Leadway Technology Investment Group Limited - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities.

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.

==> picture [96 x 54] intentionally omitted <==

==> picture [198 x 52] intentionally omitted <==

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

(Stock code: 882)

MAJOR AND CONNECTED TRANSACTION

IN RELATION TO THE PROPOSED ACQUISITION OF APPROXIMATELY 94.4% EQUITY INTEREST IN

TIANJIN TEDA TSINLIEN ELECTRIC POWER COMPANY LIMITED AND APPROXIMATELY 91.4% EQUITY INTEREST IN

TIANJIN TEDA TSINLIEN WATER SUPPLY COMPANY LIMITED FROM A WHOLLY OWNED SUBSIDIARY OF TSINLIEN GROUP COMPANY LIMITED

Financial Adviser to the Company

==> picture [97 x 41] intentionally omitted <==

Oriental Patron Asia Limited

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

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders in respect of the Acquisition is set out on page 13 of this circular and a letter from Baron Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice in relation to the Acquisition is set out on pages 14 to 23 of this circular.

A notice convening the EGM to be held on Friday, 29 October 2004 at 3: 00 p.m. at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong is set out on pages 165 to 166 of this circular. If you are not able to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

13 October 2004

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter of advice from Baron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Appendix I — Accountants’ report on Electricity Company . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix II — Accountants’ report on Water Company . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix III — Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
Appendix IV — Unaudited Pro forma financial information of the Enlarged Group .	123
Appendix V — Property valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	130
Appendix VI — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	156
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	165

Accompany document — Form of Proxy

— i —

DEFINITIONS

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

‘‘Acquisition’’ the proposed acquisition by the Company or its wholly-owned subsidiary of approximately 94.4% equity interest in Electricity Company and approximately 91.4% equity interest in Water Company from Progress City pursuant to the Agreement ‘‘Agreement’’ the conditional sale and purchase agreement dated 20 September 2004 entered into between the Company and Tsinlien in respect of the Acquisition ‘‘associates’’ has the meaning ascribed to it under the Listing Rules ‘‘Baron’’ Baron Capital Limited, a licensed corporation to perform Type 1 and Type 6 regulated activities under the SFO, which is not a connected person (as defined in the Listing Rules) of the Company ‘‘Board’’ the board of Directors ‘‘Company’’ Tianjin Development Holdings Limited, a company incorporated in Hong Kong with limited liability and the shares of which are listed on the main board of the Stock Exchange ‘‘Completion’’ completion of the Acquisition in accordance with the terms and conditions of the Agreement ‘‘Completion Date’’ the fifth business day immediately following satisfaction or waiver (if applicable) of all the conditions precedent of the Agreement or such other date as the parties to the Agreement shall agree in writing ‘‘Consideration Shares’’ a total of 222,707,143 new Shares, representing 32.4% of the existing issued share capital of the Company, to be issued and allotted by the Company at HK$2.8 per Share to Tsinlien or its designated whollyowned subsidiary as part of the consideration in respect of the Acquisition ‘‘Development Zone’’ Tianjin Economic-Technological Development Zone in Municipality of Tianjin of the PRC ‘‘Director(s)’’ director(s) of the Company including independent non-executive director(s) ‘‘EGM’’ the extraordinary general meeting of the Company to be convened for approval of the Agreement and all the transactions contemplated thereunder ‘‘Electricity Company’’ Tianjin TEDA Tsinlien Electric Power Company Limited ( ), a Sino-foreign equity joint venture established in the PRC and owned as to approximately 94.4% and approximately 5.6% by Progress City and Tianjin TEDA respectively

— 1 —

DEFINITIONS

‘‘Group’’ the Company, its subsidiaries, associated companies and jointly controlled entities
‘‘Hong Kong’’ Hong Kong Special Administrative Region of the PRC
‘‘Independent Board the independent board committee of the Company comprising three Committee’’ independent non-executive Directors, namely Mr. Kwong Che Keung, Gordon, Mr. Lau Wai Kit and Dr. Cheng Hon Kwan, to advise the Independent Shareholders on the Agreement and all the transactions contemplated thereunder
‘‘Independent the Shareholders other than Tsinlien and its associates Shareholders’’
‘‘kVA’’ Kilovolt amperes. A unit of measure used to express the capacity of electrical transmission equipment such as transformers
‘‘Latest Practicable Date’’ 11 October 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Longstop Date’’ 19 March 2005, being six months from the date of signing the Agreement or such other date as the parties to the Agreement shall agree in writing
‘‘PRC’’ the People’s Republic of China
‘‘Progress City’’ Progress City Group Limited, a direct wholly-owned subsidiary of Tsinlien and incorporated in the British Virgin Islands
‘‘SFO’’ the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
‘‘Share(s)’’ ordinary shares of HK$0.1 each in the share capital of the Company
‘‘Shareholder(s)’’ holder(s) of the Shares ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

‘‘Tianjin TEDA’’ Tianjin TEDA Investment Holdings Limited ( ), a stated-owned company incorporated in the PRC with limited liability

‘‘Tsinlien’’ Tsinlien Group Company Limited ( ), a company incorporated in Hong Kong with limited liability and the controlling shareholder of the Company

— 2 —

DEFINITIONS

‘‘Water	Tianjin TEDA	Tianjin TEDA	Tsinlien Water	Supply	Company	Limited
	(		), a	Sino-foreign joint		venture
	established in the		PRC and owned	as to approximately		91.4% and
	approximately 8.6%		by Progress City	and Tianjin	TEDA respectively
‘‘HK$’’	Hong Kong	dollars,	the lawful currency of Hong		Kong
‘‘RMB’’	Renminbi, the lawful currency of the			PRC
‘‘%’’	per cent.

For the purpose of this circular, conversion of Renminbi into Hong Kong dollars is based on the approximate exchange rate of RMB1.06 to HK$1.00.

— 3 —

LETTER FROM THE BOARD

==> picture [96 x 54] intentionally omitted <==

==> picture [198 x 52] intentionally omitted <==

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

(Stock Code: 882}

Directors:

Mr. Wang Guanghao (Chairman)

Dr. Ren Xuefeng (Vice Chairman)

Mr. Yu Rumin (Vice Chairman)

Dr. Zhang Hongru

Registered Office: 26th–38th Floor Tianjin Building 167 Connaught Road West Hong Kong

Mr. Nie Jiansheng
Dr. Wang Jiandong

Mr. He Xiuheng

Mr. Yang Liheng
Mr. Sun Zengyin
Dr. Pang Jinhua
Mr. Ye Disheng*
Mr. Cheung Wing Yui*
Mr. Kwong Che Keung, Gordon**
Mr. Lau Wai Kit**
Dr. Cheng Hon Kwan**
Non-executive Directors
** Independent non-executive Directors

13 October 2004

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

On 20 September 2004, the Company announced that it has entered into a conditional sale and purchase agreement with Tsinlien for the acquisition of approximately 94.4% of equity interest of Electricity Company and approximately 91.4% of equity interest of Water Company which is currently held by Progress City at a total consideration of HK$783.6 million. The Acquisition shall be satisfied by payment of cash in the sum of HK$160 million and the issue and allotment of Consideration Shares at HK$2.8 per Share to Tsinlien or its designated wholly-owned subsidiary.

— 4 —

LETTER FROM THE BOARD

the Acquisition at the EGM. Since each of the revenue ratio, consideration ratio and equity capital ratio in respect of the Acquisition exceeds 25% but less than 100%, the Acquisition also constitutes a major transaction for the Company under Rule 14.06(3) of the Listing Rules.

An Independent Board Committee has been formed to advise the Independent Shareholders in relation to the Acquisition and Baron has been appointed as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders.

The purpose of this circular is (i) to provide you with further information in respect of the Acquisition; (ii) to set out the opinion of the Independent Board Committee and Baron in relation to the Acquisition; and (iii) to give you notice of the EGM at which resolution will be proposed to seek your approval of the Acquisition.

THE AGREEMENT

Date

20 September 2004

Parties

Purchaser : The Company Vendor : Tsinlien, an investment holding company

Assets to be acquired

Approximately 94.4% equity interest in Electricity Company and approximately 91.4% equity interest in Water Company which is currently held by Progress City.

Consideration

Total consideration of approximately HK$783.6 million in respect of the Acquisition shall be satisfied by payment of cash in the sum of HK$160 million and issue and allotment of Consideration Shares at HK$2.8 per Share to Tsinlien or its designated wholly-owned subsidiary. The Company will finance the cash consideration by internal resources of the Group. As at the date of this circular, the Group has sufficient financial resources to satisfy the cash consideration. Based on the closing price of HK$3.1 per Share as quoted on the Stock Exchange on 16 September 2004 (being the last trading date prior to the suspension in the trading of the Shares), the market value of the Consideration Shares is approximately HK$690.4 million. The Consideration Shares represent approximately 32.4% of the existing issued share capital of the Company or approximately 24.5% of the enlarged issued share capital of the Company after Completion.

The consideration was determined after arm’s length negotiation between the Company and Tsinlien with reference to the combined audited net profit before taxation of approximately HK$64.0 million for the year ended 31 December 2003 and combined audited net tangible asset value of approximately HK$525.8 million of Electricity Company and Water Company as at 31 December 2003. In addition to the combined audited net profit before taxation and combined audited net tangible asset value of Electricity Company and Water Company, the consideration was also determined with reference to the revenue prospects of Electricity Company and Water Company and the price to earnings multiples of the industry comparables.

— 5 —

LETTER FROM THE BOARD

The issue price of the Consideration Shares of HK$2.8 represents (i) a discount of approximately 9.7% to the closing price of the Shares of HK$3.1 as quoted on the Stock Exchange on 16 September 2004 (being the last trading date prior to the suspension in the trading of the Shares); (ii) a premium of approximately 1.8% to the average closing price of HK$2.75 for the 10 trading days up to and including 16 September 2004; and (iii) a discount of approximately 4.1% to the average closing price of approximately HK$2.92 for the 10 trading days up to and including the Latest Practicable Date.

Status of Consideration Shares

The Consideration Shares shall rank in all respects pari passu with the existing issued fullypaid Shares including the right to receive in full all dividends and other distributions declared after the date of allotment of the Consideration Shares. The Consideration Shares will not be subject to any disposal restriction. The Acquisition and the issue of the Consideration Shares are subject to approval by the Independent Shareholders at the EGM by poll. The issue of Consideration Shares will not result in a change in control of the Company.

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Conditions

Completion of the Agreement is conditional upon among other things:

(1) the passing by Independent Shareholders at the EGM by poll of an ordinary resolution to approve (i) the Acquisition contemplated under the Agreement as required by the Listing Rules; and (ii) the issue of the Consideration Shares to Tsinlien or its designated whollyowned subsidiary under the Agreement;
(2) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Consideration Shares;
(3) no notification from the Stock Exchange that trading in the Shares will be or may be suspended due to the Acquisition (excluding temporary suspension);
(4) the obtaining by the parties to the Agreement, to the Company’s satisfaction, of all necessary consents, authorizations or other approvals of any kind in connection with the entering into and performance by the parties of the terms of the Agreement which may be required from any regulatory authority, any relevant governmental agencies or other third parties; and
(5) the Company conducting a due diligence review of and being satisfied with the business, assets, financial position and prospects of each of Electricity Company and Water Company in all material respects.

Save and except for condition (1) and (2), the Company may waive any of the conditions set forth in the Agreement, at any time before the Longstop Date by notice in writing to Tsinlien.

— 6 —

LETTER FROM THE BOARD

If any of the conditions precedent have not been fulfilled or waived (if applicable) on or before the Longstop Date or such other date as the parties may agree in writing, the Agreement shall lapse and no party shall have any claim against the other save for claim (if any) in respect of antecedent breach.

Completion

Upon compliance with or fulfillment or waiver of all the conditions precedent, Completion shall take place on the Completion Date.

At present, Tsinlien, through its two wholly-owned subsidiaries, namely Tianjin Investment Holdings Limited and Tsinlien Property Services Limited, holds approximately 52.4% of the existing issued share capital of the Company. Upon Completion, Tsinlien, through its subsidiaries, will beneficially own approximately 64.1% of the issued share capital of the Company as enlarged by issue of the Consideration Shares.

INFORMATION ON ELECTRICITY COMPANY AND WATER COMPANY

Electricity Company

Electricity Company is a Sino-foreign equity joint venture established in the PRC on 5 July 2000 and is principally engaged in the supply of electricity in the Development Zone. Electricity Company also provides services in related to maintenance of power supply equipment and electric power related technological consulting.

Total registered capital of Electricity Company is RMB314.3 million. Electricity Company is presently owned as to 94.4% by Progress City and 5.6% by Tianjin TEDA. Upon Completion, Electricity Company will be beneficially owned as to 94.4% by the Company and 5.6% by Tianjin TEDA. Electricity Company will become a subsidiary of the Company and its accounts will be consolidated into the Group’s accounts.

Currently, the installed capacity of electricity transmission by Electricity Company was approximately 250,000 kVA. For the six months ended 30 June 2004, total quantity of electricity sold was approximately 569,485,000 kWh, representing an increase of about 25.9% over that for the same period in 2003. For the year ended 31 December 2003, total quantity of electricity sold was approximately 978,550,000 kWh, representing an increase of 18.8% over that of the preceding year.

Water Company

Water Company is a Sino-foreign equity joint venture established in the PRC on 5 July 2000 and is principally engaged in the supply of tap water in the Development Zone. Water Company is also engaged in installation and maintenance of water pipes, tap-water related technological consulting, and retail and wholesale of water pipes and related parts.

Total registered capital of Water Company is RMB163.5 million. Water Company is presently owned as to 91.4% by Progress City and 8.6% by Tianjin TEDA. Upon Completion, Water Company will be beneficially owned as to 91.4% by the Company and 8.6% by Tianjin TEDA. Water Company will become a subsidiary of the Company and its accounts will be consolidated into the Group’s accounts.

— 7 —

LETTER FROM THE BOARD

Water Company sells water to both enterprises and residential customers. Currently, the maximum daily water supply capacity of the Water Company reaches approximately 180,000 tonnes. For the six months ended 30 June 2004, total quantity of water sold was approximately 14.1 million tonnes, representing an increase of about 21.8% over that for the same period in 2003. For the year ended 31 December 2003, quantity of water sold to enterprises was approximately 22.9 million tonnes, representing about 91.8% of the total quantity sold by Water Company.

Government Supplemental Income Granted by the Finance Bureau of the Development Zone

In order to allow reasonable economic benefits to the investors or management entities of companies for operating infrastructural products and services which are subject to price constraint of the PRC government, the Finance Bureau of the Development Zone on 15 September 2003 agreed to provide government supplemental income to (i) Electricity Company at RMB0.02 for each kWh of electricity supplied; and (ii) Water Company at RMB2.00 per tonne of water sold from 2003 to 2007. The government supplemental income will continue after the Acquisition.

For the year ended 31 December 2003, government supplemental income received by Electricity Company and Water Company was approximately RMB19.2 million (equivalent to approximately HK$18.1 million) and RMB49.8 million (equivalent to approximately HK$47.0 million) respectively. As both of the Electricity Company and Water Company are separate legal entities from their respective shareholders, the Directors believe that those government supplemental income granted to each of Electricity Company and Water Company by the Finance Bureau of the Development Zone would not be affected as a result of any change in their respective shareholders.

Existing shareholding structure of Electricity Company and Water Company and costs of investment of the connected parties of the Company in Electricity Company and Water Company

The table below sets out the existing shareholding structure of Electricity Company and Water Company and the costs of investments of the connected parties of the Company in Electricity Company and Water Company:

Electricity Company Tsinlien Tianjin TEDA Total Water Company Tsinlien Tianjin TEDA Total	Approximate % of equity interest 94.4 5.6 100.0 91.4 8.6 100.0	Cost of investment
		(Note) RMB Nil Nil

— 8 —

LETTER FROM THE BOARD

Note: The investments to Electricity Company and Water Company were initially made by Tsinlien in July 2000 through contribution of operating assets valued at approximately RMB296.6 million and approximately RMB149.5 million respectively which were primarily transferred from the Development Zone in November 1999 at zero consideration after the approval from the Government of Tianjin Municipality. The equity interest of Electricity Company and Water Company were acquired by Progress City from Tsinlien each at a nominal consideration of HK$1.

The combined audited total asset value of Electricity Company and Water Company as at 31 December 2003 was approximately HK$896.4 million (equivalent to approximately RMB950.3 million), comprising approximately HK$522.1 million (equivalent to approximately RMB553.5 million) for Electricity Company and approximately HK$374.3 million (equivalent to approximately RMB396.8 million) for Water Company. The combined audited net tangible asset value of Electricity Company and Water Company as at 31 December 2003 was approximately HK$525.8 million (equivalent to approximately RMB557.3 million), comprising approximately HK$375.0 million (equivalent to approximately RMB397.5 million) for Electricity Company and approximately HK$150.8 million (equivalent to approximately RMB159.8 million) for Water Company.

The combined audited revenue of Electricity Company and Water Company for the year ended 31 December 2003 was approximately HK$626.0 million (equivalent to approximately RMB663.6 million), comprising approximately HK$515.6 million (equivalent to approximately RMB546.6 million) for Electricity Company and approximately HK$110.4 million (equivalent to approximately RMB117.0 million) for Water Company.

The table below sets out the combined audited profit before and after taxation of Electricity Company and Water Company for the two years ended 31 December 2003 respectively:

Profit/(loss) before taxation — Electricity Company — Water Company Total Profit/(loss) after taxation (Note) — Electricity Company — Water Company Total	Year ended 31 December 2003 (RMB ’000) (HK$’000) 56,646 53,440 11,160 10,529 67,806 63,969 52,521 49,549 10,693 10,088 63,214 59,637	Year ended 31 December 2002 (RMB ’000) (HK$’000) 11,364 10,721 (7,956) (7,506) 3,408 3,215 12,398 11,696 (7,470) (7,048) 4,928 4,648
	(RMB ’000) 56,646 11,160 67,806 52,521 10,693 63,214	(RMB ’000) 11,364 (7,956) 3,408 12,398 (7,470) 4,928

Note: Profit after taxation for the year ended 31 December 2002 accounted for tax credit of approximately HK$975,000 (equivalent to approximately RMB1,034,000) and HK$458,000 (equivalent to approximately RMB486,000) for Electricity Company and Water Company respectively.

— 9 —

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

The principal activity of the Company is investment holding. The principal activities of the Group are (i) infrastructure operations including toll road operation and container and cargo handling operations; (ii) production, distribution and sale of consumer products including winery and dairy products; (iii) property development; (iv) production, distribution and sale of industrial machinery; and (v) other strategic investments.

Leveraging on the established production facilities, management expertise and customer base of Electricity Company and Water Company, the Board is of the view that the Acquisition can provide the Group with an excellent opportunity to enter into the electricity supply and water supply industries in a faster pace. The Acquisition will also broaden the revenue base of the Group by integrating the relatively stable revenue sources from Electricity Company and Water Company.

Locating at the Development Zone with a planned site area of 33 square kilometers, Electricity Company and Water Company have been enjoying the benefits of rapid economic growth in the Development Zone. According to the 2003 annual report of the Development Zone, the gross domestic product of the Development Zone reached approximately RMB44.5 billion for the year 2003, representing approximately 17.1% growth over the previous year. The Development Zone also recorded an industrial output of approximately RMB125.1 billion in 2003, representing approximately 30.2% growth over the previous year. Expansion potential for the Development Zone is huge and substantial progress has been made in land expansion. In 2003, the development proposal of the west zone of the Development Zone was submitted to the relevant government officials for approval and was subsequently approved and the west zone will provide abundant land resource for the Development Zone. The development of the Development Zone will accommodate more production plants and residential apartments which will further boost the demand for electricity and water supply.

With reference to the continuing growth of the Development Zone and the increasing industrial output, the expected future consumption of electricity and water is surging. The Acquisition will provide a growth prospect for the Group’s overall businesses and strengthen the Group’s infrastructure arm which represents one of the core businesses of the Group. The Board considers that the Acquisition is in line with the corporate strategy of the Group.

The Directors consider that the Acquisition is in the interests of the Company and the Shareholders and the terms of the Agreement are fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Net tangible assets

Based on the pro-forma statement of unaudited adjusted consolidated net tangible assets of the Group as set out in Appendix IV to this circular, the Group has unaudited consolidated net tangible assets of approximately HK$4,506 million before Completion and pro-forma unaudited adjusted consolidated net tangible assets of approximately HK$4,867 million after Completion. Based on 910,456,027 Shares in issue upon Completion, the pro-forma unaudited adjusted consolidated net tangible assets per Share immediately after Completion will be approximately HK$5.3.

— 10 —

LETTER FROM THE BOARD

Earnings

For the two years ended 31 December 2003, the Group recorded audited net profit of approximately HK$212.8 million and approximately HK$181.6 million respectively.

Upon Completion, Electricity Company and Water Company will be beneficially owned as to approximately 94.4% and 91.4% by the Company respectively and, therefore, will become subsidiaries of the Company. Accordingly, the financial results of Electricity Company and Water Company will be consolidated into those of the Group.

CONNECTIONS BETWEEN THE PARTIES

As Tsinlien is the controlling shareholder of the Company and is a connected person (as defined under the Listing Rules) of the Company, the Acquisition constitutes a connected transaction under Rule 14A.17 of the Listing Rules and is subject to the approval of the Independent Shareholders at the EGM by poll as required by the Listing Rules. Tsinlien and its associates, collectively hold 52.4% of the existing issued share capital of the Company, will abstain from voting in respect of the Acquisition at the EGM. To the best knowledge of the Directors there is no voting trust or other agreement or arrangement or understanding (other than an outright sale) entered into by or binding upon Tsinlien and its associates.

EGM

The EGM will be held on Friday, 29 October 2004 at 3: 00 p.m. at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong for the purpose of considering, and if thought fit, approving the Acquisition. As the Acquisition constituted a connected transaction, only the Independent Shareholders will be entitled to vote on the resolution at the EGM and such votes will be taken by way of poll pursuant to the requirements of the Listing Rules. A notice of the EGM is set out on pages 165 to 166 of this circular.

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

— 11 —

LETTER FROM THE BOARD

RECOMMENDATIONS

Baron has been appointed to advise the Independent Board Committee and the Independent Shareholders with regard to the Acquisition. The text of the letter of advice from Baron to the Independent Board Committee and the Independent Shareholders is set out on pages 14 to 23 of this circular.

The letter from the Independent Board Committee, which contains its recommendation to the Independent Shareholders in respect of the Acquisition, is also set out on page 13 of this circular.

The Board considers that the Acquisition is in the interests of the Company and the Shareholders and the terms of the Agreement are fair and reasonable so far as the Company and the Shareholders as a whole are concerned. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM for approving the Acquisition as set out in the notice of the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Wang Guanghao Chairman

— 12 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [96 x 54] intentionally omitted <==

==> picture [198 x 52] intentionally omitted <==

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

(Stock Code: 882)

13 October 2004

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

We have been appointed as members of the Independent Board Committee to give our advice on the Acquisition, details of which are set out in the letter from the Board included in the circular to the Shareholders dated 13 October 2004 (the ‘‘Circular’’), of which this letter forms a part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Baron has been appointed as the independent financial adviser to advise us regarding the Acquisition. The letter of advice from Baron is set out on pages 14 to 23 of the Circular.

Having considered the terms and conditions of the Agreement, the advice given by Baron and the principal factors and reasons taken into consideration by them in arriving at their advice, we are of the view that the terms of the Agreement are fair and reasonable so far as the Independent Shareholders as a whole are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM for approving the Acquisition.

Yours faithfully, For and on behalf of the Independent Board Committee Mr. Kwong Che Keung, Gordon Mr. Lau Wai Kit Dr. Cheng Hon Kwan

— 13 —

LETTER OF ADVICE FROM BARON

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Baron Capital Limited dated 13 October 2004 prepared for the purpose of incorporation in this circular:

4/F, Aon China Building, 29 Queen’s Road Central, Central, Hong Kong

13 October 2004

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment by Tianjin Development Holdings Limited (the ‘‘Company’’) to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, details of which are set out in the ‘‘Letter from the Board’’ contained in the circular of the Company dated 13 October 2004 (the ‘‘Circular’’), of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

The Board announced that on 20 September 2004, the Company has entered into a conditional sale and purchase agreement with Tsinlien for the acquisition of approximately 94.4% of the equity interest of Electricity Company and approximately 91.4% of the equity interest of Water Company at a total consideration of approximately HK$783.6 million.

As Tsinlien is the controlling shareholder of the Company and is a connected person of the Company as defined under the Listing Rules, the Acquisition constitutes a connected transaction under the Listing Rules and is subject to the approval of the Independent Shareholders at the EGM by poll. Tsinlien and its associates will abstain from voting in respect of the Acquisition at the EGM. Since each of the revenue ratio, consideration ratio and equity capital ratio in respect of the Acquisition exceeds 25% but less than 100%, the Acquisition also constitutes a major transaction of the Company under the Listing Rules.

The Independent Board Committee has been established by the Company to advise the Independent Shareholders in relation to the Acquisition and to give a recommendation to the Independent Shareholders in relation to the voting of the relevant resolutions at the EGM.

BASIS OF OUR OPINION

In arriving at our opinion and recommendation, we have relied on the information supplied and the opinion expressed by the Directors and the management of the Company. We have assumed that the information contained and representations made to us or referred to in the Circular are true, accurate and complete at the time they were made and continue to be so at the date of the Circular.

— 14 —

LETTER OF ADVICE FROM BARON

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading.

We have not, however, carried out any independent verification of the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Company and on the valuation reports disclosed in the Circular.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, we have taken the following principal factors and reasons into consideration:

1. Background and reasons of the Acquisition

Background information and assets to be acquired:

Electricity Company: As stated in the section headed ‘‘Letter from the Board’’ of the Circular, Electricity Company is a Sino-foreign equity joint venture established in the PRC on 5 July 2000 and is principally engaged in the supply of electricity in the Development Zone. Electricity Company also provides services in relation to maintenance of power supply equipment and electric power related technological consulting. Electricity Company is presently owned as to 94.4% by Progress City and 5.6% by Tianjin TEDA. Upon Completion, Electricity Company will be beneficially owned as to 94.4% by the Company and 5.6% by Tianjin TEDA. Electricity Company will become a subsidiary of the Company and its accounts will be consolidated into the Group’s accounts.

Water Company: As stated in the section headed ‘‘Letter from the Board’’ of the Circular, Water Company is a Sino-foreign equity joint venture established in the PRC on 5 July 2000 and is principally engaged in the supply of tap water in the Development Zone. Water Company is also engaged in installation and maintenance of water pipes, tap-water related technological consulting, and retail and wholesale of water pipes and related parts. Water Company is presently owned as to 91.4% by Progress City and 8.6% by Tianjin TEDA. Upon Completion, Water Company will be beneficially owned as to 91.4% by the Company and 8.6% by Tianjin TEDA. Water Company will become a subsidiary of the Company and its accounts will be consolidated into the Group’s accounts.

Business of the Group

— 15 —

LETTER OF ADVICE FROM BARON

Reasons for and benefit of entering into the Agreement

(i) Excellent opportunity to enter into the electric power and water supply industries: The Directors consider that the Acquisition could provide the Group with an excellent opportunity to enter into the electric power and water supply industries at a faster pace. According to the section headed ‘‘Letter from the Board’’ of the Circular, the installed capacity of electricity transmission by Electricity Company was approximately 250,000 kVA and the maximum daily water supply capacity of the Water Company was approximately 180,000 tonnes. Having reviewed the financial information and the businesses of the Electricity Company and the Water Company, we are of the opinion that acquiring utility companies with an established production facilities and customer base will allow the Group to reduce risk of business failure (when comparing to setting up a new business, or acquiring a facility which does not have previous track records) and provide the Group with an immediate and solid cashflow and profit contribution. Taking into consideration the track records, the established production facilities and the customer base of the Electricity Company and the Water Company, we concur with the Directors’ view that the Acquisition could provide with the Group an excellent opportunity to enter into the electric power and water supply industries at a faster pace.
(ii) Diversification Benefits: The Directors believe that the Acquisition will broaden the revenue base of the Group by integrating the relatively stable revenue sources from the Electricity Company and Water Company. With reference to the annual report 2003 of the Company, the revenue base of the Group is based on 8 major segments. We noted that the Group did not have any operation or shareholding interest in any companies conducting electricity supply and water supply businesses as at the Latest Practicable Date. Upon Completion, revenue of the Electricity Company and the Water Company will be consolidated into the Group’s revenue and the Group’s revenue will be improved as a result of the Acquisition. We are of the view that the addition of other stable sources of revenues and profits into the Group would provide the Group with benefits of diversification upon Completion. We consider that, in general, utility companies have a lower customer turnover ratio and a relatively stable revenue stream when compared to companies in other industries, and accordingly, we concur with the view of the Directors that the Acquisition will broaden the revenue base of the Group by integrating the relatively stable revenue sources from the Electricity Company and Water Company.

As stated in the section headed ‘‘Letter from the Board’’ of the Circular, in order to allow reasonable economic benefits to the investors or management entities of companies for operating infrastructural products and services which are subject to price constraint of the PRC government, the Finance Bureau of the Development Zone had agreed, pursuant to an agreement reached on 15 September 2003, to provide government supplemental income to the Electricity Company and Water Company from 2003 to 2007 and the Directors are of the view that the provision of government supplemental income will not be affected as a result of any change in their respective shareholders upon Completion. According to the ‘‘Letter from the Board’’ as set out in the Circular, the government supplemental income were RMB19.2 million (equivalent to approximately HK$18.1 million) and RMB49.8 million (equivalent to approximately HK$47.0 million) respectively for the Electricity Company and the Water Company for the year ended 31 December 2003. We are of the view that the provision of government supplemental income will ensure that there is stable income source to the Group.

— 16 —

LETTER OF ADVICE FROM BARON

(iii) Growth potentials: To evaluate the demand of electricity and water and the growth potential of the Development Zone, we have reviewed the statistics available in the annual reports and the website of the Development Zone, which was summarized in the table and chart below.

Statistics of the Development Zone 1998–2003

	1998	1999	2000	2001	2002	2003
GDP (RMB100 million)	180.11	208.45	256.44	312.03	380.09	445.23
year over year growth rate	N/A	15.73%	23.02%	21.68%	21.81%	17.14%
Total value of industrial output
(RMB100 million)	540.22	608.55	731.82	865.11	1031.24	1251.4
year over year growth rate	N/A	12.65%	20.26%	18.21%	19.20%	21.35%
Total value of exports
(RMB100 million)	20.2	25.5	32.7	40.4	57.1	68.9
year over year growth rate	N/A	26.24%	28.24%	23.55%	41.34%	20.67%

Source: TEDA annual report 2003 and TEDA website

Statistics of the Development Zone

==> picture [331 x 241] intentionally omitted <==

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

1400
1200
1000
800
600
400
200
0
1998 1999 2000 2001 2002 2003
GDP
Total value of industrial output
Total value of exports
Value (RMB100 million)
----- End of picture text -----

As from the above table and chart, we noted that the gross domestic product (‘‘GDP’’), the total value of industrial output and the total value of exports were all on increasing trends, indicating a period of growth for the period of 1998–2003 (the ‘‘Period’’). The average growth rate for the GDP, the total value of industrial output and the total value of exports were 19.9%, 18.3% and 28.0% respectively for the Period. According to the ‘‘Letter from the Board’’ contained in the Circular, the development

— 17 —

Consideration of the Acquisition

LETTER OF ADVICE FROM BARON

proposal of the west zone of the Development Zone was submitted to the relevant government officials for approval and was subsequently approved and the west zone will provide abundant land resources for the Development Zone. With reference to the continuing growth of the Development Zone and the increasing industrial output, we agree with the Directors’ view that the development of the Development Zone will accommodate more production plants and residential apartments which will further boost the demands for electricity and water.

