Digital China Holdings Limited — Proxy Solicitation & Information Statement 2015

Aug 9, 2015

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 Digital China Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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

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VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION AND

NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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REORIENT Financial Markets Limited

A letter from the Board is set out on pages 5 to 34 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages IBC-1 to IBC-2 of this circular. A letter from Reorient containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages IFA-1 to IFA-27 of this circular.

A notice convening the SGM to be held at Harbour View Ballroom I, Level 4, Four Seasons Hotel Hong Kong, 8 Finance Street, Central, Hong Kong on Wednesday, 26 August 2015 at 3: 30 p.m. is set out on pages N-1 to N-4 of this circular.

If you are not able to attend the SGM in person, please complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the public office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjourned meeting thereof (as the case may be). Completion and return of the accompanying form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof (as the case may be) should you so wish.

• For identification purpose only

9 August 2015

CONTENTS

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . .		IBC-1
LETTER FROM REORIENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		IFA-1
APPENDIX I	— FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . .	I-1
APPENDIX II	— FINANCIAL INFORMATION OF THE
	DISPOSAL BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
APPENDIX III	— UNAUDITED PRO FORMA COMBINED FINANCIAL
	INFORMATION OF THE REMAINING GROUP . . . . . . . . .	III-1
APPENDIX IV	— LETTERS ON PROJECTION UNDERLYING
	THE VALUATION OF THE DISPOSAL BUSINESS . . . . . .	IV-1
APPENDIX V	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		N-1

– i –

DEFINITIONS

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

• ‘‘Asset Trustor(s)’’ asset trustors who provided funds to China Fund Management for the Share Subscription

• ‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules ‘‘Board’’ the board of Directors of the Company ‘‘business day(s)’’ the legal working days in China excluding Saturdays, Sundays and legal holidays, unless otherwise specified in this circular

• ‘‘China’’ or ‘‘PRC’’ the People’s Republic of China (excluding, for the purpose of this circular, Hong Kong, the Macao Special Administrative Region of the PRC and Taiwan)

• ‘‘China Fund China Fund Management Co., Ltd.* (中信建投基金管理有限公 Management’’ 司), a company incorporated under the laws of the PRC

• ‘‘Company’’ Digital China Holdings Limited (神州數碼控股有限公司*), an exempted company incorporated under the laws of Bermuda with limited liability in 2001, the shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 00861)

• ‘‘Completion’’ completion of the Disposal pursuant to the Share Transfer Agreement

• ‘‘Completion Date’’ the date on which Completion takes place ‘‘connected person(s)’’ has the meaning ascribed to it under the Listing Rules ‘‘Consideration’’ the cash consideration of RMB4.01 billion for the Disposal, or as may be adjusted based on finalised Valuation Report

• ‘‘CSRC’’ The China Securities Regulatory Commission (中國證券監督管理 委員會)

• ‘‘DCL’’ Digital China Limited (神州數碼有限公司), a company incorporated under the laws of Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company

• ‘‘DC China’’ Digital China (China) Limited* (神州數碼（中國）有限公司), a limited liability company incorporated under the laws of the PRC and an indirect wholly-owned subsidiary of the Company

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DEFINITIONS

• ‘‘DC Guangzhou’’

• Guangzhou Digital China Information Technology Co., Ltd.* (廣州神州數碼信息科技有限公司), a limited liability company incorporated under the laws of the PRC and an indirect whollyowned subsidiary of the Company

• ‘‘DC Shanghai’’ Shanghai Digital China Limited* (上海神州數碼有限公司), a limited liability company incorporated under the laws of the PRC and an indirect wholly-owned subsidiary of the Company

• ‘‘Director(s)’’ the director(s) of the Company

• ‘‘Disposal’’ the disposal by DCL of 100% equity interests in the Target Companies

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘HK$’’ Hong Kong dollars, the lawful currency of Hong Kong

• ‘‘HKEx’’ Hong Kong Exchanges and Clearing Limited

• ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

• ‘‘IT’’ information technology

• ‘‘Independent Board an independent committee of the Board comprising all Committee’’ independent non-executive Directors, formed to advise the Independent Shareholders in respect of the Transaction

• ‘‘Independent the Shareholders other than those who are required to abstain Shareholders’’ from voting at the SGM

• ‘‘Latest Practicable 5 August 2015, being the latest practicable date prior to the Date’’ printing of this circular for ascertaining certain information contained herein

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange, as amended from time to time

• ‘‘New A Share(s)’’ 296,096,903 new ordinary share(s) to be issued and allotted by Shenxin Taifeng to the Subscribers pursuant to the Subscription Agreements entered into between Shenxin Taifeng and each of the Subscribers

• ‘‘Remaining Group’’ the Company and its subsidiaries, excluding the Target Companies and their subsidiaries after the group restructuring

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DEFINITIONS

‘‘Reorient’’ or Reorient Financial Markets Limited, a licensed corporation to ‘‘Independent carry on type 1 (dealing in securities), type 4 (advising on Financial Adviser’’ securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transaction

• ‘‘RMB’’ Renminbi, the lawful currency of the PRC ‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong), as amended from time to time

• ‘‘SGM’’ the special general meeting of the Company to be held at Harbour View Ballroom I, Level 4, Four Seasons Hotel Hong Kong, 8 Finance Street, Central, Hong Kong on Wednesday, 26 August 2015 at 3: 30 p.m. or any adjournment thereof, notice of which is set out on pages N-1 to N-4 of this circular

• ‘‘Share(s)’’ the ordinary share(s) of HK$0.10 each in the share capital of the Company

• ‘‘Shareholder(s)’’ holder(s) of the Share(s)

• ‘‘Share Subscription’’ the subscription for the New A Shares by the Subscribers pursuant to the terms of the Subscription Agreements

• ‘‘Share Transfer the agreement dated 7 August 2015 entered into between DCL, Agreement’’ the Company and Shenxin Taifeng in relation to the Disposal

• ‘‘Shenxin Taifeng’’ Shenzhen Shenxin Taifeng Group Co., Ltd.* (深圳市深信泰豐(集 團)股份有限公司), a joint stock limited company incorporated under the laws of the PRC, the shares of which are listed on The Shenzhen Stock Exchange (Stock Code: 000034.SZ)

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘Subscribers’’ investors to subscribe the New A Shares, including Mr. Guo Wei and China Fund Management

• ‘‘Subscription the agreements each dated 7 August 2015 entered into between Agreement(s)’’ Shenxin Taifeng and each of the Subscribers in relation to the subscription of the New A Shares by the Subscribers

• ‘‘Target Companies’’ DC China, DC Shanghai and DC Guangzhou

• ‘‘Transaction’’ the Disposal and the Share Subscription

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DEFINITIONS

‘‘Valuation’’	the valuation result on the Target Companies as at 31 March
	2015 prepared by the Valuer
‘‘Valuation Report’’	the valuation report in relation to the Valuation dated 7 August
	2015
‘‘Valuer’’	China Alliance Appraisal Co., Ltd. (北京中同華資產評估有限公
	司）, an independent valuer
‘‘%’’	per cent

For the purpose of this circular, unless stated otherwise, amounts denominated in RMB have been translated, for the purpose of illustration only, into HK$ at an exchange rate of RMB1.00:HK$1.2504. No representation is made that any amounts in RMB or HK$ can be or could have been converted at the relevant dates at the above rates or at any other rates at all.

• For identification purpose only

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LETTER FROM THE BOARD

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Executive Directors:

Mr. GUO Wei (Chairman) Mr. LIN Yang (Chief Executive Officer) Mr. YAN Guorong (President)

Non-executive Director: Mr. Andrew Y. YAN

Independent Non-executive Directors:

Mr. WONG Man Chung, Francis Ms. NI Hong (Hope) Mr. ONG Ka Lueng, Peter Dr. LIU Yun, John Ms. YAN Xiaoyan

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

Head Office and Principal Place of Business in Hong Kong: Suite 2008, 20th Floor Devon House Taikoo Place 979 King’s Road Quarry Bay Hong Kong 9 August 2015

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

1. INTRODUCTION

Reference is made to the Company’s announcement dated 7 August 2015 in relation to the Transaction, whereby on 7 August 2015 (after trading hours of the Stock Exchange), DCL, an indirect wholly-owned subsidiary of the Company, the Company and Shenxin Taifeng entered into the Share Transfer Agreement, pursuant to which DCL has conditionally agreed to sell and Shenxin Taifeng has conditionally agreed to acquire 100% equity interests in the Target Companies. On the same day, Shenxin Taifeng entered into the Subscription Agreements with each of the Subscribers, including Mr. Guo Wei and China Fund Management (with Mr. Yan Guorong as one of the Asset Trustors), pursuant to which Shenxin Taifeng has conditionally agreed to issue New A Shares and the

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LETTER FROM THE BOARD

Subscribers have conditionally agreed to subscribe such New A Shares. Pursuant to the Share Transfer Agreement and the Subscription Agreements, Shenxin Taifeng will use the proceeds from the issue of New A Shares (after deduction of issuance costs) and self-raised funds to settle the Consideration.

The purpose of this circular is to provide you with, among other things:

• (a) further details of the Transaction;

• (b) financial and other information of the Group;

• (c) financial and other information of the Disposal Business (as defined below);

• (d) unaudited pro forma combined financial information of the Remaining Group; and

• (e) a notice of the SGM.

• THE TRANSACTION

• A. The Disposal

  • (A) The Conditional Share Transfer Agreement

A summary of the major terms of the Share Transfer Agreement is as follows:

• Date : 7 August 2015 (after trading hours of the Stock Exchange)

Parties : (a) DCL;

• (b) the Company; and

• (c) Shenxin Taifeng.

The Disposal : DCL has conditionally agreed to sell and Shenxin Taifeng has conditionally agreed to acquire 100% equity interests in the Target Companies.

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LETTER FROM THE BOARD

• Consideration : The Consideration is RMB4.01 billion (equivalent to approximately HK$5.01 billion), or as may be adjusted based on the finalised Valuation Report (details of the possible adjustment are set out under the heading ‘‘Determination of the Consideration’’ below), which will be financed by: (i) the proceeds of approximately RMB2.2 billion from the Share Subscription and (ii) self-raised funds of approximately RMB1.8 billion, and be paid in cash within 10 business days after the Completion Date.

Conditions Precedent

• : Completion is conditional upon the fulfillment of the following conditions precedent:

• (a) the Share Transfer Agreement having taken effect, namely, where the following conditions having been satisfied:

  • (i) the Transaction having been approved by the Board and the Shareholders at the SGM;

  • (ii) relevant procedures in relation to the issuing of announcement and circular and obtaining independent shareholders’ approval having been completed by the Company in compliance with Chapter 14 and Chapter 14A of the Listing Rules;

  • (iii) the Transaction having been approved by the board of directors and the shareholders of Shenxin Taifeng; and

  • (iv) the Transaction having been approved by the CSRC;

• (b) the anti-trust review on concentration of business operators, conducted by The Ministry of Commerce of the PRC in regard of the Disposal, having been passed; and

• (c) the Disposal having been approved by the supervising Bureau of Commerce of each Target Company.

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LETTER FROM THE BOARD

None of the conditions precedent has been fulfilled as at the Latest Practicable Date, or may be waived by the Company or Shenxin Taifeng according to the Share Transfer Agreement and Subscription Agreements.

Completion : After the fulfillment of all conditions precedent for Completion, (i) DCL, the Company and Shenxin Taifeng shall, within three business days from the completion of the Share Subscription, submit all necessary application documents to the relevant PRC regulatory authorities for the change of shareholders of the Target Companies; and (ii) DCL shall, within 20 business days from the completion of the Share Subscription, assist Shenxin Taifeng to complete all necessary PRC regulatory filings of the Target Companies for the change of shareholders of the Target Companies. The Completion shall take place on the date on which the PRC regulatory filing procedure is completed or the date on which new business licenses of the Target Companies are issued, whichever is later.

Upon Completion, the Company will cease to have any interest in the Target Companies and the Target Companies will cease to be the Company’s subsidiaries.

(B) Valuation

China Alliance Appraisal Co., Ltd. (北京中同華資產評估有限公司), an independent valuer, performed an independent valuation in respect of the Target Companies using the income-based approach and the market-based approach, and selected the income-based approach as the adopted valuation methodology for the Valuation Report. The Valuation Report is required by the applicable laws and regulations in the PRC that are applicable to Shenxin Taifeng in connection with its acquisition of the Target Companies. Under the ‘‘Administrative Measures for Material Asset Reorganisation of Listed Companies’’ (CSRC Decree No.109) 《( 上市公司重大資產重組管理辦法》(中國證 監會令第109號)) promulgated by the CSRC, Shenxin Taifeng is required to engage a qualified asset appraisal institution to issue a valuation report on the Target Companies as the Disposal forms part of a major reorganisation undertaken by Shenxin Taifeng and the consideration for which is to be determined by the parties with reference to the valuation results.

The Valuation has taken into account various factors, including but not limited to, the provision of non-competition undertakings by the Company, the completion of the group restructuring and the payment of the dividend declared by the Target Companies. Based on the Valuation Report, the appraised value of

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LETTER FROM THE BOARD

the Target Companies collectively as of 31 March 2015 was approximately RMB4.01 billion, and the estimated net profit before interest for the six financial years from 2015 to 2020 ending 31 December each year based on asset valuation using the income-based approach are:

2015 2016 2017 2018 2019 2020 Forecast net profit (RMB’000) 414,810.0 412,575.7 419,372.8 426,319.8 437,857.6 450,769.4 Approximate equivalent amount in HK$ (HK$’000) 518,678.4 515,884.7 524,383.7 533,070.3 547,497.1 563,642.1

As the Valuer has adopted the income-based approach in performing the Valuation, which has taken into account the discounted cash flow forecast of the Target Companies, the Valuation constitutes a profit forecast under Rule 14.61 of the Listing Rules (the ‘‘Target Companies Profit Forecast’’). As such, the requirements under Rule 14.62 of the Listing Rules are applicable.

Set out below is the information in relation to the Target Companies Profit Forecast and the Valuation Report:

(a) Assumptions

The principal assumptions, including commercial assumptions, upon which the Target Companies Profit Forecast was based, include:

• (i) the Valuation is carried out for the specific purposes set out in the Valuation Report;

• (ii) there will be no unforeseeable material changes to the external economic environment after 31 March 2015, the reference date of the Valuation;

• (iii) the operational businesses of the entities being evaluated are lawful, and there will be no unforeseeable factors that may prevent the entities being evaluated from operating as a going concern;

• (iv) upon Completion, the Company and all of its subsidiaries and branch companies will not carry out IT products distribution business;

• (v) the underlying documents and financial information provided by the entities being evaluated and the entrusting party are true, accurate and complete;

• (vi) the financial reports and transaction data of the comparable companies that are relied upon by the Valuer are true and reliable;

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LETTER FROM THE BOARD

• (vii) the profit forecast contained in the Valuation has not considered the impact of changes and fluctuations of foreign exchange market;

• (viii)unless otherwise stated, the Valuation has not considered the impact of any mortgage or guarantee obligations on the appraisal value, nor the impact on asset prices due to changes in national macro-economic policy or the occurrence of acts of God and any other force majeure event; and

• (ix) the shareholders of the Target Companies will obtain net cash flow during the financial year evenly, instead of a lump sum at the end of the financial year.

• (b) Management discussion on the assumptions in the Valuation Report

To the best knowledge of the Company, it was not aware of any material changes to the external economic environment that would affect the valuation result since 31 March 2015 and up to the Latest Practicable Date.

With respect to assumption (vi) above, based on common valuation practice in the PRC, the Valuer adopted the following selection criteria to identify comparable companies:

• (i) the comparable company shall be profit-making in the previous two years;

• (ii) the comparable company shall be listed for at least two years;

• (iii) the comparable company shall only have A-shares in issue; and

• (iv) the industry in which the comparable company is engaged or its principal operation shall belong to wholesale and retail industry — distribution of electronic products in wholesale industry under the industry category of the CSRC, and such principal operation shall have a track record of two years.

With respect to selection criterion (iii) above, the Company is of the view that excluding non-A-share companies is acceptable because (i) the Disposal is to be conducted in the PRC, in such case it is common valuation practice for the Valuer to consider A-share companies only, and (ii) the Company has separately considered the price-to-earnings ratios of other comparable companies listed in other capital markets.

In accordance with the four criteria above, the Valuer used Wind Information System to conduct the selection. Among all A-share listed companies, only four companies meet all the above criteria, namely Furi Electronics (福日電子), Aisidi (愛施德), Zhongyeda (眾業達) and P&S Information (力源信息). Accordingly, the Valuer selected the four

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LETTER FROM THE BOARD

companies above as the comparable companies. Given that (a) there is no A- share listed Company that is mainly engaged in IT products distribution business and (b) the comparable companies are engaged in distribution of electronic products, which are similar to the Target Companies in terms of business model and risk exposure, the Company is of the view that the selection criteria set by the Valuer are reasonable and the comparable companies represent a fair and complete sampling in a material aspect.

With respect to assumption (vii) above, since RMB is a currency which is subject to foreign exchange control and fluctuates depending on various factors, including the currency policies promulgated by the PRC government from time to time, the Valuer is not in a position to carry out the valuation taking into consideration of the impact of changes and fluctuations of foreign exchange market. In addition, such assumption is consistent with the common valuation practice in the PRC. Therefore, the Company is of the view that such assumption is made by the Valuer after due consideration and considers that such assumption would not have any material impact on the valuation results given that (i) the exchange rate of RMB to US dollars was relatively stable in the past twelve months and to the best knowledge of the Company, it is not aware of any reason that will materially affect the stability of the exchange rate in the near future; and (ii) the exposure of foreign exchange rates to the business of the Target Companies are limited because over 70% of the purchase prices are now settled and paid to the suppliers of the Target Companies in RMB.

(c) Key parameters in the Valuation Report

A summary of the key parameters used in conducting the valuation and their respective reason of adoption is as follows:

• (i) An estimated 3% annual growth of future operating income

According to the latest forecast published by Gartner, an information technology research and consultant company, when valued with fixed exchange rate and exclude the effect of exchange rate fluctuation, the demand in IT market in 2015 will grow by 3.1% comparing to that of 2014. Having taken into consideration of factors such as the past historic records, the inflation rate in the PRC, the industry features of the target business and stage of business development, the Valuer is of the view that the target business will record a relatively stable growth in operating income from 2016 to 2020 with an estimated annual growth rate of 3%.

• (ii) An estimated gross profit margin of 5.4%

Forecast of operating costs is mainly based on the forecast of future sales and market conditions while taking into consideration of historical costs levels and variables affecting procurement costs, which is the

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LETTER FROM THE BOARD

primary operating cost in distribution business. In the forecast period, operating costs account for approximately 94.6% of operating income, and it is estimated that such proportion will remain stable in the coming years. Therefore, the estimated gross profit margin during the forecast period is approximately 5.4%.

(iii) Discount rate

The Weighted Average Cost of Capital (‘‘WACC’’) can be calculated with the expected return rate of equity and return rate of debt using the weighted average method, and the weight is determined by the relative proportion of actual equity and debt. The WACC is calculated with the following formula:

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Where: E is the value of equity; Re is the expected return rate of equity; D is the value of interest-bearing debt; Rd is the expected return rate of debt; T is the corporate income tax rate;

WACC of the assessed unit calculated according to the above mentioned was 9.25%, which the Valuer adopted as the discount rate of the assessed company.

(iv) Risk-free return rate (‘‘Rf’’)

Treasury bonds, with a remaining term of over 10 years from the date of assessment benchmark to the maturity of the treasury bonds, were selected from the Shanghai and Shenzhen market and their return rates upon maturity were calculated. The average return rate upon maturity of all treasury bonds was adopted as the risk-free rate of return of this assessment. 4.27%, the average return rate upon maturity of the above treasury bonds, was adopted as the risk-free rate of return.

(v) Equity risk premium (‘‘ERP’’)

After calculating the arithmetic mean or geometric mean of annual return of constituent stocks of Hushen 300 Index, the average return rate of the 300 constituent stocks was calculated. It was used as the arithmetic or geometric mean to calculate the ERP results for the year. The weighted average method was adopted for this average. The weight chosen was the weight of each constituent stock in the calculation of Hushen 300 Index. The calculation of data in the recent decade resulted in ERP = 8.21% as a reasonable future estimation of return in excess of equity in the current domestic market. The IT product distribution operation of the assessed enterprise generates part of its income through

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LETTER FROM THE BOARD

a company registered in Hong Kong. Accordingly, adjustment for country risk factor was required. ERP after adjustment for country risk factor is 8.19%.

• (vi) The stock market risk factor of β of the comparable companies (Levered β)

Wind is a company in China engaged in the research on β and giving the formula to calculate β. In this appraisal, we applied the β calculator offered by the company to calculate β of the comparable companies, with Hushen 300 Index chosen as the stock market index. Hushen 300 Index was chosen because the index was the first crossmarket index in the PRC, which covers both the market in Shanghai and Shenzhen. The constituent stocks of the index are leading stocks with vigorous trading activity from various industries as well. The calculated value was 0.6987.

(vii) Return rate of equity

The expected return rate of equity of the assessed unit was calculated through the Capital Asset Pricing Model (‘‘CAPM’’), Re＝ Rf＋β x ERP＋Rs (Rs is the return rate of the company specific risk premium). Thus, the CAPM of the assess unit

= 4.27%+0.6987 x 8.19%+0.01%

• =10.0%

(viii)Return rate of debt

It is understood that interest rate of one-year loan to be obtained by the assessed unit will remain at 4.00%. Thus, the Valuer adopted 4% as the expected annual return rate of debt.

(d) Letter from Ernst & Young and Board Letter

Ernst & Young, the reporting accountants of the Company, have examined the arithmetical accuracy of the calculations of the discounted cash flows forecast of the Target Companies underlying the Valuation Report, which does not involve the adoption of accounting policies. The Company has received a letter from Ernst & Young regarding the calculation of the discounted future estimated cash flow of the Target Companies dated 7 August 2015 (the ‘‘Letter from Ernst & Young’’), in which Ernst & Young is of the opinion that, so far as the arithmetical accuracy of the calculations is concerned, the Target Companies Profit Forecast has been properly compiled in accordance with the assumptions adopted in the Valuation Report.

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LETTER FROM THE BOARD

The Board has reviewed the Target Companies Profit Forecast and discussed the bases and assumptions upon which the Target Companies Profit Forecast has been prepared. The Board has also considered the Letter from Ernst & Young. On the basis of the foregoing, the Board confirmed that the Target Companies Profit Forecast has been made after due and careful enquiry, and issued a letter to the Stock Exchange (the ‘‘Board Letter’’) accordingly. The Letter from Ernst & Young and the Board Letter are included as Appendix IV to this circular.

(C) Determination of the Consideration

The Consideration is arrived at after arm’s length negotiations between the Company and Shenxin Taifeng with reference to various factors including: (i) the Valuation Report; (ii) the recent financial position and performance of the Target Companies; (iii) the outlook of the business of sales and distribution of general IT and systems products in the PRC; and (iv) the commercial reasons and benefits set out in the paragraphs headed ‘‘Reasons for and benefits of the Transaction for the Company’’ below.

During the approval process of the Transaction, which will take place after the SGM but prior to Completion, the Shenzhen Stock Exchange and the CSRC will consider the rationality of the valuation factors in the Valuation Report, such as valuation assumptions, profit forecast of the underlying assets and valuation parameters. They may request certain valuation factors to be adjusted and in such case, the Valuer may need to issue a revised valuation report which may in turn, affect the valuation result stated in the Valuation Report. In such case, the Consideration will be adjusted according to the following mechanism:

• (a) if the difference in the valuation results between the finalised Valuation and the Valuation is not more than 3% of the Valuation, the Consideration will be adjusted to be the finalised Valuation; and

• (b) if the difference in the valuation results between the finalised Valuation and the Valuation is more than 3% of the Valuation, the Consideration will be determined by mutual agreement of all parties to the Share Transfer Agreement. In such case, the Company will comply with the reporting, announcement and Independent Shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules as and when necessary.

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LETTER FROM THE BOARD

During the negotiation process of the Disposal, the Company understood from Shenxin Taifeng that it could not accept the Consideration being an amount which is higher than the valuation results. On this basis, the Directors have considered factors (ii), (iii) and (iv) above, which indicate a downward prospect for the Disposal Business (as defined below). The Directors also considered the market share, branding and goodwill of the Target Companies in the Disposal Business, which are positive factors and also the price-to-earnings ratios of the following comparable companies as at the Latest Practicable Date:

				Price-to-
		Listing		earnings
	Company	venue	Principal business	ratio (1)
1.	Changhong Jiahua	Hong Kong	Distribution of IT consumer and	12.04
	Holdings Limited		corporate products, consumer
			electronic products and smartphones
2.	Futong Technology	Hong Kong	Provision of enterprise IT infrastructure	9.27
	Development		products, services and solutions in the
	Holdings Limited		PRC
3.	SiS International	Hong Kong	Distribution of mobile and IT products	7.10
	Holdings Limited		and property investment
4.	VST Holdings	Hong Kong	Distribution of IT products and provider	6.33
	Limited		of enterprise systems and IT services
5.	Ingram Micro Inc.	New York	Distribution of technology products	15.66
			internationally
6.	Synnex Technology	Taiwan	Distribution of IT products and	12.05
	International		provision of IT services
	Corporation

Note:

1. Price-to-earnings ratio is calculated based on the market capitalisation of the respective comparable companies divided by the net profit of the respective comparable companies as extracted from their respective latest annual reports.

The underlying price-to-earnings ratio of the Disposal is 12.78, which is calculated based on the Consideration divided by the unaudited net profit of the Disposal Business of approximately HK$392.17 million as set out in Appendix II to this circular for the year ended 31 December 2014.

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LETTER FROM THE BOARD

The Board considers that the comparable companies present a fair and complete sampling for the following reasons:

• (a) The Disposal Group is a leading distributor of IT products in the PRC whose holding company is listed in Hong Kong. The revenue of the Target Companies are primarily generated from the distribution of IT products in the PRC and Hong Kong.

• (b) The four comparable Hong Kong companies that have been selected are leading IT distribution companies listed in Hong Kong. Their revenues also primarily come from the distribution of IT products in the PRC and Hong Kong.

• (c) US-listed Ingram Micro Inc., an international IT products distributor, and Taiwan-listed Synnex Technology International Corporation, the largest IT products distributor in Asia-Pacific region, have also been selected as they are the market leaders in the industry in their respective regions.

• (d) There is no comparable company engaging in IT products distribution business that is listed in the A-share market.

In light of the above, the Directors are of the view that the Consideration is already the highest possible price to be offered by Shenxin Taifeng and to be obtained by the Company, and the Consideration amount represents an implied price-to-earning ratio of the Disposal which is considered reasonable as compared with the average price-to-earning ratio of the comparable companies. Based on the above considerations, the Company considers that the Consideration is fair and reasonable.

