she thinks fit.

				FOR4	AGAINST4	AGAINST4
Ordinary		Resolution

Signature[5] Date

Notes:

Full name(s) and address(es) must be inserted in BLOCK CAPITALS. The names of all joint registered holders should be stated.
Please insert the number of Shares registered in your name(s) to which this proxy relates. If no number is inserted, this form of proxy will be deemed to relate to all Shares registered in your name(s).
If any proxy other than the Chairman of the Meeting is preferred, please strike out the words “THE CHAIRMAN OF THE MEETING” and insert the name and address of the proxy desired in the space provided. ANY ALTERATION MADE TO THIS FORM OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.
IMPORTANT: If you wish to vote for the resolution, please put a tick in the box marked “FOR”. If you wish to vote against the resolution, please put a tick in the box marked “AGAINST”. If no direction is given, your proxy may vote or abstain as he/she thinks fit. Your proxy will also be entitled to vote at his/her discretion on any resolution properly put to the Meeting other than the resolution referred to in the notice convening the Meeting.
This form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be either executed under its common seal or under the hand of an officer or attorney duly authorised on that corporation’s behalf.
In the case of joint registered holders of any Share(s), any one of such persons may vote at the Meeting, either in person or by proxy, in respect of such Share(s) as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the Meeting in person or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such Share(s) shall alone be entitled to vote in respect thereof.
In order to be valid, this form of proxy, together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be deposited at the branch share registrar and transfer office of the Company in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the Meeting.
A proxy need not be a shareholder of the Company but must attend the Meeting in person to represent you.
Completion and deposit of this form of proxy will not preclude you from attending and voting in person at the Meeting if you so wish. If you attend and vote at the Meeting in person, the authority of your proxy will be revoked.

AI assistant

CSC Holdings Limited — Proxy Solicitation & Information Statement 2004

49056_rns_2004-08-23_f9a00c08-5bd3-460c-9654-df767e948b54.pdf

TELECOM HOLDINGS LIMITED

MAJOR TRANSACTION

CONTENTS

DEFINITIONS

DEFINITIONS

TELECOM HOLDINGS LIMITED

MAJOR TRANSACTION

I. INTRODUCTION

II. THE TRANSACTION

The Agreement

LETTER FROM THE BOARD

Consideration

Conditions

LETTER FROM THE BOARD

Completion

III. FURTHER INFORMATION ABOUT THE FIRST PRECISION GROUP

IV. FURTHER INFORMATION ABOUT CCT INVESTMENT

V. REASONS FOR THE TRANSACTION

(i) The First Precision Group

LETTER FROM THE BOARD

(ii) CCT Investment and the Property

LETTER FROM THE BOARD

General

VI. EXTRAORDINARY GENERAL MEETING

LETTER FROM THE BOARD

VII. RECOMMENDATION

VIII. FURTHER INFORMATION

To the members

CCT Telecom Holdings Limited

Respective Responsibilities of Directors and Auditors

Basis of Opinion

Opinion

Ernst & Young

CONSOLIDATED PROFIT AND LOSS ACCOUNT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

BALANCE SHEET

Mak Shiu Tong, Clement

Tam Ngai Hung, Terry

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

Measurement and recognition:

Disclosures:

FINANCIAL INFORMATION OF THE GROUP

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

Basis of consolidation

Subsidiaries

Joint venture companies

APPENDIX IA

Jointly-controlled entities

Associates

Goodwill

APPENDIX IA

FINANCIAL INFORMATION OF THE GROUP

Impairment of assets

Fixed assets and depreciation

FINANCIAL INFORMATION OF THE GROUP

Construction in progress

Investment properties

Intangible assets

Publishing rights

Deferred development costs

Club memberships

Long term investments

Short term investments

Inventories

Income tax

Leased assets

Employee benefits

Paid leave carried forward

Employment Ordinance long service payments

Share option scheme

FINANCIAL INFORMATION OF THE GROUP

Pension scheme

Foreign currencies

CSC Holdings Limited Proxy Solicitation & Information Statement 2004