Having taken into account the above, in particular that the Acquisition (i) could provide the Group with an excellent opportunity to enter into the electricity power and water supply industries at a faster pace and (ii) will broaden the revenue base of the Group by integrating the relatively stable revenue sources from the Electricity Company and Water Company and provide the Group with benefits of diversification and (iii) the development of the Development Zone will accommodate more production plants and residential apartments which will further boost the demands for electricity and water, we consider that the Acquisition is in the interests of the Company and the Shareholders as a whole.

Basis of consideration

Pursuant to the Agreement, the consideration of the Acquisition (the ‘‘Consideration’’) is approximately HK$783.6 million. The Directors confirmed that the Consideration was determined through arm’s length negotiation between the Company and Tsinlien and with reference to the combined net profit before taxation of approximately HK$64.0 million for the year ended 31 December 2003 and combined net tangible asset value of approximately HK$525.8 million of Electricity Company and Water Company as at 31 December 2003. In addition to the combined net profit before taxation and the combined net tangible asset value of Electricity Company and Water Company, the Consideration was also determined with reference to the revenue prospects of Electricity Company and Water Company and the price to earnings multiples of the industry comparables. Upon Completion, the Company will beneficially own approximately 94.4% equity interest in Electricity Company and 91.4% equity interest in Water Company, the attributable combined audited net profit after taxation (the ‘‘Attributable Profit’’) for the year ended 31 December 2003 is approximately HK$56 million and the attributable combined audited net asset value of Electricity Company and Water Company (the ‘‘Attributable NAV’’) is approximately HK$492 million as at 31 December 2003. The Consideration represents approximately 14 times of the Attributable Profit and approximately 1.6 times of the Attributable NAV. We considered that it is a common practice to determine the value of an asset based on the price to earning multiple and its net asset value (‘‘NAV’’).

Comparable listed companies

In formulating our opinion, we have noted that since the utility companies as a whole have similar price earnings ratios and since the Electricity Company accounted for the more than 80% of the Attributable Profit for the year ended 31 December 2003, we considered it is reasonable to analyze and consider the current market multiples of various comparable listed companies in Hong Kong principally engaged in the supply of electricity based in the PRC. The comparable companies were selected based on their nature and location of the business and the availability of their financial information to the public.

— 18 —

LETTER OF ADVICE FROM BARON

Based on the above selection criteria, we set out in the following table the relevant multiples of the selected comparable listed companies in Hong Kong based on their share prices on 20 September 2004, being the date of the Agreement, and their latest published annual and interim reports.

	Price/
	Earning	Price/NAV
Company name	(times)	(times)
Huadian Power International Corporation Limited (H
shares)	14.22	1.52
China Resources Power Holdings Company Limited	21.43	1.74
Huaneng Power International, Inc. (H shares)	15.51	2.52
Datang International Power Operation Company Limited	20.39	2.32
Average	17.89	2.03

Sources: Latest annual and interim report of the respective comparable companies available

Notes:

(1) Price refers to the closing price of the respective Hong Kong listed power company with main operations in the PRC as quoted on the Stock Exchange on 20 September 2004 and the total number of shares in issue according to the relevant company’s latest published annual or interim report or announcement as the case may require.
(2) Earnings refer to the net profit as per the latest published audited full year financial statements of the relevant company available.
(3) NAV refers to the net asset value as per the latest published financial statements of the relevant company available.

In our analysis, we have selected four comparable listed companies which are principally engaged in the supply of electricity in the PRC, and reviewed their respective price to earning multiples and price to NAV multiples based on their respective closing prices of the shares quoted on the Stock Exchange as at 20 September 2004 and their lately published annual reports. All of the selected companies were profit-making with a range of historic price to earning multiples of approximately 14.22 times to 21.43 times, with an overall average of 17.89 times. In respect of the price to NAV multiple, it ranges from 1.52 times to 2.52 times, with an overall average of 2.03 times.

According to the audited accounts of Electricity Company and Water Company as at 31 December 2003, the Attributable Profit is approximately HK$56 million. The Consideration for the Acquisition represents approximately 14 times of the Attributable Profit. Such figure is lower than the price to earning multiples for all of the selected companies.

According to the audited accounts of Electricity Company and Water Company as at 31 December 2003, the Attributable NAV is approximately HK$492 million. The Consideration for the Acquisition represents approximately 1.6 times of the Attributable NAV. Such figure is within the range and lower than the average multiple as stated above.

All of the selected comparable companies are public listed companies in Hong Kong with average price to earnings multiples and average price to NAV multiples of approximately 17.89 and 2.03 times respectively. The Consideration represents approximately 14 times and 1.6 times

— 19 —

LETTER OF ADVICE FROM BARON

of the Attributable Profit and Attributable NAV respectively. We noted that the Consideration to Attributable Profit multiple for the Acquisition is approximately 22% lower than the average price to earnings multiple of the selected companies. We also noted that the Consideration to Attributable NAV multiple for the Acquisition is approximately 21% lower than the average price to NAV multiple of the selected companies. In addition, in formulating our opinion, we have also considered the discount factor that should be applied to the price to earnings and NAV multiples due to the discrepancy in market value and liquidity between the comparable companies and the Electricity Company and the Water Company. Taking into account of the above, we are of the opinion that the Consideration is fair and reasonable.

Settlement Terms

Pursuant to the Agreement, the Consideration of approximately HK$783.6 million shall be satisfied by payment of cash sum of HK$160 million and the balance of HK$623.6 million by issue and allotment of 222,707,143 Consideration Shares at price of HK$2.8 per Share to Tsinlien or its designated wholly-owned subsidiary. The Company will finance the cash consideration by internal resources of the Group. As at the date of the Circular, the Directors confirmed that the Group has sufficient financial resources to satisfy the cash consideration. We consider that by settling the majority of the Consideration with the allotment and issue of the Consideration Shares, the Company can maintain sufficient liquidity and working capital for its day to day operation and future development. Please also refer to the discussion of the Acquisition’s effect on working capital of the Company in the section headed ‘‘Financial effects of the Acquisition’’ below.

The Consideration Shares represent:

approximately 32.4% of the existing issued share capital of the Company; and
approximately 24.5% of the enlarged issued share capital of the Company upon Completion.

On the basis of the closing price of HK$3.1 per Share as quoted on the Stock Exchange on 16 September 2004 (being the last trading date prior to the suspension in the trading of the Shares), the market value of the Consideration Shares is approximately HK$690.4 million.

The issue price of the Consideration Shares (the ‘‘Issue Price’’) of HK$2.8 represents:

a discount of approximately 9.7% to the closing price of the Shares of HK$3.1 per Share as quoted on the Stock Exchange on 16 September 2004, being the last trading date prior to the suspension in the trading of the Shares;
a premium of approximately 1.8% over the average closing price of HK$2.75 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including 16 September 2004;
a premium of approximately 3.3% over the average closing price of HK$2.71 per Share as quoted on the Stock Exchange for the last 20 trading days up to and including 16 September 2004;

— 20 —

LETTER OF ADVICE FROM BARON

a premium of approximately 4.9% over the average closing price of HK$2.67 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including 16 September 2004;
a discount of approximately 2.6% to the closing price of HK$2.88 as quoted on the Stock Exchange on the Last Practicable Date; and
a discount of approximately 4.0% to the average closing price of HK$2.92 per share as quoted on the Stock Exchange for the last 10 trading days up to and including the Latest Practicable Date.

We noted that the Issue Price of the Consideration Shares of HK$2.8 is approximately in line with the market trading price and represents a premium of approximately 4.9% over the average closing price of HK$2.67 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including 16 September 2004. Having considered the above, we are of the view that the Consideration and the Issue Price are in the interest of the Company and the Shareholders as a whole and are fair and reasonable insofar as the Company and the Independent Shareholders are concerned.

3. Financial effects of the Acquisition

Earnings

According to our discussion with the management of the Group and based on the financial statements of the Electricity Company and the Water Company, we understand that the Electricity Company and the Water Company have recorded combined profit for the past three financial years. Upon Completion, the Attributable Profit will be consolidated into the Group’s earning and the Group’s earning will be improved as a result of the Acquisition. In light of the potential earning contribution by the Electricity Company and the Water Company to the Group and the high growth potential of the Electricity Company and the Water Company, we are of the view that the Acquisition represents a good opportunity for the Group to broaden its revenue base.

Net asset value and net asset value per Share

According to the unaudited pro forma consolidated statement of assets and liabilities, the effect on the pro forma unaudited consolidated net assets of the Group upon Completion is set out as follows:

		Per Share
	HK$ million	(HK$)
Unaudited consolidated net assets of the Group as at 30
June 2004 before Completion	4,559	6.63
Pro forma unaudited consolidated net assets of the Group
as at 30 June 2004 as if the Acquisition were
completed on 30 June 2004	5,182	5.69

— 21 —

LETTER OF ADVICE FROM BARON

As illustrated in the above summary, the pro forma unaudited consolidated net assets of the Group would experience an increase from approximately HK$4,559 million to approximately HK$5,182 million as if the Acquisition were completed on 30 June 2004, representing an increase of approximately 13.67%. However, on a per share basis, the net assets per Share would be reduced from approximately HK$6.63 to approximately HK$5.69 upon the issue of the Consideration Shares as if the Acquisition were completed on 30 June 2004, representing a reduction of approximately 14.18%. Given the benefits of the Acquisition contributed to the Group, we consider that such reduction in the net asset value per Share is acceptable.

Working Capital

In formulating our opinion, based on the unaudited pro forma financial information as disclosed in the Circular, we have considered that the available cash balance of the Group was approximately HK$1,965 million as at 30 June 2004 before Completion. The available cash balance for the Group will become approximately HK$2,020 million as if the Acquisition were completed on 30 June 2004 as disclosed in section headed ‘‘Unaudited pro forma consolidated statement of assets and liabilities’’ of Appendix IV of the Circular. As a result of the Acquisition, the cash balance of the Group will be increased by approximately HK$55 million. The current ratio, defined as total current asset divided by the current liabilities, before and after Completion is 3.34 times and 2.92 times respectively. In respect of the increase in the cash balance and a lower quick ratio as a result of the Acquisition, we have discussed with the management of the Group in relation to the working capital requirement and business prospect of the Electricity Company and the Water Company and we concur with the view of the Directors that the Group has adequate working capital and cash flow, and the business operation of the Group would not be adversely affected by the Acquisition.

Gearing

Based on the unaudited balance sheet of the Group as at 30 June 2004 (as set out in Appendix III of the Circular), net debt (being total bank and other borrowings net of the cash and bank balances) of the Group amounted to approximately HK$147.1 million and the unaudited net asset value of the Group was approximately HK$4,559 million. The gearing ratio (being the net debt divided by the net asset value) of the Group was thus approximately 3.23%.

According to the unaudited pro forma consolidated statement of assets and liabilities of the Group as at 30 June 2004 (as set out in Appendix IV of the Circular), the Group would have a net debt of approximately HK$141.3 million and an unaudited pro forma net asset value of approximately HK$5,182 million as if the Acquisition were completed on 30 June 2004. The gearing ratio of the Group would thus be approximately 2.73% upon Completion, when compared to the gearing ratio of 3.23% before Completion, we consider it represents an improvement of the Group’s gearing position. Taking into account the benefits of the Acquisition and the improvement in the Group’s gearing position as if the Acquisition were completed on 30 June 2004, we are of the opinion that the Acquisition would not cause any material adverse effect on the enlarged group’s financial position.

— 22 —

LETTER OF ADVICE FROM BARON

Dilution effect on shareholding

Upon Completion, a total of 222,707,143 Consideration Shares will be issued by the Company. The Consideration Shares represents approximately 32.4% of the existing issued share capital of the Company and approximately 24.5% of the enlarged issued share capital of the Company as enlarged by the issuance of the Consideration Shares. Shareholding of the Independent Shareholders will be diluted from current level of approximately 47.6% to approximately 35.9%. We consider that the dilution of the Independent Shareholders’ interest in the Company, as a consequence of the issue of the Consideration Shares is acceptable after taking into account (i) the reasons for the Acquisition as stated in the section headed ‘‘Background and reasons of the Acquisition’’ above; (ii) the Issue Price is approximately in line with the market trading price; and (iii) the issuance of the Consideration Shares will allow the Company to retain its cash resources for its day to day operations and future developments.

RECOMMENDATIONS

Taking into account the factors and reasons as mentioned above, we are of the opinion that the Acquisition is in the interests of the Company and the Independent Shareholders as a whole and that the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee and the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM in respect of the Acquisition and the issue of Consideration Shares relating thereto.

Yours faithfully, For and on behalf of Baron Capital Limited Chiu Sui Keung, Thomas Managing Director

— 23 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

The following is the text of a report, prepared for the purpose of incorporation in this Circular, received from the reporting accountants, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong.

==> picture [106 x 31] intentionally omitted <==

13 October 2004

The Directors

Tianjin Development Holdings Limited

Dear Sirs,

We set out below our report on the financial information relating to Tianjin TEDA Tsinlien Electric Power Company Limited (the ‘‘Electricity Company’’) for the years ended 31 December 2001, 2002 and 2003 and six months ended 30 June 2003 and 2004 (the ‘‘Relevant Periods’’) for inclusion in the circular of Tianjin Development Holdings Limited (the ‘‘Company’’) dated 13 October 2004 (the ‘‘Circular’’). The Circular is in connection with the proposed acquisition of approximately 94.4% equity interest in the Electricity Company and approximately 91.4% equity interest in Tianjin TEDA Tsinlien Water Supply Company Limited (the ‘‘Water Company’’) by the Company. The Electricity Company and the Water Company will be acquired from Tsinlien Group Company Limited, the ultimate holding company of the Company through Progress City Group Limited, a wholly-owned subsidiary of Tsinlien Group Company Limited.

The Electricity Company is a Sino-foreign equity joint venture established in Tianjin, the People’s Republic of China (the ‘‘PRC’’) on 5 July 2000 and has adopted 31 December as its financial year end. At the date of this report, the Electricity Company was 94.4% owned by Progress City Group Limited and 5.6% owned by Tianjin TEDA Investment Holdings Limited.

The statutory accounts of the Electricity Company for the years ended 31 December 2001, 2002 and 2003 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC, and were audited by Tianjin Jindaxin Certified Public Accountants, which is registered in the PRC. For the purpose of this report, the directors of the Electricity Company have prepared the accounts of the Electricity Company for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong (the ‘‘HK GAAP accounts’’). We have carried out independent audit of the HK GAAP accounts, in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

The financial information as set out in Section I to III below (the ‘‘Financial Information’’) has been prepared based on the HK GAAP accounts. We have examined the HK GAAP accounts of the Electricity Company for the Relevant Periods and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline ‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA.

— 24 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

The directors of the Electricity Company, during the Relevant Periods, are responsible for preparing the HK GAAP accounts which give a true and fair view. In preparing the HK GAAP accounts, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of the Company are responsible for the Financial Information. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the Electricity Company as at 31 December 2001, 2002 and 2003 and 30 June 2004, and of the results and cash flows of the Electricity Company for the Relevant Periods.

— 25 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

I. FINANCIAL INFORMATION

1. Profit and loss accounts

Note Turnover 3 Cost of sales Gross profit Other revenue 3 General and administrative expenses Other operating income/ (expense), net Operating profit 4 Finance costs 5 Profit before taxation Taxation credit/(charge) 6 Profit attributable to shareholders 21	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 372,148 424,314 515,647 (319,029) (378,202) (430,052) 53,119 46,112 85,595 1,699 640 1,202 (22,531) (25,929) (24,275) 3,052 (3,087) (2,064) 35,339 17,736 60,458 (6,801) (7,015) (7,018) 28,538 10,721 53,440 — 975 (3,891) 28,538 11,696 49,549	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 372,148 424,314 515,647 (319,029) (378,202) (430,052) 53,119 46,112 85,595 1,699 640 1,202 (22,531) (25,929) (24,275) 3,052 (3,087) (2,064) 35,339 17,736 60,458 (6,801) (7,015) (7,018) 28,538 10,721 53,440 — 975 (3,891) 28,538 11,696 49,549	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 285,633 244,482 (247,629) (205,728) 38,004 38,754 721 406 (7,905) (8,938) (188) 40 30,632 30,262 (3,459) (3,459) 27,173 26,803 (2,262) (1,790) 24,911 25,013
	2001 HK$’000 372,148 (319,029) 53,119 1,699 (22,531) 3,052 35,339 (6,801) 28,538 — 28,538	2002 HK$’000 424,314 (378,202) 46,112 640 (25,929) (3,087) 17,736 (7,015) 10,721 975 11,696	2004 HK$’000 285,633 (247,629) 38,004 721 (7,905) (188) 30,632 (3,459) 27,173 (2,262) 24,911

— 26 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

2. Balance sheets

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 284,570 277,800 256,331 1,122 1,122 1,122 6,516 7,491 7,402 292,208 286,413 264,855 ---------- ---------- ---------- 52,793 60,617 76,902 11,873 16,025 33,074 29,087 40,831 37,620 1,089 3,628 1,974 56,886 65,435 107,707 151,728 186,536 257,277 ---------- ---------- ---------- — 2,100 — 19,195 23,026 20,734 — — — — — 687 19,195 25,126 21,421 ---------- ---------- ---------- 132,533 161,410 235,856 ---------- ---------- ---------- 424,741 447,823 500,711 296,549 296,549 296,549 17,219 28,915 78,464 313,768 325,464 375,013 110,973 122,359 125,698 424,741 447,823 500,711	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 284,570 277,800 256,331 1,122 1,122 1,122 6,516 7,491 7,402 292,208 286,413 264,855 ---------- ---------- ---------- 52,793 60,617 76,902 11,873 16,025 33,074 29,087 40,831 37,620 1,089 3,628 1,974 56,886 65,435 107,707 151,728 186,536 257,277 ---------- ---------- ---------- — 2,100 — 19,195 23,026 20,734 — — — — — 687 19,195 25,126 21,421 ---------- ---------- ---------- 132,533 161,410 235,856 ---------- ---------- ---------- 424,741 447,823 500,711 296,549 296,549 296,549 17,219 28,915 78,464 313,768 325,464 375,013 110,973 122,359 125,698 424,741 447,823 500,711	As at 30 June
2001 HK$’000 284,570 1,122 6,516 292,208 ---------- 52,793 11,873 29,087 1,089 56,886 151,728 ---------- — 19,195 — — 19,195 ---------- 132,533 ---------- 424,741 296,549 17,219 313,768 110,973 424,741	2002 HK$’000 277,800 1,122 7,491 286,413 ---------- 60,617 16,025 40,831 3,628 65,435 186,536 ---------- 2,100 23,026 — — 25,126 ---------- 161,410 ---------- 447,823 296,549 28,915 325,464 122,359 447,823	2004
		HK$’000 244,805 1,122 6,844
		252,771 ---------- 99,062 36,825 35,693 — 162,735
		334,315 ---------- 40,111 16,401 1,485 1,316
		59,313 ----------
		275,002 ----------
		527,773
		296,549 103,375
		399,924 127,849
		527,773

— 27 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

3. Statements of changes in equity

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 285,230 313,768 325,464 28,538 11,696 49,549 313,768 325,464 375,013	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 285,230 313,768 325,464 28,538 11,696 49,549 313,768 325,464 375,013	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 285,230 28,538 313,768	2002 HK$’000 313,768 11,696 325,464	2004 HK$’000 375,013 24,911 399,924	2003
			HK$’000 325,464 25,013
			350,477

— 28 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

4 Cash flow statements

Note Operating activities Net cash inflow generated from operations 23(a) Interest paid Taxation paid Net cash inflow from operating activities Investing activities Purchase of fixed assets Proceeds from disposals of fixed assets (Increase)/decrease in bank balances with maturity period over three months Interest received Net cash (outflow)/inflow from investing activities Financing activities Increase in loan from the minority shareholder Net cash inflow from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period 23(b)	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,289 20,451 49,531 (6,801) (7,015) (7,018) — — (3,115) 11,488 13,436 39,398 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (13,517) (16,981) (2,707) 26 131 1,103 (5,849) 4,692 (50,713) 742 577 1,139 (18,598) (11,581) (51,178) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 727 11,386 3,339 727 11,386 3,339 ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ (6,383) 13,241 (8,441) 57,420 51,037 64,278 51,037 64,278 55,837	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,289 20,451 49,531 (6,801) (7,015) (7,018) — — (3,115) 11,488 13,436 39,398 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (13,517) (16,981) (2,707) 26 131 1,103 (5,849) 4,692 (50,713) 742 577 1,139 (18,598) (11,581) (51,178) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 727 11,386 3,339 727 11,386 3,339 ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ (6,383) 13,241 (8,441) 57,420 51,037 64,278 51,037 64,278 55,837	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 56,713 78,627 (3,459) (3,459) (1,075) (821) 52,179 74,347 - - - - - - - - - - - - - - - - - - - - (602) (760) 587 92 37,578 (3,521) 713 367 38,276 (3,822) - - - - - - - - - - - - - - - - - - - - 2,151 3,357 2,151 3,357 ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ 92,606 73,882 55,837 64,278 148,443 138,160
	2001 HK$’000 18,289 (6,801) — 11,488 - - - - - - - - - - (13,517) 26 (5,849) 742 (18,598) - - - - - - - - - - 727 727 ~~- - - - - - - - - -~~ (6,383) 57,420 51,037	2002 HK$’000 20,451 (7,015) — 13,436 - - - - - - - - - - (16,981) 131 4,692 577 (11,581) - - - - - - - - - - 11,386 11,386 ~~- - - - - - - - - -~~ 13,241 51,037 64,278	2004 HK$’000 56,713 (3,459) (1,075) 52,179 - - - - - - - - - - (602) 587 37,578 713 38,276 - - - - - - - - - - 2,151 2,151 ~~- - - - - - - - - -~~ 92,606 55,837 148,443

— 29 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

II. NOTES TO THE FINANCIAL INFORMATION

1. Principal activity

The Electricity Company is a Sino-foreign equity joint venture established in the People’s Republic of China (the ‘‘PRC’’) on 5 July 2000 and is principally engaged in the supply of electricity within the Tianjin Economic and Technological Development Area (the ‘‘TEDA’’) located in Municipality of Tianjin, the PRC.

2. Principal accounting policies

(a) Basis of preparation

The Financial Information set out in this report has been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Institute of Certified Public Accountants. The principal accounting policies adopted are set out below.

(b) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation of fixed assets is calculated to write off the cost of the assets less estimated residual values using a straight-line method over their estimated useful lives. The principal annual rates are as follows:

Leasehold land	over the unexpired lease term
Buildings	20–25 years
Plant and machinery	7–25 years
Motor vehicles	8 years
Office equipment	7 years

Major costs incurred in restoring fixed assets to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Electricity Company.

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

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account.

(c) Provisions

Provisions are recognised when the Electricity Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Electricity Company expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(d) Trade receivable

Provision is made against trade receivables to the extent they are considered to be doubtful. Trade receivables in the balance sheet are stated net of such provision.

— 30 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

2. Principal accounting policies (Continued)

(e) Investment securities

Investment securities are stated at cost less any provision for impairment losses.

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the profit and loss account. This impairment loss is written back to profit and loss account when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

(f) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.

(g) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(h) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Electricity Company. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Electricity Company.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(i) Foreign currencies

(i) Presentation currency

The Financial Information set out in this report are converted from Renminbi (‘‘RMB’’) to Hong Kong dollars (‘‘HK$’’) at a conversion rate of HK$1.00 to RMB1.06.

(ii) Foreign currencies transactions and balances

The functional currency of the Electricity Company is denominated in RMB. Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

— 31 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

2. Principal accounting policies (Continued)

(j) Revenue recognition

Sale of electricity is recognised on supply of electricity to the customers based on meter readings.

Government supplemental income as set out in Note 2(n) below is recognised on an accrual basis.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(k) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals payable to such operating leases net of any incentives received are charged to the profit and loss account on a straight-line basis over the periods of the leases.

(l) Retirement benefit costs

The employees of the Electricity Company are members of the state-managed employee pension scheme operated by the Tianjin Municipal People’s Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees. The Electricity Company’s obligation is to make the required contributions under the scheme based on a certain percentage of the employees’ salary. The contributions are charged to profit and loss account as incurred.

(m) Borrowing costs

Borrowing costs that are directly attributable to the construction of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of that asset. All other borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(n) Government supplemental income

Government supplemental income represents assistance by local municipal government in the form of cash based on a fixed rate. Such income is recognised when there is a reasonable assurance that the Electricity Company will comply with the conditions attached with it and that the income will be received.

— 32 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

3. Turnover and other revenue

(a) The Electricity Company is principally engaged in the supply of electricity. Turnover is net of value added tax and less discounts where applicable. Revenue recognised during the Relevant Periods is as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 372,148 424,314 497,575 — — 18,072 372,148 424,314 515,647 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 742 577 1,139 957 63 63 1,699 640 1,202 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 373,847 424,954 516,849	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 372,148 424,314 497,575 — — 18,072 372,148 424,314 515,647 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 742 577 1,139 957 63 63 1,699 640 1,202 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 373,847 424,954 516,849	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 372,148 — 372,148 - - - - - - - - - - 742 957 1,699 - - - - - - - - - - 373,847	2002 HK$’000 424,314 — 424,314 - - - - - - - - - - 577 63 640 - - - - - - - - - - 424,954	2004 HK$’000 275,308 10,325 285,633 - - - - - - - - - - 713 8 721 - - - - - - - - - - 286,354	2003
			HK$’000 236,101 8,381
			244,482 - - - - - - - - - - 367 39
			406 - - - - - - - - - -
			244,888

Note:

On 15 September 2003, the Finance Bureau of TEDA confirmed that the Electricity Company was granted government supplemental income calculated at RMB0.02 per kWh of electricity supplied to its customers in the TEDA for the five years to 31 December 2007.

(b) Segment information

Supply of electricity is the only business segment of the Electricity Company throughout the Relevant Periods. All assets and operations of the Electricity Company for the Relevant Periods are located in the PRC. Accordingly, no separate business and geographical segment information is presented.

4. Operating profit

Operating profit is stated after crediting and charging the following: Staff costs, including directors’ emoluments — Wages and salaries — Contributions to retirement benefit schemes Auditors’ remuneration Depreciation Loss/(gain) on disposal of fixed assets Operating lease rentals — Land and buildings — Plant and machinery — Motor vehicles Provision/(write back of provision) for bad and doubtful debts	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 30,079 31,542 32,997 992 1,232 1,164 72 34 34 22,460 23,326 23,131 470 294 (58) 28 28 555 2,001 6,758 6,893 — — 343 5,107 8,601 7,359	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 30,079 31,542 32,997 992 1,232 1,164 72 34 34 22,460 23,326 23,131 470 294 (58) 28 28 555 2,001 6,758 6,893 — — 343 5,107 8,601 7,359	For the six months ended 30 June	For the six months ended 30 June
	2001 HK$’000 30,079 992 72 22,460 470 28 2,001 — 5,107	2002 HK$’000 31,542 1,232 34 23,326 294 28 6,758 — 8,601	2004 HK$’000 16,325 1,128 40 11,466 75 184 3,510 405 (919)	2003
				HK$’000 15,210 858 20 11,980 — 230 3,446 — —

— 33 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

5. Finance costs

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,801 7,015 7,018 For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 3,802 — — — — (975) 89 — (975) 3,891	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,801 7,015 7,018 For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 3,802 — — — — (975) 89 — (975) 3,891	For the six months ended 30 June	For the six months ended 30 June
		2004 2003 HK$’000 HK$’000 3,459 3,459 For the six months ended 30 June	2003
			HK$’000 3,459
2001 HK$’000 — — — —	2002 HK$’000 — — (975) (975)	2004 HK$’000 1,380 324 558 2,262	2003
			HK$’000 1,701 — 89
			1,790

No provision for Hong Kong profits tax has been made as the Electricity Company has no assessable profit in Hong Kong.

Provision for the PRC income tax has been made at applicable rate of taxation on the estimated assessable profit for the Relevant Periods.

The applicable PRC income tax rate is 15%, being the preferential rate enjoyed by the Electricity Company as a Sinoforeign equity joint venture. In addition, the Electricity Company is exempted from income tax for two years starting from 2001 followed by a 50% reduction for the next three years.

Taxation of the Electricity Company’s profit differs from the theoretical amount that would arise using the applicable income tax rate as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 28,538 10,721 53,440 4,281 1,608 8,016 536 450 913 (4,817) (3,033) (5,038) — — — — (975) 3,891	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 28,538 10,721 53,440 4,281 1,608 8,016 536 450 913 (4,817) (3,033) (5,038) — — — — (975) 3,891	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 28,538 4,281 536 (4,817) — —	2002 HK$’000 10,721 1,608 450 (3,033) — (975)	2004 HK$’000 27,173 4,076 — (2,138) 324 2,262	2003
			HK$’000 26,803
			4,021 — (2,231) —
			1,790

Dividends

No dividends has been paid or declared by the Electricity Company during the Relevant Periods.

— 34 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

8. Earnings per share

No earnings per share information is presented as the Electricity Company’s paid up capital is not divided into shares.

9. Emoluments for directors and highest paid individuals

(a) Directors’ emoluments

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — — 31 35 27 53 53 95 23 29 37 107 117 159	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — — 31 35 27 53 53 95 23 29 37 107 117 159	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 — 31 53 23 107	2002 HK$’000 — 35 53 29 117	2004 HK$’000 — 15 50 18 83	2003
			HK$’000 — 15 56 18
			89

No directors of the Electricity Company waived any remuneration during the Relevant Periods.

The remunerations of the directors are all less than HK$1,000,000.

(b) Senior management emoluments

The five highest paid individuals consisted of:

For the year ended 31 December 2001 2002 2003 1 1 — 4 4 5 5 5 5	For the year ended 31 December 2001 2002 2003 1 1 — 4 4 5 5 5 5	For the six months ended 30 June	For the six months ended 30 June
2001 1 4 5	2002 1 4 5	2004 1 4 5	2003
			— 5
			5

The emoluments of the five highest paid individuals, included one director whose emoluments are included in the above disclosures. The emoluments of the remaining individuals were as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 123 135 157 194 196 425 72 99 104 389 430 686	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 123 135 157 194 196 425 72 99 104 389 430 686	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 123 194 72 389	2002 HK$’000 135 196 99 430	2004 HK$’000 64 191 59 314	2003
			HK$’000 83 219 51
			353

The emoluments of five highest paid individuals are all less than HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the Electricity Company to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Electricity Company or as compensation for loss of office.

— 35 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

10. Retirement benefit scheme

The employees of the Electricity Company participate in a retirement benefit plan organised by the Tianjin Municipal People’s Government whereby the Electricity Company makes monthly defined contributions to the plan at a certain percentage of the employees’ basic salary.

The Electricity Company has no other obligations for the payment of retirement and other post-retirement benefits of employees or retirees other than the contribution payments disclosed in Note 4.

