Huscoke Holdings Limited - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transfer all your shares in Shanghai Industrial Holdings Limited, you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Shanghai Industrial Holdings Limited.

==> picture [47 x 46] intentionally omitted <==

==> picture [255 x 33] intentionally omitted <==

(Stock Code: 363)

MAJOR TRANSACTION

IN RELATION TO AN ASSET SWAP AGREEMENT WITH

SHANGHAI INDUSTRIAL UNITED HOLDINGS CO., LTD.

A letter from the board of directors of Shanghai Industrial Holdings Limited is set out on pages 5 to 25 of this circular.

13th July 2005

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	The Asset Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
3.	Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
4.	Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
5.	Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
6.	Corporate Structure of the Pharmaceutical Assets and
	the Commercial Assets Before and After the Completion . . . . . . . . . . . . . . . . . . . . .	11
7.	Information on the Pharmaceutical Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
8.	Information on the Commercial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
9.	Reasons for and the Benefits of the Disposal and the Acquisition . . . . . . . . . . . . . .	22
10.	Financial Effects of the Disposal and the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . .	22
11.	Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
12.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
13.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix	I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix	II — Financial Information of the Group after Completion . . . . . . . . . . . . . .	89
Appendix	III — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	97

— i —

DEFINITIONS

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

Term Meaning

‘‘Acquisition’’ the acquisition of the Commercial Assets by a subsidiary of the Company pursuant to the Asset Swap Agreement
‘‘Asset Swap’’ the Disposal and the Acquisition
‘‘Asset Swap Agreement’’ the agreement between the Company and SI United in relation to the Acquisition and the Disposal dated 20th June 2005
‘‘Associate(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Board’’ the board of directors of the Company
‘‘Century Lianhua’’ Shanghai Century Lianhua Supermarket Development Co., Ltd. ( ), a limited liability company established under the laws of the PRC and owned by SI United as to 22.21% as at the Latest Practicable Date
‘‘Company’’ Shanghai Industrial Holdings Limited, a company incorporated in Hong Kong with limited liability, whose shares are listed on the Main Board of the Stock Exchange
‘‘Commercial Assets’’
(1) 131,683,000 domestic shares of RMB1 each in the capital of Lianhua Supermarket, representing 21.17% of the total issued share capital of Lianhua Supermarket; and
(2) an amount of RMB53,625,594.52 in the registered capital of Century Lianhua, representing 25.54% of the total equity interest in Century Lianhua (after a capital injection by SIUC to Century Lianhua)

to be acquired under the Acquisition

‘‘Completion’’

completion of the transfer of equity interest or shares under each of the Share Transfer Agreements

‘‘Completion Date’’

the date of Completion

‘‘Deloitte’’ Deloitte Touche Tohmatsu
‘‘Directors’’ directors of the Company
‘‘Disposal’’

the disposal of the Pharmaceutical Assets by subsidiaries/associated company of the Company pursuant to the Asset Swap Agreement

‘‘Group’’
the Company and its subsidiaries
‘‘HK$’’ or ‘‘HK dollars’’ Hong Kong dollars, the lawful currency of Hong Kong

— 1 —

DEFINITIONS

‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC ‘‘Huqingyutang Hangzhou Huqingyutang Drugstore Co., Ltd. Drugstore’’ ( ), a limited liability company established under the laws of the PRC and owned by the Company as to 24% as at the Latest Practicable Date
‘‘Huqingyutang Hangzhou Huqingyutang Pharmaceutical Company Limited Pharmaceutical’’ ( ), a limited liability company established under the laws of the PRC and owned by the Company as to 51%
‘‘Independent Third parties independent of and not connected with any of the directors, Parties’’ chief executive or substantial shareholders of the Company or any of its subsidiaries and their respective associates
‘‘Latest Practicable Date’’ 8th July 2005, being the latest practicable date for ascertaining certain information in this circular
‘‘Lianhua Supermarket’’ Lianhua Supermarket Holdings Co., Ltd. ( ), a joint stock limited liability company established under the laws of the PRC, the H Shares of which are listed on the Main Board of the Stock Exchange (Stock code: 980), and the total issued share capital of which is owned by SI United as to 21.17%
‘‘Liaoning Herbapex’’ Liaoning Herbapex Pharmaceutical (Group) Co., Ltd. ( ), a limited liability company established under the laws of the PRC and owned by the Company as to 55%
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Macau’’ the Macau Special Administrative Region of the PRC
‘‘Medieval’’ Medieval International Limited, a company incorporated under the laws of the British Virgin Islands and owned by the Company as to 47.96%
‘‘Pharmaceutical Assets’’
(1) an amount of RMB29,175,000 in the registered capital of Xiamen TCM, representing 61% of the total equity interest in Xiamen TCM;
(2) an amount of RMB28,050,000 in the registered capital of Liaoning Herbapex, representing 55% of the total equity interest in Liaoning Herbapex;
(3) an amount of RMB27,115,292 in the registered capital of Huqingyutang Pharmaceutical, representing a 51% equity interest in Huqingyutang Pharmaceutical; and
(4) an amount of RMB4,084,500 in the registered capital of Huqingyutang Drugstore, representing a 29% equity interest in Huqingyutang Drugstore (after a capital injection by World Honest to Huqingyutang Drugstore)

to be disposed of under the Disposal

— 2 —

DEFINITIONS

‘‘PRC’’ the People’s Republic of China (for the purposes of this circular, excluding Hong Kong, Macau and Taiwan)

‘‘RMB’’

Renminbi, the lawful currency of the PRC

‘‘SFO’’ Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)

‘‘Shares’’ shares of HK$0.10 each in the capital of the Company
‘‘Shareholder(s)’’ holder(s) of the share(s) in the capital of the Company
‘‘Share Transfer the agreements for the transfer of equity interest or shares in companies Agreements’’ under the Pharmaceutical Assets and the Commercial Assets as referred to in the Assets Swap Agreement
‘‘Shanghai City Shanghai City Construction Investment Development General Construction’’ Corporation* ( ), a state-owned enterprise incorporated under the laws of the PRC
‘‘Shanghai United’’ Shanghai United International Limited, a company incorporated in Hong Kong with limited liability and owned by SI United as to 99.98%
‘‘SI Commerce’’ S.I. Commerce Holdings Limited, a company incorporated under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company
‘‘SI Infrastructure’’ S.I. Infrastructure Holdings Limited, a company incorporated under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company
‘‘SIIC MedTech’’ SIIC MedTech Health Products Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company
‘‘SIUC’’ Shanghai Industrial United (Group) Commercial Network Development Company Limited ( ), a limited liability company established under the laws of the PRC owned by SI United as to 72.62% and by SI United’s subsidiary, Shanghai Hua Rui Investment Co., Ltd.* ( ) as to 27.38%

‘‘SI United’’ Shanghai Industrial United Holdings Co., Ltd. ( ), a joint stock limited liability company established under the laws of the PRC which is a subsidiary of the Company listed on the A Shares Market of the Shanghai Stock Exchange (stock code: 600607)

‘‘SIH’’ Shanghai Investment Holdings Limited, a limited liability company established under the laws of the British Virgin Islands

— 3 —

DEFINITIONS

‘‘SIIC’’ Shanghai Industrial Investment (Holdings) Company Limited, a company incorporated in Hong Kong with limited liability
‘‘SIIC Capital’’ SIIC Capital (B.V.I.) Limited, a limited liability company established under the laws of the British Virgin Islands
‘‘SIIC CM Development’’ SIIC CM Development Limited, a limited liability company established under the laws of the British Virgin Islands
‘‘SMIC’’ Semiconductor Manufacturing International Corporation, a limited liability company established under the laws of the Cayman Islands
‘‘SPGC’’ Shanghai Pharmaceutical (Group) Co. Ltd.* ( ), a limited liability company established under the laws of the PRC
‘‘STC’’ Shanghai Industrial Investment Treasury Company Limited, a limited liability company established under the laws of the British Virgin Islands
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘World Honest’’ World Honest Investments Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company
‘‘Xiamen TCM’’ Xiamen Traditional Chinese Medicine Co., Ltd. ( ), a limited liability company established under the laws of the PRC and owned by the Company as to 61%

In this circular, for reference purpose only and unless otherwise stated, the exchange rate at HK$1 = RMB1.06 has been used, where applicable, for purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged at any particular rate on the date or dates in question or any other date.

The English name is an informal English translation of the official Chinese name.

— 4 —

LETTER FROM THE BOARD

==> picture [47 x 46] intentionally omitted <==

==> picture [255 x 33] intentionally omitted <==

(Stock Code: 363)

Executive Directors:

Mr. Cai Lai Xing (Chairman)

Mr. Qu Ding (Vice Chairman)

Mr. Lu Ming Fang (Chief Executive Officer)

Mr. Lu Da Yong (Executive Deputy CEO)

Mr. Ding Zhong De

Registered office: 26th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong

Mr. Lu Shen

Mr. Qian Shi Zheng

Mr. Yao Fang

Mr. Tang Jun

Independent Non-executive Directors:

Dr. Lo Ka Shui

Prof. Woo Chia-Wei

Mr. Leung Pak To, Francis

13th July 2005

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

IN RELATION TO AN ASSET SWAP AGREEMENT WITH

SHANGHAI INDUSTRIAL UNITED HOLDINGS CO., LTD.

1. INTRODUCTION

On 21st June 2005, the Board announced that on 20th June 2005 the Company entered into the Asset Swap Agreement with SI United, a subsidiary in which the Company owns approximately 56.63% of its total issued share capital.

Pursuant to the Asset Swap Agreement, the Company will procure that its relevant subsidiaries/ associated company transfer the Pharmaceutical Assets to SI United and its subsidiary Shanghai United (owned by SI United as to 99.98%) respectively, and SI United will procure that its subsidiary SIUC transfer the Commercial Assets to SI Commerce, a wholly-owned subsidiary of the Company.

The consideration for the Disposal under the Asset Swap is based on the sum of the carrying value of investments in the Pharmaceutical Assets as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 and committed capital injection to the Pharmaceutical Assets

— 5 —

LETTER FROM THE BOARD

before the Completion Date (which in aggregate amounts to approximately RMB445,000,000 (equivalent to approximately HK$419,811,000)) as adjusted by any changes to such carrying value from 31st March 2005 up to the Completion Date.

The consideration for the Acquisition under the Asset Swap is based on the sum of the carrying value of investments in the Commercial Assets as shown in the unaudited consolidated accounts of SI United as at 31st March 2005 and committed capital injection to the Commercial Assets before the Completion Date (which in aggregate amounts to approximately RMB433,180,000 (equivalent to approximately HK$408,660,000)) as adjusted by any changes to such carrying value from 31st March 2005 up to the Completion Date.

The Asset Swap constitutes a major transaction for the Company under the Listing Rules, as the revenue ratio under Chapter 14 of the Listing Rules exceeds 25% and is subject to Shareholders’ approval. In accordance with Rule 14.44 of the Listing Rules, the Asset Swap has been approved by the Shareholders by way of written shareholders’ approval in lieu of holding a general meeting of the Company.

The purpose of this circular is to provide the Shareholders with further information on the Asset Swap and to give other information as required by the Listing Rules.

THE ASSET SWAP AGREEMENT

Date

20th June 2005

Parties

The Company
SI United, a subsidiary of the Company

The Disposal

Interests to be disposed of

Pursuant to the Asset Swap Agreement, the Company will procure the following transfers by its relevant subsidiaries/associated company to SI United or its subsidiary Shanghai United of the Pharmaceutical Assets comprising equity interests in the subsidiaries/associated company set out below:

(a) the transfer by SIIC MedTech of an amount of RMB21,000,000 in the registered capital of Liaoning Herbapex, representing 41.1765% of the total equity interest in Liaoning Herbapex, to SI United;
(b) the transfer by Medieval of an amount of RMB7,050,000 in the registered capital of Liaoning Herbapex, representing 13.8235% of the total equity interest in Liaoning Herbapex, to Shanghai United;

— 6 —

LETTER FROM THE BOARD

(c) the transfer by SIIC MedTech of an amount of RMB27,115,292 in the registered capital of Huqingyutang Pharmaceutical, representing a 51% equity interest in Huqingyutang Pharmaceutical to Shanghai United;
(d) the transfer by World Honest of an amount of RMB4,084,500 in the registered capital of Huqingyutang Drugstore, representing a 29% equity interest in Huqingyutang Drugstore (after a capital injection by World Honest to Huqingyutang Drugstore) to Shanghai United; and
(e) the transfer by SIIC MedTech of an amount of RMB29,175,000 in the registered capital of Xiamen TCM, representing 61% of the total equity interest in Xiamen TCM, to SI United.

Consideration for the Disposal

The Pharmaceutical Assets shall be transferred at a consideration based on the sum of the carrying value of investments in the Pharmaceutical Assets as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 and the committed capital injection to the Pharmaceutical Assets before the Completion Date (which in aggregate amounts to approximately RMB445,000,000 (equivalent to approximately HK$419,811,000)) as adjusted by any changes to such carrying value from 31st March 2005 up to the Completion Date (including those changes in the carrying value which arise as a result of profits or losses made by the companies under the Pharmaceutical Assets during such period).

The following are the respective	carrying value of investments in each of	the
Pharmaceutical Assets (plus committed capital contribution where applicable) as shown		in
the unaudited consolidated accounts of the	Group as at 31st March 2005:
	Carrying value (plus committed capital
Asset	contribution where applicable)
55% equity interest in Liaoning	RMB94,950,000 (equivalent to approximately
Herbapex	HK$89,575,000)
51% equity interest in Huqingyutang	RMB236,180,000 (equivalent to approximately
Pharmaceutical (Note 1)	HK$222,811,000)
29% equity interest in Huqingyutang	RMB16,000,000 (equivalent to approximately
Drugstore (Note 2)	HK$15,095,000)
61% equity interest in Xiamen TCM	RMB97,870,000 (equivalent to approximately
	HK$92,330,000)
Total	RMB445,000,000 (equivalent to approximately
	HK$419,811,000)

— 7 —

LETTER FROM THE BOARD

Notes:

(1) This includes a committed capital contribution to Huqingyutang Pharmaceutical by SIIC MedTech in the amount of RMB132,800,000 (equivalent to approximately HK$125,283,000), further details of which are set out in the sub-section headed ‘‘Huqingyutang Pharmaceutical’’ under the section ‘‘Information on the Pharmaceutical Assets’’.
(2) This includes a committed capital contribution to Huqingyutang Drugstore by World Honest in the amount of RMB2,500,000 (equivalent to approximately HK$2,359,000), further details of which are set out in the sub-section headed ‘‘Huqingyutang Drugstore’’ under the section ‘‘Information on the Pharmaceutical Assets’’.

Assuming no adjustment to the carrying value of investments in the Pharmaceutical Assets from 31st March 2005 up to the Completion Date, the consideration for the Disposal would be equal to the carrying value of investments in the Pharmaceutical Assets (plus committed capital contribution where applicable) as at 31st March 2005 in the aggregate amount of approximately RMB445,000,000 (equivalent to approximately HK$419,811,000). Such consideration is however subject to adjustment by any increase or decrease in the carrying value of investments by the Group in the Pharmaceutical Assets from 31st March 2005 up to the Completion Date. The Directors expect that the adjustment to the consideration for the Disposal will not result in the consideration ratio exceeding the threshold for a very substantial disposal under Chapter 14 of the Listing Rules. In the event the adjustment to the consideration ratio for the Disposal results in such transaction constituting a very substantial disposal for the Company, the Company will take appropriate action as required under the Listing Rules.

As at 31st December 2004 according to the audited consolidated accounts of the Group, the carrying value of investments by the Group in the Pharmaceutical Assets amounted to HK$274,953,000.

After the disposal of the Pharmaceutical Assets to SI United pursuant to the Disposal, the Company will still hold interests in other pharmaceutical business companies other than through SI United.

The Acquisition

Interests to be acquired

Pursuant to the Asset Swap Agreement, SI United shall procure that the following transfers by its subsidiary SIUC to SI Commerce (a subsidiary of the Company) the Commercial Assets comprising shareholding and/or equity interests in the following associated companies set out below: (a) the transfer by SIUC of 131,683,000 domestic shares of RMB1 each in the capital of Lianhua Supermarket, representing 21.17% of the total issued share capital of Lianhua Supermarket, to SI Commerce; and

(b) the transfer by SIUC to SI Commerce of an amount of RMB53,625,594.52 in the registered capital of Century Lianhua, representing 25.54% of the total equity interest in Century Lianhua after a capital injection by SIUC to Century Lianhua.

— 8 —

LETTER FROM THE BOARD

Consideration for the Acquisition

The Commercial Assets shall be transferred at a consideration based on the sum of the carrying value of investments in the Commercial Assets as shown in the unaudited consolidated accounts of SI United as at 31st March 2005 and the committed capital injection to the Commercial Assets before the Completion Date (which in aggregate amounts to approximately RMB433,180,000 (equivalent to approximately HK$408,660,000)) as adjusted by any changes to such value from 31st March 2005 up to the Completion Date (including those changes in the carrying value which arise as a result of profits or losses made by the companies under the Commercial Assets during such period).

The following are the respective carrying value of investments in each of the Commercial Assets (plus committed capital contribution where applicable) as shown in the unaudited consolidated accounts of SI United as at 31st March 2005:

Asset 21.17% shareholding in Lianhua Supermarket 25.54% equity interests in Century Lianhua (Note) Total	Carrying value (plus committed capital contribution where applicable) RMB376,160,000 (equivalent to approximately HK$354,868,000) RMB57,020,000 (equivalent to approximately HK$53,792,000)
	RMB433,180,000 (equivalent to approximately HK$408,660,000)

Note: This includes a committed capital contribution to Century Lianhua by SIUC in the amount of RMB31,410,000 (equivalent to approximately HK$29,632,000), further details of which are set out in the sub-section headed ‘‘Century Lianhua’’ under the section ‘‘Information on the Commercial Assets’’.

Assuming no adjustment to the carrying value of investments in the Commercial Assets from 31st March 2005 up to the Completion Date, the consideration for the Acquisition would be equal to the carrying value of investments in the Commercial Assets (plus committed capital contribution to Century Lianhua) as at 31st March 2005 in the aggregate amount of approximately RMB433,180,000 (equivalent to approximately HK$408,660,000). Such consideration is however subject to adjustment by any increase or decrease in the carrying value of investments by SI United in the Commercial Assets from 31st March 2005 up to the Completion Date. The Directors expect that the adjustment to the consideration for the Acquisition will not result in the consideration ratio exceeding the threshold for a very substantial acquisition under Chapter 14 of the Listing Rules. In the event the adjustment to the consideration ratio for the Acquisition results in such transaction constituting a very substantial acquisition for the Company, the Company will take appropriate action as required under the Listing Rules.

As at 31st December 2004 according to the audited consolidated accounts of SI United, the carrying value of investments in the Commercial Assets amounted to HK$367,265,000.

— 9 —

LETTER FROM THE BOARD

3. CONDITIONS

The Asset Swap Agreement shall take effect subject to:

(1) approval by the shareholders of each of the Company and SI United at a general meeting or, in the case of the Company, written approval being obtained from its shareholders holding more than 50% of the total nominal value of Shares giving the right to vote at a general meeting; and
(2) the obtaining or waiver of all relevant approvals by the government administration departments or bodies with competent authority in respect of all transactions contemplated under the Asset Swap Agreement.

The Asset Swap has been approved by the Shareholders by way of written shareholders’ approval in lieu of holding a general meeting of the Company pursuant to Rule 14.44 of the Listing Rules.

Upon the above shareholders’ approvals being obtained, the following Share Transfer Agreements for the transfer of equity interest or shareholding comprising the Pharmaceutical Assets and the Commercial Assets as referred to above will be entered into:

(a) an agreement between SIIC MedTech and SI United for the transfer of equity interest in Liaoning Herbapex;
(b) an agreement between Medieval and Shanghai United for the transfer of equity interest in Liaoning Herbapex;
(c) an agreement between SIIC MedTech and Shanghai United for the transfer of equity interest in Huqingyutang Pharmaceutical;
(d) an agreement between World Honest and Shanghai United for the transfer of equity interest in Huqingyutang Drugstore;
(e) an agreement between SIIC MedTech and SI United for the transfer of equity interest in Xiamen TCM;
(f) an agreement between SIUC and SI Commerce for the transfer of shares in Lianhua Supermarket; and
(g) an agreement between SIUC and SI Commerce for the transfer of equity interest in Century Lianhua.

Each of the Share Transfer Agreements shall take effect subject to the obtaining or waiver of all relevant approvals by the government administration departments or bodies with competent authority and other necessary approvals and subject to the other Share Transfer Agreements taking effect. If the condition for any one of the Share Transfer Agreements is not fulfilled, then all other Share Transfer Agreements shall not take effect.

4. COMPLETION

Completion of each of the Share Transfer Agreements shall take place after all relevant approvals by the government administration departments or bodies with competent authority have been obtained or otherwise waived, on a date as agreed between the parties to the relevant Share

— 10 —

LETTER FROM THE BOARD

Transfer Agreement. The Completion Date is expected to be within twelve (12) months after the approvals by the shareholders of both the Company and SI United of the Asset Swap having been obtained. The approval by the shareholders of the Company in respect of the Asset Swap has been obtained by way of written shareholders’ approval in lieu of the holding of a general meeting of the Company pursuant to Rule 14.44 of the Listing Rules. SI United will convene a shareholders’ meeting for the purpose of considering and approving the Asset Swap on 22nd July 2005. The Directors thus expect that the Completion Date will be not later than 22nd July 2006.

At the Completion Date, the parties to each of the Share Transfer Agreements shall settle in full the amount of consideration payable for the equity interest or shares being transferred in cash, with the payments to be made out of internal resources of the Group.

The full proceeds from the disposal of the Pharmaceutical Assets are intended to be used to settle the payment for acquisition of the Commercial Assets. Any amount of such proceeds in excess will be used as working capital of the Group.

5. TERMINATION

If the procedures for transfer of equity interest or shares and all the formalities for change in business registration in relation to the Asset Swap are not completed within twelve (12) months after the approval of the Asset Swap Agreement and the Share Transfer Agreements by the shareholders of the Company and SI United, the Asset Swap Agreement and the Share Transfer Agreements shall be terminated.

