Heng Tai Consumables Group Limited — Proxy Solicitation & Information Statement 2004

Nov 2, 2004

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 a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or otherwise transferred all your shares in Continental Mariner Investment Company Limited, you should at once hand this circular 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 the transferee(s).

This circular does not constitute an offer of, nor is it calculated to invite offers for, shares or other securities of Continental Mariner Investment Company Limited.

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

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CONTINENTAL MARINER INVESTMENT COMPANY LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 119)

MAJOR AND CONNECTED TRANSACTIONS ACQUISITION OF PROPERTIES

Financial adviser to Continental Mariner Investment Company Limited

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Goldbond Capital (Asia) Limited

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

AMS Corporate Finance Limited

A letter from the Board of the Company is set out on pages 7 to 21 of this circular.

A letter from the Independent Board Committee of the Company containing its recommendations to the Independent Shareholders in relation to the Acquisitions is set out on pages 22 to 23 of this circular.

A letter from AMS, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders of the Company, is set out on pages 24 to 46 of this circular.

Notice convening the EGM to be held at Queensway Room, Level 3, JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong on 18th November, 2004 at 10:30 a.m. is set out on pages 223 to 224 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Floor 17, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

29th October, 2004

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Shanghai Properties Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Hubei Properties Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Termination clause of the Shanghai Properties Acquisition Agreement and
Hubei Properties Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Principal business activities of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Major and connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Financial and trading prospects of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Financial effects of the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Extraordinary general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from AMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I – Accountants’ report on Shanghai Puly Real Estate . . . . . . . . .	47
Appendix II – Accountants’ report on Hubei White Rose . . . . . . . . . . . . . . . .	75
Appendix III − Accountants’ report on White Rose Hostel. . . . . . . . . . . . . . . .	92
Appendix IV − Accountants’ report on White Rose Transportation. . . . . . . . .	112
Appendix V – Financial information of the Group . . . . . . . . . . . . . . . . . . . . .	124
Appendix VI – Financial information of the Enlarged Group . . . . . . . . . . . . .	181
Appendix VII − Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	205
Appendix VIII– General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	216
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	223

−i −

DEFINITIONS

Unless the context requires otherwise, the following expressions have the following meanings in this circular:

“AA” or “Independent Valuer” AA Property Services Limited, an independent chartered surveyors and property consultants

• “Acquisition(s)” the acquisitions contemplated under the Shanghai Properties Acquisition Agreement and/or the Hubei Properties Acquisition Agreement (as applicable) by the Group

• “AMS” or “Independent AMS Corporate Finance Limited, a deemed licensed Financial Adviser” corporation under transitional arrangement to carry on type 4 (advising on 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

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||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|“Associate(s)”|has|the|meaning|ascribed|to|it|under|the|Listing|Rules|
|“Board”|the|board|of|Directors|
|“China|Poly”|(China|Poly|Group|Corporation),|a|
|company|incorporated|in|the|PRC,|is|a|substantial|
|shareholder|of|the|Company|holding|approximately|
|60.29%|of|the|total|issued|share|capital|of|the|Company|
|“China|Poly|Group”|China|Poly|and|its|subsidiaries|
|“Closing”|the|completion|of|the|transactions|contemplated|under|
|the|Shanghai|Properties|Acquisition|Agreement|and/or|
|the|Hubei|Properties|Acquisition|Agreement|
|“Commission”|(State-owned|Assets|Supervision|
|and|Administration|Commission)|
|“Company”|Continental|Mariner|Investment|Company|Limited,|a|
|company|incorporated|in|Hong|Kong|with|limited|
|liability, the shares of which are listed on the Main Board|
|of|the|Stock|Exchange|
|“Directors”|director(s)|of|the|Company|

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DEFINITIONS

“EGM” an extraordinary general meeting of the Company to be held to consider the resolutions to be proposed to approve, among others, the Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and the Hubei Properties Acquisition Agreement and the transactions contemplated thereunder “Enlarged Group” the Group as enlarged following completion of the Acquisition(s) “Group” the Company and its subsidiaries “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” The Hong Kong Special Administrative Region of the PRC “Hostel” (Wuhan White Rose Hostel), with 4 storeys offering 64 room rental. Wuhan White Rose Hostel is situated at (750 Wuchang Minzhu Road, Wu Chang District, Wuhan, Hubei Province, the PRC) with a gross floor area of approximately 3,218 sq.m. The land use right period of Wuhan White Rose Hostel is to last for not less than 45 years commencing from 1st January, 2005 “Hotel” Hubei White Rose Hotel ( ) with 24 storeys offering room rental, dining and car parking services to its customers, and operates a shopping centre and various entertainment facilities. Hubei White Rose Hotel is situated at (750 Wuchang Minzhu Road, Wu Chang District, Wuhan, Hubei Province, the PRC) and was established in 1998 with a gross floor area of approximately 27,592 sq.m. The land use right period of Hubei White Rose Hotel is to last for not less than 45 years commencing from 1st January, 2005 “Hubei Properties” Hotel, Hostel and ancillary buildings

−2 −

DEFINITIONS

• “Hubei Properties Acquisition Agreement”

• “Hubei Properties Injection”

• “Hubei White Rose”

• “Hubei White Rose Approval Procedures”

• “Hubei White Rose Group”

an agreement entered into between Smart Best as purchaser and Poly Shanghai and Poly Enterprise as vendors in relation to the sale and purchase of 100% equity interests in Hubei White Rose

the carving out and injection of a piece of land with a site area of not less than 7,245.9 sq.m. on which the Hotel and the Hostel and ancillary buildings are situated at, which form part of the Original Land and Properties, to Hubei White Rose by Poly Enterprise on or before the Closing at nil consideration, and successfully obtaining the land use right and property right certificates of the Hotel, the Hostel and ancillary buildings in accordance with relevant PRC rules and regulations by Hubei White Rose

(Hubei White Rose Hotel Company Limited), an equity joint venture incorporated in the PRC with limited liability, is owned as to 75% and 25% by Poly Shanghai and Poly Enterprise respectively prior to the Acquisition

within 14 days of obtaining the approvals from Independent Shareholders and the Commission, (i) obtaining Poly Shanghai and Poly Enterprise confirming in writing that they will renounce their pre-emptive equity interest acquisition rights as stated in the joint venture agreement entered into between Poly Shanghai and Poly Enterprise in 2002 and the articles of Hubei White Rose in relation to the transfer of equity interests in Hubei White Rose, (ii) convening the directors’ meeting of Hubei White Rose to approve the Hubei Properties Acquisition Agreement and corresponding amendments to its articles and (iii) the existing directors of Hubei White Rose having resigned from their directorships and confirming in writing of no claim on Hubei White Rose and the board of directors of Hubei White Rose approving their resignations

Hubei White Rose, White Rose Hostel and White Rose Transportation. White Rose Hostel and White Rose Transportation became wholly-owned subsidiaries of the Group since July 2004

−3 −

DEFINITIONS

“Independent Board Committee” an independent committee of the Board established for the purpose of reviewing the transactions contemplated under the Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building and the four existing tenancy agreements entered into between Shanghai Puly Real Estate and four indirectly wholly owned subsidiaries of China Poly) and the Hubei Properties Acquisition Agreement

• “Independent Shareholders” Shareholders other than China Poly Group and its associates

• “Johnsbury” Johnsbury Limited, an indirectly wholly-owned subsidiary of the Company and incorporated in the British Virgin Islands, is principally engaged in investment holding

• “Latest Practicable Date” 25th October, 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained therein

• “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange

• “Original Land and Properties”

• a piece of land with a site area of approximately 19,450.7 sq.m. situated at (750 Wuchang Minzhu Road, Wu

• Chang District, Wuhan, Hubei Province, the PRC) together with but not limited to the Hotel and the Hostel established on it. The land use right certificate of the land and property right certificates of the properties located thereon are currently vested in Poly Enterprise

• “Percentage ratios” the percentage ratios under Rule 14.07 of the Listing Rules

• “Poly Enterprise” (Poly Hua Zhong Enterprise Development Company), a company incorporated in the PRC with limited liability, is an indirectly wholly-owned subsidiary of China Poly

−4 −

DEFINITIONS

• “Poly Shanghai” (Poly Shanghai Group Company Limited), a company incorporated in the PRC with limited liability, is a directly wholly-owned subsidiary of China Poly

• “PRC” the People’s Republic of China “RMB” Renminbi, the lawful currency of the PRC “SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shanghai Hua Bao” (Shanghai Hua Bao Real Estate Development Company Limited), a company incorporated in the PRC, is an indirectly wholly owned subsidiary of China Poly

• “Shanghai Meng Yuan” (Shanghai Meng Yuan Real Estate Company Limited), a company incorporated in the PRC, is an indirectly wholly owned subsidiary of China Poly

• “Shanghai Poly Property” (Shanghai Poly Property Development Company Limited), a company incorporated in the PRC, is an indirectly wholly owned subsidiary of China Poly

• “Shanghai Poly Property Hotel (Shanghai Poly Management” Property Hotel Management Co., Limited), a company

• Property Hotel Management Co., Limited), a company incorporated in the PRC, is an indirectly wholly owned subsidiary of China Poly

• “Shanghai Properties”

several office units with a gross floor area of approximately 26,603 sq.m., basement with a gross floor area of approximately 7,603 sq.m., and ancillary facilities in the Shanghai Stock Exchange Building. Such properties are situated at (528 Pudong Road South, Shanghai, the PRC)

• “Shanghai Properties Acquisition Agreement”

• an agreement entered into between the Company as purchaser and Shanghai Sanli as vendor in relation to the sale and purchase of 60% equity interests in Shanghai Puly Real Estate

−5 −

DEFINITIONS

“Shanghai Puly Real Estate” (Shanghai Puly Real Estate Development Company Limited), a company incorporated in the PRC, is an indirectly owned subsidiary of China Poly “Shanghai Sanli” (Shanghai Sanli Enterprise Company Limited), a company incorporated in the PRC with limited liability, is an indirectly wholly-owned subsidiary of China Poly “Share(s)” share(s) of HK$0.50 each in the capital of the Company “Shareholders” shareholders of the Company “Smart Best” Smart Best Investments Limited ( ), a company incorporated in Hong Kong with limited liability, is an indirectly wholly-owned subsidiary of the Company and principally engaged in investment holding “sq.m.” square metre(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “White Rose Hostel” (Wuhan White Rose Hostel), a company incorporated in the PRC with limited liability, is directly wholly-owned by Hubei White Rose since July, 2004 “White Rose Transportation” (Wuhan White Rose Airport Transportation Service Centre), a company incorporated in the PRC with limited liability, is directly wholly-owned by Hubei White Rose since July, 2004 “21/F, South Tower, Shanghai Floor 21, South Tower, Shanghai Stock Exchange Stock Exchange Building” Building, Shanghai, the PRC “26/F, North Tower, Shanghai Floor 26, North Tower, Shanghai Stock Exchange Stock Exchange Building” Building, Shanghai, the PRC “%” per cent

In this circular, certain amounts quoted in RMB and USD have been translated into Hong Kong dollars at the reference rates of HK$1.00 to RMB1.065 and USD1.00 to HK$7.80 respectively for information purpose only. Such translation should not be construed as a representation that the relevant amounts have been, could have been, or could be, converted at that or any other rate or at all.

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LETTER FROM THE BOARD

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CONTINENTAL MARINER INVESTMENT COMPANY LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 119)

Executive Directors: WANG Jun (Chairman) HE Ping (Vice-Chairman) LI Shi Liang (Managing Director) CHEN Hong Sheng CHAN Tak Chi, William

Registered office: Room 2503 Admiralty Centre Tower 1 18 Harcourt Road Hong Kong

Non-executive Director: IP Chun Chung, Robert

Independent non-executive Directors: YAO Kang LAM Tak Shing CHOY Shu Kwan

29th October, 2004

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS ACQUISITION OF PROPERTIES

INTRODUCTION

Reference was made to an announcement dated 18th August, 2004 issued by the Company, in which the Directors announced that on 11th August, 2004, Johnsbury, an indirectly wholly-owned subsidiary of the Company, entered into the Shanghai Properties Acquisition Agreement with Shanghai Sanli. Also, on the same date, Smart Best, an indirectly wholly-owned subsidiary of the Company, entered into the Hubei Properties Acquisition Agreement with Poly Shanghai and Poly Enterprise.

The purpose of this circular is to provide you with, among other things, further information of the Acquisitions and to give you notice of the EGM.

−7 −

LETTER FROM THE BOARD

SHANGHAI PROPERTIES ACQUISITION AGREEMENT

Date

11th August, 2004

Parties

• Vendor : Shanghai Sanli, an indirectly wholly-owned subsidiary of China Poly which is a controlling shareholder of the Company holding approximately 60.29% of the existing issued share capital of the Company. Shanghai Sanli is principally engaged in property development and investment.

• Purchaser : Johnsbury, an indirectly wholly-owned subsidiary of the Company

Particulars of the Shanghai Properties Acquisition Agreement

Assets to be acquired

Johnsbury agreed to acquire 60% equity interests in Shanghai Puly Real Estate which is a sino-foreign equity joint venture with a fully-paid up registered capital of US$24,000,000 (about HK$187,200,000). The existing license period of Shanghai Puly Real Estate is 50 years commencing from October, 1992.

Shanghai Puly Real Estate is principally engaged in property investment in Shanghai, the PRC. Since 2003, it also provides catering services in a restaurant situated at Shanghai Stock Exchange Building, the PRC. It owns the Shanghai Properties, being several office units with a gross floor area of approximately 26,603 sq.m., basement with a gross floor area of approximately 7,603 sq.m. and ancillary facilities in the Shanghai Stock Exchange Building situated at (528 Pudong Road South, Shanghai, the PRC). The properties are currently used for rental purpose to generate rental income for Shanghai Puly Real Estate. The properties are used as office premises by the tenants (including subsidiaries of China Poly). Except for the subsidiaries of China Poly as referred to in the section headed “Ongoing connected transactions” in this letter from the Board, all the existing tenants are not connected parties of the Company (as defined under the Listing Rules) and are independent of and not connected with the Company and its connected persons (as defined under the Listing Rules). The construction of the Shanghai Stock Exchange Building was completed in 1998 and the land use right period of which is 50 years, commencing from 15th November, 1993 to 14th November, 2043.

Land use right and property right certificates of the aforementioned properties are under the name of Shanghai Puly Real Estate. As at 30th April, 2004, the Shanghai Properties represent 92% of the assets of Shanghai Puly Real Estate. The rest of the assets of Shanghai Puly Real Estate mainly consist of loan receivable, trade and other receivables, and cash and

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LETTER FROM THE BOARD

bank balances. There is no shareholder loan to Shanghai Puly Real Estate as at the date of the signing of the Shanghai Properties Acquisition Agreement. Except for the pledge of 26/F, North Tower, Shanghai Stock Exchange Building to a bank for obtaining banking facilities of RMB30,000,000 (about HK$28,169,000) for working capital of Shanghai Puly Real Estate, there is no encumbrance on properties owned by Shanghai Puly Real Estate. Such pledge may or may not continue after completion of the Shanghai Properties Acquisition Agreement.

The original investment cost of the 60% equity interests in Shanghai Puly Real Estate by Shanghai Sanli amounted to US$14,400,000 (about HK$112,320,000) in October, 1992.

Current shareholding structure of Shanghai Puly Real Estate

Shanghai Puly Real Estate is currently owned as to 60% by Shanghai Sanli and 40% by Johnsbury. As such, Shanghai Puly Real Estate is currently an associated company of the Group. The 40% equity interests in Shanghai Puly Real Estate currently owned by Johnsbury has been equity accounted for in the consolidated financial statements of the Group. After completion of the Shanghai Properties Acquisition Agreement, Shanghai Poly Real Estate will become a wholly-owned subsidiary of Johnsbury and the operating results of Shanghai Puly Real Estate will be 100% consolidated into the consolidated financial statements of the Group thereafter. Johnsbury will obtain 100% control of the board of Shanghai Puly Real Estate upon completion of the Shanghai Properties Acquisition Agreement. Johnsbury, being currently the 40% owner of Shanghai Puly Real Estate, has representatives on the board of directors of Shanghai Puly Real Estate (three out of seven directors comprising the board are representatives of Johnsbury) and has significant influence over the financial and operating decisions of Shanghai Puly Real Estate. Upon completion of the Shanghai Properties Acquisition Agreement, the four directors currently on the board of directors of Shanghai Puly Real Estate representing Shanghai Sanli will resign from the board.

Consideration

The total cash consideration for the acquisition of 60% equity interests in Shanghai Puly Real Estate is RMB258,000,000 (about HK$242,254,000). The consideration has been determined after arm’s length negotiations between the parties to the Shanghai Properties Acquisition Agreement with reference to the unaudited net assets value of RMB465,679,000 (about HK$437,257,000) of Shanghai Puly Real Estate as stated in its management accounts as at 30th April, 2004. The consideration represents a discount of 7.66% to the net assets value.

The payment term of the consideration is as follows:

• RMB25,800,000 (about HK$24,225,000) being 10% of the consideration as refundable cash deposit paid to the lawyer of Johnsbury in escrow upon signing of the Shanghai Properties Acquisition Agreement;

• RMB180,600,000 (about HK$169,578,000) being 70% of the consideration will be paid upon (a) Shanghai Sanli obtaining the approval from the Commission in relation to the transfer of 60% equity interests in Shanghai Puly Real Estate from

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LETTER FROM THE BOARD

Shanghai Sanli to Johnsbury and (b) passing of resolutions by the board of directors of Shanghai Puly Real Estate approving the Shanghai Properties Acquisition Agreement, termination of the old joint venture agreement signed between Shanghai Sanli and Johnsbury in July, 2002 and adoption of the new articles of Shanghai Puly Real Estate within 14 days of obtaining the approvals from Independent Shareholders and the Commission; and

• the balance of the consideration of RMB51,600,000 (about HK$48,451,000) being 20% of the consideration will be paid upon completion of the Shanghai Properties Acquisition Agreement.

The above deposit of RMB25,800,000 (about HK$24,225,000) and interest earned thereon will be transferred from the lawyer of Johnsbury to Shanghai Sanli upon approval of the transactions contemplated under the Shanghai Properties Acquisition Agreement by Independent Shareholders.

Option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building

On 30th April, 2004, Shanghai Puly Real Estate, being the landlord and owner of 26/F, North Tower, Shanghai Stock Exchange Building, granted an option to Poly Shanghai to acquire the said property where certain subsidiaries of China Poly are the existing tenants. The property has a gross floor area of about 2,041 sq.m.. Under the option agreement, the acquisition cost will be US$2,850 (about HK$22,230) per sq.m. The total acquisition cost will be US$5,816,850 (about HK$45,371,000). The consideration was determined with reference to the prevailing market price of the relevant properties at the time of signing the option agreement. The option will be exercised in whole but not in parts and exercisable solely at the discretion of Poly Shanghai. The exercise period of the option is for twelve months commencing from 30th April, 2004. Poly Shanghai has paid US$1,163,370 (about HK$9,074,000) to Shanghai Puly Real Estate as deposit for the option. Such deposit will be forfeited if the option is not exercised within the prescribed period from 30th April, 2004 to 29th April, 2005. The Company will make an announcement regarding the exercise of the option as and when appropriate and comply with the relevant Listing Rules requirements.

Ongoing connected transactions

Four indirectly wholly owned subsidiaries of China Poly are the existing tenants of part of the 21/F, South Tower, and 26/F, North Tower, Shanghai Stock Exchange Building. Upon completion of the Shanghai Properties Acquisition Agreement, the aforementioned tenancy arrangements between Shanghai Puly Real Estate who will become a wholly-owned subsidiary of the Company, being the landlord and owner of the relevant properties, and the four aforesaid subsidiaries of China Poly, will constitute ongoing connected transactions. The annual rental incomes from the tenancy arrangements amount to about HK$2,043,000 which represent less than 2.5% of the relevant percentage ratios of the Group for the year ended 31st December, 2003. Pursuant to Rule 14A.34 of the Listing Rules, any connected transaction with a threshold

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LETTER FROM THE BOARD

of less than 2.5% of the relevant percentage ratios is exempt from the independent shareholders’ approval requirements. The Directors expect that the tenancy arrangements will take place on a continuing basis. For the purpose of complying with the relevant requirements of the Listing Rules in this regard, the Directors estimate the annual cap for the annual rental fees of the following tenancy arrangements will not exceed the annual cap of HK$2,043,000 for each of the three financial years ending 31st December, 2004, 2005 and 2006 respectively. Details of the relevant tenancy arrangements are summarized as follows:

Name of tenants Tower Floor of Shanghai Stock Exchange Building rented Rental period Gross floor area rented Rent per sq.m. per day Shanghai Poly Property Hotel Management North 26 1st January, 2004 to 31st December, 2006 415.72 sq.m. US$0.40 Shanghai Poly Property South 21 1st June, 2003 to 31st May, 2005 258.81 sq.m. US$0.50 Shanghai Hua Bao North 26 1st January, 2003 to 31st December, 2004 843.46 sq.m. US$0.33 Shanghai Meng Yuan North 26 1st May, 2004 to 30th April, 2005 359.98 sq.m. US$0.40

Annual rental HK$’000 473 368 792 410

2,043

The tenancy arrangements will constitute ongoing connected transactions upon completion of the Shanghai Properties Acquisition and such tenancy transactions are in the ordinary and usual course of business of the Group. Based on the existing terms of the tenancy arrangements, the Directors are of the opinion that the terms are fair and reasonable, on normal commercial basis and are in the interests of the Company and its Shareholders as a whole.

Conditions of the Shanghai Properties Acquisition Agreement

Completion of the acquisition of 60% equity interests in Shanghai Puly Real Estate by Johnsbury is conditional upon, among others, the following conditions being fulfilled on or before 12 months which is expected to be on or before 12th August, 2005 (or a later date as agreed by Johnsbury) from the date of the Shanghai Properties Acquisition Agreement:

• (a) the Independent Shareholders having approved the Shanghai Properties Acquisition Agreement and the terms therein at the EGM;

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LETTER FROM THE BOARD

• (b) all necessary approvals having been obtained from the relevant PRC authorities in relation to the following:

• transfer of state-owned assets to Johnsbury. Shanghai Sanli, being currently the 60% owner of Shanghai Puly Real Estate, is indirectly wholly owned by China Poly which is a state-owned company. Therefore, sale of 60% equity interests in Shanghai Puly Real Estate is regarded as sale of state-owned assets requiring relevant PRC government approvals;

• transfer of 60% equity interests in Shanghai Puly Real Estate to Johnsbury as stated in the Shanghai Properties Acquisition Agreement;

• adoption of the new articles of Shanghai Puly Real Estate and termination of the old joint venture agreement signed between Shanghai Sanli and Johnsbury in July, 2002; and

• approval of Shanghai Puly Real Estate as a wholly-owned foreign enterprise.

Reasons for and benefits of the acquisition of 60% equity interests in Shanghai Puly Real Estate

The Directors believe that the acquisition of 60% equity interests in Shanghai Puly Real Estate will enable the Group to take advantage of the potential growth in the commercial properties and further strengthen the profitability of the Group. After the completion of the Acquisition, the acquired properties will continue to be used for rental purpose to generate rental income for the Group and Shanghai Puly Real Estate will also continue to provide catering services in Shanghai Stock Exchange Building, the PRC.

With Shanghai being the financial center in the PRC, the Directors consider that Shanghai Stock Exchange Building in the prime business location not only provides the Group with stable rental income and catering service income streams but also potential capital appreciation on the acquired properties. Audited profits before tax for Shanghai Puly Real Estate were about HK$23,470,000 and HK$40,148,000, and audited net profits after tax were about HK$19,870,000 and HK$34,050,000 for each of the two years ended 31st December, 2002 and 2003 respectively. Audited net asset value of Shanghai Puly Real Estate as at 30th April, 2004 was about HK$476,576,000.

The Directors consider that the terms and conditions of the Shanghai Properties Acquisition Agreement, the option granted to Poly Shanghai for acquisition of 26/F, North Tower, Shanghai Stock Exchange Building, the aforementioned four tenancy agreements between Shanghai Puly Real Estate and four indirectly wholly-owned subsidiaries of China Poly are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group, and are in the interests of the Company and its Shareholders taken as a whole.

−12 −

LETTER FROM THE BOARD

HUBEI PROPERTIES ACQUISITION AGREEMENT

Date

11th August, 2004

Parties

• Vendor 1 : Poly Shanghai, a directly wholly-owned subsidiary of China Poly and is principally engaged in property holding.

• Vendor 2 : Poly Enterprise, an indirectly wholly-owned subsidiary of China Poly and is principally engaged in investment holding.

• Purchaser : Smart Best, an indirectly wholly-owned subsidiary of the Company.

Particulars of the Hubei Properties Acquisition Agreement

Assets to be acquired

Smart Best agreed to acquire 100% equity interests in Hubei White Rose which is an equity joint venture with a fully-paid up registered capital of RMB9,600,000 (about HK$9,014,000).

Hubei White Rose was established in 1993 and is principally and currently engaged in hotel business in Hubei, the PRC. In July, 2004, it acquired 100% equity interests in White Rose Hostel and White Rose Transportation for a cash consideration of about RMB18,000,000 (about HK$16,901,000) and RMB539,000 (about HK$506,000) respectively from Poly Enterprise and the acquisitions were completed in that month. White Rose Hostel is principally and currently engaged in hostel business in Hubei, the PRC while White Rose Transportation is principally and currently engaged in the provision of travel agent services in Hubei, the PRC. The land use right and property right certificates of the Hotel and the Hostel are currently under the name of Poly Enterprise. Prior to the completion of Hubei Properties Acquisition Agreement, Poly Enterprise will transfer to Hubei White Rose and White Rose Hostel the land use rights and property right certificates of the Hotel and ancillary buildings, and the Hostel and ancillary buildings, respectively. As such, on completion of the Hubei Properties Acquisition Agreement and Hubei Properties Injection, Hubei White Rose Group will own a 24-storey Hotel and 4-storey Hostel. The Hotel offers room rental, dining and car parking services, and operates a shopping centre and various entertainment facilities. The Hostel offers room rental service. The Hotel and the Hostel are situated at

(750 Wuchang Minzhu Road, Wu Chang District, Wuhan, Hubei Province, the PRC). The Hotel was established in 1998 with a gross floor area of approximately 27,592 sq.m. The Hostel was established in 1990 with a gross floor area of approximately 3,218 sq.m. The land use right period of the Hotel and the Hostel is to last for not less than 45 years commencing from 1st January, 2005. As at 30th April, 2004, the major assets of Hubei White Rose and White Rose Hostel are the Hotel and the Hostel which account for 79% and 53% of the total assets of Hubei White Rose and White Rose Hostel respectively. The rest of the assets are mainly bank balances and cash, receivables and inventories. The Hotel and the Hostel have

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LETTER FROM THE BOARD

been accounted for in the financial statements of Hubei White Rose and White Rose Hostel respectively as at 30th April, 2004 though the title and ownership of the Hotel and the Hostel were vested in Poly Enterprise at that time. Also, as at the same date, the major liabilities of Hubei White Rose are shareholders’ loans of RMB99,949,000 (about HK$93,849,000) lent by Poly Shanghai and Poly Enterprise which account for 81% of the total liabilities of Hubei White Rose. There is no encumbrance on the assets owned by Hubei White Rose, White Rose Hostel and White Rose Transportation as at the date of the Hubei Properties Acquisition Agreement. The Directors also expect that there will be no encumbrance on the assets owned by Hubei White Rose Group upon completion of the Hubei Properties Acquisitions Agreement.

The original investment cost of the 75% and 25% equity interests in Hubei White Rose by Poly Shanghai and Poly Enterprise amounted to RMB7,200,000 (about HK$6,761,000) and RMB2,400,000 (about HK$2,254,000) respectively. The original investment cost of Hubei Properties were about RMB149,919,000 (about HK$140,769,000).

Current shareholding structure of Hubei White Rose

Hubei White Rose is currently owned as to 75% by Poly Shanghai and 25% by Poly Enterprise. After completion of the Acquisition, Hubei White Rose will become a whollyowned subsidiary of Smart Best.

Consideration

The cash consideration for the acquisition of 100% equity interests in Hubei White Rose and the assumption of shareholders’ loans lent by Poly Shanghai and Poly Enterprise to Hubei White Rose are RMB55,000,000 (about HK$51,643,000) and RMB99,949,000 (about HK$93,849,000) respectively. The consideration has been determined after arm’s length negotiations among the parties to the Hubei Properties Acquisition Agreement and with reference to the aggregate of unaudited net assets values of Hubei White Rose Group as stated in their management accounts as at 30th April, 2004 of RMB60,729,000 (about HK$57,023,000) and shareholders’ loans lent by Poly Shanghai and Poly Enterprise to Hubei White Rose of RMB99,949,000 (about HK$93,849,000). The consideration for 100% equity interests in Hubei White Rose Group represents a discount of 9.43% to their net assets values while the assumption of the shareholders’ loans is at their book value.

The payment term of the cash consideration is as follows:

• RMB5,500,000 (about HK$5,164,000) being 10% of the consideration for acquisition of 100% equity interests in Hubei White Rose as refundable deposit paid to the lawyer of Smart Best in escrow upon signing of the Hubei Properties Acquisition Agreement;

• RMB22,000,000 (about HK$20,657,000) being 40% of the consideration for acquisition of 100% equity interests in Hubei White Rose will be paid upon (a) Poly Shanghai and Poly Enterprise obtaining approval from the Commission in relation to the transfer of equity interests in Hubei White Rose as stated in the Hubei Properties Acquisition Agreement and (b) completion of Hubei White Rose Approval Procedures; and

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LETTER FROM THE BOARD

• the balance of the consideration of RMB27,500,000 (about HK$25,822,000) being 50% of the consideration for acquisition of 100% equity interests in Hubei White Rose will be paid upon completion of the Hubei Properties Acquisition Agreement.

The above deposit of RMB5,500,000 (about HK$5,164,000) and interest earned thereon will be transferred from the lawyer of Smart Best to Poly Shanghai and Poly Enterprise upon approval of the transactions contemplated under the Hubei Properties Acquisition Agreement by Independent Shareholders.

In addition, within 7 days upon completion of the Hubei White Rose Approval Procedures but in any event not earlier than 31st January, 2005, Smart Best will make a shareholder’s loan of RMB50,000,000 (about HK$46,949,000) to Hubei White Rose to repay part of the existing shareholders’ loans lent by Poly Shanghai and Poly Enterprise. Upon completion of the transactions contemplated under the Hubei Properties Acquisition Agreement, Smart Best will make an additional shareholder’s loan of the remaining balance of RMB49,949,000 (about HK$46,900,000) to Hubei White Rose which will then repay the same amount to Poly Shanghai and Poly Enterprise to clear the remaining shareholders’ loans lent by them.

Conditions of the Acquisition

Completion of acquisition of the 100% equity interests in Hubei White Rose by Smart Best is conditional upon, among others, the following conditions being fulfilled on or before 12 months which is expected to be on or before 12th August, 2005 (or a later date as agreed by Smart Best) from the date of the Hubei Properties Acquisition Agreement:

• (a) the Independent Shareholders having approved the Hubei Properties Acquisition Agreement and the terms therein at the EGM;

• (b) completion of the following procedures:

• passing of the resolutions by the board of directors of Poly Shanghai, Poly Enterprise, White Rose Transportation, Hubei White Rose and White Rose Hostel in relation to (i) Hubei Properties Injection and (ii) signing of corresponding contracts, agreements or other related documents;

• obtaining the approval from (Hubei Wuhan Land Administration Bureau) in relation to the Hubei Properties Injection and the necessary land use right certificates and property certificates issued by it to Hubei White Rose Group. The land use right period covered in those two certificates should not be less than 45 years commencing from 1st January, 2005; and

• Poly Shanghai and Poly Enterprise having settled all relevant taxes and expenses in relation to the Hubei Properties Injection.

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LETTER FROM THE BOARD

• (c) all necessary approvals having been obtained from the relevant PRC authorities in relation to the following and all relevant expenses properly settled by Poly Shanghai and Poly Enterprise:

• transfer of state-owned assets to Smart Best. Poly Shanghai and Poly Enterprise, being currently the owners of Hubei White Rose, are directly or indirectly wholly owned by China Poly which is a state-owned company. Therefore, transfer of 100% equity interests in Hubei White Rose is regarded as sale of state-owned assets requiring relevant PRC government approvals;

• transfer of 75% and 25% equity interests in Hubei White Rose from Poly Shanghai and Poly Enterprise respectively to Smart Best as stated in the Hubei Properties Acquisition Agreement; and

• termination of the old joint venture agreement entered into between Poly Shanghai and Poly Enterprise in 2002, adoption of the new articles of Hubei White Rose and the business license period of Hubei White Rose being not less than 45 years commencing from 1st January, 2005.

Other matters

• (a) It has further been agreed that from the date of the Hubei Properties Acquisition Agreement to the date of obtaining the approval from the Commission, Smart Best will have the supervisory power over the management of Hubei White Rose. Consent from Smart Best will have to be obtained before passing any resolutions by the board of directors of Hubei White Rose. All current directors in the board of Hubei White Rose will resign from their directorships and new directors will be appointed by the Group upon obtaining the approval from the Commission.

• (b) If it is required by the relevant PRC authorities that Hubei White Rose is required to increase its registered capital because of the change of its status from a PRC company to a wholly foreign-owned enterprise, both Poly Shanghai and Poly Enterprise agree to transfer an amount equivalent to the required additional registered capital from the shareholders’ loans lent by Poly Shanghai and Poly Enterprise to Hubei White Rose as its registered capital. At the same time, the acquisition consideration for the 75% and 25% equity interests in Hubei White Rose will be increased accordingly by the same amount while the respective shareholders’ loans owed by Hubei White Rose to Poly Shanghai and Poly Enterprise will be decreased by the corresponding amount.

Reasons for and benefits of the acquisition of 100% equity interests in Hubei White Rose

The Directors consider that the acquisition of 100% equity interests in Hubei White Rose not only provides the Group with a stable source of income but also enlarges the earning base of the Group.

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LETTER FROM THE BOARD

The acquisition of 100% equity interests in Hubei White Rose will enable the Group to take advantage of the potential growth in hotel business and further strengthen the profitability of the Group. Audited profit/(loss) before tax for Hubei White Rose, White Rose Hostel and White Rose Transportation were about HK$16,531,000, HK$2,571,000 and HK$113,000, and about HK$9,845,000, HK$(905,000) and HK$131,000, and audited net profit/(loss) after tax were approximately about HK$10,393,000, HK$1,726,000 and HK$69,000, and about HK$5,546,000, HK$(649,000) and HK$85,000 for each of the two years ended 31st December, 2002 and 2003 respectively. Audited net asset values of Hubei White Rose, White Rose Hostel and White Rose Transportation as at 30th April, 2004 were about HK$52,154,000, HK$18,379,000 and HK$630,000 respectively.

The Directors consider that the terms and conditions of the Hubei White Rose Acquisition Agreement are fair and reasonable, and the acquisition of 100% equity interest in Hubei White Rose are conducted on normal commercial terms, in the ordinary and usual course of business of the Group, and are in the interests of the Company and its Shareholders taken as a whole.

TERMINATION CLAUSE OF THE SHANGHAI PROPERTIES ACQUISITION AGREEMENT AND HUBEI PROPERTIES ACQUISITION AGREEMENT

If either party fails to complete certain terms but without breaching them as stipulated in the Shanghai Properties Acquisition Agreement or Hubei Properties Acquisition Agreement, the Company is able to get back the deposit it has paid out. Also, if the other party is in breach of the terms of the agreements, the Company can get back the deposit it has paid. If the Company is in breach of the terms of the agreements, the other party can confiscate the deposit paid by the Company. In any event, the party has the right to sue the default party for any losses incurred by the party as a result of the breach of contract by the default party.

PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY

The Company is principally engaged in shipping, hotel operations, property investment and management, supply of electricity and gas, securities investment, financial services and general trading.

MAJOR AND CONNECTED TRANSACTIONS

Shanghai Sanli, Poly Shanghai and Poly Enterprise are wholly-owned subsidiaries of China Poly which is a controlling shareholder holding approximately 60.29% of the existing issued share capital of the Company. The aggregate considerations under the Shanghai Properties Acquisition Agreement and Hubei Properties Acquisition Agreement amount to RMB412,949,000 (about HK$387,746,000) (including the shareholders’ loans lent from Poly Shanghai and Poly Enterprise to Hubei White Rose) in aggregate which account for more than 25% but less than 100% of the market capitalization of the Company. Accordingly, the

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LETTER FROM THE BOARD

Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and the Hubei Properties Acquisition Agreement constitute major and connected transactions (under Rule 14.15 and 14A.48 of the Listing Rules) for the Company and will require approval by the Independent Shareholders at the EGM. China Poly and its associates will abstain from voting as required by the Listing Rules, which shall be taken by poll.

VALUATION

Valuation reports on the Shanghai Properties and the Hubei Properties performed by Independent Valuer in relation to the Acquisitions were included in Appendix VII of this circular.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As stated in the annual report of the Group for the year ended 31st December, 2003, property investment and management and hotel operations remain two of the key income streams of the Group. The Board is taking active steps to expand its revenue base by acquiring potential profitable acquisition targets so as to further improve the Group’s financial performance. The Board also considers that sustained rapid economic growth in the PRC create abundant business opportunities. The Directors consider that the acquisition of 60% equity interests in Shanghai Puly Real Estate and 100% equity interests in Hubei White Rose will provide the Group with stable source of income, enlarge the earning base of the Group and enable the Group to take advantage of the potential growth in the commercial properties.

FINANCIAL EFFECTS OF THE ACQUISITIONS

Earnings

The Group’s consolidated audited profit attributable to the Shareholders for the year ended 31st December, 2003 was approximately HK$71,247,000, while the audited consolidated profit of Shanghai Puly Real Estate Group and, the audited profit/(loss) of Hubei White Rose, White Rose Hostel and White Rose Transportation for the year ended 31st December, 2003 were approximately HK$34.05 million, HK$5.55 million, HK$(0.65) million and HK$0.09 million respectively. After the completion of the Acquisitions, 100% of the financial results of Shanghai Puly Real Estate, Hubei White Rose, White Rose Hostel and White Rose Transportation will be consolidated with the results of the Group.

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LETTER FROM THE BOARD

Net Assets

Based on the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group as set out in Appendix VI to the circular, the net asset value of the Group or the Enlarged Group (as applicable) are as follows:

		After	After
		completion of	completion
		the Shanghai	of the Hubei
Referring	Before	Properties	Properties	After
to the Group or	completion	Acquisition	Acquisition	completion
Enlarged Group	of the	Agreement	Agreement	of the
(as applicable)	Acquisitions	only	only	Acquisitions
	(HK$’million)	(HK$’million)	(HK$’million)	(HK$’million)
Net asset value	2,480	2,516	2,482	2,518

Working Capital

The considerations in relation to the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement are to be financed by internal resources and credit facilities. After due and careful enquiry by the Directors, they are of the opinion that, having regard to the financial resources and its credit facilities available to the Enlarged Group, the Enlarged Group will have sufficient working capital for its present requirements for the next 12 months from the date of this circular.

The details of the unaudited gearing ratio of the Enlarged Group are as follows:

	After	After
	completion of	completion
	the Shanghai	of the Hubei
	Properties	Properties	After
	Acquisition	Acquisition	completion
	Agreement	Agreement	of the
	only	only	Acquisitions
Unaudited gearing ratio of the
Enlarged Group (as represented
by the Enlarged Group’s pro
forma total liabilities less total
bank balances, deposits and cash
as a percentage to its pro forma
Shareholders’ funds)*	42%	35%	48%

• The pro forma financial information used in the calculation of the unaudited gearing ratio of the Enlarged Group is extracted from Appendix VI to this circular.

EXTRAORDINARY GENERAL MEETING

The acquisition of 60% equity interests in Shanghai Puly Real Estate and 100% equity interests in Hubei White Rose are not inter-conditional on each other.

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LETTER FROM THE BOARD

The Board considers that the terms of the Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building and the four existing tenancy agreements entered into between Shanghai Puly Real Estate and four indirectly wholly owned subsidiaries of China Poly) and the Hubei Properties Acquisition Agreement have been concluded after arm’s length negotiation among the parties thereto on normal commercial terms and in the ordinary and usual course of business of the Group, and are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

The Acquisitions constitute major and connected transactions for the Company under the Listing Rules and therefore they are subject to approval by the Independent Shareholders at the EGM, which shall be taken by poll. China Poly and their associates are required to abstain from voting in respect of the resolutions to be proposed at the EGM to approve the Acquisitions in accordance with Rule 14A.18 of the Listing Rules.

A notice of the EGM is set out on pages 223 to 224 of this circular. The meeting will be held at Queensway Room, Level 3, JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong on 18th November, 2004 at 10:30 a.m.. Resolutions will be proposed to approve the Acquisitions.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Floor 17, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the proxy will not preclude you from attending and voting in person at the EGM should you so wish.

The Directors wish to emphasize that (a) the Shanghai Properties Acquisition Agreement is subject to a number of conditions, including in particular the approval by the Independent Shareholders and all necessary approvals having been obtained from the relevant PRC authorities, required to consummate the transaction contemplated under the Shanghai Properties Acquisition Agreement and (b) the Hubei Properties Acquisition Agreement is subject to a number of conditions, including in particular (i) the approval by the Independent Shareholders, (ii) passing of resolutions by the board of directors of Poly Shanghai, Poly Enterprise, White Rose Transportation, Hubei White Rose and White Rose Hostel in relation to the Hubei Properties Injections and signing of corresponding contracts, agreements or other related documents, (iii) obtaining the approval from (Hubei Wuhan Land Administration Bureau) in relation to the Hubei Properties Injection and the necessary land use right certificates and property certificates issued by it to Hubei White Rose Group, (iv) Poly Shanghai and Poly Enterprise having settled all relevant taxes and expenses in relation to the Hubei Properties Injection and (v) all necessary approvals having been obtained from the relevant PRC authorities and all relevant expenses arising being properly settled by Poly Shanghai and Poly Enterprise, required to consummate the transaction contemplated under the Hubei Properties Acquisition Agreement.

If the conditions as stipulated in the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement are not fulfilled or waived within twelve months from the date of the relevant agreements, unless the parties decide otherwise, the transactions contemplated under those agreements may not proceed. Accordingly, Shareholders and investors are reminded to exercise caution in dealing in the Shares.

−20 −

LETTER FROM THE BOARD

RECOMMENDATION

An independent board committee comprising all the independent non-executive Directors has been appointed to consider and advise the Shareholders in respect of the Acquisitions and the option granted to Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building. AMS has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

Your attention is drawn to the letter from the Independent Board Committee as set out on pages 22 to 23 of this circular, the letter from AMS as set out on pages 24 to 46 of this circular and the letter from the Independent Valuer as set out in Appendix VII to this circular.

Having taken into account the advice of AMS, the Independent Board Committee is of the opinion that the terms of the Acquisitions (including the option held by China Poly for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) are on normal commercial terms and fair and reasonable so far as the Independent Shareholders are concerned and the Acquisitions (including the option held by China Poly for the acquisition of 26/F Shanghai Stock Exchange Building) are in the ordinary and usual course of business of the Group and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM in respect of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building).

The Board considers that the terms of the Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building and the four existing tenancy agreements entered into between Shanghai Puly Real Estate and four indirectly wholly owned subsidiaries of China Poly) and the Hubei Properties Acquisition Agreement have been concluded after arm’s length negotiation among the parties thereto on normal commercial terms and in the ordinary and usual course of business of the Group, and are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

FURTHER INFORMATION

Your attention is also drawn to the additional information contained in the appendices to this circular and the notice of EGM.

By Order of the Board Continental Mariner Investment Company Limited LI Shi Liang

Managing Director

−21 −

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [111 x 44] intentionally omitted <==

CONTINENTAL MARINER INVESTMENT COMPANY LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 119)

29th October, 2004

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS ACQUISITION OF PROPERTIES

We refer to the circular of the Company dated 29th October, 2004 to the Shareholders (the “Circular”) of which this letter forms part. Terms used herein shall have the same meaning as defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and to advise the Independent Shareholders as to the fairness and reasonableness of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and to recommend whether or not the Independent Shareholders should vote for the resolutions to be proposed at the EGM to approve the Acquisitions.

AMS has been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) are fair and reasonable so far as the Independent Shareholders are concerned. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 24 to 46 of the Circular.

Having considered the terms of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and the advice of AMS, we consider that the terms of the Shanghai Properties Acquisition Agreement (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) and the Hubei Properties Acquisition Agreements are on normal commercial terms and fair and reasonable as far as the Independent Shareholders are concerned and that the Acquisitions (including the option held by Poly Shanghai for the acquisition of

−22 −

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

26/F, North Tower, Shanghai Stock Exchange Building) are in the ordinary and usual course of business of the Group and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM in respect of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building).

Your attention is also drawn to the “Letter from the Board” set out on pages 7 to 21 of the Circular and the additional information set out in the appendices to the Circular.

Yours faithfully, Independent Board Committee YAO Kang LAM Tak Shing CHOY Shu Kwan Independent non-executive Directors

−23 −

LETTER FROM AMS

The following is the text of a letter received from AMS, the Independent Financial Adviser, setting out its opinion to the Independent Board Committee and the Independent Shareholders in respect of the Acquisitions (including the option held by Poly Shanghai for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building), prepared for the purpose of incorporation in this circular.

20th Floor

Hong Kong Diamond Exchange Building 8-10 Duddell Street Central, Hong Kong

29th October, 2004

To the Independent Board Committee and

the Independent Shareholders of Continental Mariner Investment Company Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders of Continental Mariner Investment Company Limited (the “Company”) in respect of the terms of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular dated 29th October, 2004 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 18th August, 2004, the Company announced, among other things, that (i) the Shanghai Properties Acquisition Agreement was entered into between Johnsbury, a wholly-owned subsidiary of the Company, and Shanghai Sanli on 11th August, 2004 pursuant to which Johnsbury has conditionally agreed to acquire from Shanghai Sanli 60% equity interests in Shanghai Puly Real Estate for RMB258,000,000 (approximately HK$242,254,000) and (ii) the Hubei Properties Acquisition Agreement was entered into among Smart Best Investments Limited, a wholly-owned subsidiary of the Company, Poly Shanghai and Poly Enterprises on 11th August, 2004 pursuant to which Smart Best has conditionally agreed to acquire from Poly Shanghai and Poly Enterprises 100% equity interests in Hubei White Rose for RMB55,000,000

−24 −

LETTER FROM AMS

(approximately HK$51,643,000) and to assume the shareholders’ loans by Poly Shanghai and Poly Enterprise to Hubei White Rose in the aggregate amount of RMB99,949,000 (approximately HK$93,849,000). As Shanghai Sanli, Poly Shanghai and Poly Enterprises are wholly-owned subsidiaries of China Poly, which is the controlling shareholder of the Company, and the aggregate consideration under the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement amounts to more than 25% but less than 100% of the applicable percentage ratios (as defined in Chapter 14 of the Listing Rules), both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement constitute major and connected transactions of the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at a general meeting of the Company. The Independent Shareholders should note that the completion of the Shanghai Properties Acquisition Agreement is not conditional on completion of the Hubei Properties Acquisition Agreement, nor vice versa.