11. Fixed assets

Cost At 31 December 2000 Additions Disposals At 31 December 2001 Additions Disposals At 31 December 2002 Additions Disposals At 31 December 2003 Additions Disposals At 30 June 2004 Accumulated depreciation At 31 December 2000 Charge for the year Disposals At 31 December 2001 Charge for the year Disposals At 31 December 2002 Charge for the year Disposals At 31 December 2003 Charge for the period Disposals At 30 June 2004 Net book value At 31 December 2001 At 31 December 2002 At 31 December 2003 At 30 June 2004	Land and buildings HK$’000 86,996 2,931 — 89,927 — (360) 89,567 — — 89,567 — (754) 88,813 - - - - - - - - - - 13,361 3,393 — 16,754 3,108 — 19,862 3,231 — 23,093 1,613 (92) 24,614 - - - - - - - - - - 73,173 69,705 66,474 64,199	Plant and machinery HK$’000 281,210 4,078 (1,058) 284,230 13,176 (198) 297,208 910 — 298,118 322 — 298,440 - - - - - - - - - - 66,654 17,713 (738) 83,629 17,670 (133) 101,166 17,430 — 118,596 8,661 — 127,257 - - - - - - - - - - 200,601 196,042 179,522 171,183	Office equipment HK$’000 3,292 4,108 (4) 7,396 3,760 — 11,156 977 — 12,133 280 — 12,413 - - - - - - - - - - 1,179 514 (4) 1,689 1,606 — 3,295 1,684 — 4,979 890 — 5,869 - - - - - - - - - - 5,707 7,861 7,154 6,544	Motor vehicles HK$’000 6,542 2,400 (463) 8,479 45 — 8,524 820 (3,254) 6,090 — — 6,090 - - - - - - - - - - 2,837 840 (287) 3,390 942 — 4,332 786 (2,209) 2,909 302 — 3,211 - - - - - - - - - - 5,089 4,192 3,181 2,879	Total HK$’000 378,040 13,517 (1,525) 390,032 16,981 (558) 406,455 2,707 (3,254) 405,908 602 (754) 405,756 - - - - - - - - - - 84,031 22,460 (1,029) 105,462 23,326 (133) 128,655 23,131 (2,209) 149,577 11,466 (92) 160,951 - - - - - - - - - - 284,570 277,800 256,331 244,805

The land and buildings are located in the PRC and are held under medium term leases of 10 to 50 years.

— 36 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

Investment securities

Unlisted shares, at cost	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,122 1,122 1,122	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,122 1,122 1,122	As at 30 June
	2001 HK$’000 1,122	2002 HK$’000 1,122	2004
			HK$’000 1,122

13. Deferred tax assets

Deferred taxation is calculated in full on temporary differences under the liability method using the applicable income tax rate of 15%.

The movement on the deferred tax asset account is as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,516 6,516 7,491 — 975 (89) 6,516 7,491 7,402	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,516 6,516 7,491 — 975 (89) 6,516 7,491 7,402	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 6,516 — 6,516	2002 HK$’000 6,516 975 7,491	2004 HK$’000 7,402 (558) 6,844	2003
			HK$’000 7,491 (89)
			7,402

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the Relevant Periods is as follows:

Accelerated accounting depreciation Provisions Accrued income HK$’000 HK$’000 HK$’000 1,818 6,723 (2,025) — 3,892 (2,917) 1,818 10,615 (4,942) — 1,958 (2,047) 1,818 12,573 (6,989) 5 384 (947) 1,823 12,957 (7,936) 1,818 10,615 (4,942) — 1,958 (2,047) 1,818 12,573 (6,989) As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 8,541 12,433 14,391 (2,025) (4,942) (6,989) 6,516 7,491 7,402	Provisions Accrued income HK$’000 HK$’000 6,723 (2,025) 3,892 (2,917) 10,615 (4,942) 1,958 (2,047) 12,573 (6,989) 384 (947) 12,957 (7,936) 10,615 (4,942) 1,958 (2,047) 12,573 (6,989) As at 31 December	Provisions Accrued income HK$’000 HK$’000 6,723 (2,025) 3,892 (2,917) 10,615 (4,942) 1,958 (2,047) 12,573 (6,989) 384 (947) 12,957 (7,936) 10,615 (4,942) 1,958 (2,047) 12,573 (6,989) As at 31 December	Total
			HK$’000 6,516 975
			7,491 (89)
			7,402 (558)
			6,844
			7,491 (89)
			7,402
			As at 30 June
2001 HK$’000 8,541 (2,025) 6,516	2002 HK$’000 12,433 (4,942) 7,491	2003	2004
			HK$’000 14,780 (7,936)
			6,844

The amounts are to be settled after more than 12 months and there is no material unprovided deferred tax for the Relevant Periods.

— 37 —

APPENDIX I

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

14. Trade receivables

The aging analysis of trade receivables (net of provisions) is as follows:

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 34,859 44,168 49,687 4,146 1,820 5,651 5,154 6,441 6,789 8,634 8,188 14,775 52,793 60,617 76,902	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 34,859 44,168 49,687 4,146 1,820 5,651 5,154 6,441 6,789 8,634 8,188 14,775 52,793 60,617 76,902	As at 30 June
2001 HK$’000 34,859 4,146 5,154 8,634 52,793	2002 HK$’000 44,168 1,820 6,441 8,188 60,617	2004
		HK$’000 68,353 8,944 3,883 17,882
		99,062

In general, credit terms of 30 days are given to customers.

15. Other receivables, deposits and prepayments

The balance includes government supplemental income receivable from the Finance Bureau of TEDA amounting to HK$28.4 million and HK$18.1 million as at 30 June 2004 and 31 December 2003 respectively (Note 3(a)). The aforesaid supplemental income receivable as at 31 December 2003 has been subsequently settled as of the date of this report.

16. Amounts due from related companies

The amounts receivable arose from ordinary and normal course of business and are unsecured, interest free and have no fixed terms of repayment.

17. Amount due from/(to) the minority shareholder

The amount receivable/payable arose from ordinary and normal course of business and is unsecured, interest free and has no fixed terms of repayment.

18. Cash and bank balances

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 46,313 57,864 104,186 10,573 7,571 3,521 56,886 65,435 107,707	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 46,313 57,864 104,186 10,573 7,571 3,521 56,886 65,435 107,707	As at 30 June
2001 HK$’000 46,313 10,573 56,886	2002 HK$’000 57,864 7,571 65,435	2004
		HK$’000 152,541 10,194
		162,735

All of the cash and bank balances were deposited with banks in the PRC principally denominated in Renminbi. The conversion of these Renminbi denominated balances into foreign currencies and remittance out of the PRC are subject to the rules and regulations of foreign exchange controls promulgated by the PRC government.

— 38 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

19. Trade payables

The aging analysis of the trade payables is as follows:

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — 2,100 — — — — — 2,100 —	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — 2,100 — — — — — 2,100 —	As at 30 June
2001 HK$’000 — — —	2002 HK$’000 2,100 — 2,100	2004
		HK$’000 36,776 3,335
		40,111

20. Paid-up capital

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 296,549 296,549 296,549	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 296,549 296,549 296,549	As at 30 June
2001 HK$’000 296,549	2002 HK$’000 296,549	2004
		HK$’000 296,549

At 31 December 2000 Profit for the year Transfers At 31 December 2001 Profit for the year Transfers At 31 December 2002 Profit for the year At 31 December 2003 Profit for the period At 30 June 2004 At 31 December 2002 Profit for the period At 30 June 2003	Capital reserve HK$’000 (15,361) — — (15,361) — — (15,361) — (15,361) — (15,361) (15,361) — (15,361)	Reserve fund HK$’000 — — 6,847 6,847 — 3,002 9,849 — 9,849 — 9,849 9,849 — 9,849	Enterprise expansion reserve HK$’000 — — 3,574 3,574 — 3,002 6,576 — 6,576 — 6,576 6,576 — 6,576	Retained profits HK$’000 4,042 28,538 (10,421) 22,159 11,696 (6,004) 27,851 49,549 77,400 24,911 102,311 27,851 25,013 52,864	Total
					HK$’000 (11,319) 28,538 —
					17,219 11,696 —
					28,915 49,549
					78,464 24,911
					103,375
					28,915 25,013
					53,928

According to the Articles of Association of the Electricity Company, a percentage of net profit as reported in the PRC statutory accounts should be transferred to reserve fund and enterprise expansion reserve determined at the discretion of the board of directors of the Electricity Company. The reserve fund can be used to set off accumulated loss whilst the enterprise expansion reserve can be used for expansion of production facilities or increase in registered capital.

22. Loan from the minority shareholder

The loan from the minority shareholder is unsecured, has no fixed terms of repayment and is interest free, except for an amount of HK$107.5 million which carries interest at 6.4% per annum during the Relevant Periods.

— 39 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

23. Notes to cash flow statements

(a) Reconciliation of operating profit to net cash inflow generated from operations:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 35,339 17,736 60,458 (742) (577) (1,139) 22,460 23,326 23,131 470 294 (58) 57,527 40,779 82,392 (6,755) (7,824) (16,285) 1,225 (4,152) (17,049) (8,846) (11,744) 3,211 (21,536) 2,100 (2,100) (158) 3,831 (2,292) (3,168) (2,539) 1,654 18,289 20,451 49,531	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 35,339 17,736 60,458 (742) (577) (1,139) 22,460 23,326 23,131 470 294 (58) 57,527 40,779 82,392 (6,755) (7,824) (16,285) 1,225 (4,152) (17,049) (8,846) (11,744) 3,211 (21,536) 2,100 (2,100) (158) 3,831 (2,292) (3,168) (2,539) 1,654 18,289 20,451 49,531	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 35,339 (742) 22,460 470 57,527 (6,755) 1,225 (8,846) (21,536) (158) (3,168) 18,289	2002 HK$’000 17,736 (577) 23,326 294 40,779 (7,824) (4,152) (11,744) 2,100 3,831 (2,539) 20,451	2004 HK$’000 30,632 (713) 11,466 75 41,460 (22,160) (3,751) 1,927 40,111 (4,333) 3,459 56,713	2003
			HK$’000 30,262 (367) 11,980 —
			41,875 (16,418) (7,316) (1,876) 60,074 (1,462) 3,750
			78,627

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 56,886 65,435 107,707 (5,849) (1,157) (51,870) 51,037 64,278 55,837	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 56,886 65,435 107,707 (5,849) (1,157) (51,870) 51,037 64,278 55,837	As at 30 June	As at 30 June
2001 HK$’000 56,886 (5,849) 51,037	2002 HK$’000 65,435 (1,157) 64,278	2004 HK$’000 162,735 (14,292) 148,443	2003
			HK$’000 142,838 (4,678)
			138,160

Commitments

(a) Capital commitment for plant and machinery

Contracted but not provided for	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 283 2,828 758	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 283 2,828 758	As at 30 June
	2001 HK$’000 283	2002 HK$’000 2,828	2004
			HK$’000 748

— 40 —

APPENDIX I ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

24. Commitments (Continued)

(b) Commitments under operating leases

During the Relevant Periods, the Electricity Company had future aggregate minimum lease payments under noncancellable operating leases as follows:

Land and building	Land and building	Motor vehicles	Motor vehicles
As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 11 — — — — — 11		As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 1,058 — — 1,588 — — 2,646		As at 30 June
2001 HK$’000 — — —	2002 HK$’000 — — —	2001 HK$’000 — — —	2002 HK$’000 — — —	2004
				HK$’000 1,058 1,058
				2,116

25. Related party transactions

During the Relevant Periods, the following significant transactions with related companies had taken place, which in the opinion of the directors were conducted in ordinary course of the Electricity Company’s business:

The minority shareholder — Tianjin TEDA Investment Holdings Limited (‘‘Tianjin TEDA’’) Rental for land (note (a)) Interest expense (Note 5) Fellow subsidiaries — Tianjin TEDA Tsinlien Heat & Power Company Limited Sale of electricity (Note (b)) Utility charges paid (Note (c)) — Tianjin TEDA Tsinlien Water Supply Company Limited (the ‘‘Water Company’’) Sale of electricity (Note (b)) Utility charges paid (Note (c)) — Tianjin TEDA Tsinlien Gas Supply Company Limited Sale of electricity (Note (b)) A related company — Tianjin TEDA Electric Power Company Limited (‘‘TEDA Electric Power’’) Rental for plant and machinery (Note (d))	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 (28) (28) (28) (6,801) (7,015) (7,018) 8,688 8,205 12,451 (692) (599) (707) 1,758 3,492 3,164 (252) (274) (265) 500 542 741 (2,001) (6,758) (6,893)	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 (28) (28) (28) (6,801) (7,015) (7,018) 8,688 8,205 12,451 (692) (599) (707) 1,758 3,492 3,164 (252) (274) (265) 500 542 741 (2,001) (6,758) (6,893)	For the six months ended 30 June	For the six months ended 30 June
	2001 HK$’000 (28) (6,801) 8,688 (692) 1,758 (252) 500 (2,001)	2002 HK$’000 (28) (7,015) 8,205 (599) 3,492 (274) 542 (6,758)	2004 HK$’000 (14) (3,459) 2,972 (193) 1,510 (162) 271 (3,510)	2003
				HK$’000 (14) (3,459) 4,877 (194) 1,269 (119) 497 (3,446)

— 41 —

ACCOUNTANTS’ REPORT ON ELECTRICITY COMPANY

APPENDIX I

25. Related party transactions (Continued)

Note:

(a) Rental due to the minority shareholder for land was paid at RMB5 per square metre.
(b) Sales to fellow subsidiary companies were charged at prices and terms no less favourable than those charged to and contracted with other third party customers.
(c) The utility charges due to fellow subsidiary companies were paid at prices and terms no less favourable than those charged to and contracted with other third party customers.
(d) Rental due to TEDA Electric Power for certain plant and machinery was paid at amounts agreed by the parties. Both TEDA Electric Power and the Electricity Company have common management. There is no rental agreement entered into for renting of the plant and machinery.

26. Ultimate holding company

The directors of the Electricity Company consider Tsinlien Group Company Limited, a company incorporated in Hong Kong, as being the ultimate holding company.

III. SUBSEQUENT ACCOUNTS

No audited accounts have been prepared for the Electricity Company in respect of any period subsequent to 30 June 2004 and no dividend or other distribution has been declared, made or paid by the Electricity Company in respect of any period subsequent to 30 June 2004.

Yours faithfully PricewaterhouseCoopers Certified Public Accountants Hong Kong

— 42 —

APPENDIX II ACCOUNTANTS’ REPORT ON WATER COMPANY

==> picture [106 x 31] intentionally omitted <==

13 October 2004

The Directors

Tianjin Development Holdings Limited

Dear Sirs,

We set out below our report on the financial information relating to Tianjin TEDA Tsinlien Water Supply Company Limited (the ‘‘Water Company’’) for the years ended 31 December 2001, 2002 and 2003 and six months ended 30 June 2003 and 2004 (the ‘‘Relevant Periods’’) for inclusion in the circular of Tianjin Development Holdings Limited (the ‘‘Company’’) dated 13 October 2004 (the ‘‘Circular’’). The Circular is in connection with the proposed acquisition of approximately 94.4% equity interest in Tianjin TEDA Tsinlien Electric Power Company Limited (the ‘‘Electricity Company’’) and approximately 91.4% equity interest in the Water Company by the Company. The Water Company and the Electricity Company will be acquired from Tsinlien Group Company Limited, the ultimate holding company of the Company through Progress City Group Limited, a wholly-owned subsidiary of Tsinlien Group Company Limited.

The Water Company is a Sino-foreign equity joint venture established in Tianjin, the People’s Republic of China (the ‘‘PRC’’) on 5 July 2000 and has adopted 31 December as its financial year end. At the date of this report, the Water Company was 91.4% owned by Progress City Group Limited and 8.6% owned by Tianjin TEDA Investment Holdings Limited.

The statutory accounts of the Water Company for the years ended 31 December 2001, 2002 and 2003 were prepared in accordance with the relevant accounting principles and financial regulations applicable to enterprises established in the PRC, and were audited by Tianjin Jindaxin Certified Public Accountants, which is registered in the PRC. For the purpose of this report, the directors of the Water Company have prepared the accounts of the Water Company for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong (the ‘‘HK GAAP accounts’’). We have carried out independent audit of the HK GAAP accounts, in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

The financial information as set out in Section I to III below (the ‘‘Financial Information’’) has been prepared based on the HK GAAP accounts. We have examined the HK GAAP accounts of the Water Company for the Relevant Periods and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline ‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA.

— 43 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

The directors of the Water Company, during the Relevant Periods, are responsible for preparing the HK GAAP accounts which give a true and fair view. In preparing the HK GAAP accounts, it is fundamental that appropriate accounting policies are selected and applied consistently.

In our opinion, the Financial Information, for the purpose of this report, gives a true and fair view of the state of affairs of the Water Company as at 31 December 2001, 2002 and 2003 and 30 June 2004, and of the results and cash flows of the Water Company for the Relevant Periods.

— 44 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

I. FINANCIAL INFORMATION

1. Profit and loss accounts

Note Turnover 3 Cost of sales Gross (loss)/profit Other revenue 3 General and administrative expenses Operating profit/(loss) 4 Finance costs 5 (Loss)/profit before taxation Taxation credit/(charge) 6 (Loss)/profit attributable to shareholders 20	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 45,217 61,315 110,357 (69,113) (81,978) (85,475) (23,896) (20,663) 24,882 36,725 34,768 8,363 (9,947) (15,570) (17,248) 2,882 (1,465) 15,997 (6,132) (6,041) (5,468) (3,250) (7,506) 10,529 790 458 (441) (2,460) (7,048) 10,088	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 45,217 61,315 110,357 (69,113) (81,978) (85,475) (23,896) (20,663) 24,882 36,725 34,768 8,363 (9,947) (15,570) (17,248) 2,882 (1,465) 15,997 (6,132) (6,041) (5,468) (3,250) (7,506) 10,529 790 458 (441) (2,460) (7,048) 10,088	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 65,075 50,704 (47,862) (37,714) 17,213 12,990 4,777 3,192 (12,434) (9,403) 9,556 6,779 (2,309) (2,535) 7,247 4,244 (547) 326 6,700 4,570
	2001 HK$’000 45,217 (69,113) (23,896) 36,725 (9,947) 2,882 (6,132) (3,250) 790 (2,460)	2002 HK$’000 61,315 (81,978) (20,663) 34,768 (15,570) (1,465) (6,041) (7,506) 458 (7,048)	2004 HK$’000 65,075 (47,862) 17,213 4,777 (12,434) 9,556 (2,309) 7,247 (547) 6,700

— 45 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

2. Balance sheets

Note Non-current assets Fixed assets 11 Deferred tax assets 12 Current assets Trade receivables 13 Other receivables, deposits and prepayments 14 Amount due from the minority shareholder 15 Amounts due from related companies 16 Cash and bank balances 17 Current liabilities Trade payables 18 Other payables and accruals Amount due to the minority shareholder 15 Amounts due to related companies 16 Taxation payable Net current liabilities Total assets less current liabilities Financed by: Paid-up capital 19 Reserves 20 Shareholders’ funds Loan from the minority shareholder 21	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 277,333 266,277 264,675 1,711 2,169 2,006 279,044 268,446 266,681 ----------- ----------- ----------- 8,607 12,431 10,646 15,666 3,789 55,400 1,199 2,438 — 14,075 16,924 3,398 32,081 39,277 38,216 71,628 74,859 107,660 ----------- ----------- ----------- 14,161 20,512 18,172 85,435 89,286 104,276 — — 1,111 10,412 13,573 20,942 — — 278 110,008 123,371 144,779 ~~-----------~~ ~~-----------~~ ~~-----------~~ (38,380) (48,512) (37,119) ~~-----------~~ ~~-----------~~ ~~-----------~~ 240,664 219,934 229,562 154,257 154,257 154,257 (6,544) (13,592) (3,504) 147,713 140,665 150,753 92,951 79,269 78,809 240,664 219,934 229,562	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 277,333 266,277 264,675 1,711 2,169 2,006 279,044 268,446 266,681 ----------- ----------- ----------- 8,607 12,431 10,646 15,666 3,789 55,400 1,199 2,438 — 14,075 16,924 3,398 32,081 39,277 38,216 71,628 74,859 107,660 ----------- ----------- ----------- 14,161 20,512 18,172 85,435 89,286 104,276 — — 1,111 10,412 13,573 20,942 — — 278 110,008 123,371 144,779 ~~-----------~~ ~~-----------~~ ~~-----------~~ (38,380) (48,512) (37,119) ~~-----------~~ ~~-----------~~ ~~-----------~~ 240,664 219,934 229,562 154,257 154,257 154,257 (6,544) (13,592) (3,504) 147,713 140,665 150,753 92,951 79,269 78,809 240,664 219,934 229,562	As at 30 June 2004 HK$’000 256,569 1,459 258,028 ----------- 15,176 81,858 — 4,891 52,105 154,030 ----------- 25,975 116,271 24,401 23,205 — 189,852 ~~-----------~~ (35,822) ~~-----------~~ 222,206 154,257 3,196 157,453 64,753 222,206
	2001 HK$’000 277,333 1,711 279,044 ----------- 8,607 15,666 1,199 14,075 32,081 71,628 ----------- 14,161 85,435 — 10,412 — 110,008 ~~-----------~~ (38,380) ~~-----------~~ 240,664 154,257 (6,544) 147,713 92,951 240,664	2002 HK$’000 266,277 2,169 268,446 ----------- 12,431 3,789 2,438 16,924 39,277 74,859 ----------- 20,512 89,286 — 13,573 — 123,371 ~~-----------~~ (48,512) ~~-----------~~ 219,934 154,257 (13,592) 140,665 79,269 219,934

— 46 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

3. Statements of changes in equity

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 150,173 147,713 140,665 (2,460) (7,048) 10,088 147,713 140,665 150,753	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 150,173 147,713 140,665 (2,460) (7,048) 10,088 147,713 140,665 150,753	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 150,173 (2,460) 147,713	2002 HK$’000 147,713 (7,048) 140,665	2004 HK$’000 150,753 6,700 157,453	2003
			HK$’000 140,665 4,570
			145,235

— 47 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

4. Cash flow statements

Note Operating activities Net cash inflow generated from operations 22(a) Interest paid Taxation paid Net cash inflow from operating activities Investing activities Purchase of fixed assets Decrease/(increase) in bank balances with maturity period over three months Interest received Net cash (outflow)/inflow from investing activities Financing activities Decrease in loan from the minority shareholder Net cash outflow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period 22(b)	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,326 31,739 19,782 (6,132) (6,041) (5,468) (468) — — 11,726 25,698 14,314 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (8,105) (5,333) (15,314) 3,961 (1,940) (1,131) 548 513 399 (3,596) (6,760) (16,046) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (3,967) (13,682) (460) (3,967) (13,682) (460) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,163 5,256 (2,192) 5,108 9,271 14,527 9,271 14,527 12,335	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 18,326 31,739 19,782 (6,132) (6,041) (5,468) (468) — — 11,726 25,698 14,314 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (8,105) (5,333) (15,314) 3,961 (1,940) (1,131) 548 513 399 (3,596) (6,760) (16,046) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (3,967) (13,682) (460) (3,967) (13,682) (460) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,163 5,256 (2,192) 5,108 9,271 14,527 9,271 14,527 12,335	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 29,435 6,543 (2,309) (2,535) (278) — 26,848 4,008 - - - - - - - - - - - - - - - - - - - - (182) (2,135) 7,871 966 1,279 142 8,968 (1,027) - - - - - - - - - - - - - - - - - - - - (14,056) (460) (14,056) (460) - - - - - - - - - - - - - - - - - - - - 21,760 2,521 12,335 14,527 34,095 17,048
	2001 HK$’000 18,326 (6,132) (468) 11,726 - - - - - - - - - - (8,105) 3,961 548 (3,596) - - - - - - - - - - (3,967) (3,967) - - - - - - - - - - 4,163 5,108 9,271	2002 HK$’000 31,739 (6,041) — 25,698 - - - - - - - - - - (5,333) (1,940) 513 (6,760) - - - - - - - - - - (13,682) (13,682) - - - - - - - - - - 5,256 9,271 14,527	2004 HK$’000 29,435 (2,309) (278) 26,848 - - - - - - - - - - (182) 7,871 1,279 8,968 - - - - - - - - - - (14,056) (14,056) - - - - - - - - - - 21,760 12,335 34,095

— 48 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. Principal activity

The Water Company is a Sino-foreign equity joint venture established in the People’s Republic of China (the ‘‘PRC’’) on 5 July 2000 and is principally engaged in the supply of water within the Tianjin Economic and Technological Development Area (the ‘‘TEDA’’) located in Municipality of Tianjin, the PRC.

2. Principal accounting policies

(a) Basis of preparation

(b) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Leasehold land	over the unexpired lease term
Buildings	30 years
Water pipes	20 years
Plant and machinery	15 years
Furniture and equipment	7–10 years
Motor vehicles	7 years

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

(c) Provisions

Provisions are recognised when the Water Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Water Company expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(d) Trade receivable

Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

— 49 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

2. Principal accounting policies (Continued)

(e) Cash and cash equivalents

(f) Deferred taxation

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(g) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Water Company. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(h) Foreign currencies

(i) Presentation currency

The Financial Information set out in this report are converted from Renminbi (‘‘RMB’’) to Hong Kong dollars (‘‘HK$’’) at a conversion rate of HK$1.00 to RMB1.06.

(ii) Foreign currencies transactions and balances

The functional currency of the Water Company is denominated in RMB. Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

(i) Revenue recognition

Sales of water is recognised on supply of water to the customers based on meter readings.

Government supplemental income as set out in Note 2(m) below and other subsidies are recognised on an accrual

basis.

Revenue from the provision of installation services of water meters is recognised when the services are rendered.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

— 50 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

2. Principal accounting policies (Continued)

(j) Operating leases

(k) Retirement benefit costs

The employees of the Water Company are members of the state-managed employee pension scheme operated by the Tianjin Municipal People’s Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees. The Water Company’s obligation is to make the required contributions under the scheme based on a certain percentage of the employees’ salary. The contributions are charged to profit and loss account as incurred.

(l) Borrowing costs

(m) Government supplemental income

Government supplemental income represents assistance by local municipal government in the form of cash based on a fixed rate. Such income is recognised when there is a reasonable assurance that the Water Company will comply with the conditions attached with it and that the income will be received.

— 51 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

3. Turnover and other revenue

(a) The Water Company is principally engaged in the supply of water. Turnover is stated net of value added tax and less discounts where applicable. Revenue recognised during the Relevant Periods is as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 45,217 61,315 63,392 — — 46,965 45,217 61,315 110,357 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35,274 31,094 — 465 2,484 6,823 548 513 399 438 677 1,141 36,725 34,768 8,363 ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ 81,942 96,083 118,720	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 45,217 61,315 63,392 — — 46,965 45,217 61,315 110,357 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 35,274 31,094 — 465 2,484 6,823 548 513 399 438 677 1,141 36,725 34,768 8,363 ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ ~~- - - - - - - - - -~~ 81,942 96,083 118,720	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 45,217 — 45,217 - - - - - - - - - - 35,274 465 548 438 36,725 ~~- - - - - - - - - -~~ 81,942	2002 HK$’000 61,315 — 61,315 - - - - - - - - - - 31,094 2,484 513 677 34,768 ~~- - - - - - - - - -~~ 96,083	2004 HK$’000 38,547 26,528 65,075 - - - - - - - - - - — 3,392 1,279 106 4,777 ~~- - - - - - - - - -~~ 69,852	2003
			HK$’000 28,923 21,781
			50,704 - - - - - - - - - - — 2,976 142 74
			3,192 ~~- - - - - - - - - -~~
			53,896

Note: Prior to 1 January 2003, subsidies have been received from Tianjin TEDA Investment Holdings Limited to subsidise the Water Company’s operating loss (Note 24(a)) on a discretionary basis. After 1 January 2003, such discretionary subsidies were replaced by government supplemental income received from the Finance Bureau of TEDA. On 15 September 2003, the Finance Bureau of TEDA confirmed that the Water Company was granted government supplemental income calculated at RMB2 per tonne of water supplied to its customers in the TEDA for the five years to 31 December 2007.

(b) Segment information

Supply of water is the Water Company’s only business segment throughout the Relevant Periods. All assets and operations of the Water Company for the Relevant Periods are located in the PRC. Accordingly, no separate business and geographical segment information is presented.

4. Operating profit/(loss)

Operating profit/(loss) is stated after charging the following: Staff costs, including directors’ emoluments — Wages and salaries — Contributions to retirement benefit schemes Depreciation Loss on disposal of fixed assets Operating lease rentals — Water plant — Water pipes Auditors’ remuneration	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 7,802 9,678 12,666 391 570 1,191 15,874 16,081 16,916 — 308 — 1,132 1,132 1,132 4,528 4,528 4,528 8 22 28	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 7,802 9,678 12,666 391 570 1,191 15,874 16,081 16,916 — 308 — 1,132 1,132 1,132 4,528 4,528 4,528 8 22 28	For the six months ended 30 June	For the six months ended 30 June
	2001 HK$’000 7,802 391 15,874 — 1,132 4,528 8	2002 HK$’000 9,678 570 16,081 308 1,132 4,528 22	2004 HK$’000 7,063 1,342 8,288 — 566 2,264 14	2003
				HK$’000 6,056 550 8,541 — 566 2,264 14

— 52 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

5. Finance costs

Interest on loan from the minority shareholder (Note 21) 6. Taxation (credit)/charge Current taxation PRC income tax Deferred taxation (Note 12)	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,132 6,041 5,468 For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 278 (790) (458) 163 (790) (458) 441	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 6,132 6,041 5,468 For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — 278 (790) (458) 163 (790) (458) 441	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 2,309 2,535 For the six months ended 30 June 2004 2003 HK$’000 HK$’000 — — 547 (326) 547 (326)
	2001 HK$’000 — (790) (790)	2002 HK$’000 — (458) (458)	2004 HK$’000 — 547 547

No provision for Hong Kong profits tax has been made as the Water Company has no assessable profit in Hong Kong.

Provision for the PRC income tax has been made at applicable rate of taxation on the estimated assessable profit for the Relevant Periods.

The applicable PRC income tax rate is 15%, being the preferential rate enjoyed by the Water Company as a Sinoforeign equity joint venture. In addition, the Water Company is exempted from income tax for two years starting from 2001 followed by a 50% reduction for the next three years.

Taxation on the Water Company’s (loss)/profit differs from the theoretical amount that would arise using the applicable income tax rate as follows:

7.

(Loss)/profit before taxation Calculated at the applicable rate of 15% Net (income)/loss under tax exemption/ reduction granted by the State Tax Bureau in the PRC Expenses not deductible for taxation purpose Tax (credit)/charge Dividends	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 (3,250) (7,506) 10,529 (488) (1,126) 1,579 (323) 645 (1,420) 21 23 282 (790) (458) 441	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 (3,250) (7,506) 10,529 (488) (1,126) 1,579 (323) 645 (1,420) 21 23 282 (790) (458) 441	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 7,247 4,244 1,087 637 (702) (1,105) 162 142 547 (326)
	2001 HK$’000 (3,250) (488) (323) 21 (790)	2002 HK$’000 (7,506) (1,126) 645 23 (458)	2004 HK$’000 7,247 1,087 (702) 162 547

No dividends has been paid or declared by the Water Company during the Relevant Periods.

8. Earnings per share

No earnings per share information is presented as the Water Company’s paid up capital is not divided into shares.

— 53 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

9. Emoluments for directors and highest paid individuals

(a) Directors’ emoluments

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — — 35 52 54 68 83 85 13 19 20 116 154 159	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 — — — 35 52 54 68 83 85 13 19 20 116 154 159	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 — 35 68 13 116	2002 HK$’000 — 52 83 19 154	2004 HK$’000 — 34 33 14 81	2003
			HK$’000 — 32 33 11
			76

No directors of the Water Company waived any remuneration during the Relevant Periods.