(D) Non-Competition Undertakings of the Company

The Company provided the following undertakings to Shenxin Taifeng on 7 August 2015:

• (a) that through the Transaction, the Company shall dispose of all assets, liabilities and businesses related to the Group’s existing distribution business of IT products (namely: (i) enterprise products such as network products, servers, storage equipments and software suites, and (ii) consumer electronic products such as notebook computers, desktop computers, PC servers and peripheral computer devices) (the ‘‘IT products distribution business’’), and upon completion of the Transaction, the Company and enterprises whose accounts are consolidated into the consolidated financial statements of the Company shall not contain any competing businesses or assets which are same or similar to that of the IT products distribution business; and

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LETTER FROM THE BOARD

• (b) that upon Completion, the Company shall not have, and shall not in the future carry out, by itself or through any enterprises whose accounts are consolidated into its consolidated financial statements, businesses that may compete with the IT products distribution business. In case any such enterprise engages in business that may compete with the IT products distribution business, Shenxin Taifeng has the right to request the Company to dispose of such interests to Shenxin Taifeng at a fair price. In such case, the fair price will be determined by independent valuation.

The above undertakings are required to be given by the Company due to the following legal requirements in the PRC with respect to the provision of noncompetition undertakings in transactions of a similar nature:

• (i) under the Detailed Implementation Rules for the Non-public Issuance of Stocks by Listed Companies (No.302 [2007] of CSRC) 《( 上市公司非 公開發行股票實施細則》(證監發行字[2007]302號)), Shenxin Taifeng should avoid business competition with its shareholder when issuing the New A Shares;

• (ii) under the Guidelines of the Shenzhen Stock Exchange for Standardized Operation of Companies Listed on the Main Board 《( 深圳證券交易所主 板上市公司規範運作指引》), the business of Shenxin Taifeng should be independent from its de facto controller and its respective associates; and

• (iii) under the Standards Concerning the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public 《( 公開發行證券的公司信息披露內容與格式準則第26號》), Shenxin Taifeng is required to disclose any business competition with its de facto controller and its respective associates, as well as specific measures or solutions in this regard.

In this regard, the Company is advised by its PRC legal adviser that the provision of the aforesaid non-competition undertakings is necessary in obtaining CSRC’s approval of the Transaction.

Having considered the above legal advice, the Company’s business strategy in the near future to utilize its resources on the remaining businesses of the Group and the benefits that the Company and the Shareholders will receive as a result of the Disposal, the Directors consider that the provision of the non-competition undertakings is in the interest of the Company and the Shareholders as a whole.

Upon Completion, the businesses of the Remaining Group will not involve in the restricted IT products distribution business and therefore will not violate the non-competition undertakings. Moreover, upon Completion, the Remaining Group will no longer possess the requisite resources, expertise and technical capabilities for engaging in the Disposal Business (as defined below). The

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LETTER FROM THE BOARD

management of the Group is also aware of the restrictions under the noncompetition undertakings and will inform the Board to refrain from involving in the restricted businesses in the future.

(E) Group Restructuring

Pursuant to the Share Transfer Agreement, the Company and DCL have undertaken to procure a restructuring of the Target Companies under which the Target Companies will acquire all other subsidiaries of the Company which are engaged in the IT products distribution business and will dispose of the subsidiaries, joint ventures, associates and available-for-sale investments which are not engaged in the IT products distribution business to the Remaining Group before Completion, notwithstanding that the completion of the aforesaid restructuring is not a condition precedent of the Completion. Upon the completion of the group restructuring, the Target Companies will become solely engaged in the IT products distribution business.

A summary of the group restructuring is as follows:

(a) Entities transferred from the Group to the Target Companies

14 subsidiaries of the Company operating in IT products distribution business were transferred from the Group to the Target Companies for an aggregate consideration of approximately HK$176.91 million. As at the Latest Practicable Date, the transfer of all 14 companies has been completed and the entire consideration of approximately HK$176.91 million has been paid to the Group.

(b) Entities transferred from the Target Companies to the Remaining Group

31 companies that are not operating in IT products distribution business were transferred from the Target Companies to the Remaining Group for an aggregate consideration of RMB1,190.59 million (equivalent to approximately HK$1,488.71 million). As at the Latest Practicable Date, the transfer of 29 companies has been completed and an aggregate consideration of RMB1,158.25 million (equivalent to approximately HK$1,448.28 million) has been paid by the Remaining Group. The transfer of the remaining two companies will be completed before Completion, and the remaining RMB32.34 million (equivalent to approximately HK$40.43 million) will be paid on or prior to Completion. The transfer of the remaining two companies only involve completion of administrative procedures and the Company does not currently foresee any legal impediment for such transfer procedures to be completed prior to Completion.

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LETTER FROM THE BOARD

As at 31 March 2015, the Target Companies had the following wealth management financial products and unlisted equity investment (together, the ‘‘available-for-sale investments’’):

Name of available-for-sale investments Wealth management products from Chenxi Asset Management Plan Wealth management products from Chenxi Asset Management Plan Wealth management products from Chenxi Asset Management Plan Wealth management products from Chenxi Asset Management Plan Goodwill (Beijing) Technology Ltd.* (嘉和美康（北京）科技股份有限公 司) Total

Amount (HK$’000) Nature Date of maturity Term Return rate (annualised) Interest payment method 1,247,988 Wealth management product 5/6/2016 2 years 11% for the first year; 15% for the second year Quarterly 249,196 Wealth management product 7/5/2015 1 year 10% Repayment of principal and interests in arrears upon maturity 249,196 Wealth management product 7/5/2015 1 year 10% Repayment of principal and interests in arrears upon maturity 311,496 Wealth management product 18/9/2015 6 months 9% Quarterly 75,464 Investment in 13% of the issued capital of a non-listed company — — — — 2,133,340

The available-for-sale investments were made by the Target Companies and they form part of the Disposal. The minority investment in Goodwill (Beijing) Technology Ltd. (嘉和美康（北京）科技股份有限公司) was made by the Target Companies and it is impractical and commercially inefficient for the Remaining Group to acquire the investment prior to Completion given extra time and efforts are required in the negotiation with Goodwill (Beijing) Technology Ltd. (嘉和美 康（北京）科技股份有限公司). The wealth management financial products were acquired by the Target Companies with surplus cash generated in their normal course of businesses. The nature of such products is similar to that of fixed cash deposits, but with a higher rate of return. Given the nature of such investments, the Board considers that the carrying values of the investments approximates to their fair values. Such investments are normal treasury activities carried out by the Target Companies.

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LETTER FROM THE BOARD

Assuming completion of the group restructuring had taken place on 31 March 2015, the balances of cash and available-for-sale investments of the Target Companies (including payment of the HK$2.09 billion dividend) are as follows:

As at 31 March 2015

Cash and cash equivalents Available-for-sale investments Net cash received from reorganisation Sub-total Dividends declared and paid by the Disposal Group Aggregate cash and available-for-sale investments after payment of dividends	(HKD’000) 962,485 2,133,340 1,226,336
	4,322,161
	2,090,000
	2,232,161

In addition, a total dividend of HK$2.09 billion has been declared and paid by the Disposal Group to the Remaining Group prior to the group restructuring and the Disposal, which was calculated based on the aggregate distributable profits as shown in the audited financial statements for the financial year ended 31 December 2014 or the unaudited financial statements for the first quarter ended 31 March 2015 of six subsidiaries of the Target Companies.

(F) Intellectual Property

Pursuant to the Share Transfer Agreement and as a business condition of the Disposal, in order for the Target Companies and the relevant entities of the Remaining Group to have free access to relevant trademarks which are necessary for their respective business operations, the Company and the Target Companies have procured the entry into of certain intellectual property agreements, each dated 7 August 2015, pursuant to which:

• (a) the Target Companies and/or their relevant subsidiaries have agreed to transfer to the relevant subsidiaries of the Company ownership of certain trademarks for nil consideration;

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LETTER FROM THE BOARD

• (b) DC China has agreed to grant a royalty-free non-exclusive license to a subsidiary of the Company (the ‘‘Remaining Group Licensee’’) to use certain trademarks registered in the PRC for an indefinite term within their respective validity periods, unless the licensing agreement is terminated in accordance with the terms therein (the ‘‘Disposal Group Licensing Agreement’’). The expiration periods of the licensed trademarks range from September 2015 to September 2024. Below is a summary of the key terms of the Disposal Group Licensing Agreement:

• (i) DC China may continue to use these licensed trademarks and grant license to any other third parties to use the same trademarks;

• (ii) DC China undertakes to take sole legal and financial responsibility for any third party claims against the Remaining Group Licensee for infringement of intellectual property rights;

• (iii) the Remaining Group Licensee may grant sub-license to its subsidiaries or associates to use the licensed trademarks according to the same terms as applied to the Remaining Group Licensee under the Disposal Group Licensing Agreement;

• (iv) the Remaining Group Licensee undertakes to ensure that the products on which the licensed trademarks are used will be in compliance with the PRC national quality standards;

• (v) the Remaining Group Licensee undertakes not to exceed the permitted usage and geographic territory; and

• (vi) the Disposal Group Licensing Agreement can only be terminated either (a) by mutual agreement of DC China and the Remaining Group Licensee, or (b) by the aggrieved party in the event of serious breach of the terms of the agreement by the defaulting party; and

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LETTER FROM THE BOARD

• (c) the Company will procure its subsidiary (the ‘‘Licensor’’) to grant a nonexclusive license, for a nominal consideration of HK$1, to a subsidiary of the Target Companies (the ‘‘Disposal Group Licensee’’) in regard of certain trademarks registered in Hong Kong for an indefinite term within their respective validity periods, unless the licensing agreement (the ‘‘Remaining Group Licensing Agreement’’) is terminated in accordance with the terms therein. The expiration periods of the licensed trademarks range from November 2017 to November 2019. Below is a summary of the key terms of the Remaining Group Licensing Agreement:

• (i) during the term of the Remaining Group Licensing Agreement, the Disposal Group Licensee shall be registered as the registered user of the licensed trademarks in Hong Kong, while the Licensor reserves the proprietary rights in relation to such trademarks;

• (ii) upon notification in writing to the Licensor, the Disposal Group Licensee may grant sub-license to its subsidiaries to use the licensed trademarks;

• (iii) the Disposal Group Licensee undertakes to use the licensed trademarks only in a manner approved by the Licensor and in accordance with specifications laid down, directions given, and information supplied by the Licensor and to use the licensed trademarks in relation only to the goods specified in the Remaining Group Licensing Agreement; and

• (iv) the Remaining Group Licensing Agreement can be terminated by either party unilaterally in the event of any of the following:

  • . either party becoming insolvent or going into liquidation or having a receiver appointed; or

  • . a breach of the terms in the Remaining Group Licensing Agreement capable of remedy which have not been remedied within one month of the receipt by the defaulting party of a notice identifying the breach and requiring its remedy.

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LETTER FROM THE BOARD

The licensing arrangements under the Disposal Group Licensing Agreement and the Remaining Group Licensing Agreement will enable both the Target Companies and the Remaining Group to have free access to the relevant trademarks to develop their respective businesses, which is more cost-effective and time efficient than transferring the legal ownerships of the trademarks, and is therefore mutually beneficial to both parties from a commercial perspective. In addition, these licensing agreements regulate the scope of use for the licensed trademarks, ensuring that the licensed trademarks will not be misused by the licensees, thereby minimizing potential reputational risk of the licensors. Furthermore, the Valuation has already taken into account the intellectual property transfer and licensing arrangements under paragraphs (a), (b) and (c) above. Based on the aforesaid, the Company considers the terms of the license and the nominal consideration of HK$1 under the Remaining Group Licensing Agreement above are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Since none of the Target Companies or Shenxin Taifeng will be a connected person of the Group under Chapter 14A of the Listing Rules upon Completion, the granting of the license by the Company does not constitute a continuing connected transaction of the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

B. Share Subscription

(A) Subscription Agreements

Pursuant to the Subscription Agreements, Shenxin Taifeng will issue an aggregate of 296,096,903 New A Shares to the Subscribers, including Mr. Guo Wei and China Fund Management (with Mr. Yan Guorong as one of the Asset Trustors), at a price of RMB7.43 per New A Share (subject to adjustments in the event of ex-rights or ex-dividend actions by Shenxin Taifeng as defined in the Subscription Agreements). Shenxin Taifeng expects to obtain gross proceeds of no more than RMB2,199,999,989.29 from the Share Subscription and use such proceeds (after deduction of issuance costs) to settle the Consideration under the Share Transfer Agreement. Mr. Guo Wei and China Fund Management, which is a third party independent from the Company and its connected persons under Chapter 14A of the Listing Rules, will subscribe an aggregate of 184,387,503 New A Shares, representing approximately 28.19% of the issued share capital of Shenxin Taifeng as enlarged by the issue of the New A Shares. The share capital structure of Shenxin Taifeng before and after completion of the Share Subscription is as follows:

Shareholders 1. Mr. Guo Wei 2. China Fund Management Mr. Guo Wei and parties acting in concert 3. Mr. Wang Xiaoyan1 4. China Sigma Co., Ltd.1 Mr. Wang Xiaoyan and China Sigma Co., Ltd. 5. Certain other Subscribers 6. Others Total	As at the Latest Practicable Date Number of shares Approximate percentage of total issued share capital (’000) (%) — — — — — — — — 78,307.0 21.88% 78,307.0 21.88% — — 279,666.5 78.12% 357,973.5 100.00%	New A Shares subscribed (’000) 154,777.8 29,609.7 184,387.5 64,603.0 — 64,603.0 47,106.4 — 296,096.9	Upon completion of the Shares Subscription Number of shares Approximate percentage of total issued share capital (’000) (%) 154,777.8 23.66% 29,609.7 4.53% 184,387.5 28.19% 64,603.0 9.88% 78,307.0 11.97% 142,910.0 21.85% 47,106.4 7.20% 279,666.5 42.76% 654,070.4 100.00%	Upon completion of the Shares Subscription Number of shares Approximate percentage of total issued share capital (’000) (%) 154,777.8 23.66% 29,609.7 4.53% 184,387.5 28.19% 64,603.0 9.88% 78,307.0 11.97% 142,910.0 21.85% 47,106.4 7.20% 279,666.5 42.76% 654,070.4 100.00%
				9.88% 11.97% 21.85%
				7.20% 42.76% 100.00%

1. Mr. Wang Xiaoyan is the chairman of the board of directors and chief executive officer of China Sigma Co., Ltd. and a director of Shenxin Taifeng. China Sigma Co., Ltd. is controlled by Mr. Wang Xiaoyan.

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LETTER FROM THE BOARD

Each of the Subscribers has entered into a Subscription Agreement with Shenxin Taifeng, the terms of which are substantially the same. A summary of the major terms of the Subscription Agreements is as follows:

• Date : 7 August 2015 (after trading hours of the Stock Exchange)

• Parties : (a) Shenxin Taifeng; and

• (b) each of the Subscribers, including Mr. Guo Wei and China Fund Management.

• Subscription : Shenxin Taifeng has conditionally agreed to issue Shares and the Subscribers have conditionally agreed to subscribe the New A Shares.

• Subscription : RMB7.43 per New A Share (subject to adjustments), Price being 90% of the average trading price of the ordinary shares of Shenxin Taifeng quoted on The Shenzhen Stock Exchange for the 20 consecutive trading days immediately prior to the publication of Shenxin Taifeng’s board resolutions on 7 August 2015.

• Lock-up : Each of the Subscribers, including Mr. Guo Wei and Undertaking China Fund Management, undertakes to Shenxin Taifeng that for a period of 36 months from the listing date of the New A Shares on The Shenzhen Stock Exchange, the Subscriber will not transfer any of the New A Shares he or it has conditionally agreed to subscribe pursuant to the Subscription Agreement.

• Use of Proceeds : The net proceeds from the issue of the New A Shares (after deduction of issuance costs) will be used to settle the Consideration under the Share Transfer Agreement.

• Conditions : The conditions precedent for the taking effect and Precedent completion of each of the Subscription Agreements are the same as those of the Share Transfer Agreement.

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LETTER FROM THE BOARD

(B) Acting-in-concert Agreement

Mr. Guo Wei, China Fund Management and all Asset Trustors entered into an acting-in-concert agreement on 7 August 2015, pursuant to which China Fund Management will, in respect of the shares held in the capacity of the asset trustee of Mr. Yan Guorong and certain management staff of the Target Companies, vote in agreement with Mr. Guo Wei on matters concerning shareholders of Shenxin Taifeng. Together with parties acting in concert, Mr. Guo Wei and China Fund Management will become the largest shareholders of Shenxin Taifeng.

C. Continuing Transactions after Completion

It is currently expected that there will be the following continuing transactions between the Remaining Group and the Target Companies upon Completion:

• (a) procurement of IT-related products by the Remaining Group from Shenxin Taifeng;

• (b) provision of IT products and services, supply chain services and maintenance services by the Remaining Group to Shenxin Taifeng; and

• (c) leasing of real properties by the Group to Shenxin Taifeng.

The estimated transaction amounts for the year ending 31 December 2015 for transactions fall under each of the above categories are approximately HK$359 million, HK$325 million and HK$58 million respectively, representing approximately 3.6% of the total purchase made by the Remaining Group for the year ended 31 December 2014, approximately 2.7% of the total revenue generated by the Remaining Group for the year ended 31 December 2014 and approximately 50.0% of the total rental income received by the Remaining Group for the year ended 31 December 2014.

The Target Companies as a group is a chief distributor in China of many IT brands and it has been a stable supplier of IT products for many years. The Remaining Group will continue to purchase IT products from the Target Companies (i.e. Shenxin Taifeng, upon Completion) because: (i) it may not be able to purchase directly from the ultimate supplier as the latter may only sell to distributors instead of retail buyers; and (ii) the Target Companies purchase IT products in bulk directly from the ultimate suppliers and is able to offer favourable prices as compared to other market players and as a result, the Remaining Group will not incur additional costs to its procurements by purchasing from the Target Companies.

With respect to the transactions under paragraphs (ii) and (iii) above, the Remaining Group has been providing services and leasing the properties to the Target Companies on normal commercial terms. The Company considers that it is not in the commercial interest of the Company to terminate such transactions as a result of the Disposal.

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LETTER FROM THE BOARD

The abovementioned continuing transactions would not constitute connected transactions of the Company for the purpose of Chapter 14A of the Listing Rules. The Company will implement the following measures to ensure, and will procure its subsidiaries to ensure that such transactions will be conducted on normal commercial terms and in accordance with the relevant listing rules that are applicable to the Company or its subsidiaries as and when necessary:

• (i) the agreements in relation to procurement of IT-related products will contain a clause specifying that if the price offered by Target Companies is higher than other suppliers, the Company is not obligated to purchase from the Target Companies. In deciding whether to procure IT-related products from the Target Companies, the Company will take into account various factors including price, delivery time and product quality and will ensure that the terms offered to the Company are not less favorable than those available in the market;

• (ii) any director of the Company who is interested in the relevant transactions shall abstain from voting in relation to the approval of such continuing transactions; and

• (iii) the Company will implement internal price monitoring mechanism including obtaining quotations and collecting market date to ensure that (a) the purchase price for procuring IT products from the Target Companies, (b) the offer price for providing IT services to the Target Companies, and (c) the rents for leasing the properties to the Target Companies, are not less favorable than those available in the market.

3. INFORMATION ON THE GROUP, DCL, THE TARGET COMPANIES AND SHENXIN TAIFENG

A. The Group and DCL

The Company is an exempted company incorporated under the laws of Bermuda and was listed on the Main Board of the Stock Exchange (Stock Code: 00861) in 2001. The Group currently consists of four business segments, namely (i) the ‘‘New Business’’ segment consisting of the Sm@rt City service group and financial service strategy unit, (ii) the ‘‘Digital China Group’’ segment, (iii) the ‘‘Digital China Information Service Company Ltd.’’ segment, and (iv) the ‘‘supply chain management strategy unit’’ segment. The Group officially entered the field of Sm@rt City construction in 2010 and commenced its Sm@rt City services and operation business centered on Internetbased platform through its Sm@rt City service group in 2014, providing public services to the government, enterprises and citizens through the Internet by constructing integrated service platform.

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LETTER FROM THE BOARD

Business model of the remaining three business segments are as follows:

• (i) the ‘‘New Business’’ segment

The ‘‘New Business’’ segment includes: (i) the Sm@rt City business, which provides online services to citizens, enterprises and city administrators through website and smartphone applications on platforms (namely, integrated citizen service platform, integrated enterprise service platform and integrated urban administration platform) constructed by the Company, and is developing the Sm@rt Production business which provides design and production services through cloud platform; and (ii) the financial services business, which provides financial services such as financing, investment, credit lending, financial risk management and financial information consultation to internal departments of the Group and third party customers and generate revenue from interest rate difference.

• (ii) the ‘‘Digital China Information Service Company Ltd.’’ (‘‘DCITS’’) segment

DCITS segment provides industry customers with services including IT planning and consultation, design and implementation, solution design and implementation, outsourcing of IT system operation and maintenance, as well as system integration. This segment also provides industry cloud services based on cloud computing, big data analysis and other advanced technologies, and generates service fees from contracted projects.

DCITS segment is also developing: (i) the Sm@rt Agriculture business, which provides one-stop professional services including farmland right recognization, agricultural land transaction, financial services and agricultural technology and e- commerce business of agriculture products to farmers and receives commissions and service fees by providing additional services during the land transaction process; and (ii) the Sm@rt Healthcare business, which provides integrated system services, cloud hospital services and other services and provides healthcare solution, integrated informatization solution and public health solution for hospitals, and charges construction and maintenance fees as well as service fees.

(iii) the ‘‘Supply chain management strategy unit’’ segment

The ‘‘Supply chain management strategy unit’’ segment operates through selfowned brand ‘‘Instant’’ (科捷) to provide comprehensive intermediary and backstage logistics services, including one-stop storage, distribution and logistics services as well as operation, ordering, storage, transportation management and invoice services, to corporate customers, e-commerce platforms, branded service providers and individuals.

The ‘‘Supply chain management strategy unit’’ segment is developing the Sm@rt Logistics business which provides operation and logistics management services for online e-commerce stores of branded enterprises, promotes O2O maintenance and out-of-warranty services under its self-owned brand ‘‘K-boy’’,

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LETTER FROM THE BOARD

and cooperates with Internet companies (including Baidu, Bang.360, Ganji.com and 58.com) to direct customers and demands to the Group’s maintenance department, followed by the provision of maintenance and out-of-warranty services through its maintenance stations and professional staff.

Upon completion of the disposal of the ‘‘Digital China Group’’ segment, the Group will shift its business focus to the remaining three business segments, and in particular, the Sm@rt City service group and the ‘‘Digital China Information Service Company Ltd.’’ segment.

DCL is a company incorporated under the laws of Hong Kong with limited liability. It is an indirect wholly-owned subsidiary of the Company and DCL wholly owns the Target Companies.

B. The Target Companies

The Target Companies are limited liability companies incorporated under the laws of the PRC and are wholly-owned by DCL. The Target Companies currently operate in the Group’s ‘‘Digital China Group’’ segment. As at 31 March 2015, the Target Companies had an unaudited net asset value of approximately HK$3.81 billion, which was arrived at upon taking into account (i) the completion of the group restructuring; (ii) the dividend declared by the Target Companies and their subsidiaries (as at the completion of the group restructuring); and (iii) the consideration to be received by the Target Companies.

Upon Completion, the Target Companies will cease to be subsidiaries of the Company, and the profit and loss, and assets and liabilities of the Target Companies will no longer be consolidated into the financial statements of the Group. Further, the Target Companies will operate in the business of sales and distribution of general IT and systems products (the ‘‘Disposal Business’’). The following information is a summary of the net profit before and after tax of the Disposal Business for the nine months ended 31 December 2013 and the financial year ended 31 December 2014:

			For the	For the
			9 months ended	12 months ended
			31 December 20131	31 December 2014
			(Unaudited)	(Unaudited)
			HK$’000	HK$’000
Net	profit	before tax	503,595	541,521
Net	profit	after tax	389,517	392,169

1. The Company changed its financial year end from 31 March to 31 December with effect from 19 November 2013.

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LETTER FROM THE BOARD

As Mr. Yan Guorong has been in charge of the businesses of the Target Companies, it is expected that he will continue to manage the Target Companies after Completion by taking up management role at Shenxin Taifeng and will cease to be a Director upon Completion.

c. Shenxin Taifeng

Shenxin Taifeng is a joint stock limited company incorporated under the laws of the PRC, the shares of which are listed on The Shenzhen Stock Exchange (Stock Code: 000034.SZ). Prior to the Transaction, Shenxin Taifeng’s principal businesses were communication devices production and sales as well as forage production.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Shenxin Taifeng is a third party independent of the Company and its connected persons.

4. REASONS FOR AND BENEFITS OF THE TRANSACTION FOR THE COMPANY

With several transformations, the current and future focus of business of the Group is to engage in businesses with higher added-value and higher growth, such as Sm@rt City, Sm@rt Agriculture, Sm@rt Healthcare, Sm@rt Production, Sm@rt Logistics and related financial services in China through IT service and operation integrated with industrial application based on the Internet, cloud computing and big data technology.

In the past three years, gradual decline in the revenue and net profit of the Target Companies’ systems and distribution business affected the overall revenue and profitability of the Group. The net profit margin of the Group for the nine months ended 31 December 2013, the year ended 31 December 2014 and the three months ended 31 March 2014 and 2015 are as follows:

Net Profit Margin (%)	For the nine months ended 31 December 2013 0.90	For the year ended 31 December 2014 0.70	For the three months ended 31 March 2014 1.17	For the three months ended 31 March 2015 1.02

The net profit margin for the first quarter of 2015 is higher than the net profit margin for the financial year 2014, but it is lower than that of the corresponding period last year. This is because the expenses incurred in the first quarter is lower than the average expense for the whole year as certain departments would reduce headcount in the first quarter and recruit replacement later in the year. As a result, the net profit margin of the first quarter would be higher than the average level for the full financial year.

The Board expects that the business environment of the Target Companies will remain challenging in the near future, and time is required to thoroughly reform the systems and distribution business in order to adjust it to the challenges in the industry and to resume

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steady growth of profit. As illustrated under the heading ‘‘Valuation’’ above, the forecast net profit of the Target Companies from 2015 to 2020 increases at a compound annual growth rate of approximately 1.68%, which would not even offset the effect of inflation at an estimated rate of 2.9%, and such growth rate would not meet the Board’s expectation. The Disposal will release a substantial amount of resources invested by the Group in the Target Companies. The net proceeds from the Disposal will bring cash dividends to Shareholders and contribute to the Group’s cash-flow and financial position.