The Independent Board Committee, comprising all the independent non-executive Directors, has been established to consider the transactions contemplated under the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement and to advise the Independent Shareholders on the fairness and reasonableness of these transactions. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to whether or not (i) each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement is in the interests of the Company and the Shareholders as a whole, (ii) the transactions contemplated under each of them are on normal commercial terms and in the ordinary and usual course of business and (iii) their respective terms are fair and reasonable so far as the Independent Shareholders are concerned. We will also recommend the Independent Shareholders whether they should vote in favour of the resolutions to approve each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement at the EGM.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and representations contained or referred to in the Circular and the information and representations provided to us by the Company, its advisers and the Directors. Particularly, we have relied on the respective financial information on Shanghai Puly Real Estate and the Hubei White Rose Group and the valuation of the Shanghai Properties and the Hubei Properties contained in the relevant appendices to the Circular. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the Company and the Directors, for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be so at the date hereof. The Directors have confirmed, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have no reason to doubt the truth, accuracy or completeness of the information provided to us by the Company, its advisers

−25 −

LETTER FROM AMS

and the Directors. We consider that we have reviewed sufficient information to reach an informed view. We have not, however, conducted an independent verification of the information provided, nor have carried out any form of in-depth investigation into the businesses or affairs of the Group or Shanghai Puly Real Estate or the businesses to be operated under the Hubei White Rose Group or the prospects of the market in which they operate.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion regarding the terms of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement, we have taken into consideration the following principal factors and reasons:

I. The Shanghai Properties Acquisition Agreement

• (i) Background of and reason for the Shanghai Properties Acquisition Agreement

As stated in the Letter from the Board, Shanghai Puly Real Estate is currently owned as to 60% by Shanghai Sanli and 40% by Johnsbury. Accordingly, upon completion of the Shanghai Properties Acquisition Agreement, Johnsbury will own 100% equity interests in Shanghai Puly Real Estate, which will become a wholly-owned subsidiary of the Company. It was also stated in the Letter from the Board that Shanghai Puly Real Estate is principally engaged in property investment in Shanghai, the PRC and the principal assets of which are the Shanghai Properties comprising office premises with a total gross floor area of approximately 26,603 sq.m. and three basement floors comprising shops and car parking spaces with a total gross floor area of approximately 7,603 sq.m. of Shanghai Stock Exchange Building in Shanghai. The construction of Shanghai Stock Exchange Building was completed in 1998 and the land use right period of which is 50 years, commencing from 15th November, 1993 to 14th November, 2043. Details of the Shanghai Properties have been set out in the valuation report contained in Appendix VII to the Circular (the “Valuation Report”).

As stated in the Letter from the Board, the Directors believe that the acquisition of the further 60% equity interests in Shanghai Puly Real Estate will enable the Group to benefit from the potential growth in the commercial property market and to further strengthen the profitability of the Group. With Shanghai being the financial center of the PRC and Shanghai Stock Exchange Building being situated at the prime business area in Shanghai, the Directors consider that the acquisition of a further 60% equity interests in Shanghai Puly Real Estate will provide the Group with not only a stable rental income stream, but also potential capital appreciation. Accordingly, the Directors consider that the entering into the Shanghai Properties Acquisition Agreement is in the interests of the Company and its shareholders as a whole.

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LETTER FROM AMS

We note from the Company’s annual report for the year ended 31st December, 2003 (the “Annual Report”) and its interim report for the six months ended 30th June, 2004 (the “Interim Report”) that one of the principal businesses of the Group was property investment and management in Hong Kong and the PRC, which recorded turnover of approximately HK$95.7 million and HK$45.3 million for the year ended 31st December, 2003 and the six months ended 30th June, 2004, respectively. For the year ended 31st December, 2003, such business was the second largest revenue contributor (representing approximately 20.2% of the total turnover of the year) among the principal businesses of the Group and made the greatest contribution to profit from operations of approximately HK$38.8 million (representing approximately 43.2% of the total contribution to profit from operations by all of the Group’s principal businesses for the year 2003). For the six months ended 30th June, 2004, the Group’s property investment and management business made the second largest contribution to profit from operations of approximately HK$19.7 million. As at 31st December, 2003, the Group’s segment assets and interest in associates and jointly controlled entities in relation to property investment and management amounted to approximately HK$1,305.4 million and accounted for approximately 38% of the Group’s total assets. As such, we consider the property investment business to be one of the major business segments of the Group’s overall business, and we are therefore of the view that the entering into the Shanghai Properties Acquisition Agreement is in the ordinary and usual course of the Group’s business.

It should also be noted that, in addition to the indirect 40% interests in the Shanghai Properties through the shareholding in Shanghai Puly Real Estate by Johnsbury, the Group also owns the 14th, 15th, 17th and 18th Floors of the South Tower, the whole of 24th and 25th Floors of the South Tower and North Tower of Shanghai Stock Exchange Building which have a total gross floor area of approximately 13,848 sq.m.. As mentioned in the Annual Report, the average occupancy rate of the premises in Shanghai Stock Exchange Building held directly by the Group was approximately 82% for the year 2003 and their average daily rent during the year 2003 was approximately US$0.42 per sq.m.. The rental income generated from these properties amounted to approximately US$1.8 million (approximately HK$14.0 million) for the year 2003, representing approximately 23.3% of the Group’s total turnover in respect of rental income and property management for the year.

In view of the Group’s present investments in Shanghai Stock Exchange Building and the significance of the Group’s property investment business to its overall businesses, we consider that the acquisition of a further 60% equity interest in Shanghai Puly Real Estate represents a consistent strategy in the Group’s core business and will expand the Group’s investment property portfolio and enhance its quality.

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• (ii) Principal terms of the Shanghai Properties Acquisition Agreement

Pursuant to the Shanghai Properties Acquisition Agreement, Johnsbury has conditionally agreed to acquire from Shanghai Sanli 60% equity interests in Shanghai Puly Real Estate. The consideration of RMB258,000,000 (approximately HK$242,254,000) in cash under the Shanghai Properties Acquisition Agreement is payable in stages as follows:

• (a) An initial deposit of RMB25,800,000 (approximately HK$24,225,000) being 10% of the total consideration was paid to the lawyer of Johnsbury in escrow upon the signing of the Shanghai Properties Acquisition Agreement. Such deposit and interest earned thereon will be released to Shanghai Sanli upon approval of the Shanghai Properties Acquisition Agreement by the Independent Shareholders;

• (b) RMB180,600,000 (approximately HK$169,578,000) being 70% of the total consideration will be payable upon (i) Shanghai Sanli obtaining the approval from the Commission and (ii) within 14 days following the respective approval of the Shanghai Properties Acquisition Agreement by the Independent Shareholders and the Commission, the passing of resolutions by the board of directors of Shanghai Puly Real Estate approving the transfer of the equity interest to Johnsbury, the termination of the original joint venture agreement and the adoption of the new articles of Shanghai Puly Real Estate; and

• (c) the balance of the consideration of RMB51,600,000 (approximately HK$48,451,000) will be payable upon completion of the Shanghai Properties Acquisition Agreement.

The Shanghai Properties Acquisition Agreement will lapse if it is not completed within 12 months from 11th August, 2004, being the date of signing of the Shanghai Properties Acquisition Agreement, or a longer period to be agreed by Johnsbury. In such case, all deposits paid by Johnsbury to Shanghai Sanli in accordance with the terms of the Shanghai Properties Acquisition Agreement will be refunded in full.

On the basis that 70% of the consideration will only become payable after the approvals of the Shanghai Properties Acquisition Agreement by the Independent Shareholders and the Commission have been obtained and the condition that all deposits paid by Johnsbury to Shanghai Sanli will be fully refunded if the Shanghai Properties Acquisition Agreement lapses, we consider that the above payment arrangements for the consideration of the Shanghai Puly Real Estate under the Shanghai Properties Acquisition Agreement are fair and reasonable as far as the Independent Shareholders are concerned.

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(iii) Financial performance of Shanghai Puly Real Estate

The principal business of Shanghai Puly Real Estate is property investment in Shanghai. In addition, Shanghai Puly Real Estate commenced its catering business in 2002. Set out below is a summary of Shanghai Puly Real Estate’s audited results of operations for each of the three years ended 31st December, 2003 and the four months ended 30th April, 2003 and 30th April, 2004 extracted from the accountants’ report contained in Appendix I to the Circular:

				Four months ended	Four months ended
	Year ended 31st December,			**30th **	April,
	2001	2002	2003	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	23,168	28,701	36,159	10,792	12,739
Gross profit	20,627	23,726	29,390	8,783	10,627
Profit for the
year/period	15,261	19,870	34,050	4,963	6,305

For the year ended 31st December, 2001, Shanghai Puly Real Estate recorded a turnover of approximately HK$23.2 million with gross profit of approximately HK$20.6 million. As advised by the management of the Company (the “Management”), the turnover for 2001 was generated solely from property leasing, and the principal operating expenses of Shanghai Puly Real Estate included staff costs, service fees paid to property agents and real estate taxes. Profit for the year was approximately HK$15.3 million.

For the year ended 31st December, 2002, the turnover of Shanghai Puly Real Estate was approximately HK$28.7 million, representing an increase of approximately 23.7% from year 2001, whereas the gross profit increased by approximately 15.0% to approximately HK$23.7 million. As advised by the Management, the significant growth in turnover for the year was mainly attributable to the improvement in the occupancy rate and rentals as a result of the strong growth in the economy of Shanghai during the year. In addition, Shanghai Puly Real Estate recorded a gain of approximately HK$4.4 million from the disposal of certain office area in Shanghai Stock Exchange Building. As a result, profit for the year increased by approximately HK$4.6 million to approximately HK$19.9 million.

For the year ended 31st December, 2003, the turnover of Shanghai Puly Real Estate further increased by approximately 26.1% to approximately HK$36.2 million. The gross profit also increased significantly by approximately 24.1% to approximately HK$29.4 million. As indicated in the accountants’ report contained in Appendix I to the Circular, the significant growth of the turnover and gross profit for 2003 was mainly due to the turnover of approximately HK$9.3 million contributed by the catering business during the year. As advised by the Management,

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such catering business has been operated by Shanghai Puly Real Estate since 2002 from a business centre which consists of a cafeteria and is situated at the 27th Floor of Shanghai Stock Exchange Building. Despite the contribution in turnover, such catering business recorded a segment profit of approximately HK$0.1 million only for the year ended 31st December, 2003. The Management has further advised that the catering business will continue to be operated as ancillary service to the tenants of Shanghai Stock Exchange Building in order to enhance the occupancy rate and the rental return. Profit for the year ended 31st December, 2003 increased significantly by approximately 71.4% to approximately HK$34.1 million. As explained by the Management, such substantial increase was mainly due to the gain of approximately HK$13.7 million from the disposal of certain office area in Shanghai Stock Exchange Building as well as the continuous improvement of the occupancy rate and rentals during the year.

For the four months ended 30th April, 2004, Shanghai Puly Real Estate recorded a turnover of approximately HK$12.7 million, of which approximately HK$9.3 million was derived from property leasing business and approximately HK$3.0 million from the catering business. The gross profit for the period was approximately HK$10.6 million. As compared to the turnover and gross profit of approximately HK$10.8 million and HK$8.8 million, respectively, for the four months ended 30th April, 2003, both the turnover and gross profit for the four months ended 30th April, 2004 increased by over 18%. As advised by the Management, such increase was mainly due to continuous improvement in the occupancy rate of the Shanghai Properties during the second half year of 2003. As a result, profit for the four months ended 30th April, 2004 increased to approximately HK$6.3 million, representing an increase of approximately 26.0% from the profit of approximately HK$5.0 million for the four months ended 30th April, 2003.

As discussed above, Shanghai Puly Real Estate has been able to maintain a favourable growth in both turnover and net profit over the past three years. As advised by the Management, the principal business of Shanghai Puly Real Estate is expected to remain unchanged following completion of the Shanghai Properties Acquisition Agreement. Based on our review of the tenancy information of the Shanghai Properties as at 31st July, 2004, the occupancy rate of the office premises was approximately 98%, and about 29% and 32% of the tenancies in terms of gross floor area would expire within 2004 and 2005, respectively, and the remaining 39% had expiry date beyond 2005. The average daily rent under such tenancies was approximately US$0.50 per sq.m. and according to AA, the Independent Valuer, the rental under such tenancies was in line with the then prevailing market rents for similar premises in the neighbourhood. Given the prime location and the prestige of Shanghai Stock Exchange Building, we concur with the Directors’ view that there will not be any significant difficulty in renewing the tenancy or, if necessary, finding replacement tenants for the Shanghai Properties. On the basis that the average monthly rental of the Shanghai Properties as at 31st July, 2004 was approximately

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US$340,000 (approximately HK$2.7 million), the acquisition of a further 60% interest in the Shanghai Properties at the consideration of approximately HK$242,254,000 is expected to provide a gross yield of approximately 8.0% (i.e. HK$2,700,000 x 60% x 12 / HK$242,254,000 x 100%).

Having considered Shanghai Puly Real Estate’s favourable financial performance for the past three years and the tenancy information of the Shanghai Properties as at 31st July, 2004 and in particular the expected gross yield of approximately 8.0%, we consider that the acquisition of a further 60% interest in the Shanghai Properties is in the interests of the Company and the Shareholders as a whole.

(iv) Valuation of Shanghai Puly Real Estate

As stated in the Letter from the Board, the consideration of RMB258,000,000 (approximately HK$242,254,000) under the Shanghai Properties Acquisition Agreement has been determined after arm’s length negotiations with reference to the unaudited net assets value of RMB465,679,000 (approximately HK$437,257,000) of Shanghai Puly Real Estate as stated in its management accounts as at 30th April, 2004. The consideration represents a discount of approximately 7.66% to the proportional share of 60% of such unaudited net assets value. Since the principal assets of Shanghai Puly Real Estate are mainly office premises and car parking spaces, we consider that the determination of the consideration for Shanghai Puly Real Estate by reference to its net tangible asset value, which is a common valuation methodology for valuing property companies and has taken into account the market value of the underlying assets, i.e. the Shanghai Properties, as at 30th April, 2004, is fair and reasonable.

As indicated in Appendix I to the Circular, the audited net tangible asset value of Shanghai Puly Real Estate as at 30th April, 2004 was approximately HK$476.6 million. On this basis, the consideration of RMB258,000,000 (approximately HK$242,254,000) under the Shanghai Properties Acquisition Agreement represents a discount of approximately 15.3% to the proportional share of 60% of the audited net tangible asset value of Shanghai Puly Real Estate as at 30th April, 2004. As indicated in the Valuation Report, the Shanghai Properties were valued at HK$546,000,000 (or US$70,000,000) as at 11th August, 2004, which was the same as the valuation as at 30th April, 2004 by the Independent Valuer. As discussed with the Independent Valuer, we understand that the Shanghai Properties have been valued on an open market basis using primarily the direct comparison approach. In particular, the Independent Valuer, having identified the comparable sales evidence as available in the market and making appropriate adjustments for factors affecting values, has applied the unit rates of sales comparable to the units of the Shanghai Properties in arriving at their open market values. For those units of the Shanghai Properties with tenancy, the Independent Valuer has also taken into consideration the present value of the stream of rental income receivable for the term of the existing

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tenancy. Based on our review of the Valuation Report as well as the discussion with the Independent Valuer, we consider that the methodology adopted by the Independent Valuer in valuing the Shanghai Properties is appropriate and should reasonably reflect the market value of such properties. Accordingly, we consider that the audited net tangible asset value of Shanghai Puly Real Estate as at 30th April, 2004, which also reflects the market value of the Shanghai Properties as at 11th August, 2004 (being the date of the signing of the Shanghai Properties Acquisition Agreement), provides a reasonable basis in assessing the consideration for Shanghai Puly Real Estate under the Shanghai Properties Acquisition Agreement. Given that the consideration of RMB258,000,000 (approximately HK$242,254,000) under the Shanghai Properties Acquisition Agreement represents a discount to the proportional share of such audited net tangible asset value, we are of the view that the consideration of RMB258,000,000 is fair and reasonable so far as the Independent Shareholders are concerned.

• (v) China Poly’s option to acquire the 26th Floor of the North Tower of Shanghai Stock Exchange Building

An option agreement was entered into between Shanghai Puly Real Estate and Poly Shanghai on 30th April, 2004 pursuant to which Shanghai Puly Real Estate granted an option to Poly Shanghai to acquire the whole of the 26th Floor of the North Tower of Shanghai Stock Exchange Building at US$5,816,850 (approximately HK$45,371,000), equivalent to US$2,850 per sq.m. on the basis of the total gross floor area of approximately 2,041 sq.m.. The option is exercisable within the 12-month period commencing from 30th April, 2004 at the sole discretion of Poly Shanghai and can be exercised in whole but not in parts. Poly Shanghai has paid US$1,163,370 (approximately HK$9,074,000), being 20% of the total acquisition cost upon exercise of the option, to Shanghai Puly Real Estate as deposit for the acquisition and such deposit will be forfeited if the option is not exercised within the 12-month period. As at the Latest Practicable Date, the option remained outstanding.

As advised by the Management, certain subsidiaries of China Poly have been occupying the 26th Floor of the North Tower of Shanghai Stock Exchange Building since 1997. The option agreement was made on 30th April, 2004 and the consideration was determined with reference to the then prevailing market price of the relevant properties. Pursuant to the option agreement, any subsequent change of the shareholding of Shanghai Puly Real Estate should have no effect on the validity of the option agreement. Poly Shanghai will continue to have the right until 29th April, 2005 to acquire the 26th Floor of the North Tower of Shanghai Stock Exchange Building from Shanghai Puly Real Estate regardless of whether Shanghai Puly Real Estate will be wholly owned by the Company as a result of the Shanghai Properties Acquisition Agreement.

As stated in the Valuation Report, the 26th Floor of the North Tower of Shanghai Stock Exchange Building was valued at US$5,720,000 (approximately HK$44,616,000) as at 11th August, 2004. On the basis that the exercise price of

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US$5,816,850 (approximately HK$45,371,000) is higher than the market value of the underlying property, we consider that the exercise price under the option agreement is fair and reasonable.

It should be noted that Poly Shanghai has the right until 29th April, 2005 to exercise its option and during such option period, the market value of the 26th Floor of the North Tower of Shanghai Stock Exchange Building may go up or down. In the event that the property price goes up beyond the exercise price, Shanghai Puly Real Estate will not be able to benefit from such price appreciation if Poly Shanghai opts to exercise its option. Given the fact that (i) the option agreement provides an opportunity to Shanghai Puly Real Estate to dispose the 26th Floor of the North Tower of Shanghai Stock Exchange Building at a price above its current market value; (ii) the remaining option period will only be about six months; and (iii) a non-refundable down payment of US$1,163,370 has been paid to Shanghai Puly Real Estate, we consider that the tradeoff under the option agreement by Shanghai Puly Real Estate is acceptable.

• (vi) Financial effects of the acquisition of 60% equity interests in Shanghai Puly Real Estate

• (a) Income effect

As advised by the Directors, the existing 40% equity interests in Shanghai Puly Real Estate has been accounted for by the Group as interest in associates and the proportional share of Shanghai Puly Real Estate’s results by the Group has been included in the Group’s share of the post-acquisition results of interests in associates for the year in the consolidated statement. Following completion of the Shanghai Properties Acquisition Agreement, Shanghai Puly Real Estate will become a wholly-owned subsidiary of the Company and its post-acquisition results will be consolidated into the Group’s income statement. The Group’s operating income will therefore be affected directly by the financial performance of Shanghai Puly Real Estate once it is accounted for by the Company as a subsidiary. As mentioned in the section headed “Financial performance of Shanghai Puly Real Estate” above, in addition to property leasing, Shanghai Puly Real Estate has also commenced its catering business since 2002. Based on the respective segment results of such catering business for the year ended 31st December, 2003 and the four months ended 30th April, 2004 which amounted to less than HK$1 million and were insignificant compared to the contribution from the property leasing business and that the catering business will continue to be operated as ancillary service to the tenants of Shanghai Stock Exchange Building, we do not consider that the Group’s income will be materially affected by the catering business of Shanghai Puly Real Estate in the future. Nevertheless, given the favourable financial performance of Shanghai Puly Real Estate during the recent years as well as the expectation that the Shanghai Properties will continue to generate stable

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rental income under the existing tenancies as discussed in the section headed “Financial performance of Shanghai Puly Real Estate” above, we are of the view that the Group’s earnings will be enhanced by the acquisition of a further 60% equity interests in Shanghai Puly Real Estate under the Shanghai Properties Acquisition Agreement.

(b) Liquidity and financial resources

Based on the Group’s unaudited condensed consolidated balance sheet as at 30th June, 2004 set out in the Interim Report, the Group had current assets of approximately HK$745.2 million and current liabilities of approximately HK$497.9 million, representing a net-current-asset position of approximately HK$247.2 million and a current ratio at approximately 1.50. In addition, the Group’s gearing ratio as at 30th June, 2004 was approximately 0.29, as represented by the Group’s total liabilities less total bank balances of approximately HK$707.1 million as a percentage to its shareholders’ funds of approximately HK$2,479.5 million.

As advised by the Directors, the consideration of RMB258,000,000 (approximately HK$242,254,000) under the Shanghai Properties Acquisition Agreement for the acquisition of the 60% equity interests in Shanghai Puly Real Estate will be funded by the Group’s internal resources and bank borrowings. Based on the unaudited pro forma financial information set out in Appendix VI to the Circular and the assumptions that the Shanghai Properties Acquisition Agreement had been completed on 30th June, 2004 and the consideration was fully financed by bank borrowings, the Group would have total current assets of approximately HK$763.2 million and total current liabilities of approximately HK$564.3 million, resulting in a net-current-asset position of approximately HK$198.9 million and a current ratio at approximately 1.35, immediately following completion of the Shanghai Properties Acquisition Agreement. In addition, the gearing ratio would increase to approximately 0.42.

As confirmed with the Directors, there will not be any significant adverse impact on the working capital of the Group as a result of the acquisition of the 60% equity interests in Shanghai Puly Real Estate. Given the current occupancy rate of the Shanghai Properties, the Shanghai Properties is expected to generate recurring rental income to the Group immediately following completion of the Shanghai Properties Acquisition Agreement. Accordingly, we consider that the acquisition of the 60% equity interests in Shanghai Puly Real Estate will enhance the future earnings growth and potential of the Group. As mentioned above, the acquisition may affect the Group’s liquidity position or capital structure and particularly the current ratio of the Group would drop to approximately 1.35 from 1.50 and its gearing ration increase to approximately 0.42 from 0.29. Nevertheless, we consider that such effects on

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the current ratio and the gearing ratio are still acceptable in view of the opportunity for the future growth of the Group’s earnings as well as the enhancement of its property portfolio. Furthermore, given the Group’s strong financial position with shareholders’ funds of approximately HK$2,479.5 million as at 30th June, 2004, we are also of the view that the effect on the Group’s liquidity position or capital structure as a result of completion of the Shanghai Properties Acquisition Agreement would not lead to any material adverse impact on the Group’s operation or financial conditions.

(c) Net tangible asset value

Based on the unaudited pro forma financial information as set out in Appendix VI to the Circular, the unaudited consolidated net tangible asset value of the Group as at 30th June, 2004 before the acquisition of the 60% equity interests in Shanghai Puly Real Estate was approximately HK$2,479.5 million. Since the consideration of approximately HK$242.3 million is less than the proportional share of the net tangible asset value of Shanghai Puly Real Estate of approximately HK$476.6 million as at 30th April, 2004, the unaudited pro forma adjusted consolidated net tangible asset value of the Group immediately following completion of the Shanghai Properties Acquisition Agreement would increase by approximately HK$36.2 million to approximately HK$2,515.7 million. Therefore, we are of the view that the acquisition of the 60% equity interests in Shanghai Puly Real Estate will have a positive effect on the net tangible asset value of the Group.

As discussed above, we consider that the acquisition of the 60% equity interests in Shanghai Puly Real Estate would enhance the future earnings of the Group in view of the recurring rental income generated from the Shanghai Properties. Notwithstanding that the financial gearing of the Group may increase as a result of the acquisition, we, having taken into account the consideration of approximately HK$242.3 million under the Shanghai Properties Acquisition Agreement representing a discount of approximately 15.3% to the proportional share of the audited net tangible asset value of Shanghai Puly Real Estate of approximately HK$476.6 million as at 30th April, 2004, consider that the acquisition of the 60% equity interests in Shanghai Puly Real Estate will have an overall favorable effect on the Group’s financial position. In particular, assuming that the Group’s net tangible asset value as at the date of completion of the Shanghai Properties Acquisition Agreement did not change materially from such value as at 30th June, 2004 and that the net tangible asset value of Shanghai Puly Real Estate as at the date of completion did not materially differ from such value of HK$476.6 million as at 30th April, 2004, the net tangible asset value of the Group would increase by approximately HK$36.2 million from approximately HK$2,479.5 million to approximately HK$2,515.7 million as a result of the acquisition.

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On the basis of the above, we consider that the acquisition of Shanghai Puly Real Estate under the Shanghai Properties Acquisition Agreement (including the option granted to Poly Shanghai for the acquisition of the 26th Floor of the North Tower of Shanghai Stock Exchange Building) is in the ordinary and usual course of the Group’s business and is in the interests of the Company and the Shareholders as a whole and the terms of which are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

II. The Hubei Properties Acquisition Agreement

(i) Background of and Reason for the Hubei Properties Acquisition Agreement

Hubei White Rose is currently an equity joint venture owned as to 75% by Poly Shanghai and 25% by Poly Enterprise and is principally engaged in the hotel business in Hubei, the PRC. It was stated in the Letter from the Board that Poly Enterprise will transfer all the relevant land use right and property right certificates to Hubei White Rose prior to completion of the Hubei Properties Acquisition Agreement. Accordingly, upon completion of the Hubei Properties Acquisition Agreement, the principal assets of Hubei White Rose will be the Hotel, the Hostel and the ancillary buildings. The Hotel is a 24-storey 4-star hotel completed in 1997 with 256 guest rooms and a shopping centre. The Hotel has a total gross floor area of approximately 27,592 sq.m.. On the other hand, the Hostel is a 4-storey 2-star hostel completed in 1990 with 64 guest rooms and a total gross floor area of approximately 3,218 sq.m.. As stated in the Letter from the Board, the land use right period of both the Hotel and the Hostel will last for not less than 45 years commencing from 1st January, 2005.

Based on the information provided by the Management, the Hubei Properties are situated at the central business area of Wu Chang District where the provincial government of Hubei Province is located and is regarded as the political, cultural and information centre of the Hubei Province. Some national corporations, banks and securities companies are also in the neighbourhood of the Hubei Properties. As advised by the Management, the guests of the Hotel are mostly business travelers and the average monthly occupancy rate of the Hotel for year 2004 up to August was approximately 70.1%.

As stated in the Letter from the Board, the Directors believe that the acquisition of Hubei White Rose will enlarge the earnings base of the Group. Given the favourable financial performance of the Hubei White Rose Group (which will be discussed in the section headed “Finance performance of the Hubei White Rose Group” below) for the financial year ended 31st December, 2003 and the four months ended 30th April, 2004, the Directors expect that Hubei White Rose will have positive contribution to the Group’s overall operating results.

As noted from the Annual Report, the turnover of the Group’s hotel and restaurant operations in the PRC was approximately HK$27.4 million for the year ended 31st December, 2003, representing approximately 5.8% of the total turnover of the year. The contribution to loss from such operations was approximately

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HK$2.1 million. As at 31st December, 2003, the Group’s segment assets in relation to hotel and restaurant operations amounted to approximately HK$688.9 million and accounted for approximately 19% of the Group’s total assets. The hotel and restaurant operations also represented the Group’s second largest business in terms of its total segment assets. Although the Group’s hotel and restaurant operations incurred a segment loss for the year ended 31st December, 2003, such operations for the financial years 2001 and 2002 had been profitable. As explained by the Management, the segment loss of the Group’s hotel and restaurant operations for the year ended 31st December, 2003 was mainly due to the fact that Poly Plaza, a hotel of the Group, had been temporarily suspended for business during February to August in 2003 as a result of a major renovation and, as shown in the Interim Report, the Group’s hotel and restaurant operations for the six months ended 30th June, 2004 had returned to profit and recorded an unaudited segment profit of approximately HK$7.0 million.

Given the fact that a significant portion of the Group’s assets are deployed for the hotel and restaurant operations, we consider that the acquisition of the Hubei Properties through Hubei White Rose is consistent with the existing business pursuit of the Group.

(ii) Principal terms of the Hubei Properties Acquisition Agreement

Pursuant to the Hubei Properties Acquisition Agreement, Smart Best has conditionally agreed to acquire from Poly Shanghai and Poly Enterprise 100% equity interests in Hubei White Rose at a cash consideration of RMB55,000,000 (approximately HK$51,643,000) and to assume the shareholders’ loans by Poly Shanghai and Poly Enterprise to Hubei White Rose in the aggregate amount of RMB99,949,000 (approximately HK$93,849,000) on a dollar-for-dollar basis. The cash consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement is payable in stages as follows:

• (a) An initial deposit of RMB5,500,000 (approximately HK$5,164,000) being 10% of the consideration has been paid to the lawyer of Smart Best in escrow upon the signing of the Hubei Properties Acquisition Agreement. Such deposit and interest earned thereon will be released to Poly Shanghai and Poly Enterprise upon approval of the Hubei Properties Acquisition Agreement by the Independent Shareholders;

• (b) RMB22,000,000 (approximately HK$20,657,000) being 40% of the consideration will be payable upon (i) Poly Shanghai and Poly Enterprise obtaining the approval from the Commission and (ii) within 14 days following the respective approval of the Hubei Properties Acquisition Agreement by the Independent Shareholders and the Commission:

• Poly Shanghai and Poly Enterprise confirm in writing that they will renounce their pre-emptive right on the acquisition of equity interests in Hubei White Rose as given by the joint venture agreement and the articles of Hubei White Rose;

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• the passing of resolutions by the board of directors of Hubei White Rose approving the transfer of the equity interests to Smart Best and any necessary alteration to the original articles of Hubei White Rose; and

• all the existing directors of Hubei White Rose render their resignation as director and confirm in writing that they have no claim against Hubei White Rose;

• (c) the balance of the consideration of RMB27,500,000 (approximately HK$25,822,000) will be payable upon completion of the Hubei Properties Acquisition Agreement.

The Hubei Properties Acquisition Agreement will lapse if it is not completed within 12 months from 11th August, 2004, being the date of signing of the Hubei Properties Acquisition Agreement, or a longer period to be agreed by Smart Best. In such case, all deposits paid by Smart Best to Poly Shanghai and Poly Enterprise in accordance with the terms of the Hubei Properties Acquisition Agreement will be refunded in full.

As regards the assumption on a dollar-for-dollar basis of the shareholders’ loans by Poly Shanghai and Poly Enterprise to Hubei White Rose in the aggregate amount of RMB99,949,000 (approximately HK$93,849,000), being the total outstanding amount of the shareholders’ loans per management accounts of Hubei White Rose as at 30th April, 2004, the arrangement is as follows:

• (a) within 7 days upon completion of the Hubei White Rose Approval (which is equivalent to the satisfaction of all the conditions for cash consideration of RMB22,000,000 under the second stage becoming due as set out above) but in any event not earlier than 31st January, 2005, Smart Best will make a shareholder’s loan of RMB50,000,000 (approximately HK$46,949,000) to Hubei White Rose so that Hubei White Rose will repay the same to Poly Shanghai and Poly Enterprise; and

• (b) Smart Best will pay the remaining part of the shareholder’s loan of RMB49,949,000 (approximately HK$46,900,000) to Hubei White Rose upon completion of the Hubei Properties Acquisition Agreement. Then Hubei White Rose will repay the same to Poly Shanghai and Poly Enterprise.

As advised by the Directors, the Shareholders’ loans by Poly Shanghai and Poly Enterprise were interest free and had been employed for the construction of the Hubei Properties.

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In summary, 90% of the cash consideration for acquisition of Hubei White Rose and the assumption of the shareholders’ loans will only become due after the approvals of the Hubei Properties Acquisition Agreement by the Independent Shareholders and the Commission have been obtained, and all deposits paid by Smart Best will be fully refunded if the Hubei Properties Acquisition Agreement lapses. On this basis, we are of the view that the payment arrangements under the Hubei Properties Acquisition Agreement are fair and reasonable as far as the Independent Shareholders are concerned.

(iii) Financial performance of the Hubei White Rose Group

The asset to be acquired pursuant to the Hubei Properties Acquisition Agreement is Hubei White Rose and as advised by the Management, Hubei White Rose completed its acquisition of White Rose Hostel and White Rose Transportation in July, 2004. Accordingly, the cash consideration of RMB55,000,000 and the assumption of the shareholders’ loans of RMB99,949,000 under the Hubei Properties Acquisition Agreement are in substance one single transaction for the acquisition of the Hubei White Rose Group as a whole. Since there is no separate consideration for each of Hubei White Rose, White Rose Hostel or White Rose Transportation, we consider that, instead of reviewing the financial performance of each of them separately, it is necessary and appropriate to evaluate the results and financial position of the Hubei White Rose Group as a whole. Set out below is a summary of the operating results of the Hubei White Rose Group prepared based on the unaudited pro forma financial information of the Hubei White Rose Group for the financial year ended 31st December, 2003 and the four months ended 30th April, 2004 set out in Appendix VI to the Circular:

		Four months
	Year ended	ended
	31st December,	30th April,
	2003	2004
	HK$’000	HK$’000
Turnover	70,727	24,069
Gross profit	25,900	8,792
Profit for the year/period	4,982	2,901
(Deficit) surplus arising on revaluation	(2,270)	1,948
Depreciation and amortisation	488	213
Earnings before revaluation
surplus/deficit, depreciation and
amortisation	7,740	1,166

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LETTER FROM AMS

We note from the accountants’ reports on the members of the Hubei White Rose Group that there was surplus/deficit arising from revaluation of the hotel properties for each of the three financial years ended 31st December, 2003 and the four months ended 30th April, 2004. In order to more precisely assess the performance of the ordinary and usual business of the Hubei White Rose Group, we have adopted the earnings before revaluation surplus/deficit, depreciation and amortisation (the “EBRDA”) in our following analysis by adding back/deducting the deficit/surplus arising from the revaluation of the hotel properties as well as the depreciation and amortisation on property, plant and equipment, which are non-cash items and may not be directly relevant to the operating performance or cashflow position of the underlying businesses of the Hubei White Rose Group.

For the year ended 31st December, 2003, the Hubei White Rose Group recorded a turnover of approximately HK$70.3 million with gross profit of approximately HK$25.9 million. Profit for the year amounted to approximately HK$5.0 million which was actually arrived at after charging of approximately HK$2.3 million being the deficit arising from the revaluation of the hotel properties for the year. As advised by the Management, the turnover of the Hubei White Rose Group mainly represented hotel revenue from rooms and other ancillary services, and major operating expenses mainly comprised staff costs, utility expenses, repair and maintenance, depreciation charges and hotel consumables.

The EBRDA for the year ended 31st December, 2003 was approximately HK$7.7 million. As advised by the Management, although the business of the Hubei White Rose Group had been seriously affected by the outbreak of severe acute respiratory syndrome (“SARS”) during the first half of 2003, there was a robust recovery during September to November in the demand for hotel accommodation from the business travelers, probably due to the rebound from the curtailed business activities during the SARS outbreak.

For the four months ended 30th April, 2004, the turnover and gross profit of the Hubei White Rose Group were approximately HK$24.1 million and HK$8.8 million, respectively. For the same period, the EBRDA was approximately HK$1.2 million. As advised by the Management, the first quarter of a year is generally the low season for hotel business in China, especially those targeting business travelers, because of the Chinese New Year holidays.

In view of the profitable results of the Hubei White Rose Group for the year ended 31st December, 2003 based on the analysis of its EBRDA as discussed above, we consider that the Hubei White Rose Group has been able to provide its shareholders with a profitable return.

As advised by the Management, the principal business of the Hubei White Rose Group is expected to remain unchanged following completion of the Hubei Properties Acquisition Agreement. In addition, the Group intends to carry out a

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LETTER FROM AMS

thorough review on the management and operations of the Hubei White Rose Group in order to further improve its management and operating efficiency. Having considered the fact that the Hubei White Rose Group still managed to record a favourable operating performance for the year ended 31st December, 2003 in spite of the outbreak of SARS during the year, we consider that the Hubei White Rose Group will be able to provide a positive return to the Group. In particular, based on the investment cost of RMB154,949,000 (approximately HK$145,492,000) for the acquisition of Hubei White Rose (being the sum of the cash consideration of RMB55,000,000 and the assumption of the shareholders’ loans by Poly Shanghai and Poly Enterprise to Hubei White Rose in the aggregate amount of RMB99,949,000), the EBRDA of approximately HK$7.7 million for the year ended 31st December, 2003 would represent an investment yield of approximately 5.3%, which we consider to be fair and reasonable as far as the Independent Shareholders are concerned.

(iv) Valuation of Hubei White Rose

As stated in the Letter from the Board, the cash consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement has been determined after arm’s length negotiations with reference to the unaudited net assets value of RMB60,729,000 (approximately HK$57,023,000) of Hubei White Rose as stated in its management accounts as at 30th April, 2004 whereas the assumption of the shareholders’ loans outstanding as at 30th April, 2004 is on a dollar-for-dollar basis. The cash consideration represents a discount of approximately 9.43% to such unaudited net assets value.

Since the assets of Hubei White Rose are mainly the hotel properties, we consider that the determination of the consideration for Hubei White Rose by reference to its net tangible asset value, which is a common valuation methodology for valuing property companies and has taken into account the market value of the underlying properties, is fair and reasonable.

As shown under the section headed “Unaudited pro forma financial information of the Hubei White Rose Group” in Appendix VI to the Circular, the unaudited pro forma net tangible asset value of the Hubei White Rose Group as at 30th April, 2004 was approximately HK$53.8 million. On this basis, the consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement represents a discount of approximately 4.1% to such net tangible asset value of the Hubei White Rose Group as at 30th April, 2004. In addition, based on the Valuation Report, the Hubei Properties were valued at HK$146,000,000 (or US$18,718,000) as at 11th August, 2004. Such value is essentially the same as that as at 30th April, 2004. As discussed with the Independent Valuer, the Hubei Properties have been valued based on the income approach whereby the income derived from the hotel operations are capitalised at the rate of return appropriate to the property interests under consideration. As

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LETTER FROM AMS

advised by the Independent Valuer, the income generated from the hotel operations has been based on the financial results reported in the relevant financial statements of the members of the Hubei White Rose Group and after certain adjustments including adding back depreciation charges on buildings and structure, fees charged by management and other expenses not commonly related to hotel operation. In determination of the appropriate rate of return in the capitalisation process, the Independent Valuer has taken into account the historical occupancy rates of the Hotel and the Hostel as well as the investment yields of other investment properties. Based on our review of the Valuation Report as well as the discussion with the Independent Valuer, we consider that the methodology adopted by the Independent Valuer in valuing the Hubei Properties is appropriate and should reasonably reflect the market value of such properties. Accordingly, we are of the view that the audited net tangible asset value of the Hubei White Rose Group as at 30th April, 2004 provides a reasonable basis in assessing the consideration for Hubei White Rose under the Hubei Properties Acquisition Agreement. Given that the consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement represents a discount to the net tangible asset value, we consider that the consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement is fair and reasonable so far as the Independent Shareholders are concerned.

As regards the assumption of the shareholders’ loans of RMB99,949,000 (appropriately HK$93,849,000) on a dollar-for-dollar basis, it should be noted that the purpose of the shareholders’ loans has been principally to finance the construction of the Hubei Properties. We therefore consider that such shareholders’ loans are essentially part of the capital of Hubei White Rose and it is a normal commercial term to require the Group to assume such shareholders’ loans in the acquisition of the 100% equity interests in Hubei White Rose. Since the assumption of the shareholders’ loans will be on a dollar-for-dollar basis, we consider such assumption fair and reasonable as far as the Independent Shareholders are concerned.

(vi) Financial effects of the acquisition of Hubei White Rose

(a) Income effect

Hubei White Rose will become a wholly-owned subsidiary of the Company upon completion of the Hubei Properties Acquisition Agreement and its post-acquisition results will be consolidated into the Group’s income statement. The Group’s operating income will therefore be affected directly by the financial performance of Hubei White Rose once it is accounted for by the Company as a subsidiary. As the profitability of Hubei White Rose is uncertain in the future, we are unable to opine on how the Group’s earnings will be affected following completion of the Hubei Properties Acquisition Agreement. Nevertheless, in view of the favourable operating performance of the Hubei

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LETTER FROM AMS

White Rose Group for the year ended 31st December, 2003 as discussed in the section headed “Financial performance of the Hubei White Rose Group” above, we consider that the Group’s future earnings will be enhanced by the acquisition of Hubei White Rose.

(b) Liquidity and financial resources

As mentioned in the section headed “Financial effects of the acquisition of 60% equity interests in Shanghai Puly Real Estate” above, the Group’s current ratio and gearing ratio were approximately 1.50 and 0.29, respectively, as at 30th June, 2004. As advised by the Directors, the cash consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement for the acquisition of the 100% equity interests and the assumption of the shareholders’ loans of RMB99,949,000 (approximately HK$93,849,000) in Hubei White Rose will be funded by the Group’s internal resources and bank borrowings. Based on the unaudited pro forma financial information set out in Appendix VI to the Circular and the assumptions that the Hubei Properties Acquisition Agreement had been completed on 30th June, 2004 and the consideration was fully satisfied by cash payments, the Group’s total current assets and total current liabilities would increase to approximately HK$625.1 million and HK$515.2 million, respectively. The Group would therefore have a net-current-asset position of approximately HK$109.9 million and a current ratio at approximately 1.21 immediately following completion of the Hubei Properties Acquisition Agreement. In addition, the Group’s gearing ratio would increase to approximately 0.35 as a result of the acquisition of Hubei White Rose.

As at 30th June, 2004, the Group had cash and bank balances of approximately HK$463.8 million. Assuming that the balance sheet position of the Group immediately before completion of the Hubei Properties Acquisition Agreement would not materially differ from that as at 30th June, 2004, we are of the view that the Group will have sufficient internal resources to fund the cash consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement for the acquisition of the 100% equity interests and the assumption of the shareholders’ loans of RMB99,949,000 (approximately HK$93,849,000).

As discussed earlier, the Hubei White Rose Group is expected to provide positive contribution to the Group immediately following completion of the Hubei Properties Acquisition Agreement. We therefore consider that the acquisition of the 100% equity interests in Hubei White Rose will enhance the future earnings growth and potential of the Group, though the acquisition may slightly affect the Group’s liquidity position or capital structure as discussed above, and such effects are still acceptable in view of the possible enhancement of the Group’s future earnings as a result of the acquisition of Hubei White Rose.

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LETTER FROM AMS

(c) Net tangible asset value

The acquisition of 100% equity interests in Hubei White Rose is expected to enhance the net tangible asset value of the Group because the cash consideration of RMB55,000,000 (approximately HK$51,643,000) under the Hubei Properties Acquisition Agreement represents a discount to the unaudited pro forma net tangible asset value of the Hubei White Rose Group of approximately HK$53.8 million as at 30th April, 2004. In particular, as shown in Appendix VI to the Circular, the unaudited pro forma adjusted consolidated net tangible asset value of the Group immediately following completion of the Hubei Properties Acquisition Agreement would increase by approximately HK$2.1 million to approximately HK$2,481.6 million. Therefore, we are of the view that the acquisition of the 100% equity interests in Hubei White Rose will have a positive effect on the net tangible asset value of the Group.

As discussed above, we consider that the acquisition of the 100% equity interests in Hubei White Rose would enhance the future earnings of the Group. In particular, it has been shown that the EBRDA of the Hubei White Rose Group of approximately HK$7.7 million for the year ended 31st December, 2003 would represent an investment yield of approximately 5.3% on the basis of the investment cost of RMB154,949,000 (approximately HK$145,492,000) for the acquisition of Hubei White Rose.

Notwithstanding that the financial gearing of the Group might increase as a result of the acquisition, we, having taken into account the cash consideration of approximately HK$51.4 million under the Hubei Properties Acquisition Agreement representing a discount of approximately 4.1% to the net tangible asset value of the Hubei White Rose Group of approximately HK$53.8 million, consider that the acquisition of Hubei White Rose will have an overall favorable effect on the Group’s financial position. In particular, assuming that the Group’s net tangible asset value as at the date of completion of the Hubei Properties Acquisition Agreement did not change materially from such value as at 30th June, 2004 and that the net tangible asset value of the Hubei White Rose Group as at the date of completion did not differ materially from such value of HK$53.8 million as at 30th April, 2004, the net tangible asset value of the Group would slightly increase by approximately HK$2.1 million from approximately HK$2,479.5 million to approximately HK$2,481.6 million as a result of the acquisition.

On this basis, we consider that the acquisition of Hubei White Rose under the Hubei Properties Acquisition Agreement is in the ordinary and usual course of the Group’s business and is in the interests of the Company and the Shareholders as a whole and the terms of the Hubei Properties Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM AMS

III. Financial resources for completion of both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement

The Independent Shareholders should note that the completion of the Shanghai Properties Acquisition Agreement is not conditional on completion of the Hubei Properties Acquisition Agreement, nor vice versa, and separate resolutions will be put forward to the Independent Shareholders for consideration and, if appropriate, approval at the EGM. Accordingly, our above analysis on each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement, particularly the financial effects of such agreements on the Group’s financial position, has been conducted on an independent and standalone basis. In other words, we have assumed in our above analysis that the completion of either one of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement would not have any effect on the subsequent or simultaneous completion of the other one.

Nevertheless, we also consider it relevant and important for the Group to demonstrate that it will have sufficient financial resources to fulfill its obligations under both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement should both of them be proceeded. The financial position of the Group based on the assumption that both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement had been completed on 30th June, 2004 has been set out in Appendix VI to the Circular. We note that upon completion of both agreements, the Group would have total current assets of approximately HK$643.2 million and total current liabilities of approximately HK$581.6 million, resulting in a net-current-asset position of approximately HK$61.6 million and a current ratio at approximately 1.11. In addition, the gearing ratio would be approximately 0.48. On the other hand, the unaudited pro forma adjusted consolidated net tangible asset value of the Group immediately following completion of both agreements would increase by approximately HK$38.3 million to approximately HK$2,517.8 million.