The remunerations of the directors are all less than HK$1,000,000.

(b) Senior management emoluments

The five highest paid individuals included one director of the Relevant Periods whose emoluments are included in the above disclosures. The emoluments of the remaining four individuals were as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 163 186 191 205 248 256 45 64 66 413 498 513	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 163 186 191 205 248 256 45 64 66 413 498 513	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 163 205 45 413	2002 HK$’000 186 248 64 498	2004 HK$’000 163 156 68 387	2003
			HK$’000 151 146 56
			353

The emoluments of five highest paid individuals are all less than HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the Water Company to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Water Company or as compensation for loss of office.

10. Retirement benefit scheme

The employees of the Water Company participate in a retirement benefit plan organised by the Tianjin Municipal People’s Government whereby the Water Company makes monthly defined contributions to the plan at a certain percentage of the employees’ basic salary.

The Water Company has no other obligations for the payment of retirement and other post-retirement benefits of employees or retirees other than the contribution payments disclosed in Note 4.

— 54 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

11. Fixed assets

Cost At 31 December 2000 Additions Disposals At 31 December 2001 Additions Disposals At 31 December 2002 Additions Disposals At 31 December 2003 Additions At 30 June 2004 Accumulated depreciation At 31 December 2000 Charge for the year Disposals At 31 December 2001 Charge for the year Disposals At 31 December 2002 Charge for the year Disposals At 31 December 2003 Charge for the period At 30 June 2004 Net book value At 31 December 2001 At 31 December 2002 At 31 December 2003 At 30 June 2004	Land and buildings HK$’000 149,079 2,263 — 151,342 — — 151,342 10,286 — 161,628 — 161,628 - - - - - - - - - - 25,729 4,733 — 30,462 4,851 — 35,313 4,810 — 40,123 2,531 42,654 - - - - - - - - - - 120,880 116,029 121,505 118,974	Water pipes HK$’000 154,331 2,952 — 157,283 258 — 157,541 — — 157,541 — 157,541 - - - - - - - - - - 27,289 7,660 — 34,949 7,677 — 42,626 7,627 — 50,253 3,815 54,068 - - - - - - - - - - 122,334 114,915 107,288 103,473	Plant and machinery HK$’000 40,558 1,053 (311) 41,300 — (738) 40,562 — — 40,562 — 40,562 - - - - - - - - - - 7,823 2,836 (311) 10,348 2,714 (555) 12,507 2,707 — 15,214 1,348 16,562 - - - - - - - - - - 30,952 28,055 25,348 24,000	Furniture and fixtures HK$’000 392 270 — 662 4,500 (233) 4,929 2,549 (159) 7,319 140 7,459 - - - - - - - - - - 159 96 — 255 275 (108) 422 694 (159) 957 513 1,470 - - - - - - - - - - 407 4,507 6,362 5,989	Motor vehicles HK$’000 2,067 1,567 — 3,634 575 (475) 3,734 2,479 (952) 5,261 42 5,303 - - - - - - - - - - 325 549 — 874 564 (475) 963 1,078 (952) 1,089 81 1,170 - - - - - - - - - - 2,760 2,771 4,172 4,133	Total HK$’000 346,427 8,105 (311) 354,221 5,333 (1,446) 358,108 15,314 (1,111) 372,311 182 372,493 - - - - - - - - - - 61,325 15,874 (311) 76,888 16,081 (1,138) 91,831 16,916 (1,111) 107,636 8,288 115,924 - - - - - - - - - - 277,333 266,277 264,675 256,569

The land and buildings are located in the PRC and are held under medium term leases of 10 to 50 years.

— 55 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

12. Deferred tax assets

Deferred taxation is calculated in full on temporary differences under the liability method using the applicable income tax rate of 15%.

The movement on the deferred tax asset account is as follows:

For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 921 1,711 2,169 790 458 (163) 1,711 2,169 2,006	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 921 1,711 2,169 790 458 (163) 1,711 2,169 2,006	For the six months ended 30 June	For the six months ended 30 June
2001 HK$’000 921 790 1,711	2002 HK$’000 1,711 458 2,169	2004 HK$’000 2,006 (547) 1,459	2003
			HK$’000 2,169 326
			2,495

The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same taxation jurisdiction) during the Relevant Periods is as follows:

Accelerated accounting deprecation Provisions Accrued income HK$’000 HK$’000 HK$’000 362 559 — 733 57 — 1,095 616 — 312 186 (40) 1,407 802 (40) 142 1,270 (1,575) 1,549 2,072 (1,615) 1,175 568 (2,290) 2,724 2,640 (3,905) 1,407 802 (40) 1,115 845 (1,634) 2,522 1,647 (1,674) As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,711 2,209 3,621 — (40) (1,615) 1,711 2,169 2,006	Accelerated accounting deprecation Provisions Accrued income HK$’000 HK$’000 HK$’000 362 559 — 733 57 — 1,095 616 — 312 186 (40) 1,407 802 (40) 142 1,270 (1,575) 1,549 2,072 (1,615) 1,175 568 (2,290) 2,724 2,640 (3,905) 1,407 802 (40) 1,115 845 (1,634) 2,522 1,647 (1,674) As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,711 2,209 3,621 — (40) (1,615) 1,711 2,169 2,006	Total
		HK$’000 921 790
		1,711 458
		2,169 (163)
		2,006 (547)
		1,459
		2,169 326
		2,495
		As at 30 June
2001 HK$’000 1,711 — 1,711	2002 HK$’000 2,209 (40) 2,169	2004
		HK$’000 5,364 (3,905)
		1,459

The amounts are settled after more than 12 months and there is no material unprovided deferred tax for the Relevant Periods.

— 56 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

13. Trade receivables

The aging analysis of trade receivables (net of provisions) is as follows:

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 5,831 5,429 2,355 985 880 1,460 757 703 2,121 1,034 5,419 4,710 8,607 12,431 10,646	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 5,831 5,429 2,355 985 880 1,460 757 703 2,121 1,034 5,419 4,710 8,607 12,431 10,646	As at 30 June
2001 HK$’000 5,831 985 757 1,034 8,607	2002 HK$’000 5,429 880 703 5,419 12,431	2004
		HK$’000 7,650 1,606 2,616 3,304
		15,176

In general, credit terms of 30 days are given to customers.

14. Other receivables, deposits and prepayments

The balance includes government supplemental income receivable from the Finance Bureau of TEDA amounting to HK$73.5 million and HK$47.0 million as at 30 June 2004 and 31 December 2003 respectively (Note 3(a)). The aforesaid supplemental income receivable as at 31 December 2003 has been subsequently settled as of the date of this report.

15. Amount due from/(to) the minority shareholder

The amount receivable/payable arose from ordinary and normal course of business and is unsecured, interest free and has no fixed terms of repayment.

16. Amounts due from/(to) related companies

The amounts receivable and payable arose from the normal course of the business and are unsecured, interest free and have no fixed terms of repayment.

17. Cash and bank balances

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 31,138 38,334 37,273 943 943 943 32,081 39,277 38,216	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 31,138 38,334 37,273 943 943 943 32,081 39,277 38,216	As at 30 June
2001 HK$’000 31,138 943 32,081	2002 HK$’000 38,334 943 39,277	2004
		HK$’000 51,162 943
		52,105

— 57 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

18. Trade payables

The aging analysis of the trade payables is as follows:

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,961 5,660 3,000 — 4,087 866 1,575 — 1,624 8,625 10,765 12,682 14,161 20,512 18,172	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 3,961 5,660 3,000 — 4,087 866 1,575 — 1,624 8,625 10,765 12,682 14,161 20,512 18,172	As at 30 June
2001 HK$’000 3,961 — 1,575 8,625 14,161	2002 HK$’000 5,660 4,087 — 10,765 20,512	2004
		HK$’000 4,214 5,806 583 15,372
		25,975

19. Paid-up capital

Registered and paid up capital	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 154,257 154,257 154,257	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 154,257 154,257 154,257	As at 30 June
	2001 HK$’000 154,257	2002 HK$’000 154,257	2004
			HK$’000 154,257

20. Reserves

At 31 December 2000 Loss for the year Transfers At 31 December 2001 Loss for the year Transfers At 31 December 2002 Profit for the year Transfers At 31 December 2003 Profit for the period At 30 June 2004 At 31 December 2002 Profit for the period At 30 June 2003	Capital reserve HK$’000 714 — — 714 — — 714 — — 714 — 714 714 — 714	Revenue fund HK$’000 266 — 134 400 — 156 556 — 185 741 — 741 556 — 556	Enterprise expansion reserve HK$’000 266 — 134 400 — 154 554 — 185 739 — 739 554 — 554	(Accumulated loss)/retained profits HK$’000 (5,330) (2,460) (268) (8,058) (7,048) (310) (15,416) 10,088 (370) (5,698) 6,700 1,002 (15,416) 4,570 (10,846)	Total
					HK$’000 (4,084) (2,460) —
					(6,544) (7,048) —
					(13,592) 10,088 —
					(3,504) 6,700
					3,196
					(13,592) 4,570
					(9,022)

According to the Articles of Association of the Water Company, a percentage of net profit as reported in the PRC statutory accounts should be transferred to reserve fund and enterprise expansion reserve determined at the discretion of the board of directors of the Water Company. The reserve fund can be used to set off accumulated loss whilst the enterprise expansion reserve can be used for expansion of production facilities or increase in registered capital.

— 58 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

21. Loan from the minority shareholder

The loan from the minority shareholder is unsecured, has no fixed terms of repayment and carries interest at 6.4% per annum.

22. Notes to cash flow statements

(a) Reconciliation of operating profit/(loss) to net cash inflow generated from operations:

Operating profit/(loss) Depreciation Interest received Loss on disposal of fixed assets Operating profit before working capital changes (Increase)/decrease in trade receivables (Increase)/decrease in other receivables, deposits and prepayments (Increase)/decrease in amount due from the minority shareholder Increase/(decrease) in trade payables Increase/(decrease) in other payables and accruals Increase in net amount due to related companies Net cash inflow generated from operations	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,882 (1,465) 15,997 15,874 16,081 16,916 (548) (513) (399) — 308 — 18,208 14,411 32,514 (2,733) (3,824) 1,785 (5,300) 11,877 (51,611) (9,680) (1,239) 3,549 4,464 6,351 (2,340) 7,362 3,851 14,990 6,005 312 20,895 18,326 31,739 19,782	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 2,882 (1,465) 15,997 15,874 16,081 16,916 (548) (513) (399) — 308 — 18,208 14,411 32,514 (2,733) (3,824) 1,785 (5,300) 11,877 (51,611) (9,680) (1,239) 3,549 4,464 6,351 (2,340) 7,362 3,851 14,990 6,005 312 20,895 18,326 31,739 19,782	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 9,556 6,779 8,288 8,541 (1,279) (142) — — 16,565 15,178 (4,530) 2,216 (26,458) (22,282) 23,290 9,398 7,803 888 11,995 (3,150) 770 4,295 29,435 6,543
	2001 HK$’000 2,882 15,874 (548) — 18,208 (2,733) (5,300) (9,680) 4,464 7,362 6,005 18,326	2002 HK$’000 (1,465) 16,081 (513) 308 14,411 (3,824) 11,877 (1,239) 6,351 3,851 312 31,739	2004 HK$’000 9,556 8,288 (1,279) — 16,565 (4,530) (26,458) 23,290 7,803 11,995 770 29,435

(b) Analysis of cash and cash equivalents

Cash and bank balances Less: Bank balances with maturity period over three months	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 32,081 39,277 38,216 (22,810) (24,750) (25,881) 9,271 14,527 12,335	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 32,081 39,277 38,216 (22,810) (24,750) (25,881) 9,271 14,527 12,335	As at 30 June 2004 2003 HK$’000 HK$’000 52,105 40,832 (18,010) (23,784) 34,095 17,048
	2001 HK$’000 32,081 (22,810) 9,271	2002 HK$’000 39,277 (24,750) 14,527	2004 HK$’000 52,105 (18,010) 34,095

— 59 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

23. Commitments under operating leases

The Water Company had future aggregate minimum lease payments under non-cancellable operating leases as follows:

As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,132 1,132 1,132 4,528 4,528 4,528 49,245 48,113 46,981 54,905 53,773 52,641 4,528 4,528 4,528 18,113 18,113 18,113 196,981 192,453 187,925 219,622 215,094 210,566 — — — — — — — — — — — —	As at 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 1,132 1,132 1,132 4,528 4,528 4,528 49,245 48,113 46,981 54,905 53,773 52,641 4,528 4,528 4,528 18,113 18,113 18,113 196,981 192,453 187,925 219,622 215,094 210,566 — — — — — — — — — — — —	As at 30 June
2001 HK$’000 1,132 4,528 49,245 54,905 4,528 18,113 196,981 219,622 — — — —	2002 HK$’000 1,132 4,528 48,113 53,773 4,528 18,113 192,453 215,094 — — — —	2004
		HK$’000 1,132 4,528 46,415
		52,075
		4,528 18,113 185,660
		208,301
		1,086 4,254 —
		5,340

— 60 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

24. Related party transactions

The minority shareholder — Tianjin TEDA Investment Holdings Limited (‘‘Tianjin TEDA’’) Subsidy income (Note (a)) Rental for water plant (Note (b)) Interest expense (Note 5) Fellow subsidiaries — Tianjin TEDA Tsinlien Electric Power Company Limited (the ‘‘Electricity Company’’) Sale of water (Note (c)) Utility charges paid (Note (d)) — Tianjin TEDA Tsinlien Heat & Power Company Limited Sale of water (Note (c)) Utility charges paid (Note (d)) — Tianjin TEDA Tsinlien Gas Supply Company Limited Sale of water (Note (c)) A related company — Tianjin TEDA Water Supply Company Limited (‘‘TEDA Water’’) Rental for water pipes (Note (e))	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 35,274 31,094 — (1,132) (1,132) (1,132) (6,132) (6,041) (5,468) 252 274 265 (1,758) (3,492) (3,164) 3,238 3,794 4,307 (279) (742) (783) 73 204 338 (4,528) (4,528) (4,528)	For the year ended 31 December 2001 2002 2003 HK$’000 HK$’000 HK$’000 35,274 31,094 — (1,132) (1,132) (1,132) (6,132) (6,041) (5,468) 252 274 265 (1,758) (3,492) (3,164) 3,238 3,794 4,307 (279) (742) (783) 73 204 338 (4,528) (4,528) (4,528)	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 — — (566) (566) (2,309) (2,535) 162 119 (1,510) (1,269) 2,176 1,891 (422) (525) 86 88 (2,264) (2,264)
	2001 HK$’000 35,274 (1,132) (6,132) 252 (1,758) 3,238 (279) 73 (4,528)	2002 HK$’000 31,094 (1,132) (6,041) 274 (3,492) 3,794 (742) 204 (4,528)	2004 HK$’000 — (566) (2,309) 162 (1,510) 2,176 (422) 86 (2,264)

Note:

(a) The Water Company was given a subsidy annually at the discretion of Tianjin TEDA, the minority shareholder, to subsidise the operating loss of the Water Company.

(b) Rental for water plant due to the minority shareholder was paid at a fixed amount in accordance with the terms set out in the rental agreements for a period of 50 years expiring on 1 July 2050.
(c) Sales to fellow subsidiary companies were charged at prices and terms no less favourable than those charged to and contracted with other third party customers.
(d) The utilities charges due to fellow subsidiary companies were paid at prices and terms no less favourable than those charged to and contracted with other third party customers.
(e) Rental for water pipes due to TEDA Water was paid at a fixed amount in accordance with the terms set out in the rental agreements for a period of 50 years expiring on 1 July 2050. Both TEDA Water and the Water Company have common management.

— 61 —

ACCOUNTANTS’ REPORT ON WATER COMPANY

APPENDIX II

25. Ultimate holding company

The directors of the Water Company consider Tsinlien Group Company Limited, a company incorporated in Hong Kong, as being the ultimate holding company.

III. SUBSEQUENT ACCOUNTS

No audited accounts have been prepared for the Water Company in respect of any period subsequent to 30 June 2004 and no dividend or other distribution has been declared, made or paid by the Water Company in respect of any period subsequent to 30 June 2004.

Yours faithfully PricewaterhouseCoopers Certified Public Accountants Hong Kong

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

FINANCIAL SUMMARY

The following is a summary of the audited consolidated profit and loss accounts of the Group for the three years ended 31 December 2003 as extracted from the relevant annual reports of the Group for the years presented and unaudited consolidated profit and loss accounts of the Group for the six months period ended 30 June 2004 as extracted from the interim report of the Group for the period ended 30 June 2004.

RESULTS

Turnover Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to shareholders ASSETS AND LIABILITIES Non-current assets Current assets Current liabilities Net current assets Shareholders’ funds Minority interests Non-current liabilities	(Unaudited) Six months ended 30 June 2004 2003 HK$’000 HK$’000 1,067,664 895,579 969,958 223,442 (115,025) (54,389) 854,933 169,053 (264,742) (42,697) 590,191 126,356 (Unaudited) As at 30 June 2004 HK$’000 5,511,005 ----------- 3,181,054 (951,464) 2,229,590 ----------- 7,740,595 4,558,896 1,429,647 1,752,052 7,740,595	(Audited) Year ended 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 (As restated) (note) 1,860,779 1,745,259 1,490,702 363,789 329,207 281,443 (79,741) (83,675) (54,358) 284,048 245,532 227,085 (71,252) (63,883) (53,248) 212,796 181,649 173,837 (Audited) As at 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 (As restated) (note) 5,480,490 4,117,453 3,466,877 ---------- ------------- ---------- 3,192,489 2,501,538 2,468,590 (1,381,077) (1,151,527) (1,053,933) 1,811,412 1,350,011 1,414,657 ---------- ------------- ---------- 7,291,902 5,467,464 4,881,534 3,987,727 3,530,022 3,346,935 1,187,022 570,370 545,029 2,117,153 1,367,072 989,570 7,291,902 5,467,464 4,881,534	(Audited) Year ended 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 (As restated) (note) 1,860,779 1,745,259 1,490,702 363,789 329,207 281,443 (79,741) (83,675) (54,358) 284,048 245,532 227,085 (71,252) (63,883) (53,248) 212,796 181,649 173,837 (Audited) As at 31 December 2003 2002 2001 HK$’000 HK$’000 HK$’000 (As restated) (note) 5,480,490 4,117,453 3,466,877 ---------- ------------- ---------- 3,192,489 2,501,538 2,468,590 (1,381,077) (1,151,527) (1,053,933) 1,811,412 1,350,011 1,414,657 ---------- ------------- ---------- 7,291,902 5,467,464 4,881,534 3,987,727 3,530,022 3,346,935 1,187,022 570,370 545,029 2,117,153 1,367,072 989,570 7,291,902 5,467,464 4,881,534
	2004 HK$’000 1,067,664 969,958 (115,025) 854,933 (264,742) 590,191	2003 HK$’000 1,860,779 363,789 (79,741) 284,048 (71,252) 212,796 As
		2003 HK$’000 5,480,490 ---------- 3,192,489 (1,381,077) 1,811,412 ---------- 7,291,902 3,987,727 1,187,022 2,117,153 7,291,902	2002 HK$’000 (As restated) 4,117,453 ------------- 2,501,538 (1,151,527) 1,350,011 ------------- 5,467,464 3,530,022 570,370 1,367,072 5,467,464

Note:

The accounting policy on deferred taxation was changed in 2003 and the amounts prior to 2002 have not been restated to reflect this change.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

A. FINANCIAL RESULTS OF THE GROUP FOR THE YEAR ENDED 31ST DECEMBER 2003 AND 2002

Set out below are the audited consolidated profit and loss accounts for the year ended 31st December 2003 and 2002, consolidated balance sheets as at 31st December 2003 and 2002, balance sheets of the Company as at 31st December 2003 and 2002, consolidated statement of changes in equity, consolidated cash flow statements and notes to the accounts for the year ended 31st December 2003 and 2002 as extracted from the audited financial statements of the Group for the year ended 31st December 2003.

Consolidated Profit and Loss Account

For the year ended 31st December 2003

Note Turnover 2 Cost of sales Gross profit Other revenues 2 Distribution costs General and administrative expenses Other operating expenses Operating profit before financing 4 Finance costs 5 Shares of profits less losses of Associated companies 14(b) Jointly controlled entities Profit before taxation Taxation 6 Profit after taxation Minority interests Profit attributable to shareholders 7 Dividends 8 Earnings per share 9	2003 HK$’000 1,860,779 (963,038) 897,741 48,944 (151,588) (416,768) (14,734) 363,595 (82,240) 86,955 (4,521) 363,789 (79,741) 284,048 (71,252) 212,796 52,626 HK cents 31.4	As restated 2002 HK$’000 1,745,259 (921,730) 823,529 41,587 (147,237) (408,434) (13,342) 296,103 (81,368) 115,970 (1,498) 329,207 (83,675) 245,532 (63,883) 181,649 44,730 HK cents 26.8

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Balance Sheet

At 31st December 2003

Note Non-current assets Goodwill 11 Fixed assets 12 Associated companies 14 Jointly controlled entities 15 Long term investments 16 Current assets Properties under development held for sale 17 Completed properties held for sale 18 Stocks 19 Amount due from ultimate holding company 20 Amounts due from related companies 21 Trade receivables 22 Other receivables, deposits and prepayments Consideration receivable on disposal of partial interest in an associated company Short term investments 23 Taxation recoverable Bank balances and cash 24 Current liabilities Trade payables 25 Other payables and accruals Amount due to a fellow subsidiary company 20 Amounts due to related companies 21 Current portion of long term liabilities 28 Short term loans and overdrafts — secured — unsecured Taxation payable Net current assets	2003 HK$’000 54,096 4,800,695 359,260 95,619 170,820 5,480,490 ------------- 347,813 218,807 204,428 26 53,194 304,346 201,283 365,169 58,429 — 1,438,994 3,192,489 ------------- 17,474 474,182 — 123,038 660,475 16,406 57,797 31,705 1,381,077 ------------- 1,811,412 ------------- 7,291,902	As restated 2002
		HK$’000 — 3,286,845 386,125 114,949 329,534
		4,117,453 ------------- 505,699 122,962 196,712 4,939 54,285 231,214 232,235 — 62,885 11,310 1,079,297
		2,501,538 ------------- 94,485 400,031 28,286 90,896 314,950 15,759 162,016 45,104
		1,151,527 -------------
		1,350,011 -------------
		5,467,464

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Balance Sheet (Continued)

At 31st December 2003

Note Financed by: Share capital 26 Reserves 27 Shareholders’ funds Minority interests Long term liabilities 28 Deferred tax liabilities 29	2003 HK$’000 68,485 3,919,242 3,987,727 1,187,022 2,051,491 65,662 7,291,902	As restated 2002
		HK$’000 67,775 3,462,247
		3,530,022 570,370 1,356,949 10,123
		5,467,464

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Balance sheet

At 31st December 2003

Note Non-current assets Fixed assets 12 Subsidiaries 13 Associated company 14 Jointly controlled entities 15 Long term investments 16 Current assets Other receivables, deposits and prepayments Bank balances and cash 24 Current liabilities Other payables and accruals Amount due to ultimate holding company 20 Current portion of long term liabilities 28 Short term bank loans, unsecured Net current assets/(liabilities) Financed by: Share capital 26 Reserves 27 Shareholders’ funds Long term liabilities 28	2003 HK$’000 28,773 4,516,355 4,000 — — 4,549,128 ------------- 36,989 367,799 404,788 ------------- 13,052 172 — — 13,224 ~~-------------~~ 391,564 ------------- 4,940,692 68,485 4,014,207 4,082,692 858,000 4,940,692	2002 HK$’000 82,161 3,943,866 2,000 37,693 160,623 4,226,343 ------------- 21,607 52,982 74,589 ------------- 7,329 2,294 314,950 46,800 371,373 ~~-------------~~ (296,784) ------------- 3,929,559 67,775 3,752,584 3,820,359 109,200 3,929,559

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Statement of Changes in Equity

For the year ended 31st December 2003

Note Total equity as at 1st January, as previously reported Change in accounting policy — provision for net deferred tax assets (Note 1) Total equity as at 1st January, as restated Exchange differences not recognised in the profit and loss account 27 Profit for the year 27 Goodwill released on disposal of partial interest in an associated company 27 Dividends 27 Issue of shares 26, 27 Goodwill and capital reserves released upon disposal of subsidiaries 27 Total equity as at 31st December	2003 HK$’000 3,497,412 32,610 3,530,022 1,172 212,796 268,421 (48,170) 18,466 5,020 3,987,727	2002 HK$’000 3,346,935 36,800 3,383,735 801 181,649 3,146 (39,309) — — 3,530,022

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Cash Flow Statement

For the year ended 31st December 2003

Note Operating activities Net cash inflow generated from operations 33(a) Interest paid Interest element of finance lease payments Hong Kong profits tax paid PRC income tax paid PRC income tax refund Net cash inflow from operating activities Investing activities Interest received Proceeds from disposal of interest in an associated company Purchase of fixed assets Proceeds from disposal of fixed assets Purchase of an associated company Purchase of jointly controlled entity Additional investment in a jointly controlled entity Proceeds from disposal of a jointly controlled entity Increase in long term investments Increase in properties under development for sale Increase in amounts due from jointly controlled entities Increase in amounts due from associated companies Dividends received from an associated company Acquisition of subsidiaries 33(d) Disposal of subsidiaries 33(e) Net cash outflow from investing activities Net cash inflow/(outflow) before financing	2003 HK$’000 484,483 (84,524) — — (80,061) 11,304 331,202 ------------- 11,899 — (187,045) 45,132 (1,131) — (18,857) 34,074 (1,909) — (25) (1,627) 29,520 (12,077) 6,414 (95,632) ------------- 235,570 -------------	2002 HK$’000 357,054 (80,630) (7) (69) (71,827) 2,170 206,691 ------------- 13,046 32,306 (460,069) 4,006 — (80,143) — — (158,534) (336,902) (26) (4,855) 49,677 — — (941,494) ------------- (734,803) -------------

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Cash Flow Statement (Continued)

For the year ended 31st December 2003

Note Financing 33(b) Net increase in bank loans Capital element of finance lease payments Proceeds from issue of convertible bonds Increase in restricted bank balances Dividends paid Dividends paid to minority shareholders Issue of shares Net cash inflow from financing Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents Bank balances and cash — unrestricted 24 Short term bank loans and overdrafts repayable within three months from the date of advance	2003 HK$’000 291,316 (25) — 2,186 (48,170) (38,274) 2,866 209,899 ------------- 445,469 978,867 1,424,336 1,424,336 — 1,424,336	2002 HK$’000 234,181 (95) 156,000 8,765 (39,309) (46,546) — 312,996 ------------- (421,807) 1,400,674 978,867 1,062,453 (83,586) 978,867

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Notes to the Accounts

Principal accounting policies

The principal accounting policies adopted in the preparation of these consolidated accounts are set out below:

(a) Basis of preparation

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (‘‘HKSA’’). The accounts are prepared under the historical cost convention.

In the current year, the Group adopted Statement of Standard Accounting Practice (‘‘SSAP’’) 35 ‘‘Government Grants and Disclosure of Government Assistance’’ and SSAP 12 ‘‘Income Taxes’’ issued by the HKSA which are effective for accounting periods commencing on or after 1st July 2002 and 1st January 2003, respectively.

The adoption of SSAP 35 has no material effect on the Group’s accounts. The effect of adopting SSAP 12 is set out in note 1(p) below.

(b) Consolidation

The group accounts include the accounts of the Company and its subsidiaries made up to 31st December. The group accounts also include the Group’s share of post acquisition profits less losses, and reserves, of its associated companies and jointly controlled entities.

The results of subsidiaries, associated companies and jointly controlled entities acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill/negative goodwill or goodwill/ negative goodwill taken to reserves and was not previously charged or recognised in the consolidated profit and loss account.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

(c) Goodwill/negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiaries, associated companies or jointly controlled entities at the date of acquisition.

Goodwill on acquisitions that occurred prior to 1st January 2001 was taken directly to reserves. Goodwill on acquisitions occurring on or after 1st January 2001 is included in intangible assets and is amortised using the straight-line method over its estimated useful life.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition. For acquisitions prior to 1st January 2001, negative goodwill was taken directly to reserves on acquisition. For acquisitions after 1st January 2001, negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the income statement over the remaining weighted average useful life of those assets; negative goodwill in excess of the fair values of those non-monetary assets is recognised in the income statement immediately.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

1. Principal accounting policies (Continued)

(c) Goodwill/negative goodwill (Continued)

The carrying amount of goodwill, including those previously taken directly to reserves, is reviewed annually and provision is only made where, in the opinion of directors, there is a long-term impairment in value.

(d) Subsidiaries

A company is a subsidiary if the Group controls more than half of the voting power, controls the composition of the board of directors or hold more than half of the issued share capital.

In the Company’s balance sheet the investments in subsidiaries are stated at costs less provision for impairment losses, if necessary, for any permanent diminution in value. The results of subsidiaries are accounted for by the Company on the basis of dividend income.

(e) Associated companies

An associated company is a company, not being a subsidiary, in which an equity interest is held for the long term and significant influence is exercised in its management.

The consolidated profit and loss account includes the Group’s share of results of associated companies for the year, and the consolidated balance sheet includes the Group’s share of net assets of the associated companies.

(f) Jointly controlled entities

A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of net assets of the jointly controlled entities.

In the Company’s balance sheet, the investments in jointly controlled entities are stated at cost less provision for impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividend income.

(g) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment loss, if any.

No depreciation is provided in respect of construction in progress. Land use rights outside Hong Kong are amortised over the periods of the respective leases. Depreciation of toll roads is calculated based on the pattern of the expected traffic flow throughout the period the Group expects to operate the toll roads.

Depreciation of other fixed assets is calculated to write off the cost of the assets less accumulated impairment losses and estimated residual values using a straight line method over their estimated useful lives as follows:

Leasehold land	over the unexpired lease term
Buildings	20–45 years
Improvements on leased berths	35 years
Plant and machinery	10–18 years
Leasehold improvement, furniture and equipment	5–10 years
Motor vehicles	5–12 years
Others	5 years

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

1. Principal accounting policies (Continued)

(g) Fixed assets (Continued)

During the year, two subsidiary companies of the Group changed the estimated useful lives on depreciation of the following assets:

Change of depreciation life Effects on depreciation charge for the year

Loading equipment from 15 years to 11 years increase by approximately HK$19 million Eastern Outer Ring Road from 30 years to 50 years decrease by approximately HK$15 million

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

(h) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the lease at the fair value of the leased assets. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in long term liabilities. The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessors are accounted for as operating leases and rentals payable net of any incentives received from the leasing company are charged to the profit and loss account evenly over the periods of the respective leases.

(i) Investments

Investments held for the long term are stated at cost less provision for impairment losses, if any.

Short term investments are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value are recognised in the profit and loss account. Profits or losses on disposal, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(j) Stocks

Stocks are stated at the lower of cost and net realisable value. Cost, calculated on a weighted average basis, comprises materials, direct labour and an appropriate portion of production overheads. Net realisable value is determined on the basis of anticipated sales proceed less estimated cost to completion and selling expenses.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

1. Principal accounting policies (Continued)

(k) Properties under development held for sale

Properties under development held for sale are included under current assets and comprise land cost, construction costs and other direct costs attributable to such properties, less allowances for any foreseeable losses.

