Deson Development International Holdings Limited — Proxy Solicitation & Information Statement 2005

Feb 28, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED 迪臣發展國際集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

in relation to the conditional sale of

the entire issued share capital of a wholly-owned subsidiary of Deson Development International Holdings Limited and thereby a controlling interest in Chinese People Gas Holdings Company Limited

Independent Financial Adviser to the Independent Board Committee and the Shareholders

F IRST S HANGHAI G ROUP

FIRST SHANGHAI CAPITAL LIMITED

A letter from the Board is set out on pages 4 to 10 of this circular.

A notice convening the SGM to be held at 10:00 a.m. on Tuesday, 15 March 2005 at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong is set out on page 114 of this circular.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

28 February 2005

* For identification only

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM FIRST SHANGHAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
APPENDIX I FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
APPENDIX II PRO FORMA FINANCIAL INFORMATION OF THE
REMAINING GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	85
APPENDIX III PROPERTY VALUATION REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	92
APPENDIX IV GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	108
NOTICE OF SPECIAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	114

– i –

DEFINITIONS

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

“Announcement”	the announcement dated 20 December 2004 issued jointly by the Company,
	CPG and Asian Allied;
“Asian Allied”	Asian Allied Limited, a company incorporated in the British Virgin Islands
	with limited liability which is beneficially owned as to 65.14% by Mr. Mo
	Shikang and 34.86% by Mr. Yuan Yakang as at the Latest Practicable Date;
“associate(s)”	has the meaning ascribed to it under the Listing Rules;
“B.I. Appraisals”	B.I. Appraisals Limited, an independent firm of chartered surveyors;
“Billion Treasure”	Billion Treasure Holdings Limited, a company incorporated in the British
	Virgin Islands with limited liability and a wholly-owned subsidiary of CPG as
	at the Latest Practicable Date;
“Bless Honour”	Bless Honour Limited, a company incorporated in Hong Kong with limited
	liability and a wholly-owned subsidiary of CPG as at the Latest Practicable
	Date;
“Business Day”	a day (excluding Saturday and any day on which a tropical cyclone warning
	no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon
	and is not lowered at or before 12:00 noon or on which a “black” rainstorm
	warning is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and
	is not discontinued at or before 12:00 noon) on which licensed banks in Hong
	Kong are generally open for business;
“Board”	the board of Directors as at the Latest Practicable Date;
“Brilliant China”	Brilliant China Investments Limited, a company incorporated in the British
	Virgin Islands with limited liability and is a direct wholly owned subsidiary of
	CPG and a subsidiary of the Company;
“Company” or “Deson”	Deson Development International Holdings Limited, an exempted company
	incorporated in Bermuda with limited liability the shares of which are listed
	on the Main Board of the Stock Exchange;
“Completion”	completion of the Sale and Purchase Agreement in accordance with its terms
	and conditions;
“connected person”	has the meaning ascribed to it under the Listing Rules;
“Consideration”	the aggregate purchase price for the Sale Share and the Shareholder’s Loan,
	being HK$136,172,425.60;
“CPG”	Chinese People Gas Holdings Company Limited, an exempted company
	incorporated in Bermuda with limited liability, the issued shares of which are
	listed on the Main Board of the Stock Exchange and a subsidiary of the
	Company;
“CPG Group”	CPG and its subsidiaries;
“CPG Share(s)”	share(s) of HK$0.07 each in the share capital of CPG;
“Directors”	the directors of the Company;

– 1 –

DEFINITIONS

“Disposal”	the disposal of the Sale Share and the Shareholder’s Loan by the Vendor
	pursuant to the terms and conditions of the Sale and Purchase Agreement;
“First Shanghai”	First Shanghai Capital Limited, a deemed licensed corporation under the SFO
	permitted to engage in type 6 regulated activity (as defined under the SFO)
	and the independent financial adviser appointed to advise the Independent
	Board Committee and the Shareholders;
“Glass Product”	Mian Zhu City Hongsen Glass Products Company Limited (綿竹市紅森玻
	璃製品有限責任公司), a limited liability company established in the PRC
	which is owned as to 70% by Hong Sen;
“Group”	the Company and its subsidiaries as at the Latest Practicable Date;
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong;
“Hong Kong” or “HKSAR”	the Hong Kong Special Administrative Region of the People’s Republic of
	China;
“Hong Sen”	Mian Zhu City Hong Sen Natural Gas Co., Ltd. (綿竹市紅森天然氣有限
	責任公司), a limited liability company established in the PRC which is
	owned as to 99% by Zhong Min and 1% by Yan Ting;
“Independent Board Committee”	the independent board committee of the Company comprising four independent
	non-executive Directors, Dr. Ho Chung Tai, Raymond, Mr. Siu Man Po, Ms.
	Wong Sin Yee and Mr. Wong Shing Kay, Oliver, established to advise the
	Shareholders in respect of the Disposal;
“Latest Practicable Date”	24 February 2005, being the latest practicable date prior to the printing of this
	circular for ascertaining certain information included herein;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange;
“Long Teng”	Mian Zhu City Long Teng Gas Installation Co. Ltd. (綿竹市龍騰燃氣安裝
	有限責任公司), a limited liability company established in the PRC which is
	owned as to 99% by Zhong Min and 1% by Yan Ting;
“Options”	an aggregate 200,000,000 options issued by CPG entitling the optionholder to
	subscribe for CPG Shares at a subscription price of HK$0.105 per CPG Share;
“Penmark”	Penmark Limited, a company incorporated in Hong Kong with limited liability
	and a wholly-owned subsidiary of CPG as at the Latest Practicable Date;
“PRC”	the People’s Republic of China and for the sole purpose of this circular, shall
	exclude Hong Kong, the Macau Special Administrative Region and Taiwan;
“Remaining Group”	the Company and its subsidiaries immediately after Completion;
“RMB”	renminbi yuan, the lawful currency of the PRC;
“Sale and Purchase Agreement”	the conditional sale and purchase agreement dated 15 December 2004 entered
	into between the Company, the Vendor and Asian Allied in relation to the sale
	by the Vendor and the purchase by Asian Allied of the Sale Share and the
	Shareholder’s Loan;
“Sale Share”	one share of US$1 in Super Win, representing the entire issued share capital
	of Super Win agreed to be acquired by Asian Allied pursuant to the Sale and
	Purchase Agreement;

– 2 –

DEFINITIONS

“SFC”	the Securities and Futures Commission of Hong Kong;
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);
“SGM”	the special general meeting of the Company to be held at 10:00 a.m. on
	Tuesday, 15 March 2005 at 11th Floor, Nanyang Plaza, 57 Hung To Road,
	Kwun Tong, Kowloon, Hong Kong to approve, among other things, the Sale
	and Purchase Agreement and the Disposal pursuant to the terms thereunder;
“Share(s)”	share(s) of HK$0.01 each in the share capital of the Company;
“Shareholder(s)”	holder(s) of Shares of the Company;
“Shareholder’s Loan”	the unsecured, interest-free, repayable on demand shareholder’s loan due and
	owing to the Vendor by Super Win and as at the Latest Practicable Date, the
	amount of such shareholder’s loan amounts to HK$92,897,899.14;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“subsidiary”	has the meaning ascribed to it under the Companies Ordinance (Chapter 32,
	Laws of Hong Kong) and “subsidiaries” shall be construed accordingly;
“Super Win”	Super Win Development Limited, a company incorporated in the British
	Virgin Islands with limited liability and an indirect wholly-owned subsidiary
	of the Company and which is interested in approximately 52.08% of the entire
	issued share capital of CPG as at the Latest Practicable Date;
“Vendor”	Deson Development Holdings Limited, a company incorporated in the British
	Virgin Islands with limited liability and a wholly-owned subsidiary of the
	Company as at the Latest Practicable Date;
“Xin Hua”	Xin Hua Resource Investment Limited, a company incorporated in the British
	Virgin Islands which is a wholly-owned subsidiary of CPG as at the Latest
	Practicable Date;
“Yan Ting”	LongXin (YanTing) Natural Gas Company Limited (鹽亭龍興燃氣有限責
	任公司), a limited liability company established in the PRC which is owned
	as to 99% by Zhong Min;
“Zhong Min”	Beijing Zhong Min Gas Co. Ltd. (北京中民燃氣有限公司), a wholly-
	owned foreign enterprise established in the PRC and a wholly-owned
	subsidiary of Xin Hua; and
“%”	per cent.

– 3 –

LETTER FROM THE BOARD

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED 迪臣發展國際集團有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

Executive Directors: Mr. Wang Ke Duan (Chairman) Mr. Tjia Boen Sien (Managing Director and Deputy Chairman) Mr. Wang Jing Ning Mr. Keung Kwok Cheung Mr. Kong Kwok Fai

Independent non-executive Directors: Dr. Ho Chung Tai, Raymond Mr. Siu Man Po Ms. Wong Sin Yee Mr. Wong Shing Kay, Oliver

Registered office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong: 11th Floor Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon Hong Kong 28 February 2005

To the Shareholders

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION in relation to the conditional sale of

the entire issued share capital of a wholly-owned subsidiary of Deson Development International Holdings Limited and thereby a controlling interest in Chinese People Gas Holdings Company Limited

A. INTRODUCTION

As announced by the Company on 20 December 2004, Deson Development Holdings Limited, a wholly-owned subsidiary of the Company, entered into the Sale and Purchase Agreement with the Company and Asian Allied with respect to the sale of the entire issued share capital of Super Win and the related shareholder’s loan.

The purpose of this circular is (i) to give the Shareholders further information on the terms of the Sale and Purchase Agreement and the Disposal pursuant to the terms thereunder; (ii) to set out the recommendation from respectively, First Shanghai, the independent financial adviser to the Independent Board Committee and the Shareholders, and the Independent Board Committee as to how to vote in the SGM; and (iii) to provide the Shareholders with such information concerning the Company as required by the Listing Rules.

B. THE SALE AND PURCHASE AGREEMENT

Date

15 December 2004

• For identification only

– 4 –

LETTER FROM THE BOARD

Parties

• (1) the Vendor;

• (2) Asian Allied (as purchaser); and

• (3) the Company

Interest to be disposed of

• (1) Sale Share, being 1 share of US$1 in the issued share capital of Super Win, which represents the entire issued share capital of, and the Vendor’s entire shareholding in, Super Win; and

• (2) Shareholder’s Loan of the face value of HK$92,897,899.14.

As at the Latest Practicable Date, the sole assets of Super Win are its interest in 1,361,724,256 CPG Shares, which represent approximately 52.08% of the entire issued share capital of CPG, and Options entitling the holder thereof to subscribe for up to 200,000,000 CPG Shares at a subscription price of HK$0.105 per CPG Share.

Consideration

HK$136,172,425.60, of which the amounts of HK$43,274,526.46 and HK$92,897,899.14 are attributable to the Sale Share and the Shareholder’s Loan respectively.

The Consideration was determined following arm’s length negotiation between Asian Allied and the Vendor with reference to the net asset value of Super Win as at 30 September 2004.

As Super Win has no other asset save for its holding of 1,361,724,256 CPG Shares and Options to subscribe for up to 200,000,000 CPG Shares at a subscription price of HK$0.105 per CPG Share, the acquisition of the entire issued share capital of Super Win is effectively an acquisition of 1,361,724,256 CPG Shares at a consideration of HK$136,172,425.60 which represents a purchase price of HK$0.10 per CPG Share. In the event that the Options are exercised in full by Asian Allied upon Completion at a subscription price of HK$0.105 per CPG Share, Asian Allied will have a right to acquire a further 200,000,000 CPG Shares and thereby, resulting in an acquisition of an aggregate 1,561,724,256 CPG Shares at a total consideration of HK$157,172,425.60, which, represents also a theoretical purchase price of HK$0.10 per CPG Share (the “ Effective Purchase Price ”).

The Effective Purchase Price of HK$0.10 per CPG Share represents:

• (1) a discount of approximately 66.67% to the closing price of HK$0.30 per CPG Share as quoted on the Main Board of the Stock Exchange on 14 December 2004, being the last complete trading day prior to the suspension of the trading in CPG Shares on 15 December 2004;

• (2) a discount of approximately 68.75% to the average closing price of approximately HK$0.32 per CPG Share as quoted on the Stock Exchange for the last 10 consecutive complete trading days prior to the suspension of the trading in CPG Shares on 15 December 2004;

• (3) a premium of approximately 100% to the unaudited consolidated net asset value per CPG Share of approximately HK$0.05 as at 30 September 2004 based on CPG’s 2004 interim report for the six months ended 30 September 2004;

• (4) a discount of approximately 72.22% to the closing price of HK$0.36 per CPG Share as quoted on the Stock Exchange as at the Latest Practicable Date; and

• (5) a discount of approximately 71.43% to the average closing price of HK$0.35 per CPG Share for the 10 trading days immediately prior to the Latest Practicable Date as quoted on the Stock Exchange.

The Consideration is payable by Asian Allied to the Vendor according to the following schedule:

• (1) HK$20,000,000 was to be paid upon the signing of the Sale and Purchase Agreement as deposit and partial payment;

• (2) subject to the obtaining of the Shareholders’ approval on the Disposal at the SGM, HK$67,500,000 is to be paid on the day on which the SGM is concluded; and

– 5 –

LETTER FROM THE BOARD

• (3) subject to Completion having taken place, the remaining balance of HK$48,672,425.60 is to be paid on or before the day falling on the expiry of a period of 18 months after the date of the Sale and Purchase Agreement.

The Consideration will be satisfied by Asian Allied by its internal resources. Upon signing of the Sale and Purchase Agreement on 15 December 2004, Asian Allied paid HK$20 million to the Vendor pursuant to the terms of the Sale and Purchase Agreement.

As security for its payment obligation under paragraph (3) above, at Completion (and immediately following the acquisition of Asian Allied of the Sale Share and the Shareholder’s Loan) Asian Allied will procure Super Win to execute a share mortgage over the 1,361,724,256 CPG Shares owned by it in favour of the Vendor.

Conditions of the Sale and Purchase Agreement

Completion of the Sale and Purchase Agreement is conditional upon the following conditions being fulfilled:

• (1) the SFC not raising any objection to the Offer being made at a price for each CPG Share of not higher than HK$0.10;

• (2) the sale and purchase of the Sale Share and the sale and assignment of the Shareholder’s Loan as contemplated under the Sale and Purchase Agreement having been approved by the Shareholders (who are not required to abstain from voting thereon under the Listing Rules or The Code on Takeovers and Mergers or otherwise) at the SGM in accordance with the Listing Rules;

• (3) Super Win having given its written consent to the sale and assignment of the Shareholder’s Loan by the Vendor to Asian Allied; and

• (4) the listing and trading of the CPG Shares having been resumed following the clearance by the Stock Exchange and the SFC of the Announcement and its publication, and the CPG Shares thereafter remaining so listed and traded on the date of Completion and no indication being received on or before the date of Completion from the SFC or the Stock Exchange to the effect that the listing of the CPG Shares on the Main Board of the Stock Exchange will or may be withdrawn or objected to (or conditions will or may be attached thereto) as a result of Completion or in connection with the terms of or any transaction contemplated by the Sale and Purchase Agreement (including, but not limited to, in connection with an allegation that CPG is no longer suitable for listing) (other than as a result of CPG’s inability to maintain its minimum public float requirement as prescribed under the Listing Rules).

Asian Allied may at its absolute discretion at any time waive in writing the condition specified under item (1) above.

If any of the conditions to the Sale and Purchase Agreement shall not have been fulfilled or, as the case may be, waived by Asian Allied by 5:00 p.m. on 31 March 2005 (or such other date(s) as the parties to the Sale and Purchase Agreement may agree), the Sale and Purchase Agreement will lapse and be of no further effect. In such event, all amounts paid by Asian Allied to the Vendor under the paragraph headed “Consideration” above shall be refunded to Asian Allied, without interests by the Vendor within two Business Days of such termination.

Other than the fact that trading of CPG Shares have been resumed on 21 December 2004 following the publication of the Announcement, none of the condition precedents to completion of the Sale and Purchase Agreement have been satisfied as at the Latest Practicable Date.

Completion

Completion will take place on the day, which must be a Business Day, on which the last of the condition (2) or (3) referred to above is fulfilled or such other date as the parties to the Sale and Purchase Agreement may agree in writing.

Upon Completion, Super Win and each member of the CPG Group will cease to be a subsidiary of the Company.

– 6 –

LETTER FROM THE BOARD

Listing Rules Implications

As at the Latest Practicable Date, the Company has, through Super Win, an indirect 52.08% interest in the entire issued share capital of CPG. Upon Completion, the Company’s entire shareholding in CPG will be sold to Asian Allied and CPG will cease to be a subsidiary of the Company. Pursuant to Rule 14.06 of the Listing Rules, the Disposal constitutes a very substantial disposal for the Company and requires the approval of the Shareholders at the SGM.

Mr. Mo Shikang, a director of CPG and certain of its subsidiaries, is a director and a controlling shareholder of Asian Allied, being the purchaser of the Sale Share and the Shareholder’s Loan under the Disposal. As CPG is currently a subsidiary of the Company, by virtue of Mr. Mo’s directorship in CPG, the Disposal also constitutes a connected transaction for the Company pursuant to Rule 14A.13(1)(a) of the Listing Rules and is subject to the approval of the independent shareholders of the Company at the SGM. As neither Asian Allied nor any of its associates has any interest in the Shares as at the Latest Practicable Date, no Shareholder is required to abstain from voting at the SGM in accordance with Rule 14.49 or Rule 14A.18 of the Listing Rules.

The Independent Board Committee has been established to advise the Shareholders on, among other things, the fairness and reasonableness of the Sale and Purchase Agreement and the Disposal pursuant to the terms thereunder. First Shanghai has been appointed by the Company as the independent financial adviser to advise the Independent Board Committee and the Shareholders in relation to the fairness and reasonableness of the Disposal under the terms of the Sale and Purchase Agreement. The text of the letters of advice from the Independent Board Committee and First Shanghai are set out in pages 11 and 12 of this circular respectively.

C. REASON FOR THE DISPOSAL

The Disposal will, if completed, raise immediate funds for the Company of approximately HK$133,300,000, which will enable the Company to improve its liquidity and financial position and can be used as general working capital of the Remaining Group.

The Directors believe that the terms of the Sale and Purchase Agreement and the Disposal pursuant to the terms thereunder are fair and reasonable and in the interests of the Shareholders as a whole.

D. FINANCIAL IMPACT OF THE DISPOSAL AND USE OF PROCEEDS

The audited consolidated net asset value of the CPG Group as at 31 March 2004 was HK$33,068,000, which represented approximately 11.86% of the audited net asset value of the Group as at 31 March 2004 of approximately HK$278,765,000.

The audited consolidated net asset value of the CPG Group as at 30 September 2004 was approximately HK$143,468,000, which represented approximately 42.56% of the audited consolidated net asset value of the Group as at 30 September 2004 of approximately HK$337,080,000.

The gain expected to accrue to the Company resulting from the Disposal is estimated to be approximately HK$51,000,000. The Consideration, being HK$136,172,425.60, represents a premium of 82.25% over the proportional interest in the audited consolidated net asset value of the CPG Group as at 30 September 2004.

The audited consolidated net loss of the CPG Group for the two years ended 31 March 2004 and the audited consolidated net profit of the CPG Group for the six months ended 30 September 2004 are as follows:

			For the
	For the year		six months ended
	ended 31 March		30 September
	2003	2004	2004
	HK$’000	HK$’000	HK$’000
Net profit/(loss) (before taxation,
extraordinary item and minority interest)	(8,805)	(9,024)	2,542
Net profit/(loss) (after taxation,
extraordinary item and minority interest)	(8,760)	(9,132)	2,758

– 7 –

LETTER FROM THE BOARD

The net proceeds of the Disposal for the Company are estimated to be approximately HK$133,300,000. The Company has no current definite plan on the specific use of the net proceeds but it is the intention of the Directors to apply such amount to further develop the Remaining Group’s property investment and development business and as general working capital of the Remaining Group.

Had Super Win been disposed of by the Group as at 1 April 2004, the unaudited pro forma consolidated profit of the Remaining Group for the six months’ ended 30 September 2004 will be approximately HK$101,847,000, which represented an increase of 135% as compared to the audited consolidated net profit of the Group for the same period of HK$43,252,000, and the unaudited pro forma consolidated net asset of the Remaining Group as at 30 September 2004 will be approximately HK$393,231,000, which represented an increase of approximately 17% as compared to the audited consolidated net asset of the Group of the same date of HK$337,080,000. Please refer to the pro forma financial information of the Remaining Group set out in Appendix II of this circular for further details.

E. INFORMATION ON THE CPG GROUP AND THE GROUP

CPG is a company incorporated in Bermuda with limited liability whose shares have been listed and traded on the Main Board of the Stock Exchange since 24 April 1997. The principal businesses of the CPG Group are investment in the distribution and supply of piped natural gas business in the PRC and the holding and leasing of properties in the PRC.

As at the Latest Practicable Date, the CPG Group comprises CPG, Penmark, Billion Treasure, Bless Honour, Brilliant China, Xin Hua, Zhong Min, Hong Sen, Yan Ting, Long Teng and Glass Products.

The principal business activities of each members of the CPG Group (other than CPG) are as follows:

Penmark	:	holding of a PRC property for sale purpose
Billion Treasure	:	an investment holding company the sole asset of which is its interest in Bless Honour.
		Apart from its interest in Bless Honour, Billion Treasure does not carry on any other
		business or has any other material assets, and has no material liabilities
Bless Honour	:	holding of certain PRC properties for sale purpose
Brilliant China	:	an investment holding company, the sole asset of which is its interest in the entire equity
		interest in Xin Hua. Apart from its interests in Xin Hua, Brilliant China does not carry on
		any other business or has any other material assets, and has no material liabilities
Xin Hua	:	an investment holding company which is beneficially interested in the entire equity
		interest in Zhong Min. Apart from its interests in Zhong Min, Xin Hua does not carry on
		any other business or has any other material assets, and has no material liabilities
Zhong Min	:	an investment holding company which is beneficially interested in 99.99% of the equity
		interest in each of Hong Sen and Long Teng, and 99% of equity interest in Yan Ting
Hong Sen	:	distribution and supply of piped natural gas in the PRC
Long Teng	:	installation of natural gas distribution facilities in the PRC
Yan Ting	:	distribution and supply of piped natural gas and installation of natural gas distribution
		facilities in the PRC
Glass Products	:	manufacturing and sale of glass products in the PRC

As at the Latest Practicable Date, in addition to the businesses of the CPG Group as specified above, the Group is principally engaged in (i) construction contracting (including electrical and mechanical works); (ii) property development and investment; (iii) operation of fitness centres and trading of fitness and medical equipment.

– 8 –

LETTER FROM THE BOARD

F. INFORMATION ON ASIAN ALLIED

Asian Allied is a company incorporated in the British Virgin Islands with limited liability on 28 July 2004 and is beneficially owned as to 65.14% by Mr. Mo Shikang and 34.86% by Mr. Yuan Yakang, who are also directors of Asian Allied. Mr. Mo Shikang is a director of CPG and certain of its subsidiaries. Save for the entering into of the Sale and Purchase Agreement, Asian Allied has not conducted any business since its incorporation and does not have any material assets.

As at the Latest Practicable Date, Mr. Yuan Yakang and Smarksborne are interested in 50,000,000 CPG Shares and 30,000,000 CPG Shares respectively, and such shares represent approximately 1.91% and 1.15% of the issued share capital of CPG as at the Latest Practicable Date respectively. Mr. Yuan Yakang also has beneficial interest in 50,000,000 outstanding Options as at the Latest Practicable Date. Smarksborne is wholly and beneficially owned by Mr. Mo Shikang. Other than such shareholding interest in CPG, as at the Latest Practicable Date, neither Asian Allied, its ultimate beneficial owners nor the parties acting in concert with any of them owned any CPG Shares or outstanding Options.

Save that Mr. Mo Shikang is a director of CPG and certain of its subsidiaries, Asian Allied and its ultimate beneficial owners are independent of and not connected with CPG, the directors, chief executive or substantial shareholders of CPG or any of its subsidiaries or an associate of any of them.

G. RECOMMENDATION

Having regard to the information described above, the Board is of the opinion that the Disposal pursuant to the terms of the Sale and Purchase Agreement is in the interest of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the relevant resolution to approve the same at the SGM.

An Independent Board Committee has been established to advise the Shareholders in respect of the Disposal. First Shanghai has been appointed as the independent financial adviser to the Independent Board Committee and the Shareholders in respect of the Disposal.

The text of the letter from First Shanghai containing advice to the Independent Board Committee and the Shareholders is set out on pages 12 to 19 of this circular. Having considered the terms and conditions of the Disposal, First Shanghai is of the view that the terms and conditions of the Disposal are fair and reasonable so far as the Shareholders are concerned and that the Disposal is in the interests of the Company and the Shareholders as a whole. Accordingly, they recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal.

The text of the letter from the Independent Board Committee containing advice to Shareholders is set out on page 11 of this circular. Having considered the principal factors and reasons considered by, and the advice of First Shanghai, the Independent Board Committee is also of the view that the terms of the Disposal are fair and reasonable so far as the Shareholders are concerned and that the Disposal is in the interests of the Company and the Shareholders as a whole. Accordingly, they recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal.

H. SPECIAL GENERAL MEETING

A notice of the SGM to be held at 10:00 a.m. on Tuesday, 15 March 2005 at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong at which the ordinary resolution will be proposed to approve, among other things, the Sale and Purchase Agreement and the Disposal pursuant to the terms thereunder is set out on page 114 of this circular.

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

– 9 –

LETTER FROM THE BOARD

No Shareholders or their associates will be required to abstain from voting at the SGM pursuant to Rule 14.49 of the Listing Rules.

Pursuant to the bye-laws of the Company, a resolution put to vote at a general meeting shall be decided on a show of hands unless a poll is required by the rules of the Stock Exchange or (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) is duly demanded.

A poll may be demanded by:

• (a) the Chairman of the meeting; or

• (b) at least three members present in person or by a duly authorized corporate representative or by proxy and entitled to vote at the meeting; or

• (c) any member or members present in person or by a duly authorized corporate representative or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

• (d) any member or members present in person or by a duly authorized corporate representative or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

I. ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED Tjia Boen Sien

Managing Director and Deputy Chairman

– 10 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED 迪臣發展國際集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

28 February 2005

To the Shareholders

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION in relation to the conditional sale of

the entire issued share capital of a wholly-owned subsidiary of Deson Development International Holdings Limited and thereby a controlling interest in Chinese People Gas Holdings Company Limited

We refer to the circular issued by the Company to its shareholders dated 28 February 2005 (the “ Circular ”) of which this letter forms part. Terms defined in this Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to consider the terms of the Sale and Purchase Agreement and to advise the Shareholders in connection with the Disposal under the Sale and Purchase Agreement as to whether, in our opinion, the terms are fair and reasonable so far as the Shareholders are concerned. First Shanghai has been appointed as independent financial adviser to advise us and the Shareholders in this respect. As neither Asian Allied nor any of its associates has any interest in the Shares as at the Latest Practicable Date, no Shareholder is required to abstain from voting at the SGM in accordance with Rule 14.49 or Rule 14A.18 of the Listing Rules.

We wish to draw your attention to the letter from the Board and the letter from First Shanghai as set out in the Circular. Having considered the principal factors and reasons considered by and the advice of First Shanghai as set out in its letter of advice, we consider that the terms of the Disposal under the Sale and Purchase Agreement are fair and reasonable and is in the interests of the Shareholders as a whole. Accordingly, we recommend the Shareholders to vote in favour of the ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at the SGM.

Yours faithfully,

Independent Board Committee Dr. Ho Chung Tai, Raymond, Mr. Siu Man Po, Ms. Wong Sin Yee and Mr. Wong Shing Kay, Oliver

• For identification only

– 11 –

LETTER FROM FIRST SHANGHAI

The following is the text of a letter received from First Shanghai in respect of the Disposal prepared for the purpose of incorporation in this circular.

F IRST S HANGHAI G ROUP

FIRST SHANGHAI CAPITAL LIMITED

19th Floor, Wing On House 71 Des Voeux Road Central Hong Kong

28 February 2005

To the Independent Board Committee and the Shareholders

Dear Sirs/Madams,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION in relation to the conditional sale of the entire issued share capital of a wholly-owned subsidiary of Deson Development International Holdings Limited and thereby a controlling interest in Chinese People Gas Holdings Company Limited

INTRODUCTION

We refer to our engagement to advise the Independent Board Committee and the Shareholders in respect of the Disposal under the terms of the Sale and Purchase Agreement, details of which are set out in the circular of the Company dated 28 February 2005 (the “Circular”) to the Shareholders of which this letter forms a part. Unless the context otherwise requires, terms used in this letter shall have the same meanings as those defined in the Circular.

Given that, as at the Latest Practicable Date, the Company had, through Super Win, an indirect 52.08% interest in the entire issued share capital of CPG. Upon Completion, the Company’s entire indirect shareholding in CPG would be transferred to Asian Allied and as a result of which, Super Win and each member of the CPG Group would cease to be a subsidiary of the Company. Pursuant to Rule 14.06 of the Listing Rules, the Disposal constitutes a very substantial disposal for the Company and requires the approval of the Shareholders at the SGM. Mr. Mo Shikang, a director of CPG and certain of its subsidiaries, is a director and a controlling shareholder of Asian Allied, being the purchaser of the Sale Share and the Shareholder’s Loan under the Disposal. As CPG is currently a subsidiary of the Company, by virtue of Mr. Mo’s directorship in CPG, the Disposal also constitutes a connected transaction for the Company pursuant to Rule 14A.13(1)(a) of the Listing Rules and is subject to the approval of the independent Shareholders at the SGM. As neither Asian Allied nor any of its associates has any interest in the Shares as at the Latest Practicable Date, no Shareholder is required to abstain from voting at the SGM in accordance with Rule 14.49 or Rule 14A.18 of the Listing Rules.