In view of the fact that the Group had unencumbered cash balances of approximately HK$463.8 million and shareholders’ funds of approximately HK$2,479.5 million as at 30th June, 2004 and on the assumption that the balance sheet position of the Group immediately before completion of both agreements would not materially differ from the Group’s balance sheet as at 30th June, 2004, we are of the view that the Group will be able to meet the financial requirements under both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement. On the basis that the acquisition of Shanghai Puly Real Estate and Hubei White Rose would enhance the Group’s net asset value as well as its future earnings, we also consider that the change of the Group’s liquidity position and capital structure due to the completion of both agreements as discussed above is acceptable. Furthermore, the Management has advised that the Company was granted a syndication loan facility of HK$300 million on 26th October, 2004. Accordingly, the Directors consider that the financial requirements under both the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement should not have any material adverse effect on the liquidity of the Group.

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LETTER FROM AMS

RECOMMENDATION

Having considered the factors and reasons stated above, we are of the opinion that each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement is in the ordinary and usual course of the Group’s business and is in the interests of the Company and the Shareholders as a whole and the terms of each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. Therefore, we would advise the Independent Shareholders to vote in favour of the resolutions to approve each of the Shanghai Properties Acquisition Agreement and the Hubei Properties Acquisition Agreement at the EGM.

Yours faithfully, For and on behalf of AMS Corporate Finance Limited Jinny Mok Director

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

The following is the text of a report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

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29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Shanghai Puly Real Estate Development Company Limited (“Shanghai Puly Real Estate”) and its subsidiary Shanghai Stock Exchange Building Hotel Company Limited (“Shanghai Stock Exchange Building Hotel”) (hereinafter collectively referred to as the “Shanghai Puly Real Estate Group”) for each of the three years ended 31st December, 2003 and the four months ended 30th April, 2004 (the “Relevant Periods”) for inclusion in the circular dated 29th October, 2004 issued by Continental Mariner Investment Company Limited (the “Company”) in connection with a proposed acquisition by an indirect wholly-owned subsidiary of the Company of a further 60% equity interest in the Shanghai Puly Real Estate Group (the “Circular”).

Shanghai Puly Real Estate was established as a limited liability company in the People’s Republic of China (the “PRC”) on 26th October, 1992 and is principally engaged in property investment in Shanghai, the PRC. Its ultimate holding company is China Poly Group Corporation, a company established in the PRC. At the date of this report, Shanghai Puly Real Estate has a 90% direct interest in Shanghai Stock Exchange Building Hotel.

Shanghai Stock Exchange Building Hotel was established in the PRC on 18th May, 2000 and is engaged in the provision of catering services. Its fully paid up registered capital is RMB1,000,000.

The statutory financial statements of Shanghai Puly Real Estate and that of Shanghai Stock Exchange Building Hotel for each of the three years ended 31st December, 2003 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by China Rightson Certified Public Accountants , certified public accountants registered in the PRC.

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

For the purpose of this report, Shanghai Puly Real Estate has prepared consolidated financial statements for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong (the “Underlying Financial Statements”). We have undertaken an independent audit of the Underlying Financial Statements in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

We have examined the audited Underlying Financial Statements. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of Shanghai Puly Real Estate who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Shanghai Puly Real Estate Group and Shanghai Puly Real Estate as at 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 and of the consolidated results and cash flows of the Shanghai Puly Real Estate Group for each of the Relevant Periods.

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

CONSOLIDATED INCOME STATEMENTS

Notes Turnover 2 Cost of sales Gross profit Other operating income 3 Administrative expenses Profit from operations 4 Finance costs 5 Profit before taxation Taxation 7 Profit before minority interests Minority interests Profit for the year/period Dividends 8	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,168 28,701 36,159 10,792 12,739 (2,541) (4,975) (6,769) (2,009) (2,112) 20,627 23,726 29,390 8,783 10,627 9,644 8,689 20,858 405 387 (6,623) (6,346) (9,678) (3,296) (3,352) 23,648 26,069 40,570 5,892 7,662 (5,427) (2,599) (422) (8) (239) 18,221 23,470 40,148 5,884 7,423 (2,960) (3,600) (6,096) (943) (1,150) 15,261 19,870 34,052 4,941 6,273 – – (2) 22 32 15,261 19,870 34,050 4,963 6,305 15,878 126,761 – − –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,168 28,701 36,159 10,792 12,739 (2,541) (4,975) (6,769) (2,009) (2,112) 20,627 23,726 29,390 8,783 10,627 9,644 8,689 20,858 405 387 (6,623) (6,346) (9,678) (3,296) (3,352) 23,648 26,069 40,570 5,892 7,662 (5,427) (2,599) (422) (8) (239) 18,221 23,470 40,148 5,884 7,423 (2,960) (3,600) (6,096) (943) (1,150) 15,261 19,870 34,052 4,941 6,273 – – (2) 22 32 15,261 19,870 34,050 4,963 6,305 15,878 126,761 – − –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,168 28,701 36,159 10,792 12,739 (2,541) (4,975) (6,769) (2,009) (2,112) 20,627 23,726 29,390 8,783 10,627 9,644 8,689 20,858 405 387 (6,623) (6,346) (9,678) (3,296) (3,352) 23,648 26,069 40,570 5,892 7,662 (5,427) (2,599) (422) (8) (239) 18,221 23,470 40,148 5,884 7,423 (2,960) (3,600) (6,096) (943) (1,150) 15,261 19,870 34,052 4,941 6,273 – – (2) 22 32 15,261 19,870 34,050 4,963 6,305 15,878 126,761 – − –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,168 28,701 36,159 10,792 12,739 (2,541) (4,975) (6,769) (2,009) (2,112) 20,627 23,726 29,390 8,783 10,627 9,644 8,689 20,858 405 387 (6,623) (6,346) (9,678) (3,296) (3,352) 23,648 26,069 40,570 5,892 7,662 (5,427) (2,599) (422) (8) (239) 18,221 23,470 40,148 5,884 7,423 (2,960) (3,600) (6,096) (943) (1,150) 15,261 19,870 34,052 4,941 6,273 – – (2) 22 32 15,261 19,870 34,050 4,963 6,305 15,878 126,761 – − –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,168 28,701 36,159 10,792 12,739 (2,541) (4,975) (6,769) (2,009) (2,112) 20,627 23,726 29,390 8,783 10,627 9,644 8,689 20,858 405 387 (6,623) (6,346) (9,678) (3,296) (3,352) 23,648 26,069 40,570 5,892 7,662 (5,427) (2,599) (422) (8) (239) 18,221 23,470 40,148 5,884 7,423 (2,960) (3,600) (6,096) (943) (1,150) 15,261 19,870 34,052 4,941 6,273 – – (2) 22 32 15,261 19,870 34,050 4,963 6,305 15,878 126,761 – − –
	20,627 9,644 (6,623) 23,648 (5,427) 18,221 (2,960) 15,261 –	23,726 8,689 (6,346) 26,069 (2,599) 23,470 (3,600) 19,870 –	29,390 20,858 (9,678) 40,570 (422) 40,148 (6,096) 34,052 (2)	8,783 405 (3,296) 5,892 (8) 5,884 (943) 4,941 22	10,627 387 (3,352
					7,662 (239
					7,423 (1,150
					6,273 32
	15,261 15,878	19,870 126,761	34,050 –	4,963 −

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

CONSOLIDATED BALANCE SHEETS

Notes NON-CURRENT ASSETS Investment properties 10 Property, plant and equipment 11 Goodwill 12 Loan receivable 14 CURRENT ASSETS Inventories 15 Trade and other receivables 16 Amount due from ultimate holding company 17 Amount due from immediate holding company 17 Amount due from a fellow subsidiary 17 Amount due from a former shareholder 17 Taxation recoverable Bank balances and cash CURRENT LIABILITIES Trade and other payables 18 Amount due to ultimate holding company 19 Amount due to immediate holding company 17 Amounts due to fellow subsidiaries 17 Taxation payable Bank loan 20	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 938 807 770 – 610 488 447 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 938 807 770 – 610 488 447 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 938 807 770 – 610 488 447 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 938 807 770 – 610 488 447 – – 22,535 30,047
	485,870 – 3,842 657 – 1,166 264,503 – 24,814 294,982 115,281 89,202 23,803 2,477 22,156 – 252,919	471,032 661 4,481 657 738 1,166 – – 70,244 77,947 97,847 – – 39,208 17,367 – 154,422	572,393 553 9,011 – 89 884 – 596 7,137 18,270 55,331 – – 4,160 – 14,085 73,576	579,827
				574 5,693 – 94 884 – 1,447 5,387
				14,079
				54,721 – – 15,428 – –
				70,149

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

Notes NET CURRENT ASSETS (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES MINORITY INTERESTS NON-CURRENT LIABILITY Deferred taxation 21 CAPITAL AND RESERVES Capital 22 Reserves	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 42,063 (76,475) (55,306) (56,070) 527,933 394,557 517,087 523,757 – 30 32 – 35,488 32,575 46,784 47,181 492,445 361,952 470,271 476,576 127,993 127,993 127,993 127,993 364,452 233,959 342,278 348,583 492,445 361,952 470,271 476,576

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

BALANCE SHEETS

Notes NON-CURRENT ASSETS Investment properties 10 Investment in a subsidiary 13 Loan receivable 14 CURRENT ASSETS Trade and other receivables 16 Amount due from ultimate holding company 17 Amount due from immediate holding company 17 Amount due from a subsidiary 17 Amount due from a fellow subsidiary 17 Amount due from a former shareholder 17 Taxation recoverable Bank balances and cash CURRENT LIABILITIES Trade and other payables 18 Amount due to ultimate holding company 19 Amount due to immediate holding company 17 Amounts due to fellow subsidiaries 17 Amount due to a subsidiary 17 Taxation payable Bank loan 20	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 879 879 879 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 879 879 879 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 879 879 879 – – 22,535 30,047	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 485,870 469,484 548,563 548,563 – 879 879 879 – – 22,535 30,047
	485,870 3,842 657 – – 1,166 264,503 – 24,814 294,982 115,281 89,202 23,803 2,477 – 22,156 – 252,919	470,363 2,952 657 738 – 1,166 – – 68,881 74,394 93,307 – – 39,208 396 17,319 – 150,230	571,977 8,156 – 89 282 884 – 663 5,478 15,552 52,128 – – 4,160 – – 14,085 70,373	579,489
				4,499 – 94 – 884 – 1,485 4,679
				11,641
				51,521 – – 15,428 – – –
				66,949

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

Notes NET CURRENT ASSETS (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITY Deferred taxation 21 CAPITAL AND RESERVES Capital 22 Reserves 23	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 42,063 (75,836) (54,821) (55,308) 527,933 394,527 517,156 524,181 35,488 32,575 46,784 47,181 492,445 361,952 470,372 477,000 127,993 127,993 127,993 127,993 364,452 233,959 342,379 349,007 492,445 361,952 470,372 477,000

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APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

At 1st January, 2001 Deficit arising on revaluation of investment properties Reversal of deferred tax liability arising on revaluation of investment properties Profit for the year Dividend paid At 31st December, 2001 Deficit arising on revaluation of investment properties Reversal of deferred tax liability arising on revaluation of investment properties Realised on disposal of investment properties Profit for the year Dividend paid At 31st December, 2002 Surplus arising on revaluation of investment properties Deferred tax liability arising on revaluation of investment properties Realised on disposal of investment properties Profit for the year At 31st December, 2003 At 1st January, 2004 Profit for the period At 30th April, 2004 At 1st January, 2003 Profit for the period At 30th April, 2003	Share capital HK$’000 127,993 – – – –	Investment properties revaluation reserve HK$’000 224,604 (3,796) 569 – –	Accumulated profits HK$’000 143,692 – – 15,261 (15,878)	Total HK$’000 496,289 (3,796) 569 15,261 (15,878) 492,445 (23,315) 3,497 (3,784) 19,870 (126,761) 361,952 101,201 (15,180) (11,752) 34,050 470,271 470,271 6,305 476,576 361,952 4,963 366,915
	127,993 – – – – – 127,993 – – – –	221,377 (23,315) 3,497 (3,784) – – 197,775 101,201 (15,180) (11,752) –	143,075 – – – 19,870 (126,761) 36,184 – – – 34,050	492,445 (23,315 3,497 (3,784 19,870 (126,761
				361,952 101,201 (15,180 (11,752 34,050
	127,993 127,993 – 127,993	272,044 272,044 – 272,044	70,234 70,234 6,305 76,539
	127,993 –	197,775 –	36,184 4,963	361,952 4,963
	127,993	197,775	41,147

−54 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

CONSOLIDATED CASH FLOW STATEMENTS

OPERATING ACTIVITIES Profit from operations Adjustments for: Amortisation of goodwill Depreciation Gain on disposal of investment properties Interest income Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease (increase) in trade and other receivables Decrease in amount due from a fellow subsidiary Decrease in trade and other payables Increase (decrease) in amounts due to fellow subsidiaries Cash generated from (used in) operations PRC Enterprise Income Tax paid NET CASH (USED IN) FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Repayment from a former shareholder Interest received Additions of investment properties Proceeds from disposal of investment properties	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,648 26,069 40,570 5,892 7,662 – – 122 41 41 – – 131 47 37 – (4,409) (13,688) – – (413) (410) (267) (115) (24) 23,235 21,250 26,868 5,865 7,716 – – 108 134 (21) 6,882 1,286 (4,530) (1,501) 3,318 – – 282 – – (29,249) (21,974) (42,516) (22,225) (610) – 36,731 (35,048) (6,202) 11,268 868 37,293 (54,836) (23,929) 21,671 (7,295) (7,185) (22,957) (18,852) (1,604) (6,427) 30,108 (77,793) (42,781) 20,067 22,229 264,503 – – – 413 410 267 115 24 (3,796) (12,571) (4,025) – – – 5,599 26,010 – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,648 26,069 40,570 5,892 7,662 – – 122 41 41 – – 131 47 37 – (4,409) (13,688) – – (413) (410) (267) (115) (24) 23,235 21,250 26,868 5,865 7,716 – – 108 134 (21) 6,882 1,286 (4,530) (1,501) 3,318 – – 282 – – (29,249) (21,974) (42,516) (22,225) (610) – 36,731 (35,048) (6,202) 11,268 868 37,293 (54,836) (23,929) 21,671 (7,295) (7,185) (22,957) (18,852) (1,604) (6,427) 30,108 (77,793) (42,781) 20,067 22,229 264,503 – – – 413 410 267 115 24 (3,796) (12,571) (4,025) – – – 5,599 26,010 – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,648 26,069 40,570 5,892 7,662 – – 122 41 41 – – 131 47 37 – (4,409) (13,688) – – (413) (410) (267) (115) (24) 23,235 21,250 26,868 5,865 7,716 – – 108 134 (21) 6,882 1,286 (4,530) (1,501) 3,318 – – 282 – – (29,249) (21,974) (42,516) (22,225) (610) – 36,731 (35,048) (6,202) 11,268 868 37,293 (54,836) (23,929) 21,671 (7,295) (7,185) (22,957) (18,852) (1,604) (6,427) 30,108 (77,793) (42,781) 20,067 22,229 264,503 – – – 413 410 267 115 24 (3,796) (12,571) (4,025) – – – 5,599 26,010 – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,648 26,069 40,570 5,892 7,662 – – 122 41 41 – – 131 47 37 – (4,409) (13,688) – – (413) (410) (267) (115) (24) 23,235 21,250 26,868 5,865 7,716 – – 108 134 (21) 6,882 1,286 (4,530) (1,501) 3,318 – – 282 – – (29,249) (21,974) (42,516) (22,225) (610) – 36,731 (35,048) (6,202) 11,268 868 37,293 (54,836) (23,929) 21,671 (7,295) (7,185) (22,957) (18,852) (1,604) (6,427) 30,108 (77,793) (42,781) 20,067 22,229 264,503 – – – 413 410 267 115 24 (3,796) (12,571) (4,025) – – – 5,599 26,010 – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 23,648 26,069 40,570 5,892 7,662 – – 122 41 41 – – 131 47 37 – (4,409) (13,688) – – (413) (410) (267) (115) (24) 23,235 21,250 26,868 5,865 7,716 – – 108 134 (21) 6,882 1,286 (4,530) (1,501) 3,318 – – 282 – – (29,249) (21,974) (42,516) (22,225) (610) – 36,731 (35,048) (6,202) 11,268 868 37,293 (54,836) (23,929) 21,671 (7,295) (7,185) (22,957) (18,852) (1,604) (6,427) 30,108 (77,793) (42,781) 20,067 22,229 264,503 – – – 413 410 267 115 24 (3,796) (12,571) (4,025) – – – 5,599 26,010 – –
	23,235 – 6,882 – (29,249) – 868 (7,295) (6,427)	21,250 – 1,286 – (21,974) 36,731 37,293 (7,185) 30,108	26,868 108 (4,530) 282 (42,516) (35,048) (54,836) (22,957) (77,793)	5,865 134 (1,501) – (22,225) (6,202) (23,929) (18,852) (42,781)	7,716 (21 3,318 – (610 11,268
					21,671 (1,604
					20,067
	22,229 413 (3,796) –	264,503 410 (12,571) 5,599	– 267 (4,025) 26,010	– 115 – –

−55 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

Note Acquisition of a subsidiary (net of cash and cash equivalents acquired) 24 (Advanced to) repayment from immediate holding company Repayment from ultimate holding company Addition to loan receivable NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Dividend paid Repayment of bank loan Interest paid Repayment to ultimate holding company Repayment to immediate holding company New bank loan raised NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD, represented by bank balances and cash	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 484 – – – – (738) 649 (18,374) (5) – – 657 657 – – – (22,535) – (7,512) 18,846 257,687 1,023 (17,602) (7,493) (15,878) (126,761) – – – (10,516) – – (8) (14,085) (5,427) (2,599) (422) – (239) – (89,202) – – – – (23,803) – – – – – 14,085 14,085 – (31,821) (242,365) 13,663 14,077 (14,324) (19,402) 45,430 (63,107) (46,306) (1,750) 44,216 24,814 70,244 70,244 7,137 24,814 70,244 7,137 23,938 5,387	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 484 – – – – (738) 649 (18,374) (5) – – 657 657 – – – (22,535) – (7,512) 18,846 257,687 1,023 (17,602) (7,493) (15,878) (126,761) – – – (10,516) – – (8) (14,085) (5,427) (2,599) (422) – (239) – (89,202) – – – – (23,803) – – – – – 14,085 14,085 – (31,821) (242,365) 13,663 14,077 (14,324) (19,402) 45,430 (63,107) (46,306) (1,750) 44,216 24,814 70,244 70,244 7,137 24,814 70,244 7,137 23,938 5,387	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 484 – – – – (738) 649 (18,374) (5) – – 657 657 – – – (22,535) – (7,512) 18,846 257,687 1,023 (17,602) (7,493) (15,878) (126,761) – – – (10,516) – – (8) (14,085) (5,427) (2,599) (422) – (239) – (89,202) – – – – (23,803) – – – – – 14,085 14,085 – (31,821) (242,365) 13,663 14,077 (14,324) (19,402) 45,430 (63,107) (46,306) (1,750) 44,216 24,814 70,244 70,244 7,137 24,814 70,244 7,137 23,938 5,387	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 484 – – – – (738) 649 (18,374) (5) – – 657 657 – – – (22,535) – (7,512) 18,846 257,687 1,023 (17,602) (7,493) (15,878) (126,761) – – – (10,516) – – (8) (14,085) (5,427) (2,599) (422) – (239) – (89,202) – – – – (23,803) – – – – – 14,085 14,085 – (31,821) (242,365) 13,663 14,077 (14,324) (19,402) 45,430 (63,107) (46,306) (1,750) 44,216 24,814 70,244 70,244 7,137 24,814 70,244 7,137 23,938 5,387	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – 484 – – – – (738) 649 (18,374) (5) – – 657 657 – – – (22,535) – (7,512) 18,846 257,687 1,023 (17,602) (7,493) (15,878) (126,761) – – – (10,516) – – (8) (14,085) (5,427) (2,599) (422) – (239) – (89,202) – – – – (23,803) – – – – – 14,085 14,085 – (31,821) (242,365) 13,663 14,077 (14,324) (19,402) 45,430 (63,107) (46,306) (1,750) 44,216 24,814 70,244 70,244 7,137 24,814 70,244 7,137 23,938 5,387
	18,846 (15,878) (10,516) (5,427) – – – (31,821) (19,402) 44,216	257,687 (126,761) – (2,599) (89,202) (23,803) – (242,365) 45,430 24,814	1,023 – – (422) – – 14,085 13,663 (63,107) 70,244	(17,602) – (8) – – – 14,085 14,077 (46,306) 70,244	(7,493
					– (14,085 (239 – – –
					(14,324
					(1,750 7,137
	24,814	70,244	7,137	23,938

−56 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The financial information has been prepared under the historical cost convention, as modified for the revaluation of investment properties, and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial information incorporates the financial statements of Shanghai Puly Real Estate and its subsidiary made up to each balance sheet date.

The results of subsidiaries acquired or disposed of during the year/period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the Shanghai Puly Real Estate Group are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Shanghai Puly Real Estate Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.

Goodwill is capitalised and amortised on a straight line basis over its useful economic life and is presented separately in the balance sheet.

On disposal of a subsidiary, the attributable amount of unamortised goodwill is included in the determination of the profit or loss on disposal.

Investments in subsidiaries

Investments in subsidiaries are included in the balance sheet of Shanghai Puly Real Estate at cost, less any identified impairment loss.

Revenue recognition

Rental income, including rental invoiced in advance, from properties let under operating leases is recognised on a straight line basis over the period of the respective leases.

Government subsidies are recognised as income when they become receivable.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market value based on independent professional valuations at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment properties revaluation reserve unless the balance on this reserve is insufficient to cover a deficit on a portfolio basis, in which case the excess of the deficit over the balance on the investment properties revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of investment properties, the balance on the investment properties revaluation reserve attributable to the properties disposed of is transferred to the income statement.

−57 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

No depreciation is provided in respect of investment properties except where the unexpired term of the relevant lease is 20 years or less.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortisation and any accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Furniture, fixtures and equipment 10%-20% Motor vehicles 12.5%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment of assets

At each balance sheet date, the Shanghai Puly Real Estate Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost method.

Retirement benefit costs

Payments made to state-managed retirement benefits schemes are charged as expenses as they fall due.

Taxation

Taxation represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

−58 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

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

Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred taxation is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

On consolidation, the assets and liabilities of foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Shanghai Puly Real Estate Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

−59 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

2. SEGMENT INFORMATION

Business segments

For management purposes, the Shanghai Puly Real Estate Group’s operations are organised into two operating divisions, namely, property leasing and provision of catering services. These divisions are the basis on which the Shanghai Puly Real Estate Group reports its primary segment information.

Business segment information for the Relevant Periods is presented below:

For the year ended 31st December, 2001

Turnover External sales Results Segment results Interest income Profit from operations Finance costs Profit before taxation Taxation Profit before minority interests Minority interests Profit for the year Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Capital additions	Property leasing HK$’000 23,168 23,235 491,535 230,763 3,796	Provision of catering services HK$’000 – –	Consolidated HK$’000 23,168 23,235 413 23,648 (5,427) 18,221 (2,960) 15,261 – 15,261 491,535 289,317 780,852 230,763 57,644 288,407 3,796
			413
			23,648 (5,427
			18,221 (2,960
			15,261 –
		– – –

−60 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

For the year ended 31st December, 2002

Turnover External sales Results Segment results Interest income Unallocated corporate income Profit from operations Finance costs Profit before taxation Taxation Profit before minority interests Minority interests Profit for the year Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Capital additions	Property leasing HK$’000 28,701 21,250 474,997 132,911 12,571	Provision of catering services HK$’000 – –	Consolidated HK$’000 28,701 21,250 410 4,409 26,069 (2,599) 23,470 (3,600) 19,870 – 19,870 478,125 70,854 548,979 137,055 49,942 186,997 13,509
			410 4,409
			26,069 (2,599
			23,470 (3,600
			19,870 –
		3,128 4,144 938

−61 −

ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

APPENDIX I

For the year ended 31st December, 2003

Turnover External sales Results Segment results Interest income Unallocated corporate income Profit from operations Finance costs Profit before taxation Taxation Profit before minority interests Minority interests Profit for the year Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Capital additions Amortisation of goodwill Depreciation	Property leasing HK$’000 26,851 26,522 550,462 56,288 4,025 – –	Provision of catering services HK$’000 9,308 93	Consolidated HK$’000 36,159 26,615 267 13,688 40,570 (422) 40,148 (6,096) 34,052 (2) 34,050 552,395 38,268 590,663 59,491 60,869 120,360 4,025 122 131
			267 13,688
			40,570 (422
			40,148 (6,096
			34,052 (2
		1,933 3,203 – 122 131

−62 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

For the four months ended 30th April, 2003

Turnover External sales Results Segment results Interest income Profit from operations Finance costs Profit before taxation Taxation Profit before minority interests Minority interests Profit for the period Other information Amortisation of goodwill Depreciation	Property leasing HK$’000 7,804 6,003 – –	Provision of catering services HK$’000 2,988 (226) 41 47	Consolidated HK$’000 10,792 5,777 115 5,892 (8) 5,884 (943) 4,941 22 4,963 41 47

−63 −

ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

APPENDIX I

For the four months ended 30th April, 2004

Turnover External sales Results Segment results Interest income Profit from operations Finance costs Profit before taxation Taxation Profit before minority interests Minority interests Profit for the period Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Amortisation of goodwill Depreciation	Property leasing HK$’000 9,766 7,971 550,284 66,949 – –	Provision of catering services HK$’000 2,973 (333)	Consolidated HK$’000 12,739 7,638 24 7,662 (239) 7,423 (1,150) 6,273 32 6,305 552,822 41,084 593,906 70,149 47,181 117,330 41 37
			24
			7,662 (239
			7,423 (1,150
			6,273 32
		2,538 3,200 41 37

−64 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

3. OTHER OPERATING INCOME

Subsidies from PRC government Phone line lease income Gain on disposal of investment properties Interest income Others 4. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging: Directors’ remuneration (note 6) Other staff costs Retirement benefits scheme contributions Total staff costs Amortisation of goodwill (included in administrative expenses) Auditors’ remuneration Depreciation and after crediting: Gain on disposal of investment properties Interest income Rental income from properties, net of negligible outgoings	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 7,896 1,067 4,762 1,330 896 807 – 4,409 13,688 413 410 267 5 1,907 1,334 9,644 8,689 20,858 Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – – 1,577 2,535 2,848 14 92 221 1,591 2,627 3,069 – – 122 1 1 1 – – 131 – 4,409 13,688 413 410 267 23,168 28,701 26,851	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 – – 190 325 – – 115 24 100 38 405 387 Four months ended 30th April, 2003 2004 HK$’000 HK$’000 – – 455 742 85 90 540 832 41 41 1 1 47 37 – – 115 24 7,469 9,291	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 – – 190 325 – – 115 24 100 38 405 387 Four months ended 30th April, 2003 2004 HK$’000 HK$’000 – – 455 742 85 90 540 832 41 41 1 1 47 37 – – 115 24 7,469 9,291
			832 41 1 37 – 24 9,291

−65 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

5. FINANCE COSTS

Interest on: Bank borrowings wholly repayable within five years Amount due to ultimate holding company	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – 422 5,427 2,599 – 5,427 2,599 422	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 8 239 – – 8 239	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 8 239 – – 8 239
			239

6. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

During the Relevant Periods, no emolument was paid to the directors of Shanghai Puly Real Estate.

Details of emoluments paid to the five highest paid individuals are as follows:

Salaries and other benefits Retirement benefits scheme contributions	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 802 802 559 50 62 33 852 864 592	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 80 80 15 15 95 95	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 80 80 15 15 95 95
			95

The aggregate emoluments of each of the highest paid individuals for each of the Relevant Periods were under HK$1,000,000.

During the Relevant Periods, no emolument was paid by Shanghai Puly Real Estate or its subsidiary to any of the directors or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining Shanghai Puly Real Estate or as compensation for loss of office. None of the directors have waived any emoluments during the Relevant Periods.

7. TAXATION

The charge comprises: PRC Enterprise Income Tax Deferred taxation	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,521 2,348 4,994 1,439 1,252 1,102 2,960 3,600 6,096	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 612 753 331 397 943 1,150	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 612 753 331 397 943 1,150
			1,150

Pursuant to the relevant laws and regulations as stated in issued in 1991, Shanghai Puly Real Estate, being a sino-foreign equity joint venture, is subject to a preferential PRC Enterprise Income Tax rate of 15%.

Shanghai Stock Exchange Building Hotel is entitled to exemption from PRC Enterprise Income Tax for the period from 1st June, 2000 to 31st December, 2002, followed by a 50% relief for the three years ending 31st December, 2005 and the applicable tax rate is 15%.

−66 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

The taxation charge for the Relevant Periods can be reconciled to the profit before taxation per the income statement as follows:

Profit before taxation Tax at the applicable tax rate of 15% Tax effect of expenses not deductible for tax purpose Effect of tax exemptions granted to a PRC subsidiary Taxation charge for the year/period	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,221 23,470 40,148	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,221 23,470 40,148	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,221 23,470 40,148	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 5,884 7,423	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 5,884 7,423
	2,733 227 –	3,521 79 –	6,022 103 (29)	883 26 34	1,113 19 18
	2,960	3,600	6,096	943	1,150

8. DIVIDENDS

Other than dividends of HK$15,878,000 and HK$126,761,000 declared and paid by Shanghai Puly Real Estate during the year ended 31st December, 2001 and 31st December, 2002, respectively, no dividends were declared either by Shanghai Puly Real Estate or by Shanghai Stock Exchange Building Hotel during the Relevant Periods.

9. EARNINGS PER SHARE

Earnings per share is not presented as such information is not meaningful having regard to the purpose of this report.

10. INVESTMENT PROPERTIES

VALUATION Balance brought forward Additions Disposals (Deficit) surplus arising on revaluation Balance carried forward	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 485,870 485,870 469,484 3,796 12,571 4,025 – (5,642) (26,147) (3,796) (23,315) 101,201 485,870 469,484 548,563	As at 30th April, 2004 HK$’000 548,563 – – –
		548,563

The investment properties of the Shanghai Puly Real Estate Group and Shanghai Puly Real Estate were revalued at the respective balance sheet dates on an open market value existing use basis by AA Property Services Limited, an independent firm of professional property valuers. The surplus or deficit arising on revaluation during the Relevant Periods has been credited or debited to the investment properties revaluation reserve.

The investment properties are held under medium term leases in the PRC and rented out under operating leases.

−67 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

11. PROPERTY, PLANT AND EQUIPMENT

COST On acquisition of a subsidiary and balance at 31st December, 2002, 31st December, 2003 and 30th April, 2004 DEPRECIATION Provided for the year and balance at 31st December, 2003 Provided for the period At 30th April, 2004 NET BOOK VALUE At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	Furniture, fixtures and equipment HK$’000 797	Motor vehicles HK$’000 141	Total HK$’000 938
	109 28 137	22 9 31	131 37
			168
	797 688 660	141 119 110	938
			807
			770

12. GOODWILL

COST On acquisition of a subsidiary and balance at 31st December, 2002, 31st December, 2003 and 30th April, 2004 AMORTISATION Provided for the year and balance at 31st December, 2003 Provided for the period At 30th April, 2004 NET BOOK VALUE At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	HK$’000 610
	122 41
	163
	610
	488
	447

The amortisation period adopted for goodwill is 5 years.

−68 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

13. INVESTMENT IN A SUBSIDIARY

								As at
				**As **	**at **	31st December,		30th April,
				2001		2002	2003	2004
				HK$’000		HK$’000	HK$’000	HK$’000
Unlisted	shares,	at	cost	–		879	879	879

At the respective balance sheet dates, Shanghai Puly Real Estate held a 90% equity interest in Shanghai Stock Exchange Building Hotel.

14. LOAN RECEIVABLE

The amount is secured, interest bearing and repayable in June, 2005.

15. INVENTORIES

						As at
		**As **	**at **	31st December,		30th April,
		2001		2002	2003	2004
		HK$’000		HK$’000	HK$’000	HK$’000
Raw	materials	–		661	553	574

All inventories were carried at cost.

16. TRADE AND OTHER RECEIVABLES

Trade receivables Receivables from sales of properties Others	Shanghai Puly Real Estate Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,329 3,583 1,041 1,361 – – 7,512 3,756 1,513 898 458 576 3,842 4,481 9,011 5,693	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,329 2,663 600 675 – – 7,512 3,756 1,513 289 44 68 3,842 2,952 8,156 4,499	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 2,329 2,663 600 675 – – 7,512 3,756 1,513 289 44 68 3,842 2,952 8,156 4,499
			4,499

The Shanghai Puly Real Estate Group allows an average credit period of 30-60 days to its trade customers.

Included in the above balance are trade receivables, an aged analysis of which at the respective balance sheet dates is as follows:

Less than 30 days 31-60 days Over 60 days	Shanghai Puly Real Estate Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 487 1,286 973 777 150 124 63 488 1,692 2,173 5 96 2,329 3,583 1,041 1,361	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 487 550 536 293 150 68 63 290 1,692 2,045 1 92 2,329 2,663 600 675	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 487 550 536 293 150 68 63 290 1,692 2,045 1 92 2,329 2,663 600 675
			675

−69 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

17. AMOUNTS DUE FROM (TO) ULTIMATE HOLDING COMPANY/IMMEDIATE HOLDING COMPANY/A SUBSIDIARY/FELLOW SUBSIDIARIES/A FORMER SHAREHOLDER

The amounts are unsecured, interest free and repayable on demand.

18. TRADE AND OTHER PAYABLES

Trade payables Land use right compensation fee Rental deposits Construction costs deposit received in advance Rental received in advance Other tax payable Deposits received from sales of properties Accrued expenses Others	Shanghai Puly Real Estate Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 10,256 4,964 7,993 7,514 50,657 50,657 24,897 24,897 6,765 7,728 8,869 9,146 27,120 14,867 615 428 – – 8,049 7,010 14,295 12,542 277 1,324 1,604 – – – 2,230 6,048 4,147 3,918 2,354 1,041 484 484 115,281 97,847 55,331 54,721	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 10,256 3,638 6,636 6,424 50,657 50,657 24,897 24,897 6,765 7,728 8,869 9,146 27,210 14,867 615 428 – – 8,049 7,010 14,295 12,542 277 1,324 1,604 – – – 2,140 2,834 2,301 1,808 2,354 1,041 484 484 115,281 93,307 52,128 51,521	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 10,256 3,638 6,636 6,424 50,657 50,657 24,897 24,897 6,765 7,728 8,869 9,146 27,210 14,867 615 428 – – 8,049 7,010 14,295 12,542 277 1,324 1,604 – – – 2,140 2,834 2,301 1,808 2,354 1,041 484 484 115,281 93,307 52,128 51,521
			51,521

Included in the above balance are trade payables, an aged analysis of which at the respective balance sheet dates is as follows:

Less than 30 days 31-60 days Over 60 days	Shanghai Puly Real Estate Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 – 967 735 796 – 249 246 240 10,256 3,748 7,012 6,478 10,256 4,964 7,993 7,514	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – 10,256 3,638 6,636 6,424 10,256 3,638 6,636 6,424	Shanghai Puly Real Estate As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – 10,256 3,638 6,636 6,424 10,256 3,638 6,636 6,424
			6,424

19. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

The amount was unsecured and interest bearing. It was fully repaid during the year ended 31st December, 2002.

20. BANK LOAN

At 31st December, 2003, the bank loan was secured by certain investment properties of the Shanghai Puly Real Estate Group with a net book value of approximately HK$14,259,000. The bank loan was fully repaid during the four months ended 30th April, 2004.

−70 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

21. DEFERRED TAXATION

Shanghai Puly Real Estate Group and Shanghai Puly Real Estate At 1st January, 2001 Credit to equity for the year Charge to income statement for the year At 31st December, 2001 Credit to equity for the year Charge to income statement for the year Realised on disposal of investment properties At 31st December, 2002 Charge to equity for the year Charge to income statement for the year Realised on disposal of investment properties At 31st December, 2003 Charge to income statement for the period At 30th April, 2004	Revaluation of properties HK$’000 33,038 (569) –	Accelerated tax depreciation HK$’000 1,580 – 1,439	Total HK$’000 34,618 (569) 1,439
	32,469 (3,497) – (668) 28,304 15,180 – (2,073) 41,411 –	3,019 – 1,252 – 4,271 – 1,102 – 5,373 397	35,488 (3,497) 1,252 (668)
			32,575 15,180 1,102 (2,073)
			46,784 397
	41,411	5,770	47,181

22. CAPITAL

Registered and paid up capital: Authorised Issued and fully paid Shown in the financial statements as	US$’000 71,000
	24,000
	HK$’000 127,993

−71 −

ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

APPENDIX I

23. RESERVES

Shanghai Puly Real Estate At 1st January, 2001 Deficit arising on revaluation of investment properties Reversal of deferred tax liability arising on revaluation of investment properties Profit for the year Dividend paid At 31st December, 2001 Deficit arising on revaluation of investment properties Reversal of deferred tax liability arising on revaluation of investment properties Realised on disposal of investment properties Profit for the year Dividend paid At 31st December, 2002 Surplus arising on revaluation of investment properties Deferred tax liability arising on revaluation of investment properties Realised on disposal of investment properties Profit for the year At 31st December, 2003 Profit for the period At 30th April, 2004	Investment properties revaluation reserve Accumulated profits HK$’000 HK$’000 224,604 143,692 (3,796) – 569 – – 15,261 – (15,878)	Investment properties revaluation reserve Accumulated profits HK$’000 HK$’000 224,604 143,692 (3,796) – 569 – – 15,261 – (15,878)	Total HK$’000 368,296 (3,796) 569 15,261 (15,878) 364,452 (23,315) 3,497 (3,784) 19,870 (126,761) 233,959 101,201 (15,180) (11,752) 34,151 342,379 6,628 349,007
	221,377 (23,315) 3,497 (3,784) – – 197,775 101,201 (15,180) (11,752) – 272,044 –	143,075 – – – 19,870 (126,761) 36,184 – – – 34,151 70,335 6,628	364,452 (23,315 3,497 (3,784 19,870 (126,761
			233,959 101,201 (15,180 (11,752 34,151
			342,379 6,628
	272,044	76,963

−72 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

24. PURCHASE OF A SUBSIDIARY

In May, 2002, Shanghai Puly Real Estate acquired 90% equity interest in Shanghai Stock Exchange Building Hotel. The net assets of Shanghai Stock Exchange Building Hotel acquired are as follows:

Net assets acquired: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Taxation payable Minority interests Goodwill arising on the acquisition of a subsidiary Total consideration satisfied by: Cash consideration paid Net inflow of cash and cash equivalents in connection with the acquisition of a subsidiary: Cash paid Bank balances and cash acquired	HK$’000 938 661 1,925 1,363 (4,540 (48 (30
	269 610
	879
	879
	(879 1,363
	484

The subsidiary acquired during the year ended 31st December, 2002 did not have any significant contribution to the Shanghai Puly Real Estate Group’s turnover and results for that year.

25. OPERATING LEASE ARRANGEMENTS

At the respective balance sheet dates, the Shanghai Puly Real Estate Group and Shanghai Puly Real Estate had contracted with tenants for the following future minimum lease payments:

As a lessor	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000	As at 30th April, 2004 HK$’000
Within one year In the second to fifth year inclusive	14,639 22,973	16,986 22,973	23,728 22,973	25,236 22,973
	37,612	39,959	46,701	48,209

−73 −

APPENDIX I ACCOUNTANTS’ REPORT ON SHANGHAI PULY REAL ESTATE

26. PLEDGE OF ASSETS

At the respective balance sheet dates, the following assets were pledged to secure banking facilities granted to the Shanghai Puly Real Estate Group:

						As at
		**As **	**at **	31st December,		30th April,
		2001		2002	2003	2004
		HK$’000		HK$’000	HK$’000	HK$’000
Investment	properties	–		–	14,259	44,616

27. RELATED PARTY DISCLOSURES

During the Relevant Periods, the Shanghai Puly Real Estate Group entered into the following transactions with related parties:

					Four months ended	Four months ended	Four months ended
		Year ended 31st December,			30th April,
Class of related party	Nature of transactions	2001	2002	2003	2003		2004
		HK$’000	HK$’000	HK$’000	HK’000	HK$’000
Ultimate holding
company	Loan arrangement fee paid	369	263	–	–		–
	Interest paid	5,427	2,599	–	–		–
Fellow subsidiaries	Rental income received	–	–	1,488	496		548
	Commission fee paid	–	–	873	291		–
	Management fee paid	–	179	–	–		–

The above transactions were carried out on the following bases:

• (a) Loan arrangement fee, commission fee and management fee were charged at pre-agreed rates.

• (b) Rentals were charged in accordance with the terms of the agreement entered into between the relevant parties.

In addition, on 30th April, 2004, Shanghai Puly Real Estate had granted an option to Poly Shanghai Group Company Limited, a fellow subsidiary of Shanghai Puly Real Estate to acquire certain investment properties of the Company at approximately HK$45,371,000.

Details of the balance with related companies at the respective balance sheet dates are set out in notes 17 and 19.

28. SUBSEQUENT EVENTS

There was no significant reportable event subsequent to 30th April, 2004.

29. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for the Shanghai Puly Real Estate Group, Shanghai Puly Real Estate or its subsidiary in respect of any period subsequent to 30th April, 2004.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−74 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

The following is the text of a report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [64 x 49] intentionally omitted <==

==> picture [78 x 33] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information) regarding Hubei White Rose Hotel Company Limited (“Hubei White Rose”) for each of the three years ended 31st December, 2003 and the four months ended 30th April, 2004 (the “Relevant Periods”) for inclusion in the circular dated 29th October, 2004 issued by Continental Mariner Investment Company Limited (the “Company”) in connection with a proposed acquisition by an indirect wholly-owned subsidiary of the Company of the entire equity interest in Hubei White Rose (the “Acquisition”) (the “Circular”).

Hubei White Rose is an equity joint venture incorporated on 29th January, 1997 in the People’s Republic of China (the “PRC”) with limited liability and it is principally engaged in hotel business in Hubei, the PRC. Its ultimate holding Company is China Poly Group Corporation, a company established in the PRC. As at the date of this report, Hubei White Rose’s registered capital is owned as to 75% by Poly Shanghai Group Company Limited and as to 25% by Poly Hua Zhong Enterprise Development Company (“Poly Enterprises”).

The statutory financial statements of Hubei White Rose for each of the three years ended 31st December, 2003 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by the following certified public accountants registered in the PRC:

Period

Name of auditors

Year ended 31st December, 2001 Hubei Lian Tai Accountants Business Co., Ltd. Year ended 31st December, 2002 Zhong Rui Hua Heng Xin Certified Public Accountants Co., Ltd. Year ended 31st December, 2003 Hubei Daxin Certified Public Accountants Co., Ltd.

−75 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

For the purpose of this report, Hubei White Rose has prepared financial statements in accordance with accounting principles generally accepted in Hong Kong for the Relevant Periods (the “Underlying Financial Statements”). We have audited the Underlying Financial Statements in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

We have examined the audited Underlying Financial Statements. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of Hubei White Rose who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of Hubei White Rose as at 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 and of the results and cash flows of Hubei White Rose for each of the Relevant Periods.

−76 −

APPENDIX II ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

I. FINANCIAL INFORMATION

The following is the financial information of Hubei White Rose for the Relevant Periods.