Such properties are sold in advance of completion, profit is recognised over the course of the development and is computed as proportion of the total estimated profit to completion; the proportion used being the lower of the proportion of the construction works completed and the proportion of sales proceeds received to total estimated sales proceeds.

Where purchasers fail to pay the balance of the purchase price on completion and the Group exercises its entitlement to resell the property, sales deposits received in advance of completion which are forfeited are credited to operating profit; and any profits recognised up to the date of completion are written back.

Properties completed and remain unsold as at year end are included in current assets and stated at the lower of cost and net realisable value.

(l) Accounts receivable

Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(m) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.

(n) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(o) Employee benefits

(i) Employee leave entitlement

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Retirement scheme obligations

Employees of the Group’s PRC subsidiaries are members of state-managed employee pension scheme operated by the Tianjin Municipal People’s Government which undertakes to assume the retirement benefit obligations of all existing and future retired employees. The Group’s obligation is to make the required contributions under the schemes. In addition, the Group also contributes to a mandatory provident fund scheme for all Hong Kong employees. All these contributions are based on a certain percentage of the staff’s salary and are charged to the profit and loss account as incurred.

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

1. Principal accounting policies (Continued)

(o) Employee benefits (Continued)

(iii) Equity compensation benefits

Share options are granted to directors and continuous contract employees. No compensation cost is recognised in the profit and loss account in connection with share options granted. When the share options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium.

(p) Deferred taxation

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

In prior year, deferred taxation was accounted for at the current taxation rate in respect of the timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset was expected to be payable or recoverable in the foreseeable future. The adoption of the revised SSAP 12 represents a change in accounting policy, which has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

As detailed in the Consolidated Statement of Changes in Equity, opening reserves at 1st January 2002 and 2003 have been increased by HK$36,800,000 and HK$32,610,000, respectively, which represent the unprovided net deferred tax assets. This change has resulted in an increase in deferred tax liabilities at 31st December 2002 by HK$10,123,000 and increase in interest in associated companies by HK$50,019,000. The profit for the year ended 31st December 2002 has been reduced by HK$4,190,000.

(q) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(r) Related companies

Related companies represent former holding companies of the subsidiaries comprising the Group after the Group’s restructuring and companies or entities controlled by these former holding companies and the existing holding companies, other than companies comprising the Group.

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

1. Principal accounting policies (Continued)

(s) Foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The balance sheet of subsidiaries, jointly controlled entities and associated companies expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss accounts are translated at an average rate. Exchange differences are dealt with as a movement in reserves.

(t) Revenue recognition

Sales of goods are recognised when goods are delivered to customers.

Toll revenues are recognised when services are rendered.

Cargo and container handling service income is recognised when services are rendered.

Sales of properties under development for sale in advance of completion are set out in note (k).

Rental, interest income and management fee income are recognised on an accruals basis.

Dividend income from investments is recognised when the right to receive payment is established.

(u) Borrowing costs

(v) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical as the secondary reporting format.

Unallocated items represent net corporate expenses or income. Segment assets consist primarily of goodwill, fixed assets, investments in associated companies and jointly controlled entities, properties under development for sale, completed properties held for sale, stocks, receivables and exclude amounts due from related companies and holding company, long term investments, short term investments, taxation recoverable and bank balances and cash. Segment liabilities consist of trade payables and other payables and accruals and exclude taxation payable, amounts due to related companies and holding company, minority interests and corporate borrowings. Capital expenditure comprises additions to fixed assets.

In respect of geographical segment reporting, sales are based on the country in which the Group’s production or service facilities are located. Total assets and capital expenditure are where the assets are located.

— 76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

2. Turnover and revenues

The principal activity of the Company is investment holding. The Group is principally engaged in manufacturing and sale of winery products, provision of container and cargo handling services, operation of toll roads in Tianjin and sale of properties.

The turnover is net of value added tax, less discounts and returns where applicable.

Turnover Manufacturing and sale of winery products Provision of container handling services Provision of cargo handling services Operation of toll roads Sales of properties Trading in garments, chemical products and electrical components Other revenues Gain on deemed and partial disposals of interest in an associated company Gain on disposal of a jointly controlled entity Gain on disposal of short term investment Interest income from bank deposits and others Dividends from unlisted long term investments Sundries	2003 HK$’000 602,803 375,899 326,106 289,311 199,262 67,398 1,860,779 17,681 3,619 3,815 11,899 411 11,519 48,944	2002
		HK$’000 621,508 309,036 261,580 261,094 135,848 156,193
		1,745,259
		24,924 — — 13,046 143 3,474
		41,587

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

3. Segment information

(a) Primary reporting format — business segments

			Year	ended 31st December 2003	ended 31st December 2003	ended 31st December 2003
Winery	Container handling	Cargo handling	Operation of toll roads	Property development	Trading	Elevator and escalator	Gas fuel supply	Others	Group
HK$’000 602,803	HK$’000 375,899	HK$’000 326,106	HK$’000 289,311	HK$’000 199,262	HK$’000 67,398	HK$’000 —	HK$’000 —	HK$’000 —	HK$’000 1,860,779
153,487	97,190			10,326			—	—	416,495 17,681 11,899 (82,480)
— 1,002 — 189,889 — 10,359 341,385 198,861 245,376 31,668 22,261 —	595 — — 843,196 5,897 — 25,537 3,647 23,225 85,124 66,741 —	3,648 — — 413,938 22,691 — 60,300 333 20,079 60,337 23,592 —	— — 54,096 3,284,039 — — 149,915 773,339 82,246 1,525,869 28,693 —	— — — 27,875 — — 588,473 26,891 92,274 112 1,955 —	— — — — — — — — — 405 91 —	62,939 — — — 173,774 — 405,828 188,656 3,943 — — —	21,891 — — — 156,007 — — — — — — —

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

3. Segment information (Continued)

(a) Primary reporting format — business segments (Continued)

			Year	ended 31st December 20	ended 31st December 20	02
Winery	Container handling	Cargo handling	Operation of toll roads	Property development	Trading	Elevator and escalator	Gas fuel supply	Others	Group
HK$’000 621,508	HK$’000 309,036	HK$’000 261,580	HK$’000 261,094	HK$’000 135,848	HK$’000 156,193	HK$’000 —	HK$’000 —	HK$’000 —	HK$’000 1,745,259
159,843	90,939			1,682			—	—	324,779 24,924 13,046 (66,646)
		3,659 — 382,436 21,646 — 73,980 307 40,418 117,840 23,675 —	— — 1,786,860 — — 194 188,301 22,611 1,426 48,450 —	— — 82,647 — — 628,767 25,027 81,424 457 44 —	— — 555 — — 64,109 — 45,050 877 401 2,418	58,794 — — 215,947 — 45,187 178,515 9,305 — — —	54,448 — — 142,040 — — — — — — —

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

3. Segment information (Continued)

(b) Secondary report format — geographical segments

2003 PRC mainland Hong Kong 2002 PRC mainland Hong Kong	Turnover HK$’000 1,793,381 67,398 1,860,779 1,589,066 156,193 1,745,259	Segment results HK$’000 442,667 (26,172) 416,495 378,888 (54,109) 324,779	Total assets HK$’000 8,246,835 426,144 8,672,979 6,444,813 174,178 6,618,991	Capital expenditure
				HK$’000 1,719,429 405
				1,719,834
				459,192 877
				460,069

(c) Pursuant to an approval (Jin Zheng Fa 2003 No. 52) dated 30th May 2003 issued by the Tianjin Municipal People’s Government, the direct collection of tolls by all toll stations situated at the urban area of Tianjin City, including the Eastern Outer Ring Road, was terminated with effect from 1st June 2003 and the Tianjin City Indebted Road Construction and Toll Collection Office (the ‘‘City Toll Collection Office’’) should take up the responsibility of collecting toll payments from road users. Based on a pre-determined formula in accordance with the Eastern Outer Ring Road Toll Collection Agency Agreement dated 20th August 2003, the City Toll Collection Office shall then pay the toll fees to Jin Zheng Transportation Company. The City Toll Collection Office charges a toll collection management fee which is equal to 5% of the aggregate toll revenue receivable by the Group in return.

(d) The Group disposed of its entire interests in certain subsidiaries, which engaged in trading operations in Hong Kong, to Tsinlien Group Company Limited for a cash consideration of HK$2 during the year.

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

4. Operating profit before financing

Operating profit before financing is stated after (crediting)/charging: Cost of stocks and completed properties sold Staff cost (including directors’ emoluments) Wages and salaries Retirement benefit costs Auditors’ remuneration Exchange (gain)/loss Depreciation Owned fixed assets Leased fixed assets Net loss on disposal of fixed assets Operating lease expense on Land and buildings Berths, railway and storage space Plant and equipment Impairment of land and building Provision for bad and doubtful debts Provision for obsolete stocks Provision for long term investment Impairment of goodwill on acquisition of a subsidiary Loss on disposal of subsidiaries	2003 HK$’000 457,653 253,126 29,641 2,730 (38) 144,202 — 10,084 18,276 19,258 9,258 5,698 66,418 626 — 1,469 3,758	2002
		HK$’000 492,969 255,911 26,201 2,652 125 136,689 53 5,387 22,103 19,258 6,439 — 74,963 3,523 2,418 — —

5. Finance costs

Interest on bank and other loans wholly repayable within five years Interest on convertible bonds Less: Interest capitalised in properties under development	2003 HK$’000 79,953 4,571 84,524 (2,284) 82,240	2002
		HK$’000 84,087 3,315
		87,402 (6,034)
		81,368

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

6. Taxation

The amount of taxation charged to the consolidated profit and loss account represents:

Current taxation Hong Kong profits tax PRC income tax Under/(over) provisions in prior years Deferred taxation relating to the origination and reversal of temporary differences (Note 29) Share of PRC income tax attributable to Jointly controlled entities Associated companies	2003 HK$’000 — 66,032 662 5,439 72,133 (383) 7,991 79,741	2002 HK$’000 113 62,199 (1,039) 3,257 64,530 383 18,762 83,675

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated taxable profit for the year (2002: 16%) and provision for the PRC income tax has been made at the applicable rates of taxation on the estimated taxable profit for the year.

In accordance with an approval document issued by the Tianjin Finance Bureau on 6th November 1997, with effect from the listing of the Company, the income tax rate applicable to Tianjin Harbour Second Stevedoring Co., Ltd. and Tianjin Port Container Terminal Co., Ltd. is 15%.

In accordance with approval documents dated 12th November 1997 issued by the State Tax Bureau, Tianjin Tai Kang Industrial Co., Ltd. and Tianjin Heavenly Palace Winery Co., Ltd. are exempted from income tax for two years starting from the first year of profit generation, followed by a 50% reduction for the next three years.

Further, in accordance with an approval document issued by the Tianjin Finance Bureau on 4th November 1997, Tianjin Jin Zheng Transportation Development Co., Ltd. is exempted from income tax for five years starting from the first year of profit generation. The company will be refunded for any tax paid in excess of the tax rate of 7.5% for the next five years and in excess of the tax rate of 15% thereafter. Pursuant to another document issued by State Tax Bureau dated 21st December 2001, the income tax rate applicable to Tianjin Jin Zheng Transportation Development Co., Ltd. is 7.5% from 2002 to 2004, and 15% thereafter.

Pursuant to the relevant laws and regulations in the PRC, Tianjin Mass Transit (Group) Development Co., Ltd. and its subsidiaries (‘‘MTD Group’’) is exempted from income tax for two years starting from the first year of profit generation and thereafter, MTD Group is entitled to a 50% relief from the PRC enterprise income tax for the following three years. The reduced tax rate for the relief period is 7.5%. After the expiry of the tax relief period, MTD Group is subject to an income tax rate of 15%, being the preferential tax rate applicable.

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

6. Taxation (Continued)

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of rates prevailing in the territory in which the Group’s principal subsidiaries operate, as follows:

Profit before taxation Calculated at applicable tax rate Income of subsidiaries under tax reduction Income not subject to taxation Expenses not deductible for taxation purposes Utilisation of previously unrecognised tax losses Tax losses not recognised Taxation charge	2003 HK$’000 363,789 83,116 (18,125) (21,337) 33,282 (1,255) 4,060 79,741	2002
		HK$’000 329,207
		77,807 (8,145) (24,811) 34,027 (1,290) 6,087
		83,675

7. Profit attributable to shareholders

The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of profit of HK$292,037,000 (2002: HK$93,553,000).

8. Dividends

2003 final dividends, proposed, of 3.9 HK cents (2002: final, paid, of 3.3 HK cents per share) 2003 interim, paid, of 3.8 HK cents (2002: 3.3 HK cents) per share	2003 HK$’000 26,822 25,804 52,626	2002
		HK$’000 22,365 22,365
		44,730

At a meeting held on 26th April 2004 the directors proposed a final dividend of 3.9 HK cents per ordinary share. This proposed dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained earnings for the year ending 31st December 2004.

9. Earnings per share

The calculation of the basic earnings per share was based on profit attributable to shareholders of HK$212,796,000 (2002: HK$181,649,000) and the weighted average number of 678,771,278 ordinary shares in issue (2002: 677,750,000 shares) during the year.

The share options have no material dilutive effect on basic earnings per share for the years ended 31st December 2002 and 2003.

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

10. Emoluments of directors and senior management

(a) Directors’ emoluments

Fees Salaries and other emoluments Emolument bands (HK$) Nil –1,000,000 1,000,001–1,500,000	2003 2002 HK$’000 HK$’000 5,120 7,188 1,533 1,017 6,653 8,205 Number of individuals	2002
		HK$’000 7,188 1,017
		8,205
	2003 14 2 16	2002
		11 4
		15

Remuneration paid to independent non-executive directors for the year represents fees amounting to HK$900,000 (2002: HK$900,000). During the year, none of the directors had waived their directors’ fees (2002: Nil).

(b) Senior management emoluments

Details of the emoluments paid to the five individuals, including 3 directors (2002: 4 directors), whose emoluments were the highest in the Group are as follows:

Fees Salaries and other emoluments Emolument bands (HK$) Nil –1,000,000 1,000,001–1,500,000	2003 2002 HK$’000 HK$’000 2,444 3,984 3,233 1,794 5,677 5,778 Number of individuals	2002
		HK$’000 3,984 1,794
		5,778
	2003 3 2 5	2002
		1 4
		5

During the year, no emoluments were paid by the Group to the five highest paid individuals, including directors, as an inducement to join or upon joining the Group or as compensation for loss of office (2002: Nil).

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

11. Goodwill

Cost Acquisition of subsidiaries (Note 33(d)) and at 31st December 2003 Accumulated amortisation and impairment Impairment (Note 4) and at 31st December 2003 Net book value At 31st December 2003 12. Fixed assets	2003 HK$’000 55,565 (1,469) 54,096	2002
		HK$’000 — —
		—

Group

Land and buildings	Toll roads	Improvement on leased berths	Plant and machinery	Leasehold improve- ment, furniture and equipment	Motor vehicles	Construction in progress	Others	Total
		HK$’000 363,196 — — — 2,293 —
		365,489 - - - - - - - - - - - - - 12,984 9,556 — — — —
85,684 - - - - - - - - -	264,977 - - - - - - - - -	22,540 - - - - - - - - - - - - -	313,391 - - - - - - - - - -	5,471 - - - - - - - - - - -	28,269 - - - - - - - - -	— - - - - - - - - - - - - -	31,698 - - - - - - - - -	752,030 - - - - - - - - -
312,405	3,278,013	342,949	743,397	26,826	29,153	50,732	17,220	4,800,695
352,643	1,781,277	350,212	705,167	7,560	29,365	41,903	18,718	3,286,845

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

12. Fixed assets (Continued)

Company

Leasehold land HK$’000 Cost At 1st January 2003 84,639 Additions — Disposals (50,719) At 31st December 2003 33,920 - - - - - - - - - - - - - - Accumulated depreciation and impairment At 1st January 2003 4,132 Charge for the year — Impairment charge 5,698 Disposals (3,369) At 31st December 2003 6,461 ~~- - - - - - - - - - - - - -~~ Net book value At 31st December 2003 27,459 At 31st December 2002 80,507	Leasehold improvement, furniture and equipment HK$’000 2,353 20 — 2,373 - - - - - - - - - - - - - - 843 269 — — 1,112 ~~- - - - - - - - - - - - - -~~ 1,261 1,510	Motor vehicles HK$’000 2,540 — — 2,540 - - - - - - - - - - - - - - 2,396 91 — — 2,487 ~~- - - - - - - - - - - - - -~~ 53 144	Total
			HK$’000 89,532 20 (50,719
			38,833 - - - - - - - - - - - - - - 7,371 360 5,698 (3,369
			10,060 ~~- - - - - - - - - - - - - -~~
			28,773
			82,161

(a) The cost of the Group’s and the Company’s property interests comprises:

Group 2003 2002 HK$’000 HK$’000 — 1,205 — 130 398,089 422,569 3,542,990 1,967,418 3,941,079 2,391,322	Company	Company
2003 HK$’000 — — 398,089 3,542,990 3,941,079	2003 HK$’000 — — 33,920 — 33,920	2002
		HK$’000 — — 84,639 —
		84,639

(b) Toll revenue arising from the operations of Eastern Outer Ring Road and Jinbin Expressway were pledged for bank loans of subsidiaries of the Group. The pledge on toll revenue of Eastern Outer Ring Road was released subsequent to year end.

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

13. Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries	Company	Company
	2003 HK$’000 3,518,323 1,140,587 (142,555) 4,516,355	2002
		HK$’000 2,976,319 1,169,351 (201,804)
		3,943,866

Details of principal subsidiaries, which in the directors’ opinion, materially affect the results or net assets of the Group at 31st December 2003 are set out in note 38.

14. Associated companies

Group 2003 2002 HK$’000 HK$’000 156,007 142,040 199,306 241,765 355,313 383,805 (1,882) (1,882) 5,829 4,202 359,260 386,125 414,624 370,200	Company	Company
2003 HK$’000 156,007 199,306 355,313 (1,882) 5,829 359,260 414,624	2003 HK$’000 — — — — 4,000 4,000 —	2002
		HK$’000 — —
		— — 2,000
		2,000
		—

(a) Details of principal associated companies, which in the directors’ opinion, materially affect the results or net assets of the Group at 31st December 2003 are set out in note 39.

(b) Included in the Group’s share of profits less losses of associated companies totaling HK$86,955,000 is an amount of HK$19,882,000 representing the Group’s share of profits of Wah Sang Gas Holdings Limited (‘‘Wah Sang Holdings’’), further details of which are set out in note 14(c)(i).

— 87 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

14. Associated companies (Continued)

(c) The summary of the financial information of each of the material associated companies, Wah Sang Gas Holdings Limited and Otis Elevator (China) Investment Company Limited, are as follows:
(i) Wah Sang Gas Holdings Limited (Note)

Turnover Operating profit before taxation Profit after taxation Minority interests Profits attributable to shareholders Share of profits after taxation attributable to the Group Share of profits after taxation attributable to and equity accounted for by the Group		2003	2003	For the three months ended 30th September HK$’000 272,445 91,598 83,000 (1,594) 81,406 18,585 —	2002 Aggregate for twelve months ended 31st December HK$’000 662,176 238,786 230,791 (7,178) 223,613 49,902 49,902
	For the three months ended 31st March HK$’000 120,709 24,840 20,312 1,431 21,743	For the three months ended 30th June HK$’000 231,755 71,143 66,874 (1,529) 65,345	Aggregate for six months ended 30th June HK$’000 352,464 95,983 87,186 (98) 87,088 19,882 19,882

Note:

Wah Sang Holdings is listed on the Growth Enterprise Market (‘‘GEM’’) of the Stock Exchange of Hong Kong Limited and has its financial year end date on 31st March. It is required to publish results quarterly.

On 19th December 2003, Wah Sang Holdings announced that it is under enquiry by the Securities and Futures Commission (‘‘SFC’’) pursuant to section 179 of the Securities and Futures Ordinance. On 13th February 2004, Wah Sang Holdings announced that the release of its third quarter results for the nine months ended 31st December 2003 was postponed to 31st March 2004. This was further postponed to end of April 2004. On 6th April 2004, the SFC directed that trading in the shares of Wah Sang Holdings be suspended until further notice.

— 88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

14. Associated companies (Continued)

For the preparation of the Group’s interim accounts previously announced for the six months ended 30th June 2003, the Group has equity accounted for its share of the profit of Wah Sang Holdings for the same period amounting to HK$19,882,000. Since Wah Sang Holdings has not been able to release its financial information for the period ended 31st December 2003, together with the impending enquiry by the SFC, there exists uncertainty as to the actual performance of Wah Sang Holdings for the six months ended 31st December 2003. As a result, the directors of the Company consider it appropriate not to equity account for any of the results of Wah Sang Holdings for the six months ended 31st December 2003 until audited financial information of Wah Sang Holdings is available. Similarly, the share of net assets of Wah Sang Holdings equity accounted for in the Group’s consolidated balance sheet as at 31st December 2003 was based on the results of Wah Sang Holdings up to 30th June 2003 amounting to HK$156,007,000 which is analysed as follows:

Assets and liabilities Fixed assets Current assets Current liabilities Long term liabilities Minority interests Wan Sang Holdings’ net assets Share of net assets attributable to the Group representing the carrying value of the Group’s investment in Wah Sang Holdings	As at 30th June 2003 HK$’000 961,636 404,206 (394,408) (240,951) (28,944) 701,539 156,007	As at 31st December 2002 HK$’000 751,511 383,365 (260,115) (231,896) (17,917) 624,948 142,040

Since Wah Sang Holdings is unable to release updated financial information and with the outcome from the enquiry by SFC pending, it is not practicable to estimate the financial impact this may have on the Group at this stage. However, as Wah Sang Holdings is currently continuing its normal operations, the directors of the Company are of the view that impairment to the aforesaid carrying value of the Group’s investment in Wah Sang Holdings, if any, is unlikely to have a material negative impact on the financial position of the Group taken as a whole.

(ii) Otis Elevator (China) Investment Company Limited

Turnover Operating profit before taxation Profit after taxation Minority interests Profits attributable to shareholders Share of profits after taxation attributable to the Group	2003 HK$’000 2,688,237 236,413 222,015 (10,109) 211,906 47,819	As restated 2002 HK$’000 1,933,672 149,580 115,985 (4,152) 111,833 37,290

— 89 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

14. Associated companies (Continued)

(ii) Otis Elevator (China) Investment Company Limited (Continued)

Assets and liabilities Fixed assets Other long term assets Current assets Current liabilities Minority interests Net assets Share of net assets attributable to the Group	As at 31st December 2003 HK$’000 502,270 192,206 2,757,661 (2,577,645) (135,678) 738,814 143,781	As at 31st December 2002
		HK$’000 399,655 309,646 1,600,073 (1,790,158) (34,333)
		484,883
		178,675

15. Jointly controlled entities

Group 2003 2002 HK$’000 HK$’000 — — 95,568 114,923 51 26 95,619 114,949	Company	Company
2003 HK$’000 — 95,568 51 95,619	2003 HK$’000 — — — —	2002
		HK$’000 37,693 — —
		37,693

Details of jointly controlled entities are set out in note 40.

16. Long term investments

Group 2003 2002 HK$’000 HK$’000 102,575 267,455 68,245 67,010 170,820 334,465 — (4,931) 170,820 329,534	Company	Company
2003 HK$’000 102,575 68,245 170,820 — 170,820	2003 HK$’000 — — — — —	2002
		HK$’000 160,623 —
		160,623 —
		160,623

Cost of long term investments of HK$81.9 million (2002: HK$81.9 million) represents the Group’s investment in fourteen joint ventures which build, operate and manage Tang Jin Expressway in each of which the Group holds a 6.62% equity interest.

The loans to these investee companies are unsecured, interest free and have no fixed repayment terms.

— 90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

17. Properties under development held for sale

Land costs (Note) Development and incidental costs Interest capitalised	Group	Group
	2003 HK$’000 347,813 — — 347,813	2002
		HK$’000 440,664 57,973 7,062
		505,699

Note: Land costs of HK$347.8 million (2002: HK$347.8 million) represents the investment in a parcel of land located in Tianjin. The land use right will expire on 13th February 2052.

18. Completed properties held for sale

All completed properties are situated in PRC. As at 31st December 2003, the carrying value of properties held for sale being pledged as securities for banking facilities granted to the Group amounted to HK$69,847,000 (2002: Nil).

19. Stocks

Raw materials Work in progress Finished goods Consumable stocks Less: Provision for slow moving stocks	Group	Group
	2003 HK$’000 67,986 10,071 109,468 16,903 — 204,428	2002
		HK$’000 78,145 19,473 88,963 15,304 (5,173)
		196,712

20. Amounts due from/(to) ultimate holding company and a fellow subsidiary company

The balances are unsecured, interest free and have no fixed repayment terms.

21. Amounts due from/(to) related companies

Amounts due from related companies (Note a) Amounts due to related companies (Note a) Construction costs payable to a minority shareholder (Note b)	Group	Group
	2003 HK$’000 53,194 (32,900) (90,138) (123,038)	2002
		HK$’000 54,285
		(758) (90,138)
		(90,896)

Notes:

(a) Amounts receivable and payable are unsecured, interest free and have no fixed repayment terms.

(b) Amounts payable to Eastern Outer Ring Road Company Limited relate to the construction costs of a toll road owned by the Group.

— 91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

22. Trade receivables

The aging analysis of the Group’s trade receivables (net of provisions) are as follows:

Below 30 days 30 to 90 days 91 to 180 days Over 180 days	Group	Group
	2003 HK$’000 260,181 30,275 720 13,170 304,346	2002
		HK$’000 162,743 21,192 8,537 38,742
		231,214

The various group companies have different credit policies dependent on the requirements of the markets and the businesses which they operate. In general, credit terms of 90 days are given to customers.

23. Short term investments

Designated deposits Listed shares in Hong Kong Market values of listed shares	Group	Group
	2003 HK$’000 58,429 — 58,429 —	2002
		HK$’000 60,380 2,505
		62,885
		2,505

The designated deposits are placed with securities companies in Mainland China as trust deposits for investment purposes. Such deposits are redeemable within one year from date of placement.

24. Bank balances and cash

Group 2003 2002 HK$’000 HK$’000 14,658 16,844 1,424,336 1,062,453 1,438,994 1,079,297	Company	Company
2003 HK$’000 14,658 1,424,336 1,438,994	2003 HK$’000 — 367,799 367,799	2002
		HK$’000 — 52,982
		52,982

The restricted balances have been pledged as securities for certain bank loans.

— 92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

25. Trade payables

The aging analysis of the Group’s trade payables are as follows:

Below 30 days 30 to 90 days 91 to 180 days Over 180 days Share capital Authorised: 3,000,000,000 shares of HK$0.10 each Issued and fully paid: At beginning of the year Issue of shares (Note a) Conversion of convertible bonds (Note b) At the end of the year	Group	Group
	2003 HK$’000 15,046 47 — 2,381 17,474 2003 HK$’000 300,000 67,775 130 580 68,485	2002
		HK$’000 68,049 13,603 10,233 2,600
		94,485
		2002
		HK$’000 300,000
		67,775 — —
		67,775

26. Share capital

Notes:

(a) On 6th and 9th October 2003, 500,000 and 800,000 share options were exercised by employees respectively. The exercise price was HK$2.204 each and was settled in full by cash. The shares rank pari passu with the existing shares.
(b) As detailed in note 28, the Group has convertible bonds listed on the Luxembourg Stock Exchange. On 16th November 2003, bondholders exercised their option to convert the bonds into shares of the Company by subscribing for 5,799,256 shares of the Company at HK$2.69 each. The shares rank pari passu with the existing shares.
(c) The Company has a share option scheme (the ‘‘Scheme’’) approved in an extraordinary general meeting on 22nd November 1997 under which the directors may, at their discretion and within 10 years from the approval date, invite any employees or executive directors of the Group to take up options to subscribe for shares in the Company subject to the terms and conditions stipulated in the Scheme. The Company operates the Scheme for the purpose of promoting additional commitment and dedication to the long term objectives of the Group by the participants. The grant will expire on 21st November 2007 or an earlier date as determined by the board of directors. The cash consideration payable for each grant is HK$1.

Prior to 1st September 2001, the subscription price is determined by the directors and shall be the higher of nominal value of the Company’s share and a price not less than 80% of the market price immediately before the options are granted. The maximum number of shares issued to each employee or director in respect of which options may be granted shall not exceed 25% of the total shares in issue or to be issued under the Scheme. On 1st September 2001 when the amendments to the Listing Rules were effective, the subscription price shall be the higher of the closing price on the date of grant and the average closing price for the five business days immediately preceding the date of grant. The maximum number of shares issued and to be issued upon exercise of the options granted to each employee or director shall not exceed 1% of the total shares in issue in any 12-month period. Shares options granted since 1st September 2001 shall comply with the prevailing Listing Rules.

— 93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

26. Share capital (Continued)

Movements in the number of share options outstanding during the year are as follows:

At the beginning of the year Exercised (Note (i)) Lapsed (Note (ii)) At the end of the year (Note (iii))	Number of options	Number of options
	2003 28,668,000 (1,300,000) (6,332,000) 21,036,000	2002
		28,668,000 — —
		28,668,000

(i) Options exercised on 6th and 9th October 2003 resulted in 500,000 and 800,000 shares (2002: Nil) being issued at HK$2.204 for both exercises (2002: Nil), yielding the following net proceeds of HK$2,866,000 (2002: Nil).

Ordinary share capital — at par Share premium Proceeds Fair value of shares issued at exercise date of: — 6th October 2003 — 9th October 2003	2003 HK$’000 130 2,736 2,866 Exercise price per share HK$ 2.204 2.204		2002
			HK$’000 — —
			—
			Number of shares issued
			500,000 800,000

(ii) Following the resignation of Chen Cuiwan as a director on 15th July 2003, the share option lapsed on 15th August 2003.

(iii) Share options outstanding at the end of the year have the following terms:

Number of options 2003 2002 9,336,000 13,668,000 11,500,000 13,500,000 20,836,000 27,168,000 200,000 1,500,000 21,036,000 28,668,000	Vested percentages	Vested percentages
2003 9,336,000 11,500,000 20,836,000 200,000 21,036,000	2003 100% 100% 100%	2002
		100% 100%
		100%

(iv) Following the resignation of Chen Zihe on 30th December 2003, the share options lapsed on 30th January 2004. On 2nd January 2004, 500,000 share options were granted to an employee of the Company. The exercise price of the share options was HK$3.66 each.