CORPORATE STRUCTURE OF THE PHARMACEUTICAL ASSETS AND THE COMMERCIAL ASSETS BEFORE AND AFTER THE COMPLETION

Corporate Structure immediately before the Completion

==> picture [412 x 252] intentionally omitted <==

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

The Company
56.63%
100% 29% Huqingyutang
World Honest SI United
Drugstore
100%
100%
61%
Xiamen TCM SIUC
SIIC MedTech 21.17%
25.54%
51% Huqingyutang Lianhua
Pharmaceutical Supermarket
47.96% 28.8235%
Medieval Century Lianhua
Liaoning
Herbapex
41.1765%
----- End of picture text -----

Assuming completion of the increase in registered capital.

— 11 —

LETTER FROM THE BOARD

Corporate Structure immediately after the Completion

==> picture [421 x 195] intentionally omitted <==

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

The Company
100%
29% Huqingyutang
SI Commerce
56.63% Drugstore
21.17%
99.98% 51% Huqingyutang Lianhua 25.54%
SI United Shanghai United
Pharmaceutical Supermarket
13.8235%
41.1765% Liaoning
Century Lianhua
Herbapex
100% 100%
Medieval 15%
SIIC World
MedTech Honest 61%
Xiamen TCM
----- End of picture text -----

Assuming completion of the increase in registered capital.

7. INFORMATION ON THE PHARMACEUTICAL ASSETS

Liaoning Herbapex

Liaoning Herbapex is principally engaged in the manufacture and sale of Chinese medicine.

Share capital

Liaoning Herbapex has a total registered capital of RMB51,000,000. The total equity interest in Liaoning Herbapex is held by the following shareholders before completion of the Disposal in the following manner:

==> picture [407 x 152] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Amount|of|
|registered|Percentage|
|Name|of|shareholder|capital|shareholding|
|SIIC|MedTech|(wholly-owned|subsidiary|of|the|
|Company)|21,000,000|41.1765%|
|Medieval|(47.96%|owned|by|the|Company)|14,700,000|28.8235%|
|Hu|Lu|Dao|Jing|Xin|Investment|Group|Co.,|Ltd.|
|(|)|1,000,000|1.9608%|
|Zheng|Ji|Yu|(|)|8,400,000|16.4706%|
|Qu|Wen|Ge|(|)|4,100,000|8.0392%|
|Lu|Xi|Wei|(|)|1,800,000|3.5294%|

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 12 —

LETTER FROM THE BOARD

The shareholding structure of Liaoning Herbapex immediately after completion of the Disposal will be as follows:

==> picture [407 x 152] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Amount|of|
|registered|Percentage|
|Name|of|shareholder|capital|shareholding|
|SI|United|21,000,000|41.1765%|
|Medieval|7,650,000|15.0000%|
|Shanghai|United|7,050,000|13.8235%|
|Hu|Lu|Dao|Jing|Xin|Investment|Group|Co.,|Ltd.|
|(|)|1,000,000|1.9608%|
|Zheng|Ji|Yu|(|)|8,400,000|16.4706%|
|Qu|Wen|Ge|(|)|4,100,000|8.0392%|
|Lu|Xi|Wei|(|)|1,800,000|3.5294%|

----- End of picture text -----

The total issued share capital in Medieval is owned by SIIC MedTech as to 47.96% and by an individual (who is an Independent Third Party) as to 52.04%. Regarding the 13.8235% equity interest in Liaoning Herbapex held by Medieval to be transferred to Shanghai United under the Disposal, it has been agreed between SIIC MedTech and the other individual shareholder that he shall acquire from SIIC MedTech the 47.96% shareholding in Medieval held by SIIC MedTech at a consideration equal to the dividend he receives from Medieval to be distributed by Medieval out of the proceeds of sale of the 13.8235% equity interest in Liaoning Herbapex or out of its share premium in the event of insufficient distributable profits. Based on the carrying value of the Group’s investment in 13.8235% equity interest in Liaoning Herbapex as shown in its unaudited consolidated accounts as at 31st March 2005, the amount of the consideration for the 47.96% shareholding in Medieval to be transferred by SIIC MedTech is estimated to be RMB12,422,000 (equivalent to approximately HK$11,719,000).

Other than SIIC MedTech, Medieval and Zheng Ji Yu, Qu Wen Ge and Lu Xi Wei, who are the directors of Liaoning Herbapex, the other shareholder of Liaoning Herbapex is an Independent Third Party.

Financial information

The audited consolidated profit before taxation and minority interests and the audited consolidated profit after taxation and minority interests of Liaoning Herbapex for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in the PRC, were as follows:

==> picture [407 x 88] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Year|ended|31st|December|
|2004|2003|
|RMB’000|RMB’000|
|Consolidated|profit|before|taxation|and|minority|23,952|12,003|
|interests|
|Consolidated|profit|after|taxation|and|minority|interests|23,717|8,183|

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 13 —

LETTER FROM THE BOARD

The audited consolidated net asset value and the audited consolidated total asset value of Liaoning Herbapex as at 31st December 2004 amounted to approximately RMB128,556,000 (equivalent to approximately HK$121,279,000) and approximately RMB209,953,000 (equivalent to approximately HK$198,069,000) respectively.

The audited consolidated turnover of Liaoning Herbapex for the year ended 31st December 2004 amounted to approximately RMB134,001,000 (equivalent to approximately HK$126,416,000).

The carrying value of investment in Liaoning Herbapex as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 was RMB94,950,000 (equivalent to approximately HK$89,575,000).

Huqingyutang Pharmaceutical

Huqingyutang Pharmaceutical is principally engaged in the manufacture and sale of Chinese medicine and health food.

Share capital

Following a recent increase in its registered capital, Huqingyutang Pharmaceutical has a total registered capital of RMB53,160,000. The total equity interest in Huqingyutang Pharmaceutical is held by the following shareholders before completion of the Disposal as follows:

				Amount of
				registered	Percentage
Name		of shareholder		capital	shareholding
SIIC	MedTech (wholly-owned subsidiary of the			27,115,292	51.0069%
Company)
Hangzhou Huqingyutang			Investment Co., Ltd.*	23,898,952	44.9566%
(			)
Enhanced Assets Management Limited				1,594,800	3.0000%
China (		(Hangzhou) Qingchunbao Group Co., Ltd.* )		550,956	1.0364%

The shareholding structure of Huqingyutang Pharmaceutical immediately after completion of the Disposal will be as follows:

			Amount of
			registered	Percentage
Name	of shareholder		capital	shareholding
Shanghai United			27,115,292	51.0069%
Hangzhou Huqingyutang		Investment Co., Ltd.*	23,898,952	44.9566%
(		)
Enhanced Assets Management Limited			1,594,800	3.0000%
China (	(Hangzhou) Qingchunbao Group Co., Ltd.* )		550,956	1.0364%

The English name is an informal English translation of the official Chinese name.

— 14 —

LETTER FROM THE BOARD

Other than SIIC MedTech and Hangzhou Huqingyutang Investment Co., Ltd., the other shareholders of Huqingyutang Pharmaceutical are Independent Third Parties.

Financial information

The audited profit before taxation and the audited profit after taxation of Huqingyutang Pharmaceutical for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in the PRC, were as follows:

		Year ended 31st December	Year ended 31st December
		2004	2003
		RMB’000	RMB’000
Profit	before taxation	43,183	40,755
Profit	after taxation	43,183	36,644

The audited net asset value and the audited total asset value of Huqingyutang Pharmaceutical as at 31st December 2004 amounted to approximately RMB139,639,000 (equivalent to approximately HK$131,735,000) and approximately RMB183,188,000 (equivalent to approximately HK$172,819,000) respectively.

The audited turnover of Huqingyutang Pharmaceutical for the year ended 31st December 2004 amounted to approximately RMB196,979,000 (equivalent to approximately HK$185,829,000).

The carrying value of investment in Huqingyutang Pharmaceutical as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 was RMB103,380,000 (equivalent to approximately HK$97,528,000). The committed capital injection by SIIC MedTech to Huqingyutang Pharmaceutical up to the Completion Date amounts to RMB132,800,000 (equivalent to approximately HK$125,283,000).

Huqingyutang Drugstore

Huqingyutang Drugstore is principally engaged in the operation of about 30 drugstores for sale of Chinese medicine and health food.

— 15 —

LETTER FROM THE BOARD

Share capital

As at the Latest Practicable Date, Huqingyutang Drugstore had a total registered capital of RMB13,157,900 and was in the process of increasing its registered capital to RMB14,084,500 with the increased amount of registered capital contributed by World Honest. Such increase in registered capital was in the process of obtaining approval by the PRC administration department on foreign investment. The increase in registered capital of Huqingyutang Drugstore is expected to be completed before the Completed Date. Subject to and upon completion of such increase in registered capital and immediately before completion of the Disposal, the total equity interest in Huqingyutang Drugstore will be held by the following shareholders in the following manner:

		Amount of
		registered	Percentage
Name of shareholder		capital	shareholding
Hangzhou Huqingyutang Investment Co., Ltd.*		5,100,000	36.21%
(	)
World Honest (wholly-owned subsidiary of the		4,084,500	29.00%
Company)
39 Individual Shareholders		4,900,000	34.79%

On the basis that the increase in registered capital of Huqingyutang Drugstore will be completed, the shareholding structure of Huqingyutang Drugstore immediately after completion of the Disposal will be as follows:

		Amount of
		registered	Percentage
Name of shareholder		capital	shareholding
Hangzhou Huqingyutang Investment Co., Ltd.*
(	)	5,100,000	36.21%
Shanghai United		4,084,500	29.00%
39 Individual Shareholders		4,900,000	34.79%

Prior to completion of the increase in the registered capital of Huqingyutang Drugstore, World Honest held a 24% equity interest in Huqingyutang Drugstore as at the Latest Practicable Date. In the event the increase in the registered capital of Huqingyutang Drugstore is not completed, World Honest will transfer its 24% equity interest in Huqingyutang Drugstore to Shanghai United pursuant to the Disposal and the shareholding structure of Huqingyutang Drugstore immediately after completion of the Disposal will be as follows:

		Amount of	Percentage
Name of shareholder		registered capital	shareholding
Hangzhou Huqingyutang Investment Co., Ltd.*
(	)	5,100,000	38.76%
Shanghai United		3,150,790	24%
39 Individual Shareholders		4,900,000	37.24%

The English name is an informal English translation of the official Chinese name.

— 16 —

LETTER FROM THE BOARD

Other than Hangzhou Huqingyutang Investment Co., Ltd., World Honest and 6 out of the 39 Individual Shareholders of Huqingyutang Drugstore, namely Feng Gen Sheng ( ), Yang Zhong Ying ( ), Li Yu Hang ( ), Feng He ( ), Fan Yun Hua ( ) and Liu Jun ( ), who are directors of certain subsidiaries of the Company, the other shareholders of Huqingyutang Drugstore are Independent Third Parties.

Financial information

The audited profit before taxation and the audited profit after taxation of Huqingyutang Drugstore for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in the PRC, were as follows:

		Year ended 31st December	Year ended 31st December
		2004	2003
		RMB’000	RMB’000
Profit	before taxation	5,985	5,016
Profit	after taxation	3,783	3,419

The audited net asset value and the audited total asset value of Huqingyutang Drugstore as at 31st December 2004 amounted to approximately RMB27,564,000 (equivalent to approximately HK$26,004,000) and approximately RMB42,274,000 (equivalent to approximately HK$39,881,000) respectively.

The audited turnover of Huqingyutang Drugstore for the year ended 31st December 2004 amounted to approximately RMB51,063,000 (equivalent to approximately HK$48,173,000).

The carrying value of investment in Huqingyutang Drugstore (including a committed capital injection) as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 was RMB16,000,000 (equivalent to approximately HK$15,095,000). The committed capital injection by World Honest to Huqingyutang Drugstore up to the Completion Date amounts to RMB2,500,000 (equivalent to approximately HK$2,359,000).

Xiamen TCM

Xiamen TCM is principally engaged in the manufacture and sale of Chinese medicine and health food.

The English name is an informal English translation of the official Chinese name.

— 17 —

LETTER FROM THE BOARD

Share capital

Xiamen TCM has a total registered capital of RMB47,830,000. The total equity interest in Xiamen TCM is held by the following shareholders before completion of the Disposal in the following manner:

		Amount of
		registered	Percentage
Name of shareholder		capital	shareholding
SIIC MedTech (wholly-owned subsidiary of the		29,175,000	61%
Company) Xiamen Dinglu Industrial Co.* (	)	14,350,000	30%
Rocal Health Limited		4,305,000	9%

The shareholding structure of Xiamen TCM immediately after completion of the Disposal will be as follows:

Name of shareholder SI United Xiamen Dinglu Industrial Co.* ( Rocal Health Limited	Amount of registered capital Percentage shareholding 29,175,000 61% ) 14,350,000 30% 4,305,000 9%

Other than SIIC MedTech, the other shareholders of Xiamen TCM are Independent Third Parties.

Financial information

The audited profit before taxation and the audited profit after taxation of Xiamen TCM for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in the PRC, were as follows:

		Year ended 31st December	Year ended 31st December
		2004	2003
		RMB’000	RMB’000
Profit	before taxation	48,229	22,571
Profit	after taxation	48,229	22,571

The audited net asset value and the audited total asset value of Xiamen TCM as at 31st December 2004 amounted to approximately RMB108,807,000 (equivalent to approximately HK$102,648,000) and approximately RMB120,305,000 (equivalent to approximately HK$113,495,000) respectively.

The audited turnover of Xiamen TCM for the year ended 31st December 2004 amounted to approximately RMB124,301,000 (equivalent to approximately HK$117,265,000).

The English name is an informal English translation of the official Chinese name.

— 18 —

LETTER FROM THE BOARD

The carrying value of investment by the Group in Xiamen TCM as shown in the unaudited consolidated accounts of the Group as at 31st March 2005 was RMB97,870,000 (equivalent to approximately HK$92,330,000).

8. INFORMATION ON THE COMMERCIAL ASSETS

Lianhua Supermarket

Lianhua Supermarket, whose H Shares are listed on the Main Board of the Stock Exchange, is principally engaged in the operation of about 3,123 supermarkets and convenience stores in the PRC under the trade names of ‘‘ ’’, ‘‘ ’’ and ‘‘ ’’.

Share capital

Lianhua Supermarket has a total issued share capital of RMB622,000,000. The shareholding structure of Lianhua Supermarket before completion of the Acquisition is as follows:

==> picture [407 x 364] intentionally omitted <==

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|No.|of|shares|Percentage|
|Name|of|shareholder|held|shareholding|
|Shanghai|Friendship|(Group)|Joint|Stock|Co.,|Ltd.|211,640,000|34.03%|
|(|)|
|SIUC|131,683,000|21.17%|
|Mitsubishi|Corporation|(|)|41,900,000|6.74%|
|Wong|Sun|Hing|(Hong|Kong)|Investment|Co.,|Ltd.|17,557,000|2.82%|
|(|)|
|Shanghai|Liding|Investment|Co.,|Ltd.|12,220,000|1.96%|
|(|)|
|Holders|of|H|Shares|207,000,000|33.28%|
|The|shareholding|structure|of|Lianhua|Supermarket|immediately|after|completion|of|the|
|will|be|as|follows:|
|No.|of|shares|Percentage|
|Name|of|shareholder|held|shareholding|
|Shanghai|Friendship|(Group)|Joint|Stock|Co.,|Ltd.|211,640,000|34.03%|
|(|)|
|SI|Commerce|(wholly-owned|subsidiary|of|the|131,683,000|21.17%|
|Company)|
|Mitsubishi|Corporation|(|)|41,900,000|6.74%|
|Wong|Sun|Hing|(Hong|Kong)|Investment|Co.,|Ltd.|17,557,000|2.82%|
|(|)|
|Shanghai|Liding|Investment|Co.,|Ltd.|12,220,000|1.96%|
|(|)|
|Holders|of|H|Shares|207,000,000|33.28%|

----- End of picture text -----

The shareholding structure of Lianhua Supermarket immediately after completion of the Acquisition will be as follows:

Other than SIUC (and the holders of H Shares of Lianhua Supermarket who cannot be ascertained by the Company), the other shareholders of Lianhua Supermarket are Independent Third Parties.

The English name is an informal English translation of the official Chinese name.

— 19 —

LETTER FROM THE BOARD

Financial information

The audited consolidated profit before taxation and minority interests and the audited consolidated profit after taxation and minority interests of Lianhua Supermarket for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in Hong Kong, were as follows:

==> picture [407 x 88] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Year|ended|31st|December|
|2004|2003|
|RMB’000|RMB’000|
|Consolidated|profit|before|taxation|and|minority|348,809|294,097|
|interests|
|Consolidated|profit|after|taxation|and|minority|interests|215,540|163,623|

----- End of picture text -----

The audited consolidated net asset value and the audited consolidated total asset value of Lianhua Supermarket as at 31st December 2004 amounted to approximately RMB1,728,349,000 (equivalent to approximately HK$1,630,518,000) and approximately RMB4,810,711,000 (equivalent to approximately HK$4,538,407,000) respectively.

The audited consolidated turnover of Lianhua Supermarket for the year ended 31st December 2004 amounted to approximately RMB10,854,967,000 (equivalent to approximately HK$10,240,535,000).

The carrying value of investment by SI United in Lianhua Supermarket as shown in the unaudited consolidated accounts of SI United as at 31st March 2005 was RMB376,160,000 (equivalent to approximately HK$354,868,000).

Century Lianhua

Details of the business of Century Lianhua are more particularly set out in Section 4 of Appendix II to this circular.

Share capital

As at the Latest Practicable Date, Century Lianhua had a total registered capital of RMB100,000,000 and the total equity interest in Century Lianhua was held by the following shareholders in the following manner:

==> picture [407 x 126] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Amount|of|
|registered|Percentage|
|Name|of|shareholder|capital|shareholding|
|Shanghai|Friendship|(Group)|Joint|Stock|Co,|Ltd.|35,700,000.00|35.70%|
|(|)|
|SIUC|22,211,784.71|22.21%|
|Lianhua|Supermarket|20,000,000.00|20.00%|
|Shanghai|Liding|Investment|Co.,|Ltd.|22,088,215.29|22.09%|
|(|)|

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 20 —

LETTER FROM THE BOARD

The shareholders of Century Lianhua are carrying out an increase in the registered capital of Century Lianhua and the amount of increase in registered capital contributed by SIUC is RMB31,410,000 (equivalent to approximately HK$29,632,000). Subject to and upon completion of the increase in registered capital, SIUC will hold a 25.54% equity interest in Century Lianhua, which will be transferred to SI Commerce under the Acquisition.

In the event the increase in the registered capital of Century Lianhua is not completed, SIUC will transfer its 22.21% equity interest in Century Lianhua to SI Commerce pursuant to the Acquisition, and the shareholding structure of Century Lianhua immediately after completion of the Acquisition will be as follows:

==> picture [407 x 126] intentionally omitted <==

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

||||||||
|---|---|---|---|---|---|---|
|Amount|
|of|registered|Percentage|
|Name|of|shareholder|capital|Shareholding|
|Shanghai|Friendship|(Group)|Joint|Stock|Co,|Ltd.|
|(|)|35,700,000.00|35.70%|
|SI|Commerce|22,211,784.71|22.21%|
|Lianhua|Supermarket|20,000,000.00|20.00%|
|Shanghai|Liding|Investment|Co.,|Ltd|
|(|)|22,088,215.29|22.09%|

----- End of picture text -----

Apart from SIUC, the other shareholders of Century Lianhua are Independent Third Parties.

Financial information

The audited profit before taxation and the audited profit after taxation of Century Lianhua for the two years ended 31st December 2004, which were prepared in accordance with the generally accepted accounting principles in the PRC, were as follows:

==> picture [407 x 74] intentionally omitted <==

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

||||||
|---|---|---|---|---|
|Year|ended|31st|December|
|2004|2003|
|RMB’000|RMB’000|
|Profit|before|taxation|6,855|538|
|Profit|after|taxation|6,747|483|

----- End of picture text -----

The audited net asset value and the audited total asset value of Century Lianhua as at 31st December 2004 amounted to approximately RMB112,470,000 (equivalent to approximately HK$106,104,000) and approximately RMB579,443,000 (equivalent to approximately HK$546,644,000) respectively.

The audited turnover of Century Lianhua for the year ended 31st December 2004 amounted to approximately RMB1,059,369,000 (equivalent to approximately HK$999,405,000).

The carrying value of investment in Century Lianhua (including a committed capital injection) as shown in the unaudited consolidated accounts of SI United as at 31st March 2005 was RMB57,020,000 (equivalent to approximately HK$53,792,000). The committed capital injection by SIUC to Century Lianhua up to the Completion Date amounts to RMB31,410,000 (equivalent to approximately HK$29,632,000).

— 21 —

LETTER FROM THE BOARD

9. REASONS FOR AND THE BENEFITS OF THE DISPOSAL AND THE ACQUISITION

The Disposal and the Acquisition under the Asset Swap Agreement signify the implementation of the reorganisation of the pharmaceutical businesses of the Company and SI United across different regions. By exchanging non-controlling stakes in companies carrying on nonpharmaceutical businesses for controlling shareholdings in pharmaceutical business companies, SI United will become a specialist listed company in pharmaceutical products, thus enhancing its market niche, brand building capabilities and long term profitability. With the proposed restructuring, the future development of the Group’s medicine business will benefit from the effective integration of its medicine business, leading to creation of greater shareholder value to the Shareholders.

The Directors (including the independent non-executive Directors) consider that the Asset Swap Agreement together with the Share Transfer Agreements are on normal commercial terms and are fair and reasonable so far as the Company and the Shareholders are concerned. By consolidating interests of the Group in pharmaceutical business companies under SI United pursuant to the Asset Swap which may result in an increase in the revenue and profitability of SI United, with a reasonable basis for the considerations for the Acquisition and the Disposal according to the up-todate carrying value of investments in the Pharmaceutical Assets and the Commercial Assets as at the Completion Date, the value to holders of shares of both SI United and the Company (being the holding company of SI United) will be enhanced.

10. FINANCIAL EFFECTS OF THE DISPOSAL AND THE ACQUISITION

Under the Disposal, the Company will transfer all the equity interests held in the companies under the Pharmaceutical Assets to SI United and its subsidiary. Each of Xiamen TCM, Liaoning Herbapex and Huqingyutang Pharmaceutical, being subsidiaries of the Company, will continue to be subsidiaries of the Group after completion of the Disposal as they will be held by SI United, another subsidiary of the Company. These subsidiaries will also continue to be treated as subsidiaries of the Group in the audited consolidated accounts of the Company after the Completion. Although the effective interest in the companies under the Pharmaceutical Assets held by the Company will decrease while the effective interest in the companies under the Commercial Assets held by the Company will increase (due to the transfer of the Pharmaceutical Assets by the Company from its wholly-owned subsidiaries/associated company to its 56.63% owned subsidiary SI United, and vice versa in respect of the Commercial Assets), the Directors consider that there is no material financial impact on the Group as a result of the Asset Swap. After the Completion, the Company will hold interests in other pharmaceutical business companies other than through SI United.