Upon Completion, the Group will continue to focus on and channel its resources into the businesses of the Internet, cloud computing and big data technology. The Group will also leverage on its rich experience and solid technological expertise on systems solutions to develop higher added-value and higher growth business such as Sm@rt City, Sm@rt Agriculture and Sm@rt Healthcare.

In view of the above, the Directors are of the view that the terms and conditions of the Share Transfer Agreement are fair and reasonable and the Transaction (including the provision of the non-competition undertakings) is in the interest of the Group and the Shareholders as a whole.

As at the Latest Practicable Date, other than the Disposal, the Company has not entered into any agreement, reached any understanding, or is in any negotiation (concluded or otherwise) in relation to (i) any disposal of the Company’s remaining assets; and (ii) any disposal or termination of the Company’s existing business.

5. FINANCIAL IMPACT OF THE DISPOSAL, INTENDED USE OF PROCEEDS AND PROPOSED CONDITIONAL SPECIAL CASH DIVIDEND

Upon Completion, the Target Companies will cease to be the Company’s subsidiaries and the Company will cease to have any interest in the Target Companies. It is expected that the Group will realise a one-off unaudited gain on the Disposal of approximately HK$0.86 billion, which is calculated with reference to the Consideration of RMB4.01 billion (equivalent to approximately HK$5.01 billion), less (i) the net asset value of the Target Companies of approximately HK$3.81 billion (unaudited) as at 31 March 2015, and (ii) the estimated transaction costs and expenses of approximately HK$0.34 billion attributable to the Disposal, which include professional services fees, taxes and other transaction related costs. Shareholders should note that the financial effect is shown for reference only and the actual amount of gain or loss as a result of the Disposal is subject to audit, which will be assessed based on financial position of the Target Companies as at Completion and eventually recognised in the consolidated financial statements of the Company upon Completion.

The Company expects to realize net proceeds of approximately HK$4.67 billion (after deduction of transaction costs and expenses) from the Disposal, and intends to apply them for the following purposes:

• (a) approximately 75% of the net proceeds, or HK$3.50 billion, will be distributed as special cash dividends (upon fulfillment of the conditions set out below). Based on 1,094,194,581 Shares in issue as at the Latest Practicable Date and assuming no

– 31 –

LETTER FROM THE BOARD

other changes to the number of issued shares of the Company from the Latest Practicable Date to the record date in respect of the special cash dividend, the Board has resolved to recommend the Shareholders to approve the distribution of a special cash dividend of HK$3.20 per Share, subject to the following conditions:

• (i) the Share Transfer Agreement and the transactions contemplated thereunder, the provision of the non-competition undertakings (as set out in the section headed ‘‘Non-Competition Undertakings of the Company’’ above) and the transactions contemplated thereunder, as well as the proposed distribution of special cash dividends having been approved by the Independent Shareholders at the SGM; and

• (ii) the conditions precedent to the completion of the Transaction having been satisfied;

• (b) approximately 12.5% of the net proceeds, or HK$0.58 billion, will be used in the Group’s investments according to the strategies of the Company; and

• (c) approximately 12.5% of the net proceeds, or HK$0.59 billion, will be reserved as general working capital of the Group.

Further announcement will be made by the Company when Completion have taken place, and the details of the record date, which is to be determined by the Board and by reference to which entitlements to the payment of the special cash dividend will be determined, and closure of the register of members of the Company in determining the Shareholder’s entitlement to the proposed special cash dividend, will be announced therein.

6. LISTING RULES IMPLICATIONS

As the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Disposal exceed 75%, the Disposal constitutes a very substantial disposal for the Company pursuant to Chapter 14 of the Listing Rules. Furthermore, the Share Subscription involves the subscription of New A Shares by Mr. Guo Wei and Mr. Yan Guorong (as one of the Asset Trustors), who are connected persons of the Company under the Listing Rules by virtue of them being Directors, the Transaction therefore constitutes a connected transaction of the Company pursuant to Chapter 14A of the Listing Rules. Accordingly, the Transaction is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14 and Chapter 14A of the Listing Rules.

7. SGM

The notice convening the SGM is set out on pages N-1 to N-4 of this circular.

A form of proxy for use at the SGM is enclosed with this circular and such form is also available for download at the websites of the Company at http://www.digitalchina.com.hk and the HKEx at http://www.hkexnews.hk. If you are not able to attend the SGM in person, please complete and return the form of proxy in accordance with the instructions

– 32 –

LETTER FROM THE BOARD

printed thereon to the public office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjourned meeting thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof (as the case may be) should you so wish.

Shareholders whose names appear on the register of members of the Company on Wednesday, 26 August 2015 shall be entitled to attend and vote at the SGM. In order for the Shareholders to qualify for attending and voting at the SGM, all properly completed transfer documents, accompanied by the relevant share certificates, must be lodged for registration at the public office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before 4: 30 p.m., Monday, 24 August 2015.

8. VOTING AT THE SGM

Pursuant to Rule 13.39(4) of the Listing Rules, all votes of the Shareholders at a general meeting must be taken by poll. As such, all resolutions to be proposed at the SGM will be put to vote by way of poll.

Mr. Guo Wei and Mr. Yan Guorong who held an aggregate of 71,968,186 Shares, representing approximately 6.58% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting at the SGM for the approval of the resolutions to be proposed at the SGM regarding the Share Transfer Agreement, the Transaction (including the provision of the non-competition undertakings) and the distribution of special cash dividend.

Save as disclosed above, to the best knowledge of the Directors and having made all reasonable enquiries, no other Shareholder has a material interest in the Transaction and is required to abstain from voting at the SGM.

After the closure of the SGM, the poll results will be published on the Company’s website at http://www.digitalchina.com.hk and the HKEx’s website at http://www.hkexnews.hk.

9. RECOMMENDATION

Your attention is drawn to the advice of the Independent Board Committee set out in its letter as set out on pages IBC-1 to IBC-2 of this circular and the advice of Reorient set out in its letter to the Independent Board Committee and the Independent Shareholders in connection with the Transaction and the principal factors and reasons considered by them in arriving at such advice as set out on pages IFA-1 to IFA-27 of this circular.

– 33 –

LETTER FROM THE BOARD

The Directors are of the view that the terms of the Share Transfer Agreement, the Transaction (including the provision of the non-competition undertakings) and the transactions contemplated thereunder are fair and reasonable and are in the interest of the Company and the Shareholders as a whole. Accordingly, the Board recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving such agreement and transactions and other ancillary arrangements at the SGM.

10. GENERAL

Mr. Guo Wei and Mr. Yan Guorong have abstained from voting on the Board resolutions in relation to the Share Transfer Agreement, the Transaction, the transactions contemplated thereunder (including the provision of non-competition undertakings) and the distribution of special cash dividend.

Shareholders and potential investors of the Company should note that, as the Transaction is subject to the fulfilment of the conditions precedent disclosed in this circular (including the relevant shareholders’ approvals and regulatory approvals) and may or may not materialise, Shareholders and potential investors of the Company are reminded to exercise caution when dealing in the securities of the Company.

11. ADDITIONAL INFORMATION

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

Yours faithfully, By Order of the Board Digital China Holdings Limited （神州數碼控股有限公司*） LIN Yang Chief Executive Officer

• For identification purpose only

– 34 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is a full text of the letter from the Independent Board Committee prepared for the purpose of inclusion in this circular.

==> picture [261 x 139] intentionally omitted <==

9 August 2015

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

We refer to the circular issued by the Company to the Shareholders dated 9 August 2015 (the ‘‘Circular’’) of which this letter forms part.

Terms defined in the Circular have the same meanings when used in this letter unless the context otherwise requires.

As the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Disposal exceed 75%, the Disposal constitutes a very substantial disposal for the Company pursuant to Chapter 14 of the Listing Rules. Furthermore, the Share Subscription involves the subscription of New A Shares by Mr. Guo Wei and Mr. Yan Guorong (as one of the Asset Trustors), who are connected persons of the Company under the Listing Rules by virtue of them being Directors, the Transaction therefore constitutes a connected transaction of the Company pursuant to Chapter 14A of the Listing Rules. Accordingly, the Transaction is subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 14 and Chapter 14A of the Listing Rules.

We have been appointed by the Board to consider the terms of the Share Transfer Agreement and the transactions contemplated under the Disposal and the Transaction (including the provision of the non-competition undertakings) and to advise the Independent Shareholders in connection therewith and as to whether, in our opinion,

– IBC-1 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

such terms and transactions are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Reorient has been appointed as the independent financial adviser to advise us in this respect.

We wish to draw your attention to the letter from the Board and the letter from Reorient as set out in the Circular. Having considered the principal factors and reasons considered by, and the opinion and advice of Reorient as set out in its letter of advice, we consider that the terms of the Share Transfer Agreement and the transactions contemplated under the Disposal and the Transaction (including the provision of the non-competition undertakings) are on normal commercial terms or better, are fair and reasonable and are in the interest of the Company and the Shareholders as a whole, but are not in the ordinary or usual course of business of the Group. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving such agreement and transactions and other ancillary arrangements at the SGM.

Yours faithfully For and on behalf of

Independent Board Committee

Mr. WONG Man Chung, Francis Ms. NI Hong (Hope) Mr. ONG Ka Lueng, Peter Dr. LIU Yun, John Ms. YAN Xiaoyan

Independent Non-executive Directors

• For identification purpose only

– IBC-2 –

LETTER FROM REORIENT

The following is the text of a letter of advice from REORIENT Financial Markets Limited, the independent financial adviser to the Independent Board Committee and Independent Shareholders, for the purpose of incorporation into this circular.

==> picture [46 x 13] intentionally omitted <==

11/F, Far East Finance Centre 16 Harcourt Road, Admiralty, Hong Kong

==> picture [46 x 13] intentionally omitted <==

9 August 2015

The Independent Board Committee and the Independent Shareholders

Digital China Holdings Limited

Dear Sir/Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and Independent Shareholders in connection with the Transaction, details of which are set out in the circular of the Company dated 9 August 2015 (the ‘‘Circular’’) of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular, unless the context requires otherwise.

On 7 August 2015, the Group entered into the Share Transfer Agreement with Shenxin Taifeng in respect of the disposal by the Group of 100% equity interests in the Target Companies to Shenxin Taifeng. On the same day, Shenxin Taifeng entered into several Subscription Agreements with the Subscribers, including Mr. Guo Wei and China Fund Management in respect of the subscription of New A Shares by the Subscribers (the ‘‘Share Subscription’’), the proceeds of which will be used to settle part of the Consideration. Mr. Guo is the Chairman and an executive Director of the Company. China Fund Management is the trustee of Mr. Yan Guorong, President and an executive Director of the Company, and certain management staff of the Disposal Group (being the Target Companies together with their subsidiaries following completion of the Group Restructuring (as detailed under the paragraph headed ‘‘The internal group reorganisation’’ of this letter)).

Based on the applicable percentage ratios, the Disposal constitutes a very substantial disposal for the Company subject to the Shareholders’ approval under Chapter 14 of the Listing Rules. Given that the Disposal and the Share Subscription are inter-conditional (where they are subject to the same set of conditions precedent) and the Share Subscription involves the subscription of New A Shares by connected persons of the Company, the Transaction constitutes a connected transaction for the Company subject to Independent Shareholders’ approval under Chapter 14A of the Listing Rules.

– IFA-1 –

LETTER FROM REORIENT

The Company has established the Independent Board Committee comprising all independent non-executive Directors, namely Mr. Wong Man Chung, Francis, Ms. Ni Hong (Hope), Mr. Ong Ka Lueng, Peter, Dr. Liu Yun, John and Ms. Yan Xiaoyan, to give advice and recommendation to the Independent Shareholders in respect of the Transaction. We have been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders on the Transaction.

In formulating our opinion, we have relied upon the information, facts and representations contained in the Circular and those supplied or made available to us by the Directors and management of the Company. We have assumed that all such information, facts and representations were true and accurate in all respects at the time they were supplied or made and continue to be true and accurate at the date of the Circular and can be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations and have confirmed with the Directors and management of the Company that no material facts have been withheld or omitted from such information and representations.

We have taken all reasonable and necessary steps to comply with the requirements set out in Rule 13.80 of the Listing Rules. We consider that we have been provided with sufficient information to enable us to reach an informed view. We have not, however, conducted any independent verification of such information or any independent in-depth investigation into the business, affairs, financial position or prospects of the Group nor have we carried out any in-depth research on the Group.

For illustration purposes, RMB is converted into HK$ at RMB1.00 = HK$1.25 in this letter.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion on the Transaction, we have taken into consideration the following principal factors:

Information on the Group

As set out in the annual report 2014 of the Company, the Group is engaged in the sale and distribution of general IT products and systems products, and the provision of supply chain services and IT services, and the Group’s businesses were divided into four business segments as follows:

• . ‘‘Distribution’’ segment — sale and distribution of general IT products which consist of notebook computers, desktop computers, peripherals, accessories and consumer IT products;

• . ‘‘Systems’’ segment — sale and distribution of systems products which consist of servers, networking products, storage products and packaged software;

– IFA-2 –

LETTER FROM REORIENT

• . ‘‘Supply Chain Services’’ segment — provision of one-stop consultancy and execution services in logistics, business flow, capital flow and information flow; and

• . ‘‘Services’’ segment — provision of urban information infrastructure and Sm@rt City services, offering products and services in IT planning and IT systems consultation, design and implementation of industry application software and solutions, outsourcing of IT system operation and maintenance, as well as system integration and maintenance.

The table below sets out the audited revenue and segment results from each business segment for the nine months ended 31 December 2013 and the year ended 31 December 2014.

Business segment Distribution Systems Sub-total Supply Chain Services Services Sub-total Total	For the nine months ended 31 December 2013 Revenue Segment results HK$’mil % HK$’mil % 26,254 50.2 17 1.9 17,638 33.7 490 54.7 43,892 83.9 507 56.6 1,065 2.1 52 5.8 7,308 14.0 336 37.6 8,373 16.1 388 43.4 52,265 100.0 895 100.0	For the year ended 31 December 2014 Revenue Segment results HK$’mil % HK$’mil % 36,511 53.4 341 29.3 20,851 30.5 350 30.1 57,362 83.9 691 59.4 2,845 4.2 66 5.7 8,136 11.9 405 34.9 10,981 16.1 471 40.6 68,343 100.0 1,162 100.0	For the year ended 31 December 2014 Revenue Segment results HK$’mil % HK$’mil % 36,511 53.4 341 29.3 20,851 30.5 350 30.1 57,362 83.9 691 59.4 2,845 4.2 66 5.7 8,136 11.9 405 34.9 10,981 16.1 471 40.6 68,343 100.0 1,162 100.0
			59.4
			5.7 34.9
			40.6
			100.0

The Group’s performance

The Group reported revenue of approximately HK$68.34 billion in the year ended 31 December 2014 (‘‘FY2014’’), representing a decrease of approximately 1.9% to the Group’s annualized revenue for the nine months ended 31 December 2013 (‘‘FP2013’’) of approximately HK$69.69 billion. In FY2014, the Group recorded a net profit of approximately HK$902.25 million as compared to a net loss of approximately HK$462.64 million recorded in FP2013. The management of the Company explained that during FP2013, the Group recorded a one-off listing expense of approximately HK$1.22 billion arising from the spin-off (the ‘‘DCITS Listing’’) of the Group’s IT services business (now carried out under Digital China Information Service Company Ltd. (‘‘DCITS’’), a 42.44%-owned subsidiary of the Company listed on The Shenzhen Stock Exchange (Stock Code: 000555.SZ)). Such one-off expense contributed to the Group’s net loss for FP2013. In the absence of such expense in FY2014, the Group made net profit for the year.

– IFA-3 –

LETTER FROM REORIENT

The Distribution and Systems segments

In the Distribution and Systems segments (the ‘‘IT Products Distribution Business’’), the Group sells and distributes general IT products such as notebook computers, desktop computers, peripherals, accessories and consumer IT products, and systems products such as servers, networking products, storage products and packaged software.

The Distribution segment reported revenue of approximately HK$36.51 billion in FY2014, representing an increase of approximately 4.3% to the annualized revenue from the Distribution segment for FP2013 of approximately HK$35.00 billion. As explained by the management of the Company, the slight improvement arose from enhanced cooperation by the Group with mainstream brands through the strategic setup of omni-channel. The ‘‘Chain Electronics Stores’’ business introduced retail management by exploring offline retail management models while the e-commerce departments enhanced cooperation with mainstream customers in the market such as JD.com and Amazon. The Distribution segment reported segment results of approximately HK$341 million in FY2014, representing almost 15 times of the annualized segment results of approximately HK$23 million recorded in FP2013. This is mainly due to the operation of the Distribution segment becoming more normal in FY2014 mainly as a result of its recovery from the weak market of general IT products in the PRC and clearance of inventory by the Distribution segment during FP2013.

The Systems segment reported revenue of approximately HK$20.85 billion in FY2014, representing a decrease of approximately 11.4% to the annualized revenue from the Systems segment for FP2013 of approximately HK$23.52 billion. In FY2014, the Systems segment reported segment results of approximately HK$350 million, representing a decrease of approximately 46.4% to the annualized segment results of approximately HK$653 million in FP2013. The decreases in revenue and results of the Systems segment were attributable to the weak economic conditions in the PRC affecting demand of system products and changes in the exchange rate.

The remaining business segments of the Group

As set out in the annual report 2014 of the Company, the remaining business segments of the Group (after excluding the IT Products Distribution Business) comprise the Supply Chain Services and Services segment (the ‘‘Remaining Business’’). In the Supply Chain Services segment, the Group provides one-stop consultancy and execution services in logistics, business flow, capital flow and information flow. In the Services segment, the Group provides urban information infrastructure and Sm@rt City services, offering products and services in IT planning and IT systems consultation, design and implementation of industry application software and solutions, outsourcing of IT system operation and maintenance, as well as system integration and maintenance.

Revenue from the Supply Chain Services segment for FY2014 amounted to approximately HK$2.85 billion, representing an increase of approximately 100.7% of the annualized revenue from the Supply Chain Services segment for FP2013 of approximately HK$1.42 billion. As explained by the management of the Company, the increase was mainly attributable to the Group’s in-depth cooperation with Dell and Huawei manufacturers in

– IFA-4 –

LETTER FROM REORIENT

providing supply chain services for the e-commerce industry. In FY2014, the Supply Chain Services segment reported segment results of approximately HK$66 million, representing a slight decrease of approximately 4.3% to the annualized segment results of approximately HK$69 million in FP2013. The management of the Company explained that the Supply Chain Services segment’s results for FY2014 recorded a growth of 4.1% when compared to the results for the year ended 31 December 2013 based on the Group’s management accounts. The results did not increase as much as the growth in revenue due to the lower profit margins of the Group’s provision of supply chain services for the e-commerce industry.

The Services segment reported revenue of approximately HK$8.14 billion in FY2014, representing a decrease of approximately 16.4% as compared to the annualized revenue from the Services segment in FP2013 of approximately HK$9.74 billion. The decrease in the revenue of the Services segment was attributable to the Group’s strategy in reviewing its systems integration business to focus its resources on more profitable industries and clients. In FY2014, the Services segment reported segment results of approximately HK$405 million, representing a decrease of approximately 9.6% to the annualized segment results of approximately HK$448 million in FP2013. The management of the Company explained that based on the Group’s management accounts, for the year ended 31 December 2013, the results for FY2014 represented an increase of approximately 17.6% and the increase was mainly due to the Services segment’s focus on more profitable industries and clients.

Reorganized operating segments

In 2014, the Group conducted an organizational restructuring. As set out in the 2015 first quarterly results announcement of the Company, the Group was rearranged into the following segments:

• . ‘‘Digital China Group’’ segment — comprises (i) in the corporate IT sector, the provision of products and solutions covering application structures, such as systems, networks, storage and security; and (ii) in the consumer electronics sector, the consolidation of online and offline resources to provide customers with end-to-end value chain services centered on omni-channel marketing strategy;

• . ‘‘DCITS’’ segment — providing IT services in China’s IT industry specialised in proprietary software, services, Cloud Computing and Big Data analysis persisting with the strategy of integrating Sm@rt City and Sm@rt Agriculture;

• . ‘‘Supply Chain Management Strategy Unit’’ segment — operating through Instant Logistics to provide comprehensive intermediary and backstage logistics services for corporate customers, e-commerce platforms, branded service providers and individuals, while actively exploring Internet-based self-branded maintenance services (the ‘‘Supply Chain Business’’); and

• . ‘‘New Business’’ segment — comprising (i) the ‘‘Sm@rt City Service Group’’ which provides all-encompassing Sm@rt City services for city administrators, enterprises and citizens based on ‘‘one centre and three platforms’’; and (ii) the ‘‘Financial Service Strategy Unit’’ which provides financial services such as

– IFA-5 –

LETTER FROM REORIENT

financing, investment, credit lending, financial risk management and financial information consultation to the Group’s internal departments as well as third party customers (collectively the ‘‘New Business’’).

The table below sets out the unaudited revenue and segment results from each principal business for the three months ended 31 March 2014 and 2015.

Principal business Digital China Group DCITS Supply Chain Management Strategy Unit New Business Total	For the three months ended 31 March 2014 2015 Revenue Segment results Revenue Segment results HK$’mil % HK$’mil % HK$’mil % HK$’mil % 14,457 87.1 200 68.7 14,413 85.3 173 67.8 1,685 10.1 40 13.7 1,408 8.3 19 7.5 400 2.4 13 4.5 1,006 6.0 12 4.7 65 0.4 38 13.1 74 0.4 51 20.0 16,607 100.0 291 100.0 16,901 100.0 255 100.0	For the three months ended 31 March 2014 2015 Revenue Segment results Revenue Segment results HK$’mil % HK$’mil % HK$’mil % HK$’mil % 14,457 87.1 200 68.7 14,413 85.3 173 67.8 1,685 10.1 40 13.7 1,408 8.3 19 7.5 400 2.4 13 4.5 1,006 6.0 12 4.7 65 0.4 38 13.1 74 0.4 51 20.0 16,607 100.0 291 100.0 16,901 100.0 255 100.0
		100.0

The Group’s performance

The Group reported revenue of approximately HK$16.90 billion for the three months ended 31 March 2015 (‘‘1Q2015’’), representing a mild increase of 1.7% as compared to the revenue for the corresponding period of 2014 (‘‘1Q2014’’) of approximately HK$16.61 billion. Net profit for 1Q2015 amounted to approximately HK$175.25 million, representing a decrease of 15.6% as compared to the net profit for 1Q2014 of approximately HK$207.58 million. For 1Q2015, an exchange loss of approximately HK$30.85 million was recorded, versus an exchange gain of approximately HK$8.32 million for 1Q2014. Excluding the effect of the exchange rate changes on the Group’s profit, net profit for 1Q2015 increased by 3.4%.

Digital China Group segment

The IT Products Distribution Business is now grouped under the Digital China Group segment. Revenue of Digital China Group segment for 1Q2015 amounted to approximately HK$14.41 billion, representing a slight decline of 0.3% as compared to the revenue for 1Q2014 of approximately HK$14.46 billion. As stated in the first quarterly report 2015 of the Company, revenue from the consumer business (formerly the Distribution segment) decreased as a result of lackluster demand in the offline distribution market while revenue from the corporate business (formerly Systems segment) increased as a result of the revenue decline for the international brand operations being narrowed while the Group seizing the growth opportunity of domestic brands to realise an increase in revenue for 1Q2015. We understand from the Company that in 1Q2015, the Digital China Group segment recorded segment results of approximately HK$173 million, representing a decrease of 13.5% as compared to the results for 1Q2014 of approximately HK$200 million due mainly to exchange rate changes.

– IFA-6 –

LETTER FROM REORIENT

The remaining principal businesses of the Group

The Remaining Business is now organized into the DCITS segment, the Supply Chain Business and the New Business.

The ‘‘Services’’ segment (as shown in the annual report 2014) is now under the ‘‘DCITS’’ segment. During 1Q2015, the DCITS segment reported revenue of approximately HK$1.41 billion, representing a 16.6% decline as compared with the revenue for 1Q2014 of approximately HK$1.69 billion as it persisted in strategic upgrade and business transformation. The DCITS segment recorded segment results of approximately HK$19 million in 1Q2015, representing a decrease of 52.5% from the results for 1Q2014 of approximately HK$40 million. The management of the Company explained that the decrease in revenue was due to the DCITS segment’s strategy to focus its resources on more profitable industries and clients and the results of the segment were also affected.

The ‘‘Supply Chain Services’’ segment (as shown in the annual report 2014) is now under the ‘‘Supply Chain Business’’ segment. The Supply Chain Business segment reported revenue for 1Q2015 of approximately HK$1.0 billion, representing a 150.0% growth as compared with the revenue for 1Q2014 of approximately HK$400 million. As set out in the 2015 first quarterly results announcement of the Company, the Group started to work with Lenovo’s Magic Factory and store.baidu.com and continued to solicit premium customers in the sectors of communications, auto accessories, IT and personal care chemical products, while improving the quality of its operations to add value for customers. For 1Q2015, the Supply Chain Business segment recorded segment results of approximately HK$12 million, representing a decrease of 7.7% as compared to the results for 1Q2014 of approximately HK$13 million despite the growth in revenue due mainly to the lower profit margins of providing logistics services in the e-commerce industry.

The ‘‘New Business’’ segment comprises the Group’s Sm@rt City services and financial services business. Revenue from such services was presented under other income and gains in 2014. As set out in the 2015 first quarterly results announcement of the Company, the Group entered into a Sm@rt City strategic cooperation agreement with Zhuhai Municipal Government as well as a number of operating service contracts with several cities while the financial leasing business has broadened its scope after obtaining qualifications for operating lease-back businesses. In 1Q2015, total revenue of the New Business segment amounted to approximately HK$74 million, representing an increase of 13.8% as compared to the revenue for 1Q2014 of approximately HK$65 million while segment results amounted to approximately HK$51 million, representing an increase of 34.2% as compared to the results for 1Q2014 of approximately HK$38 million. The improvement was mainly attributable to the abovementioned progress made in the financial services business in 1Q2015.

– IFA-7 –

LETTER FROM REORIENT

The Transaction

Subject to the terms and conditions of the Share Transfer Agreement, the Group will dispose of its entire equity interests in the Target Companies to Shenxin Taifeng. Completion of the Disposal is subject to the following conditions precedent:

• (i) the Share Transfer Agreement having taken effect, namely, where the following conditions having been satisfied:

• (a) the Transaction having been approved by the Board and the Shareholders at the SGM;

• (b) relevant procedures in relation to the issuing of announcement and circular and obtaining independent shareholders’ approval having been completed by the Company in compliance with Chapter 14 and Chapter 14A of the Listing Rules;

• (c) the Transaction having been approved by the board of directors and shareholders of Shenxin Taifeng; and

• (d) the Transaction having been approved by the CSRC;

• (ii) the anti-trust review on concentration of business operators, conducted by The Ministry of Commerce of the PRC in regard of the Disposal, having been passed; and

• (iii) the Disposal having been approved by the relevant Bureau of Commerce supervising each Target Company.