— 94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

27. Reserves

Group

At 1st January 2002, as previously reported Change in accounting policy — provision for net deferred tax assets (Note 1) At 1st January 2002, as restated Exchange differences Transfers Profit for the year Dividends Released on disposal of partial interest in an associated company At 1st January 2003 At 1st January 2003, as previously reported Change in accounting policy — provision for net deferred tax assets (Note 1) At 1st January 2003, as restated Issue of shares Exchange differences Transfers Profit for the year Dividends Released on disposal of partial interest in an associated company Released upon disposal of subsidiaries At 31st December 2003	Capital reserve HK$’000 11,642 — 11,642 — — — — — 11,642 11,642 — 11,642 — — — — — — 1,028 12,670	Share premium HK$’000 3,542,741 — 3,542,741 — — — — — 3,542,741 3,542,741 — 3,542,741 17,756 — — — — — — 3,560,497	General reserve HK$’000 39,873 — 39,873 — 8,887 — — — 48,760 48,760 — 48,760 — — 18,334 — — — — 67,094	Goodwill reserve HK$’000 (862,887) 11,898 (850,989) — — — — 3,146 (847,843) (859,741) 11,898 (847,843) — — — — — 268,421 3,992 (575,430)	Statutory reserves HK$’000 124,387 — 124,387 — 21,787 — — — 146,174 146,174 — 146,174 — — 19,755 — — — — 165,929	Exchange reserve HK$’000 9,839 — 9,839 801 — — — — 10,640 10,640 — 10,640 — 1,172 — — — — — 11,812	Retained profit HK$’000 413,565 24,902 438,467 — (30,674) 181,649 (39,309) — 550,133 529,421 20,712 550,133 — — (38,089) 212,796 (48,170) — — 676,670	Total HK$’000 3,279,160 36,800 3,315,960 801 — 181,649 (39,309) 3,146 3,462,247 3,429,637 32,610 3,462,247 17,756 1,172 — 212,796 (48,170) 268,421 5,020 3,919,242

(a) Goodwill attributable to associated companies amounts to HK$510,157,000 (2002: HK$778,578,000). Retained profit and accumulated losses attributable to associated companies and jointly controlled entities amounts to HK$133,761,000 (2002: HK$163,385,000) and HK$3,433,000 (2002: HK$7,033,000), respectively. All other reserves of the Group are dealt with in the accounts of the Company and its subsidiaries.

(b) Statutory reserves and general reserves are reserves required by the relevant PRC laws applicable to the Group’s subsidiaries and cannot be used for distribution in the form of cash dividends.

— 95 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

27. Reserves (Continued)

Company

At 1st January 2002 Profit for the year Dividends At 31st December 2002 Issue of shares Profit for the year Dividends At 31st December 2003	Share premium HK$’000 3,542,741 — — 3,542,741 17,756 — — 3,560,497	Retained profit HK$’000 155,599 93,553 (39,309) 209,843 — 292,037 (48,170) 453,710	Total
			HK$’000 3,698,340 93,553 (39,309)
			3,752,584 17,756 292,037 (48,170)
			4,014,207

The Company’s reserve available for distribution to shareholders as at 31st December 2003 is represented by the retained profit of HK$453,710,000 (2002: HK$209,843,000).

28. Long term liabilities

Group 2003 2002 HK$’000 HK$’000 Bank loans secured (Note a) 1,324,722 801,434 unsecured 1,246,844 714,440 Convertible bonds (Note b) 140,400 156,000 Obligation under finance lease — 25 2,711,966 1,671,899 Less: Amounts due within one year included under current liabilities 660,475 314,950 Amounts due after one year 2,051,491 1,356,949 The maturity of the Group’s long term liabilities is as follows: Bank loans Within one year 660,475 314,925 In the second year 407,230 755,575 In the third to fifth years inclusive 1,049,401 445,374 After the fifth year 454,460 — 2,571,566 1,515,874 - - - - - - - - - - - - - - - - - - Convertible bonds In the second year 140,400 — In the third to fifth years inclusive — 156,000 140,400 156,000 - - - - - - - - - - - - - - - - - - Obligation under finance lease Within one year — 25 — 25 ~~- - - - - - - - -~~ ~~- - - - - - - - -~~ 2,711,966 1,671,899	Company	Company
	2003 HK$’000 — 858,000 — — 858,000 — 858,000 — — 858,000 — 858,000 - - - - - - - - - — — — - - - - - - - - - — — ~~- - - - - - - - -~~ 858,000	2002
		HK$’000 — 424,125 — 25
		424,150 314,950
		109,200
		314,925 39,000 70,200 —
		424,125 - - - - - - - - - — —
		— - - - - - - - - - 25
		25 ~~- - - - - - - - -~~
		424,150

— 96 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

28. Long term liabilities (Continued)

Notes:

(a) The bank loans were secured by toll revenue collection right of toll roads, completed properties held for sale, bank deposits and equity interests in certain subsidiaries of the Group.
(b) On 18th April 2002, the Group issued US$20,000,000 convertible bonds which are listed on the Luxembourg Stock Exchange and carry interest at 3% per annum payable semi-annually in arrears. Each bondholder has the option to convert the bonds into shares of the Company of HK$0.10 each at a conversion price of HK$2.69 per share, subject to adjustment, at any time from 18th April 2003 to 11th April 2005.

Unless previously purchased and cancelled, redeemed or converted, the bonds will be redeemed at 106.39% of their principal amount plus accrued interest on 18th April 2005.

During the year, US$2,000,000 bonds were converted into 5,799,256 ordinary shares of HK$0.10 each of the Company.

29. Deferred tax liabilities

Deferred taxation is calculated in full on temporary differences under the liability method using prevailing tax rate of subsidiaries at 15% (2002: 15%).

The movement on the deferred tax liabilities account in respect of accelerated tax depreciation is as follows:

At 1st January Acquisition of subsidiaries (Note 33(d)) Deferred taxation charged to profit and loss account (Note 6) At 31st December Deferred tax liabilities recognised in the balance sheet are as follows: Deferred tax liabilities to be settled after 12 months	2003 HK$’000 10,123 50,100 5,439 65,662 65,662	2002
		HK$’000 6,866 — 3,257
		10,123
		10,123

— 97 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

30. Operating lease commitments

At 31st December 2003, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Group 2003 2002 HK$’000 HK$’000 7,232 13,466 26,541 26,295 57,482 64,043 91,255 103,804 - - - - - - - - - - - - - - - - - - 20,221 19,356 83,008 81,996 203,736 224,967 306,965 326,319 - - - - - - - - - - - - - - - - - - 3,723 3,723 14,893 14,894 32,891 36,614 51,507 55,231 - - - - - - - - - - - - - - - - - - 449,727 485,354 Group 2003 2002 HK$’000 HK$’000 — 37,000 2,860 — — 19,500 2,860 56,500 24,212 78,000 25,597 — 27,910 33,635 864 — 78,583 111,635	Company	Company
	2003 2002 HK$’000 HK$’000 636 7,301 295 240 — — 931 7,541 - - - - - - - - - - - - - - - - - - — — — — — — — — - - - - - - - - - - - - - - - - - - — — — — — — — — - - - - - - - - - - - - - - - - - - 931 7,541 Company	2002
		HK$’000 7,301 240 —
		7,541 - - - - - - - - - — — —
		— - - - - - - - - - — — —
		— - - - - - - - - -
		7,541
2003 HK$’000 — 2,860 — 2,860 24,212 25,597 27,910 864 78,583	2003 HK$’000 — — — — — — — — —	2002
		HK$’000 — — —
		—
		— — — —
		—

— 98 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

32. Contingent liabilities

Guarantees given to banks in respect of banking facilities extended to Subsidiaries A jointly controlled entity A third party	Group 2003 2002 HK$’000 HK$’000 — — 18,857 28,286 15,344 —	Company	Company
	2003 HK$’000 — 18,857 15,344	2003 HK$’000 1,138,040 — —	2002
			HK$’000 1,450,000 — —

Notes to the consolidated cash flow statement

(a) Reconciliation of operating profit before financing to net cash inflow from operations

Operating profit before financing Interest income Depreciation Impairment charge Goodwill written off Net loss on disposal of fixed assets Loss on disposal of subsidiaries Gain on deemed and partial disposals of interest in an associated company Operating profit before working capital changes (Increase)/decrease in stocks (Increase)/decrease in trade receivables Decrease in other receivables, deposits and prepayments (Decrease)/increase in trade payables Increase in other payables and accruals Decrease/(increase) in completed properties held for sale Decrease/(increase) in short term investments Decrease in net amounts due from ultimate holding company (Decrease)/increase in amount due to a fellow subsidiary Increase in net balances due to related companies Exchange differences Net cash inflow generated from operations	2003 HK$’000 363,595 (11,899) 144,202 5,698 1,469 10,084 3,758 (17,681) 499,226 (7,177) (102,868) 43,879 (50,654) 22,264 64,325 4,456 4,913 (28,286) 33,233 1,172 484,483	2002
		HK$’000 296,103 (13,046) 136,742 — — 5,387 — (24,924)
		400,262 20,106 16,252 17,517 22,190 30,383 (122,962) (62,885) 6,153 28,286 951 801
		357,054

— 99 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

33. Notes to the consolidated cash flow statement (Continued)

(b) Analysis of changes in financing during the year

At 1st January 2002 Dividends Net cash inflows/(outflows) from financing Share of profits and reserves attributable to minority shareholders Dividends to minority shareholders At 31st December 2002 Dividends Net cash inflows/(outflows) from financing Share of profits and reserves attributable to minority shareholders Dividends to minority shareholders Acquisition of subsidiaries (Note 33(d)) Disposal of subsidiaries (Note 33(e)) Issue of shares Conversion of bonds At 31st December 2003	Dividend payable HK$’000 — 39,309 (39,309) — — — 48,170 (48,170) — — — — — — —	Share capital including premium HK$’000 3,610,516 — — — — 3,610,516 — — — — — — 2,866 15,600 3,628,982	Minority interests HK$’000 553,033 — — 63,883 (46,546) 570,370 — — 71,252 (38,274) 584,368 (694) — — 1,187,022	Restricted bank balances HK$’000 (25,609) — 8,765 — — (16,844) — 2,186 — — — — — — (14,658)	Bank loans, convertible bonds and finance lease obligation HK$’000 1,376,002 — 390,086 — — 1,766,088 — 291,291 — — 744,390 — — (15,600) 2,786,169	Total HK$’000 5,513,942 39,309 359,542 63,883 (46,546) 5,930,130 48,170 245,307 71,252 (38,274) 1,328,758 (694) 2,866 — 7,587,515

On 17th November 2003, US$2,000,000 convertible bonds were converted into 5,799,256 ordinary shares of HK$0.10 each of the Company.

On 29th December 2003, the Group entered into an agreement with Starwell Holdings Limited to purchase 6,000 shares of US$1 each in Golden Horse Resources Limited, an intermediate holding company of Jinbin Expressway. The consideration was satisfied by the issue of 184,800,000 shares of HK$0.10 each of Coastal Rapid Transit Company Limited, a then wholly owned subsidiary of the Group, credited as fully paid.

— 100 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

33. Notes to the consolidated cash flow statement (Continued)

(d) Acquisition of subsidiaries

Net assets acquired Fixed assets (Note 12) Stocks Other receivables, deposits and prepayment Bank balances and cash — unrestricted Trade payables Other payables and accruals Bank loans (Note 33(b)) Deferred tax liabilities (Note 29) Minority interests (Note 33(b)) Goodwill on acquisition (Note 11) Less: Interest already held by the Group — convertible preference shares Satisfied by: Cash consideration Convertible preference shares Analysis of net cash outflow in respect of acquisition of subsidiaries: Cash consideration Bank balances and cash on hand acquired Net cash outflow in respect of acquisition of subsidiaries	2003 HK$’000 1,532,789 4,225 16,642 6,989 (177) (57,486) (744,390) (50,100) (584,368) 124,124 55,565 179,689 (160,623) 19,066 19,066 160,623 179,689 19,066 (6,989) 12,077	2002
		HK$’000 — — — — — — — — —
		— —
		— —
		—
		— —
		—
		— —
		—

— 101 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

33. Notes to the consolidated cash flow statement (Continued)

(e) Disposal of subsidiaries

Net liabilities disposed Fixed assets (Note 12) Stocks Trade receivables Other receivables, deposits and prepayment Bank balances and cash — unrestricted Trade payables Other payables and accruals Short term bank loans and overdrafts repayable within three months from date of advance Taxation payable Minority interests (Note 33(b)) Net liabilities disposed Goodwill and capital reserves released upon disposal Loss on disposal of subsidiaries Satisfied by: Cash consideration (HK$2) Analysis of net cash inflow in respect of disposal of subsidiaries: Bank balances and cash disposed Short term bank loans and overdrafts repayable within three months from date of advance disposed Net cash inflow in respect of disposal of subsidiaries	2003 HK$’000 868 3,686 29,736 3,715 7,464 (26,534) (5,599) (13,878) (26) (694) (1,262) 5,020 (3,758) — — (7,464) 13,878 6,414	2002
		HK$’000 — — — — — — — — — —
		— — —
		—
		—
		— —
		—

— 102 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

34. Related party transactions

The following is a summary of significant related party transactions during the year which in the opinion of the directors are carried out in the normal course of the Group’s business:

Transactions with Tianjin Port Authority and its associates Service fees paid for supporting services and auxiliary services (note b) Purchase of stocks (note b) Rental for berths, railway and storage space (note a) Rental for land (note a) Rental for equipment (note a) Transactions with Tianjin Agricultural Cultivation Group Company and its associates Investment in a joint venture (note b) Packaging services (note a) Purchase of unprocessed wine (note a) Purchase of packaging materials (note a) Rental for electricity transformation station (note b) Transaction with Tianjin Engineering Bureau Management fee paid (note a) Transactions with Tsinlien Group Company Limited and its associates Disposal of subsidiaries at HK$2 (note b) Rental on land and buildings (note a) Interest expense (note c) Management fee paid (note a) Transactions with Tianjin Mechanical and Electrical Holding Company and its associates Acquisition of a subsidiary (note b) Notes:	2003 HK$’000 29,304 41,525 19,258 6,554 3,723 — 27,267 13,647 16,844 2,037 32,900 — 5,789 1,541 1,164 19,065	2002
		HK$’000 27,761 32,167 19,258 6,554 3,723 56,600 21,950 12,791 14,912 2,037 30,748 — 6,227 1,680 1,164 —

(a) These transactions were conducted in accordance with agreements entered into at the time of the restructuring in preparation for listing of the Company’s shares on The Stock Exchange of Hong Kong Limited in late 1997.

(b) These transactions were conducted in accordance with agreements entered into subsequent to the listing as referred to (a) above.

All the above transactions constitute connected transactions as defined under Chapter 14 of the Listing Rules on the Stock Exchange except for interest expense paid.

— 103 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

35. Subsequent events

(a) On 18th October 2002, Tianjin Jin Zheng Transportation Company and TEDA Investment Holding Co., Ltd. entered into a letter of intent (as amended by a supplemental agreement), pursuant to which Tianjin Jin Zheng Transportation Company has agreed to transfer to TEDA Investment Holding Co., Ltd. its Income Receiving Right, with effect from 1st January 2004, for a consideration of RMB750 million (approximately HK$707 million) together with all interest payable in respect of the outstanding bank loans of RMB750 million owed by Tianjin Jin Zheng Transportation Company to a bank for the period from 1st January 2004 to 12th February 2004. The consideration was satisfied by TEDA Investment Holding Co., Ltd. in February 2004.
(b) The Group has on 26th March 2004, entered into the equity transfer agreement with Sky Power Property Management Co., Ltd., a wholly owned subsidiary of Tsinlien, whereby the Group agreed to acquire further 49% equity interest in Tianjin Gang Ning Real Estate Development Co., Ltd., a 51% owned subsidiary of the Group as at 31st December 2003, at RMB32,140,000 (approximately HK$30,321,000). The transaction was entered into at arm’s length and on normal commercial terms. Details of the transactions have been disclosed in announcement dated 26th March 2004.
(c) On 1st April 2004, the Group submitted a formal application for the separate listing in the shares of Coastal Rapid Transit Company Limited on the Main Board of the Stock Exchange. The spin-off is subject to the approval from the Listing Committee of the Stock Exchange.

36. Ultimate holding company

The directors of the Company consider Tsinlien Group Company Limited, a company incorporated in Hong Kong, as being the ultimate holding company.

37. Approval of accounts

The accounts were approved by the board of directors on 26th April 2004

38. Principal subsidiaries

Name Principal activities Established and operating in the People’s Republic of China Sino-French Joint-Venture Dynasty Winery Ltd. Manufacturing and sales of winery products Tianjin Harbour Second Stevedoring Co., Ltd. Provision of stevedoring and storage services Tianjin Heavenly Palace Winery Co., Ltd. Investment holding Tianjin Port Container Terminal Co., Ltd. Provision of containers transportation and storage services Tianjin Tai Kang Industrial Co., Ltd. Investment holding Tianjin Gang Ning Real Estate Development Co., Ltd. Properties investment	Issued and paid up capital/ registered capital RMB174,389,000 RMB356,821,655 RMB353,730,400 RMB632,890,096 RMB1,030,269,400 RMB50,000,000	Percentage of effective equity interest held 2003 2002 61.9 (note a) 61.9 (note a) 100 100 100 100 100 100 82.74 82.74 51 51	Percentage of effective equity interest held 2003 2002 61.9 (note a) 61.9 (note a) 100 100 100 100 100 100 82.74 82.74 51 51
			61.9 (note a) 100 100 100 82.74 51

— 104 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Principal subsidiaries (Continued)

Name Principal activities Issued and paid up capital/ registered capital Tianjin Tianyang Grape Extracting Co., Ltd. Manufacturing and sales of winery products RMB66,532,000 Tianjin Development Assets Management Co., Ltd. Investment holding RMB32,076,000 Walfen (Tianjin) Pharmaceutical Co., Ltd. Research and development of bio- pharmaceutical products RMB14,200,000 Tianjin Airfreight Port Equipment Manufacturing Co., Ltd. Development and manufacturing of ground support aero- equipment RMB29,220,000 Tianjin Jin Zheng Transportation Development Co., Ltd. Operating and management of Eastern Outer Ring Road RMB1,104,596,200 Tianjin Mass Transit (Group) Development Co., Ltd. Operating and management of Jinbin Expressway US$11,992,000 Tianjin Mass Transit Development 2 Co., Ltd. Operating and management of Jinbin Expressway US$11,012,000 Tianjin Mass Transit Development 3 Co., Ltd. Operating and management of Jinbin Expressway US$10,976,000 Tianjin Mass Transit Development 4 Co., Ltd. Operating and management of Jinbin Expressway US$10,996,000 Tianjin Mass Transit Development 5 Co., Ltd. Operating and management of Jinbin Expressway US$11,020,000 Established in British Virgin Islands and operating in Hong Kong Dynamic Infrastructure Limited Investment holding US$5 Team Resources Limited Investment holding US$1	Percentage of effective equity interest held 2003 2002 60 (note a) 60 (note a) 100 100 51 (note a) 51 (note a) 57.26 (note a) — 65.47 (note a) (note d) 83.93 (note a) (note b) 67.6 (note c) 86.67 (note c) 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 78 (note a) (note d) 100 78 (note a) (note d) 100	Percentage of effective equity interest held 2003 2002 60 (note a) 60 (note a) 100 100 51 (note a) 51 (note a) 57.26 (note a) — 65.47 (note a) (note d) 83.93 (note a) (note b) 67.6 (note c) 86.67 (note c) 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 46.8 (note a) (note d) — 78 (note a) (note d) 100 78 (note a) (note d) 100
		60 (note a) 100 51 (note a) — 83.93 (note a) (note b) 86.67 (note c) — — — — — 100 100

— 105 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

38. Principal subsidiaries (Continued)

39.	Name Principal activities Issued and paid up capital/ registered capital Golden Horse Resources Limited Investment holding US$10,000 China Mass Transit Development Co., Ltd. Investment holding US$100 Established in Cayman Islands and operating in Hong Kong Coastal Rapid Transit Company Limited Investment holding HK$84,000,000 Established and operating in Hong Kong China Walfen Medical Limited Investment holding HK$100 Notes: (a) Indirectly held by the Company (b) Represents equity interest in the paid up capital of the subsidiary (c) Represents profit sharing ratio in the subsidiary (d) Subsidiaries are not audited by PricewaterhouseCoopers. Principal associated companies	Percentage of effective equity interest held 2003 2002 78 (note a) (note d) — 78 (note a) (note d) — 78 (note d) — 51 (note a) 51 (note a)	Percentage of effective equity interest held 2003 2002 78 (note a) (note d) — 78 (note a) (note d) — 78 (note d) — 51 (note a) 51 (note a)
			— — — 51 (note a)

Name Principal activities Established and operating in the People’s Republic of China China Tianjin Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators Guangzhou Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators Otis Elevator (China) Investment Company Limited Investment holding Hangzhou Xizi Otis Elevator Co., Ltd. Manufacturing and sales of elevators and escalators	Issued and paid up capital/ registered capital US$26,300,000 US$12,000,000 US$79,625,000 US$15,000,000	Percentage of effective equity interest held 2003 2002 16.55 (note a) 33.34 (note a) 16.22 (note a) 32.68 (note a) 16.55 (note a) 33.34 (note a) 13.24 (note a) —	Percentage of effective equity interest held 2003 2002 16.55 (note a) 33.34 (note a) 16.22 (note a) 32.68 (note a) 16.55 (note a) 33.34 (note a) 13.24 (note a) —
			33.34 (note a) 32.68 (note a) 33.34 (note a) —

— 106 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Principal associated companies (Continued)

40.	Name Principal activities Issued and paid up capital/ registered capital Established in British Virgin Islands and operating in Hong Kong Pearl Harbour Investment Limited Investment holding US$2 Incorporated in Bermuda, operating in and shares listed in Hong Kong Wah Sang Gas Holdings Limited Investment holding HK$21,770,000 Note: (a) The associated companies are indirectly held by the Company. Jointly controlled entities Name Principal activities Issued and paid up capital/ registered capital Established and operating in the People’s Republic of China Tianjin Haihe Dairy Company Limited Manufacturing and sale of dairy products RMB200,000,000 Ning Xia Tiangong Yuma Winery Co., Ltd. Manufacturing of unprocessed wine RMB40,000,000 Tianjin Jingfa Investment Company Limited Investment holding RMB70,000,000 Note:	Percentage of effective equity interest held 2003 2002 50 50 22.67 (note a) 22.89 (note a) Percentage of effective equity interest held 2003 2002 40 (note a) 40 (note a) 25 (note a) 25 (note a) 21.43 (note a) 30 (note a)	Percentage of effective equity interest held 2003 2002 50 50 22.67 (note a) 22.89 (note a) Percentage of effective equity interest held 2003 2002 40 (note a) 40 (note a) 25 (note a) 25 (note a) 21.43 (note a) 30 (note a)
			40 (note a) 25 (note a) 30 (note a)

(a) The jointly controlled entities are indirectly held by the Company.

— 107 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

B. UNAUDITED INTERIM RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2004

The following is an extract of the unaudited financial statements of the Group from its interim report for the six months ended 30 June 2004.

Consolidated Profit and Loss Account

For the six months ended 30 June 2004

Note
Turnover
2
Cost of sales
Gross profit
Other revenues
Gain on disposal of Income Receiving Right
3
Distribution costs
General and administration expenses
Other operating expenses
Operating profit before financing
4
Finance costs
Shares of profits less losses of
Associated companies
Jointly controlled entities
Profit before taxation
Taxation
5
Profit after taxation
Minority interests
Profit attributable to shareholders
Interim dividends
6
Earnings per share
7
— Basic

Unaudited
Six months ended
30 June
2004
2003
HK$’000
HK$’000
1,067,664
895,579
(571,058)
(442,607)
496,606
452,972
13,855
24,131
707,147
—
(81,323)
(60,294)
(166,159)
(197,645)
(6,268)
(9,430)
963,858
209,734
(36,555)
(39,213)
42,752
52,996
(97)
(75)
969,958
223,442
(115,025)
(54,389)
854,933
169,053
(264,742)
(42,697)
590,191
126,356
31,636
25,755
HK cents
HK cents
85.87
18.64

2004
HK$’000
1,067,664
(571,058)
496,606
13,855
707,147
(81,323)
(166,159)
(6,268)
963,858
(36,555)
42,752
(97)
969,958
(115,025)
854,933
(264,742)
590,191
31,636
HK cents
85.87

— 108 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Balance Sheet At 30 June 2004

Note Non-current assets Goodwill Fixed assets Associated companies 8 Jointly controlled entities Long term investments Current assets Properties under development held for sale Completed properties held for sale Stocks Amounts due from related companies Amount due from ultimate holding company Trade receivables 9 Other receivables, deposits and prepayments Consideration receivable on disposal of partial interest in an associated company Short term investments Bank balances and cash Current liabilities Trade payables 10 Other payables and accruals Amounts due to related companies Amount due to ultimate holding company Current portion of long term liabilities 12 Short term loans and overdrafts — secured — unsecured Taxation payable Net current assets Financed by: Share capital 11 Reserves Shareholders’ funds Minority interests Long term liabilities 12 Deferred tax liabilities 13	Unaudited 30 June 2004 HK$’000 52,744 4,781,416 398,675 95,522 182,648 5,511,005 ------------- 347,813 42,068 206,046 52,573 — 186,563 304,855 — 76,139 1,964,997 3,181,054 ------------- 20,917 413,406 104,514 3,087 270,172 11,880 37,526 89,962 951,464 ------------- 2,229,590 ------------- 7,740,595 68,775 4,490,121 4,558,896 1,429,647 1,684,890 67,162 7,740,595	Audited 31 December 2003
		HK$’000 54,096 4,800,695 359,260 95,619 170,820
		5,480,490 --------------- 347,813 218,807 204,428 53,194 26 304,346 201,283 365,169 58,429 1,438,994
		3,192,489 --------------- 17,474 474,182 123,038 — 660,475 16,406 57,797 31,705
		1,381,077 ---------------
		1,811,412 ---------------
		7,291,902
		68,485 3,919,242
		3,987,727 1,187,022 2,051,491 65,662
		7,291,902

— 109 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2004

Total equity as at 1 January, as previously reported
Change in accounting policy — provision for net deferred tax
assets
Total equity as at 1 January, as restated
Exchange differences not recognised in the profit and loss
account
Profit attributable to shareholders
Dividends
Consideration received upon conversion of convertible bonds to
shares
Realised upon disposal of subsidiaries
Total equity as at 30 June

Unaudited
2004
2003
HK$’000
HK$’000
3,987,727
3,497,412
—
32,610
3,987,727
3,530,022
—
(140)
590,191
126,356
(26,822)
(22,365)
7,800
—
—
3,989
4,558,896
3,637,862

— 110 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2004

Net cash inflow from operating activities
Net cash inflow/(outflow) from investing activities
Net cash outflow from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Analysis of balances of cash and cash equivalents
Bank balances and cash
Short term bank loans and overdrafts repayable within three
months from the date of advance

Unaudited
2004
2003
HK$’000
HK$’000
1,057,480
166,119
291,363
(70,971)
(810,953)
(122,806)
537,890
(27,658)
1,427,107
995,711
1,964,997
968,053
1,964,997
1,074,982
—
(106,929)
1,964,997
968,053

— 111 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Notes to the Interim Accounts

1. Basis of preparation and accounting policies

These unaudited consolidated condensed accounts are prepared in accordance with Hong Kong Statement of Standard Accounting Practice 25, ‘‘Interim Financial Reporting’’, issued by the Hong Kong Institute of Certified Public Accountants and Appendix 16 of the Rules Governing the Listing of Securities (‘‘Listing Rules’’) on The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’).

These condensed accounts should be read in conjunction with the 2003 Annual Accounts.

The accounting policies and methods of computation used in the preparation of these condensed accounts are consistent with those used in the annual accounts for the year ended 31 December 2003, except that the results of Wah Sang Gas Holdings Limited (‘‘Wah Sang’’), an associated company of the Group, were not equity accounted for in this interim accounts for the six months ended 30 June 2004. Further details are set out in note 8 to these condensed accounts.

2. Turnover and revenues

The Group is principally engaged in manufacturing and sales of winery products, provision of container and cargo handling services, operation of toll roads in Tianjin and property development.

Revenues recognised during the period is as follows:

Manufacturing and sales of winery products Provision of container handling services Provision of cargo handling services Operation of toll roads Property development Sale of garments, chemical products and electrical components (Note)	Unaudited Six months ended 30 June	Unaudited Six months ended 30 June
	2004 HK$’000 401,131 198,318 171,703 93,707 202,805 — 1,067,664	2003
		HK$’000 306,661 182,753 145,230 131,546 61,991 67,398
		895,579

Note: In May 2003, the Group disposed of its entire interests in certain subsidiaries, which engaged in trading operations in Hong Kong, to Tsinlien Group Company Limited for a cash consideration of HK$2.

3. Gain on disposal of Income Receiving Right

Pursuant to an agreement with the Tianjin Municipal Government in 1997, one of the Group’s subsidiaries, Tianjin Jin Zheng Transportation Development Co., Ltd. (‘‘Jinzheng’’), was granted the exclusive right to operate, manage and maintain the Eastern Outer Ring Road in return for a fixed sum of income receivable annually from the Tianjin Government from 1997 to 2027 (‘‘Income Receiving Right’’).

In 2004, Jinzheng disposed of its Income Receiving Right to TEDA Investment Holding Co., Ltd. (‘‘TEDA’’) with effect from 1 January 2004 for a consideration of RMB750 million (approximately HK$707 million) plus all interest payable in respect of an outstanding bank loan owed by Jinzheng. The consideration was satisfied in cash by TEDA in February 2004 which was in turn used to repay the related bank loan amounting to RMB750 million.

Subsequent to the aforesaid disposal, Jinzheng will continue to receive toll fees based on the volume of traffic flow and a pre-determined formula in accordance with the Eastern Outer Ring Road Toll Collection Agreement dated 20 August 2003.

— 112 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

4. Operating profit before financing

Operating profit before financing is stated after charging the following: Cost of stocks and completed properties sold Staff costs Retirement benefit costs Depreciation Loss on disposal of fixed assets Operating lease expense on Land and buildings Berths, railway and storage space Plant and equipment Impairment of goodwill on acquisition of a subsidiary during the year Provision for bad and doubtful debts Amortisation of goodwill	Unaudited Six months ended 30 June	Unaudited Six months ended 30 June
	2004 HK$’000 291,949 130,400 18,030 77,430 2,555 6,999 10,111 2,973 — 3,371 1,352	2003
		HK$’000 197,743 116,348 15,695 64,224 2,628 11,404 9,629 1,862 1,469 38,018 —

5. Taxation

Company and subsidiaries PRC income tax Deferred tax relating to the origination and reversal of temporary differences Associated companies PRC income tax Deferred tax relating to the origination and reversal of temporary differences Taxation charge	Unaudited Six months ended 30 June	Unaudited Six months ended 30 June
	2004 HK$’000 104,352 1,500 105,852 9,173 — 115,025	2003
		HK$’000 40,742 4,137
		44,879 9,101 409
		54,389

No provision for Hong Kong profits tax has been made as there is no estimated assessable profit for the period for the Group (2003: Nil).

Provision for the PRC income tax has been made at the applicable rate of taxation on the estimated assessable profit for the period for each of the Group’s subsidiaries and associates.

Rates applicable to principle subsidiaries and associates:

On 6 November 1997, the Tianjin Finance Bureau approved that with effect from the listing of the Company, the income tax rate applicable to Tianjin Harbour Second Stevedoring Co., Ltd. and Tianjin Port Container Terminal Co., Ltd. is 15% and remained effective as at period end.

On 12 November 1997, the State Tax Bureau approved that Tianjin Tai Kang Industrial Co., Ltd. (‘‘Taikang’’) and Tianjin Heavenly Palace Winery Co., Ltd. (‘‘Heavenly Palace’’) are exempted from income tax for two years starting from the first year of profit generation, followed by a 50% reduction for the next three years. The applicable tax rate of Taikang and Heavenly Palace for the current period is 30% and 33% respectively.

— 113 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

5. Taxation (Continued)

On 4 November 1997, the Tianjin Finance Bureau approved that Jinzheng is exempted from income tax for five years starting from the first year of profit generation and will be refunded for any tax paid in excess of the tax rate of 7.5% for the next five years and in excess of the tax rate of 15% thereafter. Subsequently on 21 December 2001, the State Tax Bureau confirmed that income tax applicable to Jinzheng is 7.5% from 2002 to 2004, and 15% thereafter.