In our capacity as the independent financial adviser, our role is to give an independent opinion as to whether the terms of the Disposal are fair and reasonable so far as the interests of the Shareholders are concerned. In formulating our recommendation, we have relied on the accuracy of information and representations included in the Circular and provided to us by the Directors and the management of the Company, and have assumed that all such information and representations provided were true at the time they were made and continue to be true as at the date hereof. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular. We have also relied on the information and representations provided by Ernst & Young, independent certified public accountants, regarding the proforma financial information of the Remaining Group as at 30 September 2004 (the “Proforma Financial Information”), the text of which is set out in appendix II to the Circular, and assumed that the Proforma Financial Information has been properly compiled on the basis stated, such basis is consistent with the accounting policies of the Company, and the adjustments are appropriate for the purposes of the proforma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

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LETTER FROM FIRST SHANGHAI

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendations. We have not, however, conducted any independent verification of the information nor have we conducted any form of in-depth investigation into the businesses, affairs or prospects of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion as to the fairness and reasonableness of the terms of the Disposal and giving our advice in relation thereto, we have taken into account the following principal factors and reasons:

I. BACKGROUND INFORMATION ON THE GROUP

As at the Latest Practicable Date, the Group primarily engaged in the business of (i) construction contracting (including electrical and mechanical (the “E&M”) works); (ii) property development and investment; and (iii) operation of fitness centres and trading of fitness and medical equipment. Apart from the aforesaid, the Group, through the CPG Group, carried out the business of investment in the distribution and supply of piped natural gas business in the PRC and the holding and leasing of properties in the PRC.

As illustrated in appendix I to the Circular, the audited consolidated net profits of the Group for the two years ended 31 March 2004 amounted to approximately HK$8.6 million and HK$23.4 million respectively. The increase in audited consolidated net profit in the year ended 31 March 2004 was mainly due to increase in income from property development and investment as a result of increase in the selling prices of properties located at Parkview, Shanghai, the PRC, together with the decrease in aggregate cost of construction contracts and direct expenses and cost of property interests sold. For the six months ended 30 September 2004, the Group recorded an audited consolidated net profit of approximately HK$43.3 million and the Group recorded an unaudited consolidated net profit of approximately HK$16.0 million for the corresponding period in 2003. As advised by the Directors, the increase in the consolidated net profit for the six months ended 30 September 2004 was mainly due to (i) gain on partial disposal of interest in a subsidiary, CPG, details of which were included in the circular of the Company dated 28 September 2004, of approximately HK$40.2 million; and (ii) gain on deemed disposal of interest in a subsidiary, being issue of shares in CPG, details of which were included in the circular of the Company dated 31 March 2004, of approximately HK$15.9 million, which was partly off-set by the decrease in income from property development and investment for the same period. The Directors further advised that the decrease in income from property development and investment for the six months ended 30 September 2004 was mainly due to the Group had deferred the sales of certain properties located at Parkview, Shanghai, the PRC in anticipation of future increase in selling prices of properties in Shanghai, the PRC.

II. REASONS FOR THE DISPOSAL

On 15 December 2004, the Company, the Vendor and Asian Allied entered into the Sale and Purchase Agreement whereby Asian Allied agreed to purchase, and the Vendor agreed to sell, the Sale Share, which represents the entire issued share capital of Super Win, and the Shareholder’s Loan for an aggregate consideration of HK$136,172,425.60. As at the Latest Practicable Date, the sole asset of Super Win was its interest in 1,361,724,256 CPG Shares, representing approximately 52.08% of the entire issued share capital of CPG, and Options entitling the holder thereof to subscribe for up to 200 million CPG Shares at a subscription price of HK$0.105 per CPG Share, the acquisition of the entire issued share capital of Super Win is effectively an acquisition of 1,361,724,256 CPG Shares at a consideration of HK$136,172,425.60 which represents a price of HK$0.10 per CPG Share (the “Effective Purchase Price”). After completion of the Disposal, Asian Allied will also be beneficially interested in 200 million Options owned by Super Win as at the Latest Practicable Date. Assuming the 200 million Options are exercised in full by Asian Allied at a subscription price of HK$0.105 per CPG Share, after completion of the Disposal, the Disposal will allow Asian Allied to acquire a total of 1,561,724,256 CPG Shares at a total consideration of HK$157,172,425.60, the theoretical purchase price will be approximately HK$0.10 per CPG Share (the “Theoretical Purchase Price”).

Completion of the Sale and Purchase Agreement is conditional upon fulfillment of certain conditions, Shareholders are advised to refer to the relevant paragraph under the section headed “Letter from the Board” in the Circular for details.

When the Company first acquired its interest in CPG (which was then named as KEL Holdings Limited (“KEL”)) in year 2000, details of which were included in the joint announcement of the Company and KEL dated 5 May 2000, the then KEL and its subsidiaries were principally engaged in the design, supply, installation and maintenance of E&M engineering

– 13 –

LETTER FROM FIRST SHANGHAI

services in the building and construction industry in Hong Kong and the PRC. By acquiring a controlling stake in KEL, the then directors of the Company (the “Then Directors”) considered that the Company would be able to acquire the expertise of KEL in the electrical engineering industry, which together with the Company’s construction business, would create a significant synergy effect to the Company’s construction business. The Then Directors believed that both the Company and KEL might have opportunities to participate in main contracting, building services engineering and intelligent building engineering contracting business together in the future. The various licences held by KEL would be instrumental in enhancing the Company’s involvement in the construction industry in Hong Kong.

As announced on 18 February 2004, the Company had conditionally agreed to acquire from CPG (which was then named as “KEL”) the entire issued share capital of Kenworth Group Limited (“Kenworth”) and a related shareholder’s loan due by Kenworth and its subsidiaries (the “Kenworth Group”) to CPG (the “Kenworth Acquisition”). Kenworth was an investment holding company and the Kenworth Group was principally engaged in the provision of E&M engineering services. Upon the completion of the Kenworth Acquisition, the main operating arm of the CPG Group in respect of the E&M business had been transferred to the Remaining Group.

As advised by the Directors, it was always the intention of the Company to take advantage of the CPG Group’s expertise in E&M business to create synergy to the construction business of the Company. As stated in the 2004 interim report of CPG, CPG entered into various agreements to acquire interests in Xin Hua, which together with its subsidiaries, were principally engaged in the distribution and supply of piped natural gas in the PRC, installation of natural gas distribution facilities in the PRC and manufacturing and sale of glass products in the PRC. Therefore, after the Kenworth Acquisition and as at the Latest Practicable Date, the CPG Group no longer engaged in the business relating to E&M works, but carried out the business of distribution and supply of piped natural gas in the PRC.

The Directors hold a positive view on the Group’s core businesses of construction business (including E&M works) and property development and investment. As stated in the 2004 interim report of the Company, the Group was included in the “List of Approved Contractors for Public Works under Group C (on probation) of the Building Category under Environment, Transport and Works Bureau of the HKSAR”. In May 2004, the Group was upgraded to Group II under the “Turn-key Interior Design and Fitting-out Works” under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works”, the Directors consider that this together with the 11 licences held under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works under Environment, Transport and Works Bureau of the Government of the HKSAR” would enable the Group to take an active part in the construction business development (including E&M works). The Directors also believe that the positive signs that the Hong Kong economy is gradually improving and that the confidence is built up in the Government of the HKSAR will have a double-functioning positive impact on the Group’s construction business in time to come. In respect of the property development and investment business, the Group has completed the development of a high-class residential property development project in Shanghai and is undertaking a property development project in Hainan Province, the PRC. The Directors are confident that the above projects will have a significant contribution to the turnover and profit of the Group in the coming years. In general, the Directors believe that the opening of the Universal Studios in 2006 in Shanghai, the PRC and the hosting of the World Expo in 2010 will have a positive impact on the PRC property market and the property development and investment segment will continue to provide a sizable contribution to the Group’s operating results in the coming years.

The Directors further advised that with the cash inflow from the Disposal, the Company would have more resources to further develop the Remaining Group’s property investment and development business. The proceeds from the Disposal will also enable the Remaining Group to improve its liquidity and financial position and can be used as the general working capital of the Remaining Group. Besides, further development of natural gas business might require a significant cashflow which might cause a huge burden to the Company in the future. The Effective Purchase Price and the Theoretical Purchase Price under the Sale and Purchase Agreement represented a premium of approximately 100% to the unaudited consolidated net asset value (the “NAV”) per CPG Share of approximately HK$0.05 as at 30 September 2004 based on CPG’s 2004 interim report for the six months ended 30 September 2004, which the Directors considered to be an attractive return to the Shareholders. In addition, the Company would be able to realise a profit of approximately HK$51 million from the Disposal.

Taking into account of the above, the Directors considered that it would be to the best interests of the Company and the Shareholders to dispose of the CPG Group and focus the Group’s resources to develop the Group’s core business, including construction contracting (including E&M works), property development and investment and fitness club operations. We consider that if the Company would be able to focus its resources to develop its core business, the Group may make better use of its resources to explore new opportunities afforded in its core business.

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LETTER FROM FIRST SHANGHAI

III. FINANCIAL IMPACT ON THE REMAINING GROUP AFTER COMPLETION OF THE DISPOSAL

As stated in the 2004 annual report of CPG, the audited consolidated net losses for the two years ended 31 March 2004 for the CPG Group amounted to approximately HK$8.8 million and HK$9.1 million respectively. The CPG Group recorded an unaudited consolidated net profit of approximately HK$2.8 million for the six months ended 30 September 2004 and an unaudited consolidated net loss of approximately HK$3.2 million for the corresponding period in 2003 as disclosed in its 2004 interim report. As advised by the Directors, the improvement in the results for the six months ended 30 September 2004 for the CPG Group was mainly due to the recognition of a gain on disposal of subsidiaries, the Kenworth Group, to the Company as part of the reorganization effort of the Group, details of which were included in the circular of CPG dated 31 March 2004.

As advised by the Directors, in order to maintain the high growth of natural gas business, the Company has to invest a massive amount to acquire natural gas business in other cities of the PRC and set up new piped natural gas facilities in the PRC. Taking into account that (i) the consideration under the Sale and Purchase Agreement represented a substantial premium over the unaudited consolidated NAV of the CPG Group as at 30 September 2004; (ii) the thin trading volume of the CPG Shares on the Stock Exchange; and (iii) the disposal of the relevant CPG Shares in the market will inevitably exert downward price adjustment pressure on the CPG Shares although the closing price of the CPG Shares as quoted on the Stock Exchange as at the Latest Practicable Date was higher than the Effective Purchase Price and the Theoretical Purchase Price, the Directors considered that it would be beneficial to the Shareholders to dispose of the CPG Group by means of the Sale and Purchase Agreement.

Earnings

Immediately after the Completion, each of Super Win and each member of the CPG Group will cease to be a subsidiary of the Company. As a result of the Disposal, the gain expected to accrue to the Company is estimated to be approximately HK$51 million.

Net assets

As illustrated in appendix II to the Circular, as the Effective Purchase Price is substantially higher than the unaudited consolidated NAV per CPG Share as at 30 September 2004, immediately after the Completion, the proforma unaudited consolidated NAV per Share as at 30 September 2004 would be enhanced by approximately 16.9% to approximately HK7.6 cents from approximately HK6.5 cents (based on 5,167,540,176 Shares in issue as at the Latest Practicable Date).

Gearing

The gearing ratio of the Group, which is equal to total liabilities divided by total equity, as at 30 September 2004 would be reduced from approximately 80.7% to approximately 66.5% due to the combined effect of decrease in non-current liabilities and increase in the unaudited consolidated NAV of the Remaining Group.

Working capital

The net proceeds of the Disposal for the Company are estimated to be approximately HK$133.3 million, which will enable the Company to improve its liquidity and financial position and can be used as general working capital of the Remaining Group. There will be a cash inflow of approximately HK$133.3 million (net of estimated expenses) over 18 months after the date of the Sale and Purchase Agreement. As at the Latest Practicable Date, the Company had no current definite plan on the specific use of the net proceeds but it was the intention of the Directors to apply such amount to further develop the Remaining Group’s property investment and development business and as general working capital of the Remaining Group.

Taking into account of the above financial effects, we consider that the Disposal is in the interest of the Group and the Shareholders as a whole and that the terms of the Disposal are fair and reasonable so far as the Shareholders are concerned.

We have included a comparison of the Effective Purchase Price and the Theoretical Purchase Price with the market prices of the CPG Shares under the paragraph headed “The Effective Purchase Price/The Theoretical Purchase Price” below, please refer to the relevant paragraph below for details.

– 15 –

LETTER FROM FIRST SHANGHAI

IV. CONSIDERATION AND TERMS OF PAYMENT

The total consideration for the Disposal is HK$136,172,425.60, of which the amounts of HK$43,274,526.46 and HK$92,897,899.14 are attributable to the Sale Share and the Shareholder’s Loan respectively.

The Consideration was determined following arm’s length negotiation between Asian Allied and the Vendor with reference to the net asset value of Super Win as at 30 September 2004. The Directors believe that the terms of the Sale and Purchase Agreement and the Disposal pursuant to the terms thereunder are fair and reasonable and in the interests of the Shareholders as a whole.

We have reviewed 6 companies (the “Comparables”) listed on the Main Board and the Growth Enterprise Market of the Stock Exchange which are engaged in, and have substantial turnover generated from, the distribution and supply of piped gas in the PRC and/or the installation of gas distribution facilities in the PRC. These Comparables represent all the companies listed on the Stock Exchange engaging in similar business of CPG that we are able to identify. Due to CPG had been loss making for the two years ended 31 March 2004, the price-earning comparison is not applicable, therefore we opt for the price to NAV comparison as an alternative.

					Premium/(Discount)
Stock		Price per share as at the		NAV	of price over/
code	Company name	date of the Announcement		per share	(to) NAV
			HK$	HK$	%
				(Note 2)
384	China Gas Holdings Limited		0.990	0.36	175.0
702	GeoMaxima Energy Holdings Limited		0.071	0.12	(40.8)
2688	Xinao Gas Holdings Limited		4.300	1.86	131.2
8099	Zhengzhou Gas Company Limited		0.790	0.25	216.0
8132	Panva Gas Holdings Limited		3.400	1.35	151.9
8290	Tianjin Tianlian Public Utilities Company Limited		0.550	0.18	205.6
	Average				139.8
681	CPG		0.100	0.05	100.0
		(the Effective Purchase
		Price and the Theoretical
			Purchase Price)

Source: Latest published financial reports of the Comparables and www.hkex.com.hk

Notes:

1. For illustrative purpose only, RMB was translated into Hong Kong dollars at the rate of HK$1 = RMB1.07.

2. NAV per share was calculated based on the net asset value and number of issued shares of the respective Comparables at the respective year/period ends as disclosed in the latest published annual/interim reports in 2004.

As shown in the above table, premium/(discount) over/(to) the NAV of the Comparables as at the date of the Announcement ranged from approximately (40.8)% to 216.0% with an average premium of approximately 139.8%. However, unlike CPG, all the above Comparables were profit-making for the latest two preceding financial years except China Gas Holdings Limited, which was also profit-making for the latest preceding financial year as checked from the latest published annual reports of the Comparables. CPG Group was loss-making for the latest two preceding financial years, and also the six months ended 30 September 2004 if the gain on disposal of subsidiaries was excluded from the consolidated results. Although there is only one Comparable shows a discount to NAV and the average premium over the NAV of the Comparables is higher than that of CPG, taking into account that (i) CPG was loss-making for the latest two preceding financial years, which might explain the difference between the premium over NAV of the Comparables and that of CPG; and (ii) the premium of the Effective Purchase Price and the Theoretical Purchase Price over the NAV of CPG lies within the range of that of the Comparables, we consider that such premium is fair and reasonable.

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LETTER FROM FIRST SHANGHAI

The Consideration is payable by Asian Allied to the Vendor according to the following schedule:

• (1) HK$20 million was to be paid upon the signing of the Sale and Purchase Agreement as deposit and partial payment;

• (2) subject to the obtaining of the Shareholders’ approval on the Disposal at the SGM, HK$67.5 million is to be paid on the day on which the SGM is concluded; and

• (3) subject to Completion having taken place, the remaining balance of HK$48,672,425.60 is to be paid on or before the day falling on the expiry of a period of 18 months after the date of the Sale and Purchase Agreement.

Upon signing of the Sale and Purchase Agreement, Asian Allied had paid HK$20 million to the Vendor pursuant to the terms of the Sale and Purchase Agreement.

As security for its payment obligation under paragraph (3) above, at Completion (and immediately following the acquisition of Asian Allied of the Sale Share and the Shareholder’s Loan), Asian Allied will procure Super Win to execute a share mortgage over the 1,361,724,256 CPG Shares owned by it in favour of the Vendor.

Considering that only approximately 35.7% of the Consideration is deferred to a period on or before the day falling on the expiry of a period of 18 months after the date of the Sale and Purchase Agreement and proper security by means of a share mortgage over the relevant CPG Shares is obtained for the deferred amount, we consider that the terms of payment are fair and reasonable.

V. THE EFFECTIVE PURCHASE PRICE / THE THEORETICAL PURCHASE PRICE

The Effective Purchase Price and the Theoretical Purchase Price of approximately HK$0.10 per CPG Share represents:

• (a) a discount of approximately 66.67% to the closing price of HK$0.30 per CPG Share as quoted on the Main Board of the Stock Exchange on 14 December 2004, being the last complete trading day prior to the suspension of the trading in the CPG Shares on 15 December 2004;

• (b) a discount of approximately 68.75% to the average closing price of approximately HK$0.32 per CPG Share as quoted on the Stock Exchange for the last 10 consecutive complete trading days prior to the suspension of the trading in the CPG Shares on 15 December 2004;

• (c) a discount of approximately 72.22% to the closing price of approximately HK$0.36 per CPG Share as quoted on the Stock Exchange as at the Latest Practicable Date; and

• (d) a premium of approximately 100% to the unaudited consolidated NAV per CPG Share of approximately HK$0.05 as at 30 September 2004 based on CPG’s 2004 interim report for the six months ended 30 September 2004.

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LETTER FROM FIRST SHANGHAI

Set out below is the monthly trading volume of CPG Shares, during the period from 1 January 2004 up to the Latest Practicable Date, excluding the days on which the CPG Shares were suspended from trading on the Stock Exchange (the “Review Period”).

			Percentage of
		Percentage of	average daily
		average daily	turnover to number
	Average	turnover to number of	of CPG Shares
Month	daily turnover	CPG Shares in issue	held by the public
	Number of CPG	%	%
	Shares
		(Note 1)	(Note 2)
2004
January	722,900	0.03	0.06
February	22,881,716	0.88	1.95
March	7,220,633	0.28	0.62
April	5,464,815	0.21	0.47
May	1,826,647	0.07	0.16
June	3,188,878	0.12	0.27
July	3,298,433	0.13	0.28
August	13,831,016	0.53	1.18
September	1,575,676	0.06	0.13
October	1,551,024	0.06	0.13
November	3,419,118	0.13	0.29
December	2,684,696	0.10	0.23
2005
January	2,437,028	0.09	0.21
February (up to the Latest Practicable Date)	1,772,104	0.07	0.15
Sources: www.hkex.com.hk
Notes:

1. Based on 2,614,715,736 CPG Shares in issue as at the Latest Practicable Date.

2. Based on 1,172,991,480 CPG Shares held by the public, being holders of CPG shares other than Asian Allied and its concert parties and the Vendor, as at the Latest Practicable Date.

As shown in the above, the turnover of CPG Shares during the Review Period was generally thin with the percentage of the average daily turnover of the CPG Shares to number of CPG Shares in issue during the Review Period ranged from approximately 0.03% to approximately 0.88%. In addition, the percentage of the average daily turnover to number of CPG Shares held by the public during the Review Period only ranged from approximately 0.06% to approximately 1.95%.

As advised by the Directors, investors who are interested in the CPG Shares are not always available in the market. There were some independent investors approached the Company in the past but had only indicated an initial interest in the CPG Shares held by Super Win with no further concrete discussion. The offer from Super Win in relation to the CPG Shares under the Sale and Purchase Agreement was the best offer currently available to the Company. Taking into account of (i) the thin trading volume of the CPG Shares during the Review Period; (ii) the loss-making track record of the CPG Group; (iii) the premium of the Effective Purchase Price and the Theoretical Purchase Price over the unaudited consolidated NAV per CPG Share as at 30 September 2004, and (iv) substantial downward adjustment pressure would be exerted on the price level of CPG Shares if the Company is to dispose of all the relevant CPG Shares held by it in the market, we consider that the discount of the Effective Purchase Price and the Theoretical Purchase Price as stated above is acceptable and therefore consider that the Effective Purchase Price and the Theoretical Purchase Price to be fair and reasonable so far as the Shareholders are concerned.

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LETTER FROM FIRST SHANGHAI

ADVICE

Having considered the above factors and reasons, we are of the view that the Disposal is in the interests of the Company and the Shareholders as a whole, and the terms of the Sale and Purchase Agreement are fair and reasonable so far as the Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal.

Yours faithfully, For and on behalf of

First Shanghai Capital Limited Helen Zee Managing Director

Byron Tan Managing Director

– 19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

The following is a summary of the audited financial results of the Group for the three financial years ended 31 March 2002, 2003 and 2004, as extracted from the audited financial statements of the Group for the relevant periods.

Consolidated Profit and Loss Account

Turnover Profit before tax Tax Profit before minority interests Minority interests Net Profit attributable to Shareholders	Year ended 31 March 2002 2003 2004 HK$’000 HK$’000 HK$’000 409,088 529,273 538,118 3,851 10,239 37,751 (1,458) (4,986) (17,697) 2,393 5,253 20,054 4,770 3,307 3,340 7,163 8,560 23,394

Consolidated Assets, Liabilities, and Minority Interests

Total Assets Total Liabilities Minority Interests Net Assets	2002 HK$’000 553,544 (269,107) (15,227) 269,210	As at 31 March 2003 2004 HK$’000 HK$’000 637,737 568,107 (362,048) (271,781) (10,889) (17,561) 264,800 278,765

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. FINANCIAL INFORMATION OF THE GROUP

The following financial information includes the financial statements of the Group for the three years ended 31 March 2002, 2003 and 2004, and the six months ended 30 September 2003 and 2004 together with notes thereto.

==> picture [106 x 39] intentionally omitted <==

15th Floor Hutchison House 10 Harcourt Road Central Hong Kong

28 February 2005

The Directors Deson Development International Holdings Limited 11/F, Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Deson Development International Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for the three years ended 31 March 2002, 2003 and 2004, and the six months ended 30 September 2004 (the “Relevant Periods”) and the six month period ended 30 September 2003 (the “30 September 2003 Financial Information”), prepared on the basis as set out in Section 1 below, for inclusion in the circular of the Company dated 28 February 2005 (the “Circular”).

The Company was incorporated in Bermuda on 20 September 1993 as a limited company and is engaged in investment holding.

During the Relevant Periods, the Group was principally involved in (i) the construction contracting business, as a main contractor, as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services, mainly in Hong Kong and Mainland China; (ii) property development and investment, and (iii) operation of fitness centres and the trading of fitness and medical equipment.

For the purpose of this report, the directors of the Company have prepared the consolidated financial statements of the Group for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong. We have audited the consolidated financial statements in accordance with Statements of Auditing Standards (“SAS”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

Except for the companies disclosed in Section 1 other than those indicated in the notes, no audited financial statements were prepared for companies comprising the Group for the Relevant Periods because there is no statutory audit requirement in the countries/jurisdictions in which the companies are incorporated/established.

Particulars of subsidiaries and associates of the Group not audited by Ernst & Young are as follows:

Company Year end Statutory auditors Beijing Chang-de Architectural & Years ended Beijing Dingjia Certified Decoration Co., Ltd. 31 December 2001, Public Accountants Co., Ltd. 2002 and 2003 Fuzhou Jiandi Concrete Co., Ltd. Years ended Fuzhou Longjian 31 December 2001, Certified Public Accountants 2002 and 2003 Ltd.

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company Year end Statutory auditors Hua Sheng International Real Estate Years ended Shanghai Chang Xin Development (Shanghai) Co., Ltd. 31 December 2001, Certified Public Accountants 2002 and 2003 Co., Ltd. Ningbo Deson Real Estate Construction Year ended Ningbo Kexin Certified Co., Ltd. 31 December 2001 Public Accountants Year ended Ningbo Hai Cheng 31 December 2002 Certified Public Accountants Megafit (Shanghai) Limited* Years ended Shanghai Fuxingmingfang （上海美格菲健身中心有限公司） 31 December 2001, Certified Public Accountants 2002 and 2003

• for identification purpose only

Procedures Performed in Respect of the Relevant Periods

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

Procedures Performed in Respect of the 30 September 2003 Financial Information

For the purpose of this report, we have performed a review of the 30 September 2003 Financial Information, in accordance with SAS 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of management and applying analytical procedures to the financial information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope and provides a lower level of assurance than our audit or examination procedures described in the preceding paragraph and, accordingly, we do not express an opinion on the 30 September 2003 Financial Information.

The summaries of the consolidated profit and loss accounts, the consolidated statements of changes in equity and consolidated cash flow statements of the Group for the Relevant Periods and the consolidated balance sheets of the Group and the balance sheets of the Company as at 31 March 2002, 2003, 2004 and 30 September 2004 (the “Financial Information”) as set out in this report have been prepared from the audited financial statements or management accounts (in cases referred to above where no audited financial statements were prepared) of the respective companies comprising the Group in accordance with the basis as set out in Section 1 below. Adjustments have been made for the purpose of the Circular to restate those management accounts of the Group to conform to the accounting policies referred to in Section 2 below.

The directors of the Company are responsible for the preparation of the Financial Information and the 30 September 2003 Financial Information. In preparing the Financial Information and the 30 September 2003 Financial Information, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion and a review conclusion on such information in respect of the Relevant Periods and for the six month period ended 30 September 2003, respectively, and to report our opinion and review conclusion to you.

Opinion in Respect of the Relevant Periods

In our opinion, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the consolidated results and cash flows of the Group for each of the Relevant Periods and of the state of affairs of the Group and of the Company as at 31 March 2002, 2003 and 2004, and 30 September 2004.

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Review Conclusion in Respect of the 30 September 2003 Financial Information

On the basis of our review, for the purpose of this report, we are not aware of any material modification that should be made to the consolidated results and cash flows of the Group as set out in the 30 September 2003 Financial Information.

1. BASIS OF PRESENTATION

The Financial Information and the 30 September 2003 Financial Information, which are based on the audited financial statements and management accounts of the companies comprising the Group, after making such adjustments as we consider appropriate to comply with accounting principles generally accepted in Hong Kong, includes the consolidated results, consolidated statement of changes in equity, consolidated cash flows and consolidated balance sheets of the companies comprising the Group, since their respective dates of incorporation or registration or dates of effective acquisition by the Group during the Relevant Periods.