Furthermore, the Disposal and the Share Subscription are subject to the same set of conditions precedent.

Shenxin Taifeng is an independent party of the Company whose shares are listed on The Shenzhen Stock Exchange. As set out in the Letter from the Board in the Circular, prior to the Transaction, Shenxin Taifeng’s principal businesses are communication devices production and sales as well as forage production.

The internal group reorganisation

Pursuant to the Share Transfer Agreement, the Company and DCL have undertaken to procure a restructuring (the ‘‘Group Restructuring’’) of DC China (being one of the Target Companies) under which DC China will acquire all other subsidiaries of the Group engaged in the IT Products Distribution Business (the ‘‘Transferred Entities’’) and will dispose of the subsidiaries, joint ventures, associates and available-for-sale equity investments not engaged in the IT Products Distribution Business to the Remaining Group (being the Group after excluding the Target Companies and the Transferred Entities) before Completion. The Disposal Group will become solely engaged in the IT Products Distribution Business.

– IFA-8 –

LETTER FROM REORIENT

Set out below are financial highlights of the Disposal Business (being the IT Products Distribution Business carried out by the Disposal Group). Further details are set out in the Unaudited Combined Financial Information of the Disposal Business as set out in Appendix II to the Circular:

	Year ended
	31 March
(Unaudited)	2013	FP2013	FY2014	1Q2014	1Q2015
	HK$’mil	HK$’mil	HK$’mil	HK$’mil	HK$’mil
Revenue	63,638	43,909	56,521	14,292	14,204
Cost of sales	59,993	41,874	53,511	13,591	13,422
Gross profit	3,645	2,035	3,010	701	782
Net profit	1,102	390	392	165	145

The annualized revenue of the Disposal Business for FP2013 amounted to approximately HK$58.55 billion which represented a decrease of approximately 8.0% to the Disposal Business’s revenue for the year ended 31 March 2013 (‘‘FY2012/13’’) of approximately HK$63.64 billion. The management of the Company explained that the decrease was mainly due to continued weakness in the IT market. The weak market and shifting of product mix from overseas brands to domestic brands and clearance of inventory as a result of termination of cooperation relationship with certain manufacturers led to the Disposal Business’s gross profit margin to deteriorate from a margin of 5.7% in FY2012/13 to 4.6% in FP2013. The Disposal Business’s annualized net profit for FP2013 amounted to approximately HK$520 million, representing a decrease of approximately 52.7% as compared to the net profit of the Disposal Business’s for FY2012/13 of approximately HK$1.10 billion. The decrease was due to the decline in revenue and gross profit as explained above coupled with a significant increase in other expenses due to provisions made for accounts receivable and inventory in view of weak market sentiments and provision made for purchase prepayment as the parties could not agree on the terms of supply.

In FY2014, the Disposal Business recorded revenue of approximately HK$56.52 billion, representing a slight decrease of approximately 3.5% to the annualized revenue in FP2013 of approximately HK$58.55 billion. The gross profit margin increased from 4.6% in FP2013 to 5.3% in FY2014 as it was recovering from the clearance of inventory which reduced the gross profit margin in FP2013. Net profit of the Disposal Business for FY2014 decreased by approximately 24.6% from the annualized net profit of approximately HK$520 million in FP2013 to approximately HK$392 million in FY2014. The decrease was mainly due to foreign exchange differences in FP2013 arising from the change of RMB exchange rate.

Revenue of the Disposal Business for 1Q2015 amounted to approximately HK$14.20 billion, representing a slight decline of 0.6% as compared to the revenue for 1Q2014 of approximately HK$14.29 billion. In 1Q2015, the Disposal Business’s gross profit margin increased from 5.3% in FY2014 to 5.5% due to continuous recovery from the clearance of inventory which reduced the gross profit margin in previous years. Net profit decreased by

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12.1% from approximately HK$165 million in 1Q2014 to approximately HK$145 million in 1Q2015 mainly due to the increase in inventory provision due to certain sales postponement.

As set out in Appendix II of the Circular, as at 31 March 2015, the Disposal Business had total assets of approximately HK$20.75 billion and total liabilities of approximately HK$18.17 billion, resulting in net assets of approximately HK$2.58 billion. Major assets of the Disposal Business consisted of (i) trade and bills receivables of approximately HK$6.20 billion; (ii) inventories of approximately HK$5.59 billion; (iii) available-for-sale investments of approximately HK$2.13 billion comprising wealth management financial products and minority investment in an unlisted equity investment at cost of HK$2.06 billion and HK$75 million respectively which were acquired by the Target Companies in order to maximise the Group’s return; (iv) cash and cash equivalents of about HK$0.96 billion; and (v) prepayments, deposits and other receivables of approximately HK$5.18 billion. We understand from the management of the Company that the wealth management financial products were acquired by the Target Companies for treasury management purposes while the unlisted equity investment relate to IT Products Distribution Business. Given the aforesaid and the Disposal involves the disposal of the Target Companies which hold the available-for-sale investments, such available-for-sale investments thus form part of the Disposal, The management of the Company further explained that in relation to the wealth management financial products which are fixed in maturity and return and the unlisted equity investment which is an investment in a private company, the Company has not commissioned any valuation and there is no open market for such investments. Major liabilities of the Disposal Business consisted of (i) trade and bills payables of approximately HK$7.01 billion; (ii) bank borrowings of approximately HK$6.86 billion; and (iii) other payables and accruals of approximately HK$3.99 billion. The above net assets exclude the net consideration received/receivable by the Target Companies of approximately HK$1.23 billion upon completion of the Group Restructuring. Taking into account such net consideration, the net assets of the Disposal Business would amount to approximately HK$3.81 billion. Based on the cash position of the Disposal Business of approximately HK$0.96 billion as at 31 March 2015 and taking into account the declared dividend of HK$2.09 billion (which is included in the other payables of the Disposal Business as at 31 March 2015), the aforesaid net consideration of HK$1.23 billion arising from the Group Restructuring and available-for-sale investments of approximately HK$2.13 billion, the Disposal Business would have cash and available-for-sale investments of approximately HK$2.23 billion in aggregate. We understand from the Company that subject to completion of the Group Restructuring, the Remaining Group will pay the remaining net consideration to the Target Companies before completion of the Transaction.

Non-competition undertakings of the Company

The Company provided the following undertakings to Shenxin Taifeng on 7 August 2015:

• (a) that through the Transaction, the Company shall dispose of all assets, liabilities and businesses related to the Group’s existing IT Products Distribution Business (namely: (i) enterprise products such as network products, servers, storage

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equipments and software suites, and (ii) consumer electronic products such as notebook computers, desktop computers, PC servers and peripheral computer devices), and upon completion of the Transaction, the Company and enterprises whose accounts are consolidated into the consolidated financial statements of the Company shall not contain any competing businesses or assets which are the same or similar to that of the IT Products Distribution Business; and

• (b) that upon Completion, the Company shall not have, and shall not in the future carry out, by itself or through any enterprises whose accounts are consolidated into its consolidated financial statements, businesses that may compete with the IT Products Distribution Business. In case any such enterprise engages in business that may compete with the IT Products Distribution Business, Shenxin Taifeng has the right to request the Company to dispose of such interests to Shenxin Taifeng at a fair price. In such case, the price will be determined by independent valuation.

As stated in the Letter from the Board of the Circular, the above undertakings are required to be given by the Company due to the relevant legal requirements in the PRC with respect to the provision of non-competition undertakings in transactions of a similar nature. Furthermore, upon Completion, the businesses of the Remaining Group will focus on the provision of professional IT services and will not be involved in the IT Products Distribution Business. In the event any IT hardware is required by the customers of the Remaining Group, the Remaining Group will purchase such hardware and resell the same to its customers at cost as part of the IT services being provided. We understand from the management of the Company that such business model would not be regarded as distribution and hence will not violate the non-competition undertakings. The management of the Group is aware of the restrictions under the non-competition undertakings and will inform the Board to refrain from involving in the restricted businesses in the future. Moreover, upon Completion, the Remaining Group will no longer possess the requisite resources, expertise and technical capabilities for engaging in the IT Products Distribution Business. Having considered the Company’s business strategy in the near future to utilize its resources on the Remaining Business and the benefits that the Company and the Shareholders will receive as a result of the Disposal, the Directors consider that the provision of the non-competition undertakings is in the interest of the Company and the Shareholders as a whole.

As the focus of the Remaining Group going forward is on the provision of IT services, we understand from the management of the Company that the provision of the above noncompetition undertakings would not impact on the Remaining Group’s future operations. Given the challenging environment of the IT Products Distribution Business as anticipated by the Company, the management of the Company proposes the Disposal to exit the IT Products Distribution Business and does not intend to re-enter the business which shall require substantive resources including time and capital from the Remaining Group. Considering that the Disposal is in the interest of the Company and the Shareholders as a whole as further set out in this letter and the provision of the non-competition undertakings are required under the relevant legal requirements in the PRC to implement the Disposal and taking into account the non-competition undertakings would not impact on the

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Remaining Business and the Company does not intend to re-enter the IT Products Distribution Business in light of its challenging environment and the resources to be required from the Group to re-build the business, we concur with the Directors’ views that the provision of the non-competition undertakings is in the interest of the Company and the Shareholders as a whole.

The Share Subscription

Shenxin Taifeng will issue 296,096,903 New A Shares to six Subscribers, including Mr. Guo Wei and China Fund Management at a price of RMB7.43 per New A Share (subject to adjustments to take into account events such as paying dividends and bonus issue by Shenxin Taifeng between 7 August 2015 and completion of the Share Subscription). The proceeds from the Share Subscription will be used by Shenxin Taifeng to settle part of the Consideration. Mr. Guo is the Chairman and an executive Director of the Company. China Fund Management is the trustee of Mr. Yan Guorong, President and an executive Director of the Company, and certain management staff of the Disposal Group. Among the remaining Subscribers is Mr. Wang Xiao Yan who is a director of Shenxin Taifeng and through his associates holds a substantial shareholding interest in Shenxin Taifeng. The Directors confirm that the remaining Subscribers are independent third parties of the Company and its connected persons. Completion of the Share Subscription is conditional upon the same conditions precedent as those for the Disposal under the Share Transfer Agreement.

Completion

Upon Completion, the Disposal Group will cease to be subsidiaries of the Company and the Remaining Group will cease to carry out the IT Products Distribution Business (i.e. the Digital China Group business segment) while Mr. Guo Wei and China Fund Management will hold approximately 23.66% and 4.53% shareholding interest respectively in Shenxin Taifeng.

Mr. Guo Wei, China Fund Management and all Asset Trustors entered into an actingin-concert agreement on 7 August 2015, pursuant to which, in respect of the shares held in its capacity as the asset trustee of Mr. Yan Guorong and certain management staff of the Disposal Group, China Fund Management will vote in agreement with Mr. Guo Wei on matters concerning shareholders of Shenxin Taifeng. Mr. Guo and China Fund Management have guaranteed that the net profits attributable to shareholders (excluding extraordinary gains or loss) of the Disposal Group will be not less than RMB302,257,900, RMB327,749,500 and RMB334,546,600 (equivalent to approximately HK$377.82 million, HK$409.69 million and HK$418.18 million, respectively) for each of the three years ending 31 December 2015, 2016 and 2017. Such guaranteed net profits consist of the amounts consistent with the forecast used in the income approach to value the Disposal Group as further set out in the section headed ‘‘Valuation’’ below plus income generated from surplus capital over the Disposal Group’s working capital. In case the net profits attributable to shareholders (excluding extraordinary gains or loss) of the Disposal Group fall short of the aforesaid amounts, Shenxin Taifeng shall have the right to repurchase certain number of the

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New A Shares held by each of Mr. Guo and China Fund Management calculated based on the shortfall and their shareholding interests in Shenxin Taifeng at a nominal consideration of RMB1.

Intellectual properties

On 7 August 2015, the Disposal Group and the Remaining Group entered into certain intellectual property arrangement agreements (which will take effect when the Share Transfer Agreement becomes effective) under which the Disposal Group shall at nil consideration transfer certain trademarks to the Remaining Group. Furthermore, on 7 August 2015 DC China (one of the Target Companies) and the Remaining Group entered into a license agreement under which DC China agreed to grant the Remaining Group a non-exclusive right to use certain trademarks for nil consideration during the effective period of the trademarks ranging from September 2015 to September 2024. On 7 August 2015, the Disposal Group and the Remaining Group entered into another license agreement (the ‘‘Remaining Group Licensing Agreement’’) under which the Remaining Group granted a license to the Disposal Group for use of certain trademarks at a nominal consideration of HK$1. The expiration periods of the licensed trademarks range from November 2017 to November 2019. Given that (i) the Company will acquire ownership or right to use the intellectual properties from the Target Companies free of charge; (ii) as confirmed by the Directors, the aforesaid intellectual property arrangement agreements shall enable the Remaining Group and the Disposal Group to continue to use the relevant intellectual properties to develop their respective businesses; (iii) the Disposal is in the interest of the Company and the Shareholders as a whole as further set out in this letter and the Remaining Group Licensing Agreement is required by Shenxin Taifeng to agree on the Disposal with a view to maintaining the existing operation of the Disposal Business; and (iv) in accordance with the terms of the Remaining Group Licensing Agreement, the Remaining Group will have control over the manner in which the relevant trademarks are used by the Disposal Group, the Company considers and we concur that the terms of the license and nominal consideration of HK$1 are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Indemnity

Pursuant to the Asset Transfer Agreement, DCL shall indemnify any loss to the Disposal Group after Completion caused by any events before Completion including those arising from tax, penalty, arbitration and litigation. In particular, DCL shall indemnify any loss arising from three claims amounting to approximately RMB154 million. As stated in the Company’s announcement dated 16 June 2015, 北京神州數碼有限公司 (Beijing Digital China Limited*) (‘‘DC Beijing’’), a member of the Disposal Group, has been named as the defendant in three claims (the ‘‘Claims’’) commenced by third parties in the PRC who alleged that DC Beijing and DC China were in default in making payments under various procurement contracts. The aggregate claimed sums (including interest) amount to approximately RMB154 million. As stated in the announcement, based on preliminary investigations, DC Beijing and DC China had not participated in any of the underlying transactions and the transaction documents that were alleged to have been executed by DC Beijing and DC China were fabricated and based on the findings of the internal

• for identification purpose only

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investigations and the existing legal advice provided, DC Beijing and DC China consider that there are no merits in the Claims. However, in respect of a claim of approximately RMB42 million against DC China, DCL shall not be responsible for any compensation up to such amount given that such amount has been provided for in the financial statements of the Disposal Group.

Continuing transactions after Completion

As stated in the Letter from the Board of the Circular, it is currently expected that there will be the following continuing transactions between the Remaining Group and the Target Companies upon Completion:

• (i) procurement of IT-related products by the Remaining Group from Shenxin Taifeng;

• (ii) provision of IT products and services, supply chain business and maintenance services by the Remaining Group to Shenxin Taifeng; and

• (iii) leasing of real properties by the Group to Shenxin Taifeng.

The abovementioned continuing transactions would not constitute connected transactions of the Company for the purpose of Chapter 14A of the Listing Rules. The Company will implement the following measures to ensure, and will procure its subsidiaries to ensure that such transactions will be conducted on normal commercial terms and in accordance with the relevant listing rules that are applicable to the Company or its subsidiaries as and when necessary:

• (i) the agreements in relation to the procurement of IT-related products will contain a clause specifying that if the price offered by the Target Companies is higher than other suppliers, the Company is not obligated to purchase from the Target Companies. In deciding whether to procure IT-related products from the Target Companies, the Company will take into account various factors including price, delivery time and product quality and will ensure that the terms offered to the Company are not less favourable than those available in the market;

• (ii) any director of the Company who is interested in the relevant transactions shall abstain from voting in relation to the approval of such continuing transactions; and

• (iii) the Company will implement an internal price monitoring mechanism including obtaining quotations and collecting market data to ensure that (a) the purchase price for procuring IT products from the Target Companies, (b) the offer price for providing IT services to the Target Companies, and (c) the rents for leasing the properties to the Target Companies, are not less favourable than those available in the market.

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In view of the above internal control measures which will be implemented by the Company, we are of the view that the Company would be able to ensure that the continuing transactions will be conducted at normal commercial terms.

Reasons for and benefits of the Transaction and use of proceeds

As explained in the Letter from the Board of the Circular, the current and future focus of business of the Group is to engage in businesses with higher added-value and higher growth, such as Sm@rt City, Sm@rt Agriculture, Sm@rt Healthcare, Sm@rt Production, Sm@rt Logistics and related financial services in China through IT service and operation integrated with industrial application based on the Internet, cloud computing and big data technology.

In the past three years, gradual decline in the revenue and profit of the Target Companies’ systems and distribution business affected the overall revenue and profitability of the Group. The Board expects that the business environment of the Target Companies (i.e. the IT Products Distribution Business) will remain challenging in the near future, and time is required to thoroughly reform the systems and distribution business in order to adjust it to the challenges in the industry and to resume steady growth of profit. The Disposal will release a substantial amount of resources invested by the Group in the Target Companies. The net proceeds from the Disposal will bring cash dividends to Shareholders and contribute to the Remaining Group’s cash flow and financial position. The Company expects to realize net proceeds of approximately HK$4.67 billion (after deduction of transactions costs and expenses) from the Disposal, and intends to apply them for the following purposes:

• (a) approximately 75% of the net proceeds, or HK$3.50 billion to be distributed as special cash dividends (upon fulfillment of the conditions set out below). The Board has resolved to recommend the Shareholders to approve the distribution of a special cash dividend of HK$3.20 per Share, which is subject to the following conditions:

• (i) the Share Transfer Agreement and the transactions contemplated thereunder, the provision of the non-competition undertakings (as set out in the section headed ‘‘Non-competition undertakings of the Company’’) above and the transactions contemplated thereunder, as well as the proposed distribution of special cash dividends having been approved by the Independent Shareholders at the SGM; and

• (ii) the conditions precedent to the completion of the Transaction having been satisfied or waived (as the case may be);

• (b) approximately 12.5% of the net proceeds, or HK$0.58 billion, will be used in the Group’s investments according to the strategies of the Company; and

• (c) approximately 12.5% of the net proceeds, or HK$0.59, will be reserved as general working capital of the Group.

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Upon Completion, the Remaining Group will be principally engaged in the Remaining Business (comprising the DCITS business, the Supply Chain Business and the New Business). As set out in the section headed ‘‘Information on the Group’’ in this letter above, both the Supply Chain Services and the Services segments reported growth in results for FY2014 when compared to the results for the year ended 31 December 2013 based on the Group’s management accounts although they reported decline in results for 1Q2015 when compared to the results for 1Q2014. Considering that both the Supply Chain Services and Services segments showed trend of growth in FY2014 and taking into account the Group’s expertise in both segments, the management of the Company believes in the continuous development in both segments.

As explained in the Letter from the Board of the Circular, upon Completion, the Remaining Group will continue to focus on and channel its resources into the businesses of the Internet, cloud computing and big data technology. The Remaining Group will also leverage its rich experience and solid technological expertise on systems solutions to develop higher added-value and higher growth business such as Sm@rt City, Sm@rt Agriculture and Sm@rt Healthcare.

In Sm@rt City, the Group provides services for government, city administrators, enterprises and citizens based on ‘‘one centre and three platforms’’. ‘‘One centre’’ represents a data centre operated by the Group for urban information management while ‘‘three platforms’’ built and operated by the Group comprise an integrated citizen platform, an integrated enterprise platform and an integrated city administration platform. Through the ‘‘three platforms’’, government, city administrators, enterprises and citizens can manage their affairs (such as making payments, submitting applications and accessing/publishing information/news) and interact. The Group plans to implement such platforms throughout the PRC covering tiers 1, 2 and 3 cities in the PRC.

In Sm@rt Agriculture, we understand from the Company that it plans to provide a platform through which farmers can exchange farmland, monitor farmland conditions and obtain agriculture related loans through the Internet or smartphone applications. In 2014, DCITS acquired 北京中農信達信息技術有限公司 (Beijing Zhongnong Xinda Information Technology Limited*) (‘‘Zhongnong Xinda’’), a company engaged in agricultural information related business. Leveraging its business and client base in local government agencies, enterprises and other organizations in relation to agriculture related business in the PRC, we understand from the Company that the Group will through DCITS launch the Sm@rt Agriculture platform.

• for identification purpose only

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In Sm@rt Healthcare, we understand from the Company that the Group plans to build a platform for hospitals and healthcare institutions through which doctors and patients can interact where healthcare services or information may be provided through the platform while in Sm@rt production and Sm@rt logistics, the Group plans to leverage resources such as big data analysis, cloud computing and the Internet to provide services to enhance design and production of goods and to improve the efficiency of logistics management.

In view of the above and taking into account the basis of the Consideration as set forth below, the Directors (including the independent non-executive Directors) are of the view that the terms and conditions of the Share Transfer Agreement and the Share Subscription Agreement are fair and reasonable and the Transaction (including the provision of the noncompetition undertakings) is commercially beneficial and in the interest of the Group and the Shareholders as a whole.

Consideration

As set out in the Letter from the Board of the Circular, the Consideration of approximately RMB4.01 billion, which shall be paid in cash within 10 business days after the Completion Date, has been arrived at after arm’s-length negotiations between the parties with reference to various factors including: (i) the Valuation Report; (ii) the recent financial position and performance of the Target Companies; (iii) the outlook of the business of sales and distribution of general IT and systems products in the PRC; and (iv) the commercial reasons and benefits as set out in the Letter from the Board of the Circular. The Valuation Report is required by the laws and regulations in the PRC applicable to Shenxin Taifeng in connection with its acquisition of the Target Companies. The Valuation Report which sets out the valuation of the Disposal Business as at 31 March 2015 (the ‘‘Current Valuation’’) may be subject to changes following a review by the relevant PRC authority and as such the Current Valuation may or may not be the final valuation of the Disposal Business (the ‘‘Final Valuation’’). In the event that the Final Valuation differs from the Current Valuation, the Consideration will be adjusted according to the following mechanism (the ‘‘Adjustment’’):

• (a) if the difference between the Final Valuation and the Current Valuation is not more than 3% (i.e. including 3%) of the Current Valuation, the Consideration will be adjusted to the amount of the Final Valuation; and

• (b) if the difference between the Final Valuation and the Current Valuation is more than 3% of the Current Valuation, the Consideration will be determined by mutual agreement of all parties to the Share Transfer Agreement. In such case, as confirmed by the management of the Company, the Transaction will be subject to re-compliance with the applicable Listing Rules including seeking independent shareholders’ approval.

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Under the Share Transfer Agreement, during the period from the valuation date of the Disposal Group (i.e. 31 March 2015) up to Completion, Shenxin Taifeng shall be entitled to the profits of the Target Companies and DCL shall bear any losses incurred by the Target Companies where the Consideration shall be reduced by the amount of the losses. We understand from the Company that the aforesaid term regarding the treatment of profit or loss of the Disposal Group during the period from the valuation date up to the completion date is common in sale and purchase transactions of equity interests of companies in the PRC. Given the historic profitability of the Disposal Group, the Company does not anticipate any adjustment to the consideration in this regard.

Valuation

DCL and Shenxin Taifeng have engaged China Alliance Appraisal Co., Ltd., an independent qualified valuer in the PRC, to appraise the value of the Disposal Business (being the IT Products Distribution Business carried out by the Disposal Group). The Valuer confirmed that it is independent from the Group and other parties to the Transaction. We have reviewed and are satisfied with the qualifications and experiences of the Valuer. We have reviewed the Valuer’s engagement letter and consider that the scope of work is appropriate for the valuation.

We have considered and discussed with the Valuer regarding the Valuation Report setting out valuation details of the Disposal Business. We have reviewed the fairness, reasonableness and completeness of the valuation methodology, assumptions and projections used in the Valuation Report and report as follows.

As set out in the Valuation Report, in carrying out the valuation, the Valuer has considered three approaches, namely asset approach, market approach and income approach. The asset approach assesses the fair value of the assets and liabilities of the valuation target. Taking into consideration the Disposal Group’s principal business of distribution of IT products which does not own any manufacturing facilities and is relatively light in fixed assets and the asset approach’s inability to capture the value of intangible assets of the Disposal Business such as customer base, reputation and human resources of the Disposal Business, the Valuer does not consider asset approach an appropriate methodology to appraise the value of the Disposal Business. The market approach appraises the value of the valuation target by reference to comparable listed companies or transactions. The income approach appraises the value of the valuation target based on discounted cash flow of the valuation target. Given limited information on similar market transactions and a valuation by reference to comparable listed companies may be constrained by limited available information on the comparable companies and the valuation may be affected by the volatility of the stock markets, the Valuer considered that it is more appropriate to adopt income approach to appraise the value of the Disposal Business.

The management of the Company prepared a forecast of free cash flow of the Disposal Business which is based on among others the past historic records of the Disposal Group and the rate of inflation in the PRC. It is estimated that revenue will grow by 3% annually during 2016 and 2020 having regard to the historical revenue growth rate of the Disposal

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Business in the first half of 2015, the inflation rate in the PRC and the latest forecast published by Gartner. Based on our review of the revenue of the Disposal Business in the first half of 2015, the historical inflation rates in the PRC and the forecast statistics published by Gartner, we consider that it is reasonable for the management of the Company to prepare the cash flow forecast based on a revenue growth rate of 3%. The gross profit margin is estimated to be 5.4% taking into account historical gross profit margins of the Disposal Business. We note that the estimated gross profit margin ratio is comparable to the historical gross profit margin ratios of the Disposal Group and is reasonable. The net profits are forecast to grow slightly taking into account the growth in revenue.

The Valuer discounted such cash flow forecast at a discount rate of 9.25%, based on weighted average cost of capital (WACC) calculated based on cost of equity adopting the Capital Asset Pricing Model (CAPM) which takes into account the estimated volatility in relation to the equity capital of the Disposal Group and cost of debt based on lending cost. The calculation of WACC and CAPM which are commonly adopted formula in the market and the bases of the parameters are set out in the Letter from the Board. We have reviewed the calculation of the discount rate and the reasonableness of the bases of the relative parameters, and we are not aware of any major factors casting doubt on the calculation. In particular, based on the following selection criteria: (i) the comparable company shall be profit-making in the previous two years; (ii) the comparable company shall be listed for at least two years; (iii) the comparable company shall only have A-shares in issue; and (iv) the industry in which the comparable company is engaged or its principal operation shall belong to wholesale and retail industry — distribution of electronic products in wholesale industry under the industry category of the CSRC, and such principal operation shall have a track record of two years, Fujian Furi Electronics Co., Ltd., Shenzhen Aisidi Co. Ltd., Zhongyeda Electric Co. Ltd. and Wuhan P and S Information Co. Ltd. are selected as comparable companies for estimating the discount rate. As explained by the Valuer, the Disposal is to be conducted in the PRC and therefore it is common valuation practice for the Valuer to consider A-share companies only. Furthermore, the Valuer explained that although there is no A-share listed company that is mainly engaged in IT products distribution business, given the comparable companies are engaged in sales of electronic products, such companies and their published financial information would be relevant in estimating the risk exposure and capital structure for the calculation of the discount rate. We have reviewed the selection criteria which are comparable to the Disposal Business and understand that it is a common practice for the Valuer to select A-share companies only given the Disposal is conducted in the PRC. In light that the comparable companies are engaged in the sales of electronic products which would be relevant in estimating the risk exposure and capital structure of the calculation of the discount rate, we consider that the selection of comparable companies is reasonable in the estimation of the discount rate.