INCOME STATEMENTS

Notes Turnover Cost of sales Gross profit Other operating income Surplus (deficit) arising on revaluation of hotel properties Administrative expenses Loss on disposal of hotel properties and equipment Profit from operations 3 Interest on bank loans wholly repayable within five years Profit before taxation Taxation 5 Profit for the year/period	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,478 50,733 47,642 15,896 16,240 (24,887) (23,578) (24,554) (8,371) (8,346) 20,591 27,155 23,088 7,525 7,894 113 127 446 149 114 19,383 5,195 (163) – 163 (10,414) (13,287) (13,519) (4,603) (3,703) (430) (2,659) – – (930) 29,243 16,531 9,852 3,071 3,538 – – (7) − – 29,243 16,531 9,845 3,071 3,538 (9,018) (6,138) (4,299) (1,234) (1,227) 20,225 10,393 5,546 1,837 2,311	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,478 50,733 47,642 15,896 16,240 (24,887) (23,578) (24,554) (8,371) (8,346) 20,591 27,155 23,088 7,525 7,894 113 127 446 149 114 19,383 5,195 (163) – 163 (10,414) (13,287) (13,519) (4,603) (3,703) (430) (2,659) – – (930) 29,243 16,531 9,852 3,071 3,538 – – (7) − – 29,243 16,531 9,845 3,071 3,538 (9,018) (6,138) (4,299) (1,234) (1,227) 20,225 10,393 5,546 1,837 2,311	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,478 50,733 47,642 15,896 16,240 (24,887) (23,578) (24,554) (8,371) (8,346) 20,591 27,155 23,088 7,525 7,894 113 127 446 149 114 19,383 5,195 (163) – 163 (10,414) (13,287) (13,519) (4,603) (3,703) (430) (2,659) – – (930) 29,243 16,531 9,852 3,071 3,538 – – (7) − – 29,243 16,531 9,845 3,071 3,538 (9,018) (6,138) (4,299) (1,234) (1,227) 20,225 10,393 5,546 1,837 2,311	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,478 50,733 47,642 15,896 16,240 (24,887) (23,578) (24,554) (8,371) (8,346) 20,591 27,155 23,088 7,525 7,894 113 127 446 149 114 19,383 5,195 (163) – 163 (10,414) (13,287) (13,519) (4,603) (3,703) (430) (2,659) – – (930) 29,243 16,531 9,852 3,071 3,538 – – (7) − – 29,243 16,531 9,845 3,071 3,538 (9,018) (6,138) (4,299) (1,234) (1,227) 20,225 10,393 5,546 1,837 2,311	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,478 50,733 47,642 15,896 16,240 (24,887) (23,578) (24,554) (8,371) (8,346) 20,591 27,155 23,088 7,525 7,894 113 127 446 149 114 19,383 5,195 (163) – 163 (10,414) (13,287) (13,519) (4,603) (3,703) (430) (2,659) – – (930) 29,243 16,531 9,852 3,071 3,538 – – (7) − – 29,243 16,531 9,845 3,071 3,538 (9,018) (6,138) (4,299) (1,234) (1,227) 20,225 10,393 5,546 1,837 2,311
	20,591 113 19,383 (10,414) (430) 29,243 – 29,243 (9,018)	27,155 127 5,195 (13,287) (2,659) 16,531 – 16,531 (6,138)	23,088 446 (163) (13,519) – 9,852 (7) 9,845 (4,299)	7,525 149 – (4,603) – 3,071 − 3,071 (1,234)	7,894 114 163 (3,703 (930
					3,538 –
					3,538 (1,227
	20,225	10,393	5,546	1,837

−77 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

BALANCE SHEETS

Notes Non-Current Assets Hotel properties 7 Equipment 8 Current Assets Inventories 9 Trade and other receivables 10 Amounts due from fellow subsidiaries 11 Amounts due from shareholders 11 Bank balances and cash Current Liabilities Trade and other payables 12 Amounts due to fellow subsidiaries 13 Amount due to a shareholder 13 Taxation payable Bank loan 14 Net Current Assts Total Assets Less Current Liabilities Non-Current Liabilities Shareholders’ loans 15 Deferred tax liabilities 16 Capital and Reserves Capital 17 Reserves	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 120,000 137,000 129,000 134,000 1,563 2,264 4,247 2,703	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 120,000 137,000 129,000 134,000 1,563 2,264 4,247 2,703	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 120,000 137,000 129,000 134,000 1,563 2,264 4,247 2,703	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 120,000 137,000 129,000 134,000 1,563 2,264 4,247 2,703
	121,563 2,536 1,844 14 1,939 7,183 13,516 9,123 302 162 129 – 9,716 3,800 125,363 93,849 778 94,627	139,264 2,091 2,313 14 7,103 15,349 26,870 11,651 975 – 2,771 – 15,397 11,473 150,737 93,849 7,978 101,827	133,247 2,340 1,651 3,437 14,756 9,568 31,752 14,849 507 506 1,905 169 17,936 13,816 147,063 93,849 6,539 100,388	136,703
				2,196 2,123 3,445 15,320 8,857
				31,941
				12,146 290 840 223 169
				13,668
				18,273
				154,976
				93,849 8,973
				102,822
	30,736	48,910	46,675	52,154
	9,014 21,722	9,014 39,896	9,014 37,661	9,014 43,140
	30,736	48,910	46,675	52,154

−78 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

At 1st January, 2001 Profit for the year At 31st December, 2001 Profit for the year Surplus arising on revaluation of hotel properties Deferred tax liability arising on revaluation of hotel properties At 31st December, 2002 Profit for the year Deficit arising on revaluation of hotel properties Reversal of deferred tax liability arising on revaluation of hotel properties At 31st December, 2003 Profit for the period Surplus arising on revaluation of hotel properties Deferred tax liabilities arising on revaluation of hotel properties At 30th April, 2004 At 31st December, 2002 Profit for the period At 30th April, 2003	Capital HK$’000 (Note 17) 9,014 –	Capital reserves HK$’000 37,559 –	Hotel properties revaluation reserve HK$’000 – –	PRC Statutory reserves Accumulated profits/ (losses) HK$’000 HK$’000 (Note 18) 54 (36,116) – 20,225	PRC Statutory reserves Accumulated profits/ (losses) HK$’000 HK$’000 (Note 18) 54 (36,116) – 20,225	Total HK$’000 10,511 20,225 30,736 10,393 11,614 (3,833) 48,910 5,546 (11,614) 3,833 46,675 2,311 4,728 (1,560) 52,154 48,910 1,837 50,747
	9,014 – – – 9,014 – – – 9,014 – – –	37,559 – – – 37,559 – – – 37,559 – – –	– – 11,614 (3,833) 7,781 – (11,614) 3,833 – – 4,728 (1,560)	54 – – – 54 – – – 54 – – –	(15,891) 10,393 – – (5,498) 5,546 – – 48 2,311 – –	30,736 10,393 11,614 (3,833
						48,910 5,546 (11,614 3,833
						46,675 2,311 4,728 (1,560
	9,014	37,559	3,168	54	2,359
	9,014 –	37,559 –	7,781 –	54 –	(5,498) 1,837	48,910 1,837
	9,014	37,559	7,781	54	(3,661)

Capital reserve represents capital contribution from a shareholder.

−79 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

CASH FLOW STATEMENTS

Operating Activities Profit from operations Adjustments for: Depreciation and amortisation Loss on disposal of hotel properties and equipment Interest income (Surplus) deficit arising on revaluation of hotel properties Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease (increase) in trade and other receivables Increase in amounts due from fellow subsidiaries Increase in amounts due from shareholders (Decrease) increase in trade and other payables Increase (decrease) in amounts due to fellow subsidiaries (Decrease) increase in amount due to a shareholder Cash generated from (used in) operations PRC Enterprise Income Tax (paid) refund Net Cash from (Used in) Operating Activities	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 29,243 16,531 9,852 3,071 3,538 158 225 313 166 160 430 2,659 – – 930 (113) (127) (446) (149) (114) (19,383) (5,195) 163 – (163) 10,335 14,093 9,882 3,088 4,351 237 445 (249) (238) 144 18,882 (469) 662 1,049 (472) – – (3,423) – (8) – (5,164) (7,653) (9,613) (564) (28,615) 2,528 3,198 (674) (2,703) – 673 (468) – (217) – (162) 506 – 334 839 11,944 2,455 (6,388) 865 1,425 (129) (2,771) (2,771) (2,035) 2,264 11,815 (316) (9,159) (1,170)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 29,243 16,531 9,852 3,071 3,538 158 225 313 166 160 430 2,659 – – 930 (113) (127) (446) (149) (114) (19,383) (5,195) 163 – (163) 10,335 14,093 9,882 3,088 4,351 237 445 (249) (238) 144 18,882 (469) 662 1,049 (472) – – (3,423) – (8) – (5,164) (7,653) (9,613) (564) (28,615) 2,528 3,198 (674) (2,703) – 673 (468) – (217) – (162) 506 – 334 839 11,944 2,455 (6,388) 865 1,425 (129) (2,771) (2,771) (2,035) 2,264 11,815 (316) (9,159) (1,170)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 29,243 16,531 9,852 3,071 3,538 158 225 313 166 160 430 2,659 – – 930 (113) (127) (446) (149) (114) (19,383) (5,195) 163 – (163) 10,335 14,093 9,882 3,088 4,351 237 445 (249) (238) 144 18,882 (469) 662 1,049 (472) – – (3,423) – (8) – (5,164) (7,653) (9,613) (564) (28,615) 2,528 3,198 (674) (2,703) – 673 (468) – (217) – (162) 506 – 334 839 11,944 2,455 (6,388) 865 1,425 (129) (2,771) (2,771) (2,035) 2,264 11,815 (316) (9,159) (1,170)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 29,243 16,531 9,852 3,071 3,538 158 225 313 166 160 430 2,659 – – 930 (113) (127) (446) (149) (114) (19,383) (5,195) 163 – (163) 10,335 14,093 9,882 3,088 4,351 237 445 (249) (238) 144 18,882 (469) 662 1,049 (472) – – (3,423) – (8) – (5,164) (7,653) (9,613) (564) (28,615) 2,528 3,198 (674) (2,703) – 673 (468) – (217) – (162) 506 – 334 839 11,944 2,455 (6,388) 865 1,425 (129) (2,771) (2,771) (2,035) 2,264 11,815 (316) (9,159) (1,170)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 29,243 16,531 9,852 3,071 3,538 158 225 313 166 160 430 2,659 – – 930 (113) (127) (446) (149) (114) (19,383) (5,195) 163 – (163) 10,335 14,093 9,882 3,088 4,351 237 445 (249) (238) 144 18,882 (469) 662 1,049 (472) – – (3,423) – (8) – (5,164) (7,653) (9,613) (564) (28,615) 2,528 3,198 (674) (2,703) – 673 (468) – (217) – (162) 506 – 334 839 11,944 2,455 (6,388) 865 1,425 (129) (2,771) (2,771) (2,035) 2,264 11,815 (316) (9,159) (1,170)
	10,335 237 18,882 – – (28,615) – – 839 1,425 2,264	14,093 445 (469) – (5,164) 2,528 673 (162) 11,944 (129) 11,815	9,882 (249) 662 (3,423) (7,653) 3,198 (468) 506 2,455 (2,771) (316)	3,088 (238) 1,049 – (9,613) (674) – – (6,388) (2,771) (9,159)	4,351 144 (472 (8 (564 (2,703 (217 334
					865 (2,035
					(1,170

−80 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

Investing Activities Purchase of equipment Additions to hotel properties Proceeds from disposals of equipment Interest received Cash (Used in) from Investing Activities Financing Activities Interest paid New bank loans raised Net Cash from Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of the Year/Period Cash and Cash Equivalents at End of the Year/Period represented by bank balances and cash	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (748) (939) (2,296) (154) (110) (1,047) (2,837) (3,777) – (109) – – – – 564 113 127 446 149 114 (1,682) (3,649) (5,627) (5) 459 – – (7) – – – – 169 – – – – 162 – – 582 8,166 (5,781) (9,164) (711) 6,601 7,183 15,349 15,349 9,568 7,183 15,349 9,568 6,185 8,857	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (748) (939) (2,296) (154) (110) (1,047) (2,837) (3,777) – (109) – – – – 564 113 127 446 149 114 (1,682) (3,649) (5,627) (5) 459 – – (7) – – – – 169 – – – – 162 – – 582 8,166 (5,781) (9,164) (711) 6,601 7,183 15,349 15,349 9,568 7,183 15,349 9,568 6,185 8,857	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (748) (939) (2,296) (154) (110) (1,047) (2,837) (3,777) – (109) – – – – 564 113 127 446 149 114 (1,682) (3,649) (5,627) (5) 459 – – (7) – – – – 169 – – – – 162 – – 582 8,166 (5,781) (9,164) (711) 6,601 7,183 15,349 15,349 9,568 7,183 15,349 9,568 6,185 8,857	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (748) (939) (2,296) (154) (110) (1,047) (2,837) (3,777) – (109) – – – – 564 113 127 446 149 114 (1,682) (3,649) (5,627) (5) 459 – – (7) – – – – 169 – – – – 162 – – 582 8,166 (5,781) (9,164) (711) 6,601 7,183 15,349 15,349 9,568 7,183 15,349 9,568 6,185 8,857	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (748) (939) (2,296) (154) (110) (1,047) (2,837) (3,777) – (109) – – – – 564 113 127 446 149 114 (1,682) (3,649) (5,627) (5) 459 – – (7) – – – – 169 – – – – 162 – – 582 8,166 (5,781) (9,164) (711) 6,601 7,183 15,349 15,349 9,568 7,183 15,349 9,568 6,185 8,857
	(1,682) – – – 582 6,601	(3,649) – – – 8,166 7,183	(5,627) (7) 169 162 (5,781) 15,349	(5) – – – (9,164) 15,349	459
					– –
					–
					(711 9,568
	7,183	15,349	9,568	6,185

−81 −

APPENDIX II ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of hotel properties and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Turnover

Turnover represents the amounts received and receivable from hotel operations and related services rendered, net of business tax payable in the PRC, during the Relevant Periods.

Revenue recognition

Hotel revenue from rooms and other ancillary services is recognised when the services are rendered.

Rental income, including rental invoiced in advances from properties let under operating leases is recognised on a straight line basis over the period of the respective leases.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Hotel properties

Hotel properties are interests in land and buildings and their integral fixed plant, and are stated at open market value at the respective balance sheet dates. Changes in the value of hotel properties are dealt with as movements on the hotel properties revaluation reserve. Any surplus arising on revaluation of hotel properties is credited to the hotel properties revaluation reserve, except to the extent that it reverses a decrease in revaluation of the same hotel property previously recognised as an expense, in which case, the surplus is recognised as income. Any deficit arising on revaluation of hotel properties is charged to the income statement to the extent that it exceeds the balance, if any, on the hotel properties revaluation reserve relating to a previous revaluation of that hotel property.

The gain or loss arising from the disposal or retirement of a revalued hotel property is determined as the difference between the sale proceeds and the carrying amount of the hotel property and is recognised in the income statement.

On the subsequent sale or retirement of a revalued hotel property, the attributable surplus is transferred to accumulated profits. No depreciation or amortisation is provided on hotel properties held on land use rights of more than 20 years. It is Hubei White Rose’s practice to maintain the properties in a continual state of sound repair and maintenance, and accordingly, the directors consider that depreciation and amortisation is not necessary due to their high residual value. The related maintenance expenditures are charged to the income statement in the year in which they are incurred.

Equipment

Property, plant and equipment other than construction in progress, are stated at cost less accumulated depreciation and amortisation and any accumulated impairment losses.

Construction in progress is stated at cost which includes all development expenditures and other direct costs attributable to the construction. It is not depreciated or amortised until completion of construction. Costs of completed construction works are transferred to the appropriate categories of property, plant and equipment.

−82 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

Depreciation is provided to write off the cost of other assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Furniture, fixtures and equipment 12.5%-20% Motor vehicles 10%-15%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, Hubei White Rose reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value and is calculated using the weighted average method.

Retirement benefit costs

Payments made to state-managed retirement benefits schemes are charged as expenses as they fall due.

Taxation

Taxation represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred taxation is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

−83 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

2. SEGMENT INFORMATION

No analysis of Hubei White Rose’s segment information by business or geographical segments is presented as Hubei White Rose is solely engaged in hotel operation which is carried out in the PRC during the entire Relevant Periods.

3. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging: Directors’ remuneration (note 4) Other staff costs Retirement benefit scheme contributions (excluding contributions to directors) Total staff costs Auditors’ remuneration Depreciation and after crediting: Interest income Gross rental income from hotel properties Less: outgoings	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – 194 7,455 7,166 7,240 143 193 228	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – 194 7,455 7,166 7,240 143 193 228	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – 194 7,455 7,166 7,240 143 193 228	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 65 63 2,488 2,782 53 80	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 65 63 2,488 2,782 53 80
	7,598 14 158 113 24,683 (98)	7,359 74 225 127 29,741 (110)	7,662 63 313 446 26,590 (96)	2,606 47 166 149 8,893 (26)	2,925 19 160 114 9,055 (30
	24,585	29,631	26,494	8,867	9,025

4. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Details of the emoluments of the directors of Hubei White Rose for the Relevant Periods are as follows:

Salaries and other benefits Retirement benefit scheme contributions	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 – – 188 – – 6 – – 194	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 63 61 2 2 65 63	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 63 61 2 2 65 63
			63

The emoluments shown above were paid to .

−84 −

APPENDIX II

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

Of the five individuals with the highest emoluments in Hubei White Rose for the four months ended 30th April, 2004, one (year ended 31.12.2003: one, four months ended 30.4.2003: one, year ended 31.12.2002: nil and year ended 31.12.2001: nil) individual was a director of Hubei White Rose whose emoluments are included in the disclosure set out above. The emoluments of the remaining highest paid individuals are as follows:

Salaries and other benefits Retirement benefits scheme contributions	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 473 680 1,298 9 18 41 482 698 1,339	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 433 233 14 7 447 240	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 433 233 14 7 447 240
			240

The aggregate emoluments of each of the employees for each of the Relevant Periods did not exceed HK$1,000,000.

During the Relevant Periods, no emoluments were paid by Hubei White Rose to any of the directors or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining Hubei White Rose or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

5. TAXATION

PRC Enterprise Income Tax Deferred taxation (note 16)	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 129 2,771 1,905 8,889 3,367 2,394 9,018 6,138 4,299	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 564 353 670 874 1,234 1,227	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 564 353 670 874 1,234 1,227
			1,227

The PRC Enterprise Income Tax is calculated at 33% of estimated assessable profit for each of the Relevant Periods.

The taxation charge for the Relevant Periods can be reconciled to the profit before taxation per the income statement as follows:

Profit before taxation Tax at the applicable tax of 33% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax charge for the year/period	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 29,243 16,531 9,845	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 29,243 16,531 9,845	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 29,243 16,531 9,845	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 3,071 3,538	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (Unaudited) 3,071 3,538
	9,650 – (632)	5,455 683 –	3,249 1,050 –	1,013 221 –	1,168 59 –
	9,018	6,138	4,299	1,234	1,227

−85 −

APPENDIX II ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

In addition to the amount charged to the income statement, deferred tax relating to the revaluation surplus/deficit of Hubei White Rose’s hotel properties recognised in equity during each of the Relevant Periods has been death with directly in equity.

Details of deferred taxation are set out in note 16.

6. EARNINGS PER SHARE

Earnings per share figures have not been presented as such information is not meaningful having regard to the purpose of this report.

7. HOTEL PROPERTIES

Valuation At 1st January, 2001 Additions Disposals Surplus arising on revaluation At 31st December, 2001 Additions Transfer from properties, plant and equipment Disposals Surplus arising on revaluation At 31st December, 2002 Additions Deficit arising on revaluation At 31st December, 2003 Additions Surplus arising on revaluation At 30th April, 2004	HK$’000 100,000 1,047 (430) 19,383 120,000 2,837 13 (2,659) 16,809 137,000 3,777 (11,777) 129,000 109 4,891 134,000

The hotel properties of Hubei White Rose were revalued at the respective balance sheet dates on an open market value existing use basis by AA Properties Services Limited, an independent firm of professional property valuers. For the four months ended 30th April, 2004, the surplus arising on revaluation amounting to HK$4,891,000, of which HK$163,000 was credited to the income statement and the remaining balance of HK$4,728,000 was credited to the hotel properties revaluation reserve. For the years ended 31st December, 2003, the deficit arising on revaluation amounted to HK$11,777,000 of which HK$11,614,300 was charged to the hotel properties revaluation reserve and the remaining balance of HK$163,000 was charged to the income statement. For the year ended 31st December, 2002, the surplus arising on revaluation amounted to HK$16,809,000, of which HK$5,195,000 was credited to the income statement and the remaining balance of HK$11,614,000 was credited to the hotel properties revaluation reserve. For the year ended 31st December, 2001, the surplus arising on revaluation amounted to HK$19,383,000 was credited to the income statement.

If Hubei White Rose’s hotel properties had not been revalued, they would have been included on a historical cost basis at approximately HK$145,267,000 (31.12.2003: HK$145,158,000, 31.12.2002: HK$141,381,000, 31.12.2001: HK$141,190,000).

All hotel properties are situated in the PRC and are held under medium-term land use rights.

All formal title of the land use rights and property right certificate of the above hotel properties are currently under the name of Poly Enterprises and will be transferred to Hubei White Rose prior to the completion of the Acquisition.

−86 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

8. EQUIPMENT

Cost At 1st January, 2001 Additions At 31st December, 2001 Transfer to hotel properties Additions At 31st December, 2002 Additions At 31st December, 2003 Additions Disposals At 30th April, 2004 Depreciation At 1st January, 2001 Provided for the year At 31st December, 2001 Provided for the year At 31st December, 2002 Provided for the year At 31st December, 2003 Provided for the period Eliminated on disposals At 30th April, 2004 Net Book Value At 31st December, 2001 At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	Motor vehicles HK$’000 1,236 735	Construction in progress HK$’000 – 13	Total HK$’000 1,236 748 1,984 (13) 939 2,910 2,296 5,206 110 (1,642) 3,674 263 158 421 225 646 313 959 160 (148) 971 1,563 2,264 4,247 2,703
	1,971 – – 1,971 1,885 3,856 – (1,642) 2,214 263 158 421 225 646 313 959 160 (148) 971	13 (13) 939 939 411 1,350 110 – 1,460 – – – – – – – – – –	1,984 (13 939
			2,910 2,296
			5,206 110 (1,642
			3,674
			263 158
			421 225
			646 313
			959 160 (148
			971
	1,550 1,325 2,897 1,243	13 939 1,350 1,460

−87 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

9. INVENTORIES

Raw materials Finished goods	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,494 2,091 2,128 42 – 212 2,536 2,091 2,340	As at 30th April, 2004 HK$’000 2,033 163
		2,196

All inventories were carried at cost.

10. TRADE AND OTHER RECEIVABLES

Hubei White Rose allows an average credit period of 30 days to its trade customers. Included in the balance is trade receivable, an aged analysis of trade receivable at the respective balance sheet dates is as follows:

0 to 30 days 31 to 60 days More than 60 days	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,258 1,675 708 – 82 47 – 50 13 1,258 1,807 768	As at 30th April, 2004 HK$’000 1,105 – –
		1,105

11. AMOUNTS DUE FROM FELLOW SUBSIDIARIES/SHAREHOLDERS

The amounts are unsecured and have no fixed terms of repayment. Other than amounts of approximately HK$14,085,000 as at 31st December, 2003 and HK$14,085,000 as at 30th April, 2004 which carried interest at the prevailing market rates, the amounts are interest-free.

12. TRADE AND OTHER PAYABLES

Included in the balance is trade payable, an aged analysis of trade payables at the respective balance sheet dates is as follows:

0 to 30 days 31 to 60 days More than 60 days	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,701 1,927 2,956 67 95 18 368 441 482 2,136 2,463 3,456	As at 30th April, 2004 HK$’000 1,822 21 387
		2,230

−88 −

APPENDIX II ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

13. AMOUNTS DUE TO FELLOW SUBSIDIARIES/A SHAREHOLDER

The amounts are unsecured, interest-free and repayable on demand.

14. BANK LOAN

								As at
				**As **	**at **	31st December,		30th April,
			2001			2002	2003	2004
			HK$’000			HK$’000	HK$’000	HK$’000
Unsecured	bank	loan	–			–	169	169

The unsecured bank loan bears interest at prevailing market rates and is repayable in accordance with the terms in the respective loan agreements.

15. SHAREHOLDERS’ LOANS

The amounts due are unsecured, interest-free, and have no fixed repayment terms. The shareholders have confirmed that they do not intend to demand repayment within one year from the respective balance sheet dates. Accordingly, such amounts have been classified as non-current.

16. DEFERRED TAXATION

The following are the major deferred tax liabilities recognised by Hubei White Rose and movements thereon during the Relevant Periods:

At 1st January, 2001 Charge to income statement for the year At 31st December, 2001 Charge to equity for the year Charge to income statement for the year At 31st December, 2002 Credit to equity for the year (Credit) Charge to income statement for the year At 31st December, 2003 Charge to income statement for the period Charge to equity for the period At 30th April, 2004	Revaluation of hotel properties HK$’000 (8,111) 6,396	Accelerated tax depreciation HK$’000 − 2,493	Total HK$’000 (8,111 8,889
	(1,715) 3,833 1,715 3,833 (3,833) (54) (54) 54 1,560	2,493 − 1,652 4,145 − 2,448 6,593 820 –	778 3,833 3,367
			7,978 (3,833 2,394
			6,539 874 1,560
	1,560	7,413	8,973

17. CAPITAL

Registered and fully paid up capital:

At 1st January, 2001, 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004

RMB9,600,000

Shown in the financial statements as

HK$9,014,000

−89 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

18. RESERVES

The PRC statutory reserves are reserves required by the relevant PRC laws applicable to Hubei White Rose.

19. OPERATING LEASE ARRANGEMENTS

As lessor

At the respective balance sheet dates, Hubei White Rose had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	As at 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 513 368 588 87 62 112 600 430 700	As at 30th April, 2004 HK$’000 739 62
		801

20. CAPITAL COMMITMENTS

				As at
		As at 31st December,		30th April,
	2001	2002	2003	2004
	HK$’000	HK$’000	HK$’000	HK$’000
Capital expenditure in respect of
the acquisition of property, plant and
equipment contracted for but not
provided in the financial information	16	374	517	566

21. RELATED PARTY DISCLOSURES

During the Relevant Periods, Hubei White Rose entered into the following transactions with related parties:

					Four months ended	Four months ended
Class of related	Nature of	Year ended 31st December,			30th April,
party	transactions	2001	2002	2003	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
A shareholder	Lease expenses in
	respect of land use
	right	361	610	516	172	172
	Interest received	–	–	376	125	94
	Purchase of goods	2,129	1,925	2,656	885	1,097
	Disposals of
	equipment	–	–	–	–	1,494
Ultimate holding
company	Management fee paid	–	469	–	–	–
Fellow subsidiaries	Management fee paid	724	811	758	253	260
	Purchase of goods	283	189	131	44	46
	Administrative
	expenses charged	585	599	–	–	–
	Rental expenses	505	563	–	–	–

−90 −

ACCOUNTANTS’ REPORT ON HUBEI WHITE ROSE

APPENDIX II

The above transactions were carried out on the following bases:

• (a) Lease expenses and rental expenses were charged in accordance with the terms of the agreement entered into between the relevant parties.

• (b) Management fee, interest and administrative expenses were charged at pre-agreed rates.

• (c) Purchase of goods were conducted in normal business terms and agreed by the relevant parties.

Details of the balances with related companies at the respective balance sheet dates are set out in notes 11, 13 and 15.

II. SUBSEQUENT EVENTS

In July, 2004, Hubei White Rose entered into sale and purchase agreements with Poly Enterprises for the acquisition by Hubei White Rose of the entire interests in Wuhan White Rose Hostel and Wuhan White Rose Airport Transportation Services Centre for an aggregate consideration of approximately HK$17,407,000. Separate accountants’ reports on Wuhan White Rose Hostel and Wuhan White Rose Airport Transportation Service Centre are set out in Appendix III and IV to this Circular.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for Hubei White Rose in respect of any period subsequent to 30th April, 2004.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

−91 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

The following is the text of a report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [64 x 49] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Wuhan White Rose Hostel (“White Rose Hostel”) and its wholly-owned subsidiary Wuhan White Rose Business Centre (“ ”) (hereinafter collectively referred to as the “White Rose Hostel Group”) for each of the three years ended 31st December, 2003 and the four months ended 30th April, 2004 (the “Relevant Periods”) for inclusion in the circular dated 29th October, 2004 issued by Continental Mariner Investment Company Limited (the “Company”) in connection with the acquisition by an indirect wholly-owned subsidiary of the Company of the entire equity interest in Hubei White Rose Hotel Company Limited (the “Circular”).

White Rose Hostel was established as a limited liability company in the People’s Republic of China (the “PRC”) on 12th August, 1993 and it is principally engaged in hotel business in Hubei, the PRC. Its ultimate holding company is China Poly Group Corporation, a company established in the PRC. As at the date of this report, White Rose Hostel’s registered capital is wholly owned by Hubei White Rose Hotel Company Limited. was established as a limited liability company in the PRC on 23rd December, 1994 and it is principally engaged in the provision of hotel related services in Hubei, the PRC.

−92 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

The statutory financial statements of White Rose Hostel and that of for each of the three years ended 31st December, 2003, were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by the following certified public accountants registered in the PRC:

		Period	Name of auditors	Name of auditors	Name of auditors	Name of auditors	Name of auditors	Name of auditors
White	Rose	Year ended 31st December, 2001	Hubei Lian Tai Accountants
Hostel			Business Co., Ltd.
		Year ended 31st December, 2002	Zhong Rui Hua Heng								Xin
			Certified Public Accountants
			Co., Ltd.
		Year ended 31st December, 2003	Hubei Daxin Certified Public
			Accountants				Co.,			Ltd.
		Year ended 31st December, 2001	Hubei Lian Tai Accountants
			Business Co., Ltd.
		Each of the two years ended	Hubei Daxin Certified Public
		31st December, 2003	Accountants				Co.,			Ltd.

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

We have examined the audited Underlying Financial Statements. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of White Rose Hostel who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

−93 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of White Rose Hostel and of White Rose Hostel Group as at 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 and of the consolidated results and cash flows of the White Rose Hostel Group for each of the Relevant Periods.

I. FINANCIAL INFORMATION

The following is the financial information of White Rose Hostel Group for each of the Relevant Periods.

CONSOLIDATED INCOME STATEMENTS

Notes Turnover Cost of sales Gross profit Other operating income Administrative expenses Surplus (deficit) arising on revaluation of hotel properties Profit (loss) before taxation 3 Taxation 5 Profit (loss) for the year/period Dividends 6	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 26,056 22,833 22,928 8,079 7,767 (22,401) (19,742) (20,404) (7,282) (6,977) 3,655 3,091 2,524 797 790 93 476 539 150 377 (1,769) (1,522) (1,861) (370) (1,824) 636 526 (2,107) – 1,785 2,615 2,571 (905) 577 1,128 (872) (845) 256 (204) (577) 1,743 1,726 (649) 373 551 352 643 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 26,056 22,833 22,928 8,079 7,767 (22,401) (19,742) (20,404) (7,282) (6,977) 3,655 3,091 2,524 797 790 93 476 539 150 377 (1,769) (1,522) (1,861) (370) (1,824) 636 526 (2,107) – 1,785 2,615 2,571 (905) 577 1,128 (872) (845) 256 (204) (577) 1,743 1,726 (649) 373 551 352 643 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 26,056 22,833 22,928 8,079 7,767 (22,401) (19,742) (20,404) (7,282) (6,977) 3,655 3,091 2,524 797 790 93 476 539 150 377 (1,769) (1,522) (1,861) (370) (1,824) 636 526 (2,107) – 1,785 2,615 2,571 (905) 577 1,128 (872) (845) 256 (204) (577) 1,743 1,726 (649) 373 551 352 643 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 26,056 22,833 22,928 8,079 7,767 (22,401) (19,742) (20,404) (7,282) (6,977) 3,655 3,091 2,524 797 790 93 476 539 150 377 (1,769) (1,522) (1,861) (370) (1,824) 636 526 (2,107) – 1,785 2,615 2,571 (905) 577 1,128 (872) (845) 256 (204) (577) 1,743 1,726 (649) 373 551 352 643 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 26,056 22,833 22,928 8,079 7,767 (22,401) (19,742) (20,404) (7,282) (6,977) 3,655 3,091 2,524 797 790 93 476 539 150 377 (1,769) (1,522) (1,861) (370) (1,824) 636 526 (2,107) – 1,785 2,615 2,571 (905) 577 1,128 (872) (845) 256 (204) (577) 1,743 1,726 (649) 373 551 352 643 – – –
	3,655 93 (1,769) 636 2,615 (872)	3,091 476 (1,522) 526 2,571 (845)	2,524 539 (1,861) (2,107) (905) 256	797 150 (370) – 577 (204)	790 377 (1,824 1,785
					1,128 (577
	1,743 352	1,726 643	(649) –	373 –

−94 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

CONSOLIDATED BALANCE SHEETS

Notes Non-Current Assets Hotel properties 8 Equipment 9 Current Assets Inventories 11 Trade and other receivables 12 Amounts due from fellow subsidiaries 13 Bank balances and cash Current Liabilities Trade and other payables 15 Taxation payable Net Current Assets Non-Current Liability Deferred tax liabilities 16 Capital and Reserves Capital 17 Reserves	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 12,000 15,000 11,000 12,000 1,164 677 547 542	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 12,000 15,000 11,000 12,000 1,164 677 547 542	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 12,000 15,000 11,000 12,000 1,164 677 547 542	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 12,000 15,000 11,000 12,000 1,164 677 547 542
	13,164 2,513 3,176 931 2,570 9,190 4,564 248 4,812 4,378 148	15,677 1,656 3,957 1,897 1,727 9,237 3,482 296 3,778 5,459 1,348	11,547 2,481 1,986 2,690 2,610 9,767 3,098 8 3,106 6,661 380	12,542
				2,251 2,230 398 5,194
				10,073
				3,292 70
				3,362
				6,711
				874
	17,394	19,788	17,828	18,379
	4,695 12,699	4,695 15,093	4,695 13,133	4,695 13,684
	17,394	19,788	17,828	18,379

−95 −

ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

APPENDIX III

BALANCE SHEETS

Notes Non-Current Assets Hotel properties 8 Equipment 9 Investment in a subsidiary 10 Current Assets Inventories 11 Trade and other receivables 12 Amounts due from fellow subsidiaries 13 Amount due from a subsidiary 14 Bank balances and cash Current Liabilities Trade and other payables 15 Tax payable Net Current Assets Non-Current Liability Deferred tax liabilities 16 Capital and Reserves Capital 17 Reserves 18	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 11,459 14,387 10,387 11,387 864 520 415 421 469 469 469 469	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 11,459 14,387 10,387 11,387 864 520 415 421 469 469 469 469	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 11,459 14,387 10,387 11,387 864 520 415 421 469 469 469 469	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 11,459 14,387 10,387 11,387 864 520 415 421 469 469 469 469
	12,792 269 289 931 3,922 2,144 7,555 2,907 123 3,030 4,525 84	15,376 252 177 1,897 4,427 1,418 8,171 2,405 269 2,674 5,497 1,274	11,271 263 59 2,690 5,288 825 9,125 2,304 7 2,311 6,814 297	12,277
				207 112 398 4,980 4,007
				9,704
				2,411 49
				2,460
				7,244
				788
	17,233	19,599	17,788	18,733
	4,695 12,538	4,695 14,904	4,695 13,093	4,695 14,038
	17,233	19,599	17,788	18,733

−96 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

STATEMENTS OF CHANGES IN EQUITY

White Rose Hotel Group At 1st January, 2001 Profit for the year Appropriation Dividend paid At 31st December, 2001 Profit for the year Appropriation Surplus arising on revaluation of hotel properties Deferred tax liability arising on revaluation of hotel properties Dividend paid At 31st December, 2002 Loss for the year Appropriation Deficit arising on revaluation of hotel properties Reversal of deferred tax liability arising on revaluation of hotel properties At 31st December, 2003 Profit for the period At 30th April, 2004 At 31st December, 2002 Profit for the period At 30th April, 2003	Capital HK$’000 (Note 17) 4,695 – – –	Capital reserves HK$’000 11,793 – – –	Hotel properties revaluation reserve HK$’000 – – – –	PRC Statutory reserve Accumulated profits (losses) HK$’000 HK$’000 348 (833) – 1,743 99 (99) – (352)	PRC Statutory reserve Accumulated profits (losses) HK$’000 HK$’000 348 (833) – 1,743 99 (99) – (352)	Total HK$’000 16,003 1,743 – (352) 17,394 1,726 – 1,956 (645) (643) 19,788 (649) – (1,956) 645 17,828 551 18,379 19,788 373 20,161
	4,695 – – – – – 4,695 – – – – 4,695 –	11,793 – – – – – 11,793 – – – – 11,793 –	– – – 1,956 (645) – 1,311 – – (1,956) 645 – –	447 – 95 – – – 542 – 20 – – 562 –	459 1,726 (95) – – (643) 1,447 (649) (20) – – 778 551	17,394 1,726 – 1,956 (645 (643
						19,788 (649 – (1,956 645
						17,828 551
	4,695	11,793	–	562	1,329
	4,695 −	11,793 −	1,311 −	542 −	1,447 373	19,788 373
	4,695	11,793	1,311	542	1,820

Capital reserve represents capital contribution from shareholders.

The PRC statutory reserves are reserves required by the relevant PRC laws appreciable to White Rose Hostel Group.

−97 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

CONSOLIDATED CASH FLOW STATEMENTS

Operating Activities Profit (loss) before taxation Adjustments for: Depreciation and amortisation Loss on disposal of equipment Loss on disposal of hotel properties Interest income (Surplus) deficit arising on revaluation of hotel properties Operating cash flows before movements in working capital (Increase) decrease in inventories Decrease (increase) in trade and other receivables (Increase) decrease in amounts due from fellow subsidiaries (Decrease) increase in trade and other payables Cash generated from operations PRC Enterprise Income Tax paid Net Cash from (Used in) Operating Activities Investing Activities Purchase of equipment Additions to hotel properties Interest received Proceeds from disposals of property, plant and equipment Net Cash Used in Investing Activities	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,615 2,571 (905) 577 1,128 280 205 168 69 51 1 40 – – 17 – – 77 – 799 (29) (84) (160) (44) (42) (636) (526) 2,107 – (1,785) 2,231 2,206 1,287 602 168 (450) 857 (825) (224) 230 7,548 (781) 1,971 (808) (244) (925) (966) (793) 663 2,292 (6,106) (1,082) (384) 779 194 2,298 234 1,256 1,012 2,640 (575) (242) (355) (296) (21) 1,723 (8) 901 716 2,619 (672) – (108) (69) (63) (796) (279) (84) – (14) 29 84 160 44 42 – 3 14 – – (1,439) (192) (18) (25) (35)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,615 2,571 (905) 577 1,128 280 205 168 69 51 1 40 – – 17 – – 77 – 799 (29) (84) (160) (44) (42) (636) (526) 2,107 – (1,785) 2,231 2,206 1,287 602 168 (450) 857 (825) (224) 230 7,548 (781) 1,971 (808) (244) (925) (966) (793) 663 2,292 (6,106) (1,082) (384) 779 194 2,298 234 1,256 1,012 2,640 (575) (242) (355) (296) (21) 1,723 (8) 901 716 2,619 (672) – (108) (69) (63) (796) (279) (84) – (14) 29 84 160 44 42 – 3 14 – – (1,439) (192) (18) (25) (35)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,615 2,571 (905) 577 1,128 280 205 168 69 51 1 40 – – 17 – – 77 – 799 (29) (84) (160) (44) (42) (636) (526) 2,107 – (1,785) 2,231 2,206 1,287 602 168 (450) 857 (825) (224) 230 7,548 (781) 1,971 (808) (244) (925) (966) (793) 663 2,292 (6,106) (1,082) (384) 779 194 2,298 234 1,256 1,012 2,640 (575) (242) (355) (296) (21) 1,723 (8) 901 716 2,619 (672) – (108) (69) (63) (796) (279) (84) – (14) 29 84 160 44 42 – 3 14 – – (1,439) (192) (18) (25) (35)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,615 2,571 (905) 577 1,128 280 205 168 69 51 1 40 – – 17 – – 77 – 799 (29) (84) (160) (44) (42) (636) (526) 2,107 – (1,785) 2,231 2,206 1,287 602 168 (450) 857 (825) (224) 230 7,548 (781) 1,971 (808) (244) (925) (966) (793) 663 2,292 (6,106) (1,082) (384) 779 194 2,298 234 1,256 1,012 2,640 (575) (242) (355) (296) (21) 1,723 (8) 901 716 2,619 (672) – (108) (69) (63) (796) (279) (84) – (14) 29 84 160 44 42 – 3 14 – – (1,439) (192) (18) (25) (35)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,615 2,571 (905) 577 1,128 280 205 168 69 51 1 40 – – 17 – – 77 – 799 (29) (84) (160) (44) (42) (636) (526) 2,107 – (1,785) 2,231 2,206 1,287 602 168 (450) 857 (825) (224) 230 7,548 (781) 1,971 (808) (244) (925) (966) (793) 663 2,292 (6,106) (1,082) (384) 779 194 2,298 234 1,256 1,012 2,640 (575) (242) (355) (296) (21) 1,723 (8) 901 716 2,619 (672) – (108) (69) (63) (796) (279) (84) – (14) 29 84 160 44 42 – 3 14 – – (1,439) (192) (18) (25) (35)
	2,231 (450) 7,548 (925) (6,106) 2,298 (575) 1,723 (672) (796) 29 – (1,439)	2,206 857 (781) (966) (1,082) 234 (242) (8) – (279) 84 3 (192)	1,287 (825) 1,971 (793) (384) 1,256 (355) 901 (108) (84) 160 14 (18)	602 (224) (808) 663 779 1,012 (296) 716 (69) – 44 – (25)	168 230 (244 2,292 194
					2,640 (21
					2,619
					(63 (14 42 –
					(35

−98 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

Cash Used in Financing Activities Dividends paid Net (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of the Year/Period Cash and Cash Equivalents at End of the Year/Period represented by bank balances and cash	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (352) (643) – – – (68) (843) 883 691 2,584 2,638 2,570 1,727 1,727 2,610 2,570 1,727 2,610 2,418 5,194	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (352) (643) – – – (68) (843) 883 691 2,584 2,638 2,570 1,727 1,727 2,610 2,570 1,727 2,610 2,418 5,194
		2,584 2,610
		5,194

−99 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The financial information have been prepared under the historical cost convention, as modified for the revaluation of hotel properties and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial information incorporate the financial statements of White Rose Hostel and its subsidiary made up to 31st December each year.

The results of subsidiary acquired or disposed of during the year/period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the White Rose Hostel Group are eliminated on consolidation.

Investment in a subsidiary

Investment in a subsidiary is included in the balance sheet of White Rose Hostel at cost, less any identified impairment loss.

Turnover

Turnover represents the amounts received and receivable from hotel operations and related services rendered, net of business tax payable to the PRC, during the Relevant Periods.

Revenue recognition

Hotel revenue from rooms and other ancillary services is recognised when the services are rendered.

Rental income, including rental invoiced in advance, from properties let under operating leases is recognised on a straight-line basis over the period of the respective leases.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Hotel properties

Hotel properties are interests in land and buildings and their integral fixed plant, and are stated at open market value at the balance sheet date. Changes in the value of hotel properties are dealt with as movements on the hotel properties revaluation reserve. Any surplus arising on revaluation of hotel properties is credited to the hotel properties revaluation reserve, except to the extent that it reverses a decrease in revaluation of the same hotel property previously recognised as an expense, in which case, the surplus is recognised as income. Any deficit arising on revaluation of hotel properties is charged to the income statement to the extent that it exceeds the balance, if any, on the hotel properties revaluation reserve relating to a previous revaluation of that hotel property.

The gain or loss arising from the disposal or retirement of a revalued hotel property is determined as the difference between the sale proceeds and the carrying amount of the hotel property and is recognised in the income statement.

On the subsequent sale or retirement of a revalued hotel property, the attributable surplus is transferred to accumulated profits. No depreciation or amortisation is provided on hotel properties held on land use rights of more than 20 years. It is White Rose Hostel Group’s practice to maintain the properties in a continual state of sound repair and maintenance, and accordingly, the directors consider that depreciation and amortisation is not necessary due to their high residual value. The related maintenance expenditures are charged to the income statement in the year in which they are incurred.

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APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

Equipment

Equipment other than construction in progress, are stated at cost less accumulated depreciation and amortisation and any accumulated impairment losses.

Construction in progress is stated at cost which includes all development expenditure and other direct costs attributable to the construction. It is not depreciated or amortised until completion of construction. Costs of completed construction works are transferred to the appropriate categories of equipment.

Depreciation is provided to write off the cost of other assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Motor vehicles 9.5% Office equipment 9.5%-19%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the White Rose Hostel Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value and is calculated using the weighted average method.

Retirement benefit costs

Payments made to state-managed retirement benefits schemes are charged as expenses as they fall due.

Taxation

Taxation represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

−101 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred taxation is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

On consolidation, the assets and liabilities of the White Rose Hostel Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the White Rose Hostel Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight line basis over the period of the respective leases.

2. SEGMENT INFORMATION

No analysis of White Rose Hostel Group’s segment information by business or geographical segments is presented as White Rose Hostel Group is solely engaged in hotel operation which is carried out in the PRC during the entire Relevant Periods.

−102 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

3. PROFIT (LOSS) BEFORE TAXATION

Profit (loss) before taxation has been arrived at after charging: Directors’ remuneration (note 4) Other staff costs Retirement benefit scheme contributions Total staff costs Depreciation Loss on disposal of equipment Loss on disposal of hotel properties and after crediting: Interest income Gross rental income from hotel properties Less: outgoings	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 1,670 1,311 2,185 728 796 99 104 121 40 47	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 1,670 1,311 2,185 728 796 99 104 121 40 47	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 1,670 1,311 2,185 728 796 99 104 121 40 47	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 1,670 1,311 2,185 728 796 99 104 121 40 47	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 1,670 1,311 2,185 728 796 99 104 121 40 47
	1,769 280 1 – 29 3,369 (215)	1,415 205 40 – 84 3,691 (225)	2,306 168 – 77 160 3,150 (203)	768 69 – – 53 1,050 (68)	843 51 17 799 42 952 (61
	3,154	3,466	2,947	982	891

4. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

During the Relevant Periods, no directors’ emoluments were paid by White Rose Hostel Group.

During the Relevant Periods, all the five highest paid individuals of White Rose Hostel Group were employees and details of their emoluments were as follows:

Salaries and other benefits Retirement benefit scheme contributions	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 148 148 153 51 51 27 27 30 10 10 175 175 183 61 61	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 148 148 153 51 51 27 27 30 10 10 175 175 183 61 61
		61

The aggregate emoluments of each of the employees for each of the Relevant Periods did not exceed HK$1,000,000.

During the Relevant Periods, no emoluments were paid by White Rose Hostel Group to any of the directors or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining White Rose Hostel Group or as compensation for loss of office. None of the directors has waived any emoluments during the Relevant Periods.

−103 −

ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

APPENDIX III

5. TAXATION

PRC Enterprise Income Tax Deferred taxation (note 16)	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 341 290 67 92 83 531 555 (323) 112 494 872 845 (256) 204 577	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 341 290 67 92 83 531 555 (323) 112 494 872 845 (256) 204 577
		577

The PRC Enterprise Income Tax is calculated at 33% of estimated assessable profits of White Rose Hostel and that of for each of the Relevant Periods.

The taxation charge for the Relevant Periods can be reconciled to the profit (loss) per the income statement as follows:

Profit (loss) before taxation Tax at the applicable tax of 33% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax charge for the year/period	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,615 2,571 (905)	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,615 2,571 (905)	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,615 2,571 (905)	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (unaudited) 577 1,128	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (unaudited) 577 1,128
	863 9 –	848 – (3)	(299) 43 –	190 14 –	372 205 –
	872	845	(256)	204	577

In addition to the amount charged to the income statement, deferred tax relating to the revaluation surplus/deficit of White Rose Hostel Group’s hotel properties recognised in equity during the Relevant Periods has been dealt with directly in equity.

Details of deferred taxation are set out in note 16.

6. DIVIDENDS

During the years ended 31st December, 2001 and 2002, White Rose Hostel declared and paid dividends of HK$352,000 and HK$643,000 respectively. Other then these, no dividend was declared or paid by White Rose Hostel or its subsidiary during the Relevant Periods.

7. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share figures have not been presented as such information is not meaningful having regard to the purpose of this accountants’ report.

−104 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

8. HOTEL PROPERTIES

Valuation At 1st January, 2001 Additions Transfer from equipment Surplus arising on revaluation At 31st December, 2001 Additions Transfer from equipment Surplus arising on revaluation At 31st December, 2002 Additions Transfer from equipment Disposals Deficit arising on revaluation At 31st December, 2003 Addition Disposals Surplus arising on revaluation At 30th April, 2004	White Rose Hostel Group HK$’000 10,000 796 568 636	White Rose Hostel HK$’000 9,459 796 568 636 11,459 276 170 2,482 14,387 84 56 (77) (4,063) 10,387 14 (799) 1,785 11,387
	12,000 279 239 2,482 15,000 84 56 (77) (4,063) 11,000 14 (799) 1,785	11,459 276 170 2,482
		14,387 84 56 (77 (4,063
		10,387 14 (799 1,785
	12,000

The hotel properties of White Rose Hostel Group were revalued at the respective balance sheet dates on an open market value existing use basis by AA Properties Services Limited, an independent firm of professional property valuers. For the four months ended 30th April, 2004, the surplus arising on revaluation amounting to HK$1,785,000 was credited to the income statements. For the year ended 31st December, 2003, the deficit arising on revaluation amounted to HK$4,063,000 of which HK$1,956,000 was charged to the hotel properties revaluation reserve and the remaining balance of HK$2,107,000 was charged to the income statement. For the year ended 31st December, 2002, the surplus arising on revaluation amounted to HK$2,482,000, of which HK$526,000 was credited to the income statement and the remaining balance of HK$1,956,000 was credited to the hotel properties revaluation reserve. For the year ended 31st December, 2001, the surplus arising on revaluation amounted to HK$636,000 was credited to the income statement.