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

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

As at the date of this report, the Company had direct or indirect interests in the following principal subsidiaries, associates and a jointly-controlled entity, all of which are private companies (or, if incorporated outside Hong Kong, have substantially similar characteristics to a private company incorporated in Hong Kong) except as noted below, the particulars of which are set out below:

		Nominal
		value of
	Place	issued share/
	and date of	registered			Percentage of equity		interests
	incorporation or	capital	Class of		attributable to the		Group
	registration/	as at the date	shares		31 March		30 September	Principal
Name	operations	of this report	held	2002	2003	2004	2004	activities
Subsidiaries:
Beijing Chang De Architectural	People’s	RMB16,000,000	(vii)	60	60	60	60	Decoration
& Decoration Co., Ltd. (vi)	Republic of							engineering
	China (“PRC”)
	19 March 1990
Billion Hope Holdings Limited	Hong Kong	HK$10,000	Ordinary	70	70	70	70	Construction
	16 December 1998							contracting
Bless Honour Limited	Hong Kong/	HK$2	Ordinary	100	100	74.8	52.1	Property
	PRC							investment
	21 September 1995
Deson Development	British Virgin	US$200	Ordinary	100	100	100	100	Investment
Holdings Limited#	Islands/							holding
	Hong Kong
	14 June 1993
Deson Development Limited	Hong Kong	HK$20,000,100	Class A(i)	100	100	100	100	Construction
	1 March 1988	HK$20,000,000	Class B(ii)					contracting and
								investment
								holding
Deson-IES Engineering Limited	Hong Kong	HK$100,000	Ordinary	100	100	100	100	Research and
	24 September 1999							development of
								a local area
								network-based
								intelligent
								management
								system

– 23 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

		Nominal
		value of
	Place	issued share/
	and date of	registered			Percentage of equity		interests
	incorporation or	capital	Class of		attributable to the		Group
	registration/	as at the date	shares		31 March		30 September	Principal
Name	operations	of this report	held	2002	2003	2004	2004	activities
Deson Ventures Limited#	British Virgin	US$1	Ordinary	100	100	100	100	Investment
	Islands/							holding
	Hong Kong
	7 May 1993
Foregrand Holdings Inc.	British Virgin	US$1	Ordinary	100	100	100	100	Dormant
	Islands/							(xi)
	PRC
	18 February 1993
Fitness Concept Limited	Hong Kong	HK$11,111,111	Ordinary	(viii)	(viii)	53.1	90	Investment
	10 April 1985							holding
Fitness Concept Leisure	Hong Kong	HK$2	Ordinary	(viii)	(viii)	53.1	90	Trading and
Supplies Limited	4 August 1992							retailing of
								fitness and
								leisure
								equipment
Hua Sheng International	PRC	US$6,400,000	(vii)	100	100	100	100	Property
Real Estate Development	25 March 1993							development
(Shanghai) Co., Ltd (vi)
Chinese People Gas Holdings	Bermuda/	HK$183,030,102	Ordinary	55.6	55.6	74.8	52.1	Investment
Company Limited*(xii)	Hong Kong							holding
	13 November 1996
Kenworth Engineering	Hong Kong	HK$5,374,140	Ordinary	55.6	55.6	74.8	100	Provision of
Limited	30 June 1922	HK$20,000,000	Preference					electrical and
			(iv)					mechanical
								engineering
								services
Medical Technologies Limited	Hong Kong	HK$10,000	Ordinary	(viii)	100	100	100	Trading of
	12 February 1991							medical
								equipment
Ningbo Deson Real Estate	PRC	RMB21,000,000	(vii)	100	100	(ix)	(ix)	Property
Construction Co., Ltd. (vi)	15 November 1993							investment
Penmark Limited	Hong Kong/	HK$30	Ordinary	100	100	100	52.1	Property
	PRC							holding
	23 April 1991
Super Sight Investments	British Virgin	US$1	Ordinary	100	100	100	100	Property
Inc. (v)#	Islands/							development
	PRC
	27 August 1992
Super Win Development	British Virgin	US$1	Ordinary	100	100	100	100	Investment
Limited#	Islands/							holding
	Hong Kong
	4 January 1999

– 24 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

		Nominal
		value of
	Place	issued share/
	and date of	registered			Percentage of equity		interests
	incorporation or	capital	Class of		attributable to the		Group
	registration/	as at the date	shares		31 March		30 September	Principal
Name	operations	of this report	held	2002	2003	2004	2004	activities
Wonderful Hope Limited#	British Virgin	US$1	Ordinary	100	100	100	100	Property
	Islands/							development
	PRC
	2 July 1998
上海美格菲健身中心有限公司	PRC	US$700,000	(vii)	(viii)	(viii)	39.5	66.9	Fitness centre
(iii), (vi)	4 August 2000							operations
Associates:
Asia Construction Holdings	Hong Kong	HK$2,000,000	Ordinary	(x)	49	49	49	Investment
Limited	28 May 1992							holding
Beijing Zhong Min Gas Co.,	PRC	US$7,042,720	(vii)	–	–	–	25.5	Investment
Ltd. (vi)	11 July 2003							holding
Deson Metals Company Limited	Hong Kong/	HK$5,000,000	Ordinary	40	40	40	40	Trading of
	PRC							construction
	6 October 1997							materials
Fuzhou Jiandi Concrete	PRC	RMB10,000,000	(vii)	40	40	40	40	Manufacture
Co., Ltd. (vi)	6 April 1992							of concrete
								products
LongXin (Yan Ting)	PRC	RMB3,018,900	(vii)	–	–	–	25.3	Distribution
Natural Gas Company	18 April 2001							and supply of
Limited (vi)								piped natural gas
								and installation
								of natural gas
								distribution
								facilities
LSY Asia Construction Limited	Hong Kong	HK$10	Ordinary	(x)	29.4	29.4	29.4	Dormant
	24 July 1998
Mian Zhu City Hong Sen	PRC	RMB16,308,000	(vii)	–	–	–	25.5	Distribution and
Natural Gas Co., Ltd. (vi)	6 September 2002							supply of piped
								natural gas
Mian Zhu City Hongsen Glass	PRC	RMB1,000,000	(vii)	–	–	–	17.9	Manufacturing
Products Company Limited (vi)	7 August 2003							and sales of
								glass products
Mian Zhu City Long Teng Gas	PRC	RMB7,633,400	(vii)	–	–	–	25.5	Installation of
Installation Co., Ltd. (vi)	23 April 2002							natural gas
								distribution
								facilities
Visonic Deson Limited#	Hong Kong	HK$1,000,000	Ordinary	50	50	50	50	Selling,
	11 June 2001							distributing and
								marketing home
								security and
								automation
								products

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

		Nominal
		value of
	Place	issued share/
	and date of	registered			Percentage of equity		interests
	incorporation or	capital	Class of		attributable to the		Group
	registration/	as at the date	shares		31 March		30 September	Principal
Name	operations	of this report	held	2002	2003	2004	2004	activities
W&D Joint Venture Limited	Hong Kong	HK$100	Ordinary	45	45	45	45	Construction
	12 May 1999							contracting
Xin Hua Resource Investment	British Virgin	US$50,000	Ordinary	–	–	–	25.5	Investment
Limited#	Islands/							holding
	PRC
	2 June 2003
Jointly-controlled entity:
Kenworth-Watfield	Hong Kong	HK$1,000,000	Ordinary	–	–	50	50	Provision of
Joint Venture Limited	17 September 2003							electrical and
								mechanical
								engineering
								services

• A Company listed on The Stock Exchange of Hong Kong Limited.

• No statutory accounts were prepared for the Relevant Periods.

• (i) Pursuant to a resolution passed on 2 September 2003, the authorised share capital of this subsidiary was increased from HK$20,000,100 to HK$120,000,100 by the creation of 100,000,000 additional “A” ordinary voting shares of HK$1.00 each, ranking pari passu in all respects with existing “A” ordinary voting shares of the company. 20,000,000 “A” ordinary voting shares of HK$1.00 each were issued at par during the year ended 31 March 2004.

• (ii) These non-voting class B shares are not entitled to dividend distributions. Moreover, upon the winding-up of this company, the class B shareholders are not entitled to any return of assets if the assets of the company are less than HK$100 trillion.

• (iii) The company is a subsidiary of a non wholly-owned subsidiary of the Company and, accordingly, is accounted for as a subsidiary by virtue of the Company’s control over it.

• (iv) The holders of the preference shares have a cumulative preferential right to the company’s profits at 10% of the nominal amount of share capital, but are not entitled to receiving notice of or attending or voting at any meeting of members or meeting of directors.

• (v) The equity interest of the subsidiary as at 31 March 2002 and 2003 was pledged to secure the Group’s other borrowings.

• (vi) The remittance of dividends to the Group from these subsidiaries/associates operating outside Hong Kong is subject to the availability of foreign currencies generated and retained by the subsidiaries.

• (vii) The issued/paid-up capital of these subsidiaries/associates is not classified.

• (viii) The company was an associate at the end of the year/period.

• (ix) The company was deregistered in 2004. No statutory accounts were prepared for the year ended 31 December 2003.

• (x) The company was a subsidiary at the end of the year/period.

• (xi) The company’s principal activity was property investment for the year ended 31 March 2002.

• (xii) The name of the company was changed from “KEL Holdings Limited” to “Chinese People Gas Holdings Company Limited” with effect from 25 October 2004.

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted by the Group in arriving at the Financial Information and the 30 September 2003 Financial Information set out in this report, which are in conformity with accounting principles generally accepted in Hong Kong, are set out below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the Relevant Periods. The results of subsidiaries acquired or disposed of during the Relevant Periods 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.

A joint venture company is treated as:

• (a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture company;

• (b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture company;

• (c) an associate, if the Group 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 Group 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 a jointly-controlled entity is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in the jointly-controlled entity 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.

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 not more than 20 years. In the case of associates and jointly-controlled entities, any unamortised goodwill is included in the carrying amount thereof, rather than as a separately identified asset in 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.

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.

Negative goodwill

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

To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated profit and loss account when the future losses and expenses are recognised.

To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated profit and loss account on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately.

In the case of associates and jointly-controlled entities, any negative goodwill not yet recognised in the consolidated profit and loss account is included in the carrying amount thereof, rather than as a separately identified item on the consolidated balance sheet.

Prior to the adoption of SSAP 30 “Business combinations” in 2001, negative goodwill arising on acquisitions was credited to the capital reserve in the year of acquisition. On the adoption of the SSAP 30, the Group applied the transitional provision of the SSAP that permitted such negative goodwill to remain credited to the capital reserve. Negative goodwill on acquisitions subsequent to the adoption of the SSAP is treated according to the SSAP 30 negative goodwill accounting policy above.

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 negative goodwill which has not been recognised in the consolidated profit and loss account and any relevant reserves as appropriate.

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 and its net selling price.

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 are stated at cost or valuation 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 a fixed asset, the expenditure is capitalised as an additional cost of that asset.

In respect of fixed assets which are stated at valuation, the surplus or deficit on revaluation is taken to the fixed asset revaluation reserve. If this reserve, on an individual asset basis, is insufficient to cover a deficit, then the amount by which the deficit exceeds the amount in the reserve is charged to the profit and loss account. A subsequent surplus on revaluation is credited to the profit and loss account to the extent that it reverses a revaluation deficit of the same asset previously charged to the profit and loss account.

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. On disposal of a revalued asset, the relevant portion of the revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

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

Leasehold land Over the remaining lease terms Buildings 2.5% on the straight-line basis Leasehold improvements Over the remaining lease terms Furniture and fixtures 15% on the reducing balance basis Office equipment 15% on the reducing balance basis Tools and equipment 15% on the reducing balance basis Motor vehicles 15% on the reducing balance basis

Long term investments

Long term investments in listed and unlisted equity securities, intended to be held for a continuing strategic or long term purpose, are stated at cost less any impairment losses, on an individual investment basis.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and 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.

Construction contracts

Contract revenue comprises the agreed contract amount and appropriate amounts from variation orders, claims and incentive payments. Contract costs incurred comprise direct materials, the costs of subcontracting, direct labour and an appropriate proportion of variable and fixed construction overheads.

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

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

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

Properties held for sale

Properties under development which are intended for sale are included in properties held for sale and stated at the lower of cost and net realisable value, which is estimated by the directors based on the prevailing market conditions. Costs include all costs directly incurred in the properties under development, including development expenditure, borrowing costs and other direct costs.

Completed properties for sale are stated at the lower of cost and net realisable value. Cost includes all development expenditure, applicable borrowing costs and other direct costs attributable to such properties. Net realisable value is determined by reference to the prevailing market prices on an individual property basis.

Borrowing costs

Borrowing costs directly attributable to the acquisition or construction of an asset which takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. The capitalisation rate for the period is based on the weighted average of the attributable costs of the borrowings. The capitalisation of such borrowing costs ceases when the asset is substantially ready for its intended use or sale. All other borrowing costs are charged to the profit and loss account in the period in which they are incurred.

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 construction contracts, on the percentage of completion basis when the outcome of the contracts can be reasonably foreseen, after making due allowances for contingencies. Provision is made for any foreseeable losses as soon as such losses are anticipated by management;

• (b) 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;

• (c) from the rendering of services, in the accounting period in which the services are rendered;

• (d) from the sale of property interests, when all the conditions of sale have been met and the risks and rewards of ownership have been transferred to the buyer;

• (e) rental income, on a time proportion basis over the lease terms;

• (f) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable;

• (g) management fee income, when services are rendered;

• (h) dividend income, when the shareholders’ right to receive payment has been established;

• (i) from the rendering of installation and maintenance services, based on the stage of completion of the transaction, provided that the costs incurred as well as the estimated costs to completion can be measured reliably. The stage of completion of a transaction associated with the rendering of services is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction; and

• (j) membership fee income, on completion of the transaction in respect of entrance fees and on a time proportion basis for membership fees.

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.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 Hong Kong Employment Ordinance. 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.

Retirement benefits

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the 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 in accordance with the rules of the MPF Scheme.

Prior to the MPF Scheme becoming effective, the Group operated a defined contribution pension scheme (the “Prior Scheme”) for those employees who were eligible to participate in this scheme. The Prior Scheme operated in a similar way to the MPF Scheme, except that when an employee left the Prior Scheme before his/her interest in the employer contributions vesting fully, the ongoing contributions payable by the Group were reduced by the relevant amount of the forfeited employer’s contributions. With effect from 1 December 2000, the Group has operated both schemes.

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

Share option scheme

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

Operating leases

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 noncurrent/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.

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 into Hong Kong dollars at the weighted average exchange rates for the year, and their balance sheets are translated into 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 into 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 into Hong Kong dollars at the weighted average exchange rates for the year.

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Provisions

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

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 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 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 future 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 negative 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 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 future taxable profit will be available against which the temporary differences can be utilised.

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.

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.

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.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. CONSOLIDATED PROFIT AND LOSS ACCOUNT

The following is a summary of the consolidated results of the Group for each of the Relevant Periods and for the six months ended 30 September 2003, which have been prepared on the basis set out in Section 1 above:

Notes TURNOVER (a) Other revenue and gains (a) Cost of construction contracts and direct expenses Cost of property interests sold Cost of inventories sold Staff costs Depreciation Other operating expenses PROFIT FROM OPERATING ACTIVITIES (b) Finance costs (d) Share of profits and losses of: A jointly-controlled entity Associates PROFIT BEFORE TAX Tax (e) PROFIT BEFORE MINORITY INTERESTS Minority interests NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS Earnings per share: (f) – Basic – Diluted	Ye 2002 HK$’000 409,088 18,739 (283,634) (89,943) – (21,408) (3,358) (21,886) 7,598 (4,869) – 1,122 3,851 (1,458) 2,393 4,770 7,163 0.15 cents 0.15 cents	ar ended 31 M 2003 HK$’000 529,273 10,044 (356,961) (111,936) (3,237) (28,098) (3,092) (25,604) 10,389 (3,118) – 2,968 10,239 (4,986) 5,253 3,307 8,560 0.18 cents 0.18 cents	arch 2004 HK$’000 538,118 11,497 (276,382) (164,653) (10,101) (25,954) (2,586) (22,613) 47,326 (3,349) (25) (6,201) 37,751 (17,697) 20,054 3,340 23,394 0.51 cents 0.51 cents	Six months ended 30 September 2003 2004 HK$’000 HK$’000 (Unaudited) 282,864 217,686 5,986 60,294 (142,053) (137,136) (96,783) (25,877) (2,979) (17,449) (13,226) (18,879) (1,109) (2,948) (7,228) (31,263) 25,472 44,428 (1,966) (1,381) – (8) (942) (553) 22,564 42,486 (7,303) 698 15,261 43,184 717 68 15,978 43,252 0.33 cents 0.90 cents N/A 0.88 cents	Six months ended 30 September 2003 2004 HK$’000 HK$’000 (Unaudited) 282,864 217,686 5,986 60,294 (142,053) (137,136) (96,783) (25,877) (2,979) (17,449) (13,226) (18,879) (1,109) (2,948) (7,228) (31,263) 25,472 44,428 (1,966) (1,381) – (8) (942) (553) 22,564 42,486 (7,303) 698 15,261 43,184 717 68 15,978 43,252 0.33 cents 0.90 cents N/A 0.88 cents
					44,428 (1,381) (8) (553)
					42,486 698
					43,184 68
					43,252
					0.90 cents
					0.88 cents

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) Turnover, other revenue and gains

Turnover represents the aggregate of gross revenue earned from construction work, the net amount of maintenance work invoiced, income from property development and investment, the operation of fitness centres and trading of fitness equipments.

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

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Turnover
Construction contracting and
related businesses	303,094	395,561	327,381	157,839	149,790
Income from property
development and investment	105,994	127,782	197,087	120,851	31,577
Fitness club and related
businesses	–	5,930	13,650	4,174	36,319
	409,088	529,273	538,118	282,864	217,686
Other revenue and gains
Interest income	2,829	2,054	1,561	875	148
Gross rental income	2,341	2,955	2,741	1,697	1,142
Management fee on
construction projects	4,579	1,306	1,855	541	230
Management fee received
from associates	2,700	779	1,125	223	355
Dividends income from
listed long term investments	175	123	156	76	81
Gain on disposal of subsidiaries	–	1,780	535	18	–
Gain on partial disposal of interest
in a subsidiary	–	–	–	–	40,182
Gain on deemed disposal of
interest in a subsidiary	341	–	–	–	15,885
Negative goodwill recognised
as income	201	–	–	–	–
Others	5,573	1,047	3,524	2,556	2,271
	18,739	10,044	11,497	5,986	60,294

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Profit from operating activities

Profit from operating activities is arrived at after charging/(crediting):

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Auditors’ remuneration	1,133	1,048	1,303	–	–
Depreciation	3,358	3,092	2,586	1,109	2,948
Minimum lease payments under operating
leases on land and buildings	1,135	783	764	401	2,727
Loss on disposal of fixed assets	200	628	89	82	85
Gain on disposal of subsidiaries	–	(1,780)	(535)	(18)	–
Gain on partial disposal of interest
in a subsidiary	–	–	–	–	(40,182)
Gain on deemed disposal of
interest in a subsidiary	(341)	–	–	–	(15,885)
Gain on disposal of associates	(40)	–	–	–	–
Gain on deemed disposal of
interest in an associate	(1,222)	–	–	–	–
Gain on disposal of short
term investment	(1,311)	–	–	–	–
Gain on disposal of property
interests	(668)	–	–	–	–
Negative goodwill recognised
as income	(201)	–	–	–	–
Impairment of goodwill on acquisition	–	229	–	–	–
Amortisation of goodwill*	–	–	676	264	471
Impairment of deferred development costs	–	3,938	–	–	–
Rental income	(2,341)	(2,955)	(2,741)	(1,697)	(1,142)
Less: Outgoings	99	67	–	–	–
Net rental income	(2,242)	(2,888)	(2,741)	(1,697)	(1,142)
Provision for foreseeable losses
of construction contracts	6,850	1,388	288	–	–
Provision for inventories	–	–	419	–	–
Provision/(write-back of provision)
for doubtful debts	1,490	1,826	(625)	6	–
Provision for other receivables	3,757	2,612	2,162	–	–
Exchange losses/(gains), net	(201)	83	(75)	(96)	127
Staff costs (including directors’
emoluments – Section 3(c)):
Wages and salaries	20,381	27,367	25,246	12,924	18,471
Pension scheme contributions	1,511	840	833	427	508
Less: Forfeited contributions**	(484)	(109)	(125)	(125)	(100)
Net pension scheme contributions	1,027	731	708	302	408
	21,408	28,098	25,954	13,226	18,879

• This amount is included in “Other operating expenses” on the face of the consolidated profit and loss account.

** At 31 March 2002, 31 March 2003, 31 March 2004, 30 September 2003 and 30 September 2004, there were no forfeited contributions available to the Group to reduce contributions to the pension scheme in future years.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Directors’ and senior management’s remuneration

Directors’ remunerations for the Relevant Periods, disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance, are as follows:

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Fees	336	300	300	150	150
Basic salaries and allowances:
Salaries and allowances	4,953	4,295	3,975	2,044	2,244
Pension scheme contributions	117	113	113	57	57
	5,406	4,708	4,388	2,251	2,451

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

Nil – HK$1,000,000 HK$1,500,001 – HK$2,000,000	Yea 2002 Number of directors 9 1 10	r ended 31 Ma 2003 Number of directors 7 1 8	Six months rch ended 30 September 2004 2003 2004 Number of Number of Number of directors directors directors (Unaudited) 7 8 8 1 – – 8 8 8	Six months rch ended 30 September 2004 2003 2004 Number of Number of Number of directors directors directors (Unaudited) 7 8 8 1 – – 8 8 8
				8

The five highest paid individuals in the Group included three directors for the Relevant Periods and three directors for the six months ended 30 September 2003. Information relating to the emoluments of these directors has been disclosed above. The details of the emoluments of the remaining highest paid individuals in the Group, including two non-director individuals for the Relevant Periods and two non-director individuals for the six months ended 30 September 2003 are as follows:

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Basic salaries and allowances	1,484	1,167	1,272	648	666
Pension scheme contributions	83	47	44	22	22
	1,567	1,214	1,316	670	688

The remuneration of the remaining two highest paid, non-director individuals fell within the range of nil to HK$1,000,000 in each of the above periods.

During the Relevant Periods, no emoluments were paid by the Group to any of the persons who are directors of the Company, or the five highest paid individual as an inducement to join or upon joining the Group or as compensation for loss of office. None of the persons who are directors of the Company waived or agreed to waive any emoluments during the Relevant Periods.

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(d) Finance costs

					Six months
	Year	ended 31 March			ended 30 September
	2002	2003		2004	2003	2004
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
					(Unaudited)
Interest expense on bank loans,
overdrafts and other borrowings:
wholly repayable within five years	5,653	7,856		4,319	2,781	1,334
wholly repayable after five years	–	–		255	37	209
Interest on convertible notes	166	161		33	33	–
Total finance costs	5,819	8,017		4,607	2,851	1,543
Less: Interest capitalised	(950)	(4,899)		(1,258)	(885)	(162)
	4,869	3,118		3,349	1,966	1,381

(e) Tax

Hong Kong profits tax has been provided at the rate of 16%, 16% and 17.5% for the year ended 31 March 2002, 31 March 2003 and 31 March 2004, respectively, and at 17.5% for the period ended 30 September 2003 and 30 September 2004 on the estimated assessable profits arising in Hong Kong during the years/periods. The increased Hong Kong profit 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 March 2004. 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.

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Current– Hong Kong
Charge for the year/period	354	1,285	2,357	928	–
Under/(over) provision in prior years	31	(355)	–	–	(71)
Current – Elsewhere
Charge for the year/period	962	4,227	13,245	6,716	1,585
Overprovision in prior years	(736)	–	–	–	(1,973)
Deferred (Section 4(h))	641	(633)	1,862	(480)	71
	1,252	4,524	17,464	7,164	(388)
Share of tax attributable to associates	206	462	233	139	(310)
Total tax charge/(credit) for the year/period	1,458	4,986	17,697	7,303	(698)

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A reconciliation of the tax expense applicable to profit before tax using the statutory rate for the country in which the Company and its subsidiaries, a jointly-controlled entity and associates are domiciled to the tax expense at the effective tax rates is as follows:

Profit before tax Tax at the statutory tax rate for period ended 30 September 2003 and 2004: 17.5% (year ended 31 March 2002 and 2003: 16%; year ended 31 March 2004: 17.5%) Effect of different tax rates for companies operating in other jurisdictions Adjustments in respect of current tax of previous periods Income not subject to tax Expenses not deductible for tax Tax loss utilised from previous periods Tax losses not recognised Others, net Tax charge at effective rate	Yea 2002 HK$’000 3,851 616 3,187 (705) (5,765) 2,344 (56) 2,220 (383) 1,458	r ended 31 Ma 2003 HK$’000 10,239 1,638 2,377 (355) (4,625) 3,879 (119) 1,618 573 4,986	rch 2004 HK$’000 37,751 6,606 5,738 – (2,667) 6,131 (283) 1,577 595 17,697	Six months ended 30 September 2003 2004 HK$’000 HK$’000 (Unaudited) 22,564 42,486 3,949 7,435 2,054 872 – (2,044) (39) (10,119) 428 369 (631) (234) 1,227 3,317 315 (294) 7,303 (698)	Six months ended 30 September 2003 2004 HK$’000 HK$’000 (Unaudited) 22,564 42,486 3,949 7,435 2,054 872 – (2,044) (39) (10,119) 428 369 (631) (234) 1,227 3,317 315 (294) 7,303 (698)
					7,435 872 (2,044) (10,119) 369 (234) 3,317 (294)
					(698)

(f) Earnings per share

The calculation of basic earnings per share is based on the net profit attributable to shareholders of HK$7,163,000 and HK$8,560,000, HK$23,394,000, HK$15,978,000 and HK$43,252,000, and the weighted average of 4,789,896,000, 4,791,613,000, 4,544,515,000, 4,791,613,000 and 4,801,139,000 shares in issue during the years ended 31 March 2002, 2003, 2004 and for the six month ended 30 September 2003 and 2004, respectively.

The calculation of diluted earnings per share is based on the net profit attributable to shareholders of HK$7,163,000, HK$8,560,000, HK$23,394,000 and HK$43,252,000, and the weighted average of 4,817,747,000, 4,803,559,000, 4,545,310,000 and 4,921,549,000 shares in issue during the years ended 31 March 2002, 2003, 2004 and for the six month ended 30 September 2004, respectively. Diluted earnings per share for the period ended 30 September 2003 had not been disclosed as the warrants and options outstanding during the period had an anti-dilutive effect on the basic earnings per share for the period.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A reconciliation of the weighted average number of shares used in the basic earnings per share calculation to that used in the diluted earnings per share calculation is as follows:

Weighted average number of shares in issue during the year used in the basic earnings per share calculation Weighted average number of shares assumed to have been issued at no consideration on the deemed exercise of the share options expiring on 22 January 2004, 21 February 2004, 28 February 2004 and warrants expiring on 14 August 2004 Weighted average number of shares used in diluted earnings per share calculation	Ye 2002 ‘000 4,789,896 27,851 4,817,747	ar ended 31 M 2003 ‘000 4,791,613 11,946 4,803,559	arch 2004 ‘000 4,544,515 795 4,545,310	Six months ended 30 September 2004 ‘000 4,801,139 120,410
				4,921,549

The deemed exercise of the full conversion rights of the convertible notes of Chinese People Gas Holdings Company Limited (formerly known as KEL Holdings Limited) (“CPG”), a listed subsidiary of the Company, and of the options expiring on 22 April 2003, 2 May 2003 and 22 January 2004, had anti-dilutive effects on the basic earnings per share and accordingly, have not been included in the diluted earnings per share calculation for the years ended 31 March 2002, 2003, 2004 and the six months ended 30 September 2003 and 2004.

The deemed exercise of the warrants of the Company expiring on 14 August 2004 had anti-dilutive effects on the basic earnings per share and accordingly, have not been included in the diluted earnings per share calculation for the years ended 31 March 2002, 2003 and 2004.

(g) Related party transactions

In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the Relevant Periods:

					Six months	Six months
		Year	ended 31	March	ended 30	September
		2002	2003	2004	2003	2004
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
Management fees paid to
an associate	(1)	–	140	121	–	–
Management fees received
from associates	(1)	2,700	779	1,125	493	330
Interest income from
an associate	(2)	763	117	416	200	–
Rental income from
an associate	(3)	273	546	546	447	–
Purchases of goods from
an associate	(4)	–	454	280	–	–
Renovation service
provided to an associate	(5)	–	529	333	–	–

Notes:

(1) The management fees were charged by reference to costs incurred for services provided by or to the Group.

(2) The interest income relates to advances to an associate, details of which are set out in Section 4(f) to the financial statements.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (3) The rental income was calculated by reference to open market rentals.

• (4) The purchases from an associate were made according to the published prices and conditions offered by the associate to its major customers.

• (5) The service fees were charged pursuant to the terms and conditions of the renovation service agreements with reference to the prevailing market conditions at the time of the parties entering into the agreement.

4.

CONSOLIDATED BALANCE SHEETS

The following is a summary of the consolidated balance sheets of the Group as at the end of each of the Relevant Periods prepared on the basis set out in Section 1 above.