As set out in the Letter from the Board of the Circular, the profit forecast contained in the Valuation has not considered the impact of changes and fluctuations of foreign exchange market and the Company considers that (i) given that RMB is a currency which is subject to foreign exchange control and fluctuates depending on various factors, including the currency policies promulgated by the PRC government from time to time, the Valuer is not in a position to carry out the valuation taking into consideration the impact of changes and fluctuations of foreign exchange market; (ii) such assumption is consistent with the

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common practice in the PRC for valuations of assets; (iii) such assumption is made by the Valuer after due consideration and would not have any material impact on the valuation results given that (a) the exchange rate of RMB to US dollars was relatively stable in the past 12 months and it is not aware of any reason that will materially affect the stability of the exchange rate in the near future; and (b) the exposure of foreign exchange rates to the business of the Target Companies are limited because over 70% of the purchase prices are now settled and paid to the suppliers of the Target Companies in RMB. Due to the aforesaid and the unforeseeable nature with regard to the exchange rate concerning RMB arising from policy changes, we consider that it is reasonable for the Valuer to form such assumption for the valuation.

The value of the Disposal Business takes into account such discounted cash flow arising from the Disposal Business as well as the assets and liabilities of the Disposal Business that are not related to the operation of the Disposal Business and have not been taken into account in the cash flow forecast of the Disposal Business, such as the availablefor-sale investments, and the bank borrowings of the Disposal Business. In assessing the value of the available-for-sale investments, the valuer has taken into account the cost of investment of the wealth management financial products of HK$2.13 billion and the net asset value of the investee company attributable to the unlisted equity investment of HK$25 million as at 31 March 2015. We consider that the Valuer’s adoption of the income approach and its methodology as set out above in appraising the value of the Disposal Business is fair and reasonable. We have not identified any major factors casting doubts on the methodology, assumptions and projections used in the Valuation Report. We also draw your attention to the letters issued by the auditors of the Company and the Board in relation to the projection used in the Valuation Report as included in Appendix IV to the Circular.

As set out in the Valuation Report, the Disposal Business was valued at RMB4.01 billion as at 31 March 2015. As confirmed by the Company, there is no material change since 31 March 2015 concerning the Disposal Business that would affect the valuation of the Disposal Business. We therefore are of the view that the valuation of the Disposal Business as at 31 March 2015 remains valid. As confirmed by the Valuer, such valuation has taken into account various factors, including but not limited to, the provision of the noncompetition undertakings by the Company (as further set out under the paragraph headed ‘‘Non-competition undertakings of the Company’’ above), the completion of the Group Restructuring and the payment of total dividends of HK$2.09 billion declared by the Target Companies to the Remaining Group prior to the Group Restructuring, the net consideration received/receivable by the Target Companies of HK$1.23 billion upon completion of the Group Restructuring and the Disposal. As set out in the section headed ‘‘Comparable companies’’ below, the appraised value of the Disposal Group of RMB4.01 billion which is equivalent to the Consideration represents a price-to-earnings ratio (the ‘‘P/ E Ratio’’) of 12.78 times which is above the range of P/E Ratios of the comparable companies and represents a price-to-book ratio (the ‘‘P/B Ratio’’) of 1.32 times which is within the range of P/B Ratios of the comparable companies. Please refer to the section headed ‘‘Comparable companies’’ below for further details and commentary on the analysis between the Consideration (which equals the appraised value) and the valuation of comparable companies.

– IFA-20 –

LETTER FROM REORIENT

The valuation as at 31 March 2015 has not taken into account three companies which were acquired/established by DC China and its subsidiaries after 31 March 2015 and which form part of the Disposal Business. Of the three companies, one was acquired at a consideration of Macau pataca 25,000 (equivalent to approximately HK$24,000) and the other two were established with registered capitals of RMB5 million (equivalent to approximately HK$6.25 million) and HK$10,000 respectively. The Company stated that the three companies primarily hold cash representing the consideration/registered capitals and there are no specific plans for the development of the companies. Given the acquisition/ establishment of the three companies were funded by the cash resources of the Disposal Business as at 31 March 2015 which have been taken into account in the valuation, the Company does not consider that there would be impact on the valuation arising from the three companies not being covered in the valuation.

Comparable companies

In forming our opinion on the fairness and reasonableness of the Consideration, we considered and compared the P/E Ratios and the P/B Ratios of companies listed on the Stock Exchange whose turnover comprised primarily (i.e. more than 50%) revenue from distribution of IT products in the PRC and Hong Kong as reported in their latest annual reports (the ‘‘Comparable Companies’’). On a best effort basis to identify all Comparable Companies as at the Latest Practicable Date (‘‘LPD’’), we identified 7 Comparable Companies as follows.

				Market
		Stock		capitalisation	P/E	P/B
	Company	code	Principal business	as at the LPD(1)	Ratio (2)	Ratio (3)
				HK$’mil
1.	Changhong Jiahua	8016	Distribution of IT consumer and	2,327.44	12.04	1.83
	Holdings Limited		corporate products, consumer
			electronic products and
			smartphones
2.	CIL Holdings Limited	479	Distribution of server storage, multi-	237.42	NA(4)	3.39
			media and communication
			products, distribution of rice
			cookers and household electrical
			appliances, investment in securities
			and money lending
3.	Futong Technology	465	Provision of enterprise IT	395.29	9.27	0.57
	Development		infrastructure products, services
	Holdings Limited		and solutions in the PRC
4.	Peking University	618	Distribution of information products	3,892.36	NA(5)	2.68
	Resources		such as servers and printers,
	(Holdings)		property development and property
	Company Limited		investment
5.	SiS International	529	Distribution of mobile and IT	1,248.60	7.10	0.51
	Holdings Limited		products and property investment
6.	VST Holdings Limited	856	Distribution of IT products and	3,962.29	6.33	0.99
			provider of enterprise systems and
			IT services

– IFA-21 –

LETTER FROM REORIENT

				Market
		Stock		capitalisation	P/E	P/B
	Company	code	Principal business	as at the LPD(1)	Ratio (2)	Ratio (3)
				HK$’mil
7.	The Company	861	Sale and distribution of general IT	8,928.63	9.90	0.81
			products and systems products; and
			provision of supply chain services
			and IT services
			Average		8.93	1.54
			Median		9.27	0.99
			Maximum		12.04	3.39
			Minimum		6.33	0.51
			Disposal Group at the Consideration		12.78(6)	1.32(7)
			Disposal Group at the minimum		12.39	1.28
			consideration(8)
			Disposal Group at the maximum		13.16	1.36
			consideration(9)

Sources: Bloomberg, www.hkex.com.hk and latest annual, interim and/or quarterly reports of the respective Comparable Companies

Notes:

1. As extracted from Bloomberg.

2. P/E Ratio is calculated based on the market capitalisation of the respective Comparable Companies as at the LPD divided by the net profit of the respective Comparable Companies as extracted from their respective latest annual reports.

3. P/B Ratio is calculated based on the market capitalisation of the respective Comparable Companies as at the LPD divided by the latest published net assets of the respective Comparable Companies as extracted from their respective latest annual, interim or quarterly reports (as the case may be).

4. CIL Holdings Ltd. recorded net loss for the year ended 30 June 2014 and therefore the P/E Ratio is not available.

5. Peking University Resources (Holdings) Company Limited recorded net loss for the year ended 31 December 2014 and therefore the P/E Ratio is not available.

6. Calculated based on the Consideration divided by the unaudited net profit of the Disposal Business as set out in Appendix II to the Circular for the year ended 31 December 2014 of approximately HK$392.17 million.

7. Calculated based on the Consideration divided by the unaudited net assets of the Disposal Business as at 31 March 2015 of approximately HK$3.81 billion (including the net consideration receivable by the Target Companies upon completion of the Group Restructuring).

8. Being the Consideration after the maximum downward Adjustment of 3% below the Current Valuation of approximately HK$4,862.13 million.

– IFA-22 –

LETTER FROM REORIENT

1. Being the Consideration after the maximum upward Adjustment of 3% above the Current Valuation of approximately HK$5,162.88 million.

Based on the respective market capitalisation of the Comparable Companies as at the LPD, the P/E Ratios of the Comparable Companies range from approximately 6.33 times to approximately 12.04 times, with an average of approximately 8.93 times and a median of approximately 9.27 times. The implied P/E Ratios of the Disposal ranging from approximately 12.39 times to 13.16 times are higher than the range of the P/E Ratios of the Comparable Companies calculated based on the market capitalisation of the Comparable Companies as at the LPD.

Based on the respective market capitalisation of the Comparable Companies as at the LPD, the P/B Ratios of the Comparable Companies range from approximately 0.51 times to approximately 3.39 times with an average of approximately 1.54 times and a median of approximately 0.99 times. The implied P/B Ratios of the Disposal ranging from approximately 1.28 times to 1.36 times are lower than the average but higher than the median of the P/B Ratios of the Comparable Companies calculated based on the market capitalisation of the Comparable Companies as at the LPD.

The range of the implied P/E Ratios of the Disposal is above the range of P/E Ratios of the Comparable Companies while the range of the implied P/B Ratios of the Disposal falls within the range of P/B Ratios of the Comparable Companies. Although the P/B Ratio range for the Disposal is lower than the average P/B Ratio for the Comparable Companies, the P/B Ratio range for the Disposal is higher than the median P/B Ratio for the Comparable Companies. Taking into account the aforesaid, we are of the view that the Consideration (taking into account any possible Adjustment) is fair and reasonable so far as the Independent Shareholders are concerned, and in the interest of the Company and Shareholders as a whole.

As stated in the Letter from the Board of the Circular, the Board also considered the P/E Ratio of similar companies and compared the implied P/E Ratio of the Disposal of 12.78 times against the P/E Ratio of such similar companies. The Board selected a total of six comparable companies, four of which are listed on the Stock Exchange (which have also been included in the list of Comparable Companies selected by us), one of which is listed in New York and the remaining one is listed in Taiwan. The Board’s selection of the aforesaid comparable companies was made after considering the following:

• (i) The Disposal Group is a leading distributor of IT products in the PRC and the revenue of the Target Companies is primarily generated from the distribution of IT products in the PRC and Hong Kong.

• (ii) The four comparable Hong Kong companies that have been selected are leading IT distribution companies and their revenues also primarily come from the distribution of IT products in the PRC and Hong Kong.

– IFA-23 –

LETTER FROM REORIENT

• (iii) The US-listed comparable company is an international IT products distributor while the Taiwan-listed comparable company is the largest IT products distributor in the Asia-Pacific region, and these companies have been selected as they are the market leaders in the industry in their respective regions.

• (iv) There is no comparable company that is listed in the A-share market.

We are of the view that the selection of the Hong Kong comparable companies is a fair comparison to the Disposal Group as their respective revenue is mainly generated from the distribution of IT products in the same market. As for the selection of the US-listed comparable company and the Taiwan-listed comparable company, although these companies are engaged in IT products distribution, they operate globally and in Asia Pacific respectively while the Disposal Group operates in Hong Kong and the PRC. They may not be as comparable as the Hong Kong comparable companies for the Disposal Group. But they would still provide reference for the Board in determining the Consideration. Based on the Board’s P/E Ratio analysis, the implied P/E Ratio of the Disposal is higher than the average P/E Ratio of the comparable companies, which is consistent with our analysis set out above.

Share Subscription

As stated in the Letter from the Board in the Circular, the Consideration will be satisfied in cash in part by utilising the proceeds raised from the Share Subscription. The subscribers include Mr. Guo Wei, the Chairman and an executive Director of the Company and China Fund Management. China Fund Management is the trustee of Mr. Yan Guorong, President and an executive Director of the Company, and certain management staff of the Disposal Group. All subscribers including independent third parties of the Company are subscribing at the same subscription price of RMB7.43 per New A Share (subject to adjustments to take into account events such as paying dividends and bonus issue by Shenxin Taifeng between 7 August 2015 and completion of the Share Subscription) which represents approximately 90.12% of the 20-day average trading price per ordinary share of Shenxin Taifeng (‘‘Shenxin Share’’) up to and including 20 March 2015 (being the last trading day prior to the date of the Subscription Agreements) of approximately RMB8.245.

– IFA-24 –

LETTER FROM REORIENT

The graph below sets out the closing prices and trading volume of Shenxin Shares for the past year up to and including 20 March 2015 (being the last trading day for Shenxin Shares before the date of the Subscription Agreements):

==> picture [408 x 222] intentionally omitted <==

Source: Bloomberg

The subscription price of RMB7.43 per subscription share is above the closing prices of Shenxin Shares most of the time in the past year prior to its suspension in trading, although it is below the closing prices of Shenxin Shares following the price surge of Shenxin Shares since mid February up to 20 March 2015 (being the last trading day for Shenxin Shares before the date of the Subscription Agreements). Under the relevant regulation in the PRC, non-public issue of shares are subject to the requirement of the issue price being not less than 90% of the average trading share prices of the 20 trading days before the reference date. The subscription price of RMB7.43 adheres to such requirement and such pricing basis is commonly adopted in non-public issue of shares by listed companies in the PRC.

Based on the above, we consider that the subscription price for the New A Shares is consistent with market practice in the PRC.

Financial effects of the Transaction

Upon Completion, the Disposal Group will cease to be subsidiaries of the Company and the assets and liabilities and the results of the Disposal Group will no longer be consolidated into the financial statements of the Group. As set out in the Letter from the Board in the Circular, it is expected that the Group will realise a one-off unaudited gain on the Disposal of approximately HK$0.86 billion, which is calculated with reference to the Consideration of RMB4.01 billion (equivalent to approximately HK$5.01 billion) less (i) the net asset value of the Target Companies of approximately HK$3.81 billion (unaudited) as at 31 March 2015, and (ii) the estimated transaction costs and expenses of approximately HK$0.34 billion attributable to the Disposal, which include professional services fees, taxes

– IFA-25 –

LETTER FROM REORIENT

and other transaction related costs. Shareholders should note that the financial effect is shown for reference only and the actual amount of gain or loss as a result of the Disposal is subject to audit, which will be assessed based on financial position of the Target Companies as at Completion and eventually recognized in the consolidated financial statements of the Company upon Completion.

Appendix III to the Circular sets out the Unaudited Pro Forma Combined Financial Information of the Remaining Group. The net assets of the Group amounted to approximately HK$10.86 billion as at 31 December 2014. Based on the unaudited pro forma combined statement of financial position of the Remaining Group, on the basis that the Disposal took place on 31 December 2014, the unaudited pro forma combined net assets of the Remaining Group would amount to approximately HK$11.91 billion. The net profit of the Group for the year ended 31 December 2014 amounted to approximately HK$902.3 million. Based on the unaudited pro forma combined statement of profit or loss of the Remaining Group, on the basis that the Disposal took place on 1 January 2014, the unaudited pro forma net profit for the year ended 31 December 2014 of the Remaining Group would amount to approximately HK$3.94 billion. As set out in the Company’s 2014 annual report, the Group’s gearing ratio (calculated as net debt (being total debts including borrowings, trade and bills payables, other payables and accruals net of cash and bank balances) divided by the aggregate amount of equity attributable to owners of the Company and net debt) as at 31 December 2014 was 68.1%. Based on the unaudited pro forma combined statement of financial position of the Remaining Group, the Group would be in a net cash position had the Transaction been completed on 31 December 2014. Further information on the unaudited pro forma combined financial information of the Remaining Group is set out in Appendix III to the Circular.

Based on the above, the Transaction would have an overall positive effect on the Group’s financial position upon Completion.

CONCLUSION

Having considered the above principal reasons and factors including reasons for and benefits of the Transaction, we are of the view that the transactions contemplated under the Share Transfer Agreement and the Subscription Agreements (including the provision of the non-competition undertakings) are fair and reasonable, on normal commercial terms and in the interest of the Company and the Shareholders as a whole but are not in the ordinary and usual course of the Company’s business given that the Transaction does not form part of the principal activities of the Group.

– IFA-26 –

LETTER FROM REORIENT

Accordingly, we advise the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Share Transfer Agreement and the Subscription Agreements and the transactions contemplated thereon (including the provision of the non-competition undertakings).

Yours faithfully, For and on behalf of REORIENT Financial Markets Limited Allen Tze

Managing Director

Mr. Allen Tze is a licensed person registered with the Securities and Futures Commission to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance and has over 17 years of experience in corporate finance industry.

– IFA-27 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for the financial year ended 31 March 2013, the nine months ended 31 December 2013 and the financial year ended 31 December 2014 are disclosed in the following documents which have been published on both the website of the HKEx (http://www.hkexnews.hk) and the website of the Company (http://www.digitalchina.com.hk):

• . annual report of the Company for the financial year ended 31 March 2013 published on 5 July 2013 (pages 71 to 225) (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0705/LTN20130705589.pdf);

• . annual report of the Company for the nine months ended 31 December 2013 published on 10 April 2014 (page 64 to 222) (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0410/LTN20140410459.pdf); and

• . annual report of the Company for the financial year ended 31 December 2014 published on 9 April 2015 (page 68 to 262) (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0409/LTN201504091214.pdf).

2. WORKING CAPITAL

The Directors are of the opinion that taking into account the financial resources available to the Remaining Group, including internally generated funds and the currently available banking facilities, the receipt of total dividends of HK$2.09 billion declared by the Target Companies to the Remaining Group prior to the group restructuring, the net proceeds from the Disposal to be received, and barring any unforeseen circumstances, the Remaining Group will have sufficient working capital for at least twelve months from the date of this circular.

3. INDEBTEDNESS STATEMENT

As at the close of business on 30 June 2015, being the latest practicable date for the purpose of this indebtedness statement prior to printing of this circular, the total indebtedness of the Group comprised:

==> picture [45 x 9] intentionally omitted <==

Bank loans, unsecured

10,136,265

The Company guaranteed certain of the Group’s bank loans of HK$5,940 million as at 30 June 2015.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of the business of the Group, as at the close of business on 30 June 2015, the Group did not have any other outstanding mortgages, charges, debentures, loan capital, bank loans or overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, liabilities under acceptances (other than normal trade bills) or acceptance creditors, guarantees, or other material contingent liabilities.

For the purpose of the above statement of indebtedness, amounts denominated in RMB have been translated into Hong Kong dollars at an exchange rate of RMB1=HK$1.2440.

4. FINANCIAL AND TRADING PROSPECTS

The Group was mainly engaged in distribution and systems business at initial incorporation and has subsequently extended to information services business, with focus on IT planning and consultation, systems integration, solutions and design and development of application software; supply chain management business, with focus on outsourcing of operation and maintenance, logistics and maintenance; and financial services business, with focus on financial institutions, including finance leasing, commercial factoring and micro-credit. In addition, the Group’s officially ventured into Sm@rt City services and operation business which centers on the Internet-based platform in 2014. Given the rapid penetration of mobile internet and speedy growth of e-commerce industry in recent years, and under the effect of the State’s strategy of IT autonomy and controllability, the distribution and systems business faced enormous challenge. The Remaining Group will continue to operate in the information services business, supply chain management business, financial services business as well as Sm@rt City services and operation business upon the Disposal. Among them, the information services business will become the Group’s major source of profit. The supply chain management business and financial services business will maintain a steady growth, though with lower net profits as compared with that of the information services business. The Sm@rt City services and operation business is still at the stage of market development, thus requiring a relatively large amount of funds for research and development and operation, and this business is yet to generate profits for the Group.

The Group will continue the efforts in developing the Sm@rt City services and operation business which centers on the Internet-based platform in order to enhance profitability and deliver returns to the Shareholders.

– I-2 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

The following are the management discussion and analysis of the Remaining Group for the year ended 31 March 2013, the nine months ended 31 December 2013, the year ended 31 December 2014 and the three months ended 31 March 2015.

Year ended 31 March 2013

Business and financial review

During the period, there were two separate business segments under the Remaining Group, namely (a) IT Services Segment: targeting at industry customers, offering products and services business in IT planning and IT systems consultation, design and implementation of industry application software and solutions, outsourcing of IT system operation and maintenance, as well as systems integration and maintenance; and (b) Supply Chain Services Segment: primary focus on the markets of Hi-tech Industries, Branded e-Commerce Platform Operators and Branded Services Providers, providing one-stop consultancy and implementation in logistics, business flow, capital flow and information flow.

During the period, the Remaining Group achieved a turnover of approximately HK$10,719 million. Profit attributable to shareholders of the Remaining Group amounted to approximately HK$282 million.

Liquidity and financial resources

As at 31 March 2013, the Remaining Group had cash and bank balance of approximately HK$880 million, of which about HK$806 million were denominated in RMB. Its current ratio (i.e. the ratio of current assets to current liabilities) stood at 1.01.

Borrowings and pledged assets

As at 31 March 2013, the Remaining Group’s total borrowing (including interestbearing bank and other borrowings, loans from related companies and bond payables) amounted to approximately HK$2,128 million and its gearing ratio was approximately 53%. Total borrowings consist of current borrowings of approximately HK$2,128 million. The borrowings denominated in the US$, HK$ and RMB amounted to approximately HK$887 million, HK$840 million and HK$401 million respectively and their interest rates per annum ranged from 1.04%–2.87%, 0.95%–1.05% and 6.00%– 6.65% respectively. As at 31 March 2013, the Remaining Group had a fixed-rate borrowing of approximately HK$456 million.

As at 31 March 2013, the Remaining Group had pledged its fixtures and office equipment with a value of approximately HK$26 million in favour of Beijing Zhongguancun Sci-Tech Guaranty Co., Ltd., an independent third party, for securing a guarantee issued by such pledgee for a loan of approximately HK$25 million on behalf of Digital China Jinxin Technology Co., Ltd. (‘‘Beijing Jinxin’’), a

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

wholly-owned subsidiary of the Remaining Group. The loan had been included in the balance of the relevant guaranteed loans under current bank borrowings. In August 2010, Beijing Jinxin and twelve other companies issued ‘‘2010 Collective Bonds of Zhongguancun High-tech SME’’ (‘‘2010 Bonds’’) of RMB383 million to institutional and public investors in Mainland China through the Shenzhen Stock Exchange, the aggregate principal amount of which was RMB30 million (equivalent to approximately HK$37 million). The fund raised by Beijing Jinxin was applied to the development of its ATM network construction project. The 2010 Bonds which carry interest at a rate of 5.18% per annum will mature in August 2016, and are unconditionally and irrevocably guaranteed in full with joint liabilities by Beijing Zhongguancun Sci-Tech Guaranty Co., Ltd., an independent third party, from the first to third years of the issuance (‘‘ZGC Guarantee’’). At the same time, ZGC Guarantee is guaranteed by Beijing SMEs Credits Re-guarantee Co., Ltd., an independent third party, and also guaranteed by Beijing Jinxin for the principal amount of the 2010 Bonds it accounted for (i.e., RMB30 million).

Material investments, substantial acquisitions and disposals

During the period, 81.2% equity interests of Beijing Digital China Si-Tech Information Technology Co., Ltd. (‘‘Si-Tech’’) and equity interests of certain other subsidiaries were disposed by the Remaining Group for a consideration of approximately HK$318.5 million and it recorded a gain on disposal of approximately HK$251 million. Si-Tech is principally engages in the software development, provision of solutions and services for the telecommunication industry.

Save for the above mentioned, during the year ended 31 March 2013, the Remaining Group had no material investments, substantial acquisitions and disposals.

Capital structure

During the period, there were no material changes to the capital structure of the Remaining Group.

Foreign currency management

During the period, the Remaining Group did not exposed to any material foreign currency risk, and therefore the Remaining Group did not have any hedging measures in place for RMB exchange rate risk. Taking into consideration of its borrowings in foreign currencies, if the RMB strength/weaken against the US$ by 1%, the Remaining Group will recorded a foreign exchange gain/loss of approximately HK$6.01 million. As such, the Remaining Group did not consider the foreign exchange risk to be material.

– I-4 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Capital commitment

As at 31 March 2013, the Remaining Group had a capital commitment contracted but not provided for in the financial statement in relation to its acquisition of land and buildings and investment in a jointly-controlled entity of approximately HK$652 million.

Contingent liabilities

As at 31 March 2013, the Remaining Group had no material contingent liabilities.

Remuneration policy and information about employees

As at 31 March 2013, the Remaining Group had approximately 5,100 employees. It incurred an aggregate of approximately HK$1,282 million for staff costs during the period. Employees were provided with remuneration package, in-house training and further education opportunities by the Remaining Group by reference to market practice, individual experience and performance.

Nine months ended 31 December 2013

Business and financial review

During the period, there were two separate business segments under the Remaining Group, namely (a) IT Services Segment: targeting at industry customers, offering products and services business in IT planning and IT systems consultation, design and implementation of industry application software and solutions, outsourcing of IT system operation and maintenance, as well as system integration and maintenance; and (b) Supply Chain Services Segment: primary focus on the markets of Hi-tech Industries, Branded e-Commerce Platform Operators and Branded Services Providers, providing ‘‘one-stop’’ consultancy and implementation in logistics, business flow, capital flow and information flow.

During the period, the Remaining Group recorded a turnover of approximately HK$8,723 million, representing a decrease of 18.6% comparing to the year ended 31 March 2013, mainly due to the fact that only nine months were accounted for in this period. During the period, loss attributable to shareholders of the Remaining Group was approximately HK$294 million, comparing to a profit attributable to shareholders of the Remaining Group of approximately HK$282 million for the year ended 31 March 2013. The reason for the loss was that Digital China Information Service Co., Ltd. (‘‘DCITS’’), a subsidiary of the Remaining Group, was spun off and listed on the main board of The Shenzhen Stock Exchange in December 2013, which diluted the Group’s shareholding in DCITS and resulted in a one-off non-cash finance loss of approximately HK$549 million. Excluding the extraordinary items, the profit attributable to the shareholders of the Remaining Group for the nine months ended 31 December 2013 amounted to approximately HK$255 million.

– I-5 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Liquidity and financial resources

As at 31 December 2013, the Remaining Group had cash and bank balance of approximately HK$1,889 million, of which, about HK$1,767 million were denominated in RMB. Its current ratio (i.e. the ratio of current assets to current liabilities) stood at 0.98.