If White Rose Hostel Group’s hotel properties had not been revalued, they would have been included on a historical cost basis at approximately HK$18,847,000 (31.12.2003: HK$19,632,000, 31.12.2002: HK$19,569,000, 31.12.2001: HK$19,051,000).

All hotel properties are situated in the PRC and held under medium-term land use rights.

All formal titles of the land use rights and property right certificate of White Rose Hostel Group’s hotel properties are currently under the name of Poly Hua Zhong Enterprises Development Company, immediate holding company of White Rose Hostel, and will be transferred to White Rose Hostel prior to the completion of the acquisition by an indirect wholly-owned subsidiary of the Company of the entire interest in Hubei White Rose Hotel Company Limited.

−105 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

9. EQUIPMENT

White Rose Hostel Group Cost At 1st January, 2001 Additions Transfer to hotel properties Disposals At 31st December, 2001 Transfer to hotel properties Disposals At 31st December, 2002 Additions Transfer to hotel properties Disposals At 31st December, 2003 Additions Disposals At 30th April, 2004 Depreciation At 1st January, 2001 Provided for the year Eliminated on disposals At 31st December, 2001 Provided for the year Eliminated on disposals At 31st December, 2002 Provided for the period Eliminated on disposals At 31st December, 2003 Provided for the period Eliminated on disposals At 30th April, 2004 Net Book Value At 31st December, 2001 At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	Motor vehicles HK$’000 1,481 – – –	Office equipment HK$’000 751 83 – (19)	Construction in progress HK$’000 218 589 (568) –	Total HK$’000 2,450 672 (568) (19) 2,535 (239) (306) 1,990 108 (56) (439) 1,603 63 (337) 1,329 1,109 280 (18) 1,371 205 (263) 1,313 168 (425) 1,056 51 (320) 787 1,164 677 547 542
	1,481 – (306) 1,175 – – (178) 997 – (334) 663 898 116 – 1,014 99 (263) 850 69 (169) 750 21 (317) 454	815 – – 815 52 – (261) 606 – (3) 603 211 164 (18) 357 106 – 463 99 (256) 306 30 (3) 333	239 (239) – – 56 (56) – – 63 – 63 – – – – – – – – – – – – –	2,535 (239 (306
				1,990 108 (56 (439
				1,603 63 (337
				1,329
				1,109 280 (18
				1,371 205 (263
				1,313 168 (425
				1,056 51 (320
				787
	467 325 247 209	458 352 300 270	239 – – 63

At 30th April, 2004

−106 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

White Rose Hostel Cost At 1st January, 2001 Additions Transfer to hotel properties At 31st December, 2001 Transfer Disposals At 31st December, 2002 Additions Transfer to hotel properties Disposals At 31st December, 2003 Additions Disposals At 30th April, 2004 Depreciation At 1st January, 2001 Provided for the year At 31st December, 2001 Provided for the year Eliminated on disposals At 31st December, 2002 Provided for the year Eliminated on disposals At 31st December, 2003 Provided for the period Eliminated on disposals At 30th April, 2004 Net Book Value At 31st December, 2001 At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	Motor vehicles HK$’000 1,141 – –	Office equipment HK$’000 652 76 –	Construction in progress HK$’000 218 520 (568)	Total HK$’000 2,011 596 (568) 2,039 (170) (181) 1,688 96 (56) (410) 1,318 63 (337) 1,044 943 232 1,175 163 (170) 1,168 135 (400) 903 40 (320) 623 864 520 415 421
	1,141 – (181) 960 – – (178) 782 – (334) 448 785 85 870 68 (170) 768 49 (168) 649 14 (317) 346	728 – – 728 40 – (232) 536 – (3) 533 158 147 305 95 – 400 86 (232) 254 26 (3) 277	170 (170) – – 56 (56) – – 63 – 63 – – – – – – – – – – – –	2,039 (170 (181
				1,688 96 (56 (410
				1,318 63 (337
				1,044
				943 232
				1,175 163 (170
				1,168 135 (400
				903 40 (320
				623
	271 192 133 102	423 328 282 256	170 – – 63

−107 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

10. INVESTMENT IN A SUBSIDIARY

													As at
							**As **	at 31st December,					30th April,
						2001			2002			2003	2004
						HK$’000		HK$’000			HK$’000		HK$’000
Unlisted shares, at cost						469			469			469	469
Details of White Rose Hostel’s				wholly-owned subsidiary are as follows:
									Registered and
					Place of				**fully **	**paid **	up	Principles
**Name **		of subsidiary			establishment					capital		activities
			(“	”)	The PRC				RMB500,000			Provision of hotel related services

11. INVENTORIES

		**White Rose **	**White Rose **	Hostel Group	Hostel Group			White Rose Hostel	White Rose Hostel
						As at				As at
		**As at **	31st December,		**30th **	April,	**As at **	31st December,		30th April,
		2001	2002	2003		2004	2001	2002	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000
Finished	goods	2,513	1,656	2,481		2,251	269	252	263	207

All inventories were carried at cost.

12. TRADE AND OTHER RECEIVABLES

White Rose Hostel Group allows an average credit period of 30 days to its trade customers. The following is an aged analysis of trade receivables at the respective balance sheet dates:

Within 1 year 1 to 2 years Over 2 years	White Rose Hostel Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 162 926 1,231 1,333 16 18 279 207 84 111 130 – 262 1,055 1,640 1,540	As at 2001 HK$’000 – – – –	White Rose Hostel 31st December, As at 30th April, 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 44 – – – – – – – – 44	White Rose Hostel 31st December, As at 30th April, 2002 2003 2004 HK$’000 HK$’000 HK$’000 – – 44 – – – – – – – – 44
				44

−108 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

13. AMOUNTS DUE FROM FELLOW SUBSIDIARIES

The amounts are unsecured, interest-free and repayable on demand.

14. AMOUNT DUE FROM A SUBSIDIARY

The amount is unsecured, interest free and repayable on demand.

15. TRADE AND OTHER PAYABLES

The following is an aged analysis of trade payables at the respective balance sheet dates:

0 to 30 days 31 to 60 days More than 60 days	White Rose Hostel Group As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 1,384 572 801 819 43 108 87 84 101 46 37 36 1,528 726 925 939	As at 2001 HK$’000 255 43 101 399	White Rose Hostel 31st December, As at 30th April, 2002 2003 2004 HK$’000 HK$’000 HK$’000 259 300 299 10 11 11 4 5 5 273 316 315	White Rose Hostel 31st December, As at 30th April, 2002 2003 2004 HK$’000 HK$’000 HK$’000 259 300 299 10 11 11 4 5 5 273 316 315
				315

16. DEFERRED TAXATION

The following are the major deferred tax liabilities recognised by White Rose Hostel Group and White Rose Hostel and movements thereon during the Relevant Periods:

White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788	White Rose Hostel Group White Rose Hostel Revaluation of hotel properties Accelerated tax depreciation Total Revaluation of hotel properties Accelerated tax depreciation Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2001 (383) – (383) (383) (55) (438) Charge to income statement for the year 210 321 531 210 312 522 At 31st December, 2001 (173) 321 148 (173) 257 84 Charge to equity for the year 645 – 645 645 – 645 Charge to income statement for the year 173 382 555 173 372 545 At 31st December, 2002 645 703 1,348 645 629 1,274 Credit to equity for the year (645) – (645) (645) – (645 (Credit) charge to income statement for the year (695) 372 (323) (695) 363 (332 At 31st December, 2003 (695) 1,075 380 (695) 992 297 Charge (credit) to income statement for the period 589 (95) 494 589 (98) 491 At 30th April, 2004 (106) 980 874 (106) 894 788
	(173) 645 173 645 (645) (695) (695) 589	321 – 382 703 – 372 1,075 (95)	148 645 555 1,348 (645) (323) 380 494	(173) 645 173 645 (645) (695) (695) 589	257 – 372 629 – 363 992 (98)	84 645 545
						1,274 (645 (332
						297 491
	(106)	980	874	(106)	894	788

−109 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

17. CAPITAL

Registered and fully paid up capital:

At 1st January, 2001, 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 Shown in the financial statements as	RMB5,000,000
	HK$4,695,000

18. RESERVES

White Rose Hostel At 1st January, 2001 Profit for the year Appropriation Dividend paid At 31st December, 2001 Profit for the year Appropriation Surplus arising on revaluation of hotel property Deferred tax liability arising on revaluation of hotel property Dividend paid At 31st December, 2002 Loss for the year Appropriation Deficit arising on revaluation of hotel property Reversal of deferred tax liability arising on revaluation of hotel property At 31st December, 2003 Profit for the period At 30th April, 2004	Capital reserves HK$’000 11,793 – – –	Hotel property revaluation reserve HK$’000 – – – –	PRC Statutory reserve Accumulated profits (losses) HK$’000 HK$’000 348 (889) – 1,638 62 (62) – (352)	PRC Statutory reserve Accumulated profits (losses) HK$’000 HK$’000 348 (889) – 1,638 62 (62) – (352)	Total HK$’000 11,252 1,638 – (352)
	11,793 – – – – – 11,793 – – – – 11,793 –	– – – 1,956 (645) – 1,311 – – (1,956) 645 – –	410 – 89 – – – 499 – 20 – – 519 –	335 1,698 (89) – – (643) 1,301 (500) (20) – – 781 945	12,538 1,698 – 1,956 (645) (643)
					14,904 (500) – (1,956) 645
					13,093 945
	11,793	–	519	1,726	14,038

Capital reserve represents capital contribution from shareholders.

The PRC statutory reserves are reserves required by the relevant PRC laws applicable to White Rose Hostel Group.

−110 −

APPENDIX III ACCOUNTANTS’ REPORT ON WHITE ROSE HOSTEL

19. RELATED PARTY DISCLOSURES

During the Relevant Periods, White Rose Hostel Group entered into the following transactions with related parties:

					Four months ended	Four months ended
Class of related	Nature of	Year ended 31st December,			30th April,
party	transactions	2001	2002	2003	2003	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Fellow subsidiary	Sales of goods	283	189	131	44	46
	Administrative
	expenses	585	599	–	−	–
	Rental income	505	563	–	−	–

The above transactions were carried out on the following bases:

• (a) Sales of goods were conducted in normal business terms and agreed by the relevant party.

• (b) Administrative expenses were charged at pre-agreed rates.

• (c) Rental were charged in accordance with the terms of the agreement entered into between the relevant party.

Details of the balances with related companies at the respective balance sheet dates are set out in notes 13 and 14.

II. SUBSEQUENT EVENT

There was no significant reportable event subsequent to 30th April, 2004.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for White Rose Hostel Group, White Rose Hostel or its subsidiary in respect of any period subsequent to 30th April, 2004.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−111 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

The following is the text of a report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [64 x 49] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Wuhan White Rose Airport Transportation Services Centre (“White Rose Transportation”) for each of the three years ended 31st December, 2003 and the four months ended 30th April, 2004 (the “Relevant Periods”) for inclusion in the circular dated 29th October, 2004 issued by Continental Mariner Investment Company Limited (the “Company”) in connection with a proposed acquisition by an indirect wholly-owned subsidiary of the Company of the entire equity interest in Hubei White Rose Hotel Company Limited (the “Circular”).

White Rose Transportation is a company incorporated on 12th June, 1997 in the People’s Republic of China (the “PRC”) with limited liability and it is principally engaged in the business of travel agency in Wuhan, the PRC. Its ultimate holding company is China Poly Group Corporation, a company established in the PRC. As at the date of this report, White Rose Transportation’s registered capital is wholly owned by Hubei White Rose Hotel Company Limited.

The statutory financial statements of White Rose Transportation for each of the three years ended 31st December, 2003 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC and were audited by Hubei Daxin Certified Public Accountants Co., Ltd. , certified public accountants registered in the PRC.

For the purpose of this report, White Rose Transportation has prepared financial statements in accordance with accounting principles generally accepted in Hong Kong for the Relevant Periods (the “Underlying Financial Statements”). We have audited the Underlying Financial Statements in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

We have examined the audited Underlying Financial Statements. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

−112 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

The Underlying Financial Statements are the responsibility of the directors of White Rose Transportation who approved their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of White Rose Transportation as at 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 and of the results and cash flows of White Rose Transportation for each of the Relevant Periods.

I. FINANCIAL INFORMATION

The following is the financial information of White Rose Transportation for the Relevant Periods.

INCOME STATEMENTS

Notes Turnover Other operating income Administrative expenses Profit before taxation 3 Taxation 5 Profit for the year/period Dividends 6	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 408 271 288 80 108 4 3 2 – 2 (282) (161) (159) (46) (51) 130 113 131 34 59 (64) (44) (46) (11) (20) 66 69 85 23 39 – 222 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 408 271 288 80 108 4 3 2 – 2 (282) (161) (159) (46) (51) 130 113 131 34 59 (64) (44) (46) (11) (20) 66 69 85 23 39 – 222 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 408 271 288 80 108 4 3 2 – 2 (282) (161) (159) (46) (51) 130 113 131 34 59 (64) (44) (46) (11) (20) 66 69 85 23 39 – 222 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 408 271 288 80 108 4 3 2 – 2 (282) (161) (159) (46) (51) 130 113 131 34 59 (64) (44) (46) (11) (20) 66 69 85 23 39 – 222 – – –	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 408 271 288 80 108 4 3 2 – 2 (282) (161) (159) (46) (51) 130 113 131 34 59 (64) (44) (46) (11) (20) 66 69 85 23 39 – 222 – – –
	130 (64)	113 (44)	131 (46)	34 (11)	59 (20
	66 –	69 222	85 –	23 –

−113 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

BALANCE SHEETS

Notes Non-Current Asset Property, plant and equipment 8 Current Assets Other receivables Amount due from a fellow subsidiary 9 Bank balances and cash Current Liabilities Trade and other payables 10 Amount due to a fellow subsidiary 11 Taxation payable Net Current Assets Capital and Reserves Capital 12 Reserves	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 20 18 11 9	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 20 18 11 9	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 20 18 11 9	As at 31st December, As at 30th April, 2001 2002 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 20 18 11 9
	196 469 391 1,056 353 – 64 417 639	244 248 406 898 393 – 17 410 488	169 248 362 779 164 – 35 199 580	124 248 496
				868
				219 8 20
				247
				621
	659	506	591	630
	469 190	469 37	469 122	469 161
	659	506	591	630

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ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

STATEMENTS OF CHANGES IN EQUITY

At 1st January, 2001 Capital contribution Profit for the year At 31st December, 2001 Appropriation Profit for the year Dividend paid At 31st December, 2002 Appropriation Profit for the year At 31st December, 2003 Profit for the period At 30th April, 2004 At 31st December, 2002 Profit for the period At 30th April, 2003	Capital HK$’000 (Note 12) – 469 –	PRC Statutory reserves Accumulated profits HK$’000 HK$’000 (Note 13) – 124 – – – 66	PRC Statutory reserves Accumulated profits HK$’000 HK$’000 (Note 13) – 124 – – – 66	Total HK$’000 124 469 66 659 – 69 (222) 506 – 85 591 39 630 506 23 529
	469 – – – 469 – – 469 –	– 38 – – 38 12 – 50 –	190 (38) 69 (222) (1) (12) 85 72 39	659 – 69 (222
				506 – 85
				591 39
	469	50	111
	469 –	38 –	(1) 23	506 23
	469	38	22

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ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

CASH FLOW STATEMENTS

Operating Activities Profit before taxation Adjustments for: Depreciation Interest income Operating cash flows before movements in working capital Decrease in inventory Decrease (increase) in other receivables (Increase) decrease in amount due from a fellow subsidiary (Decrease) increase in trade and other payables Increase in amounts due to a fellow subsidiary Cash (used in) generated from operations PRC corporate income tax paid Net Cash (Used In) from Operating Activities Investing Activities Purchase of property, plant and equipment Dividend paid Interest received Net Cash (Used In) from Investing Activities	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 130 113 131 34 59 6 8 7 3 2 (4) (3) (2) – (2) 132 118 136 37 59 1 – – – – 89 (48) 75 (528) 45 (424) 221 – – – (303) 40 (229) 473 55 – – – – 8 (505) 331 (18) (18) 167 – (91) (28) (15) (35) (505) 240 (46) (33) 132 (10) (6) – – – – (222) – – – 4 3 2 – 2 (6) (225) 2 – 2	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 130 113 131 34 59 6 8 7 3 2 (4) (3) (2) – (2) 132 118 136 37 59 1 – – – – 89 (48) 75 (528) 45 (424) 221 – – – (303) 40 (229) 473 55 – – – – 8 (505) 331 (18) (18) 167 – (91) (28) (15) (35) (505) 240 (46) (33) 132 (10) (6) – – – – (222) – – – 4 3 2 – 2 (6) (225) 2 – 2	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 130 113 131 34 59 6 8 7 3 2 (4) (3) (2) – (2) 132 118 136 37 59 1 – – – – 89 (48) 75 (528) 45 (424) 221 – – – (303) 40 (229) 473 55 – – – – 8 (505) 331 (18) (18) 167 – (91) (28) (15) (35) (505) 240 (46) (33) 132 (10) (6) – – – – (222) – – – 4 3 2 – 2 (6) (225) 2 – 2	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 130 113 131 34 59 6 8 7 3 2 (4) (3) (2) – (2) 132 118 136 37 59 1 – – – – 89 (48) 75 (528) 45 (424) 221 – – – (303) 40 (229) 473 55 – – – – 8 (505) 331 (18) (18) 167 – (91) (28) (15) (35) (505) 240 (46) (33) 132 (10) (6) – – – – (222) – – – 4 3 2 – 2 (6) (225) 2 – 2	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 130 113 131 34 59 6 8 7 3 2 (4) (3) (2) – (2) 132 118 136 37 59 1 – – – – 89 (48) 75 (528) 45 (424) 221 – – – (303) 40 (229) 473 55 – – – – 8 (505) 331 (18) (18) 167 – (91) (28) (15) (35) (505) 240 (46) (33) 132 (10) (6) – – – – (222) – – – 4 3 2 – 2 (6) (225) 2 – 2
	132 1 89 (424) (303) – (505) – (505) (10) – 4 (6)	118 – (48) 221 40 – 331 (91) 240 (6) (222) 3 (225)	136 – 75 – (229) – (18) (28) (46) – – 2 2	37 – (528) – 473 – (18) (15) (33) – – – –	59 – 45 – 55 8
					167 (35
					132
					– – 2
					2

−116 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

Cash from Financing Activities Capital contribution Net (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of the Year/Period Cash and Cash Equivalents at End of the Year/Period represented by bank balances and cash	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 469 – – − – (42) 15 (44) (33) 134 433 391 406 406 362 391 406 362 373 496	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 469 – – − – (42) 15 (44) (33) 134 433 391 406 406 362 391 406 362 373 496
		134 362
		496

−117 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

NOTES TO THE FINANCIAL INFORMATION

1. SIGNIFICANT ACCOUNTING POLICIES

The financial information has been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Turnover

Turnover represents the amounts received and receivable for travel agency service rendered, net of business tax payable in the PRC, during the Relevant Periods.

Revenue recognition

Service income is recognised when services are rendered.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortisation and any accumulated impairment losses.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum:

Office equipment

20%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, White Rose Transportation reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Retirement benefit costs

Payments made to state-managed retirement benefits schemes are charged as expenses as they fall due.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred taxation.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible.

−118 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred taxation is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

2. SEGMENT INFORMATION

No analysis of White Rose Transportation’s segment information by business or geographical segments is presented as White Rose Transportation is solely engaged in travel agency operation which is carried out in the PRC during the entire Relevant Periods.

3. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging: Directors’ remuneration (note 4) Other staff costs Retirement benefits scheme contributions Total staff costs Auditors’ remuneration Depreciation and after crediting: Interest income	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 137 62 60 20 22 4 5 2 1 1 141 67 62 21 23 – – – – – 6 8 7 3 2 4 3 2 – 2	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) – – – – – 137 62 60 20 22 4 5 2 1 1 141 67 62 21 23 – – – – – 6 8 7 3 2 4 3 2 – 2
		23 – 2 2

−119 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

4. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

During the Relevant Periods, no directors’ emolument were paid by White Rose Transportation.

During the Relevant Periods, all the five highest paid individuals of White Rose Transportation were employees and details of their emoluments were as follows:

Salaries and other benefits Retirement benefits scheme contributions	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 137 62 60 20 22 4 5 2 1 1 141 67 62 21 23	Year ended 31st December, Four months ended 30th April, 2001 2002 2003 2003 2004 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 137 62 60 20 22 4 5 2 1 1 141 67 62 21 23
		23

During the Relevant Periods, no emoluments were paid by White Rose Transportation to any of the directors or the five highest paid individuals (including directors and employees) as an inducement to join or upon joining White Rose Transportation or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

5. TAXATION

The amount represents provision for PRC Enterprise Income Tax on White Rose Transportation’s estimated assessable profit during the Relevant Periods.

The PRC Enterprise Income Tax rate applicable to White Rose Transportation is 33%.

The taxation charge for the Relevant Periods can be reconciled to the profit per the income statement as follows:

Profit before taxation Tax at the applicable tax of 33% Tax effect of expenses not deductible for tax purpose Tax charge for the year/period	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 130 113 131	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 130 113 131	Year ended 31st December, 2001 2002 2003 HK$’000 HK$’000 HK$’000 130 113 131	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (unaudited) 32 59	Four months ended 30th April, 2003 2004 HK$’000 HK$’000 (unaudited) 32 59
	43 21	37 7	43 3	11 –	19 1
	64	44	46	11	20

There was no significant unprovided deferred taxation for the Relevant Periods or at the respective balance sheet dates.

6. DIVIDENDS

Other than a dividend of HK$221,923 declared and paid by White Rose Transportation during the year ended 31st December, 2002, no dividends were declared during the Relevant Periods.

−120 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

7. EARNINGS PER SHARE

Earnings per share figures have not been presented as such information is not meaningful having regard to the purpose of this report.

8. PROPERTY, PLANT AND EQUIPMENT

COST At 1st January, 2001 Additions At 31st December, 2001 Additions At 31st December, 2002, 2003 and 30th April, 2004 DEPRECIATION At 1st January, 2001 Provided for the year At 31st December, 2001 Provided for the year At 31st December, 2002 Provided for the year At 31st December, 2003 Provided for the period At 30th April, 2004 NET BOOK VALUE At 31st December, 2001 At 31st December, 2002 At 31st December, 2003 At 30th April, 2004	Office equipment HK$’000 24 10
	34 6
	40
	8 6
	14 8
	22 7
	29 2
	31
	20
	18
	11
	9

−121 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

9. AMOUNT DUE FROM A FELLOW SUBSIDIARY

The amount is unsecured, interest-free and repayable on demand.

10. TRADE AND OTHER PAYABLES

Included in the balance is trade payable, an aged analysis of which at the respective balance sheet dates is as follows:

									As at
					**As **	**at **	31st December,		30th April,
				2001			2002	2003	2004
				HK$’000			HK$’000	HK$’000	HK$’000
0	to	30	days	262			366	137	192

11. AMOUNT DUE TO A FELLOW SUBSIDIARY

The amount is unsecured, interest-free and repayable on demand.

12. CAPITAL

Registered and fully paid up capital:

At 1st January, 2001 Capital contribution At 31st December, 2001, 31st December, 2002, 31st December, 2003 and 30th April, 2004 Shown in the financial statements as	RMB500,000
	RMB500,000
	HK$469,000

13. RESERVES

The PRC statutory reserves are reserves required by the relevant PRC laws applicable to White Rose Transportation.

14. RELATED PARTY DISCLOSURES

Details of the balances with related companies at the respective balance sheet dates are set out in notes 9 and 11.

−122 −

ACCOUNTANTS’ REPORT OF WHITE ROSE TRANSPORTATION

APPENDIX IV

II. SUBSEQUENT EVENT

There was no significant reportable event subsequent to 30th April, 2004.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for White Rose Transportation in respect of any period subsequent to 30th April, 2004.

Yours faithfully, Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−123 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

1. AUDITED FINANCIAL INFORMATION

The following is a summary of the audited consolidated results and the assets and liabilities of the Group for each of the three financial years ended 31st December, 2003 as extracted from the respective published audited financial statements:

RESULTS Turnover Profit (loss) before taxation Taxation Profit (loss) after taxation Minority interests Profit (loss) attributable to shareholders Basic earnings (loss) per share (cents) ASSETS AND LIABILITIES Total assets Total liabilities Minority interests Shareholders’ funds	Year ended 31st December, 2003 2002 2001 HK$’000 HK$’000 HK$’000 473,590 441,051 341,976 92,062 (110,740) (848) (5,626) (5,682) (1,919) 86,436 (116,422) (2,767) (15,189) (12,572) (12,058) 71,247 (128,994) (14,825) 8.82 (15.93) (1.8) 3,464,312 3,469,535 3,354,656 (932,761) (976,653) (889,021) (202,531) (256,463) (250,961) 2,329,020 2,236,419 2,214,674	Year ended 31st December, 2003 2002 2001 HK$’000 HK$’000 HK$’000 473,590 441,051 341,976 92,062 (110,740) (848) (5,626) (5,682) (1,919) 86,436 (116,422) (2,767) (15,189) (12,572) (12,058) 71,247 (128,994) (14,825) 8.82 (15.93) (1.8) 3,464,312 3,469,535 3,354,656 (932,761) (976,653) (889,021) (202,531) (256,463) (250,961) 2,329,020 2,236,419 2,214,674	Year ended 31st December, 2003 2002 2001 HK$’000 HK$’000 HK$’000 473,590 441,051 341,976 92,062 (110,740) (848) (5,626) (5,682) (1,919) 86,436 (116,422) (2,767) (15,189) (12,572) (12,058) 71,247 (128,994) (14,825) 8.82 (15.93) (1.8) 3,464,312 3,469,535 3,354,656 (932,761) (976,653) (889,021) (202,531) (256,463) (250,961) 2,329,020 2,236,419 2,214,674
	92,062 (5,626) 86,436 (15,189)	(110,740) (5,682) (116,422) (12,572)	(848 (1,919
			(2,767 (12,058
	71,247 8.82	(128,994) (15.93)
	3,464,312 (932,761) (202,531)	3,469,535 (976,653) (256,463)	3,354,656 (889,021 (250,961
	2,329,020	2,236,419

−124 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The following is an extract of the audited financial statements of the Group for the year ended 31st December, 2003 together with notes thereto:

CONSOLIDATED INCOME STATEMENT

For the year ended 31st December, 2003

Notes Turnover 4 Cost of sales Gross profit Other operating income Administrative expenses Amortisation of intangible assets Amortisation of deferred licensing income Surplus (deficit) arising on revaluation of investment properties Deficit arising on revaluation of hotel properties Impairment loss on investments in securities Unrealised holding gain (loss) on other investments Profit (loss) from operations 5 Finance costs 8 Gain on disposal of subsidiaries 9 Loss on disposal of an associate 10 Gain on dilution of interest in a subsidiary to an associate 38 Amortisation of goodwill arising on acquisition of associates Share of profits of associates Share of losses of jointly controlled entities Allowance for loans to jointly controlled entities Profit (loss) before taxation Taxation 11 Profit (loss) before minority interests Minority interests Profit (loss) for the year Proposed final dividend – HK$0.06 per share (2002: Nil) Earnings (loss) per share 12	2003 HK$’000 473,590 (308,551)	2002 HK$’000 441,051 (264,542) 176,509 8,565 (141,907) (4,967) 14,954 (46,226) – (20,419) (8,745) (22,236) (18,890) – (43,164) 4,552 (12,255) 706 (7,175) (12,278) (110,740) (5,682) (116,422) (12,572) (128,994) – (15.93) cents
	165,039 8,492 (128,493) (399) 14,954 24,636 (4,148) (13,470) 1,798 68,409 (20,230) 21,205 – – (12,688) 36,532 – (1,166) 92,062 (5,626) 86,436 (15,189)	176,509 8,565 (141,907 (4,967 14,954 (46,226 – (20,419 (8,745
		(22,236 (18,890 – (43,164 4,552 (12,255 706 (7,175 (12,278
		(110,740 (5,682
		(116,422 (12,572
	71,247 54,520 8.82 cents

−125 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONSOLIDATED BALANCE SHEET

At 31st December, 2003

Notes Non-Current Assets Investment properties 13 Hotel properties 14 Property, plant and equipment 15 Intangible assets 16 Negative goodwill 18 Interest in associates 19 Interest in jointly controlled entities 20 Investment in a property development project 21 Investments in securities 22 Deposit paid for a hotel project 23 Current Assets Stores Inventories 24 Properties held for resale Trade and other receivables 25 Short-term loans receivable Amounts due from associates 26 Investments in securities 22 Pledged bank deposits Bank balances, deposits and cash Current Liabilities Trade and other payables 27 Property rental deposits Taxation Bank borrowings – due within one year 28 Net Current Assets Capital and Reserves Share capital 29 Reserves Minority interests Non-Current Liabilities Bank borrowings – due after one year 28 Other borrowings 32 Loan from a fellow subsidiary 34 Deferred licencing income 35	2003 HK$’000 698,440 647,400 825,912 – – 459,255 3,659 197,271 79,166 30,000	2002 HK$’000 728,974 608,400 944,962 399 (14,714) 283,908 20,669 – 87,636 – 2,660,234 435 21,354 – 206,110 23,364 45,253 79,042 86,620 347,123 809,301 195,873 3,133 2,685 355,662 557,353 251,948 2,912,182 403,761 1,832,658 2,236,419 256,463 146,020 30,290 168,224 74,766 419,300 2,912,182
	2,941,103 968 7,559 15,600 153,247 40,201 – 50,396 11,948 243,290 523,209 246,216 4,013 3,028 172,675 425,932 97,277	2,660,234
		435 21,354 – 206,110 23,364 45,253 79,042 86,620 347,123
		809,301
		195,873 3,133 2,685 355,662
		557,353
		251,948
	3,038,380
	403,801 1,925,219 2,329,020 202,531 248,503 30,290 168,224 59,812 506,829	403,761 1,832,658
		2,236,419
		256,463
		146,020 30,290 168,224 74,766
		419,300
	3,038,380

−126 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

BALANCE SHEET

At 31st December, 2003

Notes Non-Current Assets Interest in subsidiaries 17 Investment in an associate 19 Current Assets Trade and other receivables Investments in securities 22 Bank balances, deposits and cash Current Liabilities Trade and other payables Bank borrowings – due within one year 28 Net Current Assets Capital and Reserves Share capital 29 Reserves 31 Non-Current Liabilities Bank borrowings – due after one year 28 Other borrowings 32 Amounts due to subsidiaries 33	2003 HK$’000 2,482,445 77,060	2002 HK$’000 2,290,872 77,060
	2,559,505 225 10,122 48,755 59,102 8,136 39,000 47,136 11,966	2,367,932
		318 20,563 55,684
		76,565
		5,501 28,500
		34,001
		42,564
	2,571,471	2,410,496
	403,801 1,602,794 2,006,595 44,000 30,290 490,586 564,876	403,761 1,588,314
		1,992,075
		41,500 30,290 346,631
		418,421
	2,571,471	2,410,496

−127 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31st December, 2003

THE GROUP At 1st January, 2002 Share of translation of reserve of overseas operations not recognised in income statement Shares repurchased and cancelled: – Repurchase of ordinary shares – Premium on shares repurchased – Transfer Transfer Deemed capital contribution arising on acquisition of an associate from holding company Realised on disposal of an associate Loss for the year At 31st December, 2002 and 1st January, 2003 Exercise of share options Premium arising on issue of shares Deficit arising on revaluation Share of reserve of an associate attributable to the Group Realised on disposal of subsidiaries Transfer Profit for the year At 31st December, 2003	Share capital HK$’000 (note 29) 405,392 – (1,631) – – – – – –	Share premium HK$’000 1,458,243 – – – – – – – –	Investment properties revaluation reserve HK$’000 – – – – – – – – –	Hotel properties revaluation reserve HK$’000 9,660 – – – – – – – –	Exchange translation reserve HK$’000 2,546 (458) – – – – – (2,645) –	Capital re- demption reserve HK$’000 14,275 – – – 1,631 – – – –	Goodwill reserve HK$’000 (177,087) – – – – – – 118,195 –	PRC statutory reserves HK$’000 4,167 – – – – 1,458 – (1,190) –	Other capital reserve HK$’000 125,532 – – – – – 38,605 – –	Accu- mulated profits HK$’000 371,946 – – (137) (1,631) (1,458) – – (128,994)	Total HK$’000 2,214,674 (458) (1,631) (137) – – 38,605 114,360 (128,994)
	403,761 40 – – – – – –	1,458,243 – 20 – – – – –	– – – – 31,659 – – –	9,660 – – (9,660) – – – –	(557) – – – – 22 – –	15,906 – – – – – – –	(58,892) – – – – – – –	4,435 – – – – (727) 1,562 –	164,137 – – – – – – –	239,726 – – – – – (1,562) 71,247	2,236,419 40 20 (9,660) 31,659 (705) – 71,247
	403,801	1,458,263	31,659	–	(535)	15,906	(58,892)	5,270	164,137	309,411	2,329,020

Included in goodwill reserve as at 31st December, 2003 is goodwill of HK$54,528,000 (2002: HK$54,528,000) and HK$4,364,000 (2002: HK$4,364,000) arising on acquisition of subsidiaries and associates respectively.

Included in other capital reserve as at 31st December, 2003 is deemed capital contribution arising on acquisition of a subsidiary of HK$124,946,000 (2002: HK$124,946,000) and an associate of HK$38,605,000 (2002: HK$38,605,000).

The People’s Republic of China (“PRC”) statutory reserves are reserves required by the relevant PRC laws applicable to the Group’s PRC subsidiaries, associates and jointly controlled entities.

The accumulated profits of the Group at 31st December, 2003 include a profit of approximately HK$39,342,000 (2002: HK$4,068,000) retained by associates and a loss of approximately HK$48,580,000 (2002: HK$48,580,000) attributable to jointly controlled entities.

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APPENDIX V

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31st December, 2003

OPERATING ACTIVITIES Profit (loss) from operations Adjustments for: Depreciation and amortisation of property, plant and equipment Amortisation of intangible assets Amortisation of deferred licensing income Impairment loss on investments in securities Loss on disposal of investment properties Loss on disposal of property, plant and equipment (Surplus) deficit arising on revaluation of investment properties Deficit arising on revaluation of hotel properties Release of negative goodwill Unrealised holding (gain) loss on other investments Operating cash flows before movements in working capital (Increase) decrease in stores Decrease (increase) in inventories Decrease (increase) in trade and other receivables (Increase) decrease in short-term loans receivable Decrease in amounts due from associates Decrease in other investments Increase (decrease) in trade and other payables Increase (decrease) in property rental deposits Net cash generated from (used in) operations PRC income tax paid Hong Kong Profits Tax refunded Interest paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	2003 HK$’000 68,409 70,429 399 (14,954) 13,470 4,760 351 (24,636) 4,148 (879) (1,798)	2002 HK$’000 (22,236) 67,541 4,967 (14,954) 20,419 – 2,449 46,226 – (879) 8,745 112,278 686 (11,224) (97,106) 9,346 – 3,247 (33,992) (341) (17,106) (5,165) 4 (18,890) (41,157)
	119,699 (533) 4,455 58,614 (16,837) 45,253 25,444 71,095 880 308,070 (3,821) 13 (20,230) 284,032	112,278 686 (11,224 (97,106 9,346 – 3,247 (33,992 (341
		(17,106 (5,165 4 (18,890
		(41,157

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APPENDIX V

Notes INVESTING ACTIVITIES Investment in a property development project Purchase of property, plant and equipment Capital contributions to associates Disposal of subsidiaries (net of cash and cash equivalents disposed of) 37 Additions to hotel properties Deposit paid for a hotel project Decrease (increase) in pledged bank deposits Proceeds from disposal of investment properties Repayment from jointly controlled entities Decrease in bank deposits held for investment purpose Dividend received from an associate Proceeds from disposal of property, plant and equipment Proceeds from disposal of an associate Dilution of interest in a subsidiary to an associate 38 Purchase of subsidiaries (net of cash and cash equivalents acquired) 36 Purchase of investments in securities Advance to associates Proceeds from disposal of investments in securities NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Borrowings raised Repayment of borrowings Dividend paid to a minority shareholder of a subsidiary Dividend paid to a minority shareholder of a former subsidiary Proceeds from issue of shares Repurchase of shares	2003 HK$’000 (197,271) (135,008) (128,000) (89,075) (56,028) (30,000) 74,672 34,810 15,844 9,627 7,000 822 – – – – – –	2002 HK$’000 – (57,789) – – – – (58,040) – 7,532 27,052 13,084 35,328 293,095 6,087 (150,000) (20,868) (7,870) 216 87,827 365,532 (216,629) (6,875) – – (1,768)
	(492,607) 495,860 (371,238) (5,300) (5,013) 60 –	87,827
		365,532 (216,629 (6,875 – – (1,768

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Bank balances, deposits and cash Less: Bank deposits held for investment purpose	2003 HK$’000 114,369 (94,206) 335,175 240,969 243,290 (2,321) 240,969	2002 HK$’000 140,260 186,930 148,245 335,175 347,123 (11,948) 335,175

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31st December, 2003

1. GENERAL

The Company is a public limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

In the opinion of the directors, the Company’s ultimate holding company is China Poly Group Corporation (“China Poly”), a state-owned enterprise established in the People’s Republic of China (the “PRC”). China Poly and its affiliated companies, other than members of the Group, are hereinafter collectively referred to as the China Poly Group.

The Company is an investment holding company. The subsidiaries are engaged in shipping, hotel operations, property investment and management, supply of electricity and gas, securities investment, financial services and general trading.

2. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARD/CHANGES IN ACCOUNTING POLICY

In the current year, the Group has adopted, for the first time, the following Hong Kong Financial Reporting Standard (“HKFRS”) issued by the Hong Kong Society of Accountants (“HKSA”), the term of HKFRS is inclusive of Statements of Standard Accounting Practice (“SSAPs”) and Interpretations approved by the HKSA:

SSAP 12 (Revised)

Income Taxes

Income taxes

In the current year, the Group has adopted SSAP 12 (Revised) “Income Taxes”. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit with limited exceptions.

The adoption of SSAP 12 (Revised) has had no material effect on the results for the current or prior accounting periods and, accordingly, no prior period adjustment is required.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of investment properties, hotel properties and investments in securities and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st December each year.

The results of subsidiaries, associates and jointly controlled entities acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions and balances within the Group are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition.

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APPENDIX V

Goodwill arising on acquisition prior to 1st January, 2001 continues to be held in reserves, and will be charged to the income statement at the time of disposal of the relevant subsidiary or associate or at such time as the goodwill is determined to be impaired.

Goodwill arising on acquisition after 1st January, 2001 is capitalised and amortised on a straight line basis over its useful economic life. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of a subsidiary is presented separately in the balance sheet.

On disposal of a subsidiary or associate, the attributable amount of unamortised goodwill/goodwill previously eliminated against or credited to reserves is included in the determination of the profit or loss on disposal.

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition over the cost of acquisition and is presented as deduction from assets and will be released to income based on an analysis of the circumstances from which the balance resulted.

To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised to income immediately.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost less any identified impairment loss.

Interest in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interest in associates are stated at the Group’s share of the net assets of the associates plus the goodwill in so far as it has not already been written off or amortised, less any identified impairment loss.

The results of associates are accounted for by the Company on the basis of dividends received and receivable during the year. In the Company’s balance sheet, investment in associates are stated at cost, as reduced by any identified impairment loss.

Interest in jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Group’s interest in jointly controlled entities are included in the consolidated balance sheet at the Group’s share of the net assets of the jointly controlled entities less any identified impairment loss. The Group’s share of post-acquisition results of jointly controlled entities are included in the consolidated income statement.

Investments in securities

Investments in securities are recognised on a trade-date basis and are initially measured at cost.

Investment securities, which are securities held for an identified long term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary.

Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Revenue recognition

Sales of goods are recognised when goods are delivered and title has passed.

Service revenue is recognised when services are provided.

Sales of investments in securities are recognised on a trade date basis.

Revenue from hotel operations and related services is recognised when the relevant services are provided.

Rental income, including rental invoiced in advance, from properties let under operating leases is recognised on a straight line basis over the period of the respective leases.

Licence fees for the exclusive right of managing certain of the Group’s assets are recognised on a straight line basis over the period of the respective licence agreement.

Interest income is accrued on a time basis, by reference to the principal outstanding and the interest rate applicable.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Charterhire income is recognised on a straight line basis over the charterhire period.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

Investment properties are stated at their open market values based on independent professional valuations at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment properties revaluation reserve unless the balance on this reserve is insufficient to cover a deficit on a portfolio basis, in which case the excess of the deficit over the balance on the investment properties revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged.

On disposal of investment properties, the balance on the investment properties revaluation reserve attributable to the properties disposed of is transferred to the income statement.

No depreciation is provided in respect of investment properties except where the unexpired term of the relevant lease is 20 years or less.

Hotel properties

Hotel properties are interests in land and buildings and their integral fixed plant, and are stated at independent professional valuation at the balance sheet date. Changes in the value of hotel properties are dealt with as movements on the hotel properties revaluation reserve. Any surplus arising on revaluation of hotel properties is credited to the hotel properties revaluation reserve, except to the extent that it reverses a decrease in revaluation of the same hotel property previously recognised as an expense, when it is recognised as income. A decrease in net carrying amount arising on revaluation of hotel properties is charged to the income statement to the extent that it exceeds the balance, if any, on the hotel properties revaluation reserve relating to a previous revaluation of that hotel property.

The gain or loss arising from the disposal or retirement of a revalued hotel property is determined as the difference between the sale proceeds and the carrying amount of the hotel property and is recognised in the income statement.

On the subsequent sale or retirement of a revalued hotel property, the attributable surplus is transferred to accumulated profits. No depreciation or amortisation are provided on hotel properties held on land use rights of more than 20 years. It is the Group’s practice to maintain the properties in a continual state of sound repair

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APPENDIX V

and maintenance, and accordingly, the directors consider that depreciation and amortisation are not necessary due to their high residual value. The related maintenance expenditure is dealt with in the income statement in the year of expenditure.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less depreciation and amortisation and accumulated impairment losses.

Land and buildings which were previously classified as investment properties are stated at their valuation immediately prior to transfer less subsequent depreciation. No further valuation will be carried out on these land and buildings.

Construction in progress is stated at cost which includes all development expenditure and other direct costs attributable to such projects. It is not depreciated or amortised until completion of construction. Costs of completed construction works are transferred to the appropriate categories of property, plant and equipment.

Depreciation of motor vessels is calculated at a rate sufficient to write off their cost less estimated scrap value over their remaining estimated useful lives on a straight line basis of 25 years from the date of their first registration.

Depreciation is provided to write off the cost or valuation of other assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land	Over the term of the lease
Buildings	2%-18%
Furniture, fixtures and equipment	20%
Motor vehicles	20%
Plant and machinery	6%-23%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the impairment loss is treated as a revaluation decrease under that SSAP.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the reversal of the impairment loss is treated as a revaluation increase under that SSAP.

Intangible assets

Intangible assets are stated at cost less amortisation and any identified impairment loss. Amortisation is calculated to write off the cost of the intangible assets over their estimated useful lives, using the straight line method.

Stores

Stores which represent lubricants and bunkers on board are stated at cost.

Properties held for resale

Completed properties held for resale are classified under current assets and are stated at the lower of cost and net realisable value. Cost comprises the acquisition cost, borrowing costs capitalised and other direct costs attributable to such properties.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Inventories

Inventories are stated at the lower of cost and net realisable value and is calculated using the weighted average method.

Retirement benefits scheme contributions

Payments to Group’s defined contribution retirement benefits schemes and Mandatory Provident Fund Scheme are charged as expenses as they fall due. Payments made to state-managed retirement benefits schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Transactions in currencies other than Hong Kong dollars are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.

On consolidation, the assets and liabilities of the Group’s operations outside Hong Kong are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight line basis over the period of the respective leases.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

4. TURNOVER

Turnover represents the aggregate of the net amounts received and receivable from third parties, net of business tax payable in the PRC and is summarised as follows:

Sales of electricity and gas Rental income and property management Vessel charterhire income Sales of goods Sales of properties Sale proceeds from disposal of investment securities Income from hotel operation Interest income from investments Dividend income Shipment handling fees Management fees	2003 HK$’000 190,258 60,011 59,155 51,756 35,696 31,367 27,435 11,410 4,005 2,497 – 473,590	2002 HK$’000 147,840 72,732 46,680 45,859 – 47,479 55,717 8,929 6,202 2,113 7,500
		441,051

5. PROFIT (LOSS) FROM OPERATIONS

Profit (loss) from operations has been arrived at after charging: Staff costs – directors’ emoluments (note 6) – other staff costs – other staff’s retirement benefits scheme contributions Auditors’ remuneration – current year – underprovision in prior year Depreciation and amortisation of property, plant and equipment Loss on disposal of property, plant and equipment Loss on disposal of investment properties Operating lease rentals in respect of land and buildings and after crediting: Property rental income, net of outgoing of HK$6,269,000 (2002: HK$6,392,000) Release of negative goodwill to other operating income	2003 HK$’000 1,646 58,056 4,399 64,101 1,328 184 70,429 351 4,760 2,954 51,617 879	2002 HK$’000 1,678 57,659 4,057
		63,394 1,144 349 67,541 2,449 – 3,486 57,272 879

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

6. DIRECTORS’ EMOLUMENTS

Directors’ fees: Executive Independent non-executive Other emoluments of executive directors: Salaries and other benefits Retirement benefits scheme contributions Total directors’ emoluments The emoluments of the directors were within the following bands:	2003 HK$’000 80 110	2002 HK$’000 80 110
	190 1,362 94 1,456	190
		1,394 94
		1,488
	1,646	1,678

	2003	2002
	Number of	Number of
	directors	directors
Nil to HK$1,000,000	8	7
HK$1,000,001 to HK$1,500,000	1	1

7. EMPLOYEES’ EMOLUMENTS

The aggregate emoluments of the five highest paid individuals included one (2002: one) executive director of the Company, whose emoluments are included in note 6 above. The aggregate emoluments of the remaining four (2002: four) highest paid individuals are as follows:

Salaries and other benefits Retirement benefits scheme contributions	2003 HK$’000 3,213 118 3,331	2002 HK$’000 3,364 105
		3,469

The emoluments of the remaining four (2002: four) highest paid individuals were within the following bands:

	2003	2002
	Number of	Number of
	employees	employees
Nil to HK$1,000,000	3	3
HK$1,000,001 to HK$1,500,000	1	1

During the year, no emoluments were paid by the Group to the five highest paid individuals, including directors and employees, as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

8. FINANCE COSTS

Interest on bank borrowings: – wholly repayable within five years – repayable after five years	2003 HK$’000 17,633 2,597 20,230	2002 HK$’000 15,233 3,657
		18,890

9. GAIN ON DISPOSAL OF SUBSIDIARIES

This represents the gain on disposal of the Group’s entire interest in The NCHK Power (Shengzhou) Limited (“NCHK Power”) and its 52% interest in Shengzhou Xinzhonggang Thermal Power Co., Ltd. (“Shengzhou Xinzhonggang”), for a total consideration of approximately HK$66,884,000 after the realisation of negative goodwill of HK$13,835,000 and other reserves of HK$705,000.