Group

Notes NON-CURRENT ASSETS Fixed assets (a) Goodwill (b) Deferred development costs (c) Interest in a jointly-controlled entity (e) Interests in associates (f) Long term investments (g) Pledged time deposits (m) Deferred tax assets (h) CURRENT ASSETS Properties held for sale (i) Gross amount due from contract customers (j) Inventories (k) Accounts receivable (l) Prepayments, deposits and other receivables Pledged time deposits (m) Cash and cash equivalents (m) CURRENT LIABILITIES Gross amount due to contract customers (j) Accounts payable (n) Other payables and accruals Tax payable Provision for scheme debts (o) Interest-bearing bank and other borrowings (p) Convertible notes (q) NET CURRENT ASSETS	2002 HK$’000 64,023 – 3,706 – 18,768 6,153 5,100 1,311 99,061 265,538 27,557 516 58,465 14,984 27,954 59,469 454,483 64,967 29,484 13,223 2,329 1,047 89,430 – 200,480 254,003	31 March 2003 HK$’000 47,162 – – – 17,903 8,153 – 1,959 75,177 352,097 19,568 996 94,633 25,831 27,856 41,579 562,560 47,773 83,410 74,153 6,024 1,047 138,375 7,285 358,067 204,493	30 2004 HK$’000 54,237 21,401 – 556 7,366 8,153 – 453 92,166 280,260 17,599 7,160 73,317 29,940 32,781 34,884 475,941 39,483 54,082 104,599 13,685 1,047 48,959 – 261,855 214,086	September 2004 HK$’000 53,406 19,088 – 10,186 39,411 8,553 – 382
				131,026
				271,974 32,996 8,023 66,503 33,714 47,798 95,280
				556,288
				39,610 41,811 113,346 11,209 1,047 56,911 –
				263,934
				292,354

– 40 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings (p) Convertible notes (q) Deferred tax liabilities (h) MINORITY INTERESTS Represented by: Issued capital (r) Reserves Section 5 Company Notes NON-CURRENT ASSETS Interests in subsidiaries (d) Deferred tax assets (h) CURRENT ASSETS Other receivables Cash and cash equivalents CURRENT LIABILITIES Other payables and accruals NET CURRENT ASSETS/(LIABILITIES) CAPITAL AND RESERVES Issued capital (r) Reserves	2002 HK$’000 353,064 (57,208) (8,065) (3,354) (68,627) (15,227) 269,210 47,916 221,294 269,210 2002 HK$’000 308,992 1,104 310,096 5 30 35 302 (267) 309,829 47,916 261,913 309,829	31 March 2003 HK$’000 279,670 (2,900) – (1,081) (3,981) (10,889) 264,800 47,916 216,884 264,800 31 March 2003 HK$’000 308,776 1,229 310,005 1 165 166 342 (176) 309,829 47,916 261,913 309,829	30 2004 HK$’000 306,252 (8,996) – (930) (9,926) (17,561) 278,765 46,688 232,077 278,765 30 2004 HK$’000 304,138 262 304,400 1 342 343 280 63 304,463 46,688 257,775 304,463	September 2004 HK$’000 423,380 (7,080) – (991) (8,071) (78,229) 337,080 51,675 285,405 337,080 September 2004 HK$’000 316,887 262 317,149 1 253 254 525 (271) 316,878 51,675 265,203 316,878

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(a) Fixed assets

(i) Movement of fixed assets

Group

At cost or valuation: At beginning of year Additions Disposals At 31 March 2002 and 1 April 2002 Additions Acquisition of a subsidiary Disposals Revaluation At 31 March 2003 and 1 April 2003 Additions Acquisition of subsidiaries Disposal of subsidiaries Disposals Revaluation surplus/ (deficit) At 31 March 2004 1 April 2004 Additions Disposals At 30 September 2004	Leasehold land and buildings situated in Hong Kong HK$’000 52,150 – – 52,150 – – – (17,950) 34,200 – – – – (1,300) 32,900 – – 32,900	Leasehold land and buildings situated in Mainland China HK$’000 7,000 – – 7,000 – – – – 7,000 – – – – 1,000 8,000 – – 8,000	Leasehold improve- ments HK$’000 3,176 – (285) 2,891 450 – (1,587) – 1,754 3 2,238 – – – 3,995 620 – 4,615	Furniture and fixtures HK$’000 3,951 – (85) 3,866 78 – – – 3,944 5 – – – – 3,949 119 – 4,068	Office equipment HK$’000 4,743 323 (683) 4,383 1,075 14 (643) – 4,829 259 858 (6) (202) – 5,738 1,116 (15) 6,839	Tools and equipment HK$’000 2,612 14 – 2,626 25 201 – – 2,852 20 6,153 – (6) – 9,019 104 (2) 9,121	Motor vehicles HK$’000 5,934 336 (643) 5,627 148 – (148) – 5,627 32 – – (337) – 5,322 250 (520) 5,052	Total HK$’000 79,566 673 (1,696)
								78,543 1,776 215 (2,378) (17,950)
								60,206 319 9,249 (6) (545) (300)
								68,923 2,209 (537)
								70,595

– 42 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Accumulated depreciation: At beginning of year Provided during the year Disposals At 31 March 2002 and 1 April 2002 Provided during the year Acquisition of a subsidiary Disposals Write back on revaluation At 31 March 2003 and 1 April 2003 Provided during the year Disposal of subsidiaries Disposals Write back on revaluation At 31 March 2004 and 1 April 2004 Provided during for the period Disposals At 30 September 2004 Net book value: At 31 March 2002 At 31 March 2003 At 31 March 2004 At 30 September 2004	Leasehold land and buildings situated in Hong Kong HK$’000 – 1,304 – 1,304 1,270 – – (2,574) – 836 – – (356) 480 405 – 885 50,846 34,200 32,420 32,015	Leasehold land and buildings situated in Mainland China HK$’000 – – – – 324 – – (324) – 169 – – (153) 16 97 – 113 7,000 7,000 7,984 7,887	Leasehold improve- ments HK$’000 1,637 741 (174) 2,204 362 – (1,256) – 1,310 249 – – – 1,559 618 – 2,177 687 444 2,436 2,438	Furniture and fixtures HK$’000 1,984 287 (24) 2,247 253 – – – 2,500 217 – – – 2,717 95 – 2,812 1,619 1,444 1,232 1,256	Office equipment HK$’000 2,704 475 (195) 2,984 422 6 (341) – 3,071 383 (6) (178) – 3,270 492 (11) 3,751 1,399 1,758 2,468 3,088	Tools and equipment HK$’000 1,631 163 – 1,794 184 69 – – 2,047 212 – (6) – 2,253 1,121 (1) 3,373 832 805 6,766 5,748	Motor vehicles HK$’000 3,901 388 (302) 3,987 277 – (148) – 4,116 520 – (245) – 4,391 120 (433) 4,078 1,640 1,511 931 974	Total HK$’000 11,857 3,358 (695)
								14,520 3,092 75 (1,745) (2,898)
								13,044 2,586 (6) (429) (509)
								14,686 2,948 (445)
								17,189
								64,023
								47,162
								54,237
								53,406

– 43 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) Analysis of cost or valuation

At 31 March 2002 At cost At 2001 valuation At 31 March 2003 At cost At 2003 valuation At 31 March 2004 At cost At 2004 valuation At 30 September 2004 At cost At 2004 valuation	Leasehold land and buildings situated in Hong Kong HK$’000 – 52,150 52,150 – 34,200 34,200 – 32,900 32,900 – 32,900 32,900	Leasehold land and buildings situated in Mainland China HK$’000 – 7,000 7,000 – 7,000 7,000 – 8,000 8,000 – 8,000 8,000	Leasehold improve- ments HK$’000 2,891 – 2,891 1,754 – 1,754 3,995 – 3,995 4,615 – 4,615	Furniture and fixtures HK$’000 3,866 – 3,866 3,944 – 3,944 3,949 – 3,949 4,068 – 4,068	Office equipment HK$’000 4,383 – 4,383 4,829 – 4,829 5,738 – 5,738 6,839 – 6,839	Tools and equipment HK$’000 2,626 – 2,626 2,852 – 2,852 9,019 – 9,019 9,121 – 9,121	Motor vehicles HK$’000 5,627 – 5,627 5,627 – 5,627 5,322 – 5,322 5,052 – 5,052	Total HK$’000 19,393 59,150
								78,543
								19,006 41,200
								60,206
								28,023 40,900
								68,923
								29,695 40,900
								70,595

The Group’s land and buildings located in Hong Kong were revalued at 31 March 2001, 31 March 2003 and 31 August 2003 at an aggregate open market value of HK$59,150,000, HK$41,200,000 and HK$32,900,000, respectively, and the Group’s land and buildings located in Mainland China were revalued at 28 February 2004 at an aggregate open market value of HK$8,000,000, by B.I. Appraisals Limited, independent professionally qualified valuers, based on their existing use. A revaluation deficit of HK$15,052,000 and surplus of HK$209,000 resulting from the revaluation has been debited and credited to the fixed asset revaluation reserve for 2003 and 2004 respectively. No revaluation has been performed on the Group’s land and buildings at 31 March 2002, 31 March 2004 and 30 September 2004 as the directors considered that the fair value of these land and buildings had insignificant movement during the period from the last valuation to those dates.

Had the Group’s land and buildings been carried at cost less accumulated depreciation and impairment losses, they would have been included in the financial statements at approximately HK$49,899,000, HK$36,458,000, HK$35,537,000 and HK$34,965,000 as at 31 March 2002, 2003 and 2004 and 30 September 2004, respectively.

The land and buildings at valuation as at 30 September 2004 included above are held under the following lease terms:

Long term leases Medium term leases	Hong Kong HK$’000 11,900 21,000 32,900	Mainland China HK$’000 – 8,000 8,000	Total HK$’000 11,900 29,000
			40,900

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Certain land and buildings of the Group are pledged to banks to secure banking facilities granted to the Group (Section 4(p)(a)(ii)).

Certain fixed assets situated in Hong Kong with an aggregate carrying value of HK$47,921,000, HK$32,000,000, HK$11,900,000 and HK$11,580,000 were leased to third parties under operating leases as at 31 March 2002, 2003 and 2004 and 30 September 2004, respectively, further summary details of which are included in Section 4(s)(ii)(a) to the financial statements.

(b) Goodwill

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

Group

Cost: At 31 March 2002 and 31 March 2003 Arising from the acquisition of subsidiaries (Section 6(a)) Arising from the acquisition of additional interest in a subsidiary At 31 March 2004 Arising from the acquisition of additional interest in subsidiaries Goodwill released on deemed disposal of interest in a subsidiary Goodwill released on partial disposal of interest in a subsidiary At 30 September 2004 Accumulated amortisation: At 31 March 2002 and 31 March 2003 Amortisation provided during the year At 31 March 2004 Amortisation provided during the period At 30 September 2004 Net book value: At 31 March 2002 and 31 March 2003 At 31 March 2004 At 30 September 2004

HK$’000 – 9,116 12,961 22,077 1,890 (2,633) (1,099) 20,235 – 676 676 471 1,147 – 21,401 19,088

As detailed in Section 2 to the financial statements, on the adoption of SSAP 30 on 1 April 2001, the Group applied the transitional provision of SSAP 30 that permitted goodwill and negative goodwill in respect of acquisitions which occurred prior to the adoption of the SSAP, to remain eliminated against consolidated reserves or credited to the capital reserve, respectively.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Deferred development costs

Group

At beginning of the year Additions Impairment provided during the year At end of the year/period	2002 HK$’000 2,953 753 – 3,706	31 March 2003 HK$’000 3,706 232 (3,938) –	30 2004 HK$’000 – – – –	September 2004 HK$’000 – – –
				–

The deferred development costs represented expenditure incurred on a technology development project jointly developed by Deson-IES Engineering Limited, a wholly-owned subsidiary of the Group, and The City University of Hong Kong. The project was completed in September 2002. A full impairment loss of HK$3,938,000 was made against the Group’s deferred development costs and was charged to the profit and loss account in the year ended 31 March 2003. The impairment loss has been provided by the directors based on the estimated recoverable amount of the Group’s deferred development costs, determined by the present value of estimated future cash flows expected to arise from the continuing use of the asset and from its disposal at the end of its useful life.

(d) Interest in subsidiaries

Company

Unlisted shares, at cost Due from subsidiaries	2002 HK$’000 156,031 152,961 308,992	31 March 2003 HK$’000 156,031 152,745 308,776	30 2004 HK$’000 156,031 148,107 304,138	September 2004 HK$’000 156,031 160,856
				316,887

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment, except for an amount of HK$52,547,000 and HK$45,902,000 due from subsidiaries as at 31 March 2002 and 2004 which was interestbearing with interest charged at prevailing market rates and at 7% per annum, respectively.

Details of the principal subsidiaries were set out in Section 1.

(e) Interest in a jointly-controlled entity

Group

Share of net assets Due from the jointly-controlled entity	2002 HK$’000 – – –	31 March 2003 HK$’000 – – –	30 2004 HK$’000 475 81 556	September 2004 HK$’000 467 9,719
				10,186

The balance with the jointly-controlled entity is unsecured, interest-free and have no fixed terms of repayment.

Particulars of the jointly-controlled entity are set out in Section 1 above.

The jointly-controlled entity is held through subsidiaries.

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(f) Interests in associates

Group

Share of net assets Goodwill on acquisition Due from associate Due to associate	2002 HK$’000 7,484 – 7,484 11,679 (395) 18,768	31 March 2003 HK$’000 7,113 – 7,113 11,190 (400) 17,903	30 2004 HK$’000 6,376 – 6,376 1,615 (625) 7,366	September 2004 HK$’000 4,851 3,755
				8,606 31,430 (625)
				39,411

The balances with associates are unsecured, interest-free and have no fixed terms of repayment. As at 31 March 2002 and 2003, an amount due from an associate of HK$9,200,000 and HK$8,052,000 bore interest at the prevailing market rates, respectively.

Particulars of the principal associates at the Relevant Periods are set out in Section 1 above.

(g) Long term investments

Group

Listed equity investment, at cost: Hong Kong Outside Hong Kong Unlisted debt investment in Hong Kong, at cost Unlisted equity investment in Hong Kong, at cost Market value of listed equity investment at balance sheet date: Hong Kong Outside Hong Kong	2002 HK$’000 – 6,153 – – 6,153 – 4,699	31 March 2003 HK$’000 – 6,153 2,000 – 8,153 – 4,290	30 2004 HK$’000 – 6,153 2,000 – 8,153 – 6,488	September 2004 HK$’000 2,000 6,153 – 400
				8,553
				4,500 7,380

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(h) Deferred tax

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

Deferred tax assets

Group

Loss for of future ta At 1 April 2001 Deferred tax charged to the profit and loss account during the year At 31 March 2002 and 1 April 2002 Deferred tax credited to the profit and loss account during the year At 31 March 2003 and 1 April 2003 Deferred tax charged to the profit and loss account during the year At 31 March 2004 and 1 April 2004 Deferred tax charged to the profit and loss account during the period Gross deferred tax assets at 30 September 2004	es available fset against xable profit HK$’000 1,163 (59) 1,104 125 1,229 (967) 262 (71) 191	Others HK$’000 894 (687) 207 523 730 (539) 191 – 191	Total HK$’000 2,057 (746) 1,311 648 1,959 (1,506) 453 (71) 382

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Deferred tax liabilities

Group

Accelerated tax Re depreciation HK$’000 At 1 April 2001 496 Deferred tax charged/(credited) to the profit and loss account during the year (119) Deferred tax credited to fixed asset revaluation reserve during the year – At 31 March 2002 and 1 April 2002 377 Deferred tax charged/(credited) to the profit and loss account during the year (26) Deferred tax credited to fixed asset revaluation reserve during the year – At 31 March 2003 and 1 April 2003 351 Deferred tax charged/(credited) to the profit and loss account during the year (20) Deferred tax credited to fixed asset revaluation reserve during the year – At 31 March 2004 and 1 April 2004 331 Deferred tax charged to fixed asset revaluation reserve during the period – Gross deferred tax liabilities at 30 September 2004 331 Net deferred tax liabilities at 30 September 2004 Net deferred tax liabilities at 31 March 2004 Net deferred tax assets at 31 March 2003 Net deferred tax liabilities at 31 March 2002	valuation of properties HK$’000 3,292 14 (329) 2,977 41 (2,288) 730 376 (507) 599 61 660	Total HK$’000 3,788 (105) (329) 3,354 15 (2,288) 1,081 356 (507) 930 61 991 609 477 (878) 2,043

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Deferred tax assets

Company

Loss for of future ta At 1 April 2001 Deferred tax charged to the profit and loss account during the year At 31 March 2002 and 1 April 2002 Deferred tax credited to the profit and loss account during the year At 31 March 2003 and 1 April 2003 Deferred tax charged to the profit and loss account during the year At 31 March 2004 and 30 September 2004	es available fset against xable profit HK$’000 1,163 (59
	1,104 125
	1,229 (967
	262

(i) Properties held for sale

Group

Completed properties held for sale Properties under development for sale	2002 HK$’000 92,856 172,682 265,538	31 March 2003 HK$’000 243,486 108,611 352,097	30 2004 HK$’000 211,712 68,548 280,260	September 2004 HK$’000 194,569 77,405
				271,974

All completed properties were carried at cost for the Relevant Periods. Certain completed properties held for sale with an aggregate carrying value of HK$59,115,000, HK$59,115,000, HK$40,386,000 and HK$40,386,000 as at 31 March 2002, 2003, 2004 and 30 September 2004, respectively, were leased to third parties under operating leases, further summary details of which are included in Section 4(s)(ii)(a) to the financial statements.

Certain completed properties held for sale and properties under development for sale are pledged to banks to secure banking facilities granted to the Group (Section 4(p)(a)(i)).

The Group acquired a piece of land located in Shanghai (the “Lung Hua Land”) in prior years. The Group developed the Lung Hua Land into residential units. The project was completed as at 31 March 2004. Pursuant to a supplementary agreement to the original land use rights agreement entered into between Hua Sheng International Real Estate Development (Shanghai) Co., Ltd., a subsidiary of the Group and the Shanghai Land Administration Bureau, 60% of the construction work needed to be completed by 31 December 2000. The Group obtained approval from the government to commence construction work. In the opinion of the directors, the delay in completion of construction will not have a material impact on the Group’s interest in the properties.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(j) Construction contracts

Group

==> picture [361 x 189] intentionally omitted <==

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

31 March 30 September
2002 2003 2004 2004
Notes HK$’000 HK$’000 HK$’000 HK$’000
Gross amount due from contract
customers (i) 27,557 19,568 17,599 32,996
Gross amount due to contract
customers (ii) (64,967) (47,773) (39,483) (39,610)
(37,410) (28,205) (21,884) (6,614)
Contract costs incurred plus
recognised profits less recognised
losses and provision for
foreseeable losses to date (iii) 3,168,946 1,627,271 1,726,023 1,794,660
Less: Progress billings (iii) (3,206,356) (1,655,476) (1,747,907) (1,801,274)
(37,410) (28,205) (21,884) (6,614)
----- End of picture text -----

Notes:

• (i) The retentions held by customers for contract work included in accounts receivable under current assets amounted to approximately HK$3,060,000, HK$1,553,000, HK$2,126,000 and HK$2,410,000 as at 31 March 2002, 2003, 2004 and 30 September 2004, respectively.

• (ii) There were no advances received from customers for contract work included in accounts payable under current liabilities for all Relevant Periods.

• (iii) The amount of contract costs incurred plus recognised profits less recognised losses and the provision of foreseeable losses to date include amounts of HK$2,390,498,000, HK$964,690,000, HK$993,935,000 and HK$1,031,914,000 as at 31 March 2002, 2003, 2004 and 30 September 2004, respectively, and the amount of progress billings includes amounts of HK$2,392,159,000, HK$970,167,000, HK$998,132,000 and HK$1,037,966,000 as at 31 March 2002, 2003, 2004 and 30 September 2004, respectively, which are mainly related to construction contracts under Kenworth Group Limited (“Kenworth Group”) and its subsidiaries, the majority of which have either been terminated or which have ceased, or which have had insignificant activities during the Relevant Periods. Since there are numerous disputes and claims between the Kenworth Group and its subsidiaries, and its contract employers, suppliers, subcontractors and subcontractors’ employees in respect of these contracts, the directors have not been able to negotiate and agree final completion accounts for these terminated, ceased or inactive construction contracts.

(k) Inventories

Group

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

31 March 30 September
2002 2003 2004 2004
HK$’000 HK$’000 HK$’000 HK$’000
Trading goods 516 996 7,160 8,023
----- End of picture text -----

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(l) Accounts receivable

An aged analysis of accounts receivable is as follows:

Group

		31 March 2002	31 March 2002				31 March 2003	31 March 2003				31 March 2004	31 March 2004			30 September 2004	30 September 2004	30 September 2004	30 September 2004
				Net					Net					Net					Net
	Balance	Provisions		Balance		Balance	Provisions		Balance		Balance	Provisions		Balance		Balance	Provisions		Balance
	HK$’000	HK$’000		HK$’000		HK$’000	HK$’000		HK$’000		HK$’000	HK$’000		HK$’000		HK$’000	HK$’000		HK$’000
Current–90 days	42,850	–		42,850		63,522	–		63,522		51,983	–		51,983		40,416	–		40,416
91–180 days	6,908	(1)		6,907		13,432	(75)		13,357		7,164	(234)		6,930		14,133	–		14,133
181–360 days	4,929	(119)		4,810		4,954	(6)		4,948		8,827	(4,926)		3,901		13,387	(4,902)		8,485
Over 360 days	49,478	(48,640)		838		51,690	(40,437)		11,253		50,211	(41,834)		8,377		42,512	(41,453)		1,059
	104,165	(48,760)		55,405		133,598	(40,518)		93,080		118,185	(46,994)		71,191		110,448	(46,355)		64,093
Retention money receivable	31,824	(28,764)		3,060		30,957	(29,404)		1,553		30,764	(28,638)		2,126		29,660	(27,250)		2,410
Total	135,989	(77,524)		58,465		164,555	(69,922)		94,633		148,949	(75,632)		73,317		140,108	(73,605)		66,503

The Group’s trading terms with its customers are mainly on credit. The credit period is generally for a period of 60 days. For retention receivables in respect of construction work carried out by the Group, the due dates are usually one year after the completion of the construction work. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management.

(m) Cash and cash equivalents and pledged deposits

Group

Cash and bank balances Time deposits Less: Pledged time deposits: Pledged for bank overdraft facilities Pledged for long term bank loans Cash and cash equivalents	2002 HK$’000 49,023 43,500 92,523 (27,954) (5,100) 59,469	31 March 2003 HK$’000 34,605 34,830 69,435 (27,856) – 41,579	2004 HK$’000 34,884 32,781 67,665 (32,781) – 34,884	30 September 2004 HK$’000 95,280 47,798
				143,078 (47,798) –
				95,280

At the balance sheet date, the cash and bank balances of the Group denominated in Renminbi amounted to HK$16,629,000, HK$22,121,000, HK$22,780,000 and HK$20,319,000 as at 31 March 2002, 2003, 2004 and 30 September 2004, respectively.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(n) Accounts payable

An aged analysis of accounts payables is as follows:

Current–90 days 91–180 days 181–360 days Over 360 days	2002 HK$’000 19,086 1,197 1,597 7,604 29,484	31 March 2003 HK$’000 79,619 841 388 2,562 83,410	2004 HK$’000 47,437 2,818 541 3,286 54,082	30 September 2004 HK$’000 35,730 437 3,400 2,244
				41,811

(o) Provision for scheme debts

CPG made a scheme debt provision in prior years. The directors of the CPG have estimated and provided for the expected claims of the scheme debts on a case-by-case basis. Further details of the scheme of arrangement has been disclosed in Section 4(q).

(p) Interest-bearing bank borrowings and other borrowings

Group

Bank overdrafts, secured Bank loans, secured Trust receipt loans, secured Other loan, secured Other loan, unsecured Bank overdrafts repayable on demand Bank loans repayable: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years Trust receipt loans repayable within one year Other loan repayable: Within one year or on demand In the second year Portion classified as current liabilities Long term portion	2002 HK$’000 32,555 43,423 33,716 36,944 – 146,638 32,555 13,923 19,636 9,864 – 43,423 33,716 9,236 27,708 36,944 146,638 (89,430) 57,208	31 March 2003 HK$’000 54,468 41,554 8,309 36,944 – 141,275 54,468 38,654 2,900 – – 41,554 8,309 36,944 – 36,944 141,275 (138,375) 2,900	2004 HK$’000 27,354 12,917 15,862 – 1,822 57,955 27,354 5,485 721 2,405 4,306 12,917 15,862 258 1,564 1,822 57,955 (48,959) 8,996	30 September 2004 HK$’000 21,132 22,441 20,418 – –
				63,991
				21,132
				15,361 744 2,469 3,867
				22,441
				20,418
				– –
				–
				63,991 (56,911
				7,080

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (a) The bank loans and the Group’s banking facilities are secured by:

  • (i) certain of the Group’s completed properties held for sale situated in Mainland China, which had an aggregate carrying value at 31 March 2002, 2003, 2004 and 30 September 2004, of HK$40,386,000, HK$121,861,000, HK$40,386,000 and HK$40,386,000, respectively;

  • (ii) certain of the Group’s land and buildings situated in Hong Kong, which had an aggregate net book value at 31 March 2002, 2003, 2004 and 30 September 2004, of approximately HK$50,846,000, HK$34,200,000, HK$32,420,000 and HK$32,015,000, respectively;

  • (iii) the pledge of certain of the Group’s time deposits at 31 March 2002, 2003, 2004 and 30 September 2004, amounting to HK$33,054,000, HK$27,856,000, HK$32,781,000 and HK$47,798,000, respectively; and

  • (iv) certain of the Group’s properties under development situated in Mainland China, which had an aggregate carrying value of HK$73,911,000 and HK$47,535,000 as at 31 March 2002 and 2003, respectively.

• (b) The Group’s other loans as at 31 March 2002 and 2003 were secured by the shares of a subsidiary, which held properties under development for sale with an aggregate carrying value at 31 March 2002 and 2003 of approximately HK$59,026,000 and HK$61,076,000 respectively, bore interest at 4% per annum, were repayable by instalments commencing on 31 March 2003, and were fully settled during the year ended 31 March 2004.

• (q) Convertible notes

Group

At beginning of year Exercise of convertible notes Repurchase during the year Redemption of convertible notes Exercise of put options by certain note holders during the year At end of year/period	2002 HK$’000 10,251 (576) (1,610) – – 8,065	31 March 2003 HK$’000 8,065 – – – (780) 7,285	2004 HK$’000 7,285 (29) – (7,256) – –	30 September 2004 HK$’000 – – – – –
				–

In prior years, the Company entered into a conditional debt restructuring and share subscription agreement (the “DRA”) with CPG and certain of its subsidiaries. The DRA became unconditional on 10 August 2000. Three schemes of arrangement involving CPG and its two subsidiaries, Kenworth Engineering Limited (“Kenworth”) and Kenworth Group, were set up under Section 166 of the Hong Kong Companies Ordinance (collectively referred to as the “Schemes”), according to the terms of the restructuring proposal.

Under the Schemes, for every HK$10,000 of its Scheme debt, CPG issued convertible notes (the “Notes”) in the principal amount of HK$187.50 to the Scheme creditor on 30 August 2000. The Notes bore interest at a rate of 2% per annum and were convertible into new shares of CPG at a conversion price of HK$0.10 per share (the “Conversion Price”) at any time up to 1 September 2003, being the third anniversary of the date of the issue. The Conversion Price was subject to certain adjustments as defined in the Notes instrument.

Upon maturity of the convertible notes on 1 September 2003, CPG repaid the principal amount outstanding to the convertible note holders.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(r) Share capital

Shares

Authorised: 15,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 5,167,540,176 (2004: 4,668,779,496; 2003: 4,791,612,750; 2002: 4,791,612,750) ordinary shares of HK$0.01 each	2002 HK$’000 150,000 47,916	31 March 2003 HK$’000 150,000 47,916	2004 HK$’000 150,000 46,688	30 September 2004 HK$’000 150,000
				51,675

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

At 1 April 2001 Arising on exercise of share options (i) Arising on exercise of warrants (ii) Arising on repurchase of shares (iii) Share repurchase expenses At 31 March 2002, 31 March 2003 and 1 April 2003 Arising on repurchase of shares (iv) Arising on exercise of share options (v) Arising on exercise of warrants (vi) Share repurchase expenses At 31 March 2004 and 1 April 2004 Arising on repurchase of shares (vii) Share repurchase expenses Arising on exercise of warrants (viii) At 30 September 2004	Number of shares in issue 4,797,248,500 18,500,000 4,250 (24,140,000) – 4,791,612,750 (479,161,254) 256,000,000 100,328,000 – 4,668,779,496 (177,720,000) – 676,480,680 5,167,540,176	Issued share capital HK$’000 47,972 185 – (241) – 47,916 (4,791) 2,560 1,003 – 46,688 (1,778) – 6,765 51,675	Share premium account HK$’000 103,863 526 – (360) (14) 104,015 (14,375) 4,981 2,308 (1,281) 95,648 (5,312) (110) 15,559 105,785	Total HK$’000 151,835 711 – (601) (14)
				151,931 (19,166) 7,541 3,311 (1,281)
				142,336 (7,090) (110) 22,324
				157,460

The movements in share capital of the Company during the Relevant Periods were as follows:

• (i) 18,500,000 share options were exercised at the subscription price of HK$0.0384 per share resulting in the issue of 18,500,000 shares, for a total cash consideration, before expenses, of HK$710,400.

• (ii) 4,250 shares were issued for cash at a subscription price of HK$0.08 per share, pursuant to the exercise of the Company’s bonus warrants for a total cash consideration, before expenses, of HK$340.

• (iii) The Company repurchased a total of 24,140,000 of its own shares on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) at prices ranging from HK$0.023 to HK$0.028 per share, for a total consideration, before expenses, of HK$600,850. The repurchased shares were cancelled and an amount equivalent to the nominal value of these shares of HK$241,400 was transferred from the retained profits to the capital redemption reserve. The premium paid on the repurchased shares was charged against the share premium account (Section 5).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (iv) The Company repurchased a total of 479,161,254 of its own shares on the Stock Exchange at a price of HK0.04 per share, for a total consideration, before expenses, of HK$19,166,000. The repurchased shares were cancelled and an amount equivalent to the nominal value of these shares of HK$4,791,000 was transferred from retained profits to the capital redemption reserve. The premium paid on the repurchased shares was charged against the share premium account (Section 5).

• (v) 256,000,000 share options were exercised at the subscription price of approximately HK$0.02946 per share resulting in the issue of 256,000,000 shares, for a total cash consideration, before expenses, of HK$7,541,000.

• (vi) 100,328,000 shares were issued for cash at a subscription price of HK$0.033 per share, pursuant to the exercise of the Company’s bonus warrants for a total cash consideration, before expenses, of HK$3,311,000.

• (vii) The Company repurchased a total of 177,720,000 of its own shares on the Stock Exchange for a total consideration, before expenses, of HK$7,090,000. The repurchased shares were cancelled and an amount equivalent to the nominal value of these shares of HK$1,778,000 was transferred from retained profits to the capital redemption reserve. The premium paid on the repurchased shares was charged against the share premium account (Section 5).

• (viii) 676,480,680 shares were issued for cash at a subscription price of HK$0.033 per share, pursuant to the exercise of the Company’s bonus warrants for a total cash consideration, before expenses, of HK$22,324,000.

The Company repurchased its own shares through the Stock Exchange during the Relevant Periods. Details are as follows:

Month of purchase April 2001 September 2001 November 2003 May 2004 August 2004 September 2004	Number of ordinary shares of HK$0.01 each 20,680,000 3,460,000 479,161,254 29,300,000 88,420,000 60,000,000	Pri Highest HK$ 0.028 0.025 0.040 0.042 0.040 0.041	ce per share Lowest HK$ 0.023 0.025 0.040 0.040 0.038 0.040	Aggregate consideration paid HK$’000 514 87 19,166 1,204 3,462 2,424

The above shares were cancelled upon repurchase and accordingly the issued share capital was decreased by the nominal value of these shares. The premium payable on repurchase was charged against the share premium account.

Share options

The particulars in relation to each share option scheme of the Company or any of its subsidiaries that are required under Rules 17.07 to 17.09 of Chapter 17 of the Listing Rules and SSAP 34 are disclosed below:

• (a) Share option scheme of the Company

On 14 August 2002, the share option scheme of the Company adopted on 21 May 1997 ceased to operate and a new share option scheme (the “Deson Scheme”) was adopted on the same date to comply with the requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. The options granted under the old scheme will remain in force and effect.

The Company operates the Deson Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Deson Scheme include the Company’s directors, including independent non-executive directors, the Company’s shareholders and other employees of the Group. The Deson Scheme became effective on 14 August 2002 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the Deson Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Deson Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

The offer of a grant of share options may be accepted within 30 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the Deson Scheme at any time during a period not exceeding 10 years after the date when the option is granted and expiring on the last date of such period.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of an ordinary share of the Company.

At 31 March 2004 and 30 September 2004, no share options were outstanding under the Deson Scheme and none of Deson’s directors or Deson Group’s employees were granted share options during the year ended 31 March 2004 and the six-month period ended 30 September 2004.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The following share options were outstanding under the Deson Scheme during the Relevant Periods.