Borrowings and pledged assets

As at 31 December 2013, the Remaining Group’s total borrowings (including interest-bearing bank and other borrowings and loan from related companies) amounted to approximately HK$1,981 million and its gearing ratio was approximately 48%. Total borrowings consist of current borrowings of approximately HK$1,981 million. The borrowings denominated in the US$, HK$ and RMB amounted to approximately HK$990 million, HK$550 million and HK$441 million respectively and their interest rates per annum ranged from 1.27%–2.56%, 1.33%–3.21% and 6.00%–6.65% respectively. As at 31 December 2013, the Remaining Group had a fixed-rate borrowing of approximately HK$597 million. The Remaining Group had no pledged assets.

During the period, the 2010 Bonds in principal of RMB30 million issued by Beijing Jinxin had been fully redeemed (please refer to the above management discussion and analysis of the year ended 31 March 2013 for more information on the 2010 Bonds).

Material investments, substantial acquisitions and disposals

In August 2013, DCITS, an indirect non-wholly owned subsidiary of the Remaining Group, and 深圳市太光電信股份有限公司 (Shenzhen Techo Telecom Co., Ltd.*) (‘‘Shenzhen Techo Telecom’’) entered into the Absorption and Merger Agreement. Pursuant to the terms thereof, Shenzhen Techo Telecom, a company then listed on The Shenzhen Stock Exchange in the PRC, merged with DCITS by way of absorption. Upon completion of the absorption and merger, the approximately 60.98% equity interests in DCITS held by the Remaining Group were effectively transformed to approximately 45.17% equity interests in Shenzhen Techo Telecom, and Shenzhen Techo Telecom became an indirect non-wholly owned subsidiary of the Company. The listing expense of approximately HK$1,216 million was expended in the statement of profit or loss. The amount was calculated based on the fair value of the deemed shares in issue of DCITS less the fair value of net assets of Shenzhen Techo Telecom at the completion date of the absorption and merger.

Shenzhen Techo Telecom has changed its name to 神州數碼信息服務股份有限公司 (Digital China Information Service Company Ltd.*) since 26 February 2014.

Save for the above mentioned, during the nine months ended 31 December 2013, the Remaining Group had no material investments, substantial acquisitions and disposals.

– I-6 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Capital structure

During the period, there were no material changes to the capital structure of the Remaining Group.

Foreign currency management

During the period, the Remaining Group was not exposed to any material foreign currency risk, and therefore the Remaining Group did not have any hedging measures in place for RMB exchange rate risk. Taking into consideration of its borrowings in foreign currencies, if the RMB strength/weaken against the US$ by 1%, the Remaining Group will recorded a foreign exchange gain/loss of approximately HK$12.5 million. As such, the Remaining Group did not consider the foreign exchange risk to be material.

Capital commitment

As at 31 December 2013, the Remaining Group had capital commitments contracted but not provided for in the financial statement in relation to its acquisition of land and buildings and investments in an associate and joint ventures of approximately HK$1,384 million.

Contingent liabilities

As at 31 December 2013, the Remaining Group had no material contingent liabilities.

Remuneration policy and information about employees

As at 31 December 2013, the Remaining Group had approximately 5,200 employees. It incurred an aggregate of approximately HK$1,020 million for staff costs during the period. Employees were provided with remuneration package, inhouse training and further education opportunities by the Remaining Group by reference to market practice, individual experience and performance.

Year ended 31 December 2014

Business and financial review

During the period, there were two separate business segments under the Remaining Group, namely (a) IT Services Segment: targeted at industry customers, offering products and services in IT planning and IT systems consultation, design and implementation of industry application software and solutions, outsourcing of IT system operation and maintenance, as well as system integration and maintenance; and (b) Supply Chain Services Segment: primary focus on the markets of Hi-tech Industries, Branded e-Commerce Platform Operators and Branded Services Providers, providing one-stop consultancy and execution in logistics, business flow, capital flow and information flow.

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the period, the Remaining Group achieved a turnover of approximately HK$12,254 million, representing an increase of 40.5% compared to the nine months ended 31 December 2013. During the period, profit attributable to shareholders of the Remaining Group amounted to approximately HK$326 million, while the loss attributable to shareholders of the Remaining Group in the nine months ended 31 December 2013 was approximately HK$294 million. Excluding the extraordinary items (details set out in the management discussion and analysis for the nine months ended 31 December 2013 below), the profit attributable to the shareholders of the Remaining Group for the nine months ended 31 December 2013 amounted to approximately HK$255 million.

Liquidity and financial resources

As at 31 December 2014, the Remaining Group had cash and bank balance of approximately HK$2,279 million, of which about HK$2,097 million was denominated in RMB. Its current ratio (i.e. the ratio of current assets to current liabilities) stood at 0.88.

Borrowings and pledged assets

As at 31 December 2014, the Remaining Group’s total borrowing (including interest-bearing bank and other borrowings and loan from related companies) amounted to approximately HK$2,302 million and its gearing ratio was approximately 49%. Total borrowings consist of current borrowings of approximately HK$2,302 million. The borrowings denominated in the US$, HK$ and RMB amounted to approximately HK$838 million, HK$415 million and HK$1,049 million respectively and their interest rates per annum ranged from 0.25%–2.16%, 2.41%–2.63% and 6.00%–6.65% respectively. As at 31 December 2014, the Remaining Group had a fixed-rate borrowing of approximately HK$1,313 million. The Remaining Group had no charges on its assets.

Material investments, substantial acquisitions and disposals

On 22 July 2014 and 20 August 2014, DCITS, a non-wholly owned subsidiary of the Remaining Group, entered into a share purchase agreement and related supplemental acquisition agreements (collectively the ‘‘Acquisition Agreements’’) with the shareholders of Beijing Zhongnong Xinda Information Technology Limited (‘‘Zhongnong Xinda’’), pursuant to which the original Shareholders of Zhongnong Xinda agreed to sell and DCITS agreed to acquire 100% equity interests in Zhongnong Xinda. Zhongnong Xinda is principally engaged in the rural information related services in the PRC. The consideration for the purchase was satisfied in the following manner: (1) DCITS issued 20,520,227 new shares of DCITS with a fair value of HK$846.46 million to the original shareholders of Zhongnong Xinda; and (2) DCITS issued 7,171,717 new shares of RMB33 each for the settlement of RMB213 million in cash to the original shareholders of Zhongnong Xinda. Upon completion of the transaction, the equity interests held by Remaining Group in DCITS would reduce from 45.17% to 42.44%.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The acquisition of Zhongnong Xinda by the Remaining Group was completed and the adjusted consideration was RMB0.89 billion. Pursuant to the Hong Kong Accounting Standards, the net asset value of Zhongnong Xinda by the end of November 2014 was RMB64 million, and the goodwill arising from the acquisition amounted to RMB0.826 billion, equivalent to HK$1.033 billion.

Save for the above mentioned, during the year ended 31 December 2014, the Remaining Group had no material investments, substantial acquisitions and disposals.

Capital structure

During the period, there were no material changes to the capital structure of the Remaining Group.

Foreign currency management

During the period, the Remaining Group was not exposed to any material foreign currency risk, and therefore the Remaining Group did not have any hedging measures in place for RMB exchange rate risk. Taking into consideration of its borrowings in foreign currencies, if the RMB strength/weaken against the US$ by 1%, the Remaining Group will recorded a foreign exchange gain/loss of approximately HK$14.05 million. As such, the Remaining Group did not consider the foreign exchange risk to be material.

Capital commitment

As at 31 December 2014, the Remaining Group had capital commitments contracted but not provided for in the financial statement in relation to its acquisition of land and buildings and investments in joint ventures and an available-for-sale investment of approximately HK$693 million.

Contingent liabilities

As at 31 December 2014, the Remaining Group had no material contingent liabilities.

Remuneration policy and information about employees

As at 31 December 2014, the Remaining Group had approximately 5,300 employees. It incurred an aggregate of approximately HK$1,398 million for staff costs during the period. Employees were provided with remuneration package, inhouse training and further education opportunities by the Remaining Group by reference to market practice, individual experience and performance.

– I-9 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Three months ended 31 March 2015

Business and financial review

During the period, there were three business segments under the Remaining Group, namely (a) ‘‘New Business’’ segment, consisting of (i) Sm@rt City service unit: provision of all-encompassing Sm@rt City operation services for city administrators, enterprises and citizens based on ‘‘one centre and three platforms’’ (being the urban information management centre, the integrated citizen service platform, the integrated enterprise service platform and the integrated urban administration platform); and (ii) financial service strategy unit: provision of financial services, such as financing, investment, credit lending, financial risk management and financial information consultation, etc, to internal departments as well as third-party customers; (b) ‘‘Digital China Information Service Company Ltd.’’ segment: the leading IT service provider in China’s IT industry specialized in proprietary software, services, cloud computing and big data technology with the persistent implementation of integrating Sm@rt City and Sm@rt Agriculture; and (c) ‘‘supply chain management strategy unit’’ segment: operating through Instant Logistics to provide comprehensive intermediary and backstage logistics services for corporate customers, e-commerce platforms, branded service providers and individuals, while actively exploring Internet-based self-branded maintenance services.

During the period, the Remaining Group achieved a turnover of approximately HK$2,727 million, representing an increase of 17.5% over the first quarter of 2014, and a gross profit margin of 15.0%. Profit attributable to shareholders of the Remaining Group amounted to approximately HK$28 million, representing a decrease of 23.1% over the first quarter of 2014. The decline in the profit attributable to the shareholders of the Remaining Group compared to the same period of last year was mainly due to the impact of extraordinary gain and loss on profit attributable to the shareholders. Excluding the extraordinary gain and loss, the DCITS recorded an increase of 25.3% in profit attributable to the shareholders over the same period of last year.

Liquidity and financial resources

As at 31 March 2015, the Remaining Group had cash and bank balance of approximately HK$2,200 million, of which about HK$2,167 million was denominated in RMB. Its current ratio (i.e. the ratio of current assets to current liabilities) stood at 1.14.

Borrowings and pledged assets

As at 31 March 2015, the Remaining Group’s total borrowing (including interestbearing bank and other borrowings and loan from related companies) amounted to approximately HK$2,376 million and its gearing ratio was approximately 35%. Total borrowings consist of current borrowings of approximately HK$2,376 million. The borrowings denominated in the US$, HK$ and RMB amounted to approximately HK$767 million, HK$415 million and HK$1,194 million respectively and their interest

– I-10 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

rates per annum ranged from 1.27%–2.16%, 2.41%–2.63% and 6.00%–6.65% respectively. The Remaining Group had no charges on its assets. As at 31 March 2015, the Remaining Group had a fixed-rate borrowing of approximately HK$1,310 million. The Remaining Group had no charges on its assets.

Material investments, substantial acquisitions and disposals

During the first quarter of 2015, the Remaining Group had no material investments, substantial acquisitions and disposals.

Capital structure

During the first quarter of 2015, there were no material changes to the capital structure of the Remaining Group.

Future Plans for material investments or capital assets

As at 31 March 2015, the Remaining Group had no concrete or immediate future plans for material investments or capital assets for the financial year ending 31 December 2015.

Foreign currency management

During the first quarter of 2015, the Remaining Group did not exposed to any material foreign currency risk, and therefore the Remaining Group did not have any hedging measures in place for RMB exchange rate risk. Taking into consideration of its borrowings in foreign currencies, if the RMB strength/weaken against the US$ by 1%, the Remaining Group will recorded a foreign exchange gain/loss of approximately HK$10.06 million. As such, the Remaining Group did not consider the foreign exchange risk to be material.

Capital commitment

As at 31 March 2015, the Remaining Group had capital commitments contracted but not provided for in the financial statement in relation to its acquisition of land and buildings and investments in joint ventures of approximately HK$457 million.

Contingent liabilities

As at 31 March 2015, the Remaining Group had no material contingent liabilities.

Remuneration policy and information about employees

As at 31 March 2015, the Remaining Group had approximately 5,200 employees. It incurred an aggregate of approximately HK$309 million for staff costs for the first quarter of 2015. Employees were provided with remuneration package, in-house training and further education opportunities by the Remaining Group by reference to market practice, individual experience and performance.

– I-11 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

Pursuant to the Share Transfer Agreement, DCL, an indirect wholly-owned subsidiary of Company, will sell (the ‘‘Disposal’’) and Shenxin Taifeng, an independent third party will acquire the 100% equity interests in Target Companies’ mainly involved in:

1. the Distribution business: provision of products and solutions covering application structures, such as systems, networks, storage and security, and consolidation of online and offline resources to provide customers with end-toend value chain services centered on omni-channel marketing strategy;

2. the Supply Chain business: operating through Instant Logistics to provide comprehensive intermediary and backstage logistics services for corporate customers, e-commerce platforms, branded service providers and individuals, while actively exploring Internet-based self-branded maintenance services;

3. the Sm@rt City business: provision of all-encompassing Sm@rt City services for city administrators, enterprises and citizens based on ‘‘one centre and three platforms’’ (the urban information management centre, the integrated citizen service platform, the integrated enterprise service platform and the integrated city administration platform); and

4. the Financial Service business: provision of financial services, such as financing, investment, credit lending, financial risk management and financial information consultation, etc., to internal departments as well as third party customers.

According to the Share Transfer Agreement, the Group is required to execute an internal group restructuring (the ‘‘Group Restructuring’’), pursuant to which DC China will acquire all other subsidiaries of the Company engaged in the Distribution business (the ‘‘Disposal Business’’) and will dispose of the subsidiaries, joint ventures, associates and available-for-sale equity investments engaged in the Supply Chain business, the Sm@rtCity business and the Financial Service business (collectively the ‘‘Other Businesses’’) to the Remaining Group. Upon the completion of the Group Restructuring, the Target Companies together with aforementioned subsidiaries of the Company to be acquired by DC China (the ‘‘Disposal Group’’) would become the only sub-group within the Group which is solely engaged in Distribution Business. The Other Businesses run by the Disposal Group will continue to be operated by the Disposal Group and transferred to the Remaining Group until the completion of the Group Restructuring.

Set out below are the unaudited combined statements of profit or loss, unaudited combined statements of comprehensive income, unaudited combined statements of changes in equity and unaudited combined statements of cash flows for the year ended 31 March 2013, nine months ended 31 December 2013, year ended 31 December 2014 and three months ended 31 March 2015 (the ‘‘Relevant Periods’’), and the unaudited combined statements of financial position as at 31 March 2013, 31 December 2013, 31 December 2014 and 31 March 2015 and certain explanatory notes of the Disposal Business set out in this appendix (collectively the ‘‘Combined Financial Information’’). The Combined Financial Information has been presented on the basis set out in Note 1 in this appendix, and prepared in accordance with the accounting policies adopted by the Group and paragraph

– II-1 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

68(2)(a)(i) of Chapter 14 of the Listing Rules. The Combined Financial Information is prepared by the Directors solely for the purpose of inclusion in this circular in connection with the Very Substantial Disposal and Connected Transaction.

The reporting accountants of the Company, Ernst & Young, reviewed the Combined Financial Information of the Disposal Business as set out on pages II-3 — II-15 in Appendix II in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity and with reference to Practice Note 750 Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal issued by the Hong Kong Institute of Certified Public Accountants. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable the reporting accountants to obtain assurance that the reporting accountants would become aware of all significant matters that might be identified in an audit. Accordingly, the reporting accountant does not express an audit opinion. Based on their review, nothing has come to their attention that causes them to believe that the Combined Financial Information of the Disposal Business is not prepared, in all material respects, in accordance with the basis of preparation as set out in Note 1 below.

– II-2 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF PROFIT OR LOSS

REVENUE Cost of sales Gross profit Other income and gains Selling and distribution expenses Administrative expenses Other expenses, net Finance costs Share of profits of and losses of: A joint venture An associate PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR/PERIOD Attributable to: Equity holders of the parent Non-controlling interests	Year ended 31 March 2013 HK$’000 63,638,145 (59,992,883) 3,645,262 538,325 (2,103,872) (451,363) (54,036) (240,057) — — 1,334,259 (232,248) 1,102,011 1,098,049 3,962 1,102,011	Nine months ended 31 December 2013 HK$’000 43,909,334 (41,873,870) 2,035,464 706,634 (1,407,346) (364,607) (302,297) (157,128) (7,125) — 503,595 (114,078) 389,517 393,041 (3,524) 389,517	Year ended 31 December 2014 HK$’000 56,521,052 (53,511,154) 3,009,898 398,080 (1,872,911) (440,919) (313,978) (241,103) 148 2,306 541,521 (149,352) 392,169 394,907 (2,738) 392,169	Three months ended 31 March 2014 HK$’000 14,291,657 (13,591,066) 700,591 88,629 (393,156) (90,573) (64,748) (43,215) 953 — 198,481 (33,457) 165,024 166,525 (1,501) 165,024	Three months ended 31 March 2015 HK$’000 14,204,341 (13,422,478) 781,863 88,793 (403,092) (95,387) (127,614) (67,163) (7,593) 348 170,155 (25,307) 144,848 144,848 — 144,848

– II-3 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF COMPREHENSIVE INCOME

	Nine		Three	Three
Year ended	months ended	Year ended	months ended	months ended
31 March	31 December	31 December	31 March	31 March
2013	2013	2014	2014	2015
HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
1,102,011	389,517	392,169	165,024	144,848

		Year ended 31 March 2013 Nine months ended 31 December 2013 Year ended 31 December 2014 Three months ended 31 March 2014 Three months ended 31 March 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Year ended 31 March 2013 Nine months ended 31 December 2013 Year ended 31 December 2014 Three months ended 31 March 2014 Three months ended 31 March 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Year ended 31 March 2013 Nine months ended 31 December 2013 Year ended 31 December 2014 Three months ended 31 March 2014 Three months ended 31 March 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Year ended 31 March 2013 Nine months ended 31 December 2013 Year ended 31 December 2014 Three months ended 31 March 2014 Three months ended 31 March 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Year ended 31 March 2013 Nine months ended 31 December 2013 Year ended 31 December 2014 Three months ended 31 March 2014 Three months ended 31 March 2015 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
PROFIT FOR THE YEAR/PERIOD OTHER COMPREHENSIVE INCOME/ (LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations OTHER COMPREHENSIVE INCOME/ (LOSS) FOR THE YEAR/PERIOD, NET OF TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR/PERIOD Attributable to: Equity holders of the parent Non-controlling interests		1,102,011	389,517	392,169	165,024	144,848
	34,241 34,241 1,136,252 1,132,290 3,962 1,136,252		55,719 55,719 445,236 448,760 (3,524) 445,236	(21,789) (21,789) 370,380 373,118 (2,738) 370,380	5,623 5,623 170,647 172,148 (1,501) 170,647	(7,628)
						(7,628)
						137,220
						137,220 —
						137,220

– II-4 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment Investment in a joint venture Investment in an associate Available-for-sale investments Deferred tax assets Total non-current assets CURRENT ASSETS Inventories Trade and bills receivables Prepayments, deposits and other receivables Derivative financial instruments Available-for-sale investments Cash and cash equivalents Total current assets CURRENT LIABILITIES Trade and bills payables Other payables and accruals Tax payable Interest-bearing bank borrowings Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank borrowings Total non-current liabilities Net assets	31 March 2013 HK$’000 451,941 — — 75,464 62,766 590,171 5,284,666 6,942,239 3,213,709 53,511 — 3,309,855 18,803,980 8,759,590 2,247,641 226,255 1,008,129 12,241,615 6,562,365 7,152,536 2,712,494 2,712,494 4,440,042	31 December 2013 HK$’000 439,251 12,900 — 75,464 174,522 702,137 5,020,858 7,870,758 3,699,051 113,378 — 2,004,804 18,708,849 8,502,096 1,875,056 326,060 2,178,703 12,881,915 5,826,934 6,529,071 2,314,853 2,314,853 4,214,218	31 December 2014 HK$’000 411,671 13,048 34,023 1,323,452 176,629 1,958,823 5,816,822 6,235,884 5,532,255 32,841 750,000 1,840,311 20,208,113 8,472,679 1,963,295 320,652 6,106,773 16,863,399 3,344,714 5,303,537 764,848 764,848 4,538,689	31 March 2015 HK$’000 395,630 5,455 34,371 1,323,452 203,784
				1,962,692
				5,589,017 6,201,376 5,178,127 43,798 809,888 962,485
				18,784,691
				7,014,532 3,994,454 290,089 6,097,529
				17,396,604
				1,388,087
				3,350,779
				764,848
				764,848
				2,585,931

– II-5 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

EQUITY Equity attributable to equity holders of the parent Issued capital Reserves Non-controlling interests Total equity	31 March 2013 HK$’000 1,545,995 2,882,209 4,428,204 11,838 4,440,042	31 December 2013 HK$’000 1,825,995 2,383,391 4,209,386 4,832 4,214,218	31 December 2014 HK$’000 1,825,995 2,712,694 4,538,689 — 4,538,689	31 March 2015 HK$’000 1,825,995 759,936
				2,585,931
				—
				2,585,931

– II-6 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2013

Attributable to owners of the parent

At 1 April 2012 Profit for the year Other comprehensive income for the year: Exchange differences on translation of foreign operations Total comprehensive income for the year Share-based compensation 2012 interim dividend At 31 March 2013	Issued capital* Reserves HK$’000 HK$’000 1,545,995 2,022,452 — 1,098,049 — 34,241 — 1,132,290 — 57,467 — (330,000) 1,545,995 2,882,209	Total HK$’000 3,568,447 1,098,049 34,241 1,132,290 57,467 (330,000) 4,428,204	Non- controlling interests HK$’000 7,876 3,962 — 3,962 — — 11,838	Total equity HK$’000 3,576,323 1,102,011 34,241 1,136,252 57,467 (330,000) 4,440,042

• The issued capital of the Disposal Business consists of the issued capital of Target Companies and all other subsidiaries of the Company engaged in the Distribution Business which would be acquired by DC China upon the completion of the Group Restructuring.

– II-7 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENT OF CHANGES IN EQUITY

For the nine months ended 31 December 2013

Attributable to owners of the parent

At 1 April 2013 Profit for the period Other comprehensive income for the period: Exchange differences on translation of foreign operations Total comprehensive income for the period Issue of shares Share-based compensation Acquisition of non-controlling interests of a subsidiary Disposal of subsidiaries Distribution to parent 2013 interim dividend At 31 December 2013	Issued capital* Reserves HK$’000 HK$’000 1,545,995 2,882,209 — 393,041 — 55,719 — 448,760 280,000 — — (31,196) — (2,953) — — — (313,429) — (600,000) 1,825,995 2,383,391	Total HK$’000 4,428,204 393,041 55,719 448,760 280,000 (31,196) (2,953) — (313,429) (600,000) 4,209,386	Non- controlling interests HK$’000 11,838 (3,524) — (3,524) — — 1,047 (4,529) — — 4,832	Total equity HK$’000 4,440,042 389,517 55,719 445,236 280,000 (31,196) (1,906) (4,529) (313,429) (600,000) 4,214,218

• The issued capital of the Disposal Business consists of the issued capital of Target Companies and all other subsidiaries of the Company engaged in the Distribution Business which would be acquired by DC China upon the completion of the Group Restructuring.

– II-8 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENT OF CHANGES IN EQUITY

For the three months ended 31 March 2014

Attributable to owners of the parent

At 1 January 2014 Profit for the period Other comprehensive income for the period: Exchange differences on translation of foreign operations Total comprehensive income for the period Share-based compensation At 31 March 2014	Issued capital* Reserves HK$’000 HK$’000 1,825,995 2,383,391 — 166,525 — 5,623 — 172,148 — 8,791 1,825,995 2,564,330	Total HK$’000 4,209,386 166,525 5,623 172,148 8,791 4,390,325	Non- controlling interests HK$’000 4,832 (1,501) — (1,501) — 3,331	Total equity HK$’000 4,214,218 165,024 5,623
				170,647 8,791
				4,393,656

• The issued capital of the Disposal Business consists of the issued capital of Target Companies and all other subsidiaries of the Company engaged in the Distribution Business which would be acquired by DC China upon the completion of the Group Restructuring.

– II-9 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2014

At 1 January 2014 Profit for the year Other comprehensive loss for the year: Exchange differences on translation of foreign operations Total comprehensive income for the year Share-based compensation Acquisition of non-controlling interests At 31 December 2014	Attributable to owners of the parent Issued capital* Reserves Total HK$’000 HK$’000 HK$’000 1,825,995 2,383,391 4,209,386 — 394,907 394,907 — (21,789) (21,789) — 373,118 373,118 — (18,409) (18,409) — (25,406) (25,406) 1,825,995 2,712,694 4,538,689	Non- controlling interests HK$’000 4,832 (2,738) — (2,738) — (2,094) —	Total equity HK$’000 4,214,218 392,169 (21,789) 370,380 (18,409) (27,500) 4,538,689
	Issued capital* Reserves HK$’000 HK$’000 1,825,995 2,383,391 — 394,907 — (21,789) — 373,118 — (18,409) — (25,406) 1,825,995 2,712,694

• The issued capital of the Disposal Business consists of the issued capital of Target Companies and all other subsidiaries of the Company engaged in the Distribution Business which would be acquired by DC China upon the completion of the Group Restructuring.

– II-10 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENT OF CHANGES IN EQUITY For the three months ended 31 March 2015

Attributable to owners of the parent

At 1 January 2015 Profit for the period Other comprehensive loss for the period: Exchange differences on translation of foreign operations Total comprehensive income for the period Share-based compensation 2015 interim dividend At 31 March 2015	Issued capital* Reserves HK$’000 HK$’000 1,825,995 2,712,694 — 144,848 — (7,628) — 137,220 — 22 — (2,090,000) 1,825,995 759,936	Total HK$’000 4,538,689 144,848 (7,628) 137,220 22 (2,090,000) 2,585,931	Non- controlling interests HK$’000 — — — — — — —	Total equity HK$’000 4,538,689 144,848 (7,628) 137,220 22 (2,090,000) 2,585,931

• The issued capital of the Disposal Business consists of the issued capital of Target Companies and all other subsidiaries of the Company engaged in the Distribution Business which would be acquired by DC China upon the completion of the Group Restructuring.