10. LOSS ON DISPOSAL OF AN ASSOCIATE

This represented the loss on disposal of the Group’s entire 40.37% equity interest in a listed associate, Poly Investments Holdings Limited (“Poly”) in 2002, for a total consideration of approximately HK$293,095,000 after the realisation of goodwill of HK$118,195,000 and other reserves of HK$3,835,000 previously dealt with in the Group’s reserves at the time of acquisition.

11. TAXATION

The charge comprises: Hong Kong Profits Tax PRC income tax Share of taxation of associates	2003 HK$’000 – 4,470	2002 HK$’000 3 5,292
	4,470 1,156	5,295 387
	5,626	5,682

Hong Kong Profits Tax is calculated at 17.5% (2002: 16%) of the estimated assessable profit for the year. In June, 2003, the Hong Kong Profits Tax rate was increased from 16% to 17.5% with effect from the 2003/2004 year of assessment.

PRC income tax is calculated in accordance with the relevant laws and regulations in the PRC.

Details of unrecognised deferred taxation are set out in note 39.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The tax charge for the year can be reconciled to the profit per the income statement as follows:

Profit (loss) before taxation Tax at PRC Statutory Tax rate of 33% (2002: 33%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of tax losses not recognised Tax effect of utilisation of tax losses not previously recognised Tax effect of share of results of associates and jointly controlled entities Effect of tax exemptions granted to PRC subsidiaries Effect of different tax rates of subsidiaries operating in other jurisdictions Tax expense and effective tax rate for the year	2003 HK$’000 % 92,062	2003 HK$’000 % 92,062	2002 HK$’000 % (110,740) (36,544) 33.0 79,050 (71.4) (56,886) 51.4 4,964 (4.5) (837) 0.8 2,523 (2.3) (1,838) 1.7 15,250 (13.8) 5,682 (5.1)	2002 HK$’000 % (110,740) (36,544) 33.0 79,050 (71.4) (56,886) 51.4 4,964 (4.5) (837) 0.8 2,523 (2.3) (1,838) 1.7 15,250 (13.8) 5,682 (5.1)
	30,380 50,884 (20,836) 16,489 (750) (10,899) (41,513) (18,129)	33.0 55.2 (22.6) 17.9 (0.8) (11.8) (45.1) (19.7)	(36,544) 79,050 (56,886) 4,964 (837) 2,523 (1,838) 15,250	33.0 (71.4 51.4 (4.5 0.8 (2.3 1.7 (13.8
	5,626	6.1	5,682

12. EARNINGS (LOSS) PER SHARE

The calculation of the basic earnings (loss) per share is based on the profit for the year of HK$71,247,000 (2002: a loss of HK$128,994,000) and on the weighted average number of 807,527,241 shares (2002: 809,685,704 shares) in issue during the year.

No diluted earnings per share for the year ended 31st December, 2003 has been presented since the exercise price of the Company’s share options are higher than the average market price per share for the year.

No diluted loss per share for the year ended 31st December, 2002 has been presented since the exercise of the Company’s share options would result in a decrease in loss per share for that year.

13. INVESTMENT PROPERTIES

THE GROUP VALUATION At 1st January, 2003 Surplus arising on revaluation Disposals Transfer to properties held for resale At 31st December, 2003	HK$’000 728,974 24,636 (39,570) (15,600) 698,440

The investment properties of the Group were revalued at 31st December, 2003 on an open market value existing use basis by AA Property Services Limited, an independent firm of professional property valuers. The surplus arising on revaluation has been credited to the consolidated income statement.

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APPENDIX V

The carrying value of investment properties comprises:

Properties held under – long leases in Hong Kong – long-term land use rights in the PRC – medium-term land use rights in the PRC	THE GROUP 2003 2002 HK$’000 HK$’000 37,000 40,000 – 312,000 661,440 376,974 698,440 728,974	THE GROUP 2003 2002 HK$’000 HK$’000 37,000 40,000 – 312,000 661,440 376,974 698,440 728,974
		728,974

14. HOTEL PROPERTIES

THE GROUP VALUATION At 1st January, 2003 Additions Deficit arising on revaluation At 31st December, 2003	HK$’000 608,400 56,028 (17,028)
	647,400

The hotel properties of the Group were revalued at 31st December, 2003 on an open market value existing use basis by AA Property Services Limited, an independent firm of professional property valuers. The deficit arising on revaluation of hotel properties amounted to HK$17,028,000, of which HK$4,148,000 and HK$9,660,000 (net of minority interests of HK$3,220,000) have been charged to the consolidated income statement and the hotel properties revaluation reserve respectively.

If the Group’s hotel properties had not been revalued, they would have been included on a historical cost basis at carrying value of approximately HK$651.5 million (2002: HK$595.5 million).

All the hotel properties are situated in the PRC and held under medium-term land use rights.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

15. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST OR VALUATION At 1st January, 2003 Additions Transfer Disposals Disposal of subsidiaries At 31st December, 2003 Comprising: At cost At valuation – 1995 – 1997 DEPRECIATION AND AMORTISATION At 1st January, 2003 Provided for the year Eliminated on disposals Eliminated on disposal of subsidiaries At 31st December, 2003 NET BOOK VALUE At 31st December, 2003 At 31st December, 2002	Land and buildings HK$’000 341,904 5,542 3,706 (928) (54,393)	Furniture, fixtures and equipment HK$’000 94,853 920 – (2,679) –	Motor vehicles HK$’000 7,752 693 – (1,296) –	Motor vessels HK$’000 464,244 – – – –	Plant and machinery Construction in progress HK$’000 HK$’000 399,628 15,060 3,538 124,315 70,289 (73,995) (5,109) – (123,374) (19,407)	Plant and machinery Construction in progress HK$’000 HK$’000 399,628 15,060 3,538 124,315 70,289 (73,995) (5,109) – (123,374) (19,407)	Total HK$’000 1,323,441 135,008 – (10,012) (197,174)
	295,831 152,299 27,893 115,639 295,831 57,349 16,739 (478) (4,819) 68,791	93,094 93,094 – – 93,094 76,186 4,305 (2,369) – 78,122	7,149 7,149 – – 7,149 4,211 937 (1,220) – 3,928	464,244 464,244 – – 464,244 157,506 17,416 – – 174,922	344,972 344,972 – – 344,972 83,227 31,032 (4,772) (9,899) 99,588	45,973 45,973 – – 45,973 – – – – –	1,251,263
							1,107,731 27,893 115,639
							1,251,263
							378,479 70,429 (8,839) (14,718)
							425,351
	227,040 284,555	14,972 18,667	3,221 3,541	289,322 306,738	245,384 316,401	45,973 15,060	825,912
							944,962

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The net book value of land and buildings shown above comprises: Properties held under – long leases in Hong Kong – long-term land use rights in the PRC – medium-term land use rights in the PRC	THE GROUP 2003 2002 HK$’000 HK$’000 123,560 126,430 – 50,369 103,480 107,756 227,040 284,555	THE GROUP 2003 2002 HK$’000 HK$’000 123,560 126,430 – 50,369 103,480 107,756 227,040 284,555
		284,555

The Group’s land and buildings stated at 1995 and 1997 valuation were valued at 31st March, 1995 and 31st March, 1997 by independent firm of professional property valuers, on an open market value basis before being transferred from investment properties. No further valuation has been carried out on these properties.

If land and buildings had not been revalued, they would have been included in these financial statements at historical cost less accumulated depreciation and amortisation at approximately HK$220,945,000 (2002: HK$278,404,000).

All motor vessels are held for use under operating leases.

16. INTANGIBLE ASSETS

THE GROUP COST At 1st January, 2003 and at 31st December, 2003 AMORTISATION At 1st January, 2003 Amortisation for the year At 31st December, 2003 NET BOOK VALUE At 31st December, 2003 At 31st December, 2002	HK$’000 6,153
	5,754 399
	6,153
	–
	399

Intangible assets represent the publishing rights acquired from independent third parties.

The amortisation period adopted for intangible assets ranged from twelve to eighteen months.

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APPENDIX V

17. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries less impairment loss recognised	THE COMPANY 2003 2002 HK$’000 HK$’000 160,056 160,056 2,322,389 2,130,816 2,482,445 2,290,872	THE COMPANY 2003 2002 HK$’000 HK$’000 160,056 160,056 2,322,389 2,130,816 2,482,445 2,290,872
		2,290,872

Details of the Company’s principal subsidiaries at 31st December, 2003 are set out in note 47.

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment. In the opinion of the directors, the amounts will not be repayable within twelve months from the balance sheet date and are therefore shown as non-current.

18. NEGATIVE GOODWILL

THE GROUP GROSS AMOUNT At 1st January, 2003 Eliminated on disposal of subsidiaries At 31st December, 2003 RELEASED TO INCOME At 1st January, 2003 Released to other operating income in the year Eliminated on disposal of subsidiaries At 31st December, 2003 CARRYING AMOUNT At 31st December, 2003 At 31st December, 2002	HK$’000 15,826 (15,826
	–
	1,112 879 (1,991
	–
	–
	14,714

The negative goodwill is released to income on a straight line basis over an average period of 18 years, the remaining term of the subsidiaries established in the PRC from date of acquisition.

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APPENDIX V

19. INTEREST IN ASSOCIATES

THE GROUP 2003 2002 HK$’000 HK$’000 Unlisted shares, at cost – – Share of net assets of associates 414,262 234,889 Goodwill arising on acquisition of associates 44,993 49,019 459,255 283,908 Goodwill arising on acquisition of associates COST At 1st January, 2003 Goodwill arising on acquisition At 31st December, 2003 AMORTISATION At 1st January, 2003 Provided for the year At 31st December, 2003 CARRYING AMOUNT At 31st December, 2003 At 31st December, 2002	THE COMPANY 2003 2002 HK$’000 HK$’000 77,060 77,060 – – – – 77,060 77,060 THE GROUP HK$’000 61,274 8,662 69,936 12,255 12,688 24,943 44,993 49,019	THE COMPANY 2003 2002 HK$’000 HK$’000 77,060 77,060 – – – – 77,060 77,060 THE GROUP HK$’000 61,274 8,662 69,936 12,255 12,688 24,943 44,993 49,019
		77,060
		THE GROUP HK$’000 61,274 8,662
		69,936
		12,255 12,688
		24,943
		44,993
		49,019

The amortisation period adopted for the above goodwill ranges from 5 to 20 years.

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APPENDIX V

Details of the Group’s associates at 31st December, 2003 are as follows:

			Attributable	Attributable
			proportion of nominal
		Place of	value of issued capital/
		incorporation/	**registered **	capital
Name of associate		establishment	**held by the **	Company	Principal activities
			directly	indirectly
Dongtai Suzhong		PRC	–	49%	Provision of electricity
Environmental Protection					and gas
Co-generation Company
Limited (“Dongtai Power”)
Peixian Mine-Site		PRC	–	49%	Provision of electricity
Environmental Cogen-					and gas
power Co., Ltd.
(“Peixian Power”)
Shanghai Puly Real Estate		PRC	–	40%	Property holding
Development Co. Ltd.
(“Shanghai Puly”)
Skywin China Limited		British Virgin	–	25%	Investment holding,
		Islands			development and
					supply of software
					for telecommunication
					systems
Winterthur Insurance (Asia)		Hong Kong	48%	–	Insurance business
Limited (“Winterthur”)		PRC	–	31.7%	Manufacturing and
United East Audio					wholesaling of
& Video Co., Ltd.					compact disc, video
					compact disc and
					digital video disc

The followings details have been extracted from the unaudited management accounts of Shanghai Puly, the Group’s major associate:

Results for the year/period:

Turnover Profit before taxation and after minority interests Profit before taxation and after minority interests attributable to the Group	1.1.2003 to 31.12.2003 HK$’000 51,717 59,286 23,714	31.7.2002 (date of acquisition) to 31.12.2002 HK$’000 10,779
		5,328
		2,131

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APPENDIX V

Financial position:

Non-current assets Current assets Current liabilities Non-current liabilities Net assets Net assets attributable to the Group	2003 HK$’000 568,430 14,818 (76,105) (21,610) 485,533 194,213	2002 HK$’000 467,290 92,700 (187,386) (22,383)
		350,221
		140,088

20. INTEREST IN JOINTLY CONTROLLED ENTITIES

Share of net assets of jointly controlled entities Loans to jointly controlled entities Less: allowance for loans to jointly controlled entities	THE GROUP 2003 2002 HK$’000 HK$’000 – – 17,103 32,947 (13,444) (12,278) 3,659 20,669	THE GROUP 2003 2002 HK$’000 HK$’000 – – 17,103 32,947 (13,444) (12,278) 3,659 20,669
		20,669

The loans to the jointly controlled entities are unsecured, interest-free and have no fixed repayment terms. In the opinion of the directors, the amounts will not be repayable within twelve months from the balance sheet date and are therefore shown as non-current.

Details of the Group’s principal jointly controlled entity which was indirectly held by the Company at 31st December, 2003 are as follows:

			Attributable
			proportion of
Name of jointly		Place of	nominal value of
controlled entity		establishment PRC	registered capital 25%	Principal activities Property development
Tianjin Winson Real Estate				in Tianjin, the PRC
Development Company Limited
(“Tianjin Winson”)

21. INVESTMENT IN A PROPERTY DEVELOPMENT PROJECT

		**THE **	GROUP
		2003		2002
		HK$’000		HK$’000
Investment	cost	197,271		–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The amount represents the Group’s investment cost in the development of a property project, China Securities Plaza in Beijing, the PRC (the “Project”). The investment cost comprises a 49% equity interest in Tong Sun Limited (“Tong Sun”) of US$49 (approximately HK$382), shareholders loan to Tong Sun of HK$152,271,000 and a loan of HK$45,000,000 to New City (Beijing) Development Limited (“New City”, New City and its subsidiaries are collectively referred to as the “New City Group”), which held 51% equity interest in Tong Sun. Tong Sun is a company incorporated in Samoa which holds 66% of the registered capital of Beijing Zhong Zheng Real Estate Development Co. Ltd. , a sino-foreign co-operative joint venture established in the PRC for the development of the Project.

In accordance with an agreement dated 8th May, 2003 (“Agreement”), the Group has agreed to subscribe for 49 new ordinary shares (which were subsequently reclassified as “Class A Ordinary Shares” in which the Group is entitled to receive a preferred dividend distribution) in Tong Sun at a subscription price of US$49 and would advance an interest-free shareholders loan of HK$165,000,000 to Tong Sun to finance exclusively the working capital of the Project. At 31st December, 2003, the Group has advanced HK$152,271,000 to Tong Sun.

In addition, the Group advanced a loan to New City (“New City loan”) which bears interest at 6% per annum and is repayable in 2005 in accordance with the Agreement. The shareholders loan and New City loan are secured by shares in New City.

In accordance with the terms of the shareholders’ agreement of Tong Sun, the dividend policy of Tong Sun is to distribute at the end of each financial year a cash dividend equivalent to the total amount of surplus/profits of that financial year available for distribution to its shareholders in accordance with the applicable laws of Samoa. Out of such distributable dividends, the Group will be entitled to receive a preferred dividend distribution of up to HK$94,600,000 (together with the repayment of the shareholders loan and the New City loan (and interest accrued thereon)) in priority to the dividend payment to the New City Group of up to HK$136,000,000. In addition, the loan advanced by the New City Group in the sum of approximately HK$184,000,000 (“New City Group loan”) will only be repaid to the New City Group after the full repayment and payment of the shareholders loan and the New City loan (and all interest accrued thereon) and the payment of the said distribution of HK$94,600,000 to the Group.

After the payment in full of the said preferred dividend payments and the repayment of the shareholders loan, the New City loan (and all interest accrued thereon) to the Group and the repayment of the New City Group loan to the New City Group, any further distribution by Tong Sun will be distributed and paid to the Group and the New City Group in the proportion of 25% and 75% respectively.

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APPENDIX V

22. INVESTMENTS IN SECURITIES

THE GROUP Equity securities: Listed in Hong Kong Unlisted Total Market value of listed securities Carrying amount analysed for reporting purposes as: Current Non-current THE COMPANY Current investments: Listed equity securities Market value of listed securities	Investment 2003 HK$’000 78,231 – 78,231 44,981	securities 2002 HK$’000 86,701 – 86,701 44,020	Other investments 2003 2002 HK$’000 HK$’000 10,396 34,042 40,935 45,935 51,331 79,977 10,396 34,042	Other investments 2003 2002 HK$’000 HK$’000 10,396 34,042 40,935 45,935 51,331 79,977 10,396 34,042	Total 2003 2002 HK$’000 HK$’000 88,627 120,743 40,935 45,935 129,562 166,678 55,377 78,062	Total 2003 2002 HK$’000 HK$’000 88,627 120,743 40,935 45,935 129,562 166,678 55,377 78,062
						166,678
						78,062
	– 78,231	– 86,701	50,396 935	79,042 935	50,396 79,166	79,042 87,636
	78,231 – –	86,701 – –	51,331 10,122 10,122	79,977 20,563 20,563	129,562 10,122 10,122	166,678
						20,563
						20,563

During the year, the directors of the Company reviewed the carrying amount of certain investments in securities in light of current economic conditions with reference to the market value of these securities. An impairment loss of HK$13,470,000 (2002: HK$20,419,000) has been recognised and charged to the income statement.

23. DEPOSIT PAID FOR A HOTEL PROJECT

The deposit was paid by the Group in connection with the development of a hotel project in the PRC.

24. INVENTORIES

Raw materials Work in progress Finished goods	THE GROUP 2003 2002 HK$’000 HK$’000 7,163 20,675 26 305 370 374 7,559 21,354	THE GROUP 2003 2002 HK$’000 HK$’000 7,163 20,675 26 305 370 374 7,559 21,354
		21,354

All inventories were carried at cost.

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APPENDIX V

25. TRADE AND OTHER RECEIVABLES

The Group has a policy of allowing credit periods ranging from 30 days to 90 days to its trade customers. The following is an aged analysis of trade receivables at the balance sheet date:

0 to 30 days 31 to 90 days More than 90 days Total trade receivables Receivables on disposal of subsidiaries Receivables on disposal of an associate (Note) Other receivables	THE 2003 HK$’000 29,774 9,667 562	GROUP 2002 HK$’000 28,904 16,542 6,479
	40,003 47,664 – 65,580	51,925 – 100,000 54,185
	153,247	206,110

Note: The receivables on disposal of an associate in 2002 was secured by 29.5% shareholding in Poly which was fully repaid during the year.

26. AMOUNTS DUE FROM ASSOCIATES

The amounts were unsecured, interest-free and were fully repaid during the year.

27. TRADE AND OTHER PAYABLES

The following is an aged analysis of trade payables at the balance sheet date:

0 to 30 days 31 to 90 days More than 90 days Total trade payables Other payables	THE 2003 HK$’000 10,817 908 5,059	GROUP 2002 HK$’000 7,004 753 6,099
	16,784 229,432	13,856 182,017
	246,216	195,873

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

28. BANK BORROWINGS

Bank loans – secured – unsecured The maturity of the above loans is as follows: On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding five years More than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	THE 2003 HK$’000 390,240 30,938 421,178	GROUP 2002 HK$’000 371,434 130,248 501,682	THE COMPANY 2003 2002 HK$’000 HK$’000 83,000 70,000 – – 83,000 70,000	THE COMPANY 2003 2002 HK$’000 HK$’000 83,000 70,000 – – 83,000 70,000
				70,000
	172,675 154,931 74,852 18,720 421,178 172,675	355,662 34,320 66,460 45,240 501,682 355,662	39,000 44,000 – – 83,000 39,000	28,500 19,500 22,000 –
				70,000 28,500
	248,503	146,020	44,000	41,500

The bank borrowings bear interest at prevailing market rates and repayable in accordance with the terms in the respective loan agreements.

29. SHARE CAPITAL

Ordinary share of HK$0.50 each Authorised: At 1st January, 2002, 31st December, 2002 and 31st December, 2003 Issued and fully paid: At 1st January, 2002 Shares repurchased and cancelled (Note i) At 31st December, 2002 Exercise of share options (Note ii) At 31st December, 2003	Number of ordinary shares 1,200,000,000	Amount HK$’000 600,000
	810,783,200 (3,261,000) 807,522,200 80,000	405,392 (1,631
		403,761 40
	807,602,200	403,801

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

During the year, the following changes in the share capital of the Company took place:

• (i) During the year ended 31st December, 2002, the Company repurchased certain of its own shares through the Stock Exchange as follows:

Month of repurchase February, 2002 July, 2002 August, 2002 September, 2002 October, 2002	Number of ordinary shares repurchased Price per share Highest Lowest HK$ HK$ 144,000 0.800 0.750 858,000 0.690 0.650 411,000 0.680 0.600 348,000 0.510 0.440 1,500,000 0.445 0.440 3,261,000	Aggregate consideration paid HK$’000 113 570 263 162 660
		1,768

The repurchased shares were subsequently cancelled upon repurchase and accordingly, the issued share capital of the Company was diminished by the nominal value thereof. The premium payable on repurchase was charged against the accumulated profits.

• (ii) During the year ended 31st December, 2003, 80,000 share options were exercised at a subscription price of HK$0.74 per share, resulting in the issue of 80,000 ordinary shares of HK$0.50 each in the Company.

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during each of two years ended 31st December, 2003.

30. SHARE OPTION SCHEMES

(a) CMIC Old Scheme

The share option scheme of the Company (the “CMIC Old Scheme”) was adopted on 16th June, 1993 for the primary purpose of providing incentives to directors and eligible employees. Prior to the original expiry date of 15th June, 2003 of the CMIC Old Scheme, the shareholders of the Company passed an ordinary resolution to terminate the CMIC Old Scheme on 28th May, 2003. Under the CMIC Old Scheme, the Company could grant options to the directors and the employees of the Company or its subsidiaries to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted. Options proposed to be granted had to be accepted within 30 days from the date of offer. The granted options are exercisable during the period commencing on the date one year after the date of grant and expiring on the date ten years after the date of grant. The maximum number of shares in respect of which options could be granted shall not exceed 10% of the issued share capital of the Company from time to time excluding the aggregate number of shares already allotted and issued pursuant to the CMIC Old Scheme.

The exercise price was determined by the directors of the Company, and shall not be less than the higher of the nominal value of the Company’s shares on the date of grant, and 80% of the average closing price of the shares for the five business days immediately preceding the date of offer.

The total number of shares in respect of which could be granted to an eligible employee under the CMIC Old Scheme was not permitted to exceed 25% of the aggregate number of share options granted by the Company at any point in time.

At 31st December, 2003, the number of shares in respect of which options had been granted under the CMIC Old Scheme and remained outstanding was approximately 9.1% (2002: 9.2%) of the shares of the Company in issue at that date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

The following table discloses details of the Company’s options under the CMIC Old Scheme held by employees (including directors) and movement in such holdings during the year:

Year ended 31st December, 2003 Date of grant Exercise price per share Outstanding at 1.1.2003 HK$ Category 1: Directors Wang Jun 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 He Ping 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 Li Shi Liang 30.11.2000 0.740 5,000,000 Xie Da Tong 3.9.1997 5.175 4,800,000 5.6.1998 1.370 3,000,000 30.11.2000 0.740 4,000,000 47,800,000 Category 2: Employees 3.9.1997 5.175 14,400,000 5.6.1998 1.370 5,000,000 30.11.2000 0.740 7,140,000 26,540,000 Total all categories 74,340,000	Year ended 31st December, 2003 Date of grant Exercise price per share Outstanding at 1.1.2003 HK$ Category 1: Directors Wang Jun 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 He Ping 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 Li Shi Liang 30.11.2000 0.740 5,000,000 Xie Da Tong 3.9.1997 5.175 4,800,000 5.6.1998 1.370 3,000,000 30.11.2000 0.740 4,000,000 47,800,000 Category 2: Employees 3.9.1997 5.175 14,400,000 5.6.1998 1.370 5,000,000 30.11.2000 0.740 7,140,000 26,540,000 Total all categories 74,340,000	Exercised during the year – – – – – – – – – –	Lapsed during the year Outstanding at 31.12.2003 – 6,000,000 – 4,500,000 – 5,000,000 – 6,000,000 – 4,500,000 – 5,000,000 – 5,000,000 – 4,800,000 – 3,000,000 – 4,000,000	Lapsed during the year Outstanding at 31.12.2003 – 6,000,000 – 4,500,000 – 5,000,000 – 6,000,000 – 4,500,000 – 5,000,000 – 5,000,000 – 4,800,000 – 3,000,000 – 4,000,000
	47,800,000 14,400,000 5,000,000 7,140,000 26,540,000	– – – (80,000) (80,000)	– – – (365,000) (365,000)	47,800,000
				14,400,000 5,000,000 6,695,000
				26,095,000
	74,340,000	(80,000)	(365,000)	73,895,000

−153 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Year ended 31st December, 2002 Date of grant Exercise price per share Outstanding at 1.1.2002 HK$ Category 1: Directors Wang Jun 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 He Ping 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 Li Shi Liang 30.11.2000 0.740 5,000,000 Xie Da Tong 3.9.1997 5.175 4,800,000 5.6.1998 1.370 3,000,000 30.11.2000 0.740 4,000,000 47,800,000 Category 2: Employees 3.9.1997 5.175 14,400,000 5.6.1998 1.370 5,000,000 30.11.2000 0.740 7,205,000 26,605,000 Total all categories 74,405,000	Year ended 31st December, 2002 Date of grant Exercise price per share Outstanding at 1.1.2002 HK$ Category 1: Directors Wang Jun 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 He Ping 3.9.1997 5.175 6,000,000 5.6.1998 1.370 4,500,000 30.11.2000 0.740 5,000,000 Li Shi Liang 30.11.2000 0.740 5,000,000 Xie Da Tong 3.9.1997 5.175 4,800,000 5.6.1998 1.370 3,000,000 30.11.2000 0.740 4,000,000 47,800,000 Category 2: Employees 3.9.1997 5.175 14,400,000 5.6.1998 1.370 5,000,000 30.11.2000 0.740 7,205,000 26,605,000 Total all categories 74,405,000	Lapsed during the year Outstanding at 31.12.2002 – 6,000,000 – 4,500,000 – 5,000,000 – 6,000,000 – 4,500,000 – 5,000,000 – 5,000,000 – 4,800,000 – 3,000,000 – 4,000,000	Lapsed during the year Outstanding at 31.12.2002 – 6,000,000 – 4,500,000 – 5,000,000 – 6,000,000 – 4,500,000 – 5,000,000 – 5,000,000 – 4,800,000 – 3,000,000 – 4,000,000
	47,800,000 14,400,000 5,000,000 7,205,000 26,605,000	– – – (65,000) (65,000)	47,800,000
			14,400,000 5,000,000 7,140,000
			26,540,000
	74,405,000	(65,000)	74,340,000

No share options were granted under the CMIC Old Scheme during both years.

The closing price of the Company’s shares immediately before the date on which the options were exercised was HK$1.31.

Total consideration received for shares issued upon exercise of share options under the CMIC Old Scheme during the year was HK$59,200 (2002: Nil).

During the year ended 31st December, 2003, the CMIC Old Scheme was terminated. Upon termination of the CMIC Old Scheme, no further options may be offered thereunder. However, in respect of the outstanding options, the provisions of the CMIC Old Scheme shall remain in force. The outstanding options granted under the CMIC Old Scheme shall continue to be subject to the provisions of the CMIC Old Scheme.

(b) CMIC New Scheme

As approved by the shareholders of the Company at the annual general meeting held on 28th May, 2003, the Company has terminated the CMIC Old Scheme and adopted a new share option scheme (the “CMIC New Scheme”), which is in accordance with the revised Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) effective on 1st September, 2001.

The purpose of the CMIC New Scheme is to provide incentives to eligible participants, and will expire on 27th May, 2013. According to the CMIC New Scheme, the Board of Directors of the Company may grant options to (i) any director and employee of the Group or an entity in which the Group holds an interest (“Affiliate”); (ii) any customer, supplier, agent, partner, consultant, adviser or shareholder of or contractor to the Group or an Affiliate; (iii) the trustee of any trust the beneficiary of which or any discretionary trust the discretionary objects of which include any director, employee, customer, supplier, agent, partner, consultant, adviser or shareholder of or contractor to the Group or an Affiliate; or (iv) a company beneficially owned by any director, employee, consultant, customer, supplier, agent, partner, shareholder, adviser of or contractor to the Group or an Affiliate to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Share option granted should be accepted within 28 days from the date of grant. The Board of Directors may at its absolute discretion determine the period during which a share option may be exercised, such period should expire no later than 10 years from the date of grant of the relevant options. The Board of Directors may also provides restrictions on the exercise of a share option during the period a share option may be exercised.

The exercise price is determined by the Board of Directors of the Company, and shall not be less than the highest of: (i) the closing price of the Company’s shares on the date of grant; (ii) the average closing price of the Company’s shares for the five business days immediately preceding the date of grant; and (iii) the nominal value of the share.

The maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the CMIC New Scheme and any other share option schemes of the Company shall not, in aggregate, exceed 30% of the total number of shares in issue from time to time.

The total number of shares issued and to be issued upon exercise of the options granted to each individual under the CMIC New Scheme and any other share option schemes of the Company (including both exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue.

No share options were granted under the CMIC New Scheme during the year.

31. RESERVES

THE COMPANY At 1st January, 2002 Shares repurchased and cancelled: – Premium on shares repurchased – Transfer Profit for the year At 31st December, 2002 and at 1st January, 2003 Premium arising on issue of shares Profit for the year At 31st December, 2003	Share premium HK$’000 1,458,243 – – –	Capital redemption reserve HK$’000 14,275 – 1,631 –	Accumulated profits HK$’000 101,325 (137) (1,631) 14,608	Total HK$’000 1,573,843 (137) – 14,608 1,588,314 20 14,460 1,602,794
	1,458,243 20 –	15,906 – –	114,165 – 14,460	1,588,314 20 14,460
	1,458,263	15,906	128,625

The Company’s reserves available for distribution to shareholders as at 31st December, 2003 represents its accumulated profits of approximately HK$128.6 million (2002: HK$114.2 million).

32. OTHER BORROWINGS

The amount is secured by 41.666% of the Company’s interest in Winterthur, bears interest at 6% simple rate per annum and is repayable on 21st November, 2010.

33. AMOUNTS DUE TO SUBSIDIARIES

The amounts due to subsidiaries are unsecured, interest-free and have no fixed repayment terms. The subsidiaries have confirmed that they do not intent to demand repayment within one year of the balance sheet date. Accordingly, such amounts have been classified as non-current.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

34. LOAN FROM A FELLOW SUBSIDIARY

The loan is unsecured, interest-free and repayable upon expiration of the joint venture term of Poly Plaza Limited (“PPL”), a subsidiary of the Company.

35. DEFERRED LICENCING INCOME

Unamortised deferred licencing income brought forward Less: Licence income recognised during the year Unamortised deferred licencing income carried forward	THE 2003 HK$’000 74,766 (14,954) 59,812	GROUP 2002 HK$’000 89,720 (14,954) 74,766

The licencing income was received from China Poly Group, pursuant to an agreement whereby China Poly Group paid an amount of RMB160 million to the Group in January, 1998 for the exclusive right to manage the Group’s property interest in Poly Plaza, Beijing, the PRC for a period of 10 years.

36. PURCHASE OF SUBSIDIARIES

Net assets acquired: Interest in an associate Net assets Deemed capital contribution Satisfied by: Cash consideration paid Net outflow of cash and cash equivalents in connection with the purchase of subsidiaries: Cash paid	2003 HK$’000 –	2002 HK$’000 188,605 188,605 (38,605) 150,000 150,000 150,000
	– –	188,605 (38,605
	– – –

During the year ended 31st December, 2002, no significant turnover and results were contributed by the subsidiary acquired for the period between the date of acquisition and the balance sheet date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

37. DISPOSAL OF SUBSIDIARIES

During the year, the Group disposed of its entire interest in NCHK Power and 52% interest in Shengzhou Xingzhonggang. The net assets of NCHK Power and Shengzhou Xingzhonggang at the date of disposal were as follows:

Net assets disposed of: Property, plant and equipment Inventories Trade and other receivables Bank balances and cash Trade and other payables Bank borrowings Taxation payable Minority interests Negative goodwill released Exchange translation reserve realised on disposal PRC statutory reserves realised on disposal Gain on disposal of subsidiaries Satisfied by: Cash consideration received Deferred consideration Net outflow of cash and cash equivalents in connection with the disposal of subsidiaries: Cash received Bank balances and cash disposed of

HK$’000 182,456 9,340 41,913 108,295 (20,752) (205,126) (319) (55,588) 60,219 (13,835) 22 (727) 21,205 66,884 19,220 47,664 66,884 19,220 (108,295) (89,075)

The deferred consideration will be settled in cash by the purchaser on or before 30th September, 2004.

The subsidiary disposed of during the year contributed approximately HK$66,062,000 to the Group’s turnover and approximately HK$431,000 to the Group’s profit from operations.

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APPENDIX V

38. GAIN ON DILUTION OF INTEREST IN A SUBSIDIARY TO AN ASSOCIATE

Net assets deconsolidated: Property, plant and equipment Intangible assets Inventories Trade and other receivables Bank overdraft Trade and other payables Minority interests Gain on dilution of interest in a subsidiary to an associate Satisfied by: Share of net assets of an associate Net inflow of cash and cash equivalents in connection with dilution of interest in a subsidiary to an associate: Bank overdraft disposed of	2003 HK$’000 – – – – – – –	2002 HK$’000 462 7,582 4,713 6,684 (6,087) (12,576) (195) 583 4,552 5,135 5,135 6,087
	– –	583 4,552
	– – –

During the year ended 31st December, 2002, the above company contributed approximately HK$436,000 to the Group’s turnover and loss of HK$1,639,000 to the Group’s loss from operation.

39. UNRECOGNISED DEFERRED TAXATION

At 31st December, 2003, the Group other than its subsidiaries in the PRC had unused tax losses of approximately HK$71.0 million (2002: HK$43.8 million) for offset against future assessable profits. Such unused tax losses may be carried forward indefinitely.

In addition, at 31st December, 2003, the Group’s PRC subsidiaries had unused tax losses of approximately HK$126.3 million (2002: HK$84.2 million) for offset against future assessable profits. The maximum benefit from unutilised tax losses can be carried forward up to five years from the year in which the loss was originated to offset future taxable profits.

The deferred tax assets arising from the above unused tax losses have not been recognised in the financial statements due to the unpredictability of future profit streams.

The Company had no significant unprovided deferred taxation for the year or at the balance sheet date.

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40. OPERATING LEASE ARRANGEMENTS

The Group as lessee

	2003	2002
	HK$’000	HK$’000
Operating lease rentals in respect of:
– land and buildings	2,954	3,486
– satellite television channel	5,460	6,240

At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	Satellite television channel 2003 2002 HK$’000 HK$’000 5,460 6,240 21,840 24,960 21,840 31,200 49,140 62,400	Office and factory premises 2003 2002 HK$’000 HK$’000 3,794 3,556 9,939 11,266 21,078 23,454 34,811 38,276	Office and factory premises 2003 2002 HK$’000 HK$’000 3,794 3,556 9,939 11,266 21,078 23,454 34,811 38,276
			38,276

Leases are negotiated for a term of fifteen years and rentals are fixed for an average of two years.

The Group as lessor

Property rental income earned during the year was approximately HK$51.6 million (2002: HK$57.3 million). Significant leases are negotiated for a lease term of 1 to 10 years.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive Over five years	2003 HK$’000 50,487 43,022 21,736 115,245	2002 HK$’000 35,912 27,209 16,655
		79,776

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41. CAPITAL COMMITMENTS

THE GROUP Capital expenditure contracted for but not provided in the financial statements in respect of: – acquisition of property, plant and equipment – acquisition of interests in unlisted companies Capital expenditure authorised but not contracted for in respect of: – acquisition of leasehold land – acquisition of property, plant and equipment – renovation works of hotel properties – acquisition of interests in unlisted companies	2003 HK$’000 13,463 78,110 91,573	2002 HK$’000 6,890 338,000
		344,890
	– – – 71,000	7,883 27,791 56,075 –
	71,000	91,749

42. CONTINGENT LIABILITIES

At 31st December, 2003, the Company had given guarantees to certain banks in respect of credit facilities granted to certain subsidiaries of the Company and the amount utilised was approximately HK$129 million (2002: HK$124 million).

In addition, at 31st December, 2003, the Group had given a guarantee of approximately HK$14.3 million (2002: HK$14.3 million) to a bank in respect of credit facilities granted to prospective purchasers of properties developed by a jointly controlled entity of the Group.

43. PLEDGE OF ASSETS

At the balance sheet date, the net book value of the Group’s assets which were pledged to secure credit facilities granted to the Group are as follow:

Hotel properties Investment properties Motor vessels Other plant and equipment Land and buildings Bank deposits	THE 2003 HK$’000 647,400 364,600 289,322 – 221,498 11,948 1,534,768	GROUP 2002 HK$’000 608,400 352,000 306,738 182,142 232,959 86,620
		1,768,859

At the balance sheet date, shares in certain subsidiaries and an associate were also pledged to secure credit facilities granted to the Group.

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APPENDIX V

44. RETIREMENT BENEFITS SCHEMES

The Company and its subsidiaries in Hong Kong operate a defined contribution retirement benefits scheme for its qualified employees pursuant to the Occupational Retirement Schemes Ordinance. The assets of the scheme are held separately in a fund which is under the control of an independent trustee. The retirement benefits scheme contributions charged to the income statement represent the contributions payable by the Company to the fund at rates specified in the rules of the scheme. When there are employees who leave the scheme prior to becoming fully vested in the contributions, the amount of the forfeited contributions will be used to reduce future contributions payable by the Company.

To comply with the Mandatory Provident Fund Schemes Ordinance (the “MPFO”), the Group also participates in a Mandatory Provident Fund scheme (“MPF Scheme”) for its qualified employees in Hong Kong. The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the MPFO. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rule of the MPF Scheme, the employer and its employees are each required to make contributions to the scheme at rate specified in the rules. The only obligation of the Group with respect of MPF Scheme is to make the required contributions under the scheme. No forfeited contribution is available to reduce the contribution payable in the future years.

The retirement benefit scheme contributions arising from the MPF Scheme charged to the income statement represent contributions payable to the funds by the Group at rates specified in the rules of the scheme.

The employees in the subsidiaries in the PRC are members of state-managed retirement benefits schemes operated by the PRC government. The subsidiaries are required to contribute a certain percentage of their payroll to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

At the balance sheet date, there was no significant forfeited contributions, which arose upon employees leaving the retirement benefits scheme, available to reduce the contribution payable in the future years.

45. CONNECTED AND RELATED PARTY TRANSACTIONS AND BALANCES

During the year, the Group had significant transactions and balances with related companies, some of which are also deemed to be connected persons pursuant to the Listing Rules. The significant transactions with these companies during the year, and significant balances with them at the balance sheet date, are as follows:

(I) Connected persons

(A) Transactions and balances with China Poly Group

	**THE **	GROUP
	2003	2002
	HK$’000	HK$’000
Transactions:
Property rental income (Note i)	28,841	26,401
Manager remuneration paid (Note ii)	4,314	13,968
Property leasing commission and management
fees paid (Note iii)	2,342	2,334
Acquisition of a subsidiary (Note iv)	–	150,000

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	2003	2002
	HK$’000	HK$’000
Balances:
Trade and other receivables (Note v)	19,042	10,490
Trade and other payables (Note v)	27,445	30,231
Long term loan payable (Note vi)	168,224	168,224

Notes:

• (i) Of this rental income, an amount of HK$12,173,000 (2002: HK$5,161,000) is related to tenancy agreement which were previously approved by independent shareholders of the Company in extraordinary general meetings; and an amount of HK$16,668,000 (2002: HK$21,240,000) is related to tenancy agreements which were disclosed in the Company’s press announcements in 2003.

The rentals were charged in accordance with the relevant tenancy agreements and the prevailing rent is equivalent or approximated to the market rentals as certified by an independent firm of professional property valuers at the time of these agreements were entered into.

• (ii) The manager remuneration was calculated as a percentage of the gross profit before tax of a subsidiary of the Company managed by China Poly Group.

• (iii) The property leasing commission and management fees were calculated with reference to the rental income of certain of the Group’s properties managed by China Poly Group.

• (iv) On 22nd May, 2002, the Company entered into an agreement with China Poly Group to acquire the entire equity interest in Johnsbury Limited (“Johnsbury”) at a consideration of HK$150 million. Johnsbury is an investment holding company which holds 40% equity interest in Shanghai Puly. Further details of the transaction are set out in a circular of the Company dated 13th June, 2002. The acquisition was approved by shareholders in an extraordinary meeting held on 4th July, 2002 and was completed in July, 2002.

• (v) The balances are unsecured, interest-free and repayable on demand.

• (vi) Details of the terms are set out in note 34.

In addition, on 26th January, 2000, the Group and China Poly Group entered into an agreement (the “2000 Supplemental Agreement”) supplemental to the management agreement dated 11th June, 1997 (the “Management Agreement”) between the same parties. Pursuant to the Supplemental Agreement, the profit guarantee for the operation of Poly Plaza provided by China Poly Group under the Management Agreement would be suspended for the two years ended 31st December, 2001, but would be extended to cover the two years following its expiry on 31st December, 2007 such that it will end on 31st December, 2009, based on the mechanism provided in the Management Agreement. The 2000 Supplemental Agreement was approved by shareholders in an extraordinary general meeting on 17th March, 2000.

Furthermore, on 31st December, 2002, the Group and China Poly Group entered into an agreement (the “2002 Supplemental Agreement”) supplemental to the Management Agreement and the 2000 Supplemental Agreement (hereafter collectively “Agreements”) between the same parties. Pursuant to the 2002 Supplemental Agreement, the profit guarantee for the operation of Poly Plaza provided by China Poly Group under the Agreements would be suspended for the year ended 31st December, 2003, but would be extended to cover the next year following its expiry on 31st December, 2009 such that it will end on 31st December, 2010, based on the mechanism provided in the Agreements. The 2002 Supplement Agreement was approved by shareholders in an extraordinary general meeting on 30th December, 2002.

As at 31st December, 2003, China Poly Group had given a guarantee to a bank in respect of credit facilities utilised by the Group of HK$30,938,000 (2002: Nil), which was counter-guaranteed by a subsidiary of the Company of HK$20,419,000 (2002: Nil).

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APPENDIX V

(B) Proportional financing to a jointly controlled entity

Since May, 1997, the Group has given a guarantee of approximately HK$14.3 million to a bank in respect of credit facilities granted to prospective purchasers of properties developed by a jointly controlled entity of the Group, Tianjin Winson, in proportion to the Group’s equity interest in Tianjin Winson. The Group has also made unsecured, interest-free advances to Tianjin Winson in proportion to its equity interest in Tianjin Winson. The balance of advances (before provision) at 31st December, 2003 amounted to approximately HK$17.0 million (2002: HK$33.0 million). As at 31st December, 2002, China Poly Group also had a 20% indirect beneficial interest in Tianjin Winson other than that held by the Group.

• (C) Transactions and balances with minority shareholders of non-wholly owned subsidiaries

			**THE **	GROUP
Connected persons		Nature of transactions/balances	2003		2002
			HK$’000	HK$’000
(a)	Shengzhou City and	Non-trade receivables by
	its affiliates (Note i)	the Group (Note iii)	–		9,943
(b)	Suzhou Power and its	Payables by the Group (Note iv)	(70,012)	(40,497)
	affiliates (Note ii)	Purchase of coals (Note v)	27,416		–

Notes:

• (i) Shenzhou City Thermal Power Corporation (“Shengzhou City”) was a 48% shareholder of Shengzhou Xinzhonggang, one of the Company’s former non-wholly owned subsidiaries.

• (ii) Suzhou Power Investment Company (“Suzhou Power”) is a 49% shareholder of Taicang Xinhaikang Xiexin Thermal Power Co., Ltd. (“Taicang Xinhaikang”), one of the Company’s non-wholly owned subsidiaries.

• (iii) The balance was unsecured, interest bearing at 5.31% per annum and fully repaid during the year. At 31st December, 2002, Shengzhou City and its affiliates had given guarantees amounting to approximately HK$63.4 million to bankers in respect of credit facilities granted to Shengzhou Xinzhonggang.

• (iv) The balance is unsecured, interest-free and has no fixed repayment terms.

• (v) This transaction was carried out at market prices or, where no market price was available, at terms determined and agreed by both parties.

(D) Acquisition of associates

On 29th November, 2002, Well United Investment Limited, a wholly-owned subsidiary of the Company, entered into an agreement (“Peixian Agreement”) with Suzhou Power and Golden Concord Power (Peixian) Ltd. (“GCP”) to acquire 49% of the registered capital of Peixian Power for a consideration of HK$77.4 million.

Also on 29th November, 2002, Master Chief Holdings Limited, another wholly-owned subsidiary of the Company, entered into an agreement (“Dongtai Agreement”) with Suzhou Power and Golden Concord Power (Dongtai) Ltd. (“GCD”) to acquire 49% of the registered capital of Dongtai Power for a consideration of HK$50.6 million.

The acquisitions in respect of the Peixian Agreement and Dongtai Agreement were guaranteed by Golden Concord Holdings Limited (“GCH”), a company incorporated in Hong Kong and owned as to 80% by Mr. Zhu Gong Shan (“Mr. Zhu”) and 20% by an independent third party. GCH holds 100% of the registered capital in each of GCP and GCD.

Mr. Zhu is a substantial shareholder of the vendors of Peixian Agreement and Dongtai Agreement, holding 98% of the registered capital of Suzhou Power and 80% of the registered capital of GCP and

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APPENDIX V

GCD through his 80% shareholdings in GCH, whilst Mr. Zhu is also a director and an ultimate substantial shareholder of Taicang Xinhaikang, a 51% owned subsidiary of the Company. Mr. Zhu and his associates including GCH, GCP, GCD and Suzhou Power are therefore connected persons of the Company and accordingly, the aforesaid transactions and guarantees are deemed to be connected transactions for the Company which require approval from the shareholders of the Company.