Although there will be changes in the effective interest in the companies under the Pharmaceutical Assets and the Commercial Assets held by the Company pursuant to the Asset Swap, all of the transfers in the interests in these companies under the Disposal and the Acquisition will take place within the Group as a whole. As the considerations under the Disposal and the Acquisition are based on the carrying value as of the Completion Date of the Pharmaceutical Assets and of the Commercial Assets respectively, there will be no material gain or loss expected to accrue to the Group under the Asset Swap.

— 22 —

LETTER FROM THE BOARD

11. PROSPECTS

The audited consolidated profit of the Group for the year ended 31st December 2004 amounted to HK$1,383.06 million, an increase of 9.8% over 2003. This represents the highest profit level achieved by the Group since its listing in May 1996. The healthy financial position of the Group has presented excellent potential for its future development. As at 31st December 2004, total net asset value amounted to HK$15,617.46 million, and net cash in hand was HK$3,709.55 million.

During the year 2004, the Group faced enormous difficulties and challenges. As a result of the disposal of its entire investment in fixed-return elevated highway projects, the Group came short of HK$700 million in fixed income, putting immense pressure on the Group’s profit structure for the year. However, with continued efforts by the management and all staff members as well as strategic operations from each business unit, the Group achieved encouraging results during the year. Steady growth in the consumer products segment has provided strong financial support for the Group and contributed to the continued development of the Group’s infrastructure and medicine business segments. The success of the dual listings of SMIC on the United States and Hong Kong stock markets in March 2004 also brought in significant exceptional profits for the Group.

Infrastructure

The Group’s infrastructure facilities business was established in 1996. Over these years, the focus has expanded from toll roads to water services and port facilities, and infrastructure has become one of the Group’s core businesses.

The infrastructure facilities business is capital-intensive. During the year 2004, the Group secured a total of seven water services and toll road acquisition projects, involving a total investment of more than HK$1.6 billion, which together offer a significant opportunity for profit growth. In 2004, the infrastructure facilities business recorded a net profit of around HK$156.13 million, representing 18.1% of the Group’s net profit, excluding the exceptional profit from the listing of SMIC and net corporate administrative expenses.

Medicine

In 2004, various new policies were implemented to regulate the pharmaceutical industry in China. A series of reforms, including changes to the tendering system, retail price caps for medicines, retail sector gradually opening up to foreign investment and a new policy for sale of OTC medicines, have brought new opportunities and challenges to the Group’s medicine business. Nevertheless, during the year the Group’s medicine and biotechnology business saw good performance overall. Sales during the year (not taken into account of the results of SI United amounted to around HK$1,283.62 million, a 13.8% increase over the previous year. Net profit reached HK$154.92 million, a 17.5% increase over the previous year, representing 17.9% of the Group’s net profit, excluding exceptional profit from the listing of SMIC and net corporate administrative expenses.

The acquisition of a 56.63% stake in SI United was completed in December 2004. The company’s business performance was included in the Group’s accounts from the beginning of 2005. In the year to 31st December 2004, SI United recorded an audited consolidated turnover of RMB2,238.65 million, and a net profit of RMB104.90 million. SI United is a pharmaceutical company listed on the A-Share market of the Shanghai Stock Exchange, and has already developed a product range of Chinese and Western medicines, biomedicines and medical equipment.

— 23 —

LETTER FROM THE BOARD

Consumer Products and Information Technology

The Group’s consumer-related business covers a number of industry sectors. Among them, finished products mainly include tobacco, dairy and personal care products. Complementary products include printed materials, automobile parts, and semiconductors, which are complementary to high-tech electronic products. Besides consumer products, the Group also invests in information technology networks, providing information services to the public.

As China undergoes a process of accelerated urbanization, consumers are broadening their horizons. The growing urban population is constantly creating new spending areas and markets. These conditions will be favourable to the Group’s consumer product and information technology businesses. Last year, rapid growth of the mainland consumer market and Hong Kong’s economic revival helped boost the Group’s consumer product and information technology businesses, with a continuous healthy overall development trend. Net profit was HK$1,185.93 million, a 34.1% increase over the previous year, representing 64% of the Group’s net profit, (excluding exceptional profit from the listing of SMIC and net corporate administrative expenses), and providing a solid foundation for profit growth.

Business Outlook

With access to local and overseas financing channels, its Shanghai background and competitive advantage on the mainland, as well as its solid business foundation, the Group has been able to serve as a bridge between markets in Mainland China, Hong Kong and overseas. It has further positioned itself to capitalize on a diverse array of opportunities by promoting cooperation between enterprises in China and abroad, developing overseas markets, and leveraging our advantages to attract foreign capital.

Looking forward, the aim of the Group is to strengthen its infrastructure and medical businesses, to enhance their competitive positions and to achieve major breakthroughs. Water services are the major components of its infrastructure segment. The Group will continue to increase its investment in this area and to create a favourable environment for the rapid development of the business. In the toll road business, the Group will strive to acquire more highway projects in the Yangtze Delta area, strengthening its profit base in infrastructure facilities. In the medical arena, the Group’s medical and pharmaceutical enterprises have maintained a leading position in the mainland, in particular, in the Chinese medicine sector. The Group is committed to acquiring enterprises whose core competitiveness lies in branded herbal and biotech medicines. The Group will also step up the restructuring of our internal resources in order to maintain its leading position in the pharmaceutical industry in Mainland China.

With full confidence in our development prospects, the Group will continue to consolidate its high-performing business units, establishing a solid foundation for future growth. Meanwhile, the Group will capitalize on opportunities brought about by the restructuring of state-owned enterprises in the mainland, and will actively identify and acquire high growth potential companies that are compatible with its major businesses. The Group will take full advantage of its parent company’s competitive position in the Shanghai area to create greater value for the Shareholders, and to enjoy the impressive results brought about by the healthy development of the Group.

— 24 —

LETTER FROM THE BOARD

12. GENERAL

The Company and its subsidiaries are principally engaged in the business of infrastructure facilities, medicine, consumer products and information technology.

SI United is a subsidiary owned by the Company as to approximately 56.63%, the A shares of which are listed on the Shanghai Stock Exchange. SI United and its subsidiaries are principally engaged in the manufacture and sale of biomedicine and commercial network operations. As at the Latest Practicable Date, Mr. Lu Ming Fang, Mr. Ding Zhong De and Mr. Lu Shen, all being Directors, beneficially owned 15,000 shares, 15,000 shares and 12,000 shares respectively in the capital of SI United, representing 0.005%, 0.005% and 0.004% of the total issued share capital of SI United. To the best of the Directors’ knowledge and information, there were no connected persons of the Company interested in 10% or more of the total issued share capital of SI United as at the Latest Practicable Date.

The Asset Swap constitutes a major transaction for the Company under the Listing Rules, as the revenue ratio under Chapter 14 of the Listing Rules exceeds 25%, and is subject to approval by the Shareholders. The Directors expect that the adjustment to the consideration for the Asset Swap as referred to above will not result in the consideration ratio exceeding the threshold for a very substantial acquisition under Chapter 14 of the Listing Rules. In the event the adjustment to the consideration for the Asset Swap results in such transaction constituting a very substantial acquisition for the Company, the Company will take appropriate action as required under the Listing Rules.

The Company has obtained from the companies controlled by SIIC which together hold approximately 56.67% in nominal value of the securities giving the right to attend and vote at any general meeting of the Company written approvals of the Asset Swap. These companies, namely SIH (holding 468,066,000 Shares as at the Latest Practicable Date), SIIC Capital (holding 80,000,000 Shares as at the Latest Practicable Date) and SIIC CM Development (holding 10,000 Shares as at the Latest Practicable Date) are all wholly-owned subsidiaries of SIIC and constitute a closely allied group of shareholders under Rule 14.45 of the Listing Rules. Apart from SIIC, no connected person of the Company hold any shares in any of these three shareholding companies. None of the Shareholders is materially interested in the Asset Swap and, as such, none of them is required to abstain from voting if a general meeting of the Company is convened to approve the transactions contemplated under the Asset Swap Agreement. Pursuant to Rule 14.44 of the Listing Rules, the Asset Swap which constitutes a major transaction has been approved by way of written shareholders’ approval in lieu of holding a general meeting of the Company.

13. ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of the Board CAI LAI XING Chairman

— 25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL SUMMARY

The following is a summary of the audited consolidated income statement and consolidated balance sheet of the Group for the three years ended 31st December 2004 as extracted from the relevant annual reports of the Group for the years presented.

RESULTS
Turnover
Profit from operations
Finance costs
Net gain on disposal of interests in
subsidiaries, associates and jointly controlled
entities
Share of results of jointly controlled entities
Share of results of associates
Allowance for amount due from a jointly
controlled entity
Impairment losses recognised in respect of
interests in an associate and jointly
controlled entities and goodwill relating to a
subsidiary
Profit from ordinary activities before taxation
Taxation
Profit before minority interests
Minority interests
Profit for the year
Earnings per share — basic
ASSETS AND LIABILITIES
Total assets
Total liabilities
Minority interests
Shareholders’ funds
Shareholders’ equity per share

Year ended 31st December
2004
2003
2002
HK$’000
HK$’000
HK$’000
3,428,939
2,825,978
3,380,037
903,270
1,132,761
1,172,109
(19,317)
(31,001)
(63,745)
698,523
278,059
222,864
94,451
172,635
141,849
284,729
161,537
7,032
(33,376)
(67,337)
(12,987)
(191,232)
—
(15,300)
1,737,048
1,646,654
1,451,822
(231,979)
(241,904)
(182,376)
1,505,069
1,404,750
1,269,446
(122,009)
(145,584)
(143,103)
1,383,060
1,259,166
1,126,343
HK$1.45
HK$1.34
HK$1.22
As at 31st December
2004
2003
2002
HK$’000
HK$’000
HK$’000
20,609,881
17,075,454
16,462,662
(3,515,634)
(2,203,680)
(2,346,307)
(1,476,786)
(380,934)
(618,549)
15,617,461
14,490,840
13,497,806
HK$16.29
HK$15.32
HK$14.42

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Income Statement

For the year ended 31st December 2004

Notes Turnover 5 Cost of sales Gross profit Investment income 6 Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations 7 Finance costs 8 Net gain on disposal of interests in subsidiaries, associates and jointly controlled entities 10 Share of results of jointly controlled entities Share of results of associates Allowance for amount due from a jointly controlled entity Impairment losses recognised in respect of interests in an associate and jointly controlled entities and goodwill relating to a subsidiary Profit from ordinary activities before taxation Taxation 11 Profit before minority interests Minority interests Profit for the year Dividends 12 Earnings per share 13 — Basic — Diluted	2004 HK$’000 3,428,939 (1,505,051) 1,923,888 233,570 31,127 (741,799) (398,984) (144,532) 903,270 (19,317) 698,523 94,451 284,729 (33,376) (191,232) 1,737,048 (231,979) 1,505,069 (122,009) 1,383,060 495,067 HK$1.45 HK$1.43	2003 HK$’000 2,825,978 (1,194,490) 1,631,488 309,113 58,870 (530,178) (301,561) (34,971) 1,132,761 (31,001) 278,059 172,635 161,537 (67,337) — 1,646,654 (241,904) 1,404,750 (145,584) 1,259,166 451,112 HK$1.34 HK$1.33

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31st December 2004

Notes Non-Current Assets Investment properties 14 Property, plant and equipment 15 Toll road operating right 16 Intangible assets 17 Goodwill 18 Negative goodwill 19 Interest in jointly controlled entities 21 Interest in associates 22 Investments in other projects 23 Investments in securities 24 Loan receivable 25 Deposits paid on acquisition of property, plant and equipment 26 Deferred tax assets 37 Current Assets Inventories 27 Trade and other receivables 28 Investments in securities 24 Placement of deposits with financial institutions Pledged bank deposits 29 Bank balances and cash Current Liabilities Trade and other payables 30 Taxation payable Short-term bank and other borrowings 31 Net Current Assets	2004 HK$’000 45,672 2,080,378 1,784,651 39,206 346,204 (2,203) 2,142,809 4,367,157 51,032 245,512 2,748 25,821 33,232 11,162,219 877,785 1,487,294 1,084,036 188,962 43,121 5,766,464 9,447,662 1,226,846 96,816 1,240,645 2,564,307 6,883,355 18,045,574	2003 HK$’000 3,690 1,198,019 1,841,082 — 256,736 — 2,133,351 3,210,651 87,709 584,971 5,043 29,014 —
		9,350,266
		303,500 898,144 1,168,741 — 41,762 5,313,041
		7,725,188
		395,594 116,240 819,945
		1,331,779
		6,393,409
		15,743,675

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Capital and Reserves Share capital 32 Reserves Minority interests Non-Current Liabilities Long-term bank and other borrowings 36 Deferred tax liabilities 37	2004 HK$’000 95,864 15,521,597 15,617,461 1,476,786 859,390 91,937 951,327 18,045,574	2003 HK$’000 94,575 14,396,265
		14,490,840
		380,934
		800,000 71,901
		871,901
		15,743,675

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

At 31st December 2004

Notes Non-Current Assets Property, plant and equipment 15 Interest in subsidiaries 20 Interest in a jointly controlled entity 21 Current Assets Deposits, prepayments and other receivables Dividend receivable Bank balances and cash Current Liabilities Other payables and accrued charges Short-term bank borrowings 31 Net Current Assets Capital and Reserves Share capital 32 Reserves 34 Non-Current Liabilities Amounts due to subsidiaries 35 Long-term bank borrowings 36	2004 HK$’000 5,462 13,393,063 141,673 13,540,198 18,735 763,000 2,127,892 2,909,627 46,929 800,000 846,929 2,062,698 15,602,896 95,864 14,206,837 14,302,701 500,195 800,000 1,300,195 15,602,896	2003 HK$’000 5,993 12,762,134 164,045
		12,932,172
		19,494 310,000 2,600,688
		2,930,182
		46,190 800,000
		846,190
		2,083,992
		15,016,164
		94,575 13,861,956
		13,956,531
		259,633 800,000
		1,059,633
		15,016,164

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31st December 2004

Share capital HK$’000 93,630	Share premium HK$’000 9,788,241	Capital redemption reserve HK$’000 1,071	Investment property revaluation reserve HK$’000 299	Translation reserve HK$’000 7,795	Goodwill reserve HK$’000 (986,414)	PRC statutory reserves HK$’000 266,642	Accumulated profits HK$’000 4,326,542	Total HK$’000 13,497,806
— — — —	— — — —	— — — —	215 — — —	— 26,066 72 (65)	— — — —	— — — —	— — — —	215 26,066 72 (65)
—	—	—	215	26,073	—	—	—	26,288
945 — — — — — — — —	— 98,751 (88) — — — — — —	— — — — — — — — —	— — — — — — — — —	— — — — (38) (10) — — —	— — — 1,082 56,428 1,622 — — —	— — — — (4,491) — — 55,641 —	— — — — 4,491 — 1,259,166 (55,641) (451,112)	945 98,751 (88) 1,082 56,390 1,612 1,259,166 — (451,112)
94,575	9,886,904	1,071	514	33,820	(927,282)	317,792	5,083,446	14,490,840

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share capital HK$’000 94,575	Share premium HK$’000 9,886,904	Capital redemption reserve HK$’000 1,071	Investment property revaluation reserve HK$’000 514	Translation reserve HK$’000 33,820	Goodwill reserve HK$’000 (927,282)	PRC statutory reserves HK$’000 317,792	Accumulated profits HK$’000 5,083,446	Total HK$’000 14,490,840
— — —	— — —	— — —	— — —	2,119 106 6	— — —	— — —	— — —	2,119 106 6
—	—	—	—	2,231	—	—	—	2,231
1,289 — — — — — — — — —	— 145,854 (127) — — — — — — —	— — — — — — — — — —	— — — — — — — — — —	— — — (286) — — (110) — — —	— — — — 1,140 88,637 — — — —	— — — (736) — — — — 68,018 —	— — — 736 — — — 1,383,060 (68,018) (495,067)	1,289 145,854 (127) (286) 1,140 88,637 (110) 1,383,060 — (495,067)
95,864	10,032,631	1,071	514	35,655	(837,505)	385,074	5,904,157	15,617,461

The accumulated profits of the Group include approximately HK$10.5 million (2003: HK$35.3 million) retained by jointly controlled entities and approximately HK$229.4 million (2003: HK$49.6 million) retained by associates.

The goodwill reserve comprises approximately HK$2,027 million (2003: HK$2,117 million) in respect of goodwill, approximately HK$52 million (2003: HK$52 million) in respect of negative goodwill and approximately HK$1,138 million (2003: HK$1,138 million) in respect of capital reserve which arose in 1997 upon reduction of share premium as confirmed by the Order of the High Court of Hong Kong.

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

— 32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31st December 2004

Profit from operations Adjustments for: Dividend income from listed investments Dividend income from unlisted investments Income from investments in other projects Interest income Rental income Amortisation of goodwill Amortisation of toll road operating right Release of negative goodwill Depreciation and amortisation of property, plant and equipment Allowance on doubtful debts and bad debts written off Net unrealised holding gain on investments in securities Gain on disposal of investments in securities Loss on disposal of property, plant and equipment Impairment loss recognised in respect of investments in other projects Impairment loss recognised in respect of investments in securities Operating cash flows before movements in working capital (Increase) decrease in inventories Decrease (increase) in trade and other receivables Increase (decrease) in trade and other payables Cash generated from operations PRC income tax paid Hong Kong Profits Tax paid Hong Kong Profits Tax refunded NET CASH FROM OPERATING ACTIVITIES	2004 HK$’000 903,270 (5,529) (23,408) (4,058) (95,216) (2,838) 15,462 41,626 (9) 122,039 19,135 (85,928) (16,593) 4,434 36,677 35,855 944,919 (226,227) 8,832 218,378 945,902 (65,978) (114,672) 21 765,273	2003 HK$’000 1,132,761 (3,583) — (8,254) (48,241) (2,959) 6,412 — — 109,071 10,326 (167,528) (78,548) 6,266 3,231 31,740 990,694 67,026 (14,899) (9,324) 1,033,497 (86,362) (48,243) — 898,892

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes INVESTING ACTIVITIES Purchase of investments in securities Purchase of property, plant and equipment Acquisition of subsidiaries (net of cash and cash equivalents acquired) 38 Increase in placement of deposits with financial institutions Capital contributions to jointly controlled entities Purchase of additional interest in subsidiaries Proceeds from disposal of investments in securities Decrease (increase) in bank deposits Disposal of a subsidiary (net of cash and cash equivalents disposed of) 39 Dividends received from jointly controlled entities Interest received Dividends received from associates Dividends received from unlisted investments Dividends received from listed investments Government grants received Income received from investments in other projects Decrease (increase) in deposits paid on acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Rental income received Repayment from a minority shareholder of a subsidiary Proceeds from disposal of interest in jointly controlled entities Repayment from an associate Capital contributions to associates Advance to an associate Proceeds from disposal of investments in infrastructure projects Capital distributions from jointly controlled entities Proceeds from partial disposal of interest in a subsidiary Proceeds from partial disposal of interest in an associate Repayment from a jointly controlled entity NET CASH FROM INVESTING ACTIVITIES	2004 HK$’000 (2,478,720) (391,114) (390,815) (188,962) (144,300) (7,063) 3,069,902 692,215 198,396 103,474 95,216 79,631 23,408 5,524 5,321 4,058 3,193 3,028 2,838 2,295 104 3 — — — — — — — 687,632	2003 HK$’000 (1,888,900) (139,008) (1,897,295) — (321,018) (500,491) 1,131,489 (1,135,396) 1,353 29,280 48,241 85,405 — 3,583 14,151 8,254 (22,382) 12,576 2,959 3,660 — 102,604 (497,336) (1,006) 5,456,448 42,070 27,300 7,475 3,510 577,526

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCING ACTIVITIES Dividends paid Dividends paid to minority shareholders of subsidiaries Repayment of borrowings Interest paid on bank and other borrowings Expenses incurred in connection with the issue of shares Proceeds from issue of shares Borrowings raised Capital contributions by minority shareholders of subsidiaries NET CASH USED IN FINANCING ACTIVITIES INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Less: Bank deposits held for investment purpose Bank deposit held as a security deposit for investment	2004 HK$’000 (495,067) (101,561) (26,981) (19,486) (127) 147,143 105,778 84,393 (305,908) 1,146,997 4,038,696 5,185,693 5,766,464 (505,299) (75,472) 5,185,693	2003 HK$’000 (451,112) (102,942) (29,502) (31,001) (88) 99,696 8,915 3,622 (502,412) 974,006 3,064,690 4,038,696 5,313,041 (1,274,345) — 4,038,696

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31st December 2004

1. GENERAL

The Company is a public limited company incorporated in Hong Kong. The shares of the Company are listed on The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’). Its ultimate holding company is Shanghai Industrial Investment (Holdings) Company Limited, also incorporated in Hong Kong.

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 47.

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 Institute of Certified Public Accountants (‘‘HKICPA’’).

SSAP 36 Agriculture

Agriculture

In the current year, an associate of the Group has adopted SSAP 36 ‘‘Agriculture’’. The principal effect of the implementation of SSAP 36 is in relation to the accounting treatment, financial statement presentation and disclosure of agricultural activity. In previous years, biological assets and agricultural produce are stated at the lower of cost and net realisable value under the historical cost model. SSAP 36 requires the adoption of a fair value model, whereby all biological assets are measured at the balance sheet date at fair value less estimated point-of-sale costs. The fair value of biological assets is determined based on market prices of the biological assets of similar age, breed, and genetic merit. Agricultural produce is initially measured at its fair value less estimated point-of-sale costs at the time of harvest.

The adoption of SSAP 36 has had no material effect on the results for the current or prior accounting periods and, accordingly, no prior period adjustment is required.

3. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

In 2004, the HKICPA issued a number of new or revised Hong Kong Accounting Standards (‘‘HKAS’’) and HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’) which are effective for accounting periods beginning on or after 1st January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31st December 2004.

The Group has considered these new HKFRSs and identified a number of these HKFRSs that may have a material effect on how the results of operations and financial positions are prepared and presented as described below:

HKFRS 2 ‘‘Share-based Payment’’

HKFRS 2 requires recognition of equity-settled share-based payments at fair value at the date of grant and recognition of liabilities for cash-settled share-based payments at the current fair value at each balance sheet date. Prior to the adoption of HKFRS 2, the Group did not recognise the financial effect of share-based payments until such time as the share-based payments are settled.