– II-11 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Share of profits and losses of a joint venture and an associate Interest income Loss on disposal of items of property, plant and equipment Gain on disposal of subsidiaries Impairment of prepayments Depreciation Impairment/(reversal of impairment) of trade receivables Provisions/(reversal of provisions) for and write-off of obsolete inventories Share-based compensation Decrease/(increase) in inventories Decrease/(increase) in trade and bills receivables Decrease/(increase) in prepayments, deposits and other receivables Decrease/(increase) in derivative financial instruments Increase/(decrease) in trade and bills payables Increase/(decrease) in other payables and accruals Effect of foreign exchange rate changes, net Cash generated from/(used in) operations Interest received Income tax paid Net cash flows from/(used in) operating activities	Year ended 31 March 2013 HK$’000 1,334,259 240,057 — (98,509) 2,139 — — 58,131 (99,278) (8,473) 57,467 1,485,793 (583,687) 41,709 (567,165) 38,929 (1,065,231) 370,739 16,198 (262,715) 98,509 (193,515) (357,721)	Nine months ended 31 December 2013 HK$’000 503,595 157,128 7,125 (59,192) 2,363 (13,637) 84,960 41,999 86,829 73,089 (31,196) 853,063 46,157 (1,455,911) 260,148 (59,867) 302,375 32,608 (3,603) (25,030) 59,192 (126,029) (91,867)	Year ended 31 December 2014 HK$’000 541,521 241,103 (2,454) (79,706) 1,269 — — 55,825 150,462 (35,636) (18,409) 853,975 (760,328) 1,484,412 (124,686) 80,537 (29,417) 88,239 12,133 1,604,865 79,706 (156,867) 1,527,704	Three months ended 31 March 2014 HK$’000 198,481 43,215 (953) (18,523) 219 — — 13,882 14,401 32,472 8,791 291,985 41,930 182,276 562,369 5,716 250,884 (247,497) (2,771) 1,084,892 18,523 (67,924) 1,035,491	Three months ended 31 March 2015 HK$’000 170,155 67,163 7,245 (23,938) 212 — — 13,243 516 78,908 22 313,526 148,897 33,992 524,310 (10,957) (1,458,147) (58,841) (2,047) (509,267) 23,938 (83,025) (568,354)

– II-12 –

APPENDIX II

FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

UNAUDITED COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Investment in available-for-sale investment Decrease/(increase) in other receivables Disposal of subsidiaries Investment in a joint venture Investment in an associate Net cash flows from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares New bank loans Repayments of bank loans Interest paid Dividends paid Acquisition of non-controlling interests Net cash flows from/(used in) financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances	Year ended 31 March 2013 HK$’000 (55,419) 1,568 — (1,138,413) — — — (1,192,264) — 12,542,156 (10,966,597) (240,057) — — 1,335,502 (214,483) 3,512,067 12,271 3,309,855 3,309,855	Nine months ended 31 December 2013 HK$’000 (27,283) 1,659 — (1,310,724) 128,761 (20,025) — (1,227,612) 280,000 6,437,801 (5,664,881) (157,128) (930,000) (1,906) (36,114) (1,355,593) 3,309,855 50,542 2,004,804 2,004,804	Year ended 31 December 2014 HK$’000 (33,394) 1,203 (1,997,988) (1,708,518) — — (31,717) (3,770,414) — 14,568,946 (12,190,875) (241,103) — (27,500) 2,109,468 (133,242) 2,004,804 (31,251) 1,840,311 1,840,311	Three months ended 31 March 2014 HK$’000 (380) 276 — 205,665 — — — 205,561 — 2,187,605 (1,099,578) (43,215) — — 1,044,812 2,285,864 2,004,804 7,700 4,298,368 4,298,368	Three months ended 31 March 2015 HK$’000 (1,322) 2,578 (59,888) (170,182) — — — (228,814) — 4,284,195 (4,293,441) (67,163) — — (76,409) (873,577) 1,840,311 (4,249) 962,485 962,485

– II-13 –

APPENDIX II FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

NOTES TO THE COMBINED FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

1. BASIS OF PREPARATION AND PRESENTATION OF THE COMBINED FINANCIAL INFORMATION

The Combined Financial Information has been prepared in accordance with paragraph 68(2)(a)(i) of Chapter 14 of the Listing Rules, and solely for the purposes of inclusion in this circular in connection with the Disposal pursuant to the Share Transfer Agreement.

The Combined Financial Information for the year ended 31 March 2013, nine months ended 31 December 2013, year ended 31 December 2014, and three months ended 31 March 2014 and 2015 have been prepared using the same accounting policies adopted by the Company in the preparation of the consolidated financial statements of the Company and its subsidiaries for the year ended 31 December 2014, which conform with the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’). The Combined Financial Information is prepared to include the financial information of the entities engaging in the Disposal Business, which are under common control of the Company, and the financial information of the Other Businesses previously conducted by the Disposal Group was excluded which is further explained below:

• i. The assets and liabilities, and profit and loss related to the Other Businesses of the Disposal Group were excluded from the Combined Financial Information of the Disposal Business and retained to the Remaining Group. Assets and liabilities, and profit and loss were split, based on its nature of business, between the Disposal Group and the Remaining Group according to the historical accounting records of the Disposal Group;

• ii. The financial information of subsidiaries, joint ventures, associates and available-for-sale investments of the Target Companies not engaging in the Distribution Business, have been excluded from the Combined Financial Information at the beginning of the Relevant Periods or from their establishment date when it was later than the beginning of the Relevant Periods;

• iii. The financial information of certain subsidiaries of the Company engaged in the Distribution Business and acquired by DC China as part of the group restructuring process of DC China subsequent to the Relevant Periods have been included in the Combined Financial Information at the beginning of the Relevant Periods or from their establishment date when it was later than the beginning of the Relevant Periods;

• iv. Unallocated corporate expenses incurred by the Group were split into the Distribution Business and the Other Business according to the function and the role of related personnel, or in certain basis, such as percentage of benefit from the contribution of the public departments and key management personnel; and

• v. As a result of the exclusion of the assets and liabilities, and profit and loss related to the Other Businesses of the Disposal Group in the Combined Financial Information, the net consideration receivable by the Target Companies of HK$1,226,336,000 upon the completion of the Group Restructuring of DC China was excluded and accounted for as a distribution to the parent during or prior to the Relevant Periods in the Combined Financial Information.

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS

NOTES TO THE COMBINED FINANCIAL INFORMATION OF THE DISPOSAL BUSINESS (CONTINUED)

The Combined Financial Information of the Disposal Business does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) Presentation of Financial Statements issued by the HKICPA nor an interim report as defined in Hong Kong Accounting Standard 34 Interim Financial Reporting issued by the HKICPA.

The Combined Financial Information is presented in Hong Kong dollars (‘‘HK$’’) and all values are rounded to the nearest thousand except when otherwise indicated.

As a result of the change in financial year end date of the Company to align the financial year end date of the Company with its the principal subsidiaries in order to facilitate the preparation of the consolidated financial statements, these financial information covered three reporting periods of twelve months from 1 April 2012 to 31 March 2013, nine months from 1 April 2013 to 31 December 2013 and twelve months from 1 January 2014 from 31 December 2014, and therefore amounts presented in the unaudited combined statements of profit or loss, comprehensive income and changes in equity and cash flows for each reporting period may not be comparable with other reporting periods.

– II-15 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

(A) INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The Directors of Digital China Holdings Limited Suite 2008, 20/F Devon House, Taikoo Place 979 King’s Road, Quarry Bay Hong Kong

We have completed our assurance engagement to report on the compilation of unaudited pro forma combined financial information of Digital China Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma combined financial information consists of the unaudited pro forma combined statement of financial position as at 31 December 2014, unaudited pro forma combined statement of profit or loss, unaudited pro forma combined statement of comprehensive income and unaudited pro forma combined statement of cash flows for the year ended 31 December 2014 and related notes as set out in Appendix III to the circular dated 9 August 2015 (the ‘‘Circular’’) issued by the Company (the ‘‘Unaudited Pro Forma Combined Financial Information’’). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Combined Financial Information are described in the relevant notes.

The Unaudited Pro Forma Combined Financial Information has been compiled by the Directors to illustrate the impact of the Group Restructuring and the Disposal (as defined in the Circular) on the Group’s financial position as at 31 December 2014 as if the Group Restructuring and the Disposal had taken place at 31 December 2014, and the Group’s financial performance and cash flows for the year ended 31 December 2014 as if the Group Restructuring and the Disposal had taken place at 1 January 2014. As part of this process, information about the Group’s financial position, financial performance and cash flows have been extracted by the Directors from the Group’s consolidated financial statements for the year ended 31 December 2014, on which an audit report has been published.

– III-1 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Directors’ responsibility for the Unaudited Pro Forma Combined Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Combined Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

Reporting Accountants’ responsibilities

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

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Combined Financial Information, in accordance with paragraph 4.29 of the Listing Rules and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Combined Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Combined Financial Information.

The purpose of Unaudited Pro Forma Combined Financial Information included in the Circular is solely to illustrate the impact of the Disposal on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Combined Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma

– III-2 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Combined Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the transaction, and to obtain sufficient appropriate evidence about whether:

• . The related pro forma adjustments give appropriate effect to those criteria; and

• . The Unaudited Pro Forma Combined Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the Unaudited Pro Forma Combined Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Combined Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Combined Financial Information has been properly compiled on the basis stated;

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

• (c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Combined Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

9 August 2015

– III-3 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

(B) UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Introduction

The following is a summary of an illustrative and unaudited pro forma combined statement of financial position, the unaudited pro forma combined statement of profit or loss, the unaudited pro forma combined statement of comprehensive income, the unaudited pro forma combined statement of cash flows of the Remaining Group (the ‘‘Unaudited Pro Forma Combined Financial Information’’), which have been prepared on the basis of the notes set out below for the purpose of illustrating the effects of the Group Restructuring as set out in Appendix II of this Circular and the Disposal on (a) the financial position of the Remaining Group as if the Group Restructuring and the Disposal had been completed on 31 December 2014; and (b) the results and cash flows of the Remaining Group as if the Group Restructuring and the Disposal had been completed on 1 January 2014.

The Unaudited Pro Forma Combined Financial Information of the Remaining Group has been prepared by the Directors of the Company in accordance with paragraph 4.29 of the Listing Rules for illustrative purposes only, based on their judgments, estimations and assumptions, and because of its hypothetical nature, it may not give a true picture of the financial position of the Remaining Group as at 31 December 2014 or at any future date or the results and cash flows of the Remaining Group for the year ended 31 December 2014 or for any future period following the completion of the Group Restructuring and the Disposal.

The Unaudited Pro Forma Combined Financial Information is based on the audited consolidated statement of financial position of the Group as at 31 December 2014, the audited consolidated statement of profit or loss, audited consolidated statement of other comprehensive income and audited consolidated statement of cash flows of the Group for the year ended 31 December 2014 extracted from the audited consolidated financial statements of the Group for the year ended 31 December 2014, after giving effect to the pro forma adjustments relating to the Group Restructuring and the Disposal as described in the accompanying notes. Narrative description of the pro forma adjustments that are (i) directly attributable to the transactions and not relating to future events or decisions; and (ii) factually supported, is summarised in the accompanying notes.

The Unaudited Pro Forma Combined Financial Information is based on a number of assumptions, estimates, and uncertainties. Accordingly, the Unaudited Pro Forma Combined Financial Information does not purport to describe the actual financial position, results and cash flows of the Remaining Group that would have been attained had the Group Restructuring and the Disposal been completed on 31 December 2014 and 1 January 2014, respectively. The Unaudited Pro Forma Combined Financial Information does not purport to predict future financial positions or results of the Remaining Group.

– III-4 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION

NON-CURRENT ASSETS Property, plant and equipment Investment properties Prepaid land premiums Goodwill Other intangible assets Investments in joint ventures Investments in associates Available-for-sale investments Finance lease receivables Deferred tax assets Total non-current assets CURRENT ASSETS Inventories Properties under development Trade and bills receivables Prepayments, deposits and other receivables Derivative financial instruments Available-for-sale investments Cash and bank balances Total current assets CURRENT LIABILITIES Trade and bills payables Other payables and accruals Tax payable Interest-bearing bank and other borrowings Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES	The Group as at 31 December 2014 HK$’000 (Note 1) 1,323,438 1,744,226 139,960 1,274,815 65,786 675,579 1,191,959 1,916,433 7,686 192,609 8,532,491 6,175,416 562,445 9,601,923 3,683,099 32,841 1,000,000 4,119,557 25,175,281 10,301,179 4,021,434 359,318 7,060,139 21,742,070 3,433,211 11,965,702		Pro forma adjustments	Pro forma adjustments	HK$’000 (Note 5) — — — — — — — — — — — — — — — — — 5,535,341 5,535,341 — — — — — 5,535,341 5,535,341	Unaudited Pro Forma Remaining Group as at 31 December 2014 HK$’000 911,767 1,744,226 139,960 1,274,815 65,786 710,523 1,157,936 592,981 7,686 15,980
		HK$’000 (Note 2) (411,671) — — — — (13,048) (34,023) (1,323,452) — (176,629) (1,958,823) (5,816,822) — (6,235,884) (5,532,255) (32,841) (750,000) (1,840,311) (20,208,113) (8,472,679) (1,963,295) (320,652) (6,106,773) (16,863,399) (3,344,714) (5,303,537)	HK$’000 (Note 3) — — — — — — — — — — — (1,138) — 55,660 2,548,673 — — (471) 2,602,724 52,855 1,501,119 — 1,048,750 2,602,724 — —	HK$’000 (Note 4) — — — — — 47,992 — — — — 47,992 — — — — — — — — — — — — — — 47,992
						6,621,660
						357,456 562,445 3,421,699 699,517 — 250,000 7,814,116
						13,105,233
						1,881,355 3,559,258 38,666 2,002,116
						7,481,395
						5,623,838
						12,245,498

– III-5 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION (CONTINUED)

TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings Deferred income Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital Reserves Proposed final dividend Non-controlling interests Total equity	The Group as at 31 December 2014 HK$’000 (Note 1) 11,965,702 1,064,848 36,679 1,101,527 10,864,175 109,374 8,276,528 214,454 8,600,356 2,263,819 10,864,175		Pro forma adjustments	Pro forma adjustments	HK$’000 (Note 5) 5,535,341 — — — 5,535,341 1,825,995 3,709,346 — 5,535,341 — 5,535,341	Unaudited Pro Forma Remaining Group as at 31 December 2014 HK$’000 12,245,498
		HK$’000 (Note 2) (5,303,537) (764,848) — (764,848) (4,538,689) (1,825,995) (2,712,694) — (4,538,689) — (4,538,689)	HK$’000 (Note 3) — — — — — — — — — — —	HK$’000 (Note 4) 47,992 — — — 47,992 — 47,992 — 47,992 — 47,992
						300,000 36,679
						336,679
						11,908,819
						109,374 9,321,172 214,454
						9,645,000 2,263,819
						11,908,819

– III-6 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF PROFIT OR LOSS

REVENUE Cost of sales Gross profit Other income and gains Selling and distribution expenses Administrative expenses Other expenses, net Finance costs Share of profits and losses of: Joint ventures Associates PROFIT BEFORE TAX Income tax expense PROFIT FOR THE YEAR Attributable to: Equity holders of the parent Non-controlling interests	The Group for the year ended 31 December 2014 HK$’000 (Note 1) 68,342,827 (63,525,444) 4,817,383 575,890 (2,754,969) (512,633) (820,247) (270,517) 34,626 71,973 1,141,506 (239,256) 902,250 700,953 201,297 902,250		Pro forma	adjustments	HK$’000 (Note 8) 432,176 (335,965) 96,211 — (668) (81,195) (14,348) — — — — — — — — —	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 12,253,951 (10,350,255)
		HK$’000 (Note 6) (56,521,052) 53,511,154 (3,009,898) (398,080) 1,872,911 440,919 313,978 241,103 (148) (2,306) (541,521) 149,352 (392,169) (394,907) 2,738 (392,169)	HK$’000 (Note 4) — — — 20,229 — — — — — — 20,229 — 20,229 20,229 — 20,229	HK$’000 (Note 7) — — — 3,753,550 — (9,501) — — — — 3,744,049 (332,926) 3,411,123 3,411,123 — 3,411,123
						1,903,696 3,951,589 (882,726) (162,410) (520,617) (29,414) 34,478 69,667
						4,364,263 (422,830)
						3,941,433
						3,737,398 204,035
						3,941,433

– III-7 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF COMPREHENSIVE INCOME

PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME/ (LOSS) Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Available-for-sale investments: Changes in fair value Reclassification adjustments for losses included in the combined statement of profit or loss — impairment loss — loss on disposal Exchange differences on translation of foreign operations Share of other comprehensive loss of an associate Net other comprehensive income to be reclassified to profit or loss in subsequent periods Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods: Gain on property revaluation Income tax effect Net other comprehensive income not to be reclassified to profit or loss in subsequent periods	The Group for the year ended 31 December 2014 HK$’000 (Note 1) 902,250 (36,102) 69,477 33,810 67,185 (41,165) (5,601) 20,419 5,239 (1,310) 3,929	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 6) (Note 4) (Note 7) (392,169) 20,229 3,411,123 — — — — — — — — — — — — 21,789 — — — — — 21,789 — — — — — — — — — — —	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 6) (Note 4) (Note 7) (392,169) 20,229 3,411,123 — — — — — — — — — — — — 21,789 — — — — — 21,789 — — — — — — — — — — —	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 3,941,433 (36,102) 69,477 33,810 67,185 (19,376) (5,601) 42,208 5,239 (1,310) 3,929
		HK$’000 (Note 6) (392,169) — — — — 21,789 — 21,789 — — —	HK$’000 (Note 4) 20,229 — — — — — — — — — —

– III-8 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)

OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX TOTAL COMPREHENSIVE INCOME/ (LOSS) FOR THE YEAR Attributable to: Equity holders of the parent Non-controlling interests	The Group for the year ended 31 December 2014 HK$’000 (Note 1) 24,348 926,598 710,302 216,296 926,598	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 6) (Note 4) (Note 7) 21,789 — — (370,380) 20,229 3,411,123 (373,118) 20,229 3,411,123 2,738 — — (370,380) 20,229 3,411,123	Pro forma adjustments HK$’000 HK$’000 HK$’000 (Note 6) (Note 4) (Note 7) 21,789 — — (370,380) 20,229 3,411,123 (373,118) 20,229 3,411,123 2,738 — — (370,380) 20,229 3,411,123	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 46,137
		HK$’000 (Note 6) 21,789 (370,380) (373,118) 2,738 (370,380)	HK$’000 (Note 4) — 20,229 20,229 — 20,229
				3,987,570
				3,768,536 219,034
				3,987,570

– III-9 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Finance costs Share of profits and losses of joint ventures and associates Interest income Dividend income from available-for-sale investments Loss on disposal of items of property, plant and equipment Fair value gains on investment properties Gain on disposal of interests in subsidiaries Gain on disposal of a joint venture Gain on partial disposal of the equity interest in an associate Gain on deemed partial disposal of the equity interest in an associates Loss on disposal of an associate Loss on disposal/partial disposal of an available-for-sale investment Depreciation Amortisation of prepaid land premiums Amortisation of other intangible assets Provisions/(reversal of provisions) for and write-off of obsolete inventories Impairment/(reversal of impairment) of trade receivables Impairment of prepayments and other receivables Share-based compensation Impairment of available-for-sale investments	The Group for the year ended 31 December 2014 HK$’000 (Note 1) 1,141,506 270,517 (106,599) (87,368) (7,280) 2,570 (38,304) — (580) (921) (25,602) 278 13,102 158,191 4,375 11,445 (23,279) 36,607 48,518 (20,129) 69,477 1,446,524		Pro forma	adjustments	HK$’000 (Note 7) 3,744,049 — — — — — — (1,663,550) — — — — — — — — — — — — — 2,080,499	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 4,364,263 29,414 (104,145) (27,891) (7,280) 1,301 (38,304) (1,663,550) (580) (921) (25,602) 278 13,102 102,366 4,375 11,445 12,357 (113,855) 48,518 (1,720) 69,477
		HK$’000 (Note 9) (541,521) (241,103) 2,454 79,706 — (1,269) — — — — — — — (55,825) — — 35,636 (150,462) — 18,409 — (853,975)	HK$’000 (Note 3) — — — — — — — — — — — — — — — — — — — — — —	HK$’000 (Note 4) 20,229 — — (20,229) — — — — — — — — — — — — — — — — — —
						2,673,048

– III-10 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS (CONTINUED)

Decrease/(increase) in inventories Decrease in trade and bills receivables Increase in prepayments, deposits and other receivables Decrease in derivative financial instruments Decrease in trade and bills payables Increase in other payables and accruals Effect of foreign exchange rate changes, net Cash generated from operations Interest received Mainland China income tax paid Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment Additions to investment properties Additions to properties under development Proceeds from disposal of items of property, plant and equipment Additions to other intangible assets Acquisition of a subsidiary Proceeds from disposal of interest in the Target Companies Net consideration received by the Target Companies upon the completion of the Group Restructuring Proceeds from disposal of investment in a joint venture Proceeds from disposal of investment in an associate Proceeds from disposal of available-for-sale investments Dividends received from a joint venture Dividends received from associates Dividends received from available for sale investments Investments in joint ventures Investments in associates Investments in available-for-sale investments Decrease in other receivables Increase in finance lease receivables Net cash flows from/(used in) investing activities	The Group for the year ended 31 December 2014 HK$’000 (Note 1) (515,620) 1,970,569 (262,626) 80,537 (826,910) 335,722 15,038 2,243,234 107,596 (276,329) 2,074,501 (165,447) (650,443) (125,584) 839 (21,497) (207,791) — — 2,294 1,007 84,104 6,175 8,796 6,552 (505,872) (82,569) (2,196,374) 162,238 (7,686) (3,691,258)		Pro forma	adjustments	HK$’000 (Note 7) — — — — — — — 2,080,499 — (332,926) 1,747,573 — — — — — — 5,014,104 (1,226,336) — — — — — — — — — — — 3,787,768	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 246,391 549,969 (1,375,830) — (864,331) 1,486,245 2,905
		HK$’000 (Note 9) 760,328 (1,484,412) 124,686 (80,537) 29,417 (88,239) (12,133) (1,604,865) (79,706) 156,867 (1,527,704) 33,394 — — (1,203) — — — — — — — — — — — 31,717 1,997,988 1,708,518 — 3,770,414	HK$’000 (Note 3) 1,683 63,812 (1,237,890) — (66,838) 1,238,762 — (471) — — (471) — — — — — — — — — — — — — — — — — — — —	HK$’000 (Note 4) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
						2,718,397 27,890 (452,388)
						2,293,899
						(132,053) (650,443) (125,584) (364) (21,497) (207,791) 5,014,104 (1,226,336) 2,294 1,007 84,104 6,175 8,796 6,552 (505,872) (50,852) (198,386) 1,870,756 (7,686)
						3,866,924

– III-11 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA COMBINED STATEMENT OF CASH FLOWS (CONTINUED)

CASH FLOWS FROM FINANCING ACTIVITIES Vesting of shares under the restricted share award scheme New bank loans Repayment of bank loans Interest paid Dividends paid Acquisition of non-controlling interests Contribution from non-controlling shareholders Net cash flows from/(used in) financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR	The Group for the year ended 31 December 2014 HK$’000 (Note 1) (10,008) 18,939,013 (16,848,056) (270,517) (190,037) (27,500) 293,465 1,886,360 269,603 3,894,211 (44,257) 4,119,557		Pro forma	adjustments	HK$’000 (Note 7) — — — — — — — — 5,535,341 — — 5,535,341	Unaudited Pro Forma Remaining Group for the year ended 31 December 2014 HK$’000 (10,008) 4,370,067 (4,657,181) (29,414) (190,037) — 293,465
		HK$’000 (Note 9) — (14,568,946) 12,190,875 241,103 — 27,500 — (2,109,468) 133,242 (2,004,804) 31,251 (1,840,311)	HK$’000 (Note 3) — — — — — — — — (471) — — (471)	HK$’000 (Note 4) — — — — — — — — — — — —
						(223,108)
						5,937,715 1,889,407 (13,006)
						7,814,116

– III-12 –

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Notes to Unaudited Pro Forma Combined Financial Information of the Remaining Group:

• (1) The audited consolidated statement of financial position of the Group as at 31 December 2014, audited consolidated statement of profit or loss, audited consolidated statement of comprehensive income and audited consolidated statement of cash flows of the Group for the year ended 31 December 2014 are extracted from the annual report of the Company for the year ended 31 December 2014.

• (2) These adjustments represent the exclusion of assets and liabilities of the Disposal Business as at 31 December 2014, assuming the Group Restructuring as set out in Appendix II of the Circular and the Disposal had taken place on 31 December 2014. The assets and liabilities of the Disposal Business as at 31 December 2014 are extracted from the unaudited Combined Financial Information of the Disposal Business as set out in Appendix II of the Circular.

• (3) These adjustments represent the reversal of the consolidated adjustments of the Group relating to related party balances between the Disposal Business and the Remaining Group as at 31 December 2014.

• (4) These adjustments represent the reversal of the consolidation adjustments of the Group relating to the unrealised profits arising from related party transactions between the Disposal Business and the Remaining Group as at 31 December 2014. In particular, it is related to the unrealised profit (i.e., interest income) generated by the Disposal Business as a result of the money lent to a joint venture of the Remaining Group (which is a joint venture of the Disposal Group before the Group Restructuring), which had capitalised the related borrowing cost.

– III-13 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes to Unaudited Pro Forma Combined Financial Information of the Remaining Group: (continued)

• (5) These adjustments represent (i) the cash consideration receivable by the Group of RMB4.01 billion (equivalent to approximately HK$5.01 billion) in relation to the Disposal; (ii) the estimated expenses and taxes directly attributable to the Disposal of approximately HK$342 million; and (iii) the estimated gain from the Disposal as if the Group Restructuring and the Disposal had taken place on 31 December 2014.

The calculation of the estimated gain on the Disposal to be recognised in profit or loss, as if the Group Restructuring and the Disposal had taken place on 31 December 2014, is as follows:

Cash consideration Less: Net assets of the Disposal Business as at 31 December 2014 Less: Net consideration received by the Target Companies upon the completion of the Group Restructuring Add: Dividend declared and paid by the Disposal Group	HK$’000 5,014,104 4,538,689 1,226,336 Note 5.1 2,090,000 Note 5.2

Estimated gain on disposal as if the Group Restructuring and the Disposal had taken place on 31 December 2014, before expenses and taxes Less: Estimated expenses and taxes directly attributable to the Disposal Estimated gain on disposal as if the Group Restructuring and the Disposal had taken place on 31 December 2014, after expenses and taxes	1,339,079 342,427 Note 5.3 996,652

• 5.1 Amount represents the net cash consideration received by the Target Companies upon the completion of the Group Restructuring.

• 5.2 Amount represents dividends declared and paid by Disposal Group to the Remaining Group prior to the Group Restructuring and the Disposal.

• 5.3 Amount represents the estimated amount of expenses and taxes directly attributable to the Group Restructuring and the Disposal as estimated by the Directors.

• The final amount of gain or loss on the Disposal may be different from the amount described above and would be subject to the net assets of the Disposal Group on the date of the completion of the Disposal.

• (6) These adjustments represent the exclusion of the results and reserves of the Disposal Group for the year ended 31 December 2014, which are extracted from the unaudited combined financial information of the Disposal Business for the year ended 31 December 2014 set out in Appendix II of this Circular, assuming the Group Restructuring and the Disposal had taken place on 1 January 2014.