6. Dividends

2003 final, paid, of HK3.9 cents (2002: final, paid, of HK3.3 cents) per share 2004 interim, declared on 16 September 2004, of HK4.6 cents (2003: interim, paid, of HK3.8 cents) per share (Note)	Unaudited Six months ended 30 June	Unaudited Six months ended 30 June
	2004 HK$’000 26,822 31,636	2003
		HK$’000 22,365
		25,755

Note: At a meeting held on 16 September 2004 the directors declared an interim dividend of HK4.6 cents per ordinary share. The declared dividend is not reflected as a dividend payable in these accounts, but will be reflected as an appropriation of retained earnings for the year ending 31 December 2004.

7. Earnings per share

The calculation of the basic earnings per share is based on the profit attributable to shareholders of HK$590,191,000 (2003: HK$126,356,000) and the weighted average number of 687,287,000 shares in issue (2003: 677,750,000 shares) during the period.

The exercise of share options would have no material dilutive effect of earnings per share for the periods ended 30 June 2003 and 2004.

8. Associated companies

Group’s share of net assets — Listed shares in Hong Kong of Wah Sang (Note) — Other unlisted shares Amounts due to associated companies Amounts due from associated companies Market value of listed shares	Unaudited 30 June 2004 HK$’000 158,261 235,087 393,348 (1,882) 7,209 398,675 N/A	Audited 31 December 2003
		HK$’000 156,007 199,306
		355,313 (1,882 5,829
		359,260
		414,624

— 114 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

8. Associated companies (Continued)

Note: On 19 December 2003, Wah Sang announced that it is under enquiry by the Securities and Futures Commission (‘‘SFC’’) pursuant to section 179 of the Securities and Futures Ordinance. On 13 February 2004, Wah Sang announced that the release of its third quarterly results for the nine months ended 31 December 2003 was postponed to end of March 2004. This was further postponed to end of April 2004. On 6 April 2004, the SFC directed that trading in the shares of Wah Sang be suspended.

For the preparation of the Group’s interim accounts previously announced for the six months ended 30 June 2003, the Group had equity accounted for its share of the profit of Wah Sang for the same period amounting to HK$19,882,000. Since Wah Sang was not able to release its financial information for the period ended 31 December 2003, together with the impending enquiry by the SFC, there existed uncertainty as to the actual performance of Wah Sang for the six months ended 31 December 2003. As a result, the directors of the Company considered it appropriate not to equity account for any of the results of Wah Sang for the six months ended 31 December 2003 until audited financial information of Wah Sang was available. The share of net assets of Wah Sang equity accounted for in the Group’s consolidated balance sheet as at 31 December 2003 accordingly was based on the results of Wah Sang upto 30 June 2003 amounting to HK$156,007,000.

On 21 May 2004, Wah Sang announced that it has appointed Dr Zhang Hongru, executive director and general manager of the Company, as an executive director and chairman of Wah Sang following the resignation of Mr Shum Ka Sang, the previous chairman and chief executive officer of Wah Sang. A subcommittee was also set up by Wah Sang to address issues arising out of suspension of shares and enquiry by SFC.

As at the date of this interim accounts, the third quarterly results of Wah Sang for the nine months ended 31 December 2003 and the results for the year ended 31 March 2004 are still unavailable. For the preparation of the Group’s interim accounts for the six months ended 30 June 2004, since Wah Sang is unable to release its updated financial information and with the outcome from the enquiry by SFC pending, it is not practicable to estimate the financial impact that may have on the Group at this stage. However, as Wah Sang is continuing its normal operations, the directors of the Company are of the view that the impairment to the carrying value of the Group’s investment in Wah Sang is unlikely to have a material negative impact on the financial position of the Group taken as a whole.

9. Trade receivables

The aging analysis of the Group’s trade receivables (net of provisions) is as follows:

Below 30 days 30 to 90 days 91 to 180 days Over 180 days	Unaudited 30 June 2004 HK$’000 67,832 69,540 29,947 19,244 186,563	Audited 31 December 2003
		HK$’000 260,181 30,275 720 13,170
		304,346

The various Group companies have different credit policies which are dependent on the requirements of the markets and the businesses which they operate. In general, credit terms of 90 days are given to customers.

— 115 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

10. Trade payables

The aging analysis of the Group’s trade payables is as follows:

Below 30 days 30 to 90 days Over 180 days Share capital Authorised: 3,000,000,000 shares of HK$0.10 each Issued and fully paid: At beginning of the period/year Issue of shares (Note) Conversion of convertible bonds (Note 12(b)) At the end of the period/year	Unaudited 30 June 2004 HK$’000 18,694 1,898 325 20,917 Unaudited 30 June 2004 HK$’000 300,000 68,485 — 290 68,775	Audited 31 December 2003
		HK$’000 15,046 47 2,381
		17,474
		Audited 31 December 2003
		HK$’000 300,000
		67,775 130 580
		68,485

11. Share capital

Note: 500,000 and 800,000 share options were exercised by the Group’s employees on 6 and 9 October 2003 respectively. The exercise price was HK$2.204 per share and was settled in full by cash. These shares rank pari passu with the existing shares.

— 116 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

12. Long term liabilities

Bank loans Secured (Note a) Unsecured Convertible bonds (Note b) Less: Amounts due within one year included under current liabilities Amounts due after one year The maturity of the Group’s long term liabilities is as follows: Bank loans Within one year In the second year In the third to fifth years inclusive After the fifth year Convertible bonds Within one year In the second year	Unaudited 30 June 2004 HK$’000 730,718 1,091,744 132,600 1,955,062 270,172 1,684,890 137,572 278,144 1,045,630 361,116 1,822,462 - - - - - - - - - - - - 132,600 — 132,600 ~~- - - - - - - - - - - -~~ 1,955,062	Audited 31 December 2003
		HK$’000 1,324,722 1,246,844 140,400
		2,711,966 660,475
		2,051,491
		660,475 407,230 1,049,401 454,460
		2,571,566 - - - - - - - - - - - - - - — 140,400
		140,400 ~~- - - - - - - - - - - - - -~~
		2,711,966

Note:

(a) The bank loans were secured by revenue collected from a toll road, corporate guarantee given by a minority shareholder of a subsidiary of the Group, bank deposits and equity interests in certain subsidiaries of the Group.
(b) On 18 April 2002, the Group issued US$20,000,000 convertible bonds which are listed on the Luxembourg Stock Exchange and carry interest at 3% per annum payable semi-annually in arrears. Each bondholder has the option to convert the bonds into shares of the Company of HK$0.10 each at a conversion price of HK$2.69 per share, subject to adjustment, at any time from 18 April 2003 to 11 April 2005.

Unless previously purchased or cancelled, redeemed or converted, the bonds will be redeemed at 106.39% of their principal amount plus accrued interest on 18 April 2005.

On 30 January 2004, a bondholder exercised his option to convert the bonds into shares of the Company by subscribing for 2,899,628 shares (year ended 31 December 2003: 5,799,256 shares) of the Company at HK$2.69 each. These shares rank pari passu with the existing shares (Note 11).

— 117 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

13. Deferred taxation

Deferred taxation is calculated in full on temporary differences under the liability method using the applicable tax rate of the subsidiaries of 15% (2003: 15%).

The movement on the deferred tax liabilities account in respect of accelerated tax depreciation is as follows:

At the beginning of the period/year Acquisition of subsidiaries Deferred taxation charged to profit and loss account At the end of the period/year Deferred tax liabilities recognised in the balance sheet are as follows: Deferred tax liabilities to be settled after more than 12 months	Unaudited 30 June 2004 HK$’000 65,662 — 1,500 67,162 Unaudited 30 June 2004 HK$’000 67,162	Audited 31 December 2003
		HK$’000 10,123 50,100 5,439
		65,662
		Audited 31 December 2003
		HK$’000 65,662

14. Operating lease commitments

At 30 June 2004, the Group had total future aggregate minimum lease payments under non-cancellable operating leases as follows:

Land and buildings Not later than one year Later than one year and not later than five years Later than five years Equipment, berths, railway Not later than one year Later than one year and not later than five years Later than five years Plant and machinery Not later than one year Later than one year and not later than five years Later than five years	Unaudited 30 June 2004 HK$’000 9,472 26,499 53,983 89,954 - - - - - - - - - - - - 20,221 83,512 193,120 296,853 - - - - - - - - - - - - 3,723 14,893 31,029 49,645 - - - - - - - - - - - - 436,452	Audited 31 December 2003
		HK$’000 7,232 26,541 57,482
		91,255 - - - - - - - - - - - - - - 20,221 83,008 203,736
		306,965 - - - - - - - - - - - - - - 3,723 14,893 32,891
		51,507 - - - - - - - - - - - - - -
		449,727

— 118 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

15. Capital commitments

Authorised but not contracted for in respect of: — Improvements on leased berths — Improvements on plant and machinery — Land and buildings Contracted but not provided for in respect of: — Improvements on leased berths — Improvements on plant and machinery — Tang Jin Expressway — Land and buildings — Others Contingent liabilities Guarantees given to banks in respect of banking facilities extended to: — A jointly controlled entity — A third party	Unaudited 30 June 2004 HK$’000 36,287 3,375 69,580 109,242 10,344 29,107 27,910 2,450 4,643 74,454 Unaudited 30 June 2004 HK$’000 — 17,377	Audited 31 December 2003
		HK$’000 — 2,860 —
		2,860
		24,212 25,597 27,910 — 864
		78,583
		Audited 31 December 2003
		HK$’000 18,857 15,344

Contingent liabilities

— 119 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

17. Related party transactions

The following is a summary of significant related party transactions during the period which in the opinion of the directors are carried out in the normal course of the Group’s business:

Transactions with Tianjin Port Authority and its associates Service fees paid for supporting services and auxiliary services (Note (b)) Rental for land (Note (a)) Rental for berths, railway and storage space (Note (a)) Rental for equipment (Note (a)) Purchase of inventories (Note (b)) Transactions with Tianjin Agricultural Cultivation Group Company and its associates Packaging services (Note (a)) Purchase of packing materials (Note (a)) Purchase of unprocessed wine (Note (a)) Rental for electricity transformation station (Note (b)) Transaction with Eastern Outer Ring Road Company Management fee paid (Note (a)) Transactions with Tsinlien Group Company Limited and its associates Interest expenses (Note (c)) Management fee paid (Note (a)) Rental on land and buildings (Note (a)) Transaction with Tianjin Mechanical and Electrical Holding Company Acquisition of a subsidiary (Note (b)) Note:	Unaudited Six months ended 30 June	Unaudited Six months ended 30 June
	2004 HK$’000 14,512 3,218 10,111 1,955 20,745 13,877 10,654 9,125 1,018 — — 499 2,220 —	2003
		HK$’000 13,915 3,277 9,629 1,862 16,184 13,407 7,716 13,359 1,018 16,451 751 566 2,997 19,065

(a) These were conducted in accordance with agreements entered into at the time of the restructuring in preparation for listing of the Company’s shares on the Stock Exchange in late 1997.
(b) These were conducted in accordance with agreements entered into subsequent to the listing of the Company as referred to (a) above.
(c) The loan to one of the subsidiaries was repaid during the period 2003. Interest was charged at about 6% per annum on the outstanding loan balance.

— 120 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

18. Segment information

Primary reporting format — business segments

			Unaudit For the six months en	Unaudit For the six months en	ed ded 30 June 2004	ed ded 30 June 2004
Winery	Container handling	Cargo handling	Operation of Toll Roads	Property development	Trading	Elevator and escalator	Gas fuel supply	Others	Group
HK$’000 401,131	HK$’000 198,318	HK$’000 171,703	HK$’000 93,707	HK$’000 202,805	HK$’000 —	HK$’000 —	HK$’000 —	HK$’000 —	HK$’000 1,067,664
153,115	55,544	10,275	760,456			—	—	—	978,355 7,059 (21,556)
— 856	1,288 —	719 —	— —	— —	— —	40,888 —	— —

— 121 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

18. Segment information (Continued)

Primary reporting format — business segments

			Unaudit For the six months en	Unaudit For the six months en	ed ded 30 June 2003	ed ded 30 June 2003
Winery	Container handling	Cargo handling	Operation of Toll Roads	Property development	Trading	Elevator and escalator	Gas fuel supply	Others	Group
HK$’000 306,661	HK$’000 182,753	HK$’000 145,230	HK$’000 131,546	HK$’000 61,991	HK$’000 67,398	HK$’000 —	HK$’000 —	HK$’000 —	HK$’000 895,579
109,800	57,388			752			—	—	223,440 7,326 (21,032)
— 266	648 —	619 —	— —	— —	— —	30,595 —	21,891 —

Secondary reporting format — geographical segments

Unaudited Turnover Six months ended 30 June 2004 2003 HK$’000 HK$’000 1,067,664 828,181 — 67,398 1,067,664 895,579	Unaudited Operating profits Six months ended 30 June	Unaudited Operating profits Six months ended 30 June
2004 HK$’000 1,067,664 — 1,067,664	2004 HK$’000 978,355 — 978,355	2003
		HK$’000 246,191 (22,751)
		223,440

19. Subsequent event

On 18 August 2004, the Group submitted a formal application for the separate listing in the shares of Dynasty Wines Group Limited on the Main Board of the Stock Exchange. The spin-off is subject to the approval from the Listing Committee of the Stock Exchange and the Company’s shareholders.

20. Approval of interim financial report

The interim financial report was approved by the Board on 16 September 2004.

— 122 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

The accompanying unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group have been presented to illustrate the effect of the acquisition of approximately 94.4% equity interest in the Electricity Company and approximately 91.4% equity interest in the Water Company (the ‘‘Acquisition’’).

The total consideration of the Acquisition amounted to HK$783,580,000, which will be satisfied by payment of cash of HK$160,000,000 and issue and allotment of 222,707,143 shares of the Company at HK$2.8 per share to Tsinlien Group Company Limited or its designated whollyowned subsidiary.

The unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group at 30 June 2004 is based on the unaudited consolidated balance sheet of the Group, audited balance sheets of the Electricity Company and the Water Company at 30 June 2004. They have been prepared to illustrate the effect of the Acquisition, as if the Acquisition had taken place on 30 June 2004. They have been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the financial position of the Enlarged Group as at 30 June 2004, or at any future date.

Non-current assets Goodwill Subsidiaries Fixed assets Associated companies Jointly controlled entities Long term investments Deferred tax assets Current assets Properties under development held for sale Completed properties held for sale Stocks Amounts due from related companies Trade receivables Other receivables, deposits and prepayments Short term investments Cash and bank balances	(Unaudited) The Group HK$’000 52,744 — 4,781,416 398,675 95,522 182,648 — 5,511,005 - - - - - - - - - - - - - 347,813 42,068 206,046 52,573 186,563 304,855 76,139 1,964,997 3,181,054 - - - - - - - - - - - - -	(Audited) Electricity Company HK’000 — — 244,805 — — 1,122 6,844 252,771 - - - - - - - - - - - - - — — — 35,693 99,062 36,825 — 162,735 334,315 - - - - - - - - - - - - -	(Audited) Water Company HK$’000 — — 256,569 — — — 1,459 258,028 - - - - - - - - - - - - - — — — 4,891 15,176 81,858 — 52,105 154,030 - - - - - - - - - - - - -	Adjustments HK$’000 262,294 (i) 783,580 (i) (783,580) (i) (160,000) (i)	(Unaudited) Pro forma Total
					HK$’000 315,038 — 5,282,790 398,675 95,522 183,770 8,303
					6,284,098 - - - - - - - - - - - - - 347,813 42,068 206,046 93,157 300,801 423,538 76,139 2,019,837
					3,509,399 - - - - - - - - - - - - -

— 123 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

Current liabilities Trade payables Other payables and accruals Amount due to ultimate holding company Amounts due to related companies Amount due to the minority shareholder Current portion of long term liabilities Short term bank loans and overdrafts — secured — unsecured Taxation payable Net current assets/ (liabilities) Non-current liabilities Minority interests Long term liabilities Deferred tax liabilities Net assets	(Unaudited) The Group HK$’000 20,917 413,406 3,087 104,514 — 270,172 11,880 37,526 89,962 951,464 - -- - -- -- - -- - 2,229,590 - -- - -- -- - -- - 1,429,647 1,684,890 67,162 3,181,699 - -- - -- -- - -- - 4,558,896	(Audited) Electricity Company HK’000 40,111 16,401 — — 1,485 — — — 1,316 59,313 -- - -- -- - -- -- 275,002 -- - -- -- - -- -- 127,849 — — 127,849 -- - -- -- - -- -- 399,924	(Audited) Water Company HK$’000 25,975 116,271 — 23,205 24,401 — — — — 189,852 - -- - -- - -- -- - (35,822) - -- - -- - -- -- - 64,753 — — 64,753 - -- - -- - -- -- - 157,453	Adjustments HK$’000 36,091 (i)	(Unaudited) Pro forma Total
					HK$’000 87,003 546,078 3,087 127,719 25,886 270,172 11,880 37,526 91,278
					1,200,629 - -- - -- -- - -- -
					2,308,770 - -- - -- -- - -- -
					1,658,340 1,684,890 67,162
					3,410,392 - -- - -- -- - -- -
					5,182,476

— 124 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)

Note:

(i) To record the investment in the Electricity Company and the Water Company by the Group, amounting to HK$783,580,000, comprising HK$160,000,000 cash and issue and allotment of 222,707,143 shares of the Company at HK$2.8 per share. Goodwill arising from the Acquisition will be amortised over 20 years.

The goodwill in the pro forma financial information is calculated from the consideration of HK$783,580,000, which is based on HK$2.8 per share on 222,707,143 shares of the Company to be issued and allotted, and share of book value of assets and liabilities of the Electricity Company and the Water Company at 30 June 2004 by the Group.

The final amount of goodwill, which may be different to the one presented, to be recorded by the Group on completion will be determined by the market value of the shares of the Company and the Group’s interest in the fair value of the identifiable assets and liabilities of the Electricity Company and the Water Company on the date of completion.

— 125 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. LETTER ON UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is the text of a letter from PricewaterhouseCoopers, the reporting accountants, in respect of the unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group.

==> picture [108 x 32] intentionally omitted <==

The Directors Tianjin Development Holdings Limited

13 October 2004

Dear Sirs,

We report on the unaudited pro forma financial information of Tianjin Development Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) set out on pages 123 to 125 under the headings of unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group of the Company’s circular dated 13 October 2004 in connection with the acquisition of approximately 94.4% equity interest in Tianjin TEDA Tsinlien Electric Power Company Limited (the ‘‘Electricity Company’’) and approximately 91.4% equity interest in Tianjin TEDA Tsinlien Water Supply Company Limited (the ‘‘Water Company’’). The unaudited pro forma financial information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the proposed acquisition of Electricity Company and Water Company resulting in the formation of an enlarged group (the ‘‘Enlarged Group’’) might have affected the relevant financial information of the Group as at 30 June 2004.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (‘‘the Listing Rules’’).

It is our responsibility to form an opinion, as required by paragraph 4.29 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

— 126 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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 unaudited pro forma financial information with the directors of the Company.

Our work does not constitute an audit or 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 unaudited pro forma financial information.

The unaudited pro forma financial information has been prepared on the bases set out in Section A of Appendix IV of 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 30 June 2004, or at any future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company 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 unaudited pro forma financial information as disclosed pursuant to paragraph 4.29 of the Listing Rules.

Yours faithfully

PricewaterhouseCoopers

Certified Public Accountants Hong Kong

— 127 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

C. INDEBTEDNESS AND WORKING CAPITAL

Borrowings

At the close of business on 31 August 2004, being the latest practicable date for the purpose of this indebtedness statement, the Enlarged Group had outstanding borrowings of approximately HK$2,148.6 million, which comprised unsecured short term bank loans of approximately HK$37.3 million, secured short term bank loans of approximately HK$11.9 million, unsecured long term bank loans of approximately HK$1,063.5 million, secured long term bank loans of approximately HK$731.1 million, convertible bonds of approximately HK$132.6 million and unsecured loans from minority shareholder of approximately HK$172.2 million. Except for the long term bank loans and the loans from minority shareholder, all other borrowings are repayable within one year.

Security

As at 31 August 2004, the Enlarged Group’s bank loans were secured by:

(a) bank deposits of subsidiaries amounting to approximately HK$2.7 million;
(b) toll revenue collection right from a toll road;
(c) equity interest in certain subsidiaries; and
(d) corporate guarantee given by a minority shareholder of a subsidiary.

Contingent liabilities

As at 31 August 2004, the Enlarged Group has contingent liabilities of guarantees given to banks in respect of banking facilities extended to a jointly controlled entity of approximately HK$18.9 million and a third party of approximately HK$17.4 million.

Capital commitments

As at 31 August 2004, the Enlarged Group has capital commitments authorized but not contracted for in respect of improvements on leased berths of approximately HK$35.2 million and land and buildings of approximately HK$90.8 million.

As at 31 August 2004, the Enlarged Group has capital commitments contracted for but not provided for in respect of improvements on leased berths of approximately HK$11.0 million, improvements on plant and machineries of approximately HK$23.7 million, investments in Tang Jin Expressway of approximately HK$27.9 million, land and buildings of approximately HK$29.2 million and others of approximately HK$5.9 million.

— 128 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Prospects

Looking forward, the austerity economic measures already implemented in the Chinese Mainland will be advantageous for a balanced and healthy development of the domestic economy. By leveraging on the favourable economic development trend of Tianjin, the Group will proactively seek for investment opportunities to strengthen the core businesses. At the same time, the Group will continue to spin off those mature and well-developed businesses in order to realise the implicit value of such businesses and to maximise the return to Shareholders. Strengthening the core businesses and maintaining steady development are the directors for our future development.

Disclaimer

Save as disclosed herein and apart from intra-group liabilities, the Enlarged Group did not have, at the close of business on 31 August 2004, any outstanding mortgages, charges, debentures, other loan capital, bank overdrafts, loans or their similar indebtedness, or any hire purchase commitment, or any guarantees or other material contingent liabilities.

The Directors have confirmed that save as disclosed above, there has been no material change in the indebtedness, commitments or contingent liabilities of the Enlarged Group since 31 August 2004 and up to Latest Practicable Date.

Foreign currency translation

For the purpose of the indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 31 August 2004.

D. WORKING CAPITAL

The Directors are of the opinion that upon completion of the acquisition of Electricity Company and Water Company, and based on available banking and other facilities and internal resources of the Enlarged Group, the Enlarged Group has sufficient working capital for its requirements currently and for the period ending 12 months from the date of this circular.

— 129 —

PROPERTY VALUATION REPORT

APPENDIX V

RHL Appraisal Ltd.

Member of RHL International Property Consultants

==> picture [192 x 39] intentionally omitted <==

Date: 13 October 2004

THE DIRECTORS TIANJIN DEVELOPMENT HOLDINGS LIMITED

26th to 38th Floors

Tianjin Building 167 Connaught Road West Hong Kong

Dear Sirs,

Re: Valuation of Buildings and Land in Tianjin Economic and Technology Development Area, Tianjin, the People’s Republic of China (the ‘‘PRC’’)

1. INSTRUCTIONS

In accordance with the instructions from Tianjin Development Holdings Limited (referred to as the ‘‘Company’’) for us to value the property interests in building and land (referred to as the ‘‘properties’’) located in Tianjin Economic and Technology Development Area, Tianjin, the PRC, we confirm that we have carried out property inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing our opinion of the open market values of the properties as at 31 August 2004 (referred to as the ‘‘valuation date’’).

2. BASIS OF VALUATION

With the exception of properties numbered 2, 3, 4, 13, 15 and 18 in this report, our valuation is our opinion of the open market value, which we would define as intended to mean ‘‘the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the valuation date, assuming:

(i) a willing seller;
(ii) that, prior to the valuation date, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interests, for the agreement of price and terms and for the completion of the sale;
(iii) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the valuation date;
(iv) that no account is taken of any additional bid by a purchaser with a special interest; and
(v) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.’’

— 130 —

PROPERTY VALUATION REPORT

APPENDIX V

As the land use rights of properties numbered 2, 3, 4, 13, 15 and 18 are to be held by the Company or its subsidiary under leasehold interest, we have only valued the buildings and structures of the properties disregarding any value attributable to the concerned land parcels.

3. VALUATION METHODOLOGY

Due to the nature of buildings and structures of the properties where there is no readily identifiable market, we have adopted the ‘‘Depreciated Replacement Cost’’ approach in assessing its value. This approach makes use of the current replacement costs in arriving at the value to the business in occupation of the properties as existing at the valuation date. With the exception of properties numbered 2, 3, 4, 13, 15 and 18 of which the land values are excluded, this method requires an estimate of the market value of the land in its existing use and an estimate of the new replacement costs of the buildings and other site works, from which deductions are then made to allow for age, condition, functional obsolescence, etc. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property in the absence of known market based on comparisons with like properties.

Our valuation of the properties based on depreciated replacement cost approach is subject to the fact that prospective earnings would provide a reasonable return on the appraised property, plus the value of any assets not included in the appraisal and adequate net working capital.

4. ASSUMPTIONS

Our valuation has been made on the assumption that the Groups sell the properties on the open market without the benefit of deferred terms contracts, leasebacks, joint ventures, management agreements or any similar arrangements which would serve to affect their values.

For the land portions of the properties which are held by the Company on long term Land Use Rights Certificates or Tenancy Agreements, we have assumed that the Company has free and uninterrupted rights to use the properties for the whole of the unexpired terms of their respective Land Use Rights Certificates or Tenancy Agreements.

For the properties which have been assessed by reference to the ‘‘Depreciated Replacement Cost’’ approach, we assumed that they will be used for the purposes for which they were designed and built, or to which they are currently adapted. Our valuation does not represent the amount that might be realized from piecemeal disposition of the buildings and structures of them on the open market.

Other special assumptions in relation to each property have been stated out in the footnotes of the corresponding valuation certificate for that property.

5. TITLE INVESTIGATION

We have been provided with copies of title certificates in relation to the properties. In addition, we have relied to a considerable extent on the advice given by the Company and its PRC legal adviser namely Commerce & Finance Law Offices ( ), in the legal opinion regarding the nature of property interests and title to the properties. All legal documents have been used for reference only. No responsibility regarding legal title to the properties are assumed in this valuation report.

— 131 —

PROPERTY VALUATION REPORT

APPENDIX V

6. LIMITING CONDITIONS

We have inspected the exterior of all the properties valued and, where possible, we have also inspected the interior of the properties but no structural survey has been made. In the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

Unless stated as otherwise, all dimensions, measurements and areas stated in this report are based on the relevant title documents of the respective properties.

Moreover, we have not carried out site investigation to determine the suitability of the ground condition or the services for those properties held for future development. We have assumed that these aspects are satisfactory and that no extraordinary expense or delay will incurred during the construction period.

No allowance has been made in our valuation for any charges, mortgages or amount owing on any properties nor for any expense or taxation which may be incurred in effecting a sale. We have assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

We have relied to a considerable extent on the information provided by the Company and have accepted advice given to us by the Company on such matters as statutory notices, easements, tenure, occupation, site and floor areas and in the identification of those properties.

We have no reason to doubt the truth and accuracy of the information as provided to us by the Company. We have relied on the Company’s confirmation that no material facts have been omitted from the information supplied.

In preparing this valuation report, we have conducted in accordance with the Hong Kong Guidance Notes on the Valuation of Property Asset (2nd Edition) published by the Hong Kong Institute of Surveyors and complied with all requirements contained in the Listing Rules and the Practice Note 12 issued by the Stock Exchange of Hong Kong Limited.

We enclosed herewith the summary of valuation and the valuation certificates.

Yours faithfully, For and on behalf of RHL Appraisal Ltd.

Serena S.W. Lau Wayne W.K. Lee FHKIS AAPI RPS (GP) MRICS MHKIS RPS(GP) Managing Director Director

Serena S. W. Lau, who is a fellow member of the Hong Kong Institute of Surveyors, an Associate of the Australian Property Institute, a Registered Professional Surveyor in General Practice and a Registered Real Estate Appraiser in the PRC. Wayne W.K. Lee is a member of the Royal Institution of Chartered Surveyors, a member of the Hong Kong Institute of Surveyors and a Registered Professional Surveyor in General Practice. Both of them have over ten years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC.

— 132 —

PROPERTY VALUATION REPORT

APPENDIX V

SUMMARY OF VALUATION

Properties Held for Owner Occupation

Property
Tianjin TEDA Tsinlien Water Supply Co., Ltd.
1.
Water Treatment Works at No. 1 11th Avenue,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
2.
Pumping Station No. 1,
No. 19 Cui Yuan Xi Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
3.
Pumping Station No. 2,
No. 15 Taihua Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
4.
Tianjin TEDA Tsinlien Water Supply Office Building,
No. 68 Baihe Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
Sub-total:
Tianjin TEDA Tsinlien Electric Power Co., Ltd.
5.
Electricity Office Building and 35 KV Transformer Station,
No. 9 Xiangshi Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
6.
110 KV Transformer Station,
No. 91 9th Avenue,
Tianjin Economic and Technology Development Area,
Tianjin, the PRC.

Capital value in
existing state as at
31 August 2004
RMB111,000,000
RMB2,400,000
RMB5,630,000
RMB10,300,000

RMB129,330,000
RMB11,000,000
RMB19,000,000

— 133 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in
existing state as at
Property 31 August 2004
1. 110 KV Transformer Station, RMB6,800,000 No. 21 7th Avenue, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. Nan 35 KV Transformer Station, RMB2,200,000 No. 39 4th Avenue, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. Taifeng 35 KV Transformer Station, RMB4,160,000 No. 22 Taihua Road, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. Residential Area 35 KV Transformer Station, RMB5,740,000 No. 1 Xun Yuan Dong Road, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. Hanbao 35 KV Transformer Station, RMB2,470,000 No. 35 5th Avenue, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. Haijing 35 KV Transformer Station, RMB5,700,000 No. 16 9th Avenue, Haijing Industrial Zone, Tianjin Economic and Technology Development Area, Tianjin, the PRC.
1. 10 KV Transformer Station, RMB140,000 No. 5 Cuiyuan Xi Road, Tianjin Economic and Technology Development Area, Tianjin, the PRC.

— 134 —

PROPERTY VALUATION REPORT

APPENDIX V

Property
14.
Transformer Station,
Muning Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
15.
Transformer Station,
No. 1 Xiao Yuan Xi Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
16.
District C Power Sub-station,
No. 11 Dong Ting 2nd Street,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
17.
District B Power Sub-station,
No. 3 Dong Ting 2nd Street,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
18.
Zhonghang Power Control Station,
No. 10 Ming Yuan Road,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
19.
Unit Nos.101, 102, 103, 303, 601, 602 and 603 of Block 27,
Unit Nos. 201, 202, 401 and 402 of Block 36,
Xiao Yuan Estate,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
20.
Units 101–111, 206, 210, 501, 504–506 and 508–511,
Ziyun Estate,
Tianjin Economic and Technology Development Area,
Tianjin,
the PRC.
Sub-total:
Grand Total:

Capital value in
existing state as at
31 August 2004
RMB830,000
RMB620,000
RMB4,400,000
RMB2,560,000
RMB400,000
RMB2,700,000
RMB1,100,000

RMB69,820,000
RMB199,150,000

— 135 —

PROPERTY VALUATION REPORT

APPENDIX V

VALUATION CERTIFICATE

Properties Held for Owner Occupation

Tianjin TEDA Tsinlien Water Supply Co., Ltd.