Year ended 31 March 2002

Name or category of participant Directors Wang Ke Duan Tjia Boen Sien Wang Jing Ning Keung Kwok Cheung Kong Kwok Fai Siu Kam Chau Subtotal Other employees In aggregate	At 1 April 2001 2,000,000 – 2,000,000 6,000,000 – – 6,000,000 3,000,000 – 3,000,000 6,000,000 – 6,000,000 5,000,000 – 5,000,000 5,000,000 27,000,000 13,000,000 3,000,000 – – – 16,000,000 43,000,000	N Granted during the year – 3,000,000 3,000,000 – 26,000,000 35,000,000 61,000,000 – 5,000,000 5,000,000 – 5,000,000 5,000,000 – 4,000,000 4,000,000 – 78,000,000 – – 67,000,000 35,000,000 95,000,000 197,000,000 275,000,000	umber of share options Exercise Exercised Exercise price Price of Company’s shares *during At 31 March Date of grant of period of of share At grant At exercise the year 2002 share options share options options *date of options date of options HK$ HK$ HK$ – 2,000,000 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 – – 3,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – – 5,000,000 (6,000,000) – 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 0.043 – 26,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – – 35,000,000 29 Aug 01 28 Feb 02 to 28 Feb 04 0.02864 0.038 – (6,000,000) 61,000,000 – 3,000,000 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 – – 5,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – – 8,000,000 (1,300,000) – 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 0.050 (4,700,000) 0.047 – 5,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – (6,000,000) 5,000,000 – 5,000,000 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 – – 4,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – – 9,000,000 (5,000,000) – 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 0.043 (17,000,000) 88,000,000 (1,500,000) 11,500,000 23 Oct 00 23 Apr 01 to 22 Apr 03 0.0384 0.054 0.047 – 3,000,000 3 Nov 00 3 May 01 to 2 May 03 0.04032 0.052 – – 67,000,000 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 – – 35,000,000 22 Aug 01 22 Feb 02 to 21 Feb 04 0.02880 0.035 – – 95,000,000 29 Aug 01 28 Feb 02 to 28 Feb 04 0.02864 0.038 – (1,500,000) 211,500,000 (18,500,000) 299,500,000

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Year ended 31 March 2003

	Number of share
Name or	options outstanding	Date of			Price of Company’s shares ***
category of	at 1 April 2002	grant of	Exercise period	Exercise price of	At grant date	At exercise date
participant	and 31 March 2003	share options*	of share options	share options**	of options	of options
				HK$	HK$	HK$
Directors
Wang Ke Duan	2,000,000	23 Oct 00	23 Apr 01 to 22 Apr 03	0.0384	0.054	–
	3,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
	5,000,000
Tjia Boen Sien	26,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
	35,000,000	29 Aug 01	28 Feb 02 to 28 Feb 04	0.02864	0.038	–
	61,000,000
Wang Jing Ning	3,000,000	23 Oct 00	23 Apr 01 to 22 Apr 03	0.0384	0.054	–
	5,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
	8,000,000
Keung Kwok Cheung	5,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
Kong Kwok Fai	5,000,000	23 Oct 00	23 Apr 01 to 22 Apr 03	0.0384	0.054	–
	4,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
	9,000,000
Subtotal	88,000,000
Other employees
In aggregate	11,500,000	23 Oct 00	23 Apr 01 to 22 Apr 03	0.0384	0.054	–
	3,000,000	3 Nov 00	3 May 01 to 2 May 03	0.04032	0.052	–
	67,000,000	23 Jul 01	23 Jan 02 to 22 Jan 04	0.03088	0.039	–
	35,000,000	22 Aug 01	22 Feb 02 to 21 Feb 04	0.02880	0.035	–
	95,000,000	29 Aug 01	28 Feb 02 to 28 Feb 04	0.02864	0.038	–
	211,500,000
	299,500,000

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Year ended 31 March 2004

Name or category of participant Directors Wang Ke Duan Tjia Boen Sien Wang Jing Ning Keung Kwok Cheng Kwok Kwok Fai Subtotal Other employees In aggregate	At 1 April 2003 2,000,000 3,000,000 5,000,000 26,000,000 35,000,000 61,000,000 3,000,000 5,000,000 8,000,000 5,000,000 5,000,000 4,000,000 9,000,000 88,000,000 11,500,000 3,000,000 67,000,000 35,000,000 95,000,000 211,500,000 299,500,000	N Exercised during the year – (3,000,000) (3,000,000) (26,000,000) (35,000,000) (61,000,000) – (5,000,000) (5,000,000) (5,000,000) – (4,000,000) (4,000,000) (78,000,000) – – (48,000,000) (35,000,000) (95,000,000) (178,000,000) (256,000,000)	umber of share options Exercise Lapsed Exercise price Price of Company’s shares *during At 31 March Date of grant of period of of share At grant At exercise the year 2004 share options share options options *date of options date of options HK$ HK$ HK$ (2,000,000) – 23 Oct 00 23 April 01 to 22 April 03 0.0384 0.054 – – – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 (2,000,000) – – – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 – – 29 Aug 01 28 Feb 02 to 28 Feb 04 0.02864 0.038 0.045 – – (3,000,000) – 23 Oct 00 23 April 01 to 22 April 03 0.0384 0.054 – – – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 (3,000,000) – – – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 (5,000,000) – 23 Oct 00 23 April 01 to 22 April 03 0.0384 0.054 – – – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 (5,000,000) – (10,000,000) – (11,500,000) – 23 Oct 00 23 April 01 to 22 April 03 0.0384 0.054 – (3,000,000) – 3 Nov 00 3 May 01 to 2 May 03 0.04032 0.052 – (19,000,000) – 23 Jul 01 23 Jan 02 to 22 Jan 04 0.03088 0.039 0.045 – – 22 Aug 01 22 Feb 02 to 21 Feb 04 0.02880 0.035 0.045 – – 29 Aug 01 28 Feb 02 to 28 Feb 04 0.02864 0.038 0.047 (33,500,000) – (43,500,000) –

• The vesting period of the share options is from the date of the grant until the commencement of the exercise period.

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

• *** The price of the Company’s share disclosed as at the date of the grant of the share options is the Stock Exchange closing price on the trading day immediately prior to the date of the grant of the options. The price of the Company’s shares disclosed as at the date of the exercise of the share options is the weighted average of the Stock Exchange closing prices over all of the exercises of options within the disclosure line.

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

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (b) Share option scheme of CPG

• (i) CPG operates a share option scheme (the “CPG Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the operations of CPG and its subsidiaries (“CPG Group”). Eligible participants of the CPG Scheme include full-time employees (including executive directors) of CPG. The CPG Scheme became effective on 4 April 1997 and, unless otherwise amended or altered, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the CPG Scheme is an amount equivalent, upon their exercise, to 10% of the shares of CPG in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the CPG Scheme is limited to 25% of the aggregate number of CPG’s shares at the time being issued and are issuable under the CPG Scheme.

The offer of a grant of share options may be accepted within 30 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 directors, and commences after a certain vesting period and ends on a date which is not later than three years from the date of the offer of the share options or the expiry date of the CPG Scheme, if earlier.

The exercise price of the share options is determinable by the directors at their discretion and will be the higher of a price being not less than 80% of the average of the closing prices of the shares on the Stock Exchange for the five trading days immediately preceding the offer date, and the nominal value of the shares of CPG.

On 1 September 2001, the Stock Exchange amended Chapter 17 (Share Option Schemes) of the Listing Rules. In accordance with the revised rules, it is possible for CPG to grant further options from its existing scheme only if the options granted are in accordance with the requirements of the new rules of Chapter 17.

At 31 March 2002, 2003, 2004 and 30 September 2004, no share options were outstanding under the CPG Scheme and none of CPG’s directors or CPG Group’s employees were granted share options during the Relevant Periods.

• (ii) On 28 April 2004, CPG granted 200,000,000 share options to Super Win Development Limited (“Super Win”), a wholly-owned subsidiary of the Company, and 200,000,000 share options to third parties at no consideration. Such option was granted in regards to the following transactions:

• (a) CPG acquired the entire issued share capital of Penmark Limited and its related shareholder’s loan from the Company at a consideration of HK$7,500,000. The consideration was satisfied by issuance of 75,000,000 shares by CPG;

• (b) CPG issued 325,000,000 new shares to Super Win at a price of HK$0.10 each; and

• (c) CPG placed 400,000,000 shares to not less than six independent placees.

The option exercise price is HK$0.105 per option share and the exercise period of share options is from 28 October 2004 to 27 October 2006. As at 30 September 2004, 400,000,000 share options were outstanding.

Warrants

Pursuant to a resolution passed at the special general meeting of the Company on 24 January 2000, the Company issued warrants to the shareholders on the basis of one warrant for every five shares held as at 24 January 2000. The warrants entitle the warrantholders to subscribe for 87,197,500 ordinary shares of HK$0.10 each at a subscription price of HK$0.85 per share (subject to adjustment) up to an aggregate amount of HK$74,117,875 at any time on or before 31 December 2001.

Pursuant to the share subdivision and adjustment of the nominal value of the Company’s shares on 20 March 2000, the subscription price of the warrants was adjusted from HK$0.85 to HK$0.085 per share in accordance with the terms of the Company’s warrant instrument.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(s)

On 10 April 2000, the subscription price of the warrants was adjusted from HK$0.085 to HK$0.080 per share.

During the year ended 31 March 2002, warrants with aggregate gross issue proceeds of HK$340 were exercised by the warrantholders to subscribe for 4,250 ordinary shares of the Company at a subscription price of HK$0.080 per share.

All remaining unexercised warrants expired on 31 December 2001.

Pursuant to an ordinary resolution passed on 14 August 2002, a bonus issue of warrants was made in the proportion of one warrant for every five shares held by members on the register of members on 13 August 2002, resulting in 958,323,000 warrants being issued. Each warrant entitles the holder thereof to subscribe for one ordinary share of HK$0.01 each at a subscription price of HK$0.033 per share, payable in cash and subject to adjustment, from the date of issue to 14 August 2004, both dates inclusive.

No warrants were exercised during the year ended 31 March 2003. At 31 March 2003, the Company had 958,323,000 warrants outstanding. The exercise in full of such warrants would, under the present capital structure of the Company, result in the issue of 958,323,000 additional shares of HK$0.01 each with gross issue proceeds of approximately HK$31,625,000.

During the year ended 31 March 2004, 100,328,000 warrants were exercised resulting in the issue of 100,328,000 shares of HK$0.01 each at a price of HK$0.033 per share. At 31 March 2004, the Company had 857,995,000 warrants outstanding. The exercise in full of such warrants would, under the present capital structure of the Company, result in the issue of 857,995,000 additional shares of HK$0.01 each with gross issue proceeds of approximately HK$28,314,000.

During the six month period ended 30 September 2004, 676,480,680 warrants were exercised resulting in the issue of 676,480,680 shares of HK$0.01 each at a price of HK$0.033 per share. The remaining warrants expired on 14 August 2004 and accordingly, no warrant was outstanding as at 30 September 2004.

Commitments

(i) Capital commitments

Group

Capital commitments contracted for	2002 HK$’000 2,326	31 March 2003 HK$’000 1,413	30 2004 HK$’000 –	September 2004 HK$’000 –

(ii) Operating leases commitments

• (a) As lessor

At 31 March 2002, 2003 and 2004 and 30 September 2004, the Group had total future minimum leases receivables under non-cancellable operating leases falling due as follows:

Group

Within one year In the second to fifth years, inclusive	2002 HK$’000 2,755 1,848 4,603	31 March 2003 HK$’000 2,439 1,641 4,080	30 2004 HK$’000 1,565 1,150 2,715	September 2004 HK$’000 1,963 548
				2,511

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) As lessee

At 31 March 2002, 2003 and 2004 and 30 September 2004, the Group had total future minimum leases payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive Over five years	2002 HK$’000 806 2,310 321 3,437	31 March 2003 HK$’000 875 2,976 340 4,191	30 2004 HK$’000 7,924 18,068 18,148 44,140	September 2004 HK$’000 8,000 18,048 16,203
				42,251

(t) Contingent liabilities

• (a) For the Relevant Periods, contingent liabilities not provided for in the financial statements were as follows:

Group

Guarantees of banking facilities granted to: Associates A third party	2002 HK$’000 31,300 1,045 32,345	31 March 2003 HK$’000 31,300 – 31,300	30 2004 HK$’000 – – –	September 2004 HK$’000 – –
				–

• (b) In October 2000, Kenworth, a wholly-owned subsidiary of the Group as at 30 September 2004, received a claim of approximately HK$341 million from a main contractor of a construction project for the alleged breach of a subcontract which Kenworth has not admitted. The claim amount was revised to HK$141 million in 2002. A counterclaim was submitted by Kenworth against this main contractor for the outstanding contract sum in respect of the completed work and the loss due to the wrongful termination of the subcontract. Under the provisions of the subcontract, the disputed claim is subject to arbitration proceedings between Kenworth and the main contractor. The arbitration application was lodged before the commencement of the Schemes and the process commenced in August 2002 upon the appointment of an arbitrator. A security deposit of HK$5 million was paid by the CPG Group to the arbitrator as at 31 March 2004 and both Kenworth and the main contractor are in the process of submitting information to the arbitrator for assessment. The administrator of the Schemes (the “Scheme Administrator”) is required to await the arbitrator’s decision or, in the event that such decision is subject to appeal or further appeal(s) by either party thereto, to await the ultimate outcome and final decision to be made by the relevant appellate body. In any event, the claim, if awarded in favour of the main contractor, is still subject to the terms and conditions of the Schemes.

In relation to the same construction project detailed above, in October 2000 Kenworth also received a claim of approximately HK$353 million from the contract employer in respect of damages for the alleged breach of the same subcontract. The claim amount was revised to HK$237 million in 2002. Subsequent to 30 September 2004, the Scheme Administrator received a notice from the contract employer to withdraw this claim.

Pursuant to an agreement dated 18 October 2000 entered into between Kenworth and CPG, CPG agreed to discharge the liabilities of Kenworth under the Schemes by the allotment of certain redeemable cumulative preference shares by Kenworth.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year ended 31 March 2003, the CPG Group appointed an independent chartered surveyor to estimate its potential exposure under the above two claims. According to the report of the surveyor, the maximum exposure of the above claims amounted to HK$70 million. The directors consider that the CPG Group has valid defences against the claim and based on existing evidence believe that it is not probable that any material loss will be suffered by the CPG Group. In addition, as the arbitration proceedings are still proceeding and detailed assessment of the parties’ claims and counterclaims must be made during the course of the proceedings, it is not currently possible to estimate the eventual outcome of the claims but the directors currently consider that no provision needs to be made in the financial statements.

By an application dated 30 March 2004, Kenworth sought declarations from the Court of First Instance of the High Court of the Hong Kong Special Administrative Region on:

1. whether any awards or orders for costs made against Kenworth in relation to an arbitration between Kenworth and any claimant against Kenworth which had commenced before the effective date of the Schemes and was continuing shall be limited in accordance with the provisions of the Scheme and shall thereby form part of that claimant’s claims under the Scheme, thereby entitling the claimant only to dividends in respect of those costs; and

2. whether in respect of any awards or orders for security for costs made against Kenworth in such arbitration; and any awards or orders for security for costs made against Kenworth in any reviews on appeals, or in any proceedings subsequent to any reviews or appeals, including but not limited only to any remittance of the award or order to the arbitrator or any review or further review of the award or order by the arbitrator and any subsequent appeal therefrom, Kenworth shall only be required to provide security for costs limited in accordance with the provisions of the Scheme such that, for every HK$10,000 that Kenworth is required to provide as security for costs pursuant to any award or order, Kenworth shall only be obliged to provide for, pay or deposit as security either the equivalent dividends which would operate under the Scheme to fully discharge Kenworth’s liability for such payment, that is, HK$312.50 in cash, 5,000 shares in CPG and notes in the principal amount of HK$187.50 or the cash equivalent of such dividends of HK$1,000.

The hearing in the Court of First Instance was completed on 14 December 2004 and by a decision (the “Decision”) handed down on 25 January 2005, the Court of First Instance declined to make the declarations sought. As such, if the Decision is not reversed on appeal, Kenworth will need to pay the legal costs incurred by the main contractor in relation to the arbitration in full. Kenworth is now consulting its legal advisers as to the merits of an appeal against the Decision and further action may be taken to protect the interests of Kenworth and the Group.

Pursuant to the DRA, the Company has undertaken to procure that the CPG Group be granted credit facilities of up to HK$50 million. In addition to this credit facility amount, to the extent that any contingent liabilities of CPG, Kenworth and the Kenworth Group, a wholly-owned subsidiary of CPG, to be settled under the Schemes, are not met by the available cash of the CPG Group, the Company will procure that sufficient cash will be made available to CPG to meet such contingent liabilities. As at 31 March 2002, 2003, 2004 and 30 September 2004, no such facilities had been utilised by the CPG Group.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The movements in the consolidated statements of changes in equity of the Group for each of the Relevant Periods and the six months ended 30 September 2003, which have been prepared on the basis set out in Section 1 above are as follows:

At 1 April 2001 Release of goodwill upon disposal of an associate Release upon disposal of an associate Exchange realignments of subsidiaries Arising on exercise of share options Transfer from retained profits Repurchase of shares Share repurchase expenses Provision for deferred tax liabilities credited to revaluation reserve Net profit for the year At 31 March 2002 and 1 April 2002 Release upon disposal of subsidiaries Deficit on revaluation of land and buildings Provision for deferred tax liabilities charged to revaluation reserve Net profit for the year At 31 March 2003 and 1 April 2003 Repurchase of shares Share repurchase expenses Arising on exercise of share options Arising on exercise of warrants Exchange realignment Release upon disposal of subsidiaries Surplus on revaluation of land and buildings Provision for deferred tax liabilities charged to revaluation reserve Net profit for the year Transfer to reserve funds At 31 March 2004 and 1 April 2004	Issued share capital HK$’000 47,972 – – – 185 – (241 ) – – – 47,916 – – – – 47,916 (4,791 ) – 2,560 1,003 – – – – – – 46,688	Share premium account* HK$’000 103,863 – – – 526 – (360 ) (14 ) – – 104,015 – – – – 104,015 (14,375 ) (1,281 ) 4,981 2,308 – – – – – – 95,648	Contributed surplus* HK$’000 15,262 – – – – – – – – – 15,262 – – – – 15,262 – – – – – – – – – – 15,262	Fixed asset revaluation reserve* HK$’000 6,503 – – – – 13,000 – – 329 – 19,832 – (15,052 ) 2,288 – 7,068 – – – – – – 209 507 – – 7,784	Capital reserve* HK$’000 5,753 – – – – – – – – – 5,753 – – – – 5,753 – – – – – (1,494 ) – – – – 4,259	Capital redemption reserve* HK$’000 545 – – – – – 241 – – – 786 – – – – 786 4,791 – – – – – – – – – 5,577	Exchange fluctuation reserve* HK$’000 – – 320 (147 ) – – – – – – 173 (206 ) – – – (33 ) – – – – 36 908 – – – – 911	Reserve funds* HK$’000 – – – – – – – – – – – – – – – – – – – – – – – – – 3,260 3,260	Retained profits* HK$’000 80,516 1,035 – – – (13,000 ) (241 ) – – 7,163 75,473 – – – 8,560 84,033 (4,791 ) – – – – – – – 23,394 (3,260 ) 99,376	Total HK$’000 260,414 1,035 320 (147 ) 711 – (601 ) (14 ) 329 7,163 269,210 (206 ) (15,052 ) 2,288 8,560 264,800 (19,166 ) (1,281 ) 7,541 3,311 36 (586 ) 209 507 23,394 – 278,765

– 65 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

At 31 March 2004 and 1 April 2004 Repurchase of shares Share repurchase expenses Arising on exercise of warrants Provision for deferred tax liabilities charged to revaluation reserve Net profit for the period As at 30 September 2004 As at 31 March 2003 and 1 April 2003 Deficit on revaluation of land and buildings Exchange realignments – subsidiaries – associates Net profit for the period As at 30 September 2003 (Unaudited)	Issued share capital HK$’000 46,688 (1,778 ) – 6,765 – – 51,675 47,916 – – – – 47,916	Share premium account* HK$’000 95,648 (5,312 ) (110 ) 15,559 – – 105,785 104,015 – – – – 104,015	Contributed surplus* HK$’000 15,262 – – – – – 15,262 15,262 – – – – 15,262	Fixed asset revaluation reserve* HK$’000 7,784 – – – (61 ) – 7,723 7,068 (796 ) – – – 6,272	Capital reserve* HK$’000 4,259 – – – – – 4,259 5,753 – – – – 5,753	Capital redemption reserve* HK$’000 5,577 1,778 – – – – 7,355 786 – – – – 786	Exchange fluctuation reserve* HK$’000 911 – – – – – 911 (33 ) – (570 ) (34 ) – (637 )	Reserve funds* HK$’000 3,260 – – – – – 3,260 – – – – – –	Retained profits* HK$’000 99,376 (1,778 ) – – – 43,252 140,850 84,033 – – – 15,978 100,011	Total HK$’000 278,765 (7,090 ) (110 ) 22,324 (61 ) 43,252 337,080 264,800 (796 ) (570 ) (34 ) 15,978 279,378

• These reserve accounts comprise the consolidated reserves of HK$221,294,000, HK$216,884,000, HK$232,077,000 in the consolidated balance sheets as at 31 March 2002, 2003 and 2004, and HK$231,462,000 and HK$285,405,000 as at 30 September 2003 and 2004, respectively.

The amounts of goodwill and negative goodwill remaining in consolidated reserves, arising from the acquisition of subsidiaries, prior to 1 April 2001, are HK$13,380,000 and HK$8,082,000, respectively, as at 31 March 2002, 31 March 2003, 31 March 2004 and 30 September 2004. The amount of goodwill is stated at its cost of HK$80,921,000, less impairment of HK$67,541,000.

– 66 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The contributed surplus of the Group represents the excess of the nominal value of the subsidiaries’ shares acquired over the nominal value of the Company’s shares issued in exchange therefor, pursuant to the Group reorganisation on 21 May 1997.

Reserves retained by: Company and subsidiaries A jointly-controlled entity Associates 30 September 2004 Company and subsidiaries A jointly-controlled entity Associates 31 March 2004 Company and subsidiaries Associates 31 March 2003 Company and subsidiaries Associates 31 March 2002 Company and subsidiaries Associates 30 September 2003 (Unaudited)	Issued share capital HK$’000 51,675 – – 51,675 46,688 – – 46,688 47,916 – 47,916 47,916 – 47,916 47,916 – 47,916	Share premium account HK$’000 105,785 – – 105,785 95,648 – – 95,648 104,015 – 104,015 104,015 – 104,015 104,015 – 104,015	Contributed surplus HK$’000 15,262 – – 15,262 15,262 – – 15,262 15,262 – 15,262 15,262 – 15,262 15,262 – 15,262	Fixed asset revaluation reserve HK$’000 7,723 – – 7,723 7,784 – – 7,784 7,068 – 7,068 19,832 – 19,832 6,272 – 6,272	Capital reserve HK$’000 4,259 – – 4,259 4,259 – – 4,259 5,753 – 5,753 5,753 – 5,753 5,753 – 5,753	Capital redemption reserve HK$’000 7,355 – – 7,355 5,577 – – 5,577 786 – 786 786 – 786 786 – 786	Exchange fluctuation reserve HK$’000 1,882 – (971 ) 911 1,882 – (971 ) 911 938 (971 ) (33 ) 1,144 (971 ) 173 368 (1,005 ) (637 )	Reserve funds HK$’000 3,260 – – 3,260 3,260 – – 3,260 – – – – – – – – –	Retained profits HK$’000 127,675 (33 ) 13,208 140,850 86,029 (25 ) 13,372 99,376 68,451 15,582 84,033 62,397 13,076 75,473 85,510 14,501 100,011	Total HK$’000 324,876 (33 ) 12,237 337,080 266,389 (25 ) 12,401 278,765 250,189 14,611 264,800 257,105 12,105 269,210 265,882 13,496 279,378

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. CONSOLIDATED CASH FLOW STATEMENTS

The consolidated cash flow statements of the Group for each of the Relevant Periods and the six months ended 30 September 2003, which have been prepared on the basis set out in Section 1 above are as follows:

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Share of profits and losses of: A jointly-controlled entity Associates Interest income Gain on disposal of subsidiaries Gain on partial disposal of interest in a subsidiary Gain on deemed disposal of an interest in a subsidiary Gain on disposal of associates Gain on deemed disposal of interest in an associate Gain on disposal of short term investment Gain on disposal of property interests Dividend income from listed long term investments Loss on disposal of fixed assets Depreciation Impairment of deferred development costs Impairment of goodwill on acquisition Negative goodwill recognised as income Amortisation of goodwill Provision for foreseeable losses of construction contracts Provision for inventories Provision/(write-back of provision) for doubtful debts Provision for other receivables Operating profit/(loss) before working capital changes Decrease/(increase) in completed properties held for sale Decrease/(increase) in properties under development for sale Decrease/(increase) in gross amount due from contract customers Decrease/(increase) in inventories Decrease/(increase) in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in gross amount due to contract customers Increase/(decrease) in accounts payable Increase/(decrease) in other payables and accruals Cash generated from/(used in) operations	Yea 2002 HK$’000 3,851 4,869 – (1,122) (2,829) – – (341) (40) (1,222) (1,311) (668) (175) 200 3,358 – – (201) – 6,850 – 1,490 3,757 16,466 86,062 (119,099) 5,100 126 (4,992) 4,819 18,157 (13,368) (27,170) (33,899)	r ended 31 Ma 2003 HK$’000 10,239 3,118 – (2,968) (2,054) (1,780) – – – – – – (123) 628 3,092 3,938 229 – – 1,388 – 1,826 2,612 20,145 (150,630) 65,888 9,683 152 (37,316) (13,439) (12,679) 53,684 61,661 (2,851)	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) 37,751 22,564 42,486 3,349 1,966 1,381 25 – 8 6,201 942 553 (1,561) (875) (148) (535) (18) – – – (40,182) – – (15,885) – – – – – – – – – – – – (156) (76) (81) 89 82 85 2,586 1,109 2,948 – – – – – – – – – 676 264 471 288 – – 419 – – (625) 6 – 2,162 – – 50,669 25,964 (8,364) 32,760 89,420 17,232 40,063 (28,906) (8,857) 1,953 3,123 (15,324) (1,011) (364) (863) 32,912 (30,751) 6,814 (3,449) (25,787) (3,774) (8,290) 14,102 127 (34,186) 453 (12,271) 19,612 29,811 8,747 131,033 77,065 (16,533)	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) 37,751 22,564 42,486 3,349 1,966 1,381 25 – 8 6,201 942 553 (1,561) (875) (148) (535) (18) – – – (40,182) – – (15,885) – – – – – – – – – – – – (156) (76) (81) 89 82 85 2,586 1,109 2,948 – – – – – – – – – 676 264 471 288 – – 419 – – (625) 6 – 2,162 – – 50,669 25,964 (8,364) 32,760 89,420 17,232 40,063 (28,906) (8,857) 1,953 3,123 (15,324) (1,011) (364) (863) 32,912 (30,751) 6,814 (3,449) (25,787) (3,774) (8,290) 14,102 127 (34,186) 453 (12,271) 19,612 29,811 8,747 131,033 77,065 (16,533)
				(8,364) 17,232 (8,857) (15,324) (863) 6,814 (3,774) 127 (12,271) 8,747
				(16,533)

– 68 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Interest paid Dividends received from associates Hong Kong profits tax refunded/(paid) Overseas taxes paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Dividends received from long term investments Purchases of fixed assets Proceeds from disposal of fixed assets Additions to deferred development costs Purchases of long term investments Acquisition of subsidiaries Disposal of subsidiaries Acquisition of additional interest in a subsidiary Proceeds from disposal of an associate Proceeds from partial disposal of interest in a subsidiary Proceeds from disposal of a short term investment Acquisition of an associate Capital contribution to a jointly-controlled entity Capital injection to an associate Advance to a jointly-controlled entity Repayments from/(to) associates, net Decrease/(increase) in pledged time deposits with original maturity of more than three months when acquired Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of the Company’s shares Share repurchase expenses Exercise of share options Exercise of warrants New bank loans and other borrowings Repayment of bank loans and other borrowings Repurchase of convertible notes Capital contributions by minority interests Repayments from/(to) minority interests Dividends paid to minority interests Net cash inflow/(outflow) from financing activities	Yea 2002 HK$’000 (5,819) 560 (997) (483) (40,638) 2,829 175 (673) 801 (753) – (38,889) 2,483 – 2,238 – 2,681 (500) – – – 4,301 (18,600) (43,907) (601) (14) 711 – 94,942 (21,936) (1,610) 7,096 (1,541) (800) 76,247	r ended 31 Ma 2003 HK$’000 (8,017) 742 594 (1,950) (11,482) 2,054 123 (1,776) 5 (232) (2,000) 149 (3,473) – – – – – – – – 494 15,430 10,774 – – – – 46,050 (74,039) (780) 3 330 (427) (28,863)	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) (4,607) (2,851) (1,543) 300 300 300 (532) 84 (360) (7,470) (3,392) (1,657) 118,724 71,206 (19,793) 1,561 875 148 156 76 81 (319) (470) (2,209) 27 25 7 – – – – – (400) 274 – – – – – – – (1,947) – – – – – 50,998 – – – – – – (500) – – – (787) – (81) – (9,638) (3,566) – (3,088) (37) (5,284) (10,004) (2,485) (5,565) 23,948 (19,166) – (7,090) (1,281) – (110) 7,541 – – 3,311 – 22,324 12,221 8,000 14,130 (82,944) (38,354) (1,872) (7,256) (7,255) – 45 – 40,000 (3,001) (2,551) 246 (402) (302) (152) (90,932) (40,462) 67,476	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) (4,607) (2,851) (1,543) 300 300 300 (532) 84 (360) (7,470) (3,392) (1,657) 118,724 71,206 (19,793) 1,561 875 148 156 76 81 (319) (470) (2,209) 27 25 7 – – – – – (400) 274 – – – – – – – (1,947) – – – – – 50,998 – – – – – – (500) – – – (787) – (81) – (9,638) (3,566) – (3,088) (37) (5,284) (10,004) (2,485) (5,565) 23,948 (19,166) – (7,090) (1,281) – (110) 7,541 – – 3,311 – 22,324 12,221 8,000 14,130 (82,944) (38,354) (1,872) (7,256) (7,255) – 45 – 40,000 (3,001) (2,551) 246 (402) (302) (152) (90,932) (40,462) 67,476
				(19,793)
				148 81 (2,209) 7 – (400) – – (1,947) – 50,998 – – – – (9,638) (3,088) (10,004)
				23,948
				(7,090) (110) – 22,324 14,130 (1,872) – 40,000 246 (152)
				67,476

– 69 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

					Six months
		Year	ended 31 March		ended 30 September
		2002	2003	2004	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS		(8,298)	(29,571)	25,307	25,179	71,631
Cash and cash equivalents at
beginning of year		49,668	41,368	11,797	11,797	37,104
Effect	of foreign exchange rate
changes, net		(2)	–	–	(147)	–
CASH AND CASH EQUIVALENTS
AT	END OF YEAR	41,368	11,797	37,104	36,829	108,735
ANALYSIS OF BALANCES OF
CASH AND CASH EQUIVALENTS
Cash and bank balances		49,023	34,605	34,884	48,604	95,280
Non-pledged time deposits
original maturity of less than
three months when acquired		10,446	6,974	–	–	–
Time deposits with original maturity of
less than three months when acquired,
pledged as security for bank overdraft
facilities		14,454	24,686	29,574	30,774	34,587
Bank overdrafts, secured		(32,555)	(54,468)	(27,354)	(42,549)	(21,132)
		41,368	11,797	37,104	36,829	108,735
(a)	Acquisition of subsidiaries
					Six months
		Year	ended 31 March		ended 30 September
		2002	2003	2004	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
	Net assets acquired:
	Interest in associates	–	–	(62)	–	–
	Fixed assets	–	140	9,249	–	–
	Properties held for sale	53,856	–	–	–	–
	Inventories	–	632	5,572	–	–
	Accounts receivable	–	678	10,971	–	–
	Prepayments, deposits and
	other receivables	204	34	2,891	–	–
	Prepaid tax	–	84	–	–	–
	Cash and bank balances	–	149	1,274	–	–
	Accounts payable	–	(242)	(4,858)	–	–
	Other payables and accruals	(234)	(991)	(10,888)	–	–
	Trust receipt loans, secured	–	(713)	(14,517)	–	–
	Tax payable	–	–	(61)	–	–
	Minority interests	–	–	(380)	–	–
		53,826	(229)	(809)	–	–
	Impairment of goodwill on
	acquisition (Section 3(b))	–	229	–	–	–
	Goodwill on acquisition (Section 4(b))	–	–	9,116	–	–
		53,826	–	8,307	–	–
	Satisfied by:
	Cash	38,889	–	1,000	–	–
	Other receivables	14,937	–	7,307	–	–
		53,826	–	8,307	–	–

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Cash consideration Cash and cash equivalents acquired Net inflow/(outflow) of cash and cash equivalents in respect of the acquisition of subsidiaries	Yea 2002 HK$’000 (38,889) – (38,889)	r ended 31 Ma 2003 HK$’000 – 149 149	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) (1,000) – – 1,274 – – 274 – –	Six months rch ended 30 September 2004 2003 2004 HK$’000 HK$’000 HK$’000 (Unaudited) (1,000) – – 1,274 – – 274 – –
				–

On 11 July 2001, the Group acquired a 100% interest in Foreground Holdings Inc. (“FHI”) and Genview Company Limited (“GCL”) from an independent third party in consideration of the outstanding other receivable of HK$14,937,000. FHI and GCL are engaged in property investment.