Further details of the above transactions are set out in a circular of the Company dated 23rd December, 2002.

Pursuant to the approval of aforesaid transactions from Ringo Trading Limited (“Ringo”), the Company’s substantial shareholder and the waiver obtained from the Stock Exchange, the aforesaid transactions were completed in January, 2003.

(II) Related Parties, Other Than Connected Persons

			**THE **	GROUP
**Related **	parties	Nature of transactions	2003	2002
			HK$’000	HK$’000
Former	associate	Management fees received (Note)	–	7,500

Note: The management fees were charged to the former associate with reference to the administration costs incurred by the Group.

46. POST BALANCE SHEET EVENTS

The following events occurred subsequent to the balance sheet date:

• (a) On 29th December, 2003, the Group entered into a term loan agreement relating to a term loan facility of HK$180 million. The loan is secured by properties of the Group and shares of certain subsidiaries of the Company and is repayable in 2007. The term loan facility was utilised by the Group subsequent to the balance sheet date.

• (b) On 15th January, 2004, Green Island Developments Limited (“Green Island”) entered into an agreement (“1st Sale and Purchase Agreement”) with Suzhou Power to acquire 36.75% of the registered capital of Xuzhou Western Co-generation Co., Ltd. (“Xuzhou Co-generation”) for a consideration of HK$34,360,000.

On the same date, the Company, Green Island and Golden Concord Power (Western Xuzhou) Limited (“GCX”) entered into an agreement (“1st Subscription Agreement”) in which Year Award Investment Limited (“Year Award”), a wholly-owned subsidiary of the Company, would subscribe for one new ordinary share in Green Island representing upon completion the entire interest in the issued share capital of Green Island at a consideration of HK$45,540,000. Green Island would redeem the one redeemable share held by GCX in Green Island at US$1 plus a deferred consideration of HK$11,180,000. The Company would guarantee the performance of Green Island’s obligations under the 1st Sale and Purchase Agreement and Year Award’s and Green Island’s payment undertakings under the 1st Subscription Agreement. Xuzhou Co-generation is a sino-foreign equity joint venture established in the PRC engaging in operation of power plant.

Also on 15th January, 2004, High Praise Developments Limited (“High Praise”) entered into an agreement (“2nd Sale and Purchase Agreement”) with Suzhou Power to acquire 29.40% of the registered capital of Funing Golden Concord Environmental Protection Co-generation Co., Ltd. (“Funing Co-generation”) for a consideration of HK$18,460,000.

On the same date, the Company, High Praise and Golden Concord Power (Funing) Limited (“GCF”) entered into an agreement (“2nd Subscription Agreement”) in which Elite Land Investment Limited (“Elite Land”), a wholly-owned subsidiary of the Company, would subscribe for one new ordinary share in High Praise representing upon completion the entire interest in the issued share capital of High Praise at a consideration of HK$25,460,000. High Praise would redeem the one redeemable share held by GCF in High Praise at US$1 plus a deferred consideration of HK$7,000,000. The Company would guarantee

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

the performance of High Praise’s obligations under the 2nd Sale and Purchase Agreement and Elite Land’s and High Praise’s payment undertakings under the 2nd Subscription Agreement. Funing Co-generation is a sino-foreign equity joint venture established in the PRC engaging in operation of power plant.

The acquisitions of Xuzhou Co-generation and Funing Co-generation were guaranteed by GCH.

Mr. Zhu is a substantial shareholder of Suzhou Power holding 98% of the registered capital of Suzhou Power and 80% of the registered capital of GCX and GCF through his 80% shareholdings in GCH, whilst Mr. Zhu is also a director and an ultimate substantial shareholder of Taicang Xinhaikang, a 51% owned subsidiary of the Company. Mr. Zhu and his associates including GCH, GCX, GCF and Suzhou Power are therefore connected persons of the Company and accordingly, the aforesaid transactions and guarantees are deemed to be connected transactions for the Company which require approval from the shareholders of the Company.

Further details of the above transactions are set out in a circular of the Company dated 6th February, 2004.

• (c) On 2nd February, 2004, PPL, a 75% owned subsidiary of the Company, entered into agreements with Beijing Poly Theatre Management Limited, a subsidiary of China Poly, in respect of the lease of certain premises in Poly Plaza for a term of 3 years from 1st January, 2004 to 31st December, 2006.

• (d) On 5th February, 2004, Ringo entered into a placing agreement with a placing agent for the placing of an aggregate of 100,000,000 existing shares of HK$0.50 each in the Company held by Ringo at a price of HK$1.66 each. Ringo also entered into a subscription agreement to subscribe for an aggregate of 100,000,000 new shares in the Company at a price of HK$1.66 each. Details of these transactions are set out in the announcement made by the Company on 5th February, 2004.

47. PRINCIPAL SUBSIDIARIES

Details of the Company’s principal subsidiaries, all of which are wholly-owned and held indirectly by the Company except otherwise indicated, at 31st December, 2003 are as follows:

		Nominal value of
		issued and fully
	Place of	paid share
	incorporation/	capital/ registered
Name of subsidiary	establishment	capital	Principal activity
Bassington Investments Limited	Hong Kong	HK$2	Property investment
Bontec Developments Ltd.	British Virgin Islands	US$2	Investment holding
California Hero Property Limited	British Virgin Islands	US$1	Investment holding
CMIC Finance Limited#	Hong Kong	HK$2	Financial services
CMIC Management Services	Hong Kong	HK$100	Management services
Limited#
CMIC-NCHK Energy Holdings	British Virgin Islands	US$100	Investment holding
Limited
CMIC Trading Limited#	Hong Kong	HK$2	General trading
Fainland Limited	Hong Kong	HK$2	Property investment
First Great Investments Limited	Hong Kong	HK$2	Investment holding

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

		Nominal value of
		issued and fully
	Place of	paid share
	incorporation/	capital/ registered
Name of subsidiary	establishment	capital	Principal activity
Geldy Limited	Hong Kong	HK$10,000	Property holding
Gold Star Enterprises S.A.	Liberia	US$10,000	Ship owning
Grandful International Limited	Hong Kong	HK$2	Investment holding
High Wealth International Limited	Hong Kong	HK$2	Property investment
Honorlink Investments Limited	Hong Kong	HK$2	Property investment
Johnsbury Limited	British Virgin Islands	US$9,600,000	Investment holding
Master Chief Holdings Limited	British Virgin Islands	US$1	Investment holding
Overseas Mariner Investment	Bermuda	US$12,000	Investment holding
Company Limited#
Poly Plaza Limited (“PPL”)*	PRC	US$10,000,000	Investment, management
			and operation of a
			hotel complex
Polystar Digidisc Co., Ltd.**	PRC	RMB9,000,000	Manufacturing and
(“Polystar”)			wholesaling of
			compact discs, video
			compact discs and
			digital video discs
Prime Brilliant Limited	Hong Kong	HK$2	Property investment
Propwood Limited	Hong Kong	HK$2	Property investment
Red Empire Limited	British Virgin Islands	US$1	Investment holding
Regal Step Investments Limited	Hong Kong	HK$2	Property investment
Richwood Corporation	Liberia	US$10,000	Ship owning
Saneble Limited	Hong Kong	HK$2	Property investment
Sky Fortune Development	British Virgin Islands	US$1	Investment holding
Overseas Corp.
Starry Joy Properties	British Virgin Islands	US$1	Investment holding
Investment Ltd.
Taicang Xinhaikang***	PRC	RMB84,150,000	Provision of electricity
			and gas
The NCHK Power (Taicang)	British Virgin Islands	US$1	Investment holding
Limited
Top Choice Profits Limited#	British Virgin Islands	US$1	Investment holding

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Nominal value of issued and fully Place of paid share incorporation/ capital/ registered Name of subsidiary establishment capital Principal activity Topower Assets Limited[#] British Virgin Islands US$1 Securities investment Upperace Developments Ltd.[#] British Virgin Islands US$1 Securities investment Volgala International Ltd. British Virgin Islands US$1 Securities investment Well United Investment Limited British Virgin Islands US$1 Investment holding

• # These subsidiaries are directly held by the Company.

• PPL is 75% indirectly held by the Company and is a sino-foreign joint venture company established in the PRC for a renewal term of 50 years commencing 9th July, 2003.

• ** Polystar is 66% indirectly held by the Company and is a sino-foreign joint venture company established in the PRC for a term of 20 years commencing 18th December, 2000.

• *** Taicang Xinhaikang is 51% indirectly held by the Company and is a sino-foreign joint venture company established in the PRC for a term of 17 years commencing 17th March, 1999.

The above table only lists those subsidiaries of the Company which, in the opinion of the directors, principally affected the results, assets or liabilities of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

All the above subsidiaries are principally operating in their place of incorporation/establishment except otherwise stated.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the

year.

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APPENDIX V

48. BUSINESS AND GEOGRAPHICAL SEGMENTS

For the year ended 31st December, 2003

By principal activity REVENUE External revenue Inter-segment revenue* Total revenue CONTRIBUTION TO PROFIT (LOSS) FROM OPERATIONS Central administrative expenses Profit from operations Finance costs Gain on disposal of subsidiaries Amortisation of goodwill arising on acquisition of associates Share of profits (losses) of associates Allowance for loans to jointly controlled entities Profit before taxation Taxation Profit before minority interests	Supply of electricity and gas Property investment and manage- ment HK$’000 HK$’000 190,258 95,707 – 8,650 190,258 104,357 26,029 38,756 21,205 – – – 16,942 23,714 – (1,166)	Shipping HK$’000 59,155 – 59,155 17,552 – – – –	Manu- facturing and media HK$’000 54,253 – 54,253 (841) – (12,688) (4,192) –	Financial services Hotel and restaurant operations HK$’000 HK$’000 46,782 27,435 11,817 – 58,599 27,435 10,405 (2,109) – – – – 68 – – –	Elimina- tions HK$’000 – (20,467) (20,467) –	Total HK$’000 473,590 –
						473,590
						89,792
						(21,383)
						68,409 (20,230) 21,205 (12,688) 36,532 (1,166)
						92,062 (5,626)
						86,436

* Inter-segment revenue were charged at terms determined and agreed between group companies.

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APPENDIX V

ASSETS AND LIABILITIES AT 31ST DECEMBER, 2003 ASSETS Segment assets Interest in associates Interest in jointly controlled entities LIABILITIES Segment liabilities Unallocated corporate liabilities OTHER INFORMATION Capital expenditure Depreciation and amortisation Amortisation of deferred licensing income Surplus arising on revaluation of investment properties Deficit arising on revaluation of hotel properties Impairment loss on investments in securities Unrealised holding gain on other investments	Supply of electricity and gas Property investment and manage- ment HK$’000 HK$’000 345,042 1,107,481 144,508 194,214 – 3,659 489,550 1,305,354 (139,439) (48,490) 82,055 1,321 25,391 17,879 – 14,954 – 24,636 – – – – – –	Shipping HK$’000 291,789 – – 291,789 (6,001) – 17,416 – – – – –	Manu- facturing and media HK$’000 140,203 47,484 – 187,687 (43,865) 51,632 10,142 – – – – –	Financial services Hotel and restaurant operations HK$’000 HK$’000 427,984 688,899 73,049 – – – 501,033 688,899 (8,370) (63,876) – – – – – – – – – 4,148 13,470 – 1,798 –	Total HK$’000 3,001,398 459,255 3,659
					3,464,312
					(310,041 (622,720
					(932,761
					135,008 70,828 14,954 24,636 4,148 13,470 1,798

An analysis of the Group’s turnover by geographical location of its customers is presented below:

		The PRC	Other
		other than	parts of
	Hong Kong	Hong Kong	the world	Total
	HK$’000	HK$’000	HK$’000	HK$’000
REVENUE	49,093	365,342	59,155	473,590

The following is an analysis of the carrying amount of segment assets, and capital expenditure analysed by the geographical area in which the assets are located.

ASSETS Carrying amount of segment assets Capital expenditure	Hong Kong HK$’000 427,428 629	The PRC other than Hong Kong HK$’000 2,282,181 134,379	Other parts of the world HK$’000 291,789 –	Total HK$’000 3,001,398
				135,008

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APPENDIX V

For the year ended 31st December, 2002

By principal activity REVENUE External revenue Inter-segment revenue* Total revenue CONTRIBUTION TO PROFIT (LOSS) FROM OPERATIONS Central administrative expenses Loss from operations Finance costs Loss on disposal of an associate Gain on dilution of interest in a subsidiary to an associate Amortisation of goodwill arising on acquisition of an associate Share of profits (losses) of associates Share of losses of jointly controlled entities Allowance for loans to jointly controlled entities Loss before taxation Taxation Loss before minority interests	Supply of electricity and gas Property investment and manage- ment HK$’000 HK$’000 147,840 80,232 – 6,310 147,840 86,542 22,941 (12,249) – – – – – – – 2,132 – (7,175) – (12,278)	Shipping HK$’000 46,680 – 46,680 1,938 – – – – – –	Manu- facturing and media HK$’000 47,972 4,914 52,886 13,670 (43,164) 4,552 (12,255) (2,896) – –	Financial services Hotel and restaurant operations HK$’000 HK$’000 62,610 55,717 53,738 – 116,348 55,717 (37,905) 12,085 – – – – – – 1,470 – – – – –	Elimina- tions HK$’000 – (64,962) (64,962) –	Total HK$’000 441,051 –
						441,051
						480
						(22,716)
						(22,236) (18,890) (43,164) 4,552 (12,255) 706 (7,175) (12,278)
						(110,740) (5,682)
						(116,422)

* Inter-segment revenue were charged at terms determined and agreed between group companies.

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APPENDIX V

For the year ended 31st December, 2002

ASSETS AND LIABILITIES AT 31ST DECEMBER, 2002 ASSETS Segment assets Interest in associates Interest in jointly controlled entities LIABILITIES Segment liabilities Unallocated corporate liabilities OTHER INFORMATION Capital expenditure Depreciation and amortisation Amortisation of deferred licensing income Deficit arising on revaluation of investment properties Impairment loss on investments in securities Unrealised holding loss on other investments	Supply of electricity and gas Property investment and manage- ment HK$’000 HK$’000 528,768 1,169,713 – 140,088 – 20,669 528,768 1,330,470 (90,844) (52,767) 35,348 4,102 20,323 18,791 – 14,954 – 46,226 – – – –	Shipping HK$’000 308,731 – – 308,731 (4,790) – 20,401 – – – –	Manu- facturing and media HK$’000 131,681 70,932 – 202,613 (45,800) 18,339 12,993 – – – –	Financial services Hotel and restaurant operations HK$’000 HK$’000 349,362 676,703 72,888 – – – 422,250 676,703 (6,549) (73,022) – – – – – – – – 20,419 – 8,745 –	Total HK$’000 3,164,958 283,908 20,669
					3,469,535
					(273,772 (702,881
					(976,653
					57,789 72,508 14,954 46,226 20,419 8,745

An analysis of the Group’s turnover by geographical location of its customers is presented below:

		The PRC	Other
		other than	parts of
	Hong Kong	Hong Kong	the world	Total
	HK$’000	HK$’000	HK$’000	HK$’000
REVENUE	75,153	319,218	46,680	441,051

The following is an analysis of the carrying amount of segment assets, and capital expenditure analysed by the geographical area in which the assets are located.

ASSETS Carrying amount of segment assets Capital expenditure	Hong Kong HK$’000 727,024 1,369	The PRC other than Hong Kong HK$’000 2,129,203 56,420	Other parts of the world HK$’000 308,731 –	Total HK$’000 3,164,958
				57,789

−171 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

2. INTERIM FINANCIAL INFORMATION

The following is an extract of the unaudited consolidated financial statements of the Group for the six months ended 30th June, 2004 together with notes thereto:

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes Turnover 2 Cost of sales Gross profit Other revenue Administrative expenses Amortisation of intangible assets Amortisation of deferred licencing income Unrealised holding loss on other investments Surplus arising on revaluation of investment properties Impairment loss on investments in securities Profit from operations 3 Finance costs Amortisation of goodwill arising on acquisition of associates Share of profits of associates Allowance for loans to jointly controlled entities Profit before taxation Taxation 4 Profit before minority interests Minority interests Profit for the period Proposed interim dividend – HK$0.02 per share (2003: Nil) Earnings per share 5 – Basic – Diluted	Six months ended 30th June, 2004 2003 HK$’000 HK$’000 (Unaudited) (Unaudited) 256,053 177,428 (119,718) (109,081) 136,335 68,347 3,600 4,360 (73,413) (62,340) – (399) 7,477 7,477 (403) (48) 8,000 – (5,058) – 76,538 17,397 (7,628) (9,942) (6,344) (6,578) 11,949 23,647 (155) (274) 74,360 24,250 (3,535) (3,019) 70,825 21,231 (9,517) (4,841) 61,308 16,390 17,908 – 7.0 cents 2.0 cents 6.9 cents Not Applicable	Six months ended 30th June, 2004 2003 HK$’000 HK$’000 (Unaudited) (Unaudited) 256,053 177,428 (119,718) (109,081) 136,335 68,347 3,600 4,360 (73,413) (62,340) – (399) 7,477 7,477 (403) (48) 8,000 – (5,058) – 76,538 17,397 (7,628) (9,942) (6,344) (6,578) 11,949 23,647 (155) (274) 74,360 24,250 (3,535) (3,019) 70,825 21,231 (9,517) (4,841) 61,308 16,390 17,908 – 7.0 cents 2.0 cents 6.9 cents Not Applicable
	136,335 3,600 (73,413) – 7,477 (403) 8,000 (5,058) 76,538 (7,628) (6,344) 11,949 (155) 74,360 (3,535) 70,825 (9,517)	68,347 4,360 (62,340 (399 7,477 (48 – –
		17,397 (9,942 (6,578 23,647 (274
		24,250 (3,019
		21,231 (4,841
	61,308 17,908 7.0 cents 6.9 cents

−172 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

CONDENSED CONSOLIDATED BALANCE SHEET

Notes Non-Current Assets Investment properties Hotel properties Property, plant and equipment Interests in associates Interests in jointly controlled entities Investment in a property development project Investments in securities Deposit paid for a hotel project Current Assets Stores Inventories Properties held for resale Trade and other receivables 7 Short-term loans receivable Investments in securities Pledged bank deposits Bank balances, deposits and cash Current Liabilities Trade and other payables 8 Property rental deposits Taxation Bank borrowings – due within one year Net Current Assets	30th June, 2004 HK$’000 (Unaudited) 706,440 647,400 969,371 521,338 2,776 197,271 74,575 –	31st December, 2003 HK$’000 (Audited) 698,440 647,400 825,912 459,255 3,659 197,271 79,166 30,000 2,941,103 968 7,559 15,600 153,247 40,201 50,396 11,948 243,290 523,209 246,216 4,013 3,028 172,675 425,932 97,277 3,038,380
	3,119,171 821 8,960 5,180 177,728 38,332 38,446 11,903 463,791 745,161 259,996 4,636 3,197 230,105 497,934 247,227	2,941,103
		968 7,559 15,600 153,247 40,201 50,396 11,948 243,290
		523,209
		246,216 4,013 3,028 172,675
		425,932
		97,277
	3,366,398

−173 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Notes Capital and Reserves Share capital 9 Reserves Minority Interests Non-Current Liabilities Bank borrowings – due after one year Other borrowing Loan from a fellow subsidiary Loan from minority interests of a subsidiary Deferred licencing income	30th June, 2004 HK$’000 (Unaudited) 447,549 2,031,984 2,479,533 202,016 370,797 30,290 168,224 63,203 52,335 684,849 3,366,398	31st December, 2003 HK$’000 (Audited) 403,801 1,925,219 2,329,020 202,531 248,503 30,290 168,224 – 59,812 506,829 3,038,380

−174 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

Notes:

1. Basis of preparation and principal accounting policies

The condensed financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities (“Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and with Statement of Standard Accounting Practice (“SSAP”) 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants (“HKSA”).

The accounting policies adopted in the preparation of the condensed financial statements are consistent with those followed in the preparation of the Group’s annual audited financial statements for the year ended 31st December, 2003.

2. Turnover and segments information

For the six months period ended 30th June, 2004

By principal activity Revenue External revenue Inter-segment revenue Total revenue Contribution to profit from operations Central administrative expenses Profit from operations Finance costs Amortisation of goodwill arising on acquisition of associates Share of profits (losses) of associates Allowance for loans to jointly controlled entities Profit before taxation Taxation Profit before minority interests	Supply of electricity and gas HK$’000 72,410 – 72,410 12,149 (217) 9,803 –	Shipping Property investment and management HK$’000 HK$’000 66,121 45,165 – 120 66,121 45,285 45,135 19,658 – – – 4,380 – (155)	Hotel and restaurant operations Manufacturing and media HK$’000 HK$’000 31,845 30,015 – – 31,845 30,015 7,037 1,941 – (6,127) – (2,687) – –	Financial Services Eliminations HK$’000 HK$’000 10,497 – – (120) 10,497 (120) 4,792	Financial Services Eliminations HK$’000 HK$’000 10,497 – – (120) 10,497 (120) 4,792	Total HK$’000 256,053 –
						256,053
						90,712
				– 453 –		(14,174)
						76,538 (7,628) (6,344) 11,949 (155)
						74,360 (3,535)
						70,825

−175 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

For the six months period ended 30th June, 2004

An analysis of the Group’s turnover by geographical location of its customers is presented below:

	The PRC*	Other parts
	other than	of the
	Hong Kong	world	Hong Kong	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	176,482	66,121	13,450	256,053

• The People’s Republic of China

For the six months period ended 30th June, 2003

By principal activity Revenue External revenue Inter-segment revenue Total revenue Contribution to profit from operations Central administrative expenses Profit from operations Finance costs Amortisation of goodwill arising on acquisition of associates Share of profits (losses) of associates Allowance for loans to jointly controlled entities Profit before taxation Taxation Profit before minority interests	Supply of electricity and gas HK$’000 84,505 5,383 89,888 11,400 (451) 9,740 –	Shipping Property investment and management HK$’000 HK$’000 24,067 30,961 – 120 24,067 31,081 3,356 7,734 – – – 12,408 – (274)	Hotel and restaurant operations Manufacturing and media HK$’000 HK$’000 6,717 23,264 – – 6,717 23,264 211 (3,310) – (6,127) – (319) – –	Financial Services Eliminations HK$’000 HK$’000 7,914 – – (5,503) 7,914 (5,503) 7,573	Financial Services Eliminations HK$’000 HK$’000 7,914 – – (5,503) 7,914 (5,503) 7,573	Total HK$’000 177,428 –
						177,428
						26,964
				– 1,818 –		(9,567
						17,397 (9,942 (6,578 23,647 (274
						24,250 (3,019
						21,231

−176 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

For the six months period ended 30th June, 2003

An analysis of the Group’s turnover by geographical location of its customers is presented below:

	The PRC	Other parts
	other than	of the
	Hong Kong	world	Hong Kong	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	143,357	24,067	10,004	177,428

3. Profit from operations

Profit from operations has been arrived at after charging: Depreciation and amortisation of property, plant and equipment Loss on disposal of properties held for resale Loss on disposal of investment properties and after crediting: Release of negative goodwill to other revenue Taxation The charge comprises: Hong Kong profits tax calculated at 17.5% (six months period ended 30th June, 2003: 17.5%) of the estimated assessable profits for the period PRC income tax Share of taxation of associates	Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 31,075 29,745 1,162 – – 1,915 – 440 Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 – – 2,955 2,147	Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 31,075 29,745 1,162 – – 1,915 – 440 Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 – – 2,955 2,147
	2,955 580	2,147 872
	3,535	3,019

4. Taxation

Hong Kong profits tax has not been provided as the Group has no estimated assessable profits which were earned in or derived from Hong Kong during the period.

PRC income tax is calculated in accordance with the relevant laws and regulations in the PRC.

−177 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

5. Earnings per share

The calculation of basic and diluted earnings per share for the six months ended 30th June, 2004 is based on the following data:

Earnings for the purposes of basic and diluted earnings per share – profit for the period Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares in respect of share options Weighted average number of ordinary shares for the purposes of diluted earnings per share	Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 61,308 16,390 Six months ended 30th June, 2004 30th June, 2003 Number of shares Number of shares 877,660,976 807,522,200 14,393,676 – 892,054,652 807,522,200	Six months ended 30th June, 2004 30th June, 2003 HK$’000 HK$’000 61,308 16,390 Six months ended 30th June, 2004 30th June, 2003 Number of shares Number of shares 877,660,976 807,522,200 14,393,676 – 892,054,652 807,522,200
		807,522,200

6. Transfers to and from reserves

During the six months period ended 30th June, 2004, the nominal value of shares repurchased of HK$7,432,000 was transferred from accumulated profits to capital redemption reserve and the premium on shares repurchased of HK$14,219,000 was charged to accumulated profits. In addition, a subsidiary of the Group in the PRC appropriated net of minority interests’ share of approximately HK$885,000 out of accumulated profits to the PRC statutory reserves.

There was no transfer to and from reserves during the six months period ended 30th June, 2003.

7. Trade and other receivables

The Group has a policy of allowing credit periods ranging from 30 days to 90 days to its trade customers. The following is an aged analysis of trade receivables at the balance sheet date:

0 to 30 days 31 to 90 days More than 90 days Total trade receivables Receivables on disposal of subsidiaries Other receivables	30th June, 2004 HK$’000 31,704 6,964 7,328	31st December, 2003 HK$’000 29,774 9,667 562
	45,996 37,383 94,349	40,003 47,664 65,580
	177,728	153,247

−178 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

8. Trade and other payables

The following is an aged analysis of trade payables as the balance sheet date:

0 to 30 days 31 to 90 days More than 90 days Total trade payables Other payables	30th June, 2004 HK$’000 4,684 2,121 5,782	31st December, 2003 HK$’000 10,817 908 5,059
	12,587 247,409	16,784 229,432
	259,996	246,216

9. Share capital

Ordinary shares of HK$0.50 each Authorised: At 1st January, 2004 and at 30th June, 2004 Issued and fully paid: At 1st January, 2004 Issue of shares Exercise of share options Shares repurchased and cancelled At 30th June, 2004	Number of Shares 1,200,000,000	Nominal value HK$’000 600,000
	807,602,200 100,000,000 2,360,000 (14,864,000)	403,801 50,000 1,180 (7,432
	895,098,200	447,549

10. Contingent liabilities

At 30th June, 2004, the Company had given guarantees of approximately HK$114 million (31st December, 2003: HK$129 million) to certain banks in respect of banking facilities granted to certain subsidiaries of the Company.

In addition, at 30th June, 2004, the Group had given a guarantee of approximately HK$14.3 million (31st December, 2003: HK$14.3 million) to a bank in respect of credit facilities granted to prospective purchasers of properties developed by a jointly controlled entity of the Group.

−179 −

FINANCIAL INFORMATION OF THE GROUP

APPENDIX V

11. Capital commitments

Capital expenditure contracted for but not provided in the financial statements in respect of: – acquisition of property, plant and equipment – acquisition of interests in unlisted companies Capital expenditure authorised but not contracted for in respect of: – acquisition of interests in unlisted companies	Group 30th June, 2004 31st December, 2003 HK$’000 HK$’000 12,417 13,463 31,381 78,110 43,798 91,573 – 71,000 – 71,000	Group 30th June, 2004 31st December, 2003 HK$’000 HK$’000 12,417 13,463 31,381 78,110 43,798 91,573 – 71,000 – 71,000
		91,573
		71,000
		71,000

−180 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

1. INDEBTEDNESS

Borrowings

As at the close of business on 31st August, 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had the following outstanding borrowings:

Bank loans (Note A) −secured −unsecured Other borrowings (Note B) Loan from a fellow subsidiary (Note C) Notes: A. The maturity of the bank loans is as follows: On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding five years	HK$’000 560,795 30,938
	591,733 30,290 168,224
	790,247
	HK$’000 251,173 171,660 168,900
	591,733

The bank loans bore interest at prevailing market rates and repayable in accordance with the terms in the respective loan agreements.

• B. The amount was secured by 41.666% of the Company’s interest in Winterthur Insurance (Asia) Limited, an associated company of the Group, bore interest at 6% simple rate per annum and was repayable on 21st November, 2010.

• C. The loan was unsecured, interest-free and repayable upon expiration of the joint venture term of Poly Plaza Limited, a subsidiary of the Company.

−181 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

Pledge of assets

As at 31st August, 2004, the net book value of the Enlarged Group’s assets which were pledged to secure credit facilities granted to the Enlarged Group are as follows:

Hotel properties Investment properties Motor vessels Other plant and equipment Land and buildings Bank deposits	HK$’000 647,400 729,216 277,713 113,462 178,911 11,070
	1,957,772

As at 31st August, 2004, shares in certain subsidiaries and an associated company were also pledged to secure credit facilities granted to the Enlarged Group.

Contingent liabilities

At 31st August, 2004, the Company had given guarantees to certain banks in respect of credit facilities granted to certain subsidiaries of the Company and the amount utilised was approximately HK$107 million.

In addition, at 31st August, 2004, the Enlarged Group had given a guarantee of approximately HK$14.3 million to a bank in respect of credit facilities granted to prospective purchasers of properties developed by a jointly controlled entity of the Enlarged Group.

Disclaimer

Save as aforesaid and apart from intra-group liabilities, and normal trade and other payables, at the close of business on 31st August, 2004, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, term loans, debt securities or other similar indebtedness, liabilities under acceptance (other than normal trade bills and payables) or acceptance credits, debentures, mortgages, charges, hire purchase or other finance lease commitments, guarantees or other material contingent liabilities.

−182 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

2. WORKING CAPITAL

After due and careful enquiry by the Directors, they are of the opinion that, upon completion of the Acquisitions and based on the present credit facilities of not less than HK$250,000,000 and the internal resources, the Enlarged Group will have sufficient working capital for its present requirements for the next 12 months from the date of this circular.

3. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. Unaudited pro forma financial information of Hubei White Rose Group

• (i) Financial information

The following is a summary of the unaudited pro forma income statements and unaudited pro forma statements of assets and liabilities of Hubei White Rose Group, assuming that the acquisitions of White Rose Hostel and White Rose Transportation by Hubei White Rose had been completed as at 1st January, 2003 for the purpose of illustrating how the transaction might have affected the financial position of Hubei White Rose.

The accompanying unaudited pro forma income statements and unaudited pro forma statements of assets and liabilities of Hubei White Rose Group have been prepared based on the audited financial statements of Hubei White Rose, White Rose Hostel and White Rose Transportation for each of the periods extracted from the Accountants’ Reports set out in Appendices II, III and VI respectively to this circular, and adjusted, where appropriate, to illustrate the effect of the acquisition of White Rose Hostel and White Rose Transportation as if the acquisition had taken place as at 1st January, 2003.

The unaudited pro forma income statements and unaudited pro forma statements of assets and liabilities are based on a number of assumptions, estimates, uncertainties, accordingly, the accompanying pro forma income statements and pro forma statements of assets and liabilities of Hubei White Rose Group do not purport to describe the actual results of Hubei White Rose Group for each of the periods stated, or the actual financial position of Hubei White Rose Group as of the respective balance dates stated, that would have been attained had the acquisitions of White Rose Hostel and White Rose Transportation been completed on the date assumed. Further, the pro forma income statements and pro forma statements of assets and liabilities do not purport to predict Hubei White Rose Group’s future results or financial position.

−183 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

• (a) Unaudited pro forma income statements of Hubei White Rose Group

For the year ended 31st December, 2003

Turnover Cost of sales Gross profit Other operating income Deficit arising on revaluation of hotel properties Administrative expenses Profit from operations Interest on bank loans wholly repayable within five years Profit before taxation Taxation Profit for the year Dividend	Hubei White Rose HK$’000 47,642 (24,554) 23,088 446 (163) (13,519) 9,852 (7) 9,845 (4,299) 5,546 –	White Rose Hostel HK$’000 22,928 (20,404) 2,524 539 (2,107) (1,861) (905) − (905) 256 (649) –	White Rose Transportation HK$’000 288 − 288 2 − (159) 131 − 131 (46) 85 −	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Note 70,858 (131) 1 (44,958) 131 1 25,900 987 (2,270) (15,539) 9,078 (7) 9,071 (4,089) 4,982 −	Hubei White Rose Group HK$’000 70,727 (44,827)
					25,900 987 (2,270) (15,539)
					9,078 (7)
					9,071 (4,089)
					4,982
					–

Note:

1. The adjustment reflects the elimination of inter-company transactions.

−184 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

For the four months ended 30th April, 2004

Turnover Cost of sales Gross profit Other operating income Surplus arising on revaluation of hotel properties Administrative expenses Loss on disposal of hotel properties Profit before taxation Taxation Profit for the period Dividend	Hubei White Rose HK$’000 16,240 (8,346) 7,894 114 163 (3,703) (930) 3,538 (1,227) 2,311 −	White Rose Hostel HK$’000 7,767 (6,977) 790 377 1,785 (1,824) − 1,128 (577) 551 −	White Rose Transportation HK$’000 108 − 108 2 − (51) − 59 (20) 39 −	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Note 24,115 (46) 1 (15,323) 46 1 8,792 493 1,948 (5,578) (930) 4,725 (1,824) 2,901 −	Hubei White Rose Group HK$’000 24,069 (15,277)
					8,792 493 1,948 (5,578) (930)
					4,725 (1,824)
					2,901
					−

Note:

1. The adjustment reflects the elimination of inter-company transactions.

−185 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

• (b) Unaudited pro forma statements of assets and liabilities of Hubei White Rose Group

As at 31st December, 2003

NON-CURRENT ASSETS Hotel properties Property, plant and equipment CURRENT ASSETS Inventories Trade and other receivables Bank balances, deposits and cash CURRENT LIABILITIES Trade and other payables Taxation payable Bank borrowings – due within one year NET CURRENT ASSETS CAPITAL AND RESERVES Capital Reserves NON-CURRENT LIABILITIES Other borrowings Deferred taxation	Hubei White Rose HK$’000 129,000 4,247	White Rose Hostel HK$’000 11,000 547	White Rose Transportation HK$’000 – 11	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Note 140,000 4,805	Hubei White Rose Group HK$’000 140,000 4,805
	134,247 2,340 19,844 9,568 31,752 15,862 1,905 169 17,936 13,816	11,547 2,481 4,676 2,610 9,767 3,098 8 − 3,106 6,661	11 − 417 362 779 164 35 − 199 580	144,805 4,821 24,937 (17,407) 1 12,540 42,298 19,124 1,948 169 21,241 21,057	144,805
					4,821 7,530 12,540
					24,891
					19,124 1,948 169
					21,241
					3,650
	147,063	18,208	591	165,862	148,455
	9,014 37,661 46,675 93,849 6,539 100,388	4,695 13,133 17,828 − 380 380	469 122 591 − − –	14,178 (5,164) 1 50,916 (12,243) 1 65,094 93,849 6,919 100,768	9,014 38,673
					47,687
					93,849 6,919
					100,768
	147,063	18,208	591	165,862	148,455

Note:

1. The adjustment reflects the proposed acquisition of 100% equity interest in White Rose Hostel and White Rose Transportation at considerations of RMB18,000,000 (approximately HK$16,901,000) and RMB539,000 (approximately HK$506,000) respectively by Hubei White Rose. The difference between the considerations and the total net asset values of HK$20,294,000 attributable to 100% interests in the registered capital of White Rose Hostel and White Rose Transportation to be acquired based on the financial information of White Rose Hostel and White Rose Transportation as at 1st January, 2003, amounting to HK$2,887,000, represent the deemed capital contribution from shareholders and have been credited in the capital reserve.

−186 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

As at 30th April, 2004

NON-CURRENT ASSETS Hotel properties Property, plant and equipment CURRENT ASSETS Inventories Trade and other receivables Bank balances, deposits and cash CURRENT LIABILITIES Trade and other payables Taxation payable Bank borrowings – due within one year NET CURRENT ASSETS CAPITAL AND RESERVES Capital Reserves NON-CURRENT LIABILITIES Other borrowings Deferred taxation	Hubei White Rose HK$’000 134,000 2,703	White Rose Hostel HK$’000 12,000 542	White Rose Transportation HK$’000 – 9	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Notes 146,000 3,254	Hubei White Rose Group HK$’000 146,000 3,254
	136,703 2,196 20,888 8,857 31,941 13,276 223 169 13,668 18,273	12,542 2,251 2,628 5,194 10,073 3,292 70 − 3,362 6,711	9 − 372 496 868 227 20 − 247 621	149,254 4,447 23,880 (17,415) 1, 2 14,547 42,874 16,787 (8) 2 313 169 17,269 25,605	149,254
					4,447 6,473 14,547
					25,467
					16,787 313 169
					17,269
					8,198
	154,976	19,253	630	174,859	157,452
	9,014 43,140 52,154 93,849 8,973 102,822	4,695 13,684 18,379 − 874 874	469 161 630 − − –	14,178 (5,164) 1 56,985 (12,243) 1 71,163 93,849 9,847 103,696	9,014 44,742
					53,756
					93,849 9,847
					103,696
	154,976	19,253	630	174,859	157,452

Notes:

1. The adjustment reflects the proposed acquisition of 100% equity interest in White Rose Hostel and White Rose Transportation at considerations of RMB18,000,000 (approximately HK$16,901,000) and RMB539,000 (approximately HK$506,000) respectively by Hubei White Rose. The difference between the considerations and the total net asset values of HK$20,294,000 attributable to 100% interests in the registered capital of White Rose Hostel and White Rose Transportation to be acquired based on the financial information of White Rose Hostal and White Rose Transportation as at 1st January, 2003, amounting to HK$2,887,000, represent the deemed capital contribution from shareholders and have been credited in the capital reserve.

2. The adjustment reflects the elimination of inter-company balances.

−187 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

(ii) letter from the reporting accountants

==> picture [64 x 49] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We report on the unaudited pro forma income statements and unaudited pro forma statements of assets and liabilities (collectively referred to as the “Pro Forma Statements”) of Hubei White Rose Hotel Company Limited (“Hubei White Rose”), Wuhan White Rose Hostel Company Limited (“White Rose Hostel”) and Wuhan White Rose Airport Transportation Service Centre (“White Rose Transportation”) (collectively referred to as “Hubei White Rose Group”) set out in Section 3A of Appendix VI to the circular dated 29th October, 2004, (the “Circular”) issued by Continental Mariner Investment Company Limited (the “Company”) in connection with the proposed acquisition of 100% equity interest in Hubei White Rose, which has been prepared, as if the acquisitions by Hubei White Rose of White Rose Hostel and White Rose Transportation had been completed as at 1st January, 2003. The Pro Forma Statements have been prepared by the directors of Continental Mariner Investment Company Limited (the “Company”), for illustrative purpose only, to provide information about how the acquisition might have affected the financial information of Hubei White Rose.

RESPONSIBILITIES

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

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

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

BASIS OF OPINION

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

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

The Pro Forma Statements have been compiled in accordance with the basis set out in Section 3A of Appendix VI to the Circular for illustrative purposes only and because of their nature, they may not be indicative of (i) the financial position of the assets and liabilities of the Hubei White Rose Group as at the respective balance sheet dates or at any future date or (ii) the financial results of Hubei White Rose Group for the periods stated or for any future period.

OPINION

In our opinion:

• (a) the Pro Forma Statements have been properly compiled on the basis stated;

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

• (c) the adjustments are appropriate for the purposes of the Pro Forma Statements as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

B. Unaudited pro forma statement of assets and liabilities of the Group and Shanghai Puly Real Estate

• (i) Financial information

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group and Shanghai Puly Real Estate, assuming that the acquisition by the Group of Shanghai Puly Real Estate had been completed as at 30th June, 2004 for the purpose of illustrating how the transaction might have affected the financial position of the Group.

The unaudited pro forma statement of assets and liabilities of the Group and Shanghai Puly Real Estate has been prepared based on the unaudited consolidated balance sheet of the Group as at 30th June, 2004 as extracted from the interim report of the Company for the six months ended 30th June, 2004 and the audited balance sheet of Shanghai Puly Real Estate as at 30th April, 2004 as extracted from the Accountants’ Report set out in Appendix I to this circular and adjusted for the transaction resulting from the acquisition by the Group of Shanghai Puly Real Estate.

The unaudited pro forma statement of assets and liabilities is prepared to provide financial information of the Group and Shanghai Puly Real Estate as a result of completion of the acquisition by the Group of Shanghai Puly Real Estate. As it is prepared for illustrative purpose only, it may not purport to represent what the assets and liabilities of the Group and Shanghai Puly Real Estate are on the completion of the acquisition by the Group of Shanghai Puly Real Estate.

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APPENDIX VI

NON-CURRENT ASSETS Investment properties Hotel properties Property, plant and equipment Goodwill Interests in associates Interests in jointly controlled entities Investment in a property development project Investments in securities Loan receivable CURRENT ASSETS Stores Inventories Properties held for resale Trade and other receivables Amount due from immediate holding company Amounts due from fellow subsidiaries Short-term loans receivable Taxation recoverable Investments in securities Pledged bank deposits Bank balances, deposits and cash CURRENT LIABILITIES Trade and other payables Property rental deposits Amounts due to fellow subsidiaries Taxation payable Bank borrowings – due within one year NET CURRENT ASSETS (LIABILITIES)	The Group as at 30th June, 2004 HK$’000 706,440 647,400 969,371 – 521,338 2,776 197,271 74,575 –	Shanghai Puly Real Estate as at 30th April, 2004 HK$’000 548,563 – 770 447 – – – – 30,047	Pro forma Combined Pro forma adjustments HK$’000 HK$’000 Notes 1,255,003 647,400 970,141 447 521,338 (198,171) 2 2,776 197,271 74,575 30,047	The Group and Shanghai Puly Real Estate HK$’000 1,255,003 647,400 970,141 447 323,167 2,776 197,271 74,575 30,047
	3,119,171 821 8,960 5,180 177,728 – – 38,332 – 38,446 11,903 463,791 745,161 259,996 4,636 – 3,197 230,105 497,934 247,227	579,827 – 574 – 5,693 94 884 – 1,447 – – 5,387 14,079 54,721 – 15,428 – – 70,149 (56,070)	3,698,998 821 9,534 5,180 183,421 (3,756) 3 94 (94) 4 884 94 4 38,332 1,447 38,446 11,903 469,178 7,746 1 759,240 314,717 4,636 15,428 (3,756) 3 3,197 230,105 568,083 191,157	3,500,827
				821 9,534 5,180 179,665 – 978 38,332 1,447 38,446 11,903 476,924
				763,230
				314,717 4,636 11,672 3,197 230,105
				564,327
				198,903
	3,366,398	523,757	3,890,155	3,699,730

−191 −

APPENDIX VI

FINANCIAL INFORMATION OF THE ENLARGED GROUP

CAPITAL AND RESERVES Share capital Reserves MINORITY INTERESTS NON-CURRENT LIABILITIES Bank borrowings – due after one year Other borrowings Loan from a fellow subsidiary Loan from minority interests of a subsidiary Deferred taxation Deferred licencing income	The Group as at 30th June, 2004 HK$’000 447,549 2,031,984	Shanghai Puly Real Estate as at 30th April, 2004 HK$’000 127,993 348,583	Pro forma Combined Pro forma adjustments HK$’000 HK$’000 Notes 575,542 (127,993) 1, 2 2,380,567 (312,432) 1, 2	The Group and Shanghai Puly Real Estate HK$’000 447,549 2,068,135
	2,479,533 202,016 370,797 30,290 168,224 63,203 – 52,335 684,849	476,576 – – – – – 47,181 – 47,181	2,956,109 202,016 370,797 250,000 1 30,290 168,224 63,203 47,181 52,335 732,030	2,515,684
				202,016
				620,797 30,290 168,224 63,203 47,181 52,335
				982,030
	3,366,398	523,757	3,890,155	3,699,730

Notes:

1. The adjustment reflects the proposed acquisition of a further 60% equity interest in Shanghai Puly Real Estate at a cash consideration of RMB258,000,000 (approximately HK$242,254,000), which was financed by a bank loan of HK$250,000,000. The difference between the consideration and the net asset value of HK$285,946,000 attributable to the 60% interest in the registered capital of Shanghai Puly Real Estate to be acquired, based on the financial information of Shanghai Puly Real Estate as at 30th April, 2004, amounting to HK$43,692,000, represent the deemed capital contribution from shareholders and has been credited in the capital reserve.

2. The adjustment reflects the elimination of capital of Shangahi Puly Real Estate upon consolidation of Shanghai Puly Real Estate to the Group.

3. The adjustment reflects the elimination of inter-company balances.

4. The adjustment reflects the reclassification of amount due from immediate holding company to amounts due from fellow subsidiaries.

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

(ii) Letter from the reporting accountants

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==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (“Pro Forma Statement”) of Continental Mariner Investment Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Shanghai Puly Real Estate Development Company Limited (“Shanghai Puly Real Estate”) set out in Section 3B of Appendix VI to the circular dated 29th October, 2004 (the “Circular”) issued by the Company in connection with the major and connected transactions in respect of the proposed acquisition of a further 60% equity interest in Shanghai Puly Real Estate, which has been prepared, as if the acquisition by the Group of Shanghai Puly Real Estate had been completed as at 30th June, 2004. The Pro Forma Statement has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the acquisition might have affected the financial information of the Group.

RESPONSIBILITIES

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

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

BASIS OF OPINION

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on Pro Forma Financial Information Pursuant to The Listing Rules” issued by the Auditing Practice Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Statement with the directors of the Company.

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

The Pro Forma Statement has been compiled in accordance with the basis set out in Section 3B of Appendix VI to the Circular for illustrative purposes only and because of its nature, it may not be indicative of the financial position of the Group as at 30th June, 2004 or at any future date.

OPINION

In our opinion:

• (a) the Pro Forma Statement has been properly compiled on the basis stated;

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

• (c) the adjustments are appropriate for the purposes of the Pro Forma Statement as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

−194 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

C. Unaudited pro forma statement of assets and liabilities of the Group and Hubei White Rose Group

• (i) Financial information

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group and Hubei White Rose Group, assuming that the acquisition of Hubei White Rose Group had been completed as at 30th June, 2004 for the purpose of illustrating how the transaction might have affected the financial position of the Group.

The accompanying unaudited pro forma statement of assets and liabilities of the Group and Hubei White Rose Group has been prepared based on the unaudited consolidated balance sheet of the Group as at 30th June, 2004 as extracted from the interim report of the Company for the six months ended 30th June, 2004 and the unaudited pro forma assets and liabilities of Hubei White Rose Group, as at 30th April, 2004 as extracted from the unaudited pro forma statement of assets and liabilities set out in Section 3A of Appendix VI to this circular and adjusted for the transactions resulting from the acquisition of Hubei White Rose Group.

The unaudited pro forma statement of assets and liabilities is prepared to provide financial information of the Group and Hubei White Rose Group as a result of completion of the acquisition by the Group of Hubei White Rose Group. As it is prepared for illustrative purpose only, it may not purport to represent what the assets and liabilities of the Group and Hubei White Rose Group are on the completion of the acquisition by the Group of Hubei White Rose Group.