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
1.	Water Treatment Works at	The property comprises a parcel of	The property is	RMB111,000,000
	No. 1 11th Avenue,	land with an area of 239,995.52	currently occupied
	Tianjin Economic and	square metres on which various	by the Group as a
	Technology Development	buildings and structures were built.	water treatment
	Area,	They were completed in about 1995.	plant.
	Tianjin,
	the PRC.	The total gross floor area of the
		aforesaid buildings and structures is
		approximately 20,302.18 square
		metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in a portion of the subject land with the area of 38,489.20 square metres are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Water Supply Co., Ltd. on 30 June 2004, the former agreed to lease the land use rights in the remaining portion of the property to latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre and the lease term shall be renewable for a further term of 5 years. No commercial value is attributable to such portion of the subject land.
As stipulated in two sets of Building Ownership Certificate both dated 4 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
4.1 The land use rights in the portion of the property with the area of 38,489.20 square metres are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd. for a term of 50 years;
4.2 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
4.3 the aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd.; and
4.4 Tianjin TEDA Tsinlien Water Supply Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 136 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
2.	Pumping Station No. 1,	The property comprises a parcel of	The property is	RMB2,400,000
	No. 19 Cui Yuan Xi Road,	land with an area of 5,618.62 square	occupied by the
	Tianjin Economic and	metres on which a 2-storey office	Group as a water
	Technology Development	building, two ancillary buildings and	pumping station.
	Area,	various structures were built. They
	Tianjin,	were completed in between 1990
	the PRC.	and 1992.
		The total gross floor area of the
		aforesaid buildings, structures and
		ancillary facilities is approximately
		889.94 square metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Water Supply Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to the latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre and the lease term shall be renewable for a further term of 5 years. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Water Supply Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 137 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
3.	Pumping Station No. 2,	The property comprises a parcel of	The property is	RMB5,630,000
	No. 15 Taihua Road,	land with an area of 17,379.25	occupied by the
	Tianjin Economic and	square metres on which a 2-storey	Group as a water
	Technology Development	office building, two ancillary	pumping station.
	Area,	buildings and various structures
	Tianjin,	were built. They were completed in
	the PRC.	about 1994.
		The total gross floor area of the
		aforesaid buildings and structures is
		approximately 1,404.93 square
		metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Water Supply Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to the latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre and the lease term shall be renewable for a further term of 5 years. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Water Supply Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 138 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 4. Tianjin TEDA Tsinlien Water The property comprises a parcel of The property is RMB10,300,000 Supply Office Building, land with an area of 5,728.69 square occupied by the No. 68 Baihe Road, metres on which a 4-storey office Group as offices. Tianjin Economic and building and, a 3-storey office Technology Development building were built. They were Area, completed in about 2001. Tianjin, the PRC. The total gross floor area of the aforesaid buildings is approximately 3,493.74 square metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Water Supply Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to the latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre and the lease term shall be renewable for a further term of 5 years. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Water Supply Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Water Supply Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 139 —

PROPERTY VALUATION REPORT

APPENDIX V

Tianjin TEDA Tsinlien Electric Power Co., Ltd.

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
5.	Electricity Office	The property comprises a parcel of	The property is	RMB11,000,000
	Building and 35 KV	land with an area of 4,832.87 square	occupied by the
	Transformer Station,	metres on which a 5-storey office	Group as a
	No. 9 Xiangshi Road,	building and a 2 to 3-storey	transformer station
	Tianjin Economic and	transformer building were built.	and ancillary offices.
	Technology Development	They were completed in about 1998.
	Area,
	Tianjin,	The total gross floor area of the
	the PRC.	property is of 5,604.31 square
		metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 140 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 6. 110 KV Transformer Station, The property comprises a parcel of The property is RMB19,000,000 No. 91 9th Avenue, land with an area of 5,636.44 square occupied by the Tianjin Economic and metres on which various 1 to 3- Group as a Technology Development storey buildings and structures were transformer station. Area, built. They were completed in 1999. Tianjin, the PRC. The total gross floor area of the aforesaid buildings, structures and ancillary facilities is approximately 2,058.65 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 141 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
7.	110 KV Transformer Station,	The property comprises a parcel of	The property is	RMB6,800,000
	No. 21 7th Avenue,	land with an area of 9.976.14 square	occupied by the
	Tianjin Economic and	metres on which various 1 to 3-	Group as a
	Technology Development	storey buildings and structures were	transformer station.
	Area,	built. They were completed in
	Tianjin,	between 1989 and 1995.
	the PRC.
		The total gross floor area of the
		aforesaid buildings, structures and
		ancillary facilities is approximately
		2,774.92 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 12 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 142 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 8. Nan 35 KV Transformer The property comprises a parcel of The property is RMB2,200,000 Station, land with an area of 2,882.08 square occupied by the No. 39 4th Avenue, metres on which various 1 to 3- Group as a Tianjin Economic and storey buildings and structures were transformer station. Technology Development built. They were completed in 1986. Area, Tianjin, The total gross floor area of the the PRC. property is approximately 1,218.69 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the buildings and structures of the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 143 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 9. Taifeng 35 KV Transformer The property comprises a parcel of The property is RMB4,160,000 Station, land with an area of 2,075.07 square occupied by the No. 22 Taihua Road, metres on which a 3-storey Group as a Tianjin Economic and transformer station was built. It was transformer station. Technology Development completed in 1995. Area, Tianjin, The gross floor area of the property the PRC. is approximately 1,513.88 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 144 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 10. Residential Area 35 KV The property comprises a parcel of The property is RMB5,740,000 Transformer Station, land with an area of 2,524.22 square occupied by the No. 1 Xun Yuan Dong Road, metres on which a 4-storey Group as a Tianjin Economic and transformer station was built. It was transformer station. Technology Development completed in 1993. Area, Tianjin, The gross floor area of the property the PRC. is approximately 1,992.12 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 31 August 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 145 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 11. Hanbao 35 KV Transformer The property comprises a parcel of The property is RMB2,470,000 Station, land with an area of 2,031.37 square occupied by the No. 35 5th Avenue, metres on which a 2-storey Group as a Tianjin Economic and transformer station was built. It was transformer station. Technology Development completed in 1995. Area, Tianjin, The gross floor area of the property the PRC. is approximately 1,018.72 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 146 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
12.	Haijing 35 KV Transformer	The property comprises a parcel of	The property is	RMB5,700,000
	Station,	land with an area of 3,512.21 square	occupied by the
	No. 16 9th Avenue,	metres on which a 2-storey	Group as a
	Haijing Industrial Zone,	transformer station was built. It was	transformer station.
	Tianjin Economic and	completed in 1997.
	Technology Development
	Area,	The gross floor area of the property
	Tianjin,	is approximately 1,581.25 square
	the PRC.	metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 12 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 147 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
13.	10 KV Transformer Station,	The property comprises a parcel of	The property is	RMB140,000
	No. 5 Cuiyuan Xi Road,	land with an area of 141.996 square	occupied by the
	Tianjin Economic and	metres on which a single storey	Group as a
	Technology Development	transformer station completed in	transformer station.
	Area,	1986.
	Tianjin,
	the PRC.	The gross floor area of the property
		is approximately 145.03 square
		metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to the latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 148 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
14.	Transformer Station,	The property comprises a parcel of	The property is	RMB830,000
	Muning Road,	land with an area of 951.88 square	occupied by the
	Tianjin Economic and	metres on which a single storey	Group as a
	Technology Development	transformer station completed in	transformer station.
	Area,	1993.
	Tianjin,
	the PRC.	The gross floor area of the property
		is approximately 239.55 square
		metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 149 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
15.	Transformer Station,	The property comprises a parcel of	The property is	RMB620,000
	No. 1 Xiao Yuan Xi Road,	land with an area of 713.69 square	occupied by the
	Tianjin Economic and	metres on which a 2-storey	Group as a
	Technology Development	transformer station completed in	transformer station.
	Area,	1994.
	Tianjin,
	the PRC.	The gross floor area of the property
		is approximately 349.39 square
		metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 150 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
16.	District C Power Sub-station,	The property comprises a parcel of	The property is	RMB4,400,000
	No. 11 Dong Ting 2nd Street,	land with an area of 4,228.19 square	occupied by the
	Tianjin Economic and	metres on which various 1 to 3-	Group as a
	Technology Development	storey buildings, structures and	transformer station.
	Area,	ancillary facilities were completed
	Tianjin,	in 1989.
	the PRC.
		The total gross floor area of the
		property is approximately 1,469.37
		square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid buildings and structures are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid buildings and structures.

— 151 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 17. District B Power Sub-station, The property comprises a parcel of The property is RMB2,560,000 No. 3 Dong Ting 2nd Street, land with an area of 2,190.60 square occupied by the Tianjin Economic and metres on which a 2-storey building Group as a power Technology Development was built. It was completed in 1989. control station. Area, Tianjin, The gross floor area of the property the PRC. is approximately 1,252.98 square metres.

Notes:

As stipulated in the Land Use Rights Certificate dated 3 September 2001, the land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
As stipulated in the Building Ownership Certificate dated 3 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd..
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 152 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
18.	Zhonghang Power Control	The property comprises a parcel of	The property is	RMB400,000
	Station,	land with an area of 589.97 square	occupied by the
	No. 10 Ming Yuan Road,	metres on which a single storey	Group as a power
	Tianjin Economic and	building was built. It was completed	control station.
	Technology Development	in 1994.
	Area,
	Tianjin,	The gross floor area of the property
	the PRC.	is approximately 287.17 square
		metres.

Notes:

Pursuant to the Land Use Rights Leasing Agreement entered into between Tianjin TEDA Investment Holdings Ltd. ( ) and Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) on 30 June 2004, the former agreed to lease the land use rights in the property to the latter for a term commencing on 1 June 2004 and expiring on 31 May 2009 at an annual rent of RMB5 per square metre. No commercial value is attributable to the subject land.
As stipulated in the Building Ownership Certificate dated 4 August 2004, the subject building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. for a term of 50 years commencing on 28 July 2000 and expiring on 27 July 2050.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The aforesaid Land Use Rights Leasing Agreement is legal, valid and enforceable;
3.2 The aforesaid building is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid building.

— 153 —

PROPERTY VALUATION REPORT

APPENDIX V

Capital value in Particulars of existing state as at Property Description occupancy 31 August 2004 19. Unit Nos. 101, 102, 103, 303, The property comprises eleven The property is RMB2,700,000 601, 602 and 603 of Block residential units within two 6-storey occupied by the 27, Unit Nos. 201, 202, 401 residential buildings completed in Group as staff and 402 of Block 36, 1994. quarters. Xiao Yuan Estate, Tianjin Economic and The total gross floor area of the Technology Development property is approximately 1,096.40 Area, square metres. Tianjin, the PRC.

Notes:

As stipulated in 11 sets of Land Use Rights Certificate, the land use rights of the property is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term commencing on 10 July 2004 and expiring on 30 June 2042.
As stipulated in 11 sets of Building Ownership Certificate all dated 10 August 2004, the property is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
3.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.;
3.2 The aforesaid units are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
3.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd., has the rights to transfer, lease or mortgage the aforesaid units.

— 154 —

PROPERTY VALUATION REPORT

APPENDIX V

				Capital value in
			Particulars of	existing state as at
	Property	Description	occupancy	31 August 2004
20.	Units 101–111, 206, 210,	The property comprises 21	The property is	RMB1,100,000
	501, 504–506 and 508–511,	commercial units within a 5-storey	occupied by the
	Ziyun Estate	commercial building completed in	Group.
	Tianjin Economic and	1980’s.
	Technology Development
	Area,	The total gross floor area of the
	Tianjin,	property is approximately 782.25
	the PRC.	square metres.

Notes:

As stipulated in the Land Use Rights Certificate and Building Ownership Certificate dated 16 July 2004 and 22 July 2004 respectively, the property is held by Tianjin TEDA Tsinlien Electric Power Co., Ltd. ( ) for a term commencing on 1 March 2002 and expiring on 1 February 2036.
Opinion of the PRC legal adviser to the Company in relation to the property is summarized as follows:
2.1 The land use rights in the property are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.;
2.2 The aforesaid units are held by Tianjin TEDA Tsinlien Electric Power Co., Ltd.; and
2.3 Tianjin TEDA Tsinlien Electric Power Co., Ltd. has the rights to transfer, lease or mortgage the aforesaid units.

— 155 —

GENERAL INFORMATION

APPENDIX VI

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 the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorised and issued capital of the Company as at the Latest Practicable Date were, and immediately following the issue of Consideration Shares upon Completion will be, as follows:

HK$

Authorised 3,000,000,000 Shares as at the Latest Practicable Date Issued and credited as fully paid and to be issued 687,748,884 Shares as at the Latest Practicable Date 222,707,143 Consideration Shares to be issued upon Completion 910,456,027 Shares upon Completion	300,000,000
	68,774,888 22,270,714
	91,045,602

— 156 —

GENERAL INFORMATION

APPENDIX VI

3. DISCLOSURE OF INTERESTS BY DIRECTORS

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

(a) Interests in the Company

I. Shares

					Approximate
				Number of	percentage of
	Name of Director	Capacity	Nature of interests Shares held		issued Shares
	Wang Jiandong	beneficial owner	personal	450,000	0.07%
II.	Share Options
		Maximum number
		of Shares over			Exercise price
		which options are			per Share
	Name of Director	exercisable	Date of grant	Exercise period	(HK$)
	Wang Guanghao	3,500,000	17 April 1998	10 June 1998 to	6.136
				21 November 2007
	Yu Rumin	2,000,000	17 April 1998	10 June 1998 to	6.136
				21 November 2007
	He Xiuheng	2,000,000	17 April 1998	10 June 1998 to	6.136
				21 November 2007
	Yang Liheng	2,000,000	17 April 1998	10 June 1998 to	6.136
				21 November 2007

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor chief executive of the Company were interested, or were deemed to have interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the Register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

(b) Interests in competing businesses

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

— 157 —

GENERAL INFORMATION

APPENDIX VI

(c) Interests in assets of the Group

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 December 2003, being the date to which the latest published audited consolidated financial statements of the Company were made up.

(d) Interests in contracts of the Company

None of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

(e) Miscellaneous

Mr. Cheung Wing Yui, a non-executive Director, is a partner of Woo, Kwan, Lee & Lo, the Company’s legal advisers on Hong Kong law in relation to the Acquisition. Woo, Kwan, Lee & Lo will receive normal professional fees in connection with the Acquisition.

4. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital were as follows:

(a) Interests in the Company

		Number of
		Shares/	Approximate
		underlying	percentage of
Name of Shareholder	Capacity	Shares held	issued Shares
Tsinlien (Note 2)	Interest of controlled	360,482,000 (L)	52.41%
	corporations
Tsinlien (Note 3)	Option seller	40,000,000 (S)	5.82%
Credit Suisse Group (Note 3)	Option buyer	40,000,000 (L)	5.82%
Deltaway Inc. (Note 4)	beneficial owner	90,000,000 (L)	13.10%
Pacific Foundation Assets Management	Interest of a controlled	90,000,000 (L)	13.10%
Limited (Note 5)	corporation
Lo Shiu Wing, Chester (Note 5)	Interest of controlled	90,000,000 (L)	13.10%
	corporations
Lo Tak Wing, Benson (Note 5)	Interest of controlled	90,000,000 (L)	13.10%
	corporations

The letter ‘‘L’’ stands for the shareholder’s long position (within the meaning of the SFO) in Shares. The letter ‘‘S’’ stands for the shareholder’s short position (within the meaning of the SFO) in Shares.

— 158 —

GENERAL INFORMATION

APPENDIX VI

As at the Latest Practicable Date, Tianjin Investment Holdings Limited and Tsinlien Property Services Limited, both being wholly-owned subsidiaries of Tsinlien, held 358,459,990 Shares and 2,022,000 Shares respectively. Mr Wang Guanghao acted as trustee of Tianjin Investment Holdings Limited held 10 Shares. The interest disclosed under Tsinlien represents its deemed interests in the Shares by virtue of its interests in Tianjin Investment Holdings Limited and Tsinlien Property Services Limited.
These Shares are subject to call options sold by Tsinlien to Credit Suisse Group.
The interest of Deltaway Inc. (an independent third party) were held pursuant to the option agreement dated 15 January 2004 entered into between Deltaway Inc. and the Company whereby the Company granted an option to Deltaway Inc. to subscribe for 90,000,000 new Shares at a subscription price of HK$4.10 per option share, for a consideration of HK$2.4 million.
Lo Shiu Wing, Chester, Lo Tak Wing, Benson and Pacific Foundation Assets Management Limited were deemed under the SFO to be interested in 90,000,000 Shares held by Deltaway Inc. pursuant to the option agreement as referred to in note 4 above.

(b) Interests in other members of the Group

==> picture [407 x 425] intentionally omitted <==

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

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Approximate|
|percentage|of|
|Name|of|subsidiary|of|the|Company|Name|of|shareholder|shareholding|
|Coastal|Rapid|Transit|Company|Limited|Starwell|Holdings|Limited|22.00%|
|Tianjin|Jin|Zheng|Transportation|Tianjin|Eastern|Outer|Ring|Road|Co.,|Ltd.|16.07%|
|Development|Co.,|Ltd.|
|Tianjin|Mass|Transit|Development|5|Tianjin|Economic|and|Technological|40.00%|
|Co.,|Ltd.|Development|Investment|Co.,|Ltd.|
|Tianjin|Mass|Transit|Development|2|Tianjin|Economic|and|Technological|40.00%|
|Co.,|Ltd.|Development|Investment|Co.,|Ltd.|
|Tianjin|Mass|Transit|Development|4|Tianjin|Economic|and|Technological|40.00%|
|Co.,|Ltd.|Development|Investment|Co.,|Ltd.|
|Tianjin|Mass|Transit|(Group)|Tianjin|Economic|and|Technological|40.00%|
|Development|Co.,|Ltd.|Development|Investment|Co.,|Ltd.|
|Tianjin|Mass|Transit|Development|3|Tianjin|Economic|and|Technological|40.00%|
|Co.,|Ltd.|Development|Investment|Co.,|Ltd.|
|10.00%|
|(Tianjin|Port|Tax|Concession|Zone|Chang|(Tianjin|Port|Tax|Concession|Zone|Sheng|
|Hao|International|Trade|Co.,|Ltd.)|Di|Er|Co.,|Ltd.)|
|Tianjin|Gangkai|Container|Service|25.00%|
|Co.,|Ltd.|Hong|Kong|Sun|Hoi|Enterprise|Company|
|Limited|
|Tianjin|Tianyang|Grape|Extracting|Co.,|40.00%|
|Ltd.|(Tianjin|Jixian|Economic|Development|
|Zone|Co.,|Ltd.)|
|Sino-French|Joint-Venture|Dynasty|Remy|Pacifique|Limited|33.00%|
|Winery|Ltd.|
|Shangdong|Yuhuang|Grape|Wine|35.00%|
|Co.,|Ltd.|(Shandong|Yinping|Municipal|Tianyuan|
|Grape|Wine|Co.,|Ltd.)|
|Tianjin|Tai|Kang|Industrial|Co.,|Ltd.|Tianjin|Tai|Xin|Industrial|Co.,|Ltd.|17.26%|
|Tianjin|Airfreight|Port|Equipment|(1)|Tianjin|Tai|Sing|Industrial|Co.,|Ltd.|10.06%|
|Manufacturing|Company|Limited|(2)|Tianjin|Kang|Sing|Steel|Equipment|10.26%|
|Engineering|Co.,|Ltd.|
|(3)|Civil|Aviation|University|10.48%|
|of|China|
|(Tianjin|Lianfa|(Tianjin|Lianjin|10.00%|
|Property|Management|Co.,|Ltd.)|Investment|Co.,|Ltd.)|

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

— 159 —

GENERAL INFORMATION

APPENDIX VI

		Approximate
		percentage of
Name of subsidiary of the Company	Name of shareholder	shareholding
Tianjin Gangjin Real Estate Development	Tianjin Eastern Outer Ring Road Co., Ltd.	16.07%
Co., Ltd.

English names of the PRC incorporated companies in this circular are only direct translations of their respective official Chinese names. In case of inconsistency, the Chinese names shall prevail.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any other person (other than Directors and chief executive of the Company) who had, or were deemed to have, interests or short positions in the shares and underlying shares (including any interests in options in respect of such capital), 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 who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

6. MATERIAL CONTRACTS

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

(a) the letter of intent dated 18 October 2002 entered into between Tianjin Jin Zheng Transportation Development Company Limited ( ) (‘‘Tianjin Jin Zheng Transportation Company’’), a then 83.9% owned subsidiary of the Company and TEDA Investment Holding Company Limited ( ) (‘‘TEDA Investment Company’’), pursuant to which Tianjin Jin Zheng Transportation Company transferred to TEDA Investment Company its right to receive income paid by the Tianjin Government, for a consideration of RMB750 million (equivalent of approximately HK$707 million);
(b) the termination agreement dated 29 December 2003 entered into between Tianjin Jin Zheng Transportation Company and Tianjin Eastern Outer Ring Road Co., Ltd., pursuant to which the road management contracts dated 14 November 1997 and 18 July 1999 respectively entered into by the same parties were terminated;
(c) the agreement dated 29 December 2003 entered into between Coastal Rapid Transit Company Limited (‘‘Costal Rapid’’) as purchaser and the Company and Starwell Holdings Limited (‘‘Starwell’’) as vendors, pursuant to which Coastal Rapid acquired from the Company and Starwell 4,000 shares of US$1 each and 6,000 shares of US$1 each in Golden Horse Resources Limited (‘‘Golden Horse’’) respectively, representing the entire

— 160 —

GENERAL INFORMATION

APPENDIX VI

equity interest in Golden Horse and, as consideration for the acquisition, Coastal Rapid allotted and issued its 123,200,000 shares and 184,800,000 shares, credited as fully paid, to the Company and Starwell respectively;

(d) the agreement dated 29 December 2003 entered into between Coastal Rapid as purchaser and the Company as vendor, pursuant to which Coastal Rapid acquired from the Company the entire equity interest in Dynamic Infrastructure Limited, and, as consideration for the acquisition, Coastal Rapid allotted and issued its 531,999,990 shares to the Company credited as fully paid;
(e) the deed of indemnity dated 29 December 2003 executed by the Company and Starwell in favour of Coastal Rapid;
(f) the non-competition deed dated 29 December 2003 executed by the Company in favour of Coastal Rapid;
(g) the non-competition deed dated 29 December 2003 executed by Starwell in favour of Coastal Rapid;
(h) the subscription agreement for options dated 15 January 2004 entered into between Deltaway Inc., an independent third party, and the Company pursuant to which the Company granted an option for 90,000,000 new Shares at a subscription price of HK$4.10 per option share, for a consideration of HK$2.4 million; and
(i) the Agreement.

Save as disclosed herein, no member of the Group has entered into any contracts, not being contracts entered into in the ordinary course of business, which are or may be material within the two years immediately preceding the Latest Practicable Date.

7. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

8. QUALIFICATION OF EXPERTS

The following are the qualification of the experts who have given opinions or advice which are contained or referred to in this circular:

Name	Qualification
Baron	a licensed Corporation to perform Type 1 and Type 6
	regulated activities under the SFO
PricewaterhouseCoopers	Certified Public Accountants
RHL Appraisal Limited	Registered Professional Surveyor

— 161 —

GENERAL INFORMATION

APPENDIX VI

9. EXPERT’S INTERESTS IN ASSETS

As at the Latest Practicable Date, none of Baron, PricewaterhouseCoopers and RHL Appraisal Limited had any shareholding interest in any member of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.

As at the Latest Practicable Date, none of Baron, PricewaterhouseCoopers and RHL Appraisal Limited had any direct or indirect interests in any assets which had since 31 December 2003 (being the date to which the latest published audited accounts of the Company were made up) been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

10. CONSENTS OF EXPERTS

Baron, PricewaterhouseCoopers and RHL Appraisal Limited have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion herein of their letter and/or reports and references to their names in the form and context in which they respectively appear.

11. MATERIAL ADVERSE CHANGE

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

12. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Article 73 of the articles of association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless a poll is taken as may from time to time be required under the Listing Rules or unless a poll is (before or on the declaration of the results of the show of hands) demanded:

(a) by the Chairman; or
(b) by at least three members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting; or
(c) by any member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or
(d) by any member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

— 162 —

GENERAL INFORMATION

APPENDIX VI

A demand by a person as proxy for a member or in the case of a member being a corporation by its duly authorized representative shall be deemed to be the same as a demand by a member.

13. GENERAL

(a) The registered office of the Company is situated at 26th–38th Floor, Tianjin Building, 167 Connaught Road West, Hong Kong.
(b) The company secretary and qualified accountant of the Company is Mr. Tsang Wai Yip, Patrick, who holds a bachelor degree in accountancy and is a fellow member of both the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants.
(c) The branch share registrar of the Company is Tengis Limited of G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong whose address is the address of the transfer office of the Company.
(d) The English text of this circular shall prevail over the Chinese text.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Messrs. Woo, Kwan, Lee & Lo at 27th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours on any weekday, except public holidays, from the date of this circular up to and including 29 October 2004:

(a) the memorandum and articles of association of the Company;
(b) the Agreement;
(c) the material contracts referred to in the section headed ‘‘Material contracts’’ in this appendix;
(d) the annual report of the Company for the two financial years ended 31 December 2003;
(e) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on page 13 of this circular;
(f) the letter of advice from Baron to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 14 to 23 of this circular;
(g) the consent letters from Baron, PricewaterhouseCoopers and RHL Appraisal Limited, as referred to in the paragraph headed ‘‘Consent of experts’’;
(h) the accountants’ report signed by PricewaterhouseCoopers on the Electricity Company, the text of which is set out in Appendix I to this circular;
(i) the accountants’ report signed by PricewaterhouseCoopers on the Water Company, the text of which is set out in Appendix II to this circular;

— 163 —

GENERAL INFORMATION

APPENDIX VI

(j) the letter on the unaudited pro forma financial information of the Enlarged Group issued by PricewaterhouseCoopers, text of which is set out in Appendix IV to this circular; and
(k) the property valuation report from RHL Appraisal Ltd., text of which is set out in Appendix V to this circular.

— 164 —

NOTICE OF EGM

==> picture [96 x 54] intentionally omitted <==

==> picture [198 x 52] intentionally omitted <==

(Incorporated in Hong Kong SAR with limited liability under the Hong Kong Companies Ordinance)

(Stock Code: 882)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Tianjin Development Holdings Limited (the ‘‘Company’’) will be held on 29 October 2004 (Friday) at 3: 00 p.m. at 38th Floor, Function Room, Tianjin Building, 167 Connaught Road West, Hong Kong (the ‘‘EGM’’) for the purpose of considering and, if thought fit, passing the following resolution, with or without modifications, as ordinary resolution:

ORDINARY RESOLUTION

1. ‘‘THAT

(a) the conditional sale and purchase agreement dated 20 September 2004 (‘‘Agreement’’) entered into between the Company as purchaser and Tsinlien Group Company Limited as vendor (‘‘Vendor’’) for the sale and purchase of approximately 94.4% equity interest in Electricity Company and 91.4% equity interest in Water Company (a copy of the Agreement has been produced to this meeting and marked ‘‘A’’ and initialled by the chairman of the meeting for the purpose of identification) be and is hereby generally and unconditionally approved in all respects and that all the transactions contemplated therein be and they are hereby approved;
(b) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant the listing of and permission to deal in the Consideration Shares (as defined below), the directors of the Company (‘‘Directors’’) be and they are hereby authorised to allot and issue an aggregate of up to 222,707,143 new shares (‘‘Consideration Shares’’ and each a ‘‘Consideration Share’’) of HK$0.10 each credited as fully paid at an issue price of HK$2.8 per Consideration Share to the Vendor or its designated wholly-owned subsidiary at completion of the Agreement and that the Consideration Shares shall, when allotted and issued, rank pari passu in all respects with all other shares of HK$0.10 each (‘‘Share’’) in the capital of the Company in issue at the date of such allotment and issue; and

— 165 —

NOTICE OF EGM

(c) further that the Directors be and they are hereby generally and unconditionally authorised subject to the terms and conditions of the Agreement, and to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which in the opinion of the Directors may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Agreement and matters contemplated in subparagraphs (a) and (b) above and to agree to such variation, amendment, supplement or waiver of matters relating thereto as are, in the opinion of the Directors, in the interest of the Company.’’

By order of the Board Wang Guanghao Chairman

Hong Kong, 13 October 2004

Registered office:

26th–38th Floor Tianjin Building 167 Connaught Road West Hong Kong

Notes:

Any member entitled to attend and vote at the EGM convened by the above notice is entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company.
A form of proxy for use at the meeting is enclosed herewith. Completion and return of the form of proxy will not preclude a member from attending the meeting or any adjournment thereof and voting in person if he so wishes.
To be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s share registrar and transfer office in Hong Kong, Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
In the case of joint holders of any share, any one of such holders may vote at the meeting, either in person or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.

— 166 —

AI assistant

Leadway Technology Investment Group Limited — Proxy Solicitation & Information Statement 2004

50365_rns_2004-10-13_e8e0b979-cfd9-4383-9ca4-31d9f2deef59.pdf

MAJOR AND CONNECTED TRANSACTION

Oriental Patron Asia Limited

CONTENTS

DEFINITIONS

DEFINITIONS

(Stock Code: 882}

To the Shareholders

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Date

Parties

Assets to be acquired

Consideration

LETTER FROM THE BOARD

Status of Consideration Shares

Conditions

LETTER FROM THE BOARD

Completion

INFORMATION ON ELECTRICITY COMPANY AND WATER COMPANY

Electricity Company

Water Company

LETTER FROM THE BOARD

Government Supplemental Income Granted by the Finance Bureau of the Development Zone

Existing shareholding structure of Electricity Company and Water Company and costs of investment of the connected parties of the Company in Electricity Company and Water Company

LETTER FROM THE BOARD

REASONS FOR THE ACQUISITION

FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Net tangible assets

Earnings

CONNECTIONS BETWEEN THE PARTIES

EGM

RECOMMENDATIONS

ADDITIONAL INFORMATION

MAJOR AND CONNECTED TRANSACTION

LETTER OF ADVICE FROM BARON

MAJOR AND CONNECTED TRANSACTION

INTRODUCTION

BASIS OF OUR OPINION

LETTER OF ADVICE FROM BARON

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background and reasons of the Acquisition

Business of the Group

LETTER OF ADVICE FROM BARON

Statistics of the Development Zone 1998–2003

LETTER OF ADVICE FROM BARON

Basis of consideration

Comparable listed companies

LETTER OF ADVICE FROM BARON

LETTER OF ADVICE FROM BARON

Settlement Terms

3. Financial effects of the Acquisition

Earnings

Net asset value and net asset value per Share

LETTER OF ADVICE FROM BARON

Working Capital

Gearing

LETTER OF ADVICE FROM BARON

Dilution effect on shareholding

RECOMMENDATIONS

13 October 2004

The Directors

Dear Sirs,

I. FINANCIAL INFORMATION

1. Profit and loss accounts

2. Balance sheets

APPENDIX I

3. Statements of changes in equity

4 Cash flow statements

II. NOTES TO THE FINANCIAL INFORMATION

1. Principal activity

2. Principal accounting policies

(a) Basis of preparation

(b) Fixed assets and depreciation

(c) Provisions

(d) Trade receivable

Leadway Technology Investment Group Limited Proxy Solicitation & Information Statement 2004