On 8 February 2002, the Group acquired a 100% interest in Super Sight Investments Inc. (“Super Sight”) from an independent third party for a cash consideration of HK$38,889,000. Super Sight is principally engaged in property development.

On 31 August 2002, the Group acquired (i) the entire interest in Medical Technologies Limited (“MTL”) and (ii) a shareholder loan of HK$1,652,000, from the associate of the Group. MTL is engaged in the trading of medical equipment and the provision of related installation and maintenance services. The purchase consideration for the acquisition was in form of cash of HK$2 which was paid at the acquisition date.

On 31 March 2004, the Group has acquired an additional 9% equity interest in Fitness Concept Limited (“FCL”) which became a subsidiary of the Group from that date. FCL is engaged in the distribution of fitness equipment and the operation and management of fitness centers. The purchase consideration of HK$1,000,000 was paid at the acquisition date by cash.

The subsidiaries acquired during the year ended 31 March 2002 and for the six-month periods ended 30 September 2003 and 2004 made no significant contribution to the Group’s turnover or consolidated profit after tax and before minority interests.

The subsidiary acquired during the year ended 31 March 2003 contributed HK$5,930,000 to the Group’s turnover and HK$754,000 to the consolidated profit after tax and before minority interests.

Except for the share of loss after tax of the associate of HK$6,482,000 during the year ended 31 March 2004, the subsidiaries acquired on 31 March 2004 made no contribution to the Group’s turnover or consolidated profit after tax and before minority interests for the year ended 31 March 2004.

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Disposal/strike off of subsidiaries

					Six months
	Year	ended 31 March			ended 30 September
	2002	2003		2004	2003	2004
	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
					(Unaudited)
Net assets disposed of/struck off:
Properties held for sale	7,484	–		–	–	–
Other receivables	30	14		69	–	–
Cash and bank balances	–	3,473		–	–	–
Gross amount due to contract
customers	–	(4,515)		–	–	–
Other payables and accruals	–	(1,722)		(18)	(18)	–
Tax payable	–	(22)		–	–	–
Minority interests	–	(937)		–	–	–
	7,514	(3,709)		51	(18)	–
Gain on disposal of property interests	668	–		–	–	–
Gain on disposal/struck off of
subsidiaries	–	1,780		535	18	–
Release of capital reserves	–	–		(1,494)	–	–
Release of exchange fluctuation
reserve	–	(206)		908	–	–
Reclassified as interests in associates	–	2,135		–	–	–
	8,182	–		–	–	–
Satisfied by:
Cash	2,483	–		–	–	–
Other receivables	5,699	–		–	–	–
	8,182	–		–	–	–

An analysis of net inflow/(outflow) of cash and cash equivalents in respect of the disposal/struck off of subsidiaries is as follows:

				Six months
	Year	ended 31 March		ended 30 September
	2002	2003	2004	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Cash consideration	2,483	–	–	–	–
Cash and bank balances
disposed of	–	(3,473)	–	–	–
Net inflow/(outflow) of cash and
cash equivalents in respect
of the disposal of subsidiaries	2,483	(3,473)	–	–	–

The subsidiaries disposed of/struck off during the year ended 31 March 2002 and 2004 made no significant contribution to the Group’s turnover or consolidated profit after tax and before minority interests.

The subsidiaries disposed of during the year ended 31 March 2003 contributed HK$1,955,000 to the Group’s turnover and HK$1,850,000 to the consolidated loss after tax and before minority interests.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. 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 construction business segment is engaged in construction contract work as a main contractor as well as the provision of contracting intelligent building engineering and electrical and mechanical engineering services;

• (b) the property development and investment segment is engaged in the development of residential properties and invests in prime office space for its rental income potential; and

• (c) the fitness club and related business segment is engaged in the operation of fitness centres, the trading of fitness and medical equipment and the provision of related installation and maintenance services.

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

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

(i) Business segments

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

Year ended 31 March 2002

Group C Segment revenue: Sales to external customers Other revenue Total Segment results Interest income and dividend income Unallocated expenses Negative goodwill recognised as income Gain on deemed disposal of interest in a subsidiary Gain on disposal of an associate Gain on deemed disposal of interest in an associate Profit from operating activities Finance costs Share of profits and losses of associates Profit before tax Tax Profit before minority interests Minority interests Net profit attributable to shareholders	Property development onstruction and business investment HK$’000 HK$’000 303,094 105,994 11,823 2,108 314,917 108,102 (7,842) 16,373 1,288 (166)	Fitness club and related business C HK$’000 – – – – –	onsolidated HK$’000 409,088 13,931 423,019 8,531 3,004 (5,741) 201 341 40 1,222 7,598 (4,869) 1,122 3,851 (1,458) 2,393 4,770 7,163

– 73 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

C Segment assets Interests in associates Unallocated assets Bank overdrafts included in segment assets Total assets Segment liabilities Unallocated liabilities Bank overdrafts included in segment assets Total liabilities Other segment information: Depreciation Unallocated amounts Other non-cash expenses Unallocated amounts Capital expenditure Unallocated amounts	Property development onstruction and business investment HK$’000 HK$’000 175,073 314,577 18,762 6 32,555 – 153,097 39,458 32,555 – 3,307 31 12,097 – 1,378 7,254	Fitness club and related business C HK$’000 – – – – – – – –	onsolidated HK$’000 489,650 18,768 12,571 32,555
			553,544
			192,555 43,997 32,555
			269,107
			3,338 20
			3,358
			12,097 –
			12,097
			8,632 45
			8,677

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Year ended 31 March 2003

Group C Segment revenue: Sales to external customers Other revenue Total Segment results Interest income and dividend income Gain on disposal of subsidiaries Unallocated expenses Impairment of goodwill on acquisition Profit from operating activities Finance costs Share of profits and losses of associates Profit before tax Tax Profit before minority interests Minority interests Net profit attributable to shareholders Segment assets Interests in associates Unallocated assets Bank overdrafts included in segment assets Total assets Segment liabilities Unallocated liabilities Bank overdrafts included in segment assets Total liabilities Other segment information: Depreciation Unallocated amounts Other non-cash expenses Unallocated amounts Capital expenditure Unallocated amounts Revaluation surplus/(deficit) on land and buildings recognised directly to equity	Property development onstruction and business investment HK$’000 HK$’000 395,561 127,782 4,038 1,828 399,599 129,610 3,555 15,290 2,968 – 137,110 417,752 18,126 – 54,468 – 114,084 180,515 54,468 – 2,606 437 5,415 384 801 1,578 (13,088) 324	Fitness club and related business C HK$’000 5,930 221 6,151 773 – 3,667 (223) – 2,507 – 29 – 53 –	onsolidated HK$’000 529,273 6,087 535,360 19,618 2,177 1,780 (12,957) (229) 10,389 (3,118) 2,968 10,239 (4,986) 5,253 3,307 8,560 558,529 17,903 6,837 54,468 637,737 297,106 10,474 54,468 362,048 3,072 20 3,092 5,799 3,965 9,764 2,432 236 2,668 (12,764)

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Year ended 31 March 2004

Group C Segment revenue: Sales to external customers Other revenue Total Segment results Interest income and dividend income Gain on disposal of subsidiaries Unallocated expenses Amortisation of goodwill Profit from operating activities Finance costs Share of profits and losses of: A jointly-controlled entity Associates Profit before tax Tax Profit before minority interests Minority interests Net profit attributable to shareholders Segment assets Interests in a jointly-controlled entity Interests in associates Unallocated assets Bank overdrafts included in segment assets Total assets Segment liabilities Unallocated liabilities Bank overdrafts included in segment assets Total liabilities Other segment information: Depreciation Other non-cash expenses Capital expenditure Revaluation surplus/(deficit) on land and buildings recognised directly to equity	Property development onstruction and business investment HK$’000 HK$’000 327,381 197,087 7,435 1,808 334,816 198,895 24,743 29,053 (25) – 565 – 168,113 319,325 556 – 3,204 – 20,528 – 99,559 97,126 20,528 – 1,915 605 2,090 2,039 206 66 (437) 1,153	Fitness club and related business C HK$’000 13,650 2 13,652 136 – (6,766) 44,177 – 4,162 6,826 33,434 6,826 66 679 47 –	onsolidated HK$’000 538,118 9,245 547,363 53,932 1,717 535 (8,182) (676) 47,326 (3,349) (25) (6,201) 37,751 (17,697) 20,054 3,340 23,394 531,615 556 7,366 1,216 27,354 568,107 230,119 14,308 27,354 271,781 2,586 4,808 319 716

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Six months ended 30 September 2003 (Unaudited)

Group C Segment revenue: Sales to external customers Other revenue Total Segment results Interest income and dividend income Gain on disposal of subsidiaries Unallocated expenses Impairment of goodwill Amortisation of goodwill Profit from operating activities Finance costs Share of profits and losses of associates Profit before tax Tax Profit before minority interests Minority interests Net profit attributable to shareholders Other segment information: Depreciation Unallocated amounts Other non-cash expenses Unallocated amounts	Property development onstruction and business investment HK$’000 HK$’000 157,840 120,851 3,841 1,176 161,681 122,027 6,735 23,980 451 – 1,005 66 81 –	Fitness club and related business C HK$’000 4,173 – 4,173 140 (1,393) – 1	onsolidated HK$’000 282,864 5,017 287,881 30,855 951 18 (6,088) – (264) 25,472 (1,966) (942) 22,564 (7,303) 15,261 717 15,978 1,071 38 1,109 82 6,157 6,239

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Six months ended 30 September 2004

Group C Segment revenue: Sales to external customers Other revenue Total Segment results Interest income and dividend income Gain on deemed disposal of interest in a subsidiary Gain on partial disposal of interest in a subsidiary Unallocated expenses Impairment of goodwill Amortisation of goodwill Profit from operating activities Finance costs Share of profits and losses of: A jointly-controlled entity Associates Profit before tax Tax Profit before minority interests Minority interests Net profit attributable to shareholders Segment assets Interests in a jointly-controlled entity Interests in associates Unallocated assets Bank overdrafts included in segment assets Total assets Segment liabilities Unallocated liabilities Bank overdrafts included in segment assets Total liabilities Other segment information: Depreciation Unallocated amounts Other non-cash expenses Unallocated amounts Capital expenditure Unallocated amounts	Property development onstruction and business investment HK$’000 HK$’000 149,790 31,577 1,727 1,753 151,517 33,330 (11,799) 7,434 (8) – (553) – 273,200 289,178 10,186 – 35,249 – 12,381 – 103,665 101,234 12,381 – 763 216 – – 64 296	Fitness club and related business C HK$’000 36,319 518 36,837 (3,723) – – 49,799 – 4,162 8,751 33,873 8,751 1,909 – 1,672	onsolidated HK$’000 217,686 3,998 221,684 (8,088) 229 15,885 40,182 (3,309) – (471) 44,428 (1,381) (8) (553) 42,486 698 43,184 68 43,252 612,177 10,186 39,411 4,408 21,132 687,314 238,772 12,101 21,132 272,005 2,888 60 2,948 – 552 552 2,032 177 2,209

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Geographical segments

The following tables present revenue, and certain asset and expenditure information for the Group’s geographical segments.

Year ended 31 March 2002

Group Segment revenue: Sales to external customers Other segment information: Segment assets Bank overdrafts included in segment assets Capital expenditure Year ended 31 March 2003 Group Segment revenue: Sales to external customers Other segment information: Segment assets Bank overdrafts included in segment assets Capital expenditure Year ended 31 March 2004 Group Segment revenue: Sales to external customers Other segment information: Segment assets Bank overdrafts included in segment assets Capital expenditure	Hong Kong HK$’000 184,464 147,244 32,555 1,091 Hong Kong HK$’000 252,481 100,583 54,468 542 Hong Kong HK$’000 231,308 162,342 27,354 218	Mainland China C HK$’000 224,624 373,745 – 7,586 Mainland China C HK$’000 276,792 482,686 – 2,126 Mainland China C HK$’000 306,810 378,411 – 101	onsolidated HK$’000 409,088
			520,989 32,555
			553,544
			8,677
			onsolidated HK$’000 529,273
			583,269 54,468
			637,737
			2,668
			onsolidated HK$’000 538,118
			540,753 27,354
			568,107
			319

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Six months ended 30 September 2003 (Unaudited)

Group Segment revenue: Sales to external customers Six months ended 30 September 2004 Group Segment revenue: Sales to external customers Other segment information: Segment assets Bank overdrafts included in segment assets Capital expenditure	Hong Kong HK$’000 80,696 Hong Kong HK$’000 125,116 293,269 21,132 189	Mainland China C HK$’000 202,168 Mainland China C HK$’000 92,570 372,913 – 2,020	onsolidated HK$’000 282,864
			onsolidated HK$’000 217,686
			666,182 21,132
			687,314
			2,209

8. EVENTS AFTER THE BALANCE SHEET DATE

• (i) On 2 August 2004, Brilliant China Investments Limited, a subsidiary of the Group entered into an agreement with an independent third party to further acquire a 51% shareholding interest in Xin Hua Resource Investment Limited, an associate of the Group, in which the Group indirectly owned 49% equity interests at 30 September 2004, and a related shareholders’ loan for HK$65 million. The consideration was satisfied by cash out of the internal resources of the Group. The acquisition was approved by the shareholders of the Company at a special general meeting on 20 October 2004 and was completed on 25 October 2004. Upon completion, Xin Hua Resource Investment Limited became a subsidiary of the Group.

• (ii) On 15 December 2004, Deson Development Holdings Limited, a wholly-owned subsidiary of the Company, entered into a conditional sale and purchase agreement with Asian Allied Limited for the sale of the entire issued share capital of Super Win Development Limited, an indirect wholly-owned subsidiary of the Company and thereby the disposal of the controlling interest in CPG and the related shareholder’s loan for an aggregate consideration of HK$136,172,000. The transaction constituted a very substantial disposal and connected transaction to the Group. The completion of the disposal is pending for approval of the shareholders of the Company.

9. SUBSEQUENT FINANCIAL STATEMENTS

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

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. INDEBTEDNESS

As at 31 December 2004, the Group had outstanding bank borrowings of approximately HK$91,164,000, comprising secured bank loans of approximately HK$50,675,000, secured trust receipt loan of approximately HK$17,262,000 and a secured bank overdraft of approximately HK$23,227,000.

As at 31 December 2004, the Group’s bank loans, trust receipt loans and overdraft are secured by time deposits of HK$59,841,000, the Group’s properties held for sale situated in Mainland China of HK$40,386,000, land and buildings situated in Hong Kong of HK$31,813,000, land use rights of HK$1,930,000 and corporate guarantees given by certain customers.

As stated in the 2004 annual report of CPG, Kenworth Engineering Limited (“Kenworth”) received a claim of approximately HK$341 million from a main contractor of a construction project for the alleged breach of a subcontract in October 2000 which Kenworth has not admitted. The claim amount was revised to HK$141 million in 2002. A counterclaim was submitted by Kenworth against this main contractor for the outstanding contract sum in respect of the completed work and the loss due to the wrongful termination of the subcontract. Under the provisions of the subcontract, the disputed claim is subject to arbitration proceedings between Kenworth and the main contractor. The notice of arbitration was issued before the effective date of three schemes of arrangement involving CPG and its then two subsidiaries, Kenworth and Kenworth Group Limited, pursuant to Section 166 of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), according to the terms of the restructuring proposal (the “Schemes”) and the arbitration proceedings continued when in August 2002, the arbitrator was appointed. As at 31 December 2004, a security deposit of HK$5 million had been paid by the Group to the arbitrator. Both Kenworth and the main contractor are in the process of submitting information to the arbitrator for assessment. The administrator of the Schemes (the “Scheme Administrator”) is required to await the arbitrator’s decision or, in the event that such decision is subject to appeal or further appeal(s) by either party thereto, to await the ultimate outcome and final decision to be made by the relevant appellate body. In any event, the claim, if awarded in favour of the main contractor, is still subject to the terms and conditions of the Schemes.

In relation to the same construction project detailed above, in October 2000 Kenworth also received a claim of approximately HK$353 million from the contract employer in respect of damages for the alleged breach of the same subcontract. The claim amount was revised to HK$237 million in 2002. On 3 December 2004, the Scheme Administrator received a notice from the contract employer to withdraw this claim.

Pursuant to an agreement dated 18 October 2000 entered into between Kenworth and CPG, CPG agreed to discharge the liabilities of Kenworth under the Schemes by the allotment of certain redeemable cumulative preference shares by Kenworth.

The Group appointed an independent chartered surveyor to estimate its potential exposure under the above two claims in 2003. According to the report of the surveyor, the maximum exposure of the above claims amounted to HK$70 million. The directors consider that the Group has valid defences against the claims and based on existing evidence believe that it is not probable that any material loss will be suffered by the Group. In addition, as the arbitration proceedings are still proceeding and detailed assessment of the parties’ claims and counterclaims must be made during the course of the proceedings, it is not currently possible to estimate the eventual outcome of the claims but the directors currently consider that no provision needs to be made as at 31 December 2004.

By an application dated 30 March 2004, Kenworth sought declarations from the Court of First Instance of the High Court of the Hong Kong Special Administrative Region on:

1. whether any awards or orders for costs made against Kenworth in relation to an arbitration between Kenworth and any claimant against Kenworth which had commenced before the effective date of the Schemes and was continuing shall be limited in accordance with the provisions of the Scheme and shall thereby form part of that claimant’s claims under the Scheme thereby entitling the claimant only to dividends in respect of those costs; and

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. whether in respect of any awards or orders for security for costs made against Kenworth in such arbitration; and any awards or orders for security for costs made against Kenworth in any reviews on appeals, or in any proceedings subsequent to any reviews or appeals, including but not limited only to any remittance of the award or order to the arbitrator or any review or further review of the award or order by the arbitrator and any subsequent appeal therefrom, Kenworth shall only be required to provide security for costs limited in accordance with the provisions of the Scheme such that, for every HK$10,000 that Kenworth is required to provide as security for costs pursuant to any award or order, Kenworth shall only be obliged to provide for, pay or deposit as security either the equivalent dividends which would under the Scheme operate to fully discharge Kenworth’s liability for such payment, that is, HK$312.50 in cash, 5,000 shares in CPG and notes in the principal amount of HK$187.50 or the cash equivalent of such dividends of HK$1,000.

The hearing in the Court of First Instance was completed on 14 December 2004 and by a decision (the “Decision”) handed down on 25 January 2005, the Court of First Instance declined to make the declarations sought. As such, if the Decision is not reversed on appeal, Kenworth will need to pay the legal costs incurred by the main contractor in relation to the arbitration in full. Kenworth is now consulting its legal advisers as to the merits of an appeal against the Decision and further action may be taken to protect the interests of Kenworth and the Group.

Save as disclosed in this circular, the Group did not have, at the Latest Practicable Date, any outstanding indebtedness, any loan capital, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase or finance lease commitments, guarantees or other material contingent liabilities.

4. WORKING CAPITAL

The Directors are of the opinion that after taking into account the proceeds from the Disposal, the credit facilities and internal resources available to the Group, the Group has sufficient working capital for its present requirements.

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

5. BUSINESS REVIEW

The Group’s turnover for the period was HK$217,686,000 which represented a decrease of 23.04% as compared with the corresponding last period. The net profit attributable to shareholders amounted to approximately HK$43,252,000 representing an increase of 170.70% from the last period.

The Remaining Group’s major business segment comprises (i) construction contracting (including electrical and mechanical (“E&M”) works); (ii) property development and investment; and (iii) operation of fitness centres and trading of fitness equipment.

During this period, the Group already completed projects such as fitting out (including installation of marbles) for 4th to 6th floors of Ongoing Department Store, Shanghai and a 2-year term contract for Design and Construction of fitting out works: Kowloon and New Territories – Eastern Region. However, the Group was suffered from the keen competition in the construction industry. Accordingly, turnover and profit margin decreased during this period.

More to note, during the period, the Group sold certain units in Phase II and Phase III, Asian Villas, Haikou, Hainan Province and certain units in Parkview Garden, Shanghai, which contributed a meaningful turnover and profit to the Group. The turnover in this sector decreased significantly due to the recognition of most of the turnover in Parkview Garden in the last period.

During the period, the Group successfully reorganized its business activities. Details of which as follows:

1. On 18 February 2004, CPG entered into agreements with independent third parties to acquire an aggregate 49% equity interest in Xin Hua and the related shareholders’ loan. The consideration for the Xin Hua acquisition was satisfied by way of issuing 295,000,000 shares of CPG at HK$0.10 each.

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. On 18 February 2004, the Company entered into an agreement with CPG to dispose of the entire issued share capital of Penmark Limited and the related shareholder’s loan at a consideration of HK$7,500,000. The consideration was satisfied by issuing 75,000,000 shares of CPG at HK$0.10 each. CPG also granted to the Company an option to subscribe for one option share for every two shares issued at the option exercise price of HK$0.105 per option share.

2. On 18 February 2004, the Company entered into an agreement with CPG to acquire the entire issued share capital of Kenworth Group Limited and the related shareholder’s loan for HK$7,000,000. The consideration was paid by the Company in cash.

3. On 18 February 2004, CPG entered into a placing agreement with a placing agent to place up to 800,000,000 new shares at a price of HK$0.10 each. The placing agent agreed to place to not less than six independent placees i) 200,000,000 placing shares on a fully underwritten basis and ii) 600,000,000 placing shares on a best endeavours basis. An aggregate of 400,000,000 placing shares were successfully placed. Pursuant to the placing agreement, CPG granted to each placee a placing option which will entitle the placee to subscribe for one option share for every two placing shares subscribed for by the placee at the option exercise price of HK$0.105 per option share.

4. On 18 February 2004, Super Win entered into a subscription agreement with CPG. CPG would issue 325,000,000 new shares to Super Win at a price of HK$0.10 each for an aggregate consideration of HK$32,500,000. Pursuant to the subscription agreement, Super Win would be entitled to subscribe for one option share for every two shares subscribed for at the option exercise price of HK$0.105 per option share.

The above transactions were approved by the shareholders of the Company at a special general meeting on 16 April 2004 and completed on 30 April 2004.

On 27 July 2004, Super Win entered into a placing agreement with a placing agent to place up to 175,000,000 shares in CPG at a price of HK$0.30 each. The placing agent agreed to place to not less than six independent placees the placing shares on a best efforts basis. An aggregate of 175,000,000 placing shares were successfully placed.

6. PROSPECTS

Construction business (including E&M works)

The Group will uphold an on-going parallel development of its construction business (including E&M works) in both the PRC and Hong Kong. With its proven track records and adequate expertise in the main contracting business, the Group is now honourably included in the “List of Approved Contractors for Public Works under Group C (on probation) of the Building Category under Environment, Transport and Works Bureau of the HKSAR”. In May 2004, the Group was upgraded to Group II under the “Turn-key Interior Design and Fitting-out Works” under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works”, this together with the 11 licences held under the “List of Approved Suppliers of Materials and Specialist Contractors for Public Works under Environment, Transport and Works Bureau of the Government of the HKSAR”, enables the Group to take an active part in the construction business development (including E&M works).

During this period, new projects such as office fitting out and E&M works for 5 floors in International Finance Centre II, Central, Hong Kong, renovation and E&M works of 292 rooms of Beijing Hilton Hotel, main contractor for renovation works including E&M works in Sharps Street, Wan Chai, Hong Kong and 2 years’ term contract for inspection, repair, overhaul and testing of E&M installations at various Sewage Treatment Works and Pumping Stations in the New Territories were awarded. As at 30 September 2004, the Group has secured contracts on hand with a total contract sum of over HK$800 million. The Directors fully believe that the positive signs that the Hong Kong economy is gradually improving and that the confidence is built up in the Government of the Hong Kong will have a double-functioning positive impact on the Group’s construction business in time to come.

Property development and investment

The development of high-class residential property development project, Parkview, near the Botanical Gardens in Shanghai with a gross floor areas of approximately 56,000 square metres was completed in December 2003. Certain units of the Parkview project were sold at a total contractual sum of over RMB280 million. As Shanghai is now vigorously developing into a metropolis serving as an international financial, information and transportation center, the Directors believe that this project has great market potential and bright prospects by virtue of its unique Botanical Gardens surroundings.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

In addition, Southern Area of Asian Villas, Haikou, Hainan Province being under foundation construction, which will be developed into a residential, hotel and commercial complex with a total gross floor area of approximately 120,000 square metres, is expected to be completed by the end of 2005. Pre-sale is expected to commence in March 2005.

The Directors are confident that the aforesaid projects will have a significant contribution to the turnover and profit of the Group in the coming years.

The Directors are now looking for property development projects in PRC prime cities and may acquire additional land bank for property development purpose, however, the Group has no specific investment plan in relation to any particular project.

Noteworthy is the fact that Directors believe the opening of the Universal Studios in 2006 in Shanghai, PRC and the hosting of the World Expo in 2010 which will have a positive impact on the PRC property market and the property development and investment segment will continue to provide a sizable contribution to the Group’s operating results in the coming years.

Operation of sports club, fitness and spa centres and related business

The first fitness and spa centre owned by the Group was established in Hua Hai Zhong Lu, Shanghai in October 2000. In the past few years, more fitness and spa centres were opened in various locations in the PRC including Wuhan, Urumqi and Shenzhen. In May 2004, one of the biggest sport club in the PRC was opened in Jinqaio, Shanghai, PRC. This sports club has a total gross floor area of approximately 11,000 square metres. The Group currently has over 12,000 members. As Beijing has won the right to host the 2008 Olympic Games, the Directors believe that such event will stimulate the public’s enthusiasm in fitness and sports and this business segment will provide a favourable contribution to the Group’s revenue in the future.

As at 30 September 2004, the Remaining Group had total assets of HK$663,278,000 and current liabilities, long term liabilities, shareholders’ equity and minority interests of HK$260,348,000, HK$991,000, HK$393,231,000 and HK$8,708,000, respectively.

The Group continued to maintain a low gearing ratio, at 0.25%. It was calculated based on the long term liabilities of HK$991,000 and long term capital of HK$402,930,000.

Most bank borrowings are prime rate based and the Group expects a favourable effect on the low interest rate environment. The bank borrowings and cash and bank balances were principally denominated in Hong Kong dollars and Renminbi. Hence, there is no significant exposure to foreign exchange rate fluctuations.

The Remaining Group’s receivables and payables were denominated mainly in US dollar, Hong Kong dollar and Renminbi. Since Hong Kong dollar is linked to US dollar, and Renminbi is relatively stable, we consider the exchange risk is not significant.

Details of the contingent liabilities of the Remaining Group are set out in “Material Litigation” section of Appendix IV of this circular.

As at 30 September 2004, the Remaining Group had 399 employees, 256 of whom were based in the PRC.

The remuneration policy and package of the Remaining Group’s employees are reviewed and approved by the Directors. Apart from pension funds, discretionary bonus and share options are linked to individual performance as recognition of and reward for value creation.