−195 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

NON-CURRENT ASSETS Investment properties Hotel properties Property, plant and equipment Interests in associates Interests in jointly controlled entities Investment in a property development project Investments in securities CURRENT ASSETS Stores Inventories Properties held for resale Trade and other receivables Short-term loans receivable Investments in securities Pledged bank deposits Bank balances, deposits and cash CURRENT LIABILITIES Trade and other payables Property rental deposits Taxation payable Bank borrowings – due within one year NET CURRENT ASSETS	The Group as at 30th June, 2004 HK$’000 706,440 647,400 969,371 521,338 2,776 197,271 74,575	Hubei White Rose Group as at 30th April, 2004 HK$’000 – 146,000 3,254 – − − −	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Notes 706,440 793,400 972,625 521,338 2,776 197,271 74,575	The Group and Hubei White Rose Group HK$’000 706,440 793,400 972,625 521,338 2,776 197,271 74,575
	3,119,171 821 8,960 5,180 177,728 38,332 38,446 11,903 463,791 745,161 259,996 4,636 3,197 230,105 497,934 247,227	149,254 – 4,447 – 6,473 − − − 14,547 25,467 16,787 − 313 169 17,269 8,198	3,268,425 821 13,407 5,180 184,201 38,332 38,446 11,903 478,338 (145,492) 1,2 770,628 276,783 4,636 3,510 230,274 515,203 255,425	3,268,425
				821 13,407 5,180 184,201 38,332 38,446 11,903 332,846
				625,136
				276,783 4,636 3,510 230,274
				515,203
				109,933
	3,366,398	157,452	3,523,850	3,378,358

−196 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

CAPITAL AND RESERVES Share Capital Reserves MINORITY INTERESTS NON-CURRENT LIABILITIES Bank borrowings – due after one year Other borrowings Loan from a fellow subsidiary Loan from minority interests of a subsidiary Deferred taxation Deferred licencing income	The Group as at 30th June, 2004 HK$’000 447,549 2,031,984	Hubei White Rose Group as at 30th April, 2004 HK$’000 9,014 44,742	Pro forma combined Pro forma adjustments HK$’000 HK$’000 Notes 456,563 (9,014) 1 2,076,726 (42,629) 1	The Group and Hubei White Rose Group HK$’000 447,549 2,034,097
	2,479,533 202,016 370,797 30,290 168,224 63,203 – 52,335 684,849	53,756 − − 93,849 − − 9,847 − 103,696	2,533,289 202,016 370,797 124,193 (93,849) 2 168,224 63,203 9,847 52,335 788,545	2,481,646
				202,016
				370,797 30,290 168,224 63,203 9,847 52,335
				694,696
	3,366,398	157,452	3,523,850	3,378,358

Notes:

1. The adjustment reflects the proposed acquisition of 100% equity interest in Hubei White Rose Group at a cash consideration of RMB55,000,000 (approximately HK$51,643,000) by the Company. The difference between the consideration and the net asset value of HK$53,756,000 attributable to 100% interest in the registered capital of Hubei White Rose to be acquired based on the financial information of Hubei White Rose Group as at 30th April, 2004, amounting to HK$2,113,000, represent the deemed capital contribution from shareholder and have been credited in the capital reserve.

2. The adjustment reflects the acquisition of shareholders’ loans lent by Poly Enterprises and Poly Shanghai to Hubei White Rose amounting to RMB99,949,000 (approximately HK$93,849,000) at considerations of RMB99,949,000 (approximately HK$93,849,000).

−197 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

(ii) Letter from the reporting accountants

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==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (“Pro Forma Statement”) of Continental Mariner Investment Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) and Hubei White Rose Hotel Company Limited (“Hubei White Rose”), Wuhan White Rose Hostel Company Limited (“White Rose Hostel”) and Wuhan White Rose Airport Transportation Services Centre (“White Rose Transportations”) (collectively referred to as “Hubei White Rose Group”) set out in Section 3C of Appendix VI to the circular dated 29th October, 2004 (the “Circular”) issued by the Company in connection with the proposed acquisition of 100% equity interest in Hubei White Rose Group, which has been prepared, as if the acquisition by the Group of Hubei White Rose Group had been completed as at 30th June, 2004. The Pro Forma Statement has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the acquisition might have affected the financial information of the Group.

RESPONSIBILITIES

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

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

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

BASIS OF OPINION

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

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

The Pro Forma Statement has been compiled in accordance with the basis set out in Section 3C of Appendix VI to the Circular for illustrative purposes only and because of its nature, it may not be indicative of the financial position of the Group as at 30th June, 2004 or at any future date.

OPINION

In our opinion:

• (a) the Pro Forma Statement has been properly compiled on the basis stated;

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

• (c) the adjustments are appropriate for the purposes of the Pro Forma Statement as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

D. Unaudited pro forma statement of assets and liabilities of the Group, Shanghai Puly Real Estate and Hubei White Rose Group

• (i) Financial information

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group, Shanghai Puly Real Estate and Hubei White Rose Group, assuming that the acquisition by the Group of Shanghai Puly Real Estate and Hubei White Rose Group had been completed as at 30th June, 2004 for the purpose of illustrating how the transaction might have affected the financial position of the Group.

The unaudited pro forma statement of assets and liabilities of the Group, Shanghai Puly Real Estate and Hubei White Rose Group has been prepared based on the unaudited consolidated balance sheet of the Group as at 30th June, 2004 as extracted from the interim report of the Company for the six months ended 30th June, 2004, the audited balance sheet of Shanghai Puly Real Estate as at 30th April, 2004 as extracted from the Accountants’ Report set out in Appendix I to this Circular and the unaudited pro forma balance sheet of Hubei White Rose Group as at 30th April, 2004 and adjusted for the transactions resulting from the acquisition by the Group of Shanghai Puly Real Estate and Hubei White Rose Group.

The unaudited pro forma statement of assets and liabilities is prepared to provide financial information of the Group, Shanghai Puly Real Estate and Hubei White Rose Group as a result of completion of the acquisition by the Group of Shanghai Puly Real Estate and Hubei White Rose Group. As it is prepared for illustrative purpose only, it may not purport to represent what the assets and liabilities of the Group, Shanghai Puly Real Estate and Hubei White Rose Group are on the completion of the acquisition by the Group of Shanghai Puly Real Estate and Hubei White Rose Group.

−200 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

NON-CURRENT ASSETS Investment properties Hotel properties Property, plant and equipment Goodwill Interests in associates Interests in jointly controlled entities Investment in a property development project Investments in securities Loan receivable CURRENT ASSETS Stores Inventories Properties held for resale Trade and other receivables Amount due from immediate holding company Amounts due from fellow subsidiaries Short-term loans receivable Taxation recoverable Investments in securities Pledged bank deposits Bank balances, deposits and cash CURRENT LIABILITIES Trade and other payables Property rental deposits Amounts due to fellow subsidiaries Taxation payable Bank borrowings – due within one year NET CURRENT ASSETS (LIABILITIES)	The Group as at 30th June, 2004 HK$’000 706,440 647,400 969,371 – 521,338 2,776 197,271 74,575 –	Shanghai Puly Real Estate as at 30th April, 2004 HK$’000 548,563 – 770 447 – – – – 30,047	Hubei White Rose Group as at 30th April, 2004 HK$’000 – 146,000 3,254 – – – – – –	Pro forma Combined Pro forma adjustments HK$’000 HK$’000 Notes 1,255,003 793,400 973,395 447 521,338 (198,171) 2 2,776 197,271 74,575 30,047	The Enlarged Group HK$’000 1,255,003 793,400 973,395 447 323,167 2,776 197,271 74,575 30,047
	3,119,171 821 8,960 5,180 177,728 – – 38,332 – 38,446 11,903 463,791 745,161 259,996 4,636 – 3,197 230,105 497,934 247,227	579,827 – 574 – 5,693 94 884 – 1,447 – – 5,387 14,079 54,721 – 15,428 – – 70,149 (56,070)	149,254 – 4,447 – 6,473 – – – – – – 14,547 25,467 16,787 – – 313 169 17,269 8,198	3,848,252 821 13,981 5,180 189,894 (3,756) 5 94 (94) 6 884 94 6 38,332 1,447 38,446 11,903 483,725 (137,746) 1, 3, 4 784,707 331,504 4,636 15,428 (3,756) 5 3,510 230,274 585,352 199,355	3,650,081
					821 13,981 5,180 186,138 – 978 38,332 1,447 38,446 11,903 345,979
					643,205
					331,504 4,636 11,672 3,510 230,274
					581,596
					61,609
	3,366,398	523,757	157,452	4,047,607	3,711,690

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

CAPITAL AND RESERVES Share capital Reserves MINORITY INTERESTS NON-CURRENT LIABILITIES Bank borrowings – due after one year Other borrowings Loan from a fellow subsidiary Loan from minority interests of a subsidiary Deferred taxation Deferred licencing income	The Group as at 30th June, 2004 HK$’000 447,549 2,031,984	Shanghai Puly Real Estate as at 30th April, 2004 HK$’000 127,993 348,583	Hubei White Rose Group as at 30th April, 2004 HK$’000 9,014 44,742	Pro forma Combined Pro forma adjustments HK$’000 HK$’000 Notes 584,556 (137,007) 1, 2, 3 2,425,309 (355,061) 1, 2, 3	The Enlarged Group HK$’000 447,549 2,070,248
	2,479,533 202,016 370,797 30,290 168,224 63,203 – 52,335 684,849	476,576 – – – – – 47,181 – 47,181	53,756 – – 93,849 – – 9,847 – 103,696	3,009,865 202,016 370,797 250,000 1 124,139 (93,849) 4 168,224 63,203 57,028 52,335 835,726	2,517,797
					202,016
					620,797 30,290 168,224 63,203 57,028 52,335
					991,877
	3,366,398	523,757	157,452	4,047,607	3,711,690

Notes:

1. The adjustment reflects the proposed acquisition of a further 60% equity interest in Shanghai Puly Real Estate at a cash consideration of RMB258,000,000 (approximately HK$242,254,000), which was financed by a bank loan of HK$250,000,000. The difference between the consideration and the net assets value of HK$285,946,000 attributable to the 60% interest in the registered capital of Shanghai Puly Real Estate to be acquired, based on the financial information of Shanghai Puly Real Estate as at 30th April, 2004, amounting to HK$43,692,000, represent the deemed capital contribution from shareholders and has been credited in the capital reserve.

2. The adjustment reflects the elimination of capital of Shanghai Puly Real Estate and Hubei White Rose Group upon consolidation of Shanghai Puly Real Estate and Hubei White Rose into the Group.

3. The adjustment reflects the proposed acquisition of 100% equity interest in Hubei White Rose Group at consideration of RMB55,000,000 (approximately HK$51,643,000). The difference between the consideration and the net asset value of HK$53,756,000 attributable to the 100% interest in the registered capital of Hubei White Rose Group to be acquired, based on the financial information of Hubei White Rose Group as at 30th April, 2004, amounting to HK$2,113,000, represent the deemed capital contribution from shareholders and has been credited in the capital reserve.

4. The adjustment reflects the acquisitions of shareholder’s loans lent by Poly Enterprises and Poly Shanghai to Hubei White Rose amounting to RMB99,949,000 (approximately HK$93,849,000) at consideration of RMB99,949,000 (approximately HK$93,849,000).

5. The adjustment reflects the elimination of inter-company balances.

6. The adjustment reflects the reclassification of amount due from immediate holding company to amounts due from fellow subsidiaries.

−202 −

FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

(ii) Letter from the reporting accountants

==> picture [64 x 49] intentionally omitted <==

==> picture [78 x 34] intentionally omitted <==

29th October, 2004

The Directors

Continental Mariner Investment Company Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (“Pro Forma Statement”) of Continental Mariner Investment Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), Shanghai Puly Real Estate Development Company Limited (“Shanghai Puly Real Estate”) and Hubei White Rose Hotel Company Limited (“Hubei White Rose”) set out in Section 3D of Appendix VI to this circular dated 29th October, 2004 (the “Circular”) issued by the Company in connection with the proposed acquisition of a further 60% equity interest in Shanghai Puly Real Estate and 100% equity interest in Hubei White Rose, which has been prepared, as if the acquisitions by the Group of Shanghai Puly Real Estate and Hubei White Rose had been completed as at 30th June, 2004. The Pro Forma Statement has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the acquisitions might have affected the financial information of the Group.

RESPONSIBILITIES

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

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

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX VI

BASIS OF OPINION

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

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

The Pro Forma Statement has been compiled in accordance with the basis set out in Section 3D of Appendix VI to the Circular for illustrative purposes only and because of its nature, it may not be indicative of the financial position of the Group as at 30th June, 2004 or at any future date.

OPINION

In our opinion:

• (a) the Pro Forma Statement has been properly compiled on the basis stated;

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

• (c) the adjustments are appropriate for the purposes of the Pro Forma Statement as disclosed pursuant to paragraph 29 of Chapter 4 of the Listing Rules.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

−204 −

VALUATION

APPENDIX VII

The following is the text of a letter prepared by the Independent Valuer for the purpose of inclusion in this circular:

29th October, 2004

The Directors Continental Mariner Investment Company Limited Room 2503 on 25th Floor Admiralty Centre Tower 1 No. 18 Harcourt Road Hong Kong

Dear Sirs,

1. VARIOUS PORTIONS OF SHANGHAI STOCK EXCHANGE BUILDING, PUDONG ROAD SOUTH, LUJIAZUI, PUDONG, SHANGHAI, THE PEOPLE’S REPUBLIC OF CHINA, and

2. THE WHOLE OF HUBEI WHITE ROSE HOTEL TOGETHER WITH WHITE ROSE HOSTEL AND THEIR ANCILLARY BUILDINGS AND THE ADJOINING LAND

In accordance with your instruction to value the property interests in Shanghai and in Wuhan in the Hubei Province in The People’s Republic of China, we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of the property interests as at 11th August, 2004 for sale and purchase purpose.

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

• (a) a willing seller;

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

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• (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• (d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

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

Our valuation has been made on the assumption that the owners sell the property interests in the open market without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to increase the value of such property interests.

The property interests in Shanghai have been valued on open market basis assuming sale with the benefit of vacant possession with reference to comparable sales evidence as available on the market and where appropriate on the basis of capitalisation of the rental income receivable from the property interests with due allowance for reversionary income potential. In valuing the property interests, we have assumed that the owner of the property interests has free and uninterrupted rights to assign the property interests for the whole of the unexpired term as granted under the land use right in respect of the property interests. We have also assumed that the property interests are freely disposable and transferable in their existing condition in the open market to both local and overseas purchasers whether as a whole or on strata-title basis without payment of any premium to the government authority.

In valuing the property interests in Wuhan in the Hebei Province, we have adopted the income approach whereby the income derived from the hotel operation with regard to past trading accounts are capitalised with due allowance for outgoings and expenses wherever applicable. The capitalisation process requires the determination of the rate of return appropriate to the property interests under consideration. The rate of return is determined by reference to the rates of return of other appropriate investment property as available in the market. In determining the appropriate rate of return, we have also considered the occupancy rates of the hotel and hostel in the past few years. Based on the information supplied, the average occupancy rates for the past years were about 70% which we consider are reasonable.

At the time of valuation, the hotel building together with the hostel building and their ancillary buildings and the adjoining land stood on a piece of land which formed part of an original piece of land held by Poly Hua Zhong Enterprise Development Company under a land use right for a term of 50 years commencing on 27th December, 1999. The original piece of land contained a site area of about 19,450.7 sq.m..

In accordance with the information supplied to us, the land is to be carved out from the said original piece of land and shall contain a site area of about 10.87 acres or about 7,250 sq.m.. The land use right of the land shall be for a term not less than 45 years commencing on 1st January, 2005. The land shall be provided with proper right of access to the existing road over the original land remaining.

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We have been provided with copies of legal documents regarding the title of the property interests under consideration. However, no investigations have been made in respect of the legal title or any liabilities attached to the property interests.

At the time of valuation, the land use right certificate for the land and the building ownership certificates for the hostel building and the ancillary buildings are not available to us. In accordance with the information supplied, the relevant land use right certificate and building ownership certificates are to be available to the Hubei White Rose Hotel Company Limited upon the completion of the sale.

In the valuation of the property interests in Wuhan in the Hubei Province, we have assumed that the relevant land use right in respect of the land and the building ownership certificates for the hostel building and the ancillary buildings are to be available within a reasonable period of time. In addition, Hubei White Rose Hotel Company Limited has full and uninterrupted rights to sell and transfer the legal titles in the land and the buildings standing thereon in open market to any third parties without the payment of any premium and fees of substantial nature.

We have relied upon the legal opinion of the PRC legal adviser on the PRC laws as supplied in relation to the legal title of the owners to the property interests and their validity.

As regards the property interests in Shanghai, we have relied to a very considerable extent on the information provided by you and Shanghai Puly Real Estate Development Co. Ltd. and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation status, tenancy details, floor areas and all other relevant matters. In particular, we have been supplied with copies of the tenancy agreements in respect of the portions of the property leased to related companies. Although no investigation has been conducted on the validity of the tenancy agreements, upon analysis, we are of the opinion that the rental reserved under the tenancies represented the rental level prevailing at the time the tenancies were made.

As regards the property interests in Wuhan in the Hubei Province, we have relied to a very considerable extent on the information provided by you and Hubei White Rose Hotel Company Limited and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation status, tenancy details, financial statements, floor areas and all other relevant matters.

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

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We have not searched the title of the property interests in the People’s Republic of China. We have not, however, scrutinized the original documents to verify ownership or to verify any title amendments which may not appear on the copies handed to us. All documents and title deeds have been used as reference only and all dimensions, measurements and areas are approximate. No on-site measurements have been taken.

We have inspected the exterior and, where possible, the interior of the property included in the attached valuation certificate, in respect of which we have been provided with such information as we have required for the purpose of our valuation. No structural survey has been made. However, in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the property is free from rot, infestation or any other structural defects. No tests were carried out on any of the building services.

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

For the purpose of this report, we have taken the conversion rate of US$1.00 to HK$7.80 as at the date of valuation.

Our summary of valuation and the valuation certificate are attached.

Yours faithfully, For and on behalf of A A Property Services Limited PATRICK W.C. LAI MRICS, MHKIS, MCIArb., RPS Executive Director

Note: Mr. Patrick W.C. Lai is a Chartered Valuation Surveyor of the Royal Institution of Chartered Surveyors and a Registered Professional Surveyor and a Real Estate Appraiser of China. He has 18 years of experience in the valuation of properties located in Hong Kong and in Beijing, Shanghai, Tianjin and other major cities in the People’s Republic of China and has issued valuation certificates for and on behalf of AA Property Services for over 10 years.

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SUMMARY OF VALUATION

Capital value in existing state as at 11th August, 2004

1. Portions of Basements 1, 2 and 3, Portions of First Floor, N02, N03 & N04, 11th Floor, North Tower, N02, N03 & N04, 12th Floor, North Tower, S01, S02, S03, S04, S05 & S06, 16th Floor, South Tower, N04, N05 & N06, 16th Floor, North Tower, N07, 19th Floor, North Tower, S01, S02, S03, S04, S07, S08 & S09, 20th Floor, South Tower, N02, N03, N06, N07, N08 & N09, 20th Floor, North Tower, Whole of 21st, 22nd & 23rd Floors, South Tower and North Tower, Whole of 26th Floor, North Tower and Whole of 27th Floor, South Tower and North Tower, Shanghai Stock Exchange Building, No. 528 Pudong Road South, Lujiazui, Pudong, Shanghai, The People’s Republic of China

2. The Whole of Hubei White Rose Hotel together with White Rose Hostel and their ancillary buildings and the adjoining land at No. 750 Wuchang Minzhu Road, Wu Chang District, Wuhan County, Hubei Province, The People’s Republic of China

HK$546,000,000 (US$70,000,000)

HK$146,000,000 (US$18,718,000)

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APPENDIX VII

VALUATION CERTIFICATE

Property

1. Portions of Basements 1, 2 and 3, Portions of First Floor, N02N04, 11th Floor, North Tower, N0204, 12th Floor, North Tower, S01S06, 16th Floor, South Tower, N04N06, 16th Floor, North Tower, N07, 19th Floor, North Tower, S01-S04 & S07-S09, 20th Floor, South Tower, N02-N03 & N06-N09, 20th Floor, North Tower, Whole of 21st, 22nd & 23rd Floors, South Tower and North Tower, Whole of 26th Floor, North Tower and Whole of 27th Floor, South Tower And North Tower, Shanghai Stock Exchange Building, No. 528 Pudong Road South, Lujiazui, Pudong, Shanghai, The People’s Republic of China

Description and tenure

The property comprises portions of the three basements floors for carparking purposes, half of the first floor used for common area and retailing purposes and various portions of the office spaces on the upper floors of the South Tower and the North Tower of a multi-purposes office building of 27-storeys plus three basement floors.

The building comprises primarily two office towers standing on the podium of a commercial complex. The commercial complex contains 9 storeys of commercial spaces which are purposely designed for the use by the Shanghai Stock Exchange and three basement floors primarily for carparking purposes.

The building was completed in 1998.

The property excluding the basement floors contains a total gross floor area of about 26,603 square metres and the portions of the three basement floors contain a total of 126 carparking spaces or a total gross floor area of about 7,603 square metres.

The land use right of the property has been granted for a term of 50 years commencing on 15th November, 1993 and expiring on 14th November, 2043.

Capital value in Particulars of existing state as at occupancy 11th August, 2004

HK$546,000,000 (US$70,000,000)

The leased

commercial and office portions of the property are at present subject to various tenancies for fixed lease terms ranging from 2 years to 3 years whilst the carparking spaces are let on monthly licence basis and the remaining portions are either vacant or owner occupied as at 31st July, 2004.

The average monthly rental income receivable from the leased portions of the property is about US$340,000.

The property is occupied for office purposes with ancillary retailing spaces and carparking spaces.

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Notes:

1. Pursuant to the Certificate for State-owned Land Use Right No.000563 issued by Shanghai Land Administrative Bureau on 7th December, 1993, the land use right of the land upon which the building is erected comprising a site area of 11,870 square metres was granted to Shanghai Puly Real Estate Development Co., Ltd. for a term of 50 years from 15th November, 1993 to 14th November, 2043 for the development of office building for financial purposes.

2. Pursuant to the Business Licence No. Qi He Hu Pu Zong Xi 302039 dated 26th October, 1992 issued by The State Industrial and Commercial Administrative Bureau, Shanghai Puly Real Estate Development Co., Ltd. was incorporated with a registered capital of US$24,000,000. The Licence was valid for a period from 26th October, 1992 to 26th October, 2042 and the scope of business shall include land development and construction, management, sales, letting and estate agency in respect of real property and other related businesses.

3. Pursuant to the Permit No. Hu He Zi Xi 1242 dated 15th October, 1992 issued by the People’s Government of Shanghai Municipality, a sino-foreign joint venture enterprise known as Shanghai Puly Real Estate Development Co., Ltd. was permitted to be formed by Shanghai Sanli Industrial Company Limited (Party A) and Ringo Trading Limited, Hong Kong (Party B) with a registered capital of US$24,000,000 for a period of 50 years. The share of Party A in the company was 60% and that of Party B was 40%. The scope of business shall include land development and construction, management, sales conducted both within and outside the People’s Republic of China, letting and estate agency in respect of real property and other related businesses including restaurants and entertainment operations.

4. Pursuant to the Permit No. 272 dated 18th August, 1995 issued by the Naming Committee of Shanghai Municipality, the building is officially named as (Shanghai Stock Exchange Building).

5. Pursuant to the Building Ownership Certificate No. 001584 issued on 21st March, 2000, Shanghai Puly Real Estate Development Co. Ltd. is the registered owner of portions of the first floor and portions of the basement floors 1, 2 and 3 of the building. The premises included in the said Building Ownership Certificate forms part of the property included in the valuation certificate. This portion of the property contains a total gross floor area of about 8,704 square metres. The land use right in respect of the property interests was granted for a term commencing on 15th November, 1993 and expiring on 14th November, 2043.

6. Pursuant to the Building Ownership Certificate No. 005209 issued on 25th November, 1998, Shanghai Puly Real Estate Development Co. Ltd. is the registered owner of the whole of 10th to 25th Floors of the South Tower and the North Tower, the whole of 26th Floor of the North Tower and the whole of 27th Floor of the South Tower and the North Tower of the building. The property included in the valuation certificate forms part of the premises included in the said Building Ownership Certificate. This portion of the property contains a total gross floor area of about 25,502 square metres. The land use right in respect of the property interests was granted for a term commencing on 15th November, 1993 and expiring on 14th November, 2043.

7. We have relied to a considerable extent on the opinion of the legal adviser on the People’s Republic of China’s law in relation to the following matters:

8. a. Shanghai Puly Real Estate Development Co., Ltd. has been incorporated in accordance with the law of the People’s Republic of China and the business licence of the company is valid and has full force.

9. b. Shanghai Puly Real Estate Development Co., Ltd. is in possession of a proper legal title to the property interests and has full legal right to transfer the title to the property interests to both local and overseas purchasers for the residual term of the land use right granted in respect of the property interests at no extra land premium or other payment of onerous nature chargeable by government authorities.

10. c. The purchaser of the property interests shall be entitled to be issued building ownership certificates of the property interests upon application to the relevant government authorities without payment of any land premium or other payment of onerous nature and the property interests can be freely disposable and transferable in the open market to both local and overseas sub-purchasers by the purchaser whether as a whole or on strata-title basis without payment of any fees of onerous nature to government authorities.

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1. The status of title and major approvals and licences in accordance with the information provided to us and the opinion of the legal adviser on the People’s Republic of China’s law is as follows:

Type of document	Status
State-owned Land Use Right Certificate	Obtained
Business Licence	Obtained
Sino-foreign Joint Venture Enterprise Permit	Obtained
Building Ownership Certificates	Obtained

1. The whole of 26th Floor of North Tower which forms part of the property is at present subject to a sale and purchase agreement made between the owner of the property and Poly Shanghai Group Company Limited for the sale of the premises on the following terms and conditions:

2. a. The sale price shall be US$5,816,850;

3. b. A deposit of US$1,163,370 shall be paid upon signing the formal sale and purchase agreement;

4. c. The sale shall be completed within twelve months commencing on 30th April, 2004; and

5. d. The sale shall be cancelled if the purchaser fails to complete the sale within the time prescribed in the agreement in which event the whole of the deposit paid shall be forfeited.

6. The Capital Value of 26th Floor of North Tower containing a gross floor area of 2,041 sq.m. was US$5,720,000 as at 11th August, 2004.

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APPENDIX VII

Description and tenure

Property

1. The whole of The property comprises a hotel Hubei White Rose building together with a hostel Hotel together building and their ancillary with White Rose buildings and the adjoining land. Hostel and their ancillary buildings The piece of land upon which the and the adjoining buildings and facilities are erected land, No. 750 is of regular shape and contains a Wuchang Minzhu site area of about 7,250 sq.m.. Road, Wu Chang District, Wuhan, The hotel building contains 24 Hubei Province, storeys including a basement and a The People’s gross floor area of about 27,592.12 Republic of China square metres.

The hotel building was completed in about 1998.

The hotel building contains restaurants, night clubs, amenity facilities, retailing facilities and 256 guest rooms.

Particulars of occupancy

The hotel together with the hostel and their ancillary buildings are occupied as a fully operational hotel.

Some of the guest rooms within the hotel building have been occupied for office uses.

The land adjoining the hotel and hostel buildings are at present occupied for open carparking purposes.

Capital value in existing state as at 11th August, 2004

HK$146,000,000 (US$18,718,000)

The hostel building contains 4 storeys and a gross floor area of about 3,218 sq.m..

The hostel building was completed in about 1990.

The hostel building contains hotel offices and 64 guest rooms.

The ancillary buildings consist of an eight-storeyed building for hotel offices and staff quarters and a boiler house.

The eight-storeyed ancillary building contains a gross floor area of about 2,896 sq.m. and the boiler house contains a gross floor area of about 738.15 sq.m..

The land use right of the land is to be granted for a term not less than 45 years commencing on 1st January, 2005.

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APPENDIX VII

Notes:

1. Pursuant to the Contract for the Sale of land use right made on 20th August, 1999 and between Hubei Wuhan County Land Administration Bureau and Poly Hua Zhong Enterprise Development Company (“the Grantee”), the land use right of a piece of land at Wuchang Minzhu Road and containing a site area of 18,684 sq.m. was granted to the Grantee for a term of 50 years commencing on the date of the issue of the Certificate for Land Use Right. The Land Use Right was subsequently issued on 27th December, 1999. It was provided under the Contract that:

2. a. The land shall be used for tourism and office purposes;

3. b. The Grantee was exempted from paying the sale price;

4. c. The Grantee has the right to transfer or let out the land in its entirety or in separate lots for the residue of the term granted in respect of the land use right on the condition that the investment expended on the land by the Grantee has reached the pre-determined amount; and

5. d. The use of the land shall be subject to the following rules and regulations:

   • i. The main buildings to be erected on the land shall be for hotels and their administration offices;

   • ii. Ancillary buildings shall be for the provision of commercial services;

   • iii. The plot ratio permitted on the land is 1.9;

   • iv. The maximum gross floor area of the buildings to be erected on the land is 34,910 sq.m.; and

   • v. The maximum height of the buildings is 122 metres.

6. Pursuant to the Certificate for State-owned Land Use Right No. Wu Chang Guo Yong (1999) Zi 00043 issued by The People’s Republic of China Land Administrative Bureau on 27th December, 1999, the land use right of the original piece of land which the land formed a part and comprising a site area of 19,450.07 square metres was granted to Poly Hua Zhong Enterprise Development Company for the tourism and administration office purposes.

7. Pursuant to the Business Licence No. 4200001103701 dated 27th March, 2003 issued by The Hubei Province Industrial and Commercial Administrative Bureau, Poly Hua Zhong Enterprise Development Company was incorporated with a registered capital of RMB20,000,000. The company was of a State-owned nature. The scope of business shall include among others development of land and buildings and the sales of completed developments.

8. Pursuant to the Building Ownership Certificate Chang Xi No. 200208673 issued by Wuhan County Wuchang District Housing Administrative Bureau on 18th June, 2002, Poly Hua Zhong Enterprise Development Company is the registered owner of the Hubei White Rose Hotel. The hotel building contains a gross floor area of about 27,592.12 square metres. The hotel building shall be for commercial uses.

9. By virtue of an agreement for the use of a land use right dated 31st December, 2002 and made between Poly Hua Zhong Enterprise Development Company (“the owner”) and Hubei White Rose Hotel Company Limited (“the lessee”), Hubei White Rose Hotel together with the land appurtenant thereto was leased to the lessee for a period of one year from January, 2003 to December, 2003. The rental reserved under the agreement was RMB550,000 per annum. The land covered in the agreement contained a site area of 5,012 sq.m..

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APPENDIX VII

1. Pursuant to the Business Licence No. 4200001100827 dated 30th March, 2004 issued by The Hubei Industrial and Commercial Administrative Bureau, Hubei White Rose Hotel Company Limited was incorporated with a registered capital of RMB9,600,000. The company was established on 29th January, 1997 and the business licence shall be renewed on yearly basis. The scope of business shall include the provision of hotel accommodations and catering facilities, the letting of office premises, operation of night clubs, beauty parlour and carpark and the provision of health and entertainment facilities and the operation of department stores including retailing of secondary food and hotel necessities.

2. Pursuant to the Business Licence No. 4200001103695 dated 27th April, 2002 issued by The Hubei Industrial and Commercial Administrative Bureau, Wuhan White Rose Hostel was incorporated with a registered capital of RMB5,000,000. The company was established on 12th April, 1993 and was of a State-owned nature. The scope of business shall include among others the provision of hotel accommodations and catering facilities and operation of night clubs

3. We have relied to a considerable extent on the opinion of the legal adviser on the People’s Republic of China’s law in relation to the following matters:

4. a. Poly Hua Zhong Enterprise Development Company has been incorporated in accordance with the law of the People’s Republic of China and the business licence of the company is valid and has full force.

5. b. Poly Hua Zhong Enterprise Development Company is in possession of a proper legal title to the land and Hubei White Rose Hotel, Wuhan White Rose Hostel and the ancillary buildings and has full legal right to transfer the title to the property interests to Hubei White Rose Hotel Company Limited.

6. c. Upon the completion of the transfer of the land use right in the land and the ownership of the Hubei White Hotel, Wuhan White Rose Hostel and their ancillary buildings, the term of the land use right granted in respect of the property interests shall be not less than 45 years commencing on 1st January, 2005.

7. d. Hubei White Rose Hotel Company Limited shall be entitled to be issued the land use right certificate in respect of the land containing a site area of 7,250 sq.m. and the building ownership certificates for the Hubei White Rose Hotel, Wuhan White Rose Hostel and their ancillary buildings upon application to the relevant government authorities. Upon the issue of the relevant land use right certificate and building ownership certificates, the property interests can be freely disposable and transferable in the open market to both local and overseas sub-purchasers whether as a whole or on strata-title basis without payment of any fees of onerous nature to government authorities.

8. At the time of inspection, standing on the land there were two buildings. One of the buildings contained four storeys and contained a gross floor area of about 1,300 sq.m.. The building is at present occupied primarily for office uses. The other building contained four storeys and contained a gross floor area of about 620 sq.m.. The building is at present occupied for carport and quarters uses. Based on the information supplied, the two buildings have not formed part of the hotel and hostel and have not contributed to the operation of the hotel. In the valuation of the property, we have not taken into account the value of these two buildings. The areas covered by these two buildings within the land are valued as if they were vacant land.

9. The status of title and major approvals and licences in accordance with the information provided to us and the opinion of the legal adviser on the People’s Republic of China’s law is as follows:

Type of document Status State-owned Land Use Right Certificate To be obtained Business Licence To be obtained Building Ownership Certificates To be obtained

−215 −

GENERAL INFORMATION

APPENDIX VIII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF DIRECTORS’ INTERESTS

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

				Approximate %
Directors/	Interests in			of securities
chief	the Company or	Capacity		in the same		Exercise
executive	its associated	in holding	Long/short	class of		price per	Number and class
(if any)	corporation	interest	position	securities	Date of grant	Share	of securities
						HK$	(Note)
Wang Jun	The Company	beneficial	long position	1.73%	3rd September, 1997	5.175	6,000,000 Shares
		owner			5th June, 1998	1.37	4,500,000 Shares
					30th November, 2000	0.74	5,000,000 Shares
He Ping	The Company	beneficial	long position	1.73%	3rd September, 1997	5.175	6,000,000 Shares
		owner			5th June, 1998	1.37	4,500,000 Shares
					30th November, 2000	0.74	5,000,000 Shares
Li Shi Liang	The Company	beneficial	long position	0.56%	30th November, 2000	0.74	5,000,000 Shares
		owner

Note: As at the Latest Practicable Date, the above Directors had outstanding options to subscribe for the respective number of Shares pursuant to the share option scheme of the Company adopted on 16th June, 1993. All of such options are exercisable after one year from the date of grant of the relevant share option (“Commencement Date”) to 10 years from the Commencement Date.

As at the Latest Practicable Date, none of the Directors or the experts named at paragraph 6(a) below in this circular had any direct or indirect interests in any assets which have since 31st December, 2003 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by or leased to the Company or any of its subsidiaries.

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GENERAL INFORMATION

APPENDIX VIII

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries, which was subsisting and was significant in relation to the business of the Group.

3. SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at the Latest Practicable Date, so far as is known to any Director or chief executive (if any) of the Company, no person (not being a Director, chief executive (if any) of the Company nor any member of the Group), has an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provision of the SFO) or who is directly or indirectly interested in 5% or more of the nominal value of any class of shares carrying rights to vote in all circumstances at general meetings of any member of the Group.

(a) Interest in the issued ordinary shares of the Company

				Approximate
				shareholding
			Number and	in the same
			class of	class of
			securities/	securities/
	Capacity in	Long/short	amount of	equity
Name	holding interest	position	interest held	interest
Chee Ying Cheung	beneficial owner	long position	53,981,000	6.03%
Wincall Holding Limited	beneficial owner	long position	55,428,000	6.19%
Congratulations Company Ltd.	beneficial owner	long position	169,845,000	18.97%
Source Holdings Limited (Note 1)	beneficial owner and	long position	328,485,560	36.69%
	interest of controlled
	corporation
Ting Shing Holdings Limited (Note 2)	interest of controlled	long position	498,330,560	55.65%
	corporation
Ringo Trading Limited (Note 3)	beneficial owner and	long position	539,875,036	60.29%
	interest of controlled
	corporation
China Poly (Note 4)	interest of controlled	long position	539,875,036	60.29%
	corporation

Notes:

1. Source Holdings Limited has direct holding of 228,398,760 Shares and is deemed by the SFO to be interested in 100,086,800 Shares as a result of its indirect holdings of the Shares through its wholly-owned subsidiaries, Wincall Holding Limited (55,428,000 Shares) and Musical Insight Holdings Ltd. (44,658,800 Shares).

2. Ting Shing Holdings Limited is deemed by the SFO to be interested in 498,330,560 Shares as a result of its indirect holding of the Shares through its subsidiaries, Source Holdings Limited and Congratulations Company Ltd.

−217 −

GENERAL INFORMATION

APPENDIX VIII

1. Ringo Trading Limited has direct holding of 41,544,476 Shares and is deemed by the SFO to be interested in 498,330,560 Shares as a result of its indirect holding of the Shares through its wholly-owned subsidiary, Ting Shing Holdings Limited.

2. China Poly owns 100% of Ringo Trading Limited and is accordingly deemed by the SFO to be interested in the Shares directly and indirectly owned by Ringo Trading Limited.

3. Mr. He Ping, the Vice-Chairman and an executive director of the Company, is the Vice-Chairman and President of China Poly.

4. Mr. Li Shi Liang, the managing director and an executive director of the Company, is a director of Ringo Trading Limited.

5. Mr. Chen Hong Sheng, an executive director of the Company, is a director and the deputy general manager of China Poly.

6. (b) Interest in the issued ordinary shares of Poly Plaza Limited, a subsidiary of the Company

Percentage of Name of shareholders issued share capital China Poly 25.00%

• (c) Interest in the issued ordinary shares of Polystar Digidisc Co., Ltd., a subsidiary of the Company

Percentage of Name of shareholders issued share capital China Poly 34.00%

• (d) Interest in the issued ordinary shares of Taicang Xinhaikang Xiexin Thermal Power Co., Ltd., a subsidiary of the Company

Percentage of Name of shareholders issued share capital Suzhou Power Investment Company 49.00%

4. MATERIAL INTERESTS

None of the Directors of the Company or expert named in paragraph 6 below has any direct or indirect interest in any assets which have 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 since 31st December, 2003, being the date to which the latest published audited financial statements of the Company were made up.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors of the Company and their respective associates had any interest in a business which competes or may compete with the business of the Group.

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GENERAL INFORMATION

APPENDIX VIII

6. EXPERTS’ DISCLOSURE OF INTERESTS AND CONSENTS

• (a) The following are the qualifications of the experts who have given opinion or advice contained in this circular:

Name

Qualification

AA

Chartered Surveyors

AMS

AMS Corporate Finance Limited, a deemed licensed corporation under transitional arrangement to carry on type 4 (advising on 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

Deloitte Touche Tohmatsu Certified Public Accountants

• (b) As at the Latest Practicable Date, AA, AMS and Deloitte Touche Tohmatsu did not have any direct or indirect shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

• (c) Each of AA, AMS and Deloitte Touche Tohmatsu has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its letter and reference to its name in the form and context in which it appears.

• (d) The letter and recommendation given by AMS and the letter prepared by AA are given as of the date of this circular for incorporation herein.

7. SERVICE CONTRACTS

None of the Directors has any existing or proposed service contract with any member of the Group excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

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8. MATERIAL LITIGATION

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

9. MATERIAL CONTRACTS

Save as disclosed below, neither the Company nor any other members of the Group has entered into any material contracts (not being contracts entered into in the ordinary course of business carried out by the Group) within the two years preceding the Latest Practicable Date:

• (i) an agreement dated 23rd August, 2004 entered into between Prime Harvest Investment Limited, a wholly-owned subsidiary of the Company, (Yang Jiang City Fung Yuan Oils & Grains Industrial Company

• Limited) (“Oils & Grains Company”), (Yang Jiang City Po Fung Port Company Limited) (“Port Company”), (Guangdong Fung Yuan Oils & Grains Industrial Company Limited) and Legend Vantage Holdings Limited pursuant to which, Prime Harvest Investment Limited agreed to subscribe for 35% of the enlarged registered capital of each of Oils & Grains Company and Port Company for an aggregate consideration of US$14,490,000 (equivalent to approximately HK$113,022,000);

• (ii) a conditional agreement dated 5th February, 2004 entered into between the Company and Ringo Trading Limited, the substantial shareholder of the Company for the subscription of up to a maximum of 100,000,000 shares of the Company at a price of HK$1.66 per share with gross proceeds of about HK$166 million as part of the top-up placement exercise of the Company through CITIC Capital Markets Limited as placing agent. The costs and expenses in respect of the top-up placement exercise were about HK$3 million and the net proceeds were thus about HK$163 million;

• (iii) Shanghai Properties Acquisition Agreement; and

• (iv) Hubei Properties Acquisition Agreement.

10. MATERIAL CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31st December, 2003, the date of which the latest audited financial statements of the Group were made up.

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APPENDIX VIII

11. PROCEDURES FOR DEMANDING A POLL

Pursuant to Article 80 of the Articles of Association of the Company, at any general meeting a resolution put to the vote at the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded:

• (i) by the chairman of the meeting; or

• (ii) by at least three members present in person or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any member or members present in person or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

• (iv) by a member or members present in person or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

12. MISCELLANEOUS

• (a) The registered office of the Company is Room 2503, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong. The share registrar of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Floor 17, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (b) The secretary and the qualified accountant of the Company is Mr. Ho Kwok Pang, George. He is a fellow member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants.

• (c) The English text of this circular and the accompanying form of proxy shall prevail over the Chinese text for the purpose of interpretation.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (Saturdays and public holidays excepted) at the registered office of the Company at Room 2503, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong up to and including 18th November, 2004:

• (a) the memorandum and articles of association of the Company;

• (b) Shanghai Properties Acquisition Agreement;

• (c) Hubei Properties Acquisition Agreement;

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APPENDIX VIII

• (d) the four tenancy agreements on parts of the 21/F, South Tower, and 26/F, North Tower, Shanghai Stock Exchange Building entered into between Shanghai Puly Real Estate and four indirectly wholly owned subsidiaries of China Poly as detailed in the “Letter from the Board” which constitute ongoing connected transactions;

• (e) the letter from the Independent Board Committee, the text of which is set out on pages 22 to 23 of this circular;

• (f) the letter from AMS to the Independent Board Committee and the Independent Shareholders as set out on pages 24 to 46 of this circular;

• (g) the annual report of the Company for the financial year ended 31st December, 2003;

• (h) the financial information of Shanghai Puly Real Estate, Hubei White Rose, White Rose Hostel and White Rose Transportation, the texts of which are set out in Appendices I, II, III and IV respectively to this circular;

• (i) the reports from Deloitte Touche Tohmatsu on the unaudited pro forma financial information of the Enlarged Group, the texts of which are set out on pages 183 to 204 of this circular;

• (j) the report from AA regarding the valuations of Shanghai Properties and Hubei Properties as at 11th August, 2004 as set out on pages 205 to 215 of this circular;

• (k) the written consents of AA, AMS and Deloitte Touche Tohmatsu referred to in this appendix;

• (l) the material contracts referred to in the section headed “Material contracts” in this appendix; and

• (m) a copy of each of the following circulars issued pursuant to the requirements set out in Chapter 14 and 14A of the Listing Rules which has been issued since 31st December, 2003:

Date of circular

Descriptions

• 6th February, 2004 Acquisitions of 36.75% interest in Xuzhou Co-generation and 29.40% interest in Funing Co-generation.

• 30th April, 2004

• General mandates to issue and repurchase Shares and amendments to the articles of association.

• 13th September, 2004 Acquisitions of 35% of the enlarged registered capital of each of the Oils & Grains Company and Port Company.

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NOTICE OF EGM

==> picture [111 x 44] intentionally omitted <==

CONTINENTAL MARINER INVESTMENT COMPANY LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 119)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Continental Mariner Investment Company Limited (the “Company”) will be held at Queensway Room, Level 3, JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong on 18th November, 2004 at 10:30 a.m. for the purposes of considering and, if thought fit, passing, with or without modification, the following resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT the conditional agreement dated 11th August, 2004 (“Shanghai Properties Acquisition Agreement”) (a copy of which has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification) entered into between Johnsbury Limited (“Johnsbury”), a wholly-owned subsidiary of the Company, and (Shanghai Sanli Enterprise Company Limited) regarding the

acquisition of 60% equity interests in (Shanghai Puly Real Estate Development Company Limited) (including the option held by (Poly Shanghai Group Company Limited) for the acquisition of 26/F, North Tower, Shanghai Stock Exchange Building) be approved and THAT the directors of the Company and Johnsbury be and are hereby authorized on behalf of the Company and Johnsbury respectively (a) to sign, seal, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their discretion consider necessary or desirable for the purpose of and in connection with the implementation of the Shanghai Properties Acquisition Agreement; (b) to exercise or enforce all of the rights of Johnsbury under the Shanghai Properties Acquisition Agreement; and (c) to complete the Shanghai Properties Acquisition Agreement in accordance with the terms therein.”

1. “ THAT the conditional agreement dated 11th August, 2004 (“Hubei Properties Acquisition Agreement”) (a copy of which has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification) entered into between Smart Best Investments Limited (“Smart Best”), an indirectly wholly-owned subsidiary of the Company, (Poly Shanghai Group Company Limited) and (Poly Hua Zhong Enterprise Development Company)

regarding the acquisition of 100% equity interests in (Hubei White Rose Hotel Company Limited) be approved and THAT the directors of the Company and Smart Best be and are hereby authorized on behalf of the Company and Smart Best respectively (a) to sign, seal, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their discretion consider

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NOTICE OF EGM

necessary or desirable for the purpose of and in connection with the implementation of the Hubei Properties Acquisition Agreement; (b) to exercise or enforce all of the rights of Smart Best under the Hubei Properties Acquisition Agreement; and (c) to complete the Hubei Properties Acquisition Agreement in accordance with the terms therein.”

By Order of the Board HO Kwok Pang, George Company Secretary

Hong Kong, 29th October, 2004

Notes:

• (1) A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company.

• (2) In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority, must be deposited at the office of the Company’s share registrars, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

• (3) Completion and return of the form of proxy will not preclude a member from attending and voting at the above meeting or any adjournment thereof if he so wishes. In that event, his form of proxy will be deemed to have been revoked.

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