In accordance with the transitional provisions of HKFRS 2, the standard has been applied retrospectively to all grants of equity instruments after 7th November 2002 that were unvested as of 1st January 2005 and liabilities for share-based transactions existing at 1st January 2005. The share options granted on or before 7th November 2002 are not applied to this HKFRS2. The Company’s share options outstanding at 31st December 2004 were granted in September 2002 and accordingly the Company does not require to recognise and expense those share options. However, in relation to share options granted after 7th November 2002 and vested on or after 1st January 2005, such share options should be accounted for retrospectively in accordance with HKFRS 2.

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 3 ‘‘Business Combinations’’

HKFRS 3 requires goodwill acquired in a business combination to be measured after initial recognition at cost less any accumulated impairment losses. Therefore, the goodwill is not amortised and instead must be tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Currently, the Group amortises the goodwill capitalised on a straight line basis over its useful economic life.

HKFRS 3 also requires negative goodwill to be recognised in the profit or loss immediately on acquisition. Currently, the Group presented the negative goodwill as deduction from assets and released to income based on an analysis of the circumstances from which the balance resulted.

The Group estimates that the adoption of HKFRS 3 in the annual period beginning on 1st January 2005 in relation to the discontinued goodwill amortisation would result in an increase in the net profit for the year ending 31st December 2005 of approximately HK$23.8 million.

The carrying amount of negative goodwill as at 31st December 2004, including that credited to the goodwill reserve, amounted to approximately HK$54.3 million. Accordingly, the Group estimates that the adoption of HKFRS 3 in the annual period beginning on 1st January 2005 in relation to negative goodwill, would result in an increase in the opening balance of accumulated profits by approximately HK$54.3 million, with the corresponding decrease in the goodwill reserve and negative goodwill of approximately HK$52.1 million and HK$2.2 million respectively.

HKAS 32 ‘‘Financial Instruments: Disclosure and Presentation’’ HKAS 39 ‘‘Financial Instruments: Recognition and Measurement’’

HKAS 39 requires all investments to be reclassified into available-for-sale financial assets, financial assets at fair value through profit or loss and loans and receivables. It also requires all financial instruments which the Group is using to hedge the interest rate risk of its borrowings to be recognised at fair value. Currently, the interest rate swap entered by the Group is not recognised and is only disclosed as an off-balance sheet item.

HKAS 40 ‘‘Investment Properties’’

HKAS 40 requires all revaluation gains or losses of investment properties to be taken directly to the income statement. Currently, such changes are generally taken to the investment property revaluation reserve by the Group.

In relation to other new HKFRSs, the Group does not expect that the adoption will have a material effect on how the results of operations and financial position of the Group are prepared and presented.

4. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain 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 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 intercompany transactions and balances between group enterprises are eliminated on consolidation.

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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, associate or jointly controlled entity at the date of acquisition.

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, associate or jointly controlled entity, 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 or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of a subsidiary is presented separately in the balance sheet.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of unamortised goodwill or 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, associate or jointly controlled entity at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisition prior to 1st January 2001 continues to be held in reserves and will be credited to income at the time of disposal of the relevant subsidiary, associate or jointly controlled entity.

Negative goodwill arising on acquisition after 1st January 2001 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.

Negative goodwill arising on the acquisition of an associate or a jointly controlled entity is deducted from the carrying value of that associate or jointly controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

Toll road operating right

Toll road operating right is stated at cost less amortisation and any accumulated impairment losses. Amortisation is provided to write off the cost of toll road operating right on a units-of-usage basis, calculated based on the proportion of actual traffic volume for a particular period to the projected total traffic volume over the periods for which the Group is granted the rights to operate the toll road.

Interest in subsidiaries

Interest in subsidiaries is included in the Company’s balance sheet at cost less 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.

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 plus the goodwill in so far as it has not already been written off or amortised, less any identified impairment loss. The Group’s share of the post-acquisition results of jointly controlled entities are included in the consolidated income statement.

The Company’s interest in jointly controlled entities are stated at cost, as reduced by any identified impairment loss. The results of jointly controlled entities are accounted for by the Company on the basis of dividend received and receivable.

Interest in associates

An associate is an enterprise over which the Group is in a position to exercise significant influence, including participation in financial and operating policy decisions.

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, interests 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.

Investments in other projects

The Group’s investments in other projects are recorded at cost, as reduced by any identified impairment loss.

Where the estimated recoverable amount of these investments falls below their carrying amount, the carrying amount of the investments, to the extent that it is considered to be irrecoverable, is written off immediately to the income statement.

Investments in securities

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

Investments are classified as investment securities and other investments.

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 period.

Revenue recognition

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

Income from investments in other projects where the Group is contracted to receive a pre-determined minimum sum over the period of the project is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment in these projects.

Toll fee income from the operation of toll road, net of business tax payable in the PRC, is recognised at the time of usage and when the toll fee is received.

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

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

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Dividend and interest income from investments in securities other than investments in other projects is recognised when the Group’s right to receive payment has been established.

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 valuation at the balance sheet date. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property 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 an investment property, the balance on the investment property revaluation reserve attributable to that property is credited to the income statement.

No depreciation is provided on investment properties which are held on leases with an unexpired term of more than 20 years, including the renewable period.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, is stated at cost or valuation less depreciation or amortisation at the balance sheet date and any accumulated impairment losses.

Land and buildings which have been 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.

Property, plant and equipment in the course of construction for production are carried at cost less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

The cost or valuation of leasehold land is amortised over the period of the lease using the straight line method.

The cost of land use rights is amortised over the period of the rights using the straight line method.

Depreciation is provided to write off the cost or valuation of other property, plant and equipment, other than construction in progress, over their estimated useful lives and after taking into account their estimated residual value, using the straight line method, at the following rates per annum:

Buildings 4% – 5% or over the period of the lease terms Furniture, fixtures and equipment 20% – 33[1] /3% or over the period of the lease in case of fixtures in rented premises Motor vehicles 20% – 30% Plant and machinery 6[2] /3% – 20%

The gain or loss arising from 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.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible 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. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

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 standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that standard.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised as expenses in the period in which they are incurred.

Inventories

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

Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight line basis over its useful life.

Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Patents and trademarks

Patents and trademarks are measured initially at cost and amortised on a straight line basis over their estimated useful lives.

Retirement benefits costs

Payments to defined contribution retirement benefits schemes 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 benefits scheme.

Taxation

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

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 is realised. Deferred tax 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 tax is also dealt with in equity.

Government grants

Government grants are recognised as income over the periods necessary to match them with the related costs. Grants related to depreciable assets are presented as a deduction from the carrying amount of the relevant asset and are released to income over the useful lives of the assets. Grants related to expense items are recognised in the same period as those expenses are charged in the income statement and are deducted in reporting the related expense.

Foreign currencies

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

On consolidation, the assets and liabilities of the Group’s 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 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.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. TURNOVER

Turnover represents the aggregate of the net amounts received and receivable from third parties and is summarised as follows:

Sales of goods Income from infrastructure facilities 6. INVESTMENT INCOME Net unrealised holding gain on investments in securities Interest on bank deposits Dividend income from unlisted investments Interest from investments in securities Gain on disposal of investments in securities Dividend income from listed investments Income from investments in other projects Rental income from property, plant and equipment Other interest income	2004 HK$’000 3,239,731 189,208 3,428,939 2004 HK$’000 85,928 71,947 23,408 21,475 16,593 5,529 4,058 2,838 1,794 233,570	2003 HK$’000 2,542,959 283,019
		2,825,978
		2003 HK$’000 167,528 40,589 — 6,410 78,548 3,583 8,254 2,959 1,242
		309,113

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging (crediting): Staff costs, including directors’ emoluments Basic salaries and allowances Bonuses Retirement benefits scheme contributions, net of forfeited contributions of HK$2,418,000 (2003: HK$1,247,000) Allowance on doubtful debts and bad debts written off Amortisation of goodwill (included in administrative expenses) Amortisation of toll road operating right (included in cost of sales) Auditors’ remuneration Depreciation and amortisation of property, plant and equipment Exchange losses (gains) Impairment loss recognised in respect of investments in other projects (included in other operating expenses) Impairment loss recognised in respect of investments in securities (included in other operating expenses) Operating lease rentals in respect of equipment and motor vehicles Operating lease rentals in respect of land and buildings to — ultimate holding company — fellow subsidiaries — others Research and development costs Loss on disposal of property, plant and equipment Release of negative goodwill (included in other operating income)	2004 HK$’000 274,966 65,450 24,212 364,628 19,135 15,462 41,626 6,353 122,039 2,182 36,677 35,855 — 5,174 16,857 13,587 15,468 4,434 (9)	2003 HK$’000 236,798 69,029 20,398
		326,225 10,326 6,412 — 5,500 109,071 (35,868) 3,231 31,740 441 6,301 16,914 9,356 8,043 6,266 —

8. FINANCE COSTS

Interest on: Bank and other borrowings wholly repayable — within five years — over five years Total borrowing costs Less: amounts capitalised in construction in progress	2004 HK$’000 19,414 72 19,486 (169) 19,317	2003 HK$’000 31,001 —
		31,001 —
		31,001

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. DIRECTORS’ EMOLUMENTS AND EMPLOYEES’ EMOLUMENTS

Directors’ fees: Executive Independent non-executive Other emoluments of executive directors: Basic salaries and allowances Bonuses Retirement benefits scheme contributions Total directors’ emoluments	2004 HK$’000 — 619 12,925 9,093 1,103 23,740	2003 HK$’000 — 776 20,167 13,047 1,906
		35,896

The emoluments of the directors were within the following bands:

	2004	2003
	Number of	Number of
	directors	directors
Up to HK$1,000,000	12	10
HK$1,500,001 to HK$2,000,000	1	1
HK$2,000,001 to HK$2,500,000	1	—
HK$2,500,001 to HK$3,000,000	2	1
HK$3,500,001 to HK$4,000,000	—	2
HK$4,000,001 to HK$4,500,000	—	2
HK$5,000,001 to HK$5,500,000	1	2
HK$6,500,001 to HK$7,000,000	1	—

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

All the five highest paid employees of the Group in both years were executive directors of the Company. Details of their emoluments are disclosed above.

10. NET GAIN ON DISPOSAL OF INTERESTS IN SUBSIDIARIES, ASSOCIATES AND JOINTLY CONTROLLED ENTITIES

Gain on deemed disposal of interest in an associate Gain on deemed disposal of interest in a subsidiary Gain on deemed disposal of interest in a jointly controlled entity Gain on disposal of interest in subsidiaries Gain on disposal of interest in jointly controlled entities Gain on partial disposal of interest in a subsidiary Loss on disposal of interest in an associate	2004 HK$’000 631,998 52,737 10,155 3,603 30 — — 698,523	2003 HK$’000 239,151 — — 29,869 — 12,064 (3,025)
		278,059

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. TAXATION

The charge comprises: Taxation of the Company and its subsidiaries — Hong Kong Profits Tax — current year — underprovision in prior years — PRC income tax — current year — underprovision in prior years Deferred taxation (note 37) — current year — effect of change in tax rate Taxation attributable to the Company and its subsidiaries Share of PRC income tax of jointly controlled entities Share of PRC income tax of associates	2004 HK$’000 66,633 30,704 66,437 2,342 166,116 20,036 — 20,036 186,152 15,230 30,597 45,827 231,979	2003 HK$’000 57,703 21,164 87,841 3,114 169,822 (11,492) 7,174 (4,318) 165,504 31,679 44,721 76,400 241,904

Hong Kong Profits Tax is calculated at 17.5% (2003: 17.5%) of the estimated assessable profit for the year.

Pursuant to the relevant laws and regulations in the PRC, the Group’s PRC subsidiaries, jointly controlled entities and associates are entitled to certain exemption and reliefs from PRC income tax for a number of years. Certain PRC subsidiaries and associates are also entitled to reduced tax rates because they are classified as ‘‘high technology entities’’ under relevant rules. The current year’s PRC income tax charges are arrived at after taking into account these various tax incentives, ranging from 10% to 33%.

Details of deferred taxation are set out in note 37.

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The tax charge for the year can be reconciled to the profit from ordinary activities before taxation per the income statement as follows:

Profit from ordinary activities before taxation Tax at PRC Statutory Tax rate of 33% (2003: 33%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Underprovision in respect of prior years Tax effect of tax losses not recognised Utilisation of tax losses previously not recognised Increase in opening deferred tax balance resulting from an increase in the Hong Kong tax rate Effect of tax exemption and tax reliefs granted to PRC subsidiaries Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of different tax rates of jointly controlled entities and associates operating in other jurisdictions Others Tax charge for the year 12. DIVIDENDS Interim dividend of HK20 cents (2003: HK18 cents) per share 2003 final dividend of HK32 cents (2002: HK30 cents) per share	2004 HK$’000 1,737,048 573,226 146,807 (302,791) 33,046 8,691 — — (69,451) (77,952) (79,303) (294) 231,979 2004 HK$’000 191,602 303,465 495,067	2003 HK$’000 1,646,654
		543,396 55,324 (312,224) 24,278 30,922 (15,566) 7,174 (17,733) (36,350) (33,876) (3,441)
		241,904
		2003 HK$’000 170,205 280,907
		451,112

A final dividend of HK35 cents (2003: HK32 cents) per share has been proposed by the board of directors and is subject to approval by the shareholders in annual general meeting.

13. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share for the year is based on the following data:

Earnings: Profit for the year and earnings for the purpose of basic earnings per share Effect of dilutive potential ordinary shares — adjustment to the share of results of an associate based on potential dilution of its earnings per share Earnings for the purpose of diluted earnings per share	2004 HK$’000 1,383,060 (15,753) 1,367,307	2003 HK$’000 1,259,166 —
		1,259,166

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Number of shares: Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares — share options Weighted average number of ordinary shares for the purpose of diluted earnings per share	2004 952,088,546 6,159,364 958,247,910	2003 940,604,493 3,354,778
		943,959,271

14. INVESTMENT PROPERTIES

VALUATION Balance brought forward Acquired on acquisition of subsidiaries Surplus on revaluation Balance carried forward	THE GROUP 2004 2003 HK$’000 HK$’000 3,690 3,300 41,982 — — 390 45,672 3,690	THE GROUP 2004 2003 HK$’000 HK$’000 3,690 3,300 41,982 — — 390 45,672 3,690
		3,690

The investment properties were revalued at 31st December 2004 by Debenham Tie Leung Limited, an independent firm of property valuers, on an open market value existing use basis. The revaluation did not give rise to any surplus or deficit for the year (2003: surplus of HK$390,000).

The Group’s investment properties are rented out under operating leases.

The Group’s investment properties are situated in the PRC and are held under medium-term land use rights.

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST OR VALUATION At 1st January 2004 Acquired on acquisition of subsidiaries Additions Transfers/reclassifications Disposals Government grants received At 31st December 2004 Comprising: At cost At valuation — 1996 At valuation — 2001 DEPRECIATION AND AMORTISATION At 1st January 2004 Provided for the year Eliminated on disposals At 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	Land and buildings HK$’000 510,629 144,209 7,693 34,561 (2,812) — 694,280 684,580 1,000 8,700 694,280 87,245 19,068 (1,132) 105,181 589,099 423,384	Furniture, fixtures and equipment HK$’000 258,430 28,665 17,448 9,110 (2,476) — 311,177 311,177 — — 311,177 119,242 26,066 (1,547) 143,761 167,416 139,188	Motor vehicles HK$’000 56,012 20,074 13,454 4,780 (5,276) — 89,044 89,044 — — 89,044 36,138 8,404 (4,167) 40,375 48,669 19,874	Plant and machinery HK$’000 1,078,431 403,477 207,375 25,849 (27,840) (5,321) 1,681,971 1,681,971 — — 1,681,971 542,379 68,501 (24,096) 586,784 1,095,187 536,052	Construction in progress HK$’000 79,521 29,473 145,313 (74,300) — — 180,007 180,007 — — 180,007 — — — — 180,007 79,521	Total HK$’000 1,983,023 625,898 391,283 — (38,404) (5,321) 2,956,479 2,946,779 1,000 8,700 2,956,479 785,004 122,039 (30,942) 876,101 2,080,378 1,198,019

In the current year, land and buildings include certain assets carried at cost or revaluation of HK$9,361,000 (2003: HK$9,361,000) in aggregate with accumulated depreciation of HK$2,558,000 (2003: HK$2,285,000) in respect of assets rented out under operating leases. Depreciation charged in respect of those assets in the year amounted to HK$273,000 (2003: HK$273,000).

In the current year, plant and machinery includes certain assets carried at cost of HK$20,629,000 (2003: HK$15,751,000) in aggregate with accumulated depreciation of HK$14,377,000 (2003: HK$12,802,000) in respect of assets rented out under operating leases. Depreciation charged in respect of those assets in the year amounted to HK$1,575,000 (2003: HK$1,575,000).

The cost of certain plant and machinery, before deduction of government subsidy of HK$5,321,000 (2003: HK$14,151,000) is HK$71,651,000 (2003: HK$71,348,000).

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

THE COMPANY COST At 1st January 2004 Additions At 31st December 2004 DEPRECIATION At 1st January 2004 Provided for the year At 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003 The net book value of property interests comprises: Properties held under — short-term land use rights in the PRC — medium-term leases in Macau — medium-term leases in Hong Kong — medium-term land use rights in the PRC	Land and buildings Furniture, fixtures and equipment HK$’000 HK$’000 2,803 24,460 — 646 2,803 25,106 261 21,498 112 1,908 373 23,406 2,430 1,700 2,542 2,962 THE GROUP 2004 2003 HK$’000 HK$’000 349 — 1,179 1,227 265,007 272,911 322,564 149,246 589,099 423,384	Motor vehicles Total HK$’000 HK$’000 6,809 34,072 1,353 1,999 8,162 36,071 6,320 28,079 510 2,530 6,830 30,609 1,332 5,462 489 5,993 THE COMPANY 2004 2003 HK$’000 HK$’000 — — — — — — 2,430 2,542 2,430 2,542	Total HK$’000 34,072 1,999
			36,071
			28,079 2,530
			30,609
			5,462
			5,993
			2,542

Certain land and buildings of the Group were valued at 31st December 1996 and 31st December 2001 by an 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.

Included in construction in progress is net interest capitalised of HK$169,000 (2003: nil).

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. TOLL ROAD OPERATING RIGHT

COST At 1st January 2004 — as originally stated Change in fair value (note) At 31st December 2004 AMORTISATION Charge for the year and balance at 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	THE GROUP HK$’000 1,841,082 (14,805)
	1,826,277 41,626
	1,784,651
	1,841,082

Note: The Group’s toll road operating right was acquired upon the completion of the acquisition of a subsidiary in December 2003. During the year, as additional evidence was available to assist the determination of the fair values of the toll road operating right and certain payables on the date of acquisition, the change in fair values were therefore adjusted in the current year and the cost of the asset and certain payables were restated accordingly.

The amount represents the right to receive toll fees from vehicles using the Shanghai section of the ShanghaiNanjing Expressway and to operate service facilities in designated areas along the Shanghai section for a period of 25 years.

The Group’s right to operate the toll road is amortised on a units-of-usage basis, calculated based on the proportion of actual traffic volume for a particular period to the projected total traffic volume over the period for which the Group is granted the rights to operate the toll road which is 25 years.

17. INTANGIBLE ASSETS

COST AND NET BOOK VALUE Arising on acquisition of a subsidiary and balance at 31st December 2004	THE GROUP HK$’000 39,206

The amount represents the patents and trademarks held to produce pharmaceutical products for a period of 10 years.

The amortisation period adopted for patents and trademarks is 10 years. No amortisation was charged for the year as the acquisition was completed in December 2004.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. GOODWILL

COST At 1st January 2004 Arising on acquisition of subsidiaries Eliminated on disposal/deemed disposal of interest in subsidiaries At 31st December 2004 AMORTISATION AND IMPAIRMENT At 1st January 2004 Charge for the year Impairment loss recognised Eliminated on disposal/deemed disposal of interest in subsidiaries At 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	THE GROUP HK$’000 266,175 130,369 (28,035) 368,509 9,439 15,462 2,003 (4,599) 22,305 346,204 256,736

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

During the year, the directors reviewed the carrying amounts of the unamortised goodwill in light of the current market condition with reference to the financial results and business operated by the subsidiaries. The directors identified an impairment loss of HK$2,003,000 (2003: nil) on the unamortised goodwill of a subsidiary and was recognised in the income statement for the year.

19. NEGATIVE GOODWILL

GROSS AMOUNT Arising on acquisition of a subsidiary and balance at 31st December 2004 RELEASED TO INCOME Released for the year and balance at 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	THE GROUP HK$’000 2,212 (9) 2,203 —

The amortisation period adopted for negative goodwill is 20 years.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INTEREST IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries	THE COMPANY 2004 2003 HK$’000 HK$’000 772,897 772,897 12,620,166 11,989,237 13,393,063 12,762,134	THE COMPANY 2004 2003 HK$’000 HK$’000 772,897 772,897 12,620,166 11,989,237 13,393,063 12,762,134
		12,762,134

The amounts due from subsidiaries are unsecured and have no fixed repayment terms. Except for an amount of approximately HK$50 million (2003: HK$50 million) which bears interest at commercial rates, the balances are noninterest bearing. In the opinion of the directors, the amounts will not be repayable within one year from the balance sheet date. Accordingly, such amounts have been classified as non-current.

Details of the Company’s principal subsidiaries at 31st December 2004 are set out in note 47.

21. INTEREST IN JOINTLY CONTROLLED ENTITIES

Unlisted capital contribution, at cost Share of net assets of jointly controlled entities Goodwill on acquisition of jointly controlled entities/additional interest in a jointly controlled entity less amortisation and impairment Amount due from a jointly controlled entity Less: Impairment loss recognised	THE GROUP 2004 2003 HK$’000 HK$’000 — — 2,150,991 2,015,276 18,067 87,145 — 33,375 2,169,058 2,135,796 (26,249) (2,445) 2,142,809 2,133,351	THE COMPANY 2004 2003 HK$’000 HK$’000 166,790 164,045 — — — — — — 166,790 164,045 (25,117) — 141,673 164,045	THE COMPANY 2004 2003 HK$’000 HK$’000 166,790 164,045 — — — — — — 166,790 164,045 (25,117) — 141,673 164,045
			164,045 —
			164,045

The amount due from a jointly controlled entity is unsecured, bears interest at commercial rates and repayable after one year.