7. CHARGES ON GROUP ASSETS

The bank loans and banking facilities of the Remaining Group are secured by:

• (i) certain of the Remaining Group’s land and buildings situated in Hong Kong, which had an aggregate net book value at the balance sheet date of approximately HK$32,015,000; and

• (ii) the pledge of certain of the Remaining Group’s time deposits amounting to HK$47,698,000.

– 84 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

UNAUDITED PROFORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

For illustrative purposes only, the pro forma financial information prepared in accordance with Rule 4.29 of the Listing Rules is set out here to provide additional information on the pro forma financial information of the Remaining Group to illustrate the performance and financial position of the Remaining Group after completion of the disposal of entire equity interest in Super Win Development Limited (“Super Win”), a wholly-owned subsidiary of the Company and a related shareholders’ loan, and before the relevant transactions completed on 25 October 2004, further details of which were included in the Company’s circular dated 28 September 2004 (the “Transactions”) and on page 89 of Appendix II of this circular.

The pro forma financial information is derived after making a number of adjustments based on directors’ judgements and assumptions. Although reasonable care has been exercised in preparing the said information, the amounts presented by their nature are inherently subject to change and may not give a true picture of the actual financial position or performance of the Remaining Group as at 30 September 2004.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED CASH FLOW STATEMENT OF THE REMAINING GROUP

1. UNAUDITED PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT OF THE REMAINING GROUP

The following is the unaudited pro forma consolidated profit and loss account of the Group assuming that Super Win had been disposed of as at 1 April 2004. The unaudited pro forma consolidated profit and loss account was prepared based on the audited consolidated profit and loss account of the Group for the period ended 30 September 2004 with adjustments to reflect the effect of the Disposal.

				Pro forma
				consolidated
				profit and loss
				account for the
	Period ended			period ended
	30 September			30 September
	2004	Pro forma		2004
	(audited)	adjustments		(unaudited)
	HK$’000	HK$’000	Notes	HK$’000
Turnover	217,686			217,686
Other revenue and gains	60,294	(998)	1	59,296
Cost of construction contracts and
direct expense	(137,136)			(137,136)
Cost of property interest sold	(25,877)			(25,877)
Cost of inventories sold	(17,449)			(17,449)
Staff costs	(18,879)			(18,879)
Depreciation expense	(2,948)	80	1	(2,868)
Other operating expenses	(31,263)	2,218	1	(29,045)
Gain on disposal of subsidiaries	–	55,380	1, 4	55,380
PROFIT FROM OPERATING ACTIVITIES	44,428			101,108
Finance costs	(1,381)	210	1	(1,171)
Share of profits and losses of:
A jointly-controlled entity	(8)			(8)
Associates	(553)	1,149	1	596
PROFIT BEFORE TAX	42,486			100,525
Tax	698	(215)	1	483
PROFIT BEFORE MINORITY INTERESTS	43,184			101,008
Minority interests	68	771	1	839
NET PROFIT
ATTRIBUTABLE TO SHAREHOLDERS	43,252			101,847

– 85 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE REMAINING GROUP

The following is the unaudited pro forma consolidated balance sheet of the Group assuming that Super Win had been disposed of as at 1 April 2004. The unaudited pro forma consolidated balance sheet was prepared based on the audited consolidated balance sheet of the Group at 30 September 2004 with adjustments to reflect the effect of the Disposal.

sposal.
				Pro forma
				consolidated
				balance
				sheet at
	30 September			30 September
	2004	Pro forma		2004
	(audited)	adjustments		(unaudited)
	HK$’000	HK$’000	Notes	HK$’000
NON-CURRENT ASSETS
Fixed assets	53,406	(7,887)	3	45,519
Goodwill	19,088	(8,310)	4	10,778
Interest in a jointly-controlled entity	10,186			10,186
Interests in associates	39,411	(28,663)	3	10,748
Long term investments	8,553			8,553
Deferred tax assets	382			382
	131,026			86,166
CURRENT ASSETS
Properties held for sale	271,974	(40,386)	3	231,588
Gross amounts due from contract customers	32,996			32,996
Inventories	8,023			8,023
Accounts receivables	66,503	(3)	3	66,500
Prepayments, deposits and other receivables	33,714	45,870	3	79,584
Pledged time deposits	47,798	(100)	3	47,698
Cash and cash equivalents	95,280	15,443	3	110,723
	556,288			577,112
CURRENT LIABILITIES
Gross amounts due to contract customers	(39,610)			(39,610)
Accounts payable	(41,811)			(41,811)
Other payable and accruals	(113,346) 1,828		3	(111,518)
Tax payable	(11,209) 12		3	(11,197)
Provision for scheme debts	(1,047) 1,047		3	–
Interest-bearing bank and other borrowings	(56,911) 699		3	(56,212)
	(263,934)			(260,348)
NET CURRENT ASSETS	292,354			316,764
TOTAL ASSETS LESS
CURRENT LIABILITIES	423,380			402,930
NON-CURRENT LIABILITIES
Interest-bearing bank and other borrowings	(7,080) 7,080		3	–
Deferred tax liabilities	(991)			(991)
	(8,071)			(991)
MINORITY INTERESTS	(78,229) 69,521		3	(8,708)
	337,080			393,231
CAPITAL AND RESERVES
Issued capital	51,675			51,675
Reserves	285,405	56,151	1	341,556
	337,080			393,231

– 86 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

3. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE REMAINING GROUP

The following is the unaudited pro forma consolidated cash flow statement of the Group assuming that Super Win had been disposed of as at 1 April 2004. The unaudited pro forma consolidated cash flow statement was prepared based on the audited consolidated cash flow statement of the Group for the period ended 30 September 2004 with adjustments to reflect the effect of the Disposal.

				Pro forma
				consolidated
				cash flow
				statement
	Period			for the period
	ended			ended
30 September				30 September
	2004	Pro forma		2004
	(audited)	adjustments		(unaudited)
	HK$’000	HK$’000	Notes	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax	42,486	2,659	2	45,145
Adjustments for:
Finance costs	1,381	(210)	2	1,171
Share of profits and losses of:
A jointly-controlled entity	8			8
Associates	553	(1,149)	2	(596)
Interest income	(148)			(148)
Gain on partial disposal of interest in a subsidiary	(40,182)			(40,182)
Gain on deemed disposal of an interest in
a subsidiary	(15,885)			(15,885)
Dividend income from listed long term investments	(81)			(81)
Loss on disposal of fixed assets,	85			85
Depreciation	2,948	(80)	2	2,868
Amortisation of goodwill	471			471
Operating loss before working capital changes	(8,364)			(7,144)
Decrease in completed properties held
for sale	17,232			17,232
Increase in properties under development
for sale	(8,857)			(8,857)
Increase in gross amount due from contract
customers	(15,324)	33	2	(15,291)
Increase in inventories	(863)			(863)
Decrease in accounts receivable	6,814	(59)	2	6,755
Increase in prepayments, deposits and other
receivables	(3,774)	(448)	2	(4,222)
Increase in gross amount due to contract
customers	127			127
Decrease in accounts payable	(12,271)	305	2	(11,966)
Increase in other payables and accruals	8,747	(1,695)	2	7,052
Cash used in operations	(16,533)			(17,177)
Interest paid	(1,543)	210	2	(1,333)
Dividends received from associates	300			300
Hong Kong profits tax paid	(360)			(360)
Overseas taxes paid	(1,657)	96	2	(1,561)
Net cash outflow from operating activities	(19,793)			(20,131)

– 87 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

				Pro forma
				consolidated
				cash flow
				statement
	Period			for the period
	ended			ended
30	September			30 September
	2004	Pro forma		2004
	(audited)	adjustments		(unaudited)
	HK$’000	HK$’000	Notes	HK$’000
Net cash outflow from operating activities	(19,793)			(20,131)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received	148			148
Dividend received from long term investments	81			81
Purchases of fixed assets	(2,209)			(2,209)
Proceeds from disposal of fixed assets	7			7
Purchases of long term investments	(400)			(400)
Acquisition of additional interest in a
subsidiary	(1,947)			(1,947)
Proceeds from partial disposal of interest in
a subsidiary	50,998			50,998
Advance to a jointly-controlled entity	(9,638)			(9,638)
Repayments to associates, net	(3,088)			(3,088)
Increase in pledged time deposits with
original maturity of more than
three months when acquired	(10,004)			(10,004)
Net cash inflow from investing activities	23,948			23,948
CASH FLOWS FROM FINANCING
ACTIVITIES
Repurchase of the Company’s shares	(7,090)			(7,090)
Share repurchase expenses	(110)			(110)
Exercise of warrants	22,324			22,324
New bank loans and other borrowings	14,130			14,130
Repayment of bank loans and other borrowings	(1,872)	338	2	(1,534)
Capital contributions by minority interests	40,000			40,000
Repayment from minority interests	246			246
Dividends paid to minority interests	(152)			(152)
Net cash inflow from financing activities	67,476			67,814
NET INCREASE IN CASH
AND CASH EQUIVALENTS	71,631			71,631
Cash and cash equivalents at the beginning
of the period	37,104	15,443	2	52,547
Cash and cash equivalents at the end
of the period	108,735			124,178
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	95,280	15,443	2	110,723
Time deposits with original maturity of less than
three months when acquired, pledged as
security for bank overdraft facilities	34,587			34,587
Bank overdrafts, secured	(21,132)			(21,132)
	108,735			124,178

– 88 –

PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

Notes:

1. The adjustments reflect the effect on the disposal of Super Win as at 30 September 2004.

2. The adjustments reflect the cashflow effect from the disposal of Super Win as at 30 September 2004. The net cash inflow from the disposal is approximately HK$ 15.4 million, which represents cash consideration of HK$ 87.5 million less cash and bank disposed of HK$ 72.1 million.

3. The adjustment reflects the estimated carrying values of assets and liabilities to be disposed of in relation to the Disposal as at 30 September 2004.

4. The adjustment reflects the estimated goodwill to be released as at 30 September 2004.

Additional information:

On 2 August 2004, Brilliant China entered into an agreement for the sale and purchase of a 51% shareholding in Xin Hua and a related shareholder’s loan (the “Second Xin Hua Acquisition”) at the consideration of HK$65 million. The consideration was satisfied by cash out of the internal resources of the Group. The Second Xin Hua Acquisition was approved by the shareholders of CPG at a special general meeting on 20 October 2004 and was completed on 25 October 2004. Upon completion, Xin Hua became a wholly-owned subsidiary of CPG. This transaction has not been taken into account in the unaudited pro forma consolidated financial statements as at 30 September 2004.

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PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

(B) LETTER FROM THE REPORTING ACCOUNTANTS

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

==> picture [132 x 35] intentionally omitted <==

28 February 2005

The Directors Deson Development International Holdings Limited 11/F., Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of the Group (the Group (as defined herein) set out on pages 85 to 89 in Appendix II to the circular dated 28 February 2005 issued by Deson Development International Holdings Limited (the “Company”, and together with its subsidiaries are referred to as the “Group”), solely for illustrative purposes, to provide information about how the proposed disposal of Super Win Development Limited, a wholly-owned subsidiary of the Company, and its subsidiaries might have affected the historical financial information in respect of the Group.

The historical financial information is derived from the audited historical financial information of the Group appearing elsewhere herein. The basis of preparation of the pro forma financial information is set out in the accompanying introduction and notes to the unaudited pro forma financial information of the Group.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the pro forma financial information in accordance with Rule 4.29(1) 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 in 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 the Company.

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

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PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX II

The pro forma financial information is for illustrative purposes only, based on the directors’ judgements and assumptions as set out on pages 85 to 89, and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of:

• the Remaining Group had the transaction actually occurred as at the dates indicated therein; or

• the Remaining Group at any future date or for any future periods.

Opinion

In our opinion:

• (a) the accompanying unaudited pro forma financial information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Company; and

• (c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

– 91 –

PROPERTY VALUATION REPORT

APPENDIX III

==> picture [51 x 38] intentionally omitted <==

Registered Professional Surveyors, Valuers & Property Consultants

Unit B, 38th Floor, Bank of China Tower, No. 1 Garden Road, Hong Kong Tel:(852) 2127 7762 Fax:(852) 2137 9876 Email: info@biappraisals.com.hk Website: www.bisurveyors.com.hk

28 February 2005

The Directors Deson Development International Holdings Limited 11th Floor, Nanyang Plaza 57 Hung To Road Kwun Tong Kowloon

Dear Sirs,

• Re: Portfolio of properties held by Chinese People Gas Holdings Company Limited and/or its subsidiaries and associated companies in the People’s Republic of China (the “PRC”)

In accordance with your instructions for us to value the property interests in the properties, which are held by Chinese People Gas Holdings Company Limited (hereinafter referred to as the “Company”) and its subsidiaries and associated companies (hereinafter together referred to as the “Group”) in the PRC, we confirm that we have carried out inspections, 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 each of the properties in existing state as at 31 December 2004 (hereinafter referred to as the “date of valuation”). It is our understanding that this valuation document is to be used for public disclosure purpose.

This letter, forming part of our valuation report, identifies the properties being valued, explains the basis and methodology of our valuations, and lists out the assumptions and the title investigation we have made in the course of our valuations, as well as the limiting conditions.

Basis of Valuation

Our valuation of the property interest in each of the properties is our opinion of its open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would 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;

• (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 prospective purchaser with a special interest; and

• (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

We have valued the properties on the basis that each of them is considered individually and have not allowed for any discount for the properties to be sold to a single party nor taken into account any effect on the values if the properties are to be offered for sale at the same time as a portfolio.

Our valuations have been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute of Surveyors in March 2000 and under generally accepted valuation procedures and practices, which are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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PROPERTY VALUATION REPORT

APPENDIX III

Valuation Methodology

In valuing the property interests in Property Nos. 1, 3, 4 and 7 in Group I which are held and occupied by the Group in the PRC, due to the nature of buildings and structures constructed, there are no readily identifiable market comparable, we have adopted the Depreciated Replacement Cost (DRC) Approach in assessing the value of such property interests. This method of valuation is based on an estimate of the open market value for the existing use of the land, plus the current gross replacement costs of the buildings and structures erected thereon, less allowances for physical deterioration and all relevant forms of obsolescence. The DRC Approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable.

In valuing the property interests in Property Nos. 2, 5 and 6 in Group I, we have adopted the Direct Comparison Approach assuming such property interests are capable of being sold in the existing state on a strata-titled basis with the benefit of immediate vacant possession and by making reference to comparable sales transactions and offerings as available in the relevant markets.

In valuing the property interests in Group II which are held by the Group for investment in the PRC, we have adopted the Investment Approach by taking into account the current rents passing and the reversionary income potential of the tenancies. For portions of each of these properties which are vacant, we have valued on the basis of capitalization of hypothetical and reasonable rents assuming typical lease terms and the reversionary potential of the hypothetical tenancies.

Valuation Assumptions

Our valuations have been made on the assumption that the properties are to be sold in the open market in existing state without the benefit of any deferred terms contract, leaseback, joint venture, management agreement or any similar arrangements, which could affect their values.

In addition, no account has been taken of any option or right of pre-emption concerning or effecting sales of the properties and no forced sale situation in any manner is assumed in our valuations.

We have assumed that the properties have been constructed, occupied and used in full compliance with, and without contravention of, all ordinances, except only where otherwise stated. We have further assumed that all consents, approvals, required licences, permits, certificates, and authorizations have been obtained, except only where otherwise stated, for the use of the properties upon which our valuations are based.

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

In the course of our valuation of the property interests, we have neither verified nor taken into account any PRC tax liabilities. We have been advised by the Company that Property Nos. 1 to 7 are held as a factor of production for the business operation of individual subsidiaries and associated companies and that the Company does not have the intention to sell any or all of these properties; whereas, the Company, though has the intention to dispose of Property Nos. 8 and 9, will not make such disposals in the near future in order to maximize the profit in the light of the active and prosperous office property market in Shanghai. However, should disposals of these two properties be conducted, the potential tax liabilities arising, as advised by the Company, will include the sales tax (5% on sales consideration) and the income tax (33% on profit). Yet, unless and until the completion of the disposal of such properties, the amount of PRC tax liabilities would not be quantifiable nor crystallized.

Title Investigation

Due to the nature of the land registration system in the PRC, we are not able to investigate the title to or any liabilities against the property interests. However, we have been provided with copies of documents regarding to the title to the property interests. We have not examined the original documents to verify ownership and to ascertain the existence of any amendments that may not appear on the copies handed to us. All documents and leases have been used for reference only.

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PROPERTY VALUATION REPORT

APPENDIX III

Limiting Conditions

We have inspected the exteriors, and whenever possible, the interiors of the properties. However, no structural surveys have been made nor have any tests been carried out on any of the services provided in the properties. We are, therefore, unable to report whether the properties are free from rot, infestation or any other structural defects. Yet, in the course of our inspections, we did not note any serious defects.

Unless otherwise stated, we have not carried out detailed on-site measurements to verify the site and floor areas of the properties but have assumed that the areas shown on the copies of the documents furnished to us are correct. Dimensions, measurements and areas included in the valuation certificates are based on information contained in the documents provided to us and are therefore only approximations.

Moreover, we have not carried out any site investigations to determine or otherwise the suitability of the ground conditions, the presence or otherwise of contamination and the provision of or otherwise suitability for services etc. for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during any construction period.

We have relied to a considerable extent on the information provided by the Group and have accepted advice given to us on such matters as particulars of occupancy, tenancy agreement, tenancy schedule, usage of the properties, site and floor areas and other relevant matters in the identification of the properties. We have had no reason to doubt the truth and accuracy of the information provided to us and we have also been advised that no material facts have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view and have no reason to suspect that any material information has been withheld.

Remarks

Unless otherwise stated, all monetary amounts stated in the valuation certificates are in Hong Kong Dollars (HK$). The exchange rates adopted in our valuations are approximately HK$1 = RMB1.06 and USD1 = HK$7.8, which are approximately the prevailing exchange rates as at the date of valuation.

We hereby confirm that we have neither present nor prospective interests in the Group, the properties valued or the values reported herein.

We enclose herewith the summary of values and valuation certificates.

Yours faithfully, For and on behalf of

B.I. APPRAISALS LIMITED

William C. K. Sham MRICS, MHKIS, RPS (G.P.), MCIREA

Executive Director

Note: Mr. William C. K. Sham is a Chartered Surveyor and a member of China Institute of Real Estate Appraiser who has over 10 years’ experience in the valuations of properties in the PRC.

– 94 –

PROPERTY VALUATION REPORT

APPENDIX III

SUMMARY OF VALUES

No. Property Group I – Property interests held and occupied by the Group in the PRC 1. The land and buildings of an office complex at Ying Xiang Heng Street（迎祥橫街）, Jiannan Town（劍南鎮）, Mianzhu City（綿竹市）, Deyang City（德陽市）, Sichuan Province, the PRC 2. Shop No. 10 on Level 1 of Block No. 5, Xiao Xi Street（小西街） (also known as No. 92 Ying Xiang Road), Jiannan Town, Mianzhu City, Deyang City, Sichuan Province, the PRC 3. The land and buildings of a gas station at Liu Zu（六組）, Liang Shui Jing Village（涼水井村）, Qing Dao（清道）, Mianzhu City, Deyang City, Sichuan Province, the PRC 4. The land and buildings of a gas station at Si Ya（寺埡）, Yunxi Town（雲溪鎮）, Yanting County（鹽亭縣）, Mianyang City（綿陽市）, Sichuan Province, the PRC 5. Whole of Level -1 and Level 1 of the Residential Block and Level -1 and Level 3 to Level 8 of the Office Block of a composite complex at Mi Jiang Road（彌江路）, Yunxi Town, Yanting County, Mianyang City, Sichuan Province, the PRC 6. Whole of Level -1 of a composite building at Yan Zi Road（鹽梓路）, Yunxi Town, Yanting County, Mianyang City, Sichuan Province, the PRC 7. The land and buildings of an industrial complex at An Shi Road（安什路）, Mianzhu City, Deyang City, Sichuan Province, the PRC Sub-total:

Open market value in existing state as at 31 December 2004 HK$2,600,000 HK$170,000 HK$1,700,000 HK$600,000 HK$4,900,000 HK$1,050,000 No commercial value (See Note below)

HK$11,020,000

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PROPERTY VALUATION REPORT

APPENDIX III

SUMMARY OF VALUES

No. Property Group II – Property interests held for investment by the Group in the PRC 8. Unit 02 on Level 3A, Zhongda Square, No. 989 Dongfang Road, Lujiazui, Pudong District, Shanghai, the PRC 9. Whole of Levels 24, 27 and 28 together with Car Parking Space Nos. 31 to 39 on Basement 1 and Car Parking Space Nos. 82 to 91 on Basement 2, Zhongda Square, No. 989 Dongfang Road, Lujiazui, Pudong District, Shanghai, the PRC Sub-total: Grand Total:	Open market value in existing state as at 31 December 2004 HK$7,800,000 HK$54,300,000
	HK$62,100,000
	HK$73,120,000

Note: In the course of our valuation, we have ascribed no commercial value to the property. Had the Group obtained a valid Certificate of State-owned Land Use for the land and valid Certificate(s) of Building Ownership for the corresponding buildings, the open market value in the existing state of the property, as at 31 December 2004, would be HK$5,300,000.

– 96 –

PROPERTY VALUATION REPORT

APPENDIX III

Group I – Property interests held and occupied by the Group in the PRC

				Open market value
			Particulars of	in existing state as at
**No. **	Property	Description and tenure	occupancy	31 December 2004
1.	The land and buildings of	The property comprises an office complex	The property is currently	HK$2,600,000
	an office complex at Ying	erected over a parcel of land with a site area of	occupied by the Group for
	Xiang Heng Street, Jiannan	approximately 2,079.30 sq.m. (22,382 sq.ft.).	office use.
	Town, Mianzhu City,
	Deyang City, Sichuan	The office complex comprises a 3-storey office
	Province,	building together with the ancillary structures
	the PRC	including an 1-storey guardhouse and two steel
		sheds for car parking purpose. The building
		and the structures were completed in the period
		between 1996 and 2003.
		The office building has a gross floor area of
		approximately 1,216.08 sq.m. (13,090 sq.ft.).
		The land use rights of the property have been
		granted for a term to be expired on 4 July 2052
		for composite use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 竹國用 (2004)字第 1474號 (Zhu Guo Yong (2004) Zi No. 1474) issued by 綿竹市人民政府 (Mianzhu Municipal People’s Government) on 31 May 2004, the land use rights of the land in the property with a site area of 2,079.3 sq.m. have been granted to 綿竹市紅森天然氣有限責任公司 (Mian Zhu City Hong Sen Natural Gas Co., Ltd.) for composite use for a term to be expired on 4 July 2052.

• 2) Pursuant to the Certificate of Building Ownership No.竹房權證監證字第 0000184號 (Zhu Fang Quan Zheng Jian Zheng Zi No. 0000184) issued by Mianzhu Municipal People’s Government on 20 June 2002, the ownership of the office building in the property having a gross floor area of 1,216.08 is vested in Mian Zhu City Hong Sen Natural Gas Co., Ltd.

• 3) We have been advised by the Group that Mian Zhu City Hong Sen Natural Gas Co., Ltd. is a 52.07% indirectly owned subsidiary of the Group.

• 4) We have relied on the information given by the Group and prepared our valuation on the following assumptions:

• a) Mian Zhu City Hong Sen Natural Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) All outstanding costs, land grant considerations and expenses otherwise payable have been fully settled.

• c) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• d) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• e) The property may be disposed of freely to both local and overseas purchasers.

• 5) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate of State-owned Land Use Yes Certificate of Building Ownership Yes

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PROPERTY VALUATION REPORT

APPENDIX III

Description and tenure

No. Property

1. Shop No. 10 on Level 1 of The property comprises a shop premises on Block No. 5, Xiao Xi Street Level 1 of a 6-storey building completed in (also known as No. 92 Ying about 1998. Xiang Road), Jiannan Town, Mianzhu City, The gross floor area of the property is Deyang City, Sichuan approximately 46.08 sq.m. (496 sq.ft.). Province, the PRC

Open market value Particulars of in existing state as at occupancy 31 December 2004 The property is currently HK$170,000 occupied by the Group for retail use.

The land use rights of the property have been granted for a term to be expired on 11 October 2050 for commercial/services use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 竹國用 (2004)字第 1044號 (Zhu Guo Yong (2004) Zi No. 1044) issued by Mianzhu Municipal People’s Government on 1 May 2004, the land use rights of the property with an allocated land area of 8.33 sq.m. have been granted to Mian Zhu City Hong Sen Natural Gas Co., Ltd. for commercial/services use for a term to be expired on 11 October 2050.

• 2) Pursuant to the Certificate of Building Ownership No. 字第 836號 (Zi No. 836) issued by Mianzhu Municipal People’s Government on 8 May 1998, the ownership of the property having a gross floor area of 46.08 sq.m. is vested in 綿竹市天然氣 公司 (Mian Zhu City Natural Gas Company).

• 3) We have been advised by the Group that Mian Zhu City Natural Gas Company has subsequent restructured to form Mian Zhu City Hong Sen Natural Gas Co., Ltd., which, as advised, is a 52.07% indirectly owned subsidiary of the Group.

• 4) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) Mian Zhu City Hong Sen Natural Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) All outstanding costs, land grant consideration and expenses otherwise payable have been fully settled.

• c) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• d) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• e) The property may be disposed of freely to both local and overseas purchasers.

• 5) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

• Certificate of State-owned Land Use Yes Certificate of Building Ownership[*] Yes

• (* Held under Mian Zhu City Natural Gas Company)

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PROPERTY VALUATION REPORT

APPENDIX III

Description and tenure

No. Property

1. The land and buildings of a The property comprises a gas station erected gas station at Liu Zu, Liang over a parcel of land with a site area of Shui Jing Village, Qing approximately 5,016.00 sq.m. (53,992 sq.ft.). Dao, Mianzhu City, Deyang City, Sichuan Province, the Currently standing on the site are 7 blocks of PRC buildings and structures completed in the period between 1993 and 2000. The buildings and structures include a block of 1-storey retail building, a block of 1-storey office building, a block of 1-storey duty office building, a block of 2-storey office/dormitory building and ancillary structures including a fire preventive equipment storage house, a toilet and a storage shed. The total gross floor area of the buildings and structures is approximately 1,442.00 sq.m. (15,522 sq.ft.).

Open market value Particulars of in existing state as at occupancy 31 December 2004 The property is currently HK$1,700,000 occupied by the Group as a gas station.

The land use rights of the property have been granted for a term to be expired on 1 April 2054 for industrial use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 竹國用 (2004)字第 912號 (Zhu Guo Yong (2004) Zi No. 912) issued by Mianzhu Municipal People’s Government on 12 April 2004, the land use rights of the land in the property with a site area of 5,016 sq.m. have been granted to Mian Zhu City Hong Sen Natural Gas Co., Ltd. for industrial use for a term to be expired on 1 April 2054.

• 2) Pursuant to a letter from Mianzhu County Planning Commission dated 7 July 1989, Mian Zhu City Natural Gas Company (now known as Mian Zhu City Hong Sen Natural Gas Co., Ltd.) was approved by Mianzhu County Planning Commission to carry out the construction of the subject gas station with a total gross floor area of 300 sq.m.

• 3) Pursuant to a Construction Fitting-out Works Completion Certificate issued by 綿竹市建設工程質量監督站 (Mianzhu City Construction Works Quality Supervision Station) on 28 July 1999, the construction works with a total gross floor area of 800 sq.m. developed by Mian Zhu City Natural Gas Company (now known as Mian Zhu City Hong Sen Natural Gas Co., Ltd.) in the subject gas station was completed in 1998.

• 4) We understand that according to the practice of the land registration system in the PRC, should the title of the buildings concerned have been registered by any party (including the owner of the land), such registration(s) would have been specified in the relevant Certificate of State-owned Land Use. However, no such kind of registration is currently shown in the Certificate of State-owned Land Use. Mian Zhu City Hong Sen Natural Gas Co., Ltd., having obtained a proper legal title to the relevant piece of land and a Construction Fitting-out Works Completion Certificate, will proceed to apply for a Certificate(s) of Building Ownership for the relevant buildings.

• 5) We have been advised by the Group that Mian Zhu City Hong Sen Natural Gas Co., Ltd. is a 52.07% indirectly owned subsidiary of the Group.

• 6) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) Mian Zhu City Hong Sen Natural Gas Co., Ltd. is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) All outstanding costs, land grant considerations and expenses otherwise payable have been fully settled.

• c) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

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PROPERTY VALUATION REPORT

APPENDIX III

• d) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• e) The property may be disposed of freely to both local and overseas purchasers.

• 7) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate of State-owned Land Use Yes Certificate of Building Ownership No Construction Fitting-out Works Completion Certificate (Part) Yes

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APPENDIX III

PROPERTY VALUATION REPORT

• Open market value

• Particulars of in existing state as at

• No. Property Description and tenure occupancy 31 December 2004 4. The land and buildings of a The property comprises a gas station erected The property is currently HK$600,000 gas station at Si Ya, Yunxi over a parcel of land with a site area of occupied by the Group as a Town, Yanting County, approximately 1,740.40 sq.m. (18,734 sq.ft.). gas station. Mianyang City, Sichuan Province, Currently standing on the site are a block of 1- the PRC storey duty office building, a block of 2-storey office/dormitory building and an ancillary structure of toilet, all completed in about 1991. The total gross floor area of the buildings is approximately 268.50 sq.m. (2,890 sq.ft.).

The land use rights of the property have been granted for industrial use for a term not specified in the Certificate of State-owned Land Use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 鹽國用 (2001)字第 000695號 (Yan Guo Yong (2001) Zi No. 000695) issued by Yanting County People’s Government on 29 November 2001, the land use rights of the property with a site area of 1,740.40 sq.m. have been granted to 鹽亭（縣）龍興燃氣有限責任公司 (See Note 3 below) for industrial use for a term not specified in the Certificate of State-owned Land Use.

• 2) Pursuant to the Certificate of Building Ownership No. 鹽房權證縣房監字第 0000005015號 (Yan Fang Quan Zheng Xian Fang Jian Zi No. 0000005015) issued by Yanting County Building and Land Administration Office on 30 November 2001, the ownership of the building having a total gross floor area of 268.50 sq.m. is vested in 鹽亭龍興燃氣有限責任公司 (See Note 3 below).