– III-14 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes to Unaudited Pro Forma Combined Financial Information of the Remaining Group: (continued)

• (7) These adjustments represent (i) the cash consideration receivable by the Group of RMB4.01 billion (equivalent to approximately HK$5.01 billion) in relation to the Disposal; (ii) the estimated expenses and taxes directly attributable to the Disposal of approximately HK$342 million; and (iii) the estimated gain from the Disposal as if the Group Restructuring and the Disposal had taken place on 1 January 2014.

The calculation of the estimated gain on the Disposal to be recognised in profit or loss, as if the Group Restructuring and the Disposal had taken place on 1 January 2014, is as follows:

	HK$’000
Cash consideration	5,014,104
Less: Net assets of the Disposal Business as at 1 January 2014	4,214,218
Less: Net consideration received by the Target Companies upon the
completion of the Group Restructuring	1,226,336
Add: Dividend declared and paid by the Disposal Group	2,090,000
Estimated gain on disposal as if the Group Restructuring and the
Disposal had taken place on 1 January 2014, before expenses and
taxes	1,663,550
Less: Estimated expenses and taxes directly attributable to the Disposal	342,427
Estimated gain on disposal as if the Group Restructuring and the
Disposal had taken place on 1 January 2014, after expenses and taxes	1,321,123
The final amount of gain or loss on the Disposal may be different from the amount
described above and would be subject to the net assets of the Disposal Group on the
date of the completion of the Disposal.

Unaudited Pro Forma profit of the Remaining Group attributable to the equity holders of the parent for the year ended 31 December 2014 per unaudited pro forma combined statement of profit or loss Less: Pro forma adjustments (1) Dividend declared and paid by the Disposal Group (2) Net estimated gain on disposal as if the Group Restructuring and the Disposal had taken place on 1 January 2014, after expenses and taxes Unaudited profit of the Remaining Group attributable to the equity holders of the parent for the year ended 31 December 2014 without the pro forma adjustments

HK$’000 3,737,398 2,090,000 1,321,123

326,275

– III-15 –

APPENDIX III

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes to Unaudited Pro Forma Combined Financial Information of the Remaining Group: (continued)

• (8) These adjustments represent the reversal of elimination of related party transactions between the Disposal Business and the Remaining Group during the year ended 31 December 2014.

• (9) These adjustments represent the exclusion of the cash flows of the Disposal Business which are extracted from the unaudited combined financial information of the Disposal Business for the year ended 31 December 2014 as set out in Appendix II to this circular, assuming the Group Restructuring and the Disposal had taken place on 1 January 2014.

– III-16 –

APPENDIX IV

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF THE DISPOSAL BUSINESS

• A. LETTER FROM THE REPORTING ACCOUNTANTS IN RELATION TO THE VALUATION REPORT

7 August 2015

The Board of Directors Digital China Holdings Limited Suite 2008, 20/F Devon House, Taikoo Place 979 King’s Road, Quarry Bay Hong Kong

Dear Sirs,

We refer to the discounted cash flow forecast (hereinafter referred to as the ‘‘Underlying Forecast’’) underlying the valuation dated 7 August 2015 prepared by China Alliance Appraisal Co., Ltd. in respect of the IT distribution business as at 31 March 2015. The Underlying Forecast is regarded by The Stock Exchange of Hong Kong Limited as a profit forecast under paragraph 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

RESPONSIBILITIES

The Underlying Forecast has been prepared by the directors of Digital China Holdings Limited (the ‘‘Company’’) based on a set of assumptions (the ‘‘Assumptions’’).

The Company’s directors are solely responsible for the Underlying Forecast. It is our responsibility to form an opinion on the arithmetical accuracy of the calculations of the Underlying Forecast based on our procedures.

BASIS OF OPINION

We carried out our work with reference to Hong Kong Standard on Assurance Engagements 3000 ‘‘Assurance Engagements Other Than Audits or Reviews of Historical Financial Information’’ issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’). Those standards require that we plan and perform our work to obtain reasonable assurance as to whether, so far as the arithmetical accuracy of the calculations is concerned, the Company’s directors have properly compiled the Underlying Forecast in

– IV-1 –

APPENDIX IV

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF THE DISPOSAL BUSINESS

accordance with the Assumptions made by the directors. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

OPINION

In our opinion, so far as the arithmetical accuracy of the calculations is concerned, the Underlying Forecast has been properly compiled in accordance with the Assumptions adopted by the directors.

Yours faithfully,

Ernst & Young Certified Public Accountants Hong Kong

– IV-2 –

APPENDIX IV

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF THE DISPOSAL BUSINESS

B. LETTER FROM THE BOARD IN RELATION TO THE VALUATION REPORT

==> picture [261 x 140] intentionally omitted <==

Hong Kong Exchanges and Clearing Limited 11/F., One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

7 August 2015

Dear Sirs,

Re: Very Substantial Disposal and Connected Transaction — disposal of 100% equity interests in three indirectly wholly-owned companies, namely, Digital China (China) Limited (神州數碼(中國)有限公司), Shanghai Digital China Limited (上海神州數碼有限公司) and Guangzhou Digital China Information Technology Co., Ltd.* (廣州神州數碼信息科技有限公 司) (together, the ‘‘Target Companies’’)

We refer to the valuation report dated 7 August 2015 (the ‘‘Valuation Report’’) prepared by China Alliance Appraisal Co., Ltd. (北京中同華資產評估有限公司) (the ‘‘Valuer’’) in relation to the valuation on the Target Companies as at 31 March 2015 (the ‘‘Valuation’’). The Valuation, prepared based on the income-based approach, involves the calculation of discounted future estimated cash flow of the Target Companies (the ‘‘Forecast’’) and therefore constitutes a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

We have considered different aspects including the bases and assumptions based upon which the Valuation has been prepared, and reviewed the Valuation for which the Valuer is responsible. We have also considered the letter dated 7 August 2015 from our reporting accountants, Ernst & Young, regarding whether the Forecast, so far as the arithmetical accuracy of the calculations is concerned, have been properly complied with the assumptions as set out in the Valuation Report. We have noted that the Forecast in the Valuation are mathematically accurate and has complied with the bases and assumptions as set out in the Valuation Report.

– IV-3 –

APPENDIX IV

LETTERS ON PROJECTION UNDERLYING THE VALUATION OF THE DISPOSAL BUSINESS

On the basis of the foregoing, we are of the opinion that the Valuation has been made after due and careful enquiry.

Yours faithfully,

By Order of the Board Digital China Holdings Limited （神州數碼控股有限公司*） LIN Yang

Chief Executive Officer

• For identification purpose only

– IV-4 –

APPENDIX V

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

a. Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures

As at the Latest Practicable Date, the interests and short positions, if any, of each Director and chief executive of the Company and their associates in the shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executive were taken or deemed to have taken under such provisions of the SFO), or which were required to be and are recorded in the register required to be kept by the Company pursuant to Section 352 of Part XV of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) were as follows:

						Approximate	Approximate
				Number of		percentage of
		Personal	Corporate	outstanding		aggregate
Name	Capacity	interests	interests	share options	Total	interests (%)
					(Note 1)	(Note 7)
Mr. GUO Wei	Beneficial owner and	2,170,600	69,414,286	960,000	72,544,886		6.63
	interests of a		(Note 2)	(Note 3)
	controlled
	corporation
Mr. Andrew Y. YAN	Interests of a	—	59,111,744	—	59,111,744		5.40
	controlled		(Note 4)
	corporation
Mr. LIN Yang	Beneficial owner	389,300	—	1,000,000	1,389,300		0.13
				(Note 5)
Mr. YAN Guorong	Beneficial owner	383,300	—	793,000	1,176,300		0.11
				(Note 6)

Notes:

1. All of the interests disclosed herein represent long position in the Shares.

– V-1 –

GENERAL INFORMATION

APPENDIX V

1. These 69,414,286 Shares were beneficially held by Kosalaki Investments Limited (‘‘KIL’’), of which Mr. GUO Wei is the controlling shareholder and also a director, therefore, Mr. GUO Wei was deemed to be interested in such Shares in which KIL was interested.

2. These 960,000 share options held by Mr. GUO Wei were granted on 21 May 2008. These share options are exercisable from 21 May 2009 to 20 May 2016 at an exercise price of HK$5.89 per share for subscription of ordinary shares of the Company.

3. These 59,111,744 Shares were beneficially held by Sparkling Investment (BVI) Limited (‘‘SIBL’’), which is wholly-owned by SAIF Partners III L.P.. SAIF Partners III L.P. is controlled by SAIF III GP, L.P., and SAIF III GP, L.P. is indirectly controlled by Mr. Andrew Y. YAN through SAIF III GP Capital Ltd., therefore, Mr. Andrew Y. YAN was deemed to be interested in such Shares in which SIBL was interested.

4. These 1,000,000 share options held by Mr. LIN Yang were granted on 21 May 2008. These share options are exercisable from 21 May 2009 to 20 May 2016 at an exercise price of HK$5.89 per share for subscription of ordinary shares of the Company.

5. Out of these 793,000 share options in aggregate held by Mr. YAN Guorong,

6. i. 125,000 share options were granted on 21 May 2008. These share options are exercisable from 21 May 2009 to 20 May 2016 at an exercise price of HK$5.89 per share for subscription of ordinary shares of the Company; and

7. ii. 668,000 share options were granted on 11 January 2011. These share options are exercisable from 11 January 2012 to 10 January 2019 at an exercise price of HK$15.04 per share for subscription of ordinary shares of the Company.

8. The approximate percentage of interests is based on the aggregate nominal value of the shares/ underlying shares comprising the interests held as a percentage of the aggregate nominal value of all the issued share capital of the Company of the same class immediately after the relevant event and as recorded in the register maintained under Section 352 of the SFO.

Save as disclosed above, at the Latest Practicable Date, none of the Directors and chief executive of the Company or their associates had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which the directors and chief executive were taken or deemed to have taken under such provisions of the SFO), or which were required to be recorded in the register required to be kept by the Company pursuant to Section 352 of Part XV of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

– V-2 –

APPENDIX V

GENERAL INFORMATION

b. Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares

At the Latest Practicable Date, to the best knowledge of the Directors, the following persons, not being a Director or chief executive of the Company, had the following interests and short positions in the shares and underlying shares of the Company which were required to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or required to be recorded in the register required to be kept under Section 336 of Part XV of the SFO:

			Approximate
			percentage of
		Number of	aggregate
Name	Capacity	shares	interests (%)
		(Note 1)	(Note 8)
Kosalaki Investments	Beneficial owner	69,414,286	6.35
Limited (Note 2)
Sparkling Investment	Beneficial owner	59,111,744	5.40
(BVI) Limited		(Note 3)
SAIF III GP Capital	Interests of a controlled	59,111,744	5.40
Ltd.	corporation	(Note 3)
Allianz SE	Interests of controlled	87,929,000	8.04
	corporations	(Note 4)
International Value	Investment manager	62,878,000	5.75
Advisers, LLC		(Note 5)
Legend Holdings	Beneficial owner/	35,013,077/	5.15
Corporation	Interests of a	21,368,642
聯想控股股份有限公	controlled	(Note 7)
司(Note 6)	corporation

Notes:

1. All of the interests disclosed herein represent long position in the Shares.

2. KIL is controlled by Mr. GUO Wei who is a Director and a director of KIL.

3. These 59,111,744 Shares were beneficially held by SIBL, which is wholly-owned by SAIF Partners III L.P.. SAIF Partners III L.P. is controlled by SAIF III GP, L.P., and SAIF III GP, L.P. is indirectly controlled by Mr. Andrew Y. YAN through SAIF III GP Capital Ltd., therefore, Mr. Andrew Y. YAN was deemed to be interested in such Shares in which SIBL was interested.

4. Out of these 87,929,000 Shares in aggregate, 85,225,000 Shares were held by RCM Asia Pacific Ltd., 2,414,000 Shares by Allianz Global Investors Taiwan Ltd., 185,000 Shares by Allianz Global Investors Europe GmbH, and 105,000 Shares by Allianz Global Investors Fund Management LLC. All of the aforementioned companies were indirectly controlled by Allianz SE.

– V-3 –

APPENDIX V

GENERAL INFORMATION

1. International Value Advisers, LLC was interested in an aggregate of 62,878,000 Shares by virtue of the SFO. Those interests were held in the capacity of investment manager.

2. The English name is direct transliteration of its Chinese registered name.

3. These 21,368,642 Shares were held by Right Lane Limited, a wholly-owned subsidiary and a controlled corporation of Legend Holdings Corporation, and therefore Legend Holdings Corporation was deemed to be interested in such Shares by virtue of the SFO.

4. The approximate percentage of interests is based on the aggregate nominal value of the shares/ underlying shares comprising the interests held as a percentage of the aggregate nominal value of all the issued share capital of the Company of the same class immediately after the relevant event and as recorded in the register maintained under Section 336 of the SFO.

Save as disclosed above, at the Latest Practicable Date, the Company had not been notified by any persons who had interests or short positions in shares or underlying shares of the Company which were required to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or which were required to be recorded in the register required to be kept under Section 336 of Part XV of the SFO.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirmed that they were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2014, the date to which the latest audited financial statements of the Group were made up.

4. DIRECTORS’ COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors nor their respective associates was interested in any business apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with that of the Group.

5. DIRECTORS’ INTERESTS IN ASSETS

Save for the Transaction as set out in this circular, as at the date of this circular, none of the Directors had any interest, either directly or indirectly, in any asset which has, since 31 December 2014 (being the date to which the latest published audited consolidated financial statements of the Group were made up), been acquired or disposed of by or leased to, any member of the Group or are proposed to be acquired or disposed of by, or leased to, any member of the Group.

6. DIRECTORS’ INTERESTS IN CONTRACTS OR ARRANGEMENTS

As at the Latest Practicable Date, apart from the Transaction as set out in this circular, none of the Directors had a material interest in any contract or arrangement subsisting at the date of this circular, which is significant to the business of the Group to which the Company or any of its subsidiaries was a party.

– V-4 –

APPENDIX V

GENERAL INFORMATION

7. DIRECTORS’ SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors has entered into any service agreement with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than the statutory compensation).

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within two years immediately preceding the date of this circular which are or may be material:

• a. an absorption and merger agreement (the ‘‘Absorption and Merger Agreement’’) dated 1 August 2013 entered into between 神州數碼信息服務股份有限公司 (Digital China Information Service Company Ltd.) (‘‘DCITS’’), an indirect non-wholly owned subsidiary of the Company, and 深圳市太光電信股份有限公司 (Shenzhen Techo Telecom Co., Ltd.) (‘‘Shenzhen Techo Telecom’’), a company listed on The Shenzhen Stock Exchange, pursuant to which DCITS would merge into Shenzhen Techo Telecom, in consideration of which Shenzhen Techo Telecom would issue and allot shares to 神州數碼軟件有限公司 (Digital China Software Limited*) (‘‘DCSL’’), an indirect wholly-owned subsidiary of the Company and majority shareholder of DCITS; the transaction under the Absorption and Merger Agreement constituted a spin-off;

• b. a profit compensation agreement (the ‘‘Profit Compensation Agreement’’) dated 1 August 2013 entered into between the then existing shareholders of DCITS and Shenzhen Techo Telecom, pursuant to which each of the then existing shareholders of DCITS agreed to provide compensation to Shenzhen Techo Telecom for profit shortfalls;

• c. a supplemental agreement to the Absorption and Merger Agreement dated 26 August 2013 entered into between DCITS and Shenzhen Techo Telecom, confirming the amount of consideration to be RMB3,015,135,000 (equivalent to approximately HK$3,768,918,750), and number of shares to be allotted and issued by Shenzhen Techo Telecom;

• d. a supplemental agreement to the Profit Compensation Agreement dated 26 August 2013 between DCSL and Shenzhen Techo Telecom, confirming the amount of projected net profits of DCSL;

• e. a joint venture agreement dated 4 December 2013 entered into between the Company and HC International, Inc. (‘‘HC International’’), a company listed on the Main Board of Stock Exchange, relating to the establishment of a joint venture company for the purpose of developing and operating a micro-credit Internet financing business in the PRC, pursuant to which the Company and HC International agreed to contribute 60% and 40% respectively of the total registered capital of RMB1 billion;

– V-5 –

APPENDIX V

GENERAL INFORMATION

• f. an acquisition agreement (the ‘‘Acquisition Agreement’’) dated 22 July 2014 entered into between DCITS and shareholders of 北京中農信達信息技術有限公司 (Beijing Zhongnong Xinda Information Technology Limited*) (‘‘Zhongnong Xinda’’), pursuant to which DCITS agreed to purchase the entire issued share capital of Zhongnong Xinda at an estimated consideration of RMB710 million (equivalent to approximately HK$888 million) (subject to adjustments upon issuance of final valuation report), of which 70% would be paid by way of issuance and allotment of shares by DCITS to the shareholders of Zhongnong Xinda, and 30% would be paid in cash;

• g. a profit compensation agreement (the ‘‘2014 Profit Compensation Agreement’’) dated 22 July 2014 in relation to the Acquisition Agreement, entered into between DCITS and shareholders of Zhongnong Xinda, pursuant to which the shareholders of Zhongnong Xinda agreed to provide compensation to DCITS for profit shortfalls;

• h. a supplemental agreement to the Acquisition Agreement dated 20 August 2014 entered into between DCITS and shareholders of Zhongnong Xinda, confirming the consideration and total number of shares to be alloted and issued by DCITS;

• i. a supplemental agreement to the 2014 Profit Compensation Agreement dated 20 August 2014 entered into between DCITS and shareholders of Zhongnong Xinda, confirming the amount of committed net profit of Zhongnong Xinda;

• j. a subscription agreement dated 8 May 2015 entered into between DCITS and DCSL, pursuant to which DCSL is to subscribe part of the non-public placed shares to be issued by DCITS (the ‘‘DCITS Placing Shares’’) for a cash consideration of approximately RMB1.5 billion (equivalent to approximately HK$1.875 billion) (subject to adjustments);

• k. the Share Transfer Agreement; and

• l. the non-competition undertakings provided by the Company to Shenxin Taifeng on 7 August 2015.

– V-6 –

APPENDIX V

GENERAL INFORMATION

9. EXPERT QUALIFICATION AND CONSENT

The followings are the qualifications of the experts (collectively, the ‘‘Experts’’) who have given opinion or advice which is contained in this circular:

Name

Qualification

Ernst & Young

Certified Public Accountants

Reorient

A licensed corporation to carry on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

China Alliance Qualified valuer in the PRC Appraisal Co., Ltd.

As at the Latest Practicable Date, none of the Experts was beneficially interested in the share capital of any member of the Group or had any right, whether legally enforceable or not, to subscribe or to nominate persons to subscribe securities in any member of the Group, nor did any of the Experts has any interest, either directly or indirectly, in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2014 (being the date to which the latest published audited consolidated financial statements of the Company were made up).

Each of the Experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report(s) and/or letter(s) and/or opinion(s) and the references to their names included herein in the form and context in which it is respectively included.

10. LITIGATION

Save as disclosed in an announcement of the Company dated 16 June 2015, so far as the Directors were aware, neither the Company nor any of its subsidiaries was engaged in any litigation or claim of material importance and no litigation or claim of material importance was pending or threatened against the Company or any of its subsidiaries as at the Latest Practicable Date.

11. MISCELLANEOUS

The registered office of the Company is situated at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

The head office and principal place of business of the Company in Hong Kong is situated at Suite 2008, 20th Floor, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong.

– V-7 –

APPENDIX V

GENERAL INFORMATION

The Company’s branch share registrar and transfer office in Hong Kong is Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

The secretary of the Company is Mr. WONG Chi Keung, who is a fellow member of the Association of Chartered Certified Accountants and an associate of the Hong Kong Institute of Certified Public Accountants.

The English text of this circular shall prevail over the Chinese text, in the event of inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the head office and principal place of business of the Company in Hong Kong at Suite 2008, 20th Floor, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong from the date of this circular up to and including the date of the SGM:

• a. the memorandum of association and new bye-laws of the Company;

• b. the letter from the Independent Board Committee, the text of which is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular;

• c. the letter from Reorient, the text of which is set out in the section headed ‘‘Letter from Reorient’’ in this circular;

• d. the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix;

• e. the following contracts referred to in this circular:

• i. the Subscription Agreements; and

• ii. the acting-in-concert agreement referred to in the sub-paragraph headed ‘‘Acting-in-concert Agreement’’ of the ‘‘Letter from the Board’’ in this circular;

• f. the unaudited financial information of the Disposal Business reviewed by Ernst & Young for the financial year ended 31 March 2013, the nine months ended 31 December 2013, the financial year ended 31 December 2014 and the three months ended 31 March 2014 and 2015;

– V-8 –

APPENDIX V

GENERAL INFORMATION

• g. the report on the Unaudited Pro Forma Combined Financial Information of the Remaining Group issued by Ernst & Young, the text of which is set out in Appendix III of this circular;

• h. the Valuation Report;

• i. the written consent referred to in the paragraph headed ‘‘Expert Qualification and Consent’’ in this appendix;

• j. the annual reports of the Company for each of the nine months ended 31 December 2013 and the year ended 31 December 2014 respectively; and

• k. this circular.

• For identification purpose only

– V-9 –

NOTICE OF SGM

==> picture [261 x 139] intentionally omitted <==

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the ‘‘SGM’’) of Digital China Holdings Limited (the ‘‘Company’’) will be held at Harbour View Ballroom I, Level 4, Four Seasons Hotel Hong Kong, 8 Finance Street, Central, Hong Kong on Wednesday, 26 August 2015 at 3: 30 p.m. or any adjournment thereof (as the case may be) for the purpose of considering and, if thought fit, passing with or without modification the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

‘‘THAT:

• (a) an agreement dated 7 August 2015 entered into between Digital China Limited (‘‘DCL’’), the Company and 深圳市深信泰豐（集團）股份有限公司 (Shenzhen Shenxin Taifeng Group Co., Ltd.) (‘‘Shenxin Taifeng’’) in respect of the disposal by DCL to Shenxin Taifeng of the 100% equity interests held by it in three companies, namely, 神州數碼（中國）有限公司 (Digital China (China) Limited), 上海神州數碼有限公司 (Shanghai Digital China Limited) and 廣州 神州數碼信息科技有限公司 (Guangzhou Digital China Information Technology Co., Ltd.), a copy of which has been produced before the SGM (marked ‘‘A’’ and initialled by the chairman of the SGM for the purpose of identification), the terms thereof and all the transactions contemplated thereunder, as well as all the transactions contemplated under the agreements each dated 7 August 2015 entered into between Shenxin Taifeng and each of Mr. Guo Wei and 中信建投基金 管理有限公司 (China Fund Management Co., Ltd.*) (with Mr. Yan Guorong as one of the asset trustors who provide the funds for subscription of new ordinary shares to be issued by Shenxin Taifeng) in respect of the subscription of an aggregate of 184,387,503 out of the 296,096,903 new ordinary shares to be issued by Shenxin Taifeng, representing approximately 28.19% of the issued share capital of Shenxin Taifeng as enlarged by the issue of the new ordinary shares, copies of which have been produced before the SGM (marked ‘‘B’’ and initialled by the chairman of the SGM for the purpose of identification), as well as the noncompetition undertakings executed by the Company in favour of Shenxin Taifeng dated 7 August 2015, a copy of which has been produced before the SGM (marked

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NOTICE OF SGM

‘‘C’’ and initialled by the chairman of the SGM for the purpose of identification), the terms thereof and all the transactions contemplated thereunder, are hereby approved, ratified and confirmed; and

• (b) subject to the conditions set out in the paragraph headed ‘‘Financial Impact of the Disposal, Intended Use of Proceeds and Proposed Conditional Special Cash Dividend’’ of the ‘‘Letter from the Board’’ in the circular dated 9 August 2015 (the ‘‘Circular’’) issued by the Company to its shareholders accompanying the notice convening the SGM of which this resolution forms part having been satisfied, the distribution of special dividend in cash of HK$3.20 per share to the shareholders of the Company (the ‘‘Distribution’’) be and is hereby approved; and the directors of the Company be and are hereby authorised to make, sign, execute and deliver any agreements, deeds, instruments and any other documents (and, where necessary, to affix the seal of the Company on them in accordance with the new bye-laws of the Company) in connection with the Distribution and to do and take all such action, steps, deeds and things in such manner and to sign all documents as they may deem necessary, desirable or appropriate to give effect to the Distribution, including without limitation to exercise the powers and authorities conferred under the new bye-laws of the Company and the applicable law and regulations in Hong Kong in respect of the Distribution.’’

By Order of the Board Digital China Holdings Limited (神州數碼控股有限公司*) LIN Yang Chief Executive Officer

• Hong Kong, 9 August 2015

• For identification purpose only

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

Head Office and Principal Place of Business in Hong Kong: Suite 2008, 20th Floor Devon House, Taikoo Place 979 King’s Road, Quarry Bay Hong Kong

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NOTICE OF SGM

Notes:

• (i) For the purposes of determining shareholders’ eligibility to attend and vote at the SGM, the register of members of the Company will be closed. Details of such closure are set out below:

• Latest time to lodge transfer documents 4: 30 p.m. on Monday, 24 August 2015 for registration

Closure of register of members

Tuesday, 25 August 2015 to Wednesday, 26 August 2015 (both dates inclusive)

Record date

Wednesday, 26 August 2015

During the above closure period, no transfer of shares will be registered. To be eligible to attend and vote at the SGM, all properly completed transfer documents accompanied by the relevant share certificates must be lodged for registration at the public office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong no later than the aforementioned latest time.

• (ii) Any shareholder of the Company entitled to attend and vote at the SGM or any adjournment thereof (as the case may be) shall be entitled to appoint another person as his/her proxy to attend and vote instead of him/her. Votes may be given either personally or by duly authorised corporate representative or by proxy. A shareholder who is the holder of two or more shares may appoint more than one proxy to attend on the same occasion. A proxy need not be a shareholder of the Company.

• (iii) Where there are joint registered holders of any share of the Company, any one of such persons may vote at the SGM or any adjournment thereof (as the case may be), either personally or by proxy, in respect of such share as if he/she were solely entitled thereto; but if more than one of such joint holders be present at the SGM or any adjournment thereof (as the case may be) personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

• (iv) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the public office of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time for holding the SGM or any adjourned meeting thereof (as the case may be). Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the SGM or any adjournment thereof (as the case may be).

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NOTICE OF SGM

• (v) As at the date hereof, the board of directors of the Company comprises three executive directors, namely Mr. GUO Wei (Chairman), Mr. LIN Yang (Chief Executive Officer) and Mr. YAN Guorong (President); one non-executive director, namely Mr. Andrew Y. YAN; and five independent non-executive directors, namely Mr. WONG Man Chung, Francis, Ms. NI Hong (Hope), Mr. ONG Ka Lueng, Peter, Dr. LIU Yun, John and Ms. YAN Xiaoyan.

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