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill arising on acquisition of jointly controlled entities/additional interest in jointly controlled entities COST At 1st January 2004 and 31st December 2004 AMORTISATION AND IMPAIRMENT At 1st January 2004 Charge for the year Impairment loss recognised At 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	THE GROUP HK$’000 92,677
	5,532 1,709 67,369
	74,610
	18,067
	87,145

The amortisation period adopted for the above goodwill ranges from 10 to 20 years and such amortisation was included in share of results of jointly controlled entities.

The directors considered that in the light of the recurring operating losses of certain jointly controlled entities and the unfavorable market conditions, the interest in these jointly controlled entities are considered to be irrecoverable. Accordingly, impairment losses in respect of interests in these jointly controlled entities of HK$23,804,000 (2003: nil), and goodwill and goodwill reserve of HK$156,006,000 (2003: nil) were recognised in the income statement for the year.

Details of the Group’s principal jointly controlled entities at 31st December 2004 are set out in note 48.

22. INTEREST IN ASSOCIATES

Share of net assets of associates Goodwill on acquisition of associates/additional interest in associates less amortisation Amount due from an associate Less: Impairment loss recognised Market value of listed shares	THE GROUP 2004 2003 HK$’000 HK$’000 4,304,285 3,095,868 72,291 114,780 — 3 4,376,576 3,210,651 (9,419) — 4,367,157 3,210,651 3,103,635 —	THE GROUP 2004 2003 HK$’000 HK$’000 4,304,285 3,095,868 72,291 114,780 — 3 4,376,576 3,210,651 (9,419) — 4,367,157 3,210,651 3,103,635 —
		3,210,651 — 3,210,651
		—

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill arising on acquisition of associates/additional interest in associates COST At 1st January 2004 Eliminated on disposal/deemed disposal of interest in associates At 31st December 2004 AMORTISATION At 1st January 2004 Charge for the year Eliminated on disposal/deemed disposal of interest in associates At 31st December 2004 NET BOOK VALUE At 31st December 2004 At 31st December 2003	THE GROUP HK$’000 123,812 (41,260) 82,552 9,032 6,636 (5,407) 10,261 72,291 114,780

During the year, the Group’s equity interest in Semiconductor Manufacturing International Corporation (‘‘SMIC’’) was diluted from 13.4% to 9.95% followed by the private placements by SMIC and the listing of SMIC in Hong Kong and the United States, resulting in a gain on deemed disposal of HK$631,998,000.

In the opinion of the directors, the Group can exercise significant influence over the financial and operating policy decisions of SMIC and accordingly SMIC is classified as an associate.

The amortisation period adopted for goodwill ranges from 5 to 20 years and such amortisation was included in share of results of associates.

The directors considered that in the light of the recurring operating losses of an associate and the unfavorable market conditions, the interest in this associate is considered to be irrecoverable. Accordingly, an impairment loss of HK$9,419,000 (2003: nil) in respect of the interest in this associate was recognised in the income statement for the year.

Details of the Group’s principal associates at 31st December 2004 are set out in note 50.

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. INVESTMENTS IN OTHER PROJECTS

Unlisted investments in other projects, at cost in — the PRC — Hong Kong Less: Impairment loss recognised Amounts due from investees, net of allowance	THE GROUP 2004 2003 HK$’000 HK$’000 113,763 113,763 5 5 (62,739) (26,062) 51,029 87,706 3 3 51,032 87,709

During the year, the directors reviewed the carrying amount of the investments in other projects in light of the current market condition with reference to the financial results and business operated by certain investees. The directors identified an impairment loss of HK$36,677,000 (2003: HK$3,231,000) on the investments, estimated by reference to the net recoverable amount of the investments and the amount has been recognised in the income statement accordingly.

The Group’s unlisted investments include principally interests in various companies established in the PRC which are engaged in the provision of printing services, manufacture of paper products, manufacture and sale of packaging materials and operation of a training centre. Pursuant to various addendums to the joint venture agreements with the respective PRC joint venture partners, the Group has forfeited its economic interests in connection with the operation and management of these companies in return for the receipt of contracted annual payments. Accordingly, these joint ventures are not regarded as the Group’s subsidiaries, jointly controlled entities or associates. The results, assets and liabilities of these investee companies are insignificant to the Group.

The amounts due from investees are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the directors, the amounts will not be repayable within one year from the balance sheet date. Accordingly, such amounts have been classified as non-current.

In the opinion of the directors, the underlying value of the above unlisted investments are at least equal to their carrying values.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. INVESTMENTS IN SECURITIES

THE GROUP Equity securities: Listed Hong Kong PRC United States of America Others Unlisted PRC United States of America Unlisted debt securities: Hong Kong PRC United States of America Others Total Market value of listed securities Carrying amount of investments in securities analysed for reporting purposes as: Current Non-current	Investment 2004 HK$’000 21,169 — — — 21,169 224,295 — 224,295 — — — — — 245,464 21,169 — 245,464 245,464	securities 2003 HK$’000 57,024 — — — 57,024 182,212 1,950 184,162 — — — — — 241,186 38,810 — 241,186 241,186	Other investments 2004 2003 HK$’000 HK$’000 384,321 9,094 — 4,295 37,907 168,614 6,300 4,900 428,528 186,903 48 316,680 — — 48 316,680 288,881 211,903 63,117 — 286,089 780,176 17,421 16,864 655,508 1,008,943 1,084,084 1,512,526 428,528 186,903 1,084,036 1,168,741 48 343,785 1,084,084 1,512,526	Total 2004 2003 HK$’000 HK$’000 405,490 66,118 — 4,295 37,907 168,614 6,300 4,900 449,697 243,927 224,343 498,892 — 1,950 224,343 500,842 288,881 211,903 63,117 — 286,089 780,176 17,421 16,864 655,508 1,008,943 1,329,548 1,753,712 449,697 225,713 1,084,036 1,168,741 245,512 584,971 1,329,548 1,753,712	Total 2004 2003 HK$’000 HK$’000 405,490 66,118 — 4,295 37,907 168,614 6,300 4,900 449,697 243,927 224,343 498,892 — 1,950 224,343 500,842 288,881 211,903 63,117 — 286,089 780,176 17,421 16,864 655,508 1,008,943 1,329,548 1,753,712 449,697 225,713 1,084,036 1,168,741 245,512 584,971 1,329,548 1,753,712
					243,927
					498,892 1,950
					500,842
					211,903 — 780,176 16,864
					1,008,943
					1,753,712
					225,713
					1,168,741 584,971
					1,753,712

During the year, the directors reviewed the carrying amount of the investments in securities in light of the current market condition with reference to the financial results and business operated by certain investees. The directors identified an impairment loss of HK$35,855,000 (2003: HK$31,740,000) on the investments, estimated by reference to the market values of the investments and the amount has been recognised in the income statement accordingly.

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. LOAN RECEIVABLE

The Group

The receivable is due from a minority shareholder of a subsidiary (the ‘‘MI Shareholder’’). It is secured by the MI Shareholder’s equity interest in the subsidiary and the dividend distribution by the subsidiary. The receivable bears interest at 3.5% per annum and is repayable before October 2006.

26. DEPOSITS PAID ON ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT

The Group

The deposits were paid by the Group in connection with the acquisition of property, plant and equipment for new production facilities.

27. INVENTORIES

Raw materials Work in progress Finished goods Merchandise held for resale	THE GROUP 2004 2003 HK$’000 HK$’000 458,346 184,655 84,230 30,485 202,042 88,360 133,167 — 877,785 303,500	THE GROUP 2004 2003 HK$’000 HK$’000 458,346 184,655 84,230 30,485 202,042 88,360 133,167 — 877,785 303,500
		303,500

The inventories are stated at cost.

During the year, cost of inventories recognised in consolidated income statement amounted to HK$940 million (2003: HK$738 million).

28. TRADE AND OTHER RECEIVABLES

The Group allows credit period ranging from 30 days to 90 days to its trade customers.

Included in trade and other receivables are trade receivables of HK$694,669,000 (2003: HK$405,350,000) and their aged analysis is as follows:

Trade receivables: Within 30 days Within 31–60 days Within 61–90 days Within 91–180 days Within 181–360 days Over 360 days	THE GROUP 2004 2003 HK$’000 HK$’000 330,531 279,082 162,563 46,529 82,419 25,215 56,385 34,795 43,321 17,007 19,450 2,722 694,669 405,350	THE GROUP 2004 2003 HK$’000 HK$’000 330,531 279,082 162,563 46,529 82,419 25,215 56,385 34,795 43,321 17,007 19,450 2,722 694,669 405,350
		405,350

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. PLEDGED BANK DEPOSITS

THE GROUP

At 31st December 2004, bank deposits of HK$43,121,000 (2003: HK$41,762,000) were pledged to banks to secure general banking facilities granted to the Group, an associate and a jointly controlled entity.

30. TRADE AND OTHER PAYABLES

Included in trade and other payables are trade payables of HK$505,911,000 (2003: HK$85,178,000) and their aged analysis is as follows:

Trade payables: Within 30 days Within 31–60 days Within 61–90 days Within 91–180 days Within 181–360 days Over 360 days	THE GROUP 2004 2003 HK$’000 HK$’000 318,942 59,976 85,854 11,442 35,779 5,105 29,036 6,413 25,093 486 11,207 1,756 505,911 85,178	THE GROUP 2004 2003 HK$’000 HK$’000 318,942 59,976 85,854 11,442 35,779 5,105 29,036 6,413 25,093 486 11,207 1,756 505,911 85,178
		85,178

31. SHORT-TERM BANK AND OTHER BORROWINGS

Short-term bank loans Other short-term loans Current portion of long-term bank and other borrowings Analysed as: Secured Unsecured	THE GROUP 2004 2003 HK$’000 HK$’000 1,190,057 808,868 25,228 11,077 25,360 — 1,240,645 819,945 106,105 8,868 1,134,540 811,077 1,240,645 819,945	THE COMPANY 2004 2003 HK$’000 HK$’000 800,000 800,000 — — — — 800,000 800,000 — — 800,000 800,000 800,000 800,000	THE COMPANY 2004 2003 HK$’000 HK$’000 800,000 800,000 — — — — 800,000 800,000 — — 800,000 800,000 800,000 800,000
			800,000
			— 800,000
			800,000

Other short-term loans are unsecured, bear interest at commercial rates and have no fixed repayment terms.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.10 each — at 1st January 2003, 31st December 2003 and 31st December 2004 Issued and fully paid: Ordinary shares of HK$0.10 each — balance at 1st January 2003 — exercise of share options — balance at 31st December 2003 — exercise of share options — balance at 31st December 2004	Number of ordinary shares 2,000,000,000 936,298,000 9,450,000 945,748,000 12,890,000 958,638,000	Amount HK$’000 200,000
		93,630 945
		94,575 1,289
		95,864

33. SHARE OPTION SCHEMES

Details of the share option schemes adopted by members of the Group are as follows:

(a) SIHL Old Scheme

A share option scheme of the Company (the ‘‘SIHL Old Scheme’’) was adopted on 17th May 1996 for the primary purpose of providing incentives to executive directors and eligible employees of the Company or its subsidiaries, and was to expire on 16th May 2006.

Under the SIHL Old Scheme, the Board of Directors of the Company could grant options to eligible employees, including executive directors of the Company and its subsidiaries, to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted. Options granted had to be accepted within 28 days from the date of grant.

Options were exercisable during the three and a half years commencing on the expiry of six months after the date of acceptance of the share options. Under the SIHL Old Scheme, the exercise price was determined by the directors of the Company, and was not to be less than the higher of the nominal value of the Company’s shares and 80% of the average closing price of the Company’s shares for the five business days immediately preceding the date of grant.

Without prior approval from the Company’s shareholders or in other cases, a prior approval from the Stock Exchange, the total number of shares in respect of which options could be granted under the SIHL Old Scheme was not permitted to exceed 10% of the shares of the Company in issue at any point in time.

No employee could be granted an option which, if exercised in full, would result in such employee becoming entitled to subscribe for such number of shares as, when aggregated with the total number of shares already issued under all the options previously granted to him which had been exercised, and, issuable under all the options previously granted to him which were for the time being subsisting and unexercised, would exceed 25% of the aggregate number of shares for the time being issued and issuable under the SIHL Old Scheme.

During the year, all options granted under the SIHL Old Scheme were fully exercised.

At 31st December 2003, the number of shares in respect of which options had been granted under the SIHL Old Scheme and remained outstanding was approximately 0.3% of the shares of the Company in issue at that date.

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Month of grant Exercise price per share HK$ March 2001 10.496 July 2001 10.432 Month of grant Exercise price per share HK$ January 1999 9.568 March 2001 10.496 July 2001 10.432	Outstanding at 1.1.2004 1,550,000 1,500,000 3,050,000 Outstanding at 1.1.2003 1,000,000 6,370,000 5,500,000 12,870,000	Exercised during the year (1,550,000) (1,500,000) (3,050,000) Exercised during the year — (4,820,000) (4,000,000) (8,820,000)	Lapsed during the year — — — Lapsed during the year (1,000,000) — — (1,000,000)	Outstanding at 31.12.2004 — —
				—
				Outstanding at 31.12.2003 — 1,550,000 1,500,000
				3,050,000

Details of the share options held by the directors included in the above table are as follows:

Month of grant Exercise price per share HK$ March 2001 10.496 July 2001 10.432 Month of grant Exercise price per share HK$ March 2001 10.496 July 2001 10.432	Outstanding at 1.1.2004 1,550,000 1,500,000 3,050,000 Outstanding at 1.1.2003 2,050,000 1,500,000 3,550,000	Reclassified during the year (note (i)) (1,550,000) — (1,550,000) Reclassified during the year (note (ii)) (500,000) — (500,000)	Exercised during the year — (1,500,000) (1,500,000) Exercised during the year — — —	Outstanding at 31.12.2004 — —
				—
				Outstanding at 31.12.2003 1,550,000 1,500,000
				3,050,000

Notes:

(i) Mr. Lu Yu Ping resigned as a director of the Company on 12th June 2004 and accordingly, the share options were reclassified to share options held by employees.
(ii) Mr. Gu Wen Xing resigned as a director of the Company on 25th April 2003 and accordingly, the share options were reclassified to share options held by employees.

Options granted under the SIHL Old Scheme were exercisable during the three and a half years commencing on the expiry of six months after the date of acceptance of the share options.

The weighted average closing prices of the Company’s shares on the trading day immediately before the dates on which the options under SIHL Old Scheme were exercised was HK$13.78 (2003: HK$11.40).

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Total consideration received for shares issued upon exercise of share options under the SIHL Old Scheme during the year was approximately HK$31,917,000 (2003: HK$92,319,000).

During the year ended 31st December 2002, the SIHL Old Scheme was terminated. Upon termination of the SIHL Old Scheme, no further options may be offered thereunder.

(b) SIHL New Scheme

The Company has, in accordance with Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange (the ‘‘Listing Rules’’), terminated the SIHL Old Scheme and adopted a new share option scheme (the ‘‘SIHL New Scheme’’), as approved by the shareholders of the Company at the extraordinary general meeting held on 31st May 2002.

According to the SIHL New Scheme, the Board of Directors of the Company may grant options to any director and employee of each member of the Group (including a company in which (i) the Company is directly or indirectly interested in less than 20% of the issued share capital or equity interest or voting rights of such company but is the largest shareholder or the holder of the largest voting rights of such company; or (ii) in the opinion of the Board, the Company is able to exercise significant influence to such company); and any executive or employee of any business consultant, professional and other advisers in each member of the Group, to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted. Share options granted should be accepted within 30 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 the adoption of the SIHL New Scheme. 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 be at least 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 SIHL New Scheme and any other share option schemes of the Company shall not exceed 30% (or such higher percentage as may be allowed under the Listing Rules) 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 SIHL New Scheme and any other option schemes (including both exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue unless approved by the shareholders of the Company.

At 31st December 2004, the number of shares in respect of which options were granted under the SIHL New Scheme and which remained outstanding was approximately 1.7% (2003: 2.8%) of the shares of the Company in issue at that date.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Month of grant Exercise price per share HK$ September 2002 11.71 Month of grant Exercise price per share HK$ September 2002 11.71	Outstanding at 1.1.2004 26,120,000 Outstanding at 1.1.2003 27,150,000	Exercised during the year (9,840,000) Exercised during the year (630,000)	Lapsed during the year — Lapsed during the year (400,000)	Outstanding at 31.12.2004 16,280,000
				Outstanding at 31.12.2003 26,120,000

Details of the share options held by the directors included in the above table are as follows:

Month of grant Exercise price per share HK$ September 2002 11.71	Outstanding at 1.1.2004 —	Exercised during the year —	Reclassified during the year (note) 500,000	Outstanding at 31.12.2004 500,000

Note: Mr. Qu Ding was appointed as a director of the Company on 28th August 2004 and accordingly, the share options were reclassified from share options held by employees.

Options granted under the SIHL New Scheme are exercisable during the three and a half years commencing on the expiry of six months after the date of acceptance of the share options.

The weighted average closing prices of the Company’s shares on the trading day immediately before the dates on which the options under SIHL New Scheme were exercised was HK$14.86 (2003: HK$14.79).

Total consideration received for shares issued upon exercise of share options under the SIHL New Scheme during the year was approximately HK$115,226,000 (2003: HK$7,377,000).

(c) SIIC MedTech Old Scheme

A subsidiary of the Company, SIIC Medical Science and Technology (Group) Limited (‘‘SIIC MedTech’’) adopted a share option scheme (the ‘‘SIIC MedTech Old Scheme’’) on 11th November 1999 for the primary purpose of providing incentives to directors and eligible employees and was to expire on 10th November 2009.

On 15th July 2003, all holders of the 37,800,000 options agreed to surrender their respective rights under the outstanding share options granted to them pursuant to the SIIC MedTech Old Scheme and received HK$0.46 for each option held in SIIC MedTech, except for Mr. Li Wei Da and Mr. Ge Wen Yao who consented to SIIC MedTech cancelling the share options granted to them at no consideration.

(d) SIIC MedTech New Scheme

SIIC MedTech has, in accordance with Chapter 23 of the Rules Governing the Listing of Securities on the Growth Enterprise Market (the ‘‘GEM Listing Rules’’) terminated the SIIC MedTech Old Scheme and adopted a new share option scheme (the ‘‘SIIC MedTech New Scheme’’) at its extraordinary general meeting held on 6th May 2002 and the extraordinary general meeting of the Company held on 31st May 2002.

On 17th September 2003, the operation of the SIIC MedTech New Scheme was terminated.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

No option was ever granted under the SIIC MedTech New Scheme since its adoption.

(e) Mergen Biotech Scheme

A subsidiary of the Company, Mergen Biotech Limited (‘‘Mergen Biotech’’) adopted a share option scheme (the ‘‘Mergen Biotech Scheme’’) on 28th May 2004 for the primary purpose of providing incentives to eligible participants to contribute to Mergen Biotech and to enable Mergen Biotech to recruit and attract highcalibre employees and was to expire on 27th May 2014.

Under the Mergen Biotech Scheme, the Board of Directors of Mergen Biotech (‘‘Mergen Board’’) can grant options to eligible participants, including any director, management, employee (whether full-time or parttime) or business consultant and professional adviser of Mergen Biotech and its subsidiaries, to subscribe for shares in Mergen Biotech for a consideration of HK$1 for each lot of share options granted. Options granted had to be accepted within 30 days from the date of grant.

Options are exercisable during a period to be notified by the Mergen Board to each grantee, such period shall not be more than 10 years from the date upon which the grant of the option. The exercise price was determined by the Mergen Board with reference to the pro forma net asset per share of Mergen Biotech (‘‘Mergen Share’’) as at 31st December 2003 and was not to be less than US$8.22 (or its equivalent in HK$) per Mergen Share. The subscription price of options granted after the Company has contemplated a separate listing of Mergen Biotech on the Main Board or the Growth Enterprise Market of the Stock Exchange or any overseas stock exchange and up to the date of listing of the Mergen Shares shall not be lower than the new issue price of the Mergen Shares on listing. Without to the foregoing, any options granted during the period commencing 6 months before the lodgement of Form A1 (or its equivalent for listing on GEM or any overseas exchange) are subject to the above requirement. The subscription price of any options granted during such period shall be adjusted at the absolute discretion of the Mergen Board to a price not lower than the new issue price of the Mergen Shares on listing.

The maximum number of Mergen Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Mergen Biotech Scheme and other share option scheme(s) of Mergen Biotech shall not exceed 10% of the total number of Mergen Shares in issue from time to time. The total number of shares in respect of which options could be granted under the Mergen Biotech Scheme shall not exceed 10% of the total number of Mergen Shares in issue as at the date of approval of the Mergen Biotech Scheme. No eligible participants under the Mergen Biotech Scheme could be granted an option which would result in the aggregate number of Mergen Shares issued and to be issued upon exercise of the options granted to such participant (including exercised, cancelled and outstanding options) in any 12-month period exceed 1% of the Mergen Shares in issue (the ‘‘Specified Limit’’) unless approved by the shareholders of the Company. On 28th May 2004, the shareholders of the Company approved the granting of an option entitling Mr. Hu Fang to subscribe for 39,000 Mergen Shares which exceeded the Specified Limit, at an exercise price of not less than US$8.22 (or its equivalent in HK$) per Mergen Share.

On 31st December 2004, Mergen Biotech granted options to subscribe for 63,400 Mergen Shares under the Mergen Biotech Scheme to its employees at an exercise price of US$8.22 (or its equivalent in HK$) per Mergen Share. Among which, options to subscribe for 39,000 Mergen Shares were granted to Mr. Hu Fang. The share options can be exercised during the period from 30th June 2005 to 30th May 2014. As at 21st April 2005, the number of shares in respect of which options had been granted under the Mergen Biotech Scheme and remained outstanding was approximately 0.8% of the shares of Mergen Biotech in issue at that date.