• 3) We have been advised by the Group that 鹽亭（縣）龍興燃氣有限責任公司 and 鹽亭龍興燃氣有限責任公司 are referring to the same company (hereinafter referred to as “LongXin (Yan Ting) Natural Gas Company Limited”).

• 4) We have further been advised by the Group that LongXin (Yan Ting) Natural Gas Company Limited is a 51.56% indirectly owned subsidiary of the Group.

• 5) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) LongXin (Yan Ting) Natural Gas Company Limited is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) The land use rights of the land in the property have been granted for a term of 50 years from the issuance date of the Certificate of State-owned Land Use.

• c) All outstanding costs, land grant consideration and expenses otherwise payable have been fully settled.

• d) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• e) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• f) The property may be disposed of freely to both local and overseas purchasers.

• 6) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate of State-owned Land Use Yes Certificate of Building Ownership Yes

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APPENDIX III

PROPERTY VALUATION REPORT

Description and tenure

No. Property

• The subject composite complex comprises a block of 8-storey mixed commercial and residential building (“Residential Block”) and a block of 8-storey mixed commercial and office building (“Office Block”) completed in about 1995.

• Whole of Level -1 and The subject composite complex comprises a Level 1 of the Residential block of 8-storey mixed commercial and Block and Level -1 and residential building (“Residential Block”) and a Level 3 to Level 8 of the block of 8-storey mixed commercial and office Office Block of a building (“Office Block”) completed in about composite complex at Mi 1995. Jiang Road, Yunxi Town, Yanting County, Mianyang The property comprises the whole floor of City, Sichuan Province, the Levels -1 and 1 of the Residential Block and PRC the whole floor of Levels -1 and 3 to 8 (i.e. roof level) of the Office Block.

Open market value Particulars of in existing state as at occupancy 31 December 2004 The property is currently HK$4,900,000 occupied by the Group for office, hostel, customer services centre uses.

The total gross floor area of the property is approximately 3,053.72 sq.m. (32,870 sq.ft.).

The land use rights of the property have been granted. Yet the use as well as the term have not specified in the Certificate of State-owned Land Use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 鹽國用 (2001)字第 000696號 (Yan Guo Yong (2001) Zi No. 000696) issued by Yanting County People’s Government on 29 November 2001, the land use rights of the property with an allocated land area of 656.91 sq.m. have been granted to LongXin (Yan Ting) Natural Gas Company Limited.

• 2) Pursuant to the Certificate of Building Ownership No. 鹽房權證縣房監字第 0000005013號 (Yan Fang Quan Zheng Xian Fang Jian Zi No. 0000005013) issued by Yanting County People’s Government on 30 November 2001, the ownership of the property having a gross floor area of 3,053.72 sq.m. for commercial, services and office uses is vested in LongXin (Yan Ting) Natural Gas Company Limited.

• 3) We have been advised by the Group that LongXin (Yan Ting) Natural Gas Company Limited is a 51.56% indirectly owned subsidiary of the Group.

• 4) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) LongXin (Yan Ting) Natural Gas Company Limited is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) The land use rights of the land in the property have been granted for composite use for a term of 50 years from the issuance date of the Certificate of State-owned Land Use.

• c) All outstanding costs, land grant consideration and expenses otherwise payable have been fully settled.

• d) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• e) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• f) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to both local and overseas purchasers.

• 5) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate of State-owned Land Use Yes Certificate of Building Ownership Yes

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APPENDIX III

No. Property

Description and tenure

Open market value Particulars of in existing state as at occupancy 31 December 2004

1. Whole of Level -1 of a composite building at Yan Zi Road, Yunxi Town, Yanting County, Mianyang City, Sichuan Province, the PRC

The property comprises the whole of Level -1 The property is currently HK$1,050,000 of an 8-storey mixed commercial and occupied by the Group for residential building, completed in about 1998. storage use.

• The total gross floor area of the property is approximately 738.68 sq.m. (7,951 sq.ft.).

The land use rights of the property have been granted for composite use for a term not specified in the Certificate of State-owned Land Use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 鹽國用 (2001)字第 000697號 (Yan Guo Yong (2001) Zi No. 000697) issued by Yanting County People’s Government on 29 November 2001, the land use rights of the property with a site area of 1,154.93 sq.m. have been granted to LongXin (Yan Ting) Natural Gas Company Limited for composite use for a term not specified in the said Certificate of State-owned Land Use.

• 2) Pursuant to the Certificate of Building Ownership No. 鹽房權證縣房監字第 0000005014號 (Yan Fang Quan Zheng Xian Fang Jian Zi No. 0000005014) issued by Yanting County People’s Government on 30 November 2001, the ownership of the property having a gross floor area of 738.68 sq.m. is vested in LongXin (Yan Ting) Natural Gas Company Limited.

• 3) We have been advised by the Group that LongXin (Yan Ting) Natural Gas Company Limited is a 51.56% indirectly owned subsidiary of the Group.

• 4) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) LongXin (Yan Ting) Natural Gas Company Limited is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) The land use rights of the land in the property have been granted for a term of 50 years from the issuance date of the Certificate of State-owned Land Use.

• c) All outstanding costs, land grant consideration and expenses otherwise payable have been fully settled.

• d) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• e) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• f) The property, whether as a whole or on a strata-titled basis, may be disposed of freely to both local and overseas purchasers.

• 5) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

• Certificate of State-owned Land Use Yes Certificate of Building Ownership Yes

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APPENDIX III

PROPERTY VALUATION REPORT

Description and tenure

No. Property

1. The land and buildings of The property comprises an industrial complex an industrial complex at An erected on a parcel of land with a site area of Shi Road, Mianzhu City, approximately 12,320.60 sq.m. (132,619 sq.ft.). Deyang City, Sichuan Province, The industrial complex comprises a total of 15 the PRC blocks of 1 to 2-storey buildings together with ancillary structures including a water tower and two steel sheds, completed in the period between 1995 and 2003.

Open market value Particulars of in existing state as at occupancy 31 December 2004 The property is currently No commercial value occupied by the Group for (See Note 5 below) production use.

The total gross floor area of the property is approximately 5,313.89 sq.m. (57,199 sq.ft.). (See Note 2 below)

The land use rights of the property have been administratively appropriated for industrial use for a term not specified in the Certificate of State-owned Land Use.

Notes:

• 1) Pursuant to the Certificate of State-owned Land Use No. 竹國用 (1998)字第 6595號 (Zhu Guo Yong (2004) Zi No. 6595) issued by Mianzhu Municipal People’s Government on 16 December 1998, the land use rights of the land in the property with a site area of 12,320.60 sq.m. have been administratively appropriated to 四川省綿竹華安玻璃廠 (Sichuan Province Mianzhu Hua An Glass Factory) for industrial use for a term not specified in the said Certificate of State-owned Land Use.

• 2) Pursuant to the Certificate of Building Ownership No.字第 1095號 (Zi No. 1095) issued by Mianzhu City Building Ownership Supervision Office on 10 April 1999, the ownership of eleven buildings in the property with a total gross floor area of 4,090.07 is collectively vested in Sichuan Province Mianzhu Hua An Glass Factory.

• 3) Pursuant to a Certification issued by Mian Zhu City State-owned Land Resources Bureau (hereinafter referred to the “Land Bureau”) and a confirmation issued by 綿竹市紅森玻璃製品有限責任公司 (Mian Zhu City Hongsen Glass Products Company Limited) both on 24 February, 2005, it is stated that the land use rights of the property held by Sichuan Province Mian Zhu Hua An Glass Factory has been transferred to Mian Zhu City Hongsen Glass Products Company Limited, and that application of the said transfer of title is being processed by the Land Bureau.

• 4) We have been advised by the Group that Mian Zhu City Hongsen Glass Products Company Limited is a 36.45% indirectly owned associated company of the Group.

• 5) In the course of our valuation, we have ascribed no commercial value to the property. Had the Group obtained a valid Certificate of State-owned Land Use for the land and valid Certificate(s) of Building Ownership for the corresponding buildings, the open market value in the existing state of the property, as at 31 December 2004, would be HK$5,300,000.

• 6) We have relied on the information given by the Group and prepared our valuation on the following assumptions:

• a) Sichuan Province Mianzhu Hua An Glass Factory is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) The land use rights of the property are for a term of 50 years from the issuance date of the Certificate of State-owned Land Use.

• c) All outstanding costs, land grant considerations and expenses otherwise payable have been fully settled.

• d) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

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PROPERTY VALUATION REPORT

APPENDIX III

• e) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• f) The property may be disposed of freely to both local and overseas purchasers.

• 7) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate of State-owned Land Use[] Yes Certificate of Building Ownership (part)[] Yes

• (* Held under Sichuan Province Mianzhu Hua An Glass Factory)

– 105 –

PROPERTY VALUATION REPORT

APPENDIX III

Group II – Property interests held for investment by the Group in the PRC

Open market value Particulars of in existing state as at No. Property Description and tenure occupancy 31 December 2004 8. Unit 02 on Level 3A, Zhongda Square, completed in July 1996, is a The property is currently HK$7,800,000 Zhongda Square, No. 989 28-storey commercial/office complex erected leased to Deson Dongfang Road, Lujiazui, on two levels of basement car park. Development Limited for Pudong District, Shanghai, office use for a term of two the PRC The property comprises a unit on Level 3A of years expiring on 30 the building. September 2006 at a monthly rent of HK$40,000 The gross floor area of the property is inclusive of management approximately 533.71 sq.m. (5,745 sq.ft.). fee. The land use rights of the property have been granted for a term from 23 February 1998 to 21 December 2043.

Notes:

• 1) Pursuant to the Certificate for Real Estate Ownership No. 滬房地市字 (1999) 第 003108號 (Hu Fang Di Shi Zi (1999) No. 003108) issued by 上海市房屋土地管理局 (Shanghai Municipal Building and Land Administration Bureau) on 9 July 1999, the ownership of the property is vested in 景達物業有限公司 (Penmark Limited).

• 2) Pursuant to the Tenancy Agreement entered into between Penmark Limited and Deson Development Limited on 30 September 2004, the property having a gross floor area of 533.71 sq.m. has been leased to Deson Development Limited for a term of two years from 1 October 2004 to 30 September 2006 at a rent of HK$40,000 per month, inclusive of management fee.

• 3) We have been advised by the Group that Penmark Limited is a 52.08% indirectly owned subsidiary of the Group.

• 4) We have relied on the information given by the Group and prepared our valuation on the following assumptions:

• a) Penmark Limited is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) All outstanding costs, land grant considerations and expenses otherwise payable have been fully settled.

• c) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• d) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• e) The property may be disposed of freely to both local and overseas purchasers.

• 5) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

Certificate for Real Estate Ownership Yes

– 106 –

APPENDIX III

PROPERTY VALUATION REPORT

No. Property

1. Whole of Levels 24, 27 and 28 together with Car Parking Space Nos. 31 to 39 on Basement 1 and Car Parking Space Nos. 82 to 91 on Basement 2, Zhongda Square, No. 989 Dongfang Road, Lujiazui, Pudong District, Shanghai, the PRC

Description and tenure

• Zhongda Square, completed in July 1996, is a 28-storey commercial/office building erected on two levels of basement car park.

The property comprises three whole floors, designated as Levels 24, 27 and 28, together with nine car parking spaces on Basement 1 and ten car parking spaces on Basement 2.

The total gross floor area of the property (excluding the area for the car parking spaces) is approximately 3,098.49 sq.m. (33,352 sq.ft.).

The land use rights of the property have been granted for a term from 8 September 1998 to 21 December 2043.

Open market value Particulars of in existing state as at occupancy 31 December 2004 All constituent units of the HK$54,300,000 property, are leased to various tenants for terms ranging from 1 to 5 years with the latest expiring on 30 September 2007. The total rental income for the month of December 2004 is approximately RMB185,257.80 exclusive of management fees. Regarding the subject 19 car parking spaces, except for 1 bays which are vacant, 5 bays which are owneroccupied and 9 bays which are occupied by existing tenants under the respective leasing contracts, the remaining 4 bays are licensed on monthly basis with a total licence fee of approximately RMB1,950 per month.

Notes:

• 1) Pursuant to a certified copy of the Certificate for Real Estate Ownership No. 滬房地市字 (2000)第 003752號 (Hu Fang Di Shi Zi (2000) No. 003752) issued by Shanghai Municipal Building and Land Administration Bureau on 26 June 2000, the property, comprising all three levels of office with a total gross floor area of 3,098.49 sq.m. and all 19 car parking spaces, is solely owned by 佑誠有限公司 (Bless Honour Limited).

• 2) We have been advised by the Group that Bless Honour Limited is a 52.08% indirectly owned subsidiary of the Group.

• 3) We have relied on the information provided by the Group and prepared our valuation on the following assumptions:

• a) Bless Honour Limited is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payments payable to the government.

• b) All outstanding costs, land grant considerations and expenses otherwise payable have been fully settled.

• c) The design and construction of the property are in compliance with the local planning regulations and have been approved by the relevant government authorities.

• d) All consents, approvals and licences from relevant government authorities for the occupation of the property have been granted without any onerous conditions or undue delay, which might affect its value.

• e) The property, whether as a whole or on strata-titled basis, may be disposed of freely to both local and overseas purchasers.

• 4) The status of the title and grant of major approvals and licences in accordance with the information provided to us by the Group are as follows:

• Certificate for State-owned Land Use Certificate for Real Estate Ownership

Yes Yes

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GENERAL INFORMATION

APPENDIX IV

A. 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 there are no other facts the omission of which would make any statement herein misleading.

B. DISCLOSURE OF INTERESTS

• (i) Save as disclosed below, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interest or short position in the Shares, underlying Shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which will have to be notified to the Company and the Stock Exchange pursuant to the provisions under Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which he would be deemed or taken to have under Sections 344 and 345 of the SFO) or the Model Code for Securities Transactions by Directors of Listed Companies, or which will have to be, pursuant to Section 352 of the SFO, entered in the register referred to herein:

Long positions in the Shares

			Approximate
			percentage of the
			Company’s issued
Name of Director	Nature of interest	Number of Shares	share capital
Mr. Tjia Boen Sien	Interest by attribution_(Note 1)_	2,362,500,000	45.72%
	Beneficial Owner	351,124,000	6.79%
Mr. Wang Jing Ning	Interest by attribution_(Note 1)_	2,362,500,000	45.72%
	Beneficial Owner	18,396,000	0.36%
Mr. Wang Ke Duan	Beneficial owner	2,689,600	0.05%
Mr. Siu Man Po	Beneficial owner	1,800,000	0.03%

Note 1: 2,362,500,000 Shares are held by Sparta Assets Limited (“Sparta Assets”), a company which is owned as to 90% by Mr. Tjia Boen Sien and 10% by Mr. Wang Jing Ning.

• (ii) Save as disclosed below, the Directors or chief executive of the Company are not aware of any other person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares or the underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who will be interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long positions in the Shares or underlying Shares

			Approximate
			percentage of the
			Company’s issued
Name of Shareholder	Nature of interest	Number of Shares	share capital
Sparta Assets	Beneficial owner	2,362,500,000	45.72%
Mr. Tjia Boen Sien	Interest by attribution_(Note 1)_	2,362,500,000	45.72%
	Beneficial owner	351,124,000	6.79%
Mr. Wang Jing Ning	Interest by attribution_(Note 1)_	2,362,500,000	45.72%
	Beneficial owner	18,396,000	0.36%
Okabe Co. Ltd.	Beneficial owner	281,250,000	5.44%

Note 1: 2,362,500,000 Shares are held by Sparta Assets, a company which is owned as to 90% by Mr. Tjia Boen Sien and 10% by Mr. Wang Jing Ning.

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GENERAL INFORMATION

APPENDIX IV

Long positions in the shares of CPG

			Approximate
			percentage of
			CPG’s issued
Name of shareholder	Nature of interest	Number of shares	share capital
Super Win	Beneficial Owner	1,561,724,256	59.73%
Deson Development	Interest by attribution_(Note 1)_	1,561,724,256	59.73%
Holdings Limited
Deson	Interest by attribution_(Note 2)_	1,561,724,256	59.73%
Sparta Assets	Interest by attribution_(Note 3)_	1,561,724,256	59.73%
Mr. Tija Boen Sien	Interest by attribution_(Note 4)_	1,561,724,256	59.73%
Mr. Wang Jing Ning	Interest by attribution_(Note 4)_	1,561,724,256	59.73%

Notes:

1. Pursuant to the SFO, Deson Development Holdings Limited is deemed to be interested in the same block of 1,561,724,256 Shares held by Super Win, its wholly-owned subsidiary.

2. Pursuant to the SFO, the Company is deemed to be interested in the same block of 1,561,724,256 Shares held by Super Win, its indirect wholly-owned subsidiary.

3. Sparta Assets is interested in approximately 45.72% of the entire issued share capital of the Company and is therefore entitled to exercise or control the exercise of one third or more of the voting power at general meetings of Super Win. Pursuant to the SFO, Sparta Assets is deemed to be interested in the same block of 1,561,724,256 Shares held by Super Win.

4. Sparta Assets, a company incorporated in the British Virgin Islands, is beneficially owned as to 90% by Mr. Tija Boen Sien and 10% by Mr. Wang Jing Ning.

C. NO MATERIAL ADVERSE CHANGE

Save for those transactions as disclosed in the Company’s circulars dated 31 March 2004 and 28 September 2004, the Directors are not aware of any material adverse change in the financial or trading positions of the Group since 31 March 2004, being the date to which the latest audited financial statements of the Group were made up.

D. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or any of their respective associates has any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Company.

As at the Latest Practicable Date, none of the Directors has any material interest in any contract or arrangement which is significant in relation to the business of the Group.

E. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or experts named in the paragraph headed “Qualification of Experts” (the “ Experts ”) has any direct or indirect interest in any asset which has been acquired or disposed of by or leased to any member of the Group since 31 March 2004 (the date to which the latest published audited consolidated financial statements of the Group were made up to) or proposed to be so acquired, disposed of or leased.

F. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or proposed Directors has entered into or proposed to enter into any service contracts with the Company or any other member of the Group save for those expiring or determinable by the relevant employer within one year without payment of compensation (other than statutory compensation).

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GENERAL INFORMATION

APPENDIX IV

G. MATERIAL LITIGATION

• (i) Kenworth Engineering Limited (“ Kenworth ”), an indirect wholly-owned subsidiary of the Company, has commenced litigation in March 2001 against Pilecon Engineering Berhad (“ Pilecon ”), a main contractor of Kenworth, for approximately HK$14,835,400 plus damages in connection with the termination of certain electrical and mechanical sub-contract for construction of treatment and disposal facilities. However, Pilecon made a defense and counterclaim in October 2001 for approximately HK$12,270,600. The proceeding is in a stage of discovery of document.

• (ii) As stated in the 2004 annual report of CPG, Kenworth received a claim of approximately HK$341 million from a main contractor of a construction project for the alleged breach of a subcontract in October 2000 which Kenworth has not admitted. The claim amount was revised to HK$141 million in 2002. A counterclaim was submitted by Kenworth against this main contractor for the outstanding contract sum in respect of the completed work and the loss due to the wrongful termination of the subcontract. Under the provisions of the subcontract, the disputed claim is subject to arbitration proceedings between Kenworth and the main contractor. The notice of arbitration was issued before the effective date of three schemes of arrangement involving CPG and its then two subsidiaries, Kenworth and Kenworth Group Limited, pursuant to Section 166 of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), according to the terms of the Schemes and the arbitration proceedings continued when in August 2002, the arbitrator was appointed. As at 31 December 2004, a security deposit of HK$5 million had been paid by the Group to the arbitrator. Both Kenworth and the main contractor are in the process of submitting information to the arbitrator for assessment. The Scheme Administrator is required to await the arbitrator’s decision or, in the event that such decision is subject to appeal or further appeal(s) by either party thereto, to await the ultimate outcome and final decision to be made by the relevant appellate body. In any event, the claim, if awarded in favour of the main contractor, is still subject to the terms and conditions of the Schemes.

In relation to the same construction project detailed above, in October 2000 Kenworth also received a claim of approximately HK$353 million from the contract employer in respect of damages for the alleged breach of the same subcontract. The claim amount was revised to HK$237 million in 2002. On 3 December 2004, the Scheme Administrator received a notice from the contract employer to withdraw this claim.

Pursuant to an agreement dated 18 October 2000 entered into between Kenworth and CPG, CPG agreed to discharge the liabilities of Kenworth under the Schemes by the allotment of certain redeemable cumulative preference shares by Kenworth.

The Group appointed an independent chartered surveyor to estimate its potential exposure under the above two claims in 2003. According to the report of the surveyor, the maximum exposure of the above claims amounted to HK$70 million. The directors consider that the Group has valid defences against the claims and based on existing evidence believe that it is not probable that any material loss will be suffered by the Group. In addition, as the arbitration proceedings are still proceeding and detailed assessment of the parties’ claims and counterclaims must be made during the course of the proceedings, it is not currently possible to estimate the eventual outcome of the claims but the directors currently consider that no provision needs to be made as at 31 December 2004.

By an application dated 30 March 2004, Kenworth sought declarations from the Court of First Instance of the High Court of the Hong Kong Special Administrative Region on:

1. whether any awards or orders for costs made against Kenworth in relation to an arbitration between Kenworth and any claimant against Kenworth which had commenced before the effective date of the Schemes and was continuing shall be limited in accordance with the provisions of the Scheme and shall thereby form part of that claimant’s claims under the Scheme thereby entitling the claimant only to dividends in respect of those costs; and

2. whether in respect of any awards or orders for security for costs made against Kenworth in such arbitration; and any awards or orders for security for costs made against Kenworth in any reviews on appeals, or in any proceedings subsequent to any reviews or appeals, including but not limited only to any remittance of the award or order to the arbitrator or any review or further review of the award or order by the arbitrator and any subsequent appeal therefrom, Kenworth shall only be required to provide

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GENERAL INFORMATION

APPENDIX IV

security for costs limited in accordance with the provisions of the Scheme such that, for every HK$10,000 that Kenworth is required to provide as security for costs pursuant to any award or order, Kenworth shall only be obliged to provide for, pay or deposit as security either the equivalent dividends which would under the Scheme operate to fully discharge Kenworth’s liability for such payment, that is, HK$312.50 in cash, 5,000 shares in CPG and notes in the principal amount of HK$187.50 or the cash equivalent of such dividends of HK$1,000.

The hearing in the Court of First Instance was completed on 14 December 2004 and by a decision (the “Decision”) handed down on 25 January 2005, the Court of First Instance declined to make the declarations sought. As such, if the Decision is not reversed on appeal, Kenworth will need to pay the legal costs incurred by the main contractor in relation to the arbitration in full. Kenworth is now consulting its legal advisers as to the merits of an appeal against the Decision and further action may be taken to protect the interests of Kenworth and the Group.

Save as disclosed herein, as at the Latest Practicable Date, no member of the Group is engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

H. MATERIAL CONTRACTS

Set out below are information on the material contracts, not being contracts entered into in the ordinary course of business, which were entered into by the Group within the two years immediately preceding the Latest Practicable Date:

• (i) an agreement dated 6 March 2003 entered into between the Company and CPG in relation to the disposal by the Group of the entire issued share capital of Billion Treasure Holdings Limited and a related shareholder’s loan;

• (ii) a sale and purchase agreement dated 18 February 2004 entered into between Smarksborne Ltd., Rhythorth Limited, Brilliant China, Mr. Mo Shikang and CPG in respect of the acquisition of a 49% interest in Xin Hua and related shareholders’ loans;

• (iii) a placing agreement dated 18 February 2004 entered into between CPG and the Guotai Junan Securities (Hong Kong) Limited in connection with the placing of 800,000,000 Placing Shares (as defined therein) of CPG to independent placees;

• (iv) an agreement dated 18 February 2004 entered into between the Company and CPG in respect of the acquisition by CPG of the entire issued share capital of Penmark Limited and the Penmark Shareholder’s Loan (as defined therein) from the Company;

• (v) an agreement dated 18 February 2004 entered into between CPG and Super Win in relation to the subscription of the shares of CPG by Super Win and the issue of the shares of CPG;

• (vi) a sale and purchase agreement dated 18 February 2004 entered into between the Company and CPG in relation to the disposal by CPG to the Company of the entire issued share capital of Kenworth Group Limited and the related shareholder’s loan;

• (vii) the agreement dated 27 July 2004 entered into between Super Win and Guotai Junan Securities (Hong Kong) Limited in connection with the placing of 175,000,000 shares of CPG to independent placees;

• (viii) the sale and purchase agreement dated 2 August 2004 entered into between Brilliant China, Camture Limited, Ms. Han Fengyun and CPG in respect of a 51% shareholding in Xin Hua and the related shareholder’s loan; and

• (ix) the Sale and Purchase Agreement.

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GENERAL INFORMATION

APPENDIX IV

I. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts who have given their advices, letters or reports for the incorporation in this circular (the “ Experts ”):

		Nature of opinion
Name	Qualification	or advice	Date of Opinion
B.I. Appraisals	An independent	Property Valuation	28 February 2005
	firm of chartered	Report
	surveyors
Ernst & Young	Certified public	Accountants’ report	28 February 2005
	accountants
First Shanghai	A deemed licensed	Letter of advice to	28 February 2005
	corporation under the	Independent
	SFO permitted to engage	Board Committee
	in type 6 regulated activity	and Shareholders
	(as defined under the SFO)

J. CONSENT

The Experts have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their advices, letters, reports and references to their names in the form and context in which they appears.

As at the Latest Practicable Date, the Experts did not have any shareholding in the Company or any other member of the Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Group.

As at the Latest Practicable Date, the Experts did not have any direct or indirect interests in any assets which had been acquired or disposed of by or leased to any member of the Group since 31 March 2004 (the date to which the latest published audited consolidated financial statements of the Company were made up) or proposed to be so acquired, disposed of or leased.

K. GENERAL

• (i) As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which is significant to the business of the Group.

• (ii) As at the Latest Practicable Date, none of the Directors has any direct or indirect interests in any assets which had been acquired or disposed of by or leased to any member of the Group since 31 March 2004, being the date to which the latest published audited consolidated financial statements of the Company were made up or proposed to be so acquired, disposed of or leased.

• (iii) Mr. Ong Chi King is the secretary of the Company. Mr. Ong holds a bachelor degree in Business Administration from the Hong Kong University of Science and Technology. He is a fellow of the Association of Chartered Certified Accountants and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accounts.

• (iv) Miss Wong Ka Yan is the Assistant Financial Controller and qualified accountant of the Group and is responsible for assisting the Financial Controller in monitoring all of the Group’s accounting and finance operations. Miss Wong holds a Bachelor degree in Commerce from the University of Adelaide, Australia and is a certified public accountant of CPA Australia. Prior to joining the Group, Miss Wong had several years of experience with an international accounting firm.

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GENERAL INFORMATION

APPENDIX IV

• (v) The Company’s registered office is at Canon’s Court, 22 Victoria Street, Hamiliton HM12 Bermuda. The principal place of business of the Company in Hong Kong is at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong. The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (vi) The English text of this circular shall prevail over the Chinese text.

L. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong up to and including 15 March 2005:

• (i) the memorandum of association and bye-laws of the Company;

• (ii) the Sales and Purchase Agreement;

• (iii) the contracts referred to under the paragraph headed “Material Contracts” in this appendix;

• (iv) the audited financial statements of the Group for the three years ended 31 March 2002, 2003 and 2004 and the interim report for the six months ended 30 September 2003 and 2004;

• (v) the report on the unaudited proforma financial information of the Remaining Group, the text of which is set out in appendix II of this circular;

• (vi) the valuation report from B.I. Appraisals, the text of which is set out in this circular;

• (vii) the letter of advice from First Shanghai, the text of which is set out in pages 12 to 19 of this circular;

• (viii) the written consents from the Experts; and

• (ix) the circulars of the Company dated 31 March 2004 and 28 September 2004.

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NOTICE OF SPECIAL GENERAL MEETING

DESON DEVELOPMENT INTERNATIONAL HOLDINGS LIMITED 迪臣發展國際集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 262)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Deson Development International Holdings Limited (the “Company”) will be held at 11th Floor, Nanyang Plaza, 57 Hung To Road, Kwun Tong, Kowloon, Hong Kong at 10:00 a.m. on 15 March, 2005 for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT

• (a) the conditional sale and purchase agreement (the “Agreement”) dated 15 December 2004 entered into between the Company, Deson Development Holdings Limited (the “Vendor”) and Asian Allied Limited (“Asian Allied”) (a copy of which is tabled at the meeting and marked “A” and initialed by the chairman of the meeting for identification purpose) in relation to the sale by the Vendor and the purchase by Asian Allied of the entire issued share capital of Super Win Development Limited (“Super Win”) and the shareholder’s loan due and owing to the Vendor by Super Win, details of which are set out in the circular issued by the Company dated 28 February 2005 (a copy of which is tabled at the meeting and marked “B” and initialed by the chairman of the meeting for identification purpose), be and is hereby approved, ratified and confirmed;

• (b) all transactions contemplated under the Agreement and the implementation thereof be and are hereby approved, ratified and confirmed; and

• (c) 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 documents, instruments, agreements and deeds and do all such acts, matters and things as he/they may in his/their absolute discretion consider necessary or desirable for the purpose of and in connection with the implementation of the Agreement and the transactions contemplated thereunder and to make and/or agree to such variations of the terms of the Agreement as he/they may in his/their absolute discretion consider necessary or desirable.”

By order of the Board Ong Chi King Company Secretary

Hong Kong, 28 February 2005

Notes:

1. A member entitled to attend and vote at the special general meeting is entitled to appoint one or more proxies to attend and, on a poll, vote in his stead. A proxy need not be a member of the Company.

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

1. In order to be valid, a proxy form 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 with the Company’s branch share registrar in Hong Kong, Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders of the Company from attending and voting in person at the special general meeting or any adjourned meeting should they so wish.

• For identification only

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