The financial impact of share options granted is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recognised in the income statement in respect of the value of options granted in the year. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. RESERVES

THE COMPANY At 1st January 2003 Premium arising on issue of shares Expenses incurred in connection with the issue of shares Profit for the year Dividends paid (note 12) At 31st December 2003 Premium arising on issue of shares Expenses incurred in connection with the issue of shares Profit for the year Dividends paid (note 12) At 31st December 2004	Share premium HK$’000 9,788,241 98,751 (88) — — 9,886,904 145,854 (127) — — 10,032,631	Capital redemption reserve HK$’000 1,071 — — — — 1,071 — — — — 1,071	Capital reserve HK$’000 1,137,728 — — — — 1,137,728 — — — — 1,137,728	Accumulated profits HK$’000 2,994,001 — — 293,364 (451,112) 2,836,253 — — 694,221 (495,067) 3,035,407	Total HK$’000 13,921,041 98,751 (88) 293,364 (451,112) 13,861,956 145,854 (127) 694,221 (495,067) 14,206,837

The Company’s reserve available for distribution to shareholders as at 31st December 2004 represents its accumulated profits of approximately HK$3,035.4 million (2003: HK$2,836.3 million).

The Company’s capital reserve which arose in 1997 upon reduction of share premium as confirmed by the Order of the High Court of Hong Kong was not realised profits and is an undistributable reserve.

35. AMOUNTS DUE TO SUBSIDIARIES

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

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. LONG-TERM BANK AND OTHER BORROWINGS

Secured bank loans Unsecured bank loans Other unsecured loans Less: Amount due within one year included under current liabilities (note 31) Amount due after one year The bank and other borrowings are repayable as follows: Within one year Between one to two years Between two to five years Over five years	THE GROUP 2004 2003 HK$’000 HK$’000 45,040 — 803,236 800,000 36,474 — 884,750 800,000 (25,360) — 859,390 800,000 25,360 — 15,941 — 833,860 800,000 9,589 — 884,750 800,000	THE COMPANY 2004 2003 HK$’000 HK$’000 — — 800,000 800,000 — — 800,000 800,000 — — 800,000 800,000 — — — — 800,000 800,000 — — 800,000 800,000	THE COMPANY 2004 2003 HK$’000 HK$’000 — — 800,000 800,000 — — 800,000 800,000 — — 800,000 800,000 — — — — 800,000 800,000 — — 800,000 800,000
			800,000 —
			800,000
			— — 800,000 —
			800,000

Other borrowings are unsecured, bear interest at commercial rates with fixed repayment terms.

37. DEFERRED TAXATION

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods:

At 1st January 2003 (Credit) charge to income for the year (note 11) Effect of change in tax rate At 31st December 2003 Charge (credit) to income for the year (note 11) Acquired on acquisition of subsidiaries At 31st December 2004	Accelerated tax depreciation HK$’000 80,463 (6,847) 7,571 81,187 20,758 — 101,945	Tax losses HK$’000 (5,000) 369 (469) (5,100) 150 — (4,950)	Other deferred tax liabilities HK$’000 156 1,118 16 1,290 2,104 — 3,394	Other deferred tax assets HK$’000 600 (6,132) 56 (5,476) (2,976) (33,232) (41,684)	Total HK$’000 76,219 (11,492) 7,174
					71,901 20,036 (33,232)
					58,705

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax liabilities Deferred tax assets	2004 HK$’000 91,937 (33,232) 58,705	2003 HK$’000 71,901 —
		71,901

At 31st December 2004, the Group had unused tax losses of HK$142.5 million (2003: HK$1,275.8 million) available for offset against future profits. A deferred tax asset amounting to approximately HK$5.0 million (2003: HK$5.1 million) in respect of tax losses amounted to approximately HK$28.3 million (2003: HK$29.1 million) has been recognised. No deferred tax asset has been recognised in respect of the remaining HK$114.2 million (2003: HK$1,246.7 million) due to the unpredictability of future profit streams. The unrecognised tax losses may be carried forward indefinitely.

During the year, approximately HK$1,158.8 million unused tax losses brought forward from prior years has been disallowed by the Hong Kong Inland Revenue Department as available for off-setting future assessable profits. No deferred tax asset had been recognised on such unused tax losses in prior years. Hence no adjustment on the Group’s deferred taxation is required.

38. ACQUISITION OF SUBSIDIARIES

During the year, the Group acquired the following subsidiaries:

(a) the 55% of registered capital of Liaoning Herbapex Pharmaceutical (Group) Company Limited (‘‘Liaoning Herbapex’’), a sino-foreign equity joint venture company, for a consideration of RMB85,000,000 (equivalent to HK$80,196,000). This acquisition has been accounted for using the acquisition method of accounting. The amount of goodwill arising as a result of this acquisition was HK$29,640,000;
(b) approximately 56.63% of the issued share capital of Shanghai Industrial United Holdings Co., Ltd. (‘‘SI United’’), a company listed on the A Shares Market of the Shanghai Stock Exchange, for a consideration of RMB866,460,988 (equivalent to HK$818,421,000). This acquisition has been accounted for using the acquisition method of accounting. The amount of goodwill arising as a result of this acquisition was HK$100,729,000; and

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) the entire issued share capital of Shen Dong Limited for a consideration of HK$6,483,000. This acquisition has been accounted for using the acquisition method of accounting. The amount of negative goodwill arising as a result of this acquisition was HK$2,212,000.

Net assets acquired: Investment properties Property, plant and equipment Toll road operating right Intangible assets Interest in associates Investments in securities Deferred tax assets Inventories Trade and other receivables Bank balances and cash Trade and other payables Taxation payable Short-term bank and other borrowings Minority interests Long-term bank and other borrowings Goodwill arising on acquisition of subsidiaries Negative goodwill arising on acquisition of a subsidiary Satisfied by: Cash consideration paid Other payables Net outflow of cash and cash equivalents in connection with the acquisition of subsidiaries: Cash paid Bank balances and cash acquired	2004 HK$’000 41,982 625,898 — 39,206 591,998 102,302 33,232 348,058 572,538 514,285 (616,796) (8,001) (372,019) (1,066,466) (29,274) 776,943 130,369 (2,212) 905,100 905,100 — 905,100 (905,100) 514,285 (390,815)	2003 HK$’000 — 38,798 1,841,082 — — 2,422 — 3,304 82,811 9,028 (89,502) (12,956) — — — 1,874,987 37,076 — 1,912,063 1,906,323 5,740 1,912,063 (1,906,323) 9,028 (1,897,295)

The subsidiaries acquired during the year contributed approximately HK$104.3 million (2003: HK$2.1 million) and approximately HK$23.0 million (2003: loss from operations of HK$8.4 million) to the Group’s turnover and profit from operations respectively.

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. DISPOSAL OF A SUBSIDIARY

During the year, the Group disposed of its entire interest in EAS Da Tong International Aircargo Company Limited (‘‘EAS Da Tong’’). The net assets of EAS Da Tong at the date of disposal were as follows:

Net assets disposed of: Property, plant and equipment Interest in associates Investments in securities Inventories Trade and other receivables Taxation recoverable Bank balances and cash Trade and other payables Taxation payable Short-term borrowings Minority interests Unamortised goodwill Goodwill previously written off against reserves Translation reserve realised Gain on disposal of interest in a subsidiary Satisfied by: Cash consideration received Other receivables Net inflow of cash and cash equivalents in connection with the disposal of a subsidiary: Cash received Bank balances and cash disposed of	2004 HK$’000 — 199,671 — — — 44 — (44) — — — 199,671 16,345 — (286) 215,730 3,603 219,333 198,396 20,937 219,333 198,396 — 198,396	2003 HK$’000 29,086 58,343 534 34,349 6,984 — 171,648 (184,911) (5,815) (3,271) (20,205) 86,742 — 56,428 (38) 143,132 29,869 173,001 173,001 — 173,001 173,001 (171,648) 1,353

The subsidiary disposed of during the year did not have any significant contribution to the Group’s turnover and results for the year.

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. OPERATING LEASE ARRANGEMENTS

The Group as lessee

At the balance sheet date, the Group and the Company had commitments under non-cancellable operating leases for land and buildings which fall due as follows:

Within one year In the second to fifth year inclusive After five years	THE GROUP 2004 2003 HK$’000 HK$’000 32,530 25,758 78,279 83,835 101,638 170,000 212,447 279,593	THE COMPANY 2004 2003 HK$’000 HK$’000 2,981 2,155 67 10 — — 3,048 2,165	THE COMPANY 2004 2003 HK$’000 HK$’000 2,981 2,155 67 10 — — 3,048 2,165
			2,165

Operating lease payments represent rental payable by the Group and the Company for certain office and factory properties. Leases are negotiated for an average term of 20 years and rentals are fixed for an average term of 1 to 2 years.

Included in the above are operating lease commitments for land and buildings of approximately HK$171 million (2003: HK$276 million) and approximately HK$3.1 million (2003: HK$2.2 million) payable by the Group and the Company respectively to the ultimate holding company and fellow subsidiaries.

The Group as lessor

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	THE GROUP Land and buildings Plant and machinery 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 1,707 693 2,151 2,151 849 725 — 2,151 2,556 1,418 2,151 4,302	THE GROUP Land and buildings Plant and machinery 2004 2003 2004 2003 HK$’000 HK$’000 HK$’000 HK$’000 1,707 693 2,151 2,151 849 725 — 2,151 2,556 1,418 2,151 4,302
		4,302

The properties have committed tenants of 1 to 2 years.

The Company had no significant operating lease arrangements at the balance sheet date.

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

41. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the financial statements in respect of — investment in Jinhua Jinyong Expressway Construction and Investment Co., Ltd. (‘‘Jinyong’’) — investments in PRC jointly controlled entities — acquisition of property, plant and equipment — additions in construction in progress — investment in securities — investment in SI United Capital expenditure authorised but not contracted for in respect of — investments in PRC subsidiaries and associates — acquisition of property, plant and equipment	THE GROUP 2004 2003 HK$’000 HK$’000 267,170 — 40,410 185,962 126,096 255,364 7,328 16,074 312 312 — 817,416 441,316 1,275,128 157,931 — 64,721 — 222,652 —	THE GROUP 2004 2003 HK$’000 HK$’000 267,170 — 40,410 185,962 126,096 255,364 7,328 16,074 312 312 — 817,416 441,316 1,275,128 157,931 — 64,721 — 222,652 —
		1,275,128
		— —
		—

In addition to the above, the Group’s share of capital commitments of the jointly controlled entities are as follows:

Capital expenditure contracted for but not provided in the financial statements in respect of — investments in PRC subsidiaries and jointly controlled entities — acquisition of property, plant and equipment Capital expenditure authorised but not contracted for in respect of — acquisition of property, plant and equipment	THE GROUP 2004 2003 HK$’000 HK$’000 432,656 8,369 68,057 14,984 500,713 23,353 125,704 —	THE GROUP 2004 2003 HK$’000 HK$’000 432,656 8,369 68,057 14,984 500,713 23,353 125,704 —
		23,353
		—

The Company had no significant capital commitment at the balance sheet date.

At 31st December 2004, included in the bank balances and cash was a bank deposit of approximately HK$75.5 million (2003: nil) designated as a security deposit for the committed investment in Jinyong.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. CONTINGENT LIABILITIES

Guarantees given to banks in respect of banking facilities utilised by — associates — a supplier — connected persons — outsiders (note)	THE GROUP 2004 2003 HK$’000 HK$’000 18,000 78,038 1,887 1,887 50,471 — 33,019 — 103,377 79,925	THE COMPANY 2004 2003 HK$’000 HK$’000 — 47,170 — — — — — — — 47,170	THE COMPANY 2004 2003 HK$’000 HK$’000 — 47,170 — — — — — — — 47,170
			47,170

Details of contingent liabilities given by the Group to connected persons are set out in note 45 (I)(c).

Note: The guarantees were subsequently released on 18th April 2005.

43. PLEDGE OF ASSETS

At 31st December 2004, the following assets were pledged by the Group to banks in order to secure general banking facilities granted by these banks to the Group:

(i) plant and machinery with a net book value of approximately HK$65.4 million (2003: HK$6.4 million);
(ii) leasehold land and buildings with a net book value of approximately HK$6.3 million (2003: HK$8.9 million);
(iii) bank deposits of approximately HK$3.8 million (2003: HK$2.7 million);
(iv) motor vehicles with a net book value of approximately HK$1 million (2003: nil); and
(v) construction in progress with a net book value of approximately HK$5.3 million (2003: nil).

In addition, at 31st December 2004, certain of the Group’s plant and machinery with a net book value of HK$2,400,000 (2003: HK$2,600,000) were pledged to an independent third party which provided a guarantee to a bank in respect of a bank loan granted to the Group.

At 31st December 2004, the Group had bank deposits of approximately HK$28.9 million (2003: HK$28.8 million) and approximately HK$10.4 million (2003: HK$10.3 million) pledged to banks in respect of banking facilities granted to an associate and a jointly controlled entity respectively.

44. RETIREMENT BENEFITS SCHEMES

The Company and its subsidiaries in Hong Kong operate defined contribution retirement benefits scheme for their qualifying employees pursuant to the Occupational Retirement Schemes Ordinance. To comply with the Mandatory Provident Fund Schemes Ordinance (the ‘‘MPFO’’), a Mandatory Provident Fund Scheme (the ‘‘MPF Scheme’’) was also established. New employees joined on or after 1st December 2000, however, must join the MPF Scheme. The assets of both schemes are held separately in funds which are under the control of independent trustees. The retirement benefits schemes contributions charged to the income statement represent contributions payable by the Company and its subsidiaries in Hong Kong to the funds at rates specified in the rules of the schemes. When there are employees who leave the defined contribution retirement benefits 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 and its subsidiaries in Hong Kong.

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

At the balance sheet date, no forfeited contributions are available to reduce the contribution payable in the future years.

45. CONNECTED AND RELATED PARTY TRANSACTIONS AND BALANCES

(I) Connected persons

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

						THE GROUP	THE GROUP
Connected persons					Nature of transaction	2004	2003
						HK$’000	HK$’000
Transactions
Ultimate holding company:
Shanghai Industrial Investment					Rentals paid on land and buildings	5,174	6,301
(Holdings)			Company Limited		(note (i))
Fellow subsidiaries:
City Note	Holdings			Limited	Acquisition of interest in a	—	277,970
(‘‘City Note’’)					subsidiary (note (ii))
Nanyang Enterprises				Limited	Acquisition of interest in a	—	17,389
(‘‘NEL’’)					subsidiary (note (iii))
Nanyang Enterprises				Properties	Rentals paid on land and buildings	13,020	13,800
Limited	(‘‘NPL’’)				(note (i))
					Acquisition of interest in a	—	2,096
					subsidiary (note (iii))
The Tien Chu (HK)				Co. Ltd.	Rentals paid on land and buildings	840	140
					(note (i))
					Purchase of materials (note (iv))	237	145
					Printing services income (note (iv)) Rentals paid on land and buildings	286 2,997	284 2,974
(SIIC Shanghai Holdings Co.,					(note (i))
Ltd.) (‘‘SIIC Shanghai’’)					Acquisition of interest in a	—	322,445
					subsidiary (note (ii))
					Consultancy fee (note (iv))	—	4,103
Directors of		subsidiaries:
Chen Shu	Zi				Acquisition of interest in a	—	1,840
					subsidiary (note (iii))
Feng Gen	Sheng				Acquisition of interest in a	—	2,760
					subsidiary (note (iii))

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

==> picture [359 x 593] intentionally omitted <==

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

|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|THE|GROUP|
|Connected|persons|Nature|of|transaction|2004|2003|
|HK$’000|HK$’000|
|Shen|Wei|Jia|Acquisition|of|interest|in|a|—|484|
|subsidiary|(note|(iii))|
|Wu|Jian|Zhuang|Acquisition|of|interest|in|a|—|1,150|
|subsidiary|(note|(iii))|
|Minority|shareholders|of|
|subsidiaries:|
|Sales|of|finished|medicine|and|61|62|
|(China|(Hangzhou)|Qingchunbao|health|products|(note|(vi))|
|Group|Co.|Ltd.)|Purchase|of|raw|materials|(note|(iv))|—|213|
|(‘‘China|Qingchunbao’’)|and|
|its|subsidiaries|
|Shanghai|Yibai|(Holdings)|Disposal|of|interest|in|a|subsidiary|—|119,941|
|Company|Ltd.|(note|(vii))|
|(‘‘Shanghai|Yibai’’)|
|Sales|of|cigarette|box|packaging|22,198|—|
|materials|(note|(vi))|
|Interest|paid|(note|(v))|136|127|
|Fellow|subsidiary|of|a|minority|
|shareholder|of|a|subsidiary:|
|Sales|of|medicine|products|(note|7,098|—|
|(vi))|
|Balances|
|Minority|shareholders|of|
|subsidiaries:|
|China|Qingchunbao|and|its|Balance|at|31st|December|
|subsidiaries|—|trade|receivables|331|249|
|—|trade|payables|750|750|
|—|dividend|payable|—|1,203|
|Balance|at|31st|December|
|—|loan|payable|(note|(v))|1,887|1,887|
|Cyber|Care|Inc.|Balance|at|31st|December|
|—|non-trade|receivables|(note|—|1,328|
|(viii))|
|Balance|at|31st|December|
|(Dinglu|Industrial|Co.)|and|its|—|non-trade|payables|(note|(viii))|—|1,608|
|subsidiaries|
|Balance|at|31st|December|
|—|trade|receivables|3,774|—|

----- End of picture text -----

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			THE GROUP	THE GROUP
Connected persons		Nature of transaction	2004	2003
			HK$’000	HK$’000
Fellow subsidiary of a minority
shareholder of	a subsidiary:
		Balance at 31st December — deposits received in advance	486	—

Notes:

(i) The rentals were charged in accordance with the relevant tenancy agreements and the prevailing rent was equivalent or approximate to the open market rentals as certified by an independent firm of professional property valuers when the tenancy agreements were entered into.
(ii) On 21st May 2003, Shanghai Industrial YKB Limited, a wholly-owned subsidiary of the Group, entered into an acquisition agreement with a number of vendors to acquire the nonpublicly tradable shares of SI United, representing an aggregate of approximately 56.63% of the issued share capital of SI United, as to which 19.26% and 22.34% is to be acquired from City Note and SIIC Shanghai respectively. The consideration payable to City Note and SIIC Shanghai amounted to approximately HK$277,970,000 and HK$322,445,000 respectively. The acquisition was completed in December 2004. Details of this acquisition were included in a published announcement of the Company on the same date.
(iii) In 2003, the Group completed the privatisation of SIIC MedTech. The payments to NEL, NPL and certain directors of SIIC MedTech, in consideration for the cancellation of their interests in SIIC MedTech, were in accordance with the price as stated in the document issued by the Company on 18th July 2003.
(iv) The terms of these transactions were determined and agreed by both parties.
(v) The loan is unsecured, bears interest at commercial rates and has no fixed repayment terms.
(vi) These transactions were carried out at market prices or, where no market price was available, at cost plus a percentage of profit mark-up.
(vii) On 7th May 2003, S.I. Commerce Holdings Limited, a wholly-owned subsidiary of the Group entered into an agreement, with Shanghai Yibai to dispose of all its 51% interest in Shanghai Orient to Shanghai Yibai, at a cash consideration of RMB127,137,000 (approximately HK$119,941,000). Details of this disposal were included in a published announcement of the Company on 9th May 2003.
(viii) The amount was unsecured, non-interest bearing and fully repaid during the year.
(b) Details of operating lease commitments with connected parties are set out in note 40.

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) At 31st December 2004, the Group has given guarantees amounting to approximately HK$50 million to various banks in respect of credit facilities granted to the following fellow subsidiaries:

Co.,	Ltd.)		(Shanghai United Weaving Co., Ltd.) (Shanghai United Knitting Products	2004 HK$’000 12,736 32,075 5,660 50,471	2003 HK$’000 — — —
					—

The guarantees were subsequently released on 30th March 2005.

(II) Related parties, other than connected persons

(a) The significant transactions with related parties, other than connected persons, during the year, and significant balances with them at the balance sheet date, are as follows:

				THE GROUP	THE GROUP
Related parties			Nature of transaction	2004	2003
				HK$’000	HK$’000
Transactions
Jointly controlled entities:
Daily Wealth	Investments		Purchase of finished goods (note	—	216
Limited			(ii))
			Material cost received (note (ii))	—	94
Dragon Wealth Assets Limited Service income (note (i))				—	415
Mergen Holdings Ltd.			Acquisition of interest in	—	27,300
			subsidiaries (note (iii))
			Sales of finished goods (note (ii))	4,700	12,502
(E-COM Technology Limited)
			Interest income received (note (x))	620	—
(Hebei Yongxin		Paper Co., Ltd.)
(Guangdong Biolight Medical Sales of goods (note (ii))				114	—
Technology	Co. Ltd.)
Associates:
			Collection on behalf	—	17,608
(Shanghai Shen		Yong Stamping Payment on behalf		—	17,452
Foil Co., Ltd.)			Repayment of advance	—	9,434
			Purchase of materials (note (ii))	1,392	5,274
			Interest paid (note (iv))	1,109	354
			Printing services income (note (ii))	8,020	6,719
(Zhejiang Tianwai Printing Co.,
Ltd.)

— 76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

==> picture [359 x 622] intentionally omitted <==

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|THE|GROUP|
|Related|parties|Nature|of|transaction|2004|2003|
|HK$’000|HK$’000|
|Printing|services|income|(note|(ii))|1,651|2,784|
|Interest|income|received|(note|(ix))|534|48|
|(Chengdu|Jiuxing|Printing|and|
|Packing|Co.,|Ltd.)|
|Proceeds|from|disposal|of|interest|in|—|7,475|
|(Xian|Global|Printing|Co.,|Ltd.)|an|associate|(note|(i))|
|Sales|of|materials|(note|(ii))|10,175|2,051|
|EAS|International|Transportation|Interest|income|received|(note|(v))|—|1,003|
|Limited|
|Interest|paid|(note|(xi))|628|—|
|(Xian|Wing|Fat|Packing|Co.,|
|Ltd.)|
|Balances|
|Jointly|controlled|entities:|
|Mergen|Holdings|Ltd.|Balance|at|31st|December|
|—|long-term|receivable|(net|of|—|33,375|
|allowance|of|HK$33,376,000|
|(2003:|HK$67,337,000)|(note|
|(viii))|
|Balance|at|31st|December|
|(E-COM|Technology|Limited)|—|trade|receivable|(net|of|—|13,860|
|allowance|of|HK$14,800,000|
|(2003:|nil))|
|Balance|at|31st|December|
|(Hangzhou|Huqingyutang|—|non-trade|receivable|(note|2,358|2,358|
|Drugstore|Co.,|Ltd.)|(vi))|
|—|non-trade|payable|(note|(vii))|—|649|
|Balance|at|31st|December|
|(Hebei|Yongxin|Paper|Co.,|Ltd.)|—|short-term|loan|receivable|38,512|9,434|
|(note|(x))|
|Balance|at|31st|December|
|(Guangdong|Biolight|Medical|—|non-trade|payable|(note|(vii))|—|102|
|Technology|Co.|Ltd.)|
|Associates:|
|Balance|at|31st|December|
|(Shanghai|Jahwa|United|Co.|—|short-term|loan|receivable|3,000|3,000|
|Ltd.)|(‘‘Shanghai|Jahwa’’)|(note|(viii))|
|—|non-trade|receivable|(note|—|2,264|
|(vii))|

----- End of picture text -----

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Related parties
Nature of transaction
(Shanghai Shen Yong Stamping
Foil Co., Ltd.)
Balance at 31st December
— trade payable
(Zhejiang Tianwai Printing Co.,
Ltd.)
Balance at 31st December
— trade receivable
Balance at 31st December
— trade receivable
— non-trade receivable (note
(vi))
(Chengdu Jiuxing Printing and
Packing Co., Ltd.)
Balance at 31st December
— short-term loan receivable
(note (ix))
Balance at 31st December
— trade receivable
(Xian Wing Fat Packing Co.,
Ltd.)
Balance at 31st December
— other short-term loan (note
(xi))
— non-trade receivable (note
(vii))
(Xian Global Printing Co., Ltd.)
Balance at 31st December
— non-trade receivable (note
(vii))

THE GROUP
2004
2003
HK$’000
HK$’000
1,134
1,025
180
2,476
145
429
1,202
—
29,972
9,434
3,680
1,814
30,700
—
—
7,477
—
990

Notes:

(i) These transactions were carried out in accordance with the terms of the agreement entered into between the relevant parties.
(ii) These transactions were carried out at market prices or, where no market price was available, at cost plus a percentage of profit mark-up.
(iii) On 14th October 2003, S.I. Pharmaceutical Holdings Limited, a wholly-owned subsidiary of the Group, agreed to purchase from Mergen Holdings Ltd. all the issued share capital of Mergen Biotech Limited and Mergen BioMedicine Limited at a total consideration of HK$27,300,000.
(iv) The interest was charged at 5% per annum.
(v) The interest was charged at commercial rates.
(vi) The amount is unsecured, non-interest bearing and has no fixed repayment terms.
(vii) The amount was unsecured, non-interest bearing and fully repaid during the year.
(viii) The loan is unsecured, bears interest at commercial rates and has no fixed repayment terms.
(ix) The loan is unsecured, bears interest at 5.31% per annum and has no fixed repayment terms.

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(x) Except for an amount of HK$33,019,000 (2003: HK$9,434,000) bears interest at 5% per annum, the remaining balance (2003: nil) bears interest at 5.4% per annum. The loan has no fixed repayment terms. An amount of HK$5,755,000 is secured by the equity interest in the jointly controlled entity held by the remaining shareholders.
(xi) The loan is unsecured, bears interest at 3 months HIBOR plus 2.5% per annum with fixed repayment terms.
(b) Detail of guarantees and pledged assets given by the Group to related parties are set out in notes 42 and 43 respectively.

46. GOVERNMENT GRANTS

During the year, the Group received a government subsidy of approximately HK$5,321,000 (2003: HK$14,151,000) towards the cost of acquisition of plant and machinery. The amount has been deducted from the carrying amount of the relevant assets. The amount is transferred to income in the form of reduced depreciation charges over the useful lives of the relevant assets. This policy has reduced the depreciation charges in the current year of approximately HK$1,415,000 (2003: HK$755,000).

47. PRINCIPAL SUBSIDIARIES

Particulars of the Company’s principal subsidiaries at 31st December 2004 are as follows:

							Percentage of
							issued/
					Place of		registered
					incorporation or	Nominal value of issued	capital held by
					establishment/	and fully paid share	the Company/
Name of subsidiary					operations	capital/registered capital	subsidiaries	Principal activities
					PRC	RMB128,500,000	55%	Manufacture and sale
(Chia Tai Qingchunbao								of Chinese
Pharmaceutical				Co., Ltd.)				medicine and
(note	(i))							health food
					PRC	RMB2,000,000,000	100%	Holding of a right to
								operate a toll road
(Shanghai Hu-Ning
Expressway (Shanghai
Section)		Company
Limited)		(note		(ii))
S.I. Infrastructure				Holdings British Virgin Islands/		US$1	100%	Investment holding
Limited					Hong Kong
SIHL Treasury Limited Hong Kong						Ordinary shares	100%	Investment
						— HK$2
SIIC MedTech					Cayman Islands/Hong	Ordinary shares	100%	Investment holding
					Kong	— HK$40,893,400
Nanyang	Tobacco			(Marketing) British Virgin Islands/		Ordinary shares	100%	Sale and marketing of
Company,			Limited PRC and Macau			— US$1		cigarettes and raw
						— HK$100,000,400		materials sourcing
Nanyang	Brothers			Tobacco Hong Kong		Ordinary shares	100%	Manufacture and sale
Company,			Limited			— HK$2		of cigarettes
						Non-voting deferred shares	—
						— HK$8,000,000

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

										Percentage of
										issued/
								Place of		registered
								incorporation or	Nominal value of issued	capital held by
								establishment/	and fully paid share	the Company/
Name of subsidiary								operations	capital/registered capital	subsidiaries	Principal activities
The		Wing		Fat Printing				Hong Kong	Ordinary shares	93.3%	Manufacture and sale
	Company,				Limited				— HK$2,000,000		of packaging
											materials and
											printed products
									Non-voting deferred shares	—
									— HK$1,829,510
SI	United			(note		(iii))		PRC	Ordinary shares	56.63%	Manufacture and sale
									— RMB306,512,351		of biomedicine and
											commercial
											network operations
								PRC	RMB47,830,000	56%	Manufacture and sale
(Xiamen			Traditional Chinese								of Chinese
	Medicine Co., Ltd.										medicine
	(‘‘Xiamen				TCM’’)
	(note		(i))					PRC	RMB51,000,000	55%	Manufacture and sale of Chinese
(‘‘Liaoning Herbapex’’) (note											medicine
	(i))
								PRC	US$15,343,300	70.4%	Manufacture and sale
(Shanghai				Sunway			Biotech				of biomedicine
	Co., Ltd.)				(note		(i))

Notes:

(i) The company was established in the PRC as a sino-foreign equity joint venture company.
(ii) The company was established in the PRC as a wholly foreign owned enterprise.
(iii) The company is a company listed on the A share market of the Shanghai Stock Exchange.

With the exception of S. I. Infrastructure Holdings Limited and SIHL Treasury Limited, all the above subsidiaries are indirectly held by the Company.

None of the deferred shares are held by the Group. The deferred shares carry no rights to receive notice of or to attend or vote at any general meeting of the respective companies and have practically no rights to dividends or to participate in any distributions on winding up.

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

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the year.

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

48. PRINCIPAL JOINTLY CONTROLLED ENTITIES

Particulars of the Group’s principal jointly controlled entities at 31st December 2004 are as follows:

				Place of	Percentage of
				incorporation or	registered capital
				establishment/	attributable to
Name of jointly controlled entity operations					the Group	Principal activities
				PRC	50%	Manufacture and sale of vehicles,
(Shanghai Huizhong			Automotive			automobile components and
Manufacturing Company Limited)						spare parts
(‘‘Shanghai Huizhong’’) PRC					20%	Development of communication
(Shanghai Information				Investment		infrastructure and cable
Inc.)						network and provision of
						internet-related services
				PRC	48%	Manufacture and sale of
(Shanghai Sunve Pharmaceutical Co.,						pharmaceutical products
Ltd.)
				PRC	50%	Manufacture and sale of
(Shanghai Wanzhong Automotive						automobile components and
Components	Co.,		Ltd.) PRC		50%	spare parts Joint investment and operation of
(General Water		of China Co., Ltd.)				water-related and environment
						protection business in the PRC

All the above jointly controlled entities are indirectly held by the Company.

The above table lists the jointly controlled entities of the Group which, in the opinion of the directors, principally affected the results or net assets of the Group. To give details of other jointly controlled entities would, in the opinion of the directors, result in particulars of excessive length.

A summary of the financial information of Shanghai Huizhong, the major jointly controlled entity of the Group, is set out in note 49.

49. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP’S MAJOR JOINTLY CONTROLLED ENTITY

The following is a summary of the financial information extracted from the audited financial statements of Shanghai Huizhong for the year ended 31st December 2004:

Consolidated results for the year ended 31st December:

Turnover Profit for the year Profit attributable to the Group	2004 HK$’000 5,436,631 134,599 67,300	2003 HK$’000 5,624,644
		209,358
		104,679

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated financial position as at 31st December:

==> picture [410 x 118] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|2004|2003|
|HK$’000|HK$’000|
|Non-current|assets|1,414,366|1,201,861|
|Current|assets|2,210,464|2,066,652|
|Current|liabilities|(1,476,475)|(1,071,971)|
|Minority|interests|(369)|—|
|Net|assets|2,147,986|2,196,542|
|Net|assets|attributable|to|the|Group|1,073,993|1,098,271|

----- End of picture text -----

50. PRINCIPAL ASSOCIATES

Particulars of the Group’s principal associates at 31st December 2004 and which are all sino-foreign equity joint venture companies established in the PRC are as follows:

==> picture [407 x 260] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Percentage|of|registered|capital|
|held|by|the|attributable|
|Name|of|associate|subsidiaries|to|the|Group|Principal|activities|
|SMIC|9.95%|9.95%|Investment|holding|and|manufacture|
|and|marketing|of|advanced|
|technology|semiconductors|
|30.8%|30.8%|Manufacture,|distribution|and|sale|of|
|(Bright|Dairy|and|Food|Co.,|Ltd.)|dairy|and|related|products|
|(‘‘Bright|Dairy’’)|
|Shanghai|Jahwa|28.15%|28.15%|Manufacture,|distribution|and|sale|of|
|personal|care|and|cosmetics|
|products|
|30%|30%|Manufacture|and|sale|of|Chinese|
|(Hangzhou|Huqingyutang|medicine|and|health|products|
|Pharmaceutical|Company|
|Limited)|
|30%|30%|Manufacture,|distribution|and|sale|of|
|(Shanghai|SIIC|Transportation|automobile|components|
|Electric|Co.,|Ltd.)|

----- End of picture text -----

All the above associates are indirectly held by the Company.

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results or net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

A summary of the financial information of SMIC and Bright Dairy, the major associates of the Group, is set out in note 51.

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

51. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP’S MAJOR ASSOCIATES

The following is a summary of the financial information extracted from the audited financial statements of SMIC and Bright Dairy for the year ended 31st December 2004:

Consolidated results for the year ended 31st December:

Turnover Profit (loss) for the year Profit (loss) attributable to the Group	SMIC 2004 2003 HK$’000 HK$’000 7,602,385 2,853,423 700,010 (515,927) 75,635 (85,580)	Bright Dairy 2004 2003 HK$’000 HK$’000 6,385,922 5,630,439 299,975 266,474 92,392 82,074	Bright Dairy 2004 2003 HK$’000 HK$’000 6,385,922 5,630,439 299,975 266,474 92,392 82,074
			266,474
			82,074

Consolidated financial position as at 31st December:

Non-current assets Current assets Current liabilities Non-current liabilities Minority interests Net assets Net assets attributable to the Group	SMIC 2004 2003 HK$’000 HK$’000 26,748,142 13,658,351 7,452,259 5,310,880 (5,696,570) (2,538,359) (4,246,804) (3,743,692) — — 24,257,027 12,687,180 2,413,574 1,700,082	Bright Dairy 2004 2003 HK$’000 HK$’000 1,685,222 1,646,550 1,679,973 1,618,388 (1,113,180) (1,174,579) (142,303) (167,058) (175,578) (167,397) 1,934,134 1,755,904 595,713 540,818	Bright Dairy 2004 2003 HK$’000 HK$’000 1,685,222 1,646,550 1,679,973 1,618,388 (1,113,180) (1,174,579) (142,303) (167,058) (175,578) (167,397) 1,934,134 1,755,904 595,713 540,818
			1,755,904
			540,818

52. POST BALANCE SHEET EVENTS

The following significant events took place after the balance sheet date:

(a) On 17th January 2005, SIIC MedTech Health Products Limited (‘‘Health Products’’), a wholly-owned subsidiary of the Group, and Kong Hee Enterprises Limited (‘‘Kong Hee’’), entered into a share transfer agreement, pursuant to which Health Products acquired a further 5% interest in Xiamen TCM from Kong Hee at a consideration of HK$11,450,000, payable in cash.

Kong Hee is a company wholly-owned by Mr. Hui Wang Chuen and his associate. As Mr. Hui Wang Chuen is a director of Xiamen TCM, he is a connected person of the Company. Hence, Kong Hee is also deemed as a connected person of the Company. Pursuant to the Listing Rules, the acquisition constitutes a connected transaction of the Company and falls within Rule 14A.32 of the Listing Rules.

The transaction was completed in February 2005. Details of this acquisition were included in a published announcement of the Company on 17th January 2005.

(b) In March 2005, the Group acquired a 30% interest in an associate — Jinyong, for a cash consideration of approximately HK$267 million. The associate holds the right to receive toll fees from vehicles using the Jinhua Section of the Yongjin Expressway and to operate service facilities in designated areas along the Jinhua Section for a period of 28 years.

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

53. SEGMENT INFORMATION

For management purposes, the Group is currently organised into four operating businesses — infrastructure facilities, medicine, consumer products and information technology. These businesses are the basis on which the Group reports its primary segment information.

Principal businesses are as follows:

Infrastructure facilities — investment in toll road projects and water-related business

Medicine — manufacture and sale of Chinese medicine and health food; biotechnology development Consumer products — manufacture and sale of cigarettes, packaging materials, printed products, dairy products, commercial vehicles, automobile components and spare parts Information technology — development of communication infrastructure and information technology business

Segment information about these businesses is presented below:

2004 Income statement: External sales Segment results Net unallocated corporate expenses Profit from operations Finance costs Net gain on disposal of interests in subsidiaries, associates and jointly controlled entities Share of results of jointly controlled entities Share of results of associates Allowance for amount due from a jointly controlled entity Impairment losses recognised in respect of interests in an associate and jointly controlled entities and goodwill relating to a subsidiary Profit from ordinary activities before taxation Taxation Profit from ordinary activities after taxation	Infrastructure facilities HK$’000 189,208 145,880 1,887 2,590	Medicine HK$’000 1,283,622 253,986 17,826 9,347	Consumer products HK$’000 1,956,109 504,737 65,371 198,809	Information technology HK$’000 — 66,497 9,367 73,983	Consolidated HK$’000 3,428,939 971,100 (67,830) 903,270 (19,317) 698,523 94,451 284,729 (33,376) (191,232) 1,737,048 (231,979) 1,505,069

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2004 Infrastructure facilities Medicine Consumer products Information technology Unallocated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance sheet: ASSETS Segment assets 2,497,861 3,701,417 2,779,111 465,135 — Interest in jointly controlled entities 301,120 161,494 1,312,279 367,916 — Interest in associates 11,015 292,621 1,628,528 2,434,993 — Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 17,323 861,530 453,041 — — Unallocated corporate liabilities Consolidated total liabilities Other information: Capital additions 2,466 912,505 311,448 — 2,319 Depreciation and amortisation 43,392 38,652 93,984 — 3,099 Impairment losses on investments in other projects and investments in securities — — — — 72,532 Allowance on doubtful debts and bad debts written off — 641 3,694 — 14,800 Loss on disposal of property, plant and equipment — 1,264 3,170 — —	Consolidated HK$’000 9,443,524 2,142,809 4,367,157 4,656,391
	20,609,881
	1,331,894 2,183,740
	3,515,634
	1,228,738 179,127 72,532 19,135 4,434

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2003 Income statement: External sales Segment results Net unallocated corporate income Profit from operations Finance costs Net gain on disposal of interests in subsidiaries, associates and jointly controlled entities Share of results of jointly controlled entities Share of results of associates Allowance for amount due from a jointly controlled entity Profit from ordinary activities before taxation Taxation Profit from ordinary activities after taxation	Infrastructure facilities HK$’000 283,019 281,299 444 26,295	Medicine HK$’000 1,127,892 288,772 35,804 7,184	Consumer products HK$’000 1,415,067 336,843 124,580 217,215	Information technology HK$’000 — 179,586 11,807 (89,157)	Consolidated HK$’000 2,825,978 1,086,500 46,261 1,132,761 (31,001) 278,059 172,635 161,537 (67,337) 1,646,654 (241,904) 1,404,750

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2003 Infrastructure facilities Medicine Consumer products Information technology Unallocated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance sheet: ASSETS Segment assets 2,516,851 1,249,788 2,421,178 436,911 — Interest in jointly controlled entities 300,929 180,195 1,200,651 451,576 — Interest in associates 209,905 88,467 1,173,738 1,738,541 — Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 15,017 166,011 124,414 5,726 — Unallocated corporate liabilities Consolidated total liabilities Other information: Capital additions 1,841,082 319,182 98,495 31 1,090 Depreciation and amortisation 1,927 21,893 87,714 343 3,606 Impairment losses on investments in other projects and investments in securities — — — 540 34,431 Allowance on doubtful debts and bad debts written off — 9,205 1,121 — — Loss on disposal of property, plant and equipment — 3,526 2,826 — (86)	Consolidated HK$’000 6,624,728 2,133,351 3,210,651 5,106,724
	17,075,454
	311,168 1,892,512
	2,203,680
	2,259,880 115,483 34,971 10,326 6,266

Geographical segments

The following table provides an analysis of the Group’s sales and contribution to profit from operations by geographical market, irrespective of the origin of the goods and services.

PRC Asia Hong Kong Other areas Net unallocated corporate (expenses) income Profit from operations	Sales revenue by geographical market 2004 2003 HK$’000 HK$’000 1,943,374 1,768,201 1,259,255 661,553 186,332 169,343 39,978 226,881 3,428,939 2,825,978	Contribution to profit from operations 2004 2003 HK$’000 HK$’000 573,620 836,042 283,039 133,726 103,686 68,450 10,755 48,282 971,100 1,086,500 (67,830) 46,261 903,270 1,132,761	Contribution to profit from operations 2004 2003 HK$’000 HK$’000 573,620 836,042 283,039 133,726 103,686 68,450 10,755 48,282 971,100 1,086,500 (67,830) 46,261 903,270 1,132,761
			1,086,500 46,261
			1,132,761

— 87 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located:

Geographical region PRC Asia Hong Kong Other areas	Carrying amount of segment assets 2004 2003 HK$’000 HK$’000 13,894,116 9,981,894 24,900 22,991 6,365,700 6,285,946 325,165 784,623 20,609,881 17,075,454	Additions to property, plant and equipment and intangible assets 2004 2003 HK$’000 HK$’000 991,257 2,210,084 — — 237,481 49,796 — — 1,228,738 2,259,880	Additions to property, plant and equipment and intangible assets 2004 2003 HK$’000 HK$’000 991,257 2,210,084 — — 237,481 49,796 — — 1,228,738 2,259,880
			2,259,880

— 88 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION
(A) Unaudited Pro Forma Statement of Assets and Liabilities of the Group after Completion

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group, assuming that the Asset Swap had been completed as at 31st December 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 has been prepared based on the audited consolidated balance sheet of the Group as at 31st December 2004 as extracted from the annual report of the Company for the year ended 31st December 2004 and the unaudited management accounts as at 31st December 2004 under the Asset Swap Agreement and adjusted for the transaction resulting from the Asset Swap.

The unaudited pro forma statement of assets and liabilities is prepared to provide financial information of the Group as a result of the completion of the Asset Swap. As it is prepared for illustrative purpose only, it may not purport to present what the assets and liabilities of the Group are on the completion of the Asset Swap or on any other date.

Non-current assets Investment properties Property, plant and equipment Toll road operating right Intangible assets Goodwill Negative goodwill Interest in jointly controlled entities Interest in associates Investments in other projects Investments in securities Loan receivable Deposits paid on acquisition of property, plant and equipment Deferred tax assets	As at 31st December 2004 The Group Adjustments Pro Forma (Audited) (Unaudited) HK$’000 HK$’000 HK$’000 45,672 45,672 2,080,378 90,787 (a) 2,171,165 1,784,651 1,784,651 39,206 39,206 346,204 87,838 (b) 434,042 (2,203) (2,203) 2,142,809 2,358 (a) 2,145,167 4,367,157 (87,044) (a)&(b) 4,280,113 51,032 51,032 245,512 94 (a) 245,606 2,748 2,748 25,821 25,821 33,232 33,232 11,162,219 11,256,252

— 89 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

Current assets Inventories Trade and other receivables Investments in securities Placement of deposits with financial institutions Pledge bank deposits Bank balances and cash Current liabilities Trade and other payables Taxation payable Short-term bank and other borrowings Net current assets Minority interests Non-current liabilities Long-term bank and other borrowings Deferred tax liabilities Net assets Notes:	As at 31st December 2004 The Group Adjustments Pro Forma (Audited) (Unaudited) HK$’000 HK$’000 HK$’000 877,785 25,833 (a) 903,618 1,487,294 56,935 (a) 1,544,229 1,084,036 1,084,036 188,962 188,962 43,121 43,121 5,766,464 9,719 (a) 5,776,183 9,447,662 9,540,149 1,226,846 41,196 (a) 1,268,042 96,816 96,816 1,240,645 2,830 (a) 1,243,475 2,564,307 2,608,333 6,883,355 6,931,816 1,476,786 134,947 (c) 1,611,733 859,390 7,547 (a) 866,937 91,937 91,937 951,327 958,874 15,617,461 15,617,461	As at 31st December 2004 The Group Adjustments Pro Forma (Audited) (Unaudited) HK$’000 HK$’000 HK$’000 877,785 25,833 (a) 903,618 1,487,294 56,935 (a) 1,544,229 1,084,036 1,084,036 188,962 188,962 43,121 43,121 5,766,464 9,719 (a) 5,776,183 9,447,662 9,540,149 1,226,846 41,196 (a) 1,268,042 96,816 96,816 1,240,645 2,830 (a) 1,243,475 2,564,307 2,608,333 6,883,355 6,931,816 1,476,786 134,947 (c) 1,611,733 859,390 7,547 (a) 866,937 91,937 91,937 951,327 958,874 15,617,461 15,617,461
		9,540,149
		1,268,042 96,816 1,243,475
		2,608,333
		6,931,816
		1,611,733
		866,937 91,937
		958,874
		15,617,461

(a) To consolidate the assets and liabilities of Huqingyutang Pharmaceutical based on the unaudited management account as at 31st December 2004 as if Huqingyutang Pharmaceutical were a subsidiary of the Group as at 31st December 2004. Huqingyutang Pharmaceutical is in the process of obtaining approval by the PRC administration department of foreign investment to increase its registered capital from RMB37,210,000 to RMB53,160,000. Upon completion of the Asset Swap, SIIC MedTech will increase its equity interest in Huqingyutang Pharmaceutical from 30% to 51% by the injection of RMB132,800,000 (approximately HK$125,283,000). Huqingyutang Pharmaceutical will become a subsidiary of the Company.

(b) The goodwill adjustment is calculated based on the assumption that the acquisitions of additional equity interest in Huqingyutang Pharmaceutical and Xiamen TCM were completed on 31st December 2004 for a consideration of RMB132,800,000 (approximately HK$125,283,000) and HK$11,450,000 respectively. The difference between the considerations and the net asset value attributable to the additional equity interest in Huqingyutang

— 90 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

Pharmaceutical and Xiamen TCM based on the unaudited management accounts of both companies as at 31st December 2004 of RMB99,173,000 (approximately HK$93,559,000) and HK$4,860,000, represents the goodwill arising on acquisition of additional interest of HK$31,724,000 and HK$6,590,000 respectively.

The final amount of goodwill may be different if the fair value of the identifiable assets and liabilities of Huqingyutang Pharmaceutical and Xiamen TCM at the date of completion of the Asset Swap are different from their book values as at 31st December 2004.

In addition, goodwill included in interest in associates of HK$49,524,000 was transferred to goodwill upon completion of capital injection in Huqingyutang Pharmaceutical.

(c) The adjustment reflected the changes in minority interests of Huqingyutang Pharmaceutical and Xiamen TCM upon completion of capital injection in the respective companies.

— 91 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

(B) Letter on Unaudited Pro Forma Statement of Assets and Liabilities of the Group after Completion

The following is the text of a letter from Deloitte, the Company’s auditors, in respect of the unaudited pro forma statement of assets and liabilities of the Group after Completion prepared for incorporation in this circular.

The Directors

13th July 2005

Shanghai Industrial Holdings Limited

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (‘‘Pro Forma Statement’’) of Shanghai Industrial Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) set out in Section 1(A) of Appendix II to the circular dated 13th July 2005 (the ‘‘Circular’’) in connection with the major transaction in relation to an asset swap agreement with Shanghai Industrial United Holdings Co., Ltd., which has been prepared, for illustrative purposes only, to provide information about how the transaction might have affected the financial information presented.

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 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 with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 ‘‘Reporting on Pro Forma Financial Information Pursuant to The Listing Rules’’ issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma 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 prepared on the basis set out in Section 1(A) of Appendix II to the Circular for illustrative purpose only and, because of its nature, it may not be indicative of the financial position of the Group as at 31st December 2004 or at any future date.

— 92 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

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 Group; 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

— 93 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

2. INDEBTEDNESS

Borrowings

As at the close of business on 31st May 2005, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had the following outstanding borrowings:

Bank loans — secured — unsecured Other loans — secured — unsecured	HK$’000 145,092 1,926,688
	2,071,780
	14,151 42,167
	56,318
	2,128,098

The maturity of the bank loans and other loans are as follows:

Within one year Between one to two year Between two to five years Over five years	HK$’000 1,244,418 26,629 854,499 2,552
	2,128,098

— 94 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

Pledge of assets

As at 31st May 2005, the following assets were pledged by the Group in order to secure general credit facilities granted to the Group:

a. plant and machinery with a net book value of approximately HK$78.4 million;
b. land and buildings with a net book value of approximately HK$41.1 million;
c. bank deposits of approximately HK$39.5 million; and
d. motor vehicles with a net book value of approximately HK$1 million.

Contingent liabilities

As at 31st May 2005, the Group had given guarantees to banks in respect of banking facilities utilized by:

— —	Company*)	(Xian Wing Fat Packing Co., Ltd.*) (China Aviation Terminal Construction	HK$’000 18,000 9,434
			27,434

Disclaimer

Save as aforesaid and apart from intra-group liabilities and normal trade and other payables, at the close of business on 31st May 2005, the 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.

3. WORKING CAPITAL

The Directors are of the opinion that, taking into account its internal resources and the present available banking facilities, the Group will, immediately following the completion of the Asset Swap, have sufficient working capital for its present requirements.

4. INFORMATION ON LIANHUA SUPERMARKET AND CENTURY LIANHUA

For the accountants’ reports and management discussion and analysis of the performance of Lianhua Supermarket, please refer to the placing and public offer prospectus of Lianhua Supermarket dated 17th June 2003 and the 2003 and 2004 annual reports of Lianhua Supermarket (copies of which are available at the website of the Stock Exchange at www.hkex.com.hk).

The English name is an informal English translation of the official Chinese name.

— 95 —

FINANCIAL INFORMATION OF THE GROUP AFTER COMPLETION

APPENDIX II

Century Lianhua is a limited liability company specialized in the operation of hypermarkets in provinces of the PRC including Anhui, Hebei, Henan, Jiangsu, Heilongjiang and Sichuan. Its outlets are managed by Lianhua Supermarket under the brand name of ‘‘centurymart’’. As of 31st December 2004, Century Lianhua owned a total of 26 outlets with a total floor area of more than 5,000 sq. m.

The hypermarkets of Century Lianhua target consumers who require a comprehensive ‘‘onestop’’ shopping experience whereby they can take their families for a day’s outing and at the same time complete their shopping all under one roof. These hypermarkets offer a broad range of quality products at competitive prices, and at the same time offer various ancillary services to satisfy the needs of ‘‘one-stop’’ shopping of the consumers such as laundry, banking, pharmaceutical, photofinishing and shoe-repairing services.

With quality products and services offered at competitive prices, in particular for the live and fresh produce, plus ancillary services and facilities catered for the needs of consumers, hypermarkets represent tremendous potential in the PRC retail market in view of increasing market acceptance. Century Lianhua will continue to seek expansion in its existing regions of operations, subject to Lianhua Supermarket’s priority in those regions.

The audited net assets value and the audited total asset value of Century Lianhua as at 31st December 2004 amounted to approximately RMB112,470,000 (equivalent to approximately HK$106,104,000) and approximately RMB579,443,000 (equivalent to approximately HK$546,644,000) respectively. The total registered capital of Century Lianhua as at 31st December 2004 amounted to RMB100,000,000. There had been no material changes in net assets value of Century Lianhua up to 31st May 2005 since its last audited accounts.

The audited turnover of Century Lianhua for the year ended 31st December 2004 amounted to approximately RMB1,059,369,000 (equivalent to approximately HK$999,405,000). The audited profit before taxation and the audited profit after taxation of Century Lianhua as at 31st December 2004 amounted to approximately RMB6,855,000 (equivalent to approximately HK$6,467,000) and approximately RMB6,747,000 (equivalent to approximately HK$6,365,000) respectively. The interest in associates in respect of Century Lianhua in the audited consolidated accounts of the Group as at 31st December 2004 was approximately RMB56,393,000 (equivalent to approximately HK$53,201,000).

— 96 —

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable enquires, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorized and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised:

HK$

2,000,000,000 Shares of HK$0.10 each

200,000,000

Issued and fully paid:

967,133,000 Shares of HK$0.10 each 96,713,300

The Shares in issue are listed on the Main Board of the Stock Exchange. No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or any other securities of the Company to be listed or dealt in on any other stock exchanges.

3. DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, the interest or short positions of the Directors and the chief executive of the Company in the Shares and underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are 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 maintained by the Company referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

(i) Interests in Shares and underlying Shares

			Number of	Percentage of
			issued	issued share
Name of		Nature of	ordinary	capital of the
Director	Capacity	interest	Shares held	Company
Cai Lai Xing	Beneficial owner	Personal	4,000,000	0.41%
Qu Ding	Beneficial owner	Personal	1,250,000	0.13%
Lu Ming Fang	Beneficial owner	Personal	4,200,000	0.43%
Lu Da Yong	Beneficial owner	Personal	2,700,000	0.28%

All interests stated above represented long positions.

— 97 —

GENERAL INFORMATION

APPENDIX III

(ii) Interests in shares of SI United, a subsidiary of the Company

Publicly tradable shares

				Percentage of
			Number of	total issued
Name of		Nature of	issued	share capital
director	Capacity	interests	shares held	of SI United
Lu Ming Fang	Beneficial Owner	Personal	15,000	0.005%
Ding Zhong De	Beneficial Owner	Personal	15,000	0.005%
Lu Shen	Beneficial Owner	Personal	12,000	0.004%

(b) As at the Latest Practicable Date, so far as was known to the Directors, the interest of the persons (not being a Director or chief executive of the Company) in the Shares and underlying Shares which were notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO were as follows:

				Percentage of the
			Number of issued	issued share
Name of			ordinary Shares	capital of the
Shareholder		Capacity	beneficially held	Company
(a)	Long Positions
	SIIC	Interests held by	548,076,000	56.67%
		controlled corporation(s)	(note (i))
(b)	Short Positions
	SIIC	Interests held by	88,033,054	9.10%
		controlled corporation(s)	(note (ii))
Notes:

(i) SIH, SIIC Capital and SIIC CM Development held 468,066,000, 80,000,000 and 10,000 ordinary Shares respectively. SIIC owns 100% of SIIC CM Development and STC respectively, whereas STC owns 100% of SIH, which in turn owns 100% of SIIC Capital.
(ii) SIIC was taken to have short positions in respect of 88,033,054 underlying Shares whereby STC has issued an aggregate of HK$2,430,900,000 Zero Coupon Guaranteed Exchangeable Bonds due March 2009 unconditionally and irrevocably guaranteed by SIIC and exchangeable into ordinary Shares at an exchangeable price of HK$26.381 per Share.

Save as disclosed above, no other interests or short positions in the Shares or underlying Shares were recorded in the register required to be kept under Section 336 of the SFO as at the Latest Practicable Date.

— 98 —

GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, so far so was known to the Directors, the following Directors are also directors or employees of SIIC:

Name of Director

Position held in SIIC

Mr. Cai Lai Xing Chairman Mr. Qu Ding Executive Director and Executive Vice President Mr. Lu Ming Fang Vice President Mr. Lu Da Yong Executive Director Mr. Ding Zhong De Executive Director Mr. Lu Shen Assistant President Mr. Qian Shi Zheng Chief Financial Officer

(c) So far as was known to the Directors, as at the Latest Practicable Date, the following persons (other than members of the Group) were directly or indirectly interested in 10% or more of the issued share capital carrying rights to vote in all circumstances at general meetings of the following members of the Group (other than the Company) and the amount of each of such person’s interest in such securities were as follows:

==> picture [407 x 372] intentionally omitted <==

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 99 —

GENERAL INFORMATION

APPENDIX III

==> picture [407 x 605] intentionally omitted <==

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|Interest|in|Percentage|
|Name|of|member|of|the|Name|of|substantial|share|capital/|of|
|Group|shareholder|equity|interest|shareholding|
|Chifeng|Mengxin|Chifeng|Pharmaceutical|equity|interest|17.91%|
|Pharmaceutical|Co.,|Ltd.|(Group)|Co.,|Ltd|
|(|)|(|
|)|
|Guangdong|Techpool|Guangzhou|Bopu|Bio-|equity|interest|32.75%|
|Biochem|Pharma|Co.,|technology|Co.,|Ltd.|
|Ltd.|(|
|(|)|
|)|
|Guangdong|Province|equity|interest|10%|
|Technology|Venture|
|Investment|Co.|
|(|
|)|
|Liaoning|Herbapex|Medieval|equity|interest|28.8%|
|Zheng|Ji|Yu|equity|interest|16.5%|
|Mergen|Biotech|Limited|Excellent|Hope|Holdings|equity|interest|15%|
|Inc.|
|Ningbo|SDIF|Medical|Chen|Guo|An|equity|interest|16.3%|
|Instruments|Co.|
|(|Hong|Ji|De|equity|interest|12.6%|
|)|
|Ningxia|SIIC|Viopes|Ningxia|Nonglin|Scientific|equity|interest|21.66%|
|Nutraceuticals|Co.,|Ltd.|Academy|(Barbary|
|Wolfberry)|Co.,|Ltd.|
|(|
|)|
|Ningxia|Nonglin|Scientific|equity|interest|14.66%|
|Academy|
|(|)|
|Shanghai|Qiyi|Dental|Shanghai|Dental|Materials|equity|interest|10%|
|Equipment|Co.,|Ltd.|Factory|Qi|Xin|Operating|
|(|Services|Department*|
|)|(|
|)|

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 100 —

GENERAL INFORMATION

APPENDIX III

==> picture [407 x 580] intentionally omitted <==

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|Interest|in|Percentage|
|Name|of|member|of|the|Name|of|substantial|share|capital/|of|
|Group|shareholder|equity|interest|shareholding|
|Shanghai|Sunway|Biotech|Shanghai|Alliance|equity|interest|18.6%|
|Co.,|Ltd.|Investment|Ltd.|
|Shanghai|Tongjian|Shanghai|Huajian|Medical|equity|interest|40%|
|Pharmacy|Co.,|Ltd.|Technology|Co.|
|(|)|(|)|
|Shanghai|Victor|Medical|The|Mansfield|Corp.|USA|equity|interest|30%|
|Instrument|Co.,|Ltd.|
|Shanghai|Yichuang|Shanghai|University|of|equity|interest|45%|
|Traditional|Chinese|Traditional|Chinese|
|Medicine|Research|&|Medicine|Technological|
|Development|Center|Co.,|Development|Co.|
|Ltd.|(|)|
|Shanghai|Yuemin|Pharmacy|Chang|Qing|equity|interest|30%|
|Co.,|Ltd.|
|(|)|
|Shanghai|Yunhu|Raw-|Shanghai|Yunhu|Raw-|equity|interest|15.45%|
|pharmaceutical|Co.,|Ltd.|pharmaceutical|Co.,|Ltd.|
|(|Staff|Shareholding|
|)|Association|
|(|
|)|
|SI|United|Changcheng|Jin|Jiang|International|equity|interest|30%|
|Pharmaceutical|Co.,|Ltd.|Holdings|Co.,|Ltd.|
|(|
|)|
|SI|United|Pharmacy|Co.,|Shanghai|Zhenru|equity|interest|10%|
|Ltd.|Shangcheng|Co.,|Ltd.|
|(|(|
|)|)|
|Xiamen|TCM|Xiamen|Dinglu|Ind.|Corp.|equity|interest|30%|
|(|)|
|NTTC|(BVI)|Limited|Centenary|Limited|ordinary|shares|35%|

----- End of picture text -----

The English name is an informal English translation of the official Chinese name.

— 101 —

GENERAL INFORMATION

APPENDIX III

				Interest in	Percentage
Name of member of the		Name of substantial		share capital/	of
Group		shareholder		equity interest	shareholding
Chengdu Jiuxing Printing		Sichuan Quanxing Co.,	Ltd.	equity interest	20%
and Packing Co., Ltd.
		Chengdu Jiang Shi		equity interest	29%
		Investment Co., Ltd.* (	)
Chengdu Wingfat Printing		Sichuan Quanxing Co.,	Ltd.	equity interest	20%
Co., Ltd.* (	)	Chengdu Jiang Shi		equity interest	29%
		Investment Co., Ltd.* (	)
Guiyang Jiuxing Printing		Yuan Chun Ming		equity interest	21%
Co., Ltd.*
(	)
Xuchang Yongchang Printing Co., Ltd.		Xuchang Cigarette Factory* ( )		equity interest	49%
Zhejiang Rongfeng Paper		Hui Kin Yip		equity interest	10%
Co., Ltd.

(d) Save as disclosed above, as at the Latest Practicable Date:
- (i) so far as was known to the Directors, none of the Directors or chief executive of the Company had any interest or short positions in any Shares or underlying Shares or interest in debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are 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.
- (ii) there was no person known to the Directors who had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, was, directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group, or any options in respect of such capital.
The English name is an informal English translation of the official Chinese name.

— 102 —

GENERAL INFORMATION

APPENDIX III

4. DIRECTORS’ INTERESTS IN CONTRACTS

(a) As at the Latest Practicable Date, none of the Directors had entered, or proposed to enter into a service contract with any member of the Group which does not expire or is not determinable by the relevant member of the Group within one year without compensation (other than statutory compensation).
(b) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been, since 31st December 2004 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by, or leased to the Company or any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.
(c) As at the Latest Practicable Date, save for those service contracts entered into by Directors with the Company which expire or are determinable by the Company within one year without compensation (other than statutory compensation), none of the Directors was materially interested in any contract or arrangement subsisting at the date of this circular and which is significant in relation to the business of the Group.

5. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31st December 2004 (being the date to which the latest published audited accounts of the Company were made up).

6. EXPERT

(a) The following are the qualifications of the expert who has given its report, opinion or advice which are contained in this circular:

Name Qualifications

Deloitte Certified Public Accountants

(b) (i) As at the Latest Practicable Date, Deloitte was not interested beneficially or nonbeneficially in any Shares or any member of the Group or any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any shares in any member of the Group.
(ii) As at the Latest Practicable Date, Deloitte did not have any direct or indirect interest in any assets which had been since 31st December 2004 (being the date to which the latest published audited accounts of the Group were made up) acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, the Company or any member of the Group.
(iii) Deloitte has given and has not withdrawn its written consent to the issue of this circular with inclusion of its letter dated 13th July 2005 and the references to its name included herein in the form and context in which they respectively appear.

— 103 —

GENERAL INFORMATION

APPENDIX III

7. DIRECTORS’ INTEREST IN COMPETING BUSINESS

As at the Latest Practicable Date, so far so was known to the Directors, none of the Directors, and their respective associates was considered to have interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group or have any other conflicts of interest with the Group pursuant to the Listing Rules.

8. MATERIAL CONTRACTS

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

(a) the sale and purchase agreement dated 29th August 2003 entered into between S.I. Infrastructure and Shanghai City Construction relating to the disposal of 50.2% equity interest in Shanghai Yanan Road Elevated Road Development Co., Ltd.;
(b) the sale and purchase agreement dated 29th August 2003 entered into between S.I. Infrastructure and Shanghai City Construction relating to the disposal of 35% equity interest in Shanghai New Construction Development Co., Ltd.;
(c) the sale and purchase agreement dated 21st April 2005 entered into between the Company and SPGC relating to the disposal of 48% of the total issued shares of Shanghai Sunve Pharmaceutical Co., Ltd.;
(d) the sale and purchase agreement dated 21st April 2005 entered into between SI United and SPGC relating to the acquisition of 40% of the total issued shares of Shanghai Medical Instruments Co., Ltd; and
(e) the Asset Swap Agreement.

9. LITIGATION

So far as the Directors are aware, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or arbitration of material importance was pending or threatened against the Company or any of its subsidiaries as at the Latest Practicable Date.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at 26th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong during normal business hours up to and including 27th July 2005:

(a) the memorandum and articles of association of the Company;
(b) the annual report of the Company for each of the two years ended 31st December 2004;
(c) the Asset Swap Agreement;
(d) the accountants’ report of the Group for the three years ended 31st December 2004 issued by Deloitte, extracts of which are set out in Appendix I of this circular;

— 104 —

GENERAL INFORMATION

APPENDIX III

(e) the letter issued by Deloitte in connection with the unaudited pro forma consolidated balance sheet of the Group, the text of which is set out in Appendix II of this circular;
(f) the contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix;
(g) the written consent referred to in the paragraph headed ‘‘Expert’’ of this appendix; and
(h) all of the circulars of the Company issued pursuant to the requirements set out in Chapter 14 and/or Chapter 14A of the Listing Rules which have been issued since the date of the latest published audited accounts of the Company, being 31st December 2004.

11. MISCELLANEOUS

(a) The registered office of the Company is at 26th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.
(b) The share registrars and transfer office of the Company is Secretaries Limited at 28th Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(c) The secretary of the Company is Ms. Wong Mei Ling, Marina who is a Fellow of the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.
(d) The qualified accountant of the Company is Ms. Chan Yat Ying, Cherie who is a member of the Association of Chartered Certified Accountants, the Hong Kong Institute of Certified Public Accountants and the Chinese Institute of Certified Public Accountants.
(e) In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.

— 105 —

AI assistant

Huscoke Holdings Limited — Proxy Solicitation & Information Statement 2005

49409_rns_2005-07-13_585ba192-54c8-4482-97cc-b2710d9b3492.pdf

MAJOR TRANSACTION

IN RELATION TO AN ASSET SWAP AGREEMENT WITH

SHANGHAI INDUSTRIAL UNITED HOLDINGS CO., LTD.

CONTENTS

(Stock Code: 363)

MAJOR TRANSACTION

IN RELATION TO AN ASSET SWAP AGREEMENT WITH

SHANGHAI INDUSTRIAL UNITED HOLDINGS CO., LTD.

1. INTRODUCTION

Date

Parties

The Disposal

Interests to be disposed of

Consideration for the Disposal

LETTER FROM THE BOARD

The Acquisition

Interests to be acquired

Consideration for the Acquisition

3. CONDITIONS

4. COMPLETION

LETTER FROM THE BOARD

5. TERMINATION

Corporate Structure immediately after the Completion

7. INFORMATION ON THE PHARMACEUTICAL ASSETS

Liaoning Herbapex

Share capital

LETTER FROM THE BOARD

Financial information

LETTER FROM THE BOARD

Huqingyutang Pharmaceutical

Share capital

Financial information

Huqingyutang Drugstore

Share capital

LETTER FROM THE BOARD

Financial information

Xiamen TCM

LETTER FROM THE BOARD

Share capital

Financial information

LETTER FROM THE BOARD

8. INFORMATION ON THE COMMERCIAL ASSETS

Lianhua Supermarket

Share capital

Financial information

Century Lianhua

Share capital

LETTER FROM THE BOARD

Financial information

9. REASONS FOR AND THE BENEFITS OF THE DISPOSAL AND THE ACQUISITION

10. FINANCIAL EFFECTS OF THE DISPOSAL AND THE ACQUISITION

11. PROSPECTS

Infrastructure

Medicine

Consumer Products and Information Technology

Business Outlook

12. GENERAL

13. ADDITIONAL INFORMATION

FINANCIAL SUMMARY

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

1. GENERAL

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

SSAP 36 Agriculture

Agriculture

3. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

HKFRS 2 ‘‘Share-based Payment’’

HKFRS 3 ‘‘Business Combinations’’

HKAS 40 ‘‘Investment Properties’’

4. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

Goodwill

Negative goodwill

Huscoke Holdings Limited Proxy Solicitation & Information Statement 2005