THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares of CT Holdings (International) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of CT Holdings (International) Limited.

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CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1008)

(II) PLACING DOWN ARRANGEMENTS FOR MAINTAINING SUFFICIENT PUBLIC FLOAT;

(III) PROPOSED CONTINUING CONNECTED TRANSACTIONS; (IV) PROPOSED CHANGE OF THE COMPANY’S NAME; AND

(V) NOTICES OF EXTRAORDINARY GENERAL MEETINGS

Independent financial adviser to

the Independent Board Committee and the Independent Shareholders

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Capitalised terms used on this cover page shall have the same meanings as those in the section headed “Definitions” in this circular.

A letter from the Independent Board Committee is set out on pages 113 to 114 of this circular. A letter from Ample Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 115 to 143 of this circular. A notice convening the first extraordinary general meeting to be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong on Thursday, 14 April 2011 at 11:00 a.m. is set out on pages EGM-1 to EGM-3 of this circular. A form of proxy for use at the First EGM is also enclosed with this circular. Such form of proxy is also published on the website of the Stock Exchange at www.hkex.com.hk.

A notice convening the second extraordinary general meeting to be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong on Wednesday, 20 April 2011 at 11:00 a.m. is set out on pages EGM-4 to EGM-5 of this circular. A form of proxy for use at the Second EGM is also enclosed with this circular. Such form of proxy is also published on the website of the Stock Exchange at www.hkex.com.hk.

Whether or not you are able to attend either or both of the meetings in person, you are requested to complete the accompanying forms of proxy in accordance with the instructions printed thereon and deposit the same at the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of each of the meetings or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at each of the meetings or any adjournment thereof should you so wish.

28 March 2011

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . .	113
Letter from Ample Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115
Appendix I – Financial information of the Group . . . . . . . . . . . . . . .	I-1
Appendix II – Accountants’ report on the Target Group . . . . . . . . . . .	II-1
Appendix III – Financial information of the Enlarged Group . . . . . . . .	III-1
Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Notice of the First EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1
Notice of the Second EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-4

DEFINITIONS

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

“Acquisition”
the acquisition of the Sale Share by the Purchaser under the Acquisition Agreement
“Acquisition Agreement”
the conditional sale and purchase agreement dated 29 December 2010 (as supplemented) entered into among the Company, the Purchaser and the Vendor in relation to the Acquisition
“Acquisition Completion”
completion of the Acquisition
“AHL”
AMVIG Holdings Limited, a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange
“Ample Capital”
Ample Capital Limited, a registered institution licensed under the SFO to carry out type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders
“Announcement”

the announcement of the Company dated 1 February 2011 in respect of, among other things, the Acquisition, the Corporate Guarantee, the Master Sales Agreement, the Caps, the First Placing Down, the PG Placing Down Agreement, the YF Placing Down Agreement and the Further Placing Down

“associates”
“BB Jinhuangshan”
has the meaning ascribed to it under the Listing Rules
蚌埠金黃山凹版印刷有限公司 (Bengbu Jinhuangshan Rotogravure Printing Co., Ltd*), a sino-foreign co-operative joint venture established in the PRC, which is an indirect non-wholly subsidiary of the Target
“BCD”
Brilliant Circle Development Limited, a company incorporated in Hong Kong with limited liability, which is an indirect subsidiary of the Target
“Board”
the board of Directors

– 1 –

DEFINITIONS

“Business Day”
“BVI”
“Caps”
“CD Goldroc”
“Company”
“connected person(s)”
“Consideration Share(s)”
“Corporate Guarantee”
“Director(s)”
“Enlarged Group”

a day (other than a Saturday or a Sunday) on which banks in Hong Kong are generally open for its business (or, in respect of the First Placing Down Agreement, the PG Placing Down Agreement and the YF Placing Down Agreement, any day other than a Saturday, Sunday or other day on which commercial banks in the PRC and Hong Kong are required or authorised by law or executive order to be closed or on which a tropical cyclone warning no. 8 or above or a “black” rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m. Hong Kong time)

the British Virgin Islands
the maximum annual caps of the sale of the Package Products under the Master Sales Agreement
常德金鵬印務有限公司 (Changde Goldroc Printing Co., Limited*), a sino-foreign equity joint venture established in the PRC, which is an associated company of the Target
CT Holdings (International) Limited, a company incorporated in the Cayman Islands with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange
has the meaning ascribed to it under the Listing Rules
the 480,000,000 new Share(s) to be allotted and issued, credit as fully paid, to the Vendor (or his nominee(s) or any person(s) nominated by him) at HK$5 per Share to satisfy the consideration of the Acquisition
the corporate guarantee provided by SZ Kecai in July 2010 in favour of a bank in the PRC of up to an amount of RMB260 million (equivalent to approximately HK$305.88 million) to secure banking facilities granted to a private company wholly and beneficially owned by Mr. Tsoi
director(s) of the Company
the Group as enlarged by the Target Group immediately after Acquisition Completion

– 2 –

DEFINITIONS

“Enlarged Share Capital”
“First EGM”
“First Placee”
“First Placee’s Placing Down Shares”
“First Placing Down”
“First Placing Down Agreement”
“First Placing Down Completion”
“Further Placing Down”
“Further Placing Down Agreement”
“Further Placing Down Shares”

the total issued and outstanding share capital of the Company as enlarged by the allotment and issue of the Consideration Shares, assuming that there are no other changes in the shareholding structure of the Company

the first extraordinary general meeting of the Company to be first convened for the purpose of considering and, if thought fit, approving, among other things, the Acquisition Agreement (including the Corporate Guarantee), the Master Sales Agreement (including the Caps) and the respective transactions contemplated thereunder
Ares BCH Holdings, L.P., a limited partnership incorporated in the Cayman Islands
the part of Placing Down Shares to be acquired by the First Placee from the Placing Down Vendor, which shall represent not less than 13% of the Enlarged Share Capital on a fully diluted basis at the time of First Placing Down Completion
the placing down of First Placee’s Placing Down Shares by the Placing Down Vendor pursuant to the terms and conditions of the First Placing Down Agreement
the conditional sale and purchase agreement dated 29 December 2010 (as supplemented) entered into among the Placing Down Vendor, the First Placee and the Guarantor in relation to the First Placing Down
completion of the First Placing Down Agreement
the placing of the Further Placing Down Shares pursuant to the terms and conditions of the Further Placing Down Agreement
the conditional placing agreement dated 29 January 2011 entered into between Mr. Tsoi and the Placing Agent in relation to the Further Placing Down
such number of issued Shares, being not less than 31,600,000 Consideration Shares but not more than 120,000,000 Consideration Shares as may be allotted and issued to Mr. Tsoi upon Acquisition Completion, decided by Mr. Tsoi and notified to the Placing Agent

– 3 –

DEFINITIONS

“Group”
“Hong Kong”
“Hubei Tobacco Group”
“Independent Board Committee”
“Independent Shareholders”
“Independent Third Party(ies)”
“Last Trading Day”
“Latest Practicable Date”
“Listing Rules”

the Company and its subsidiaries

the Hong Kong Special Administrative Region of the PRC
湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.) (which was formerly known as 武漢煙草（集團）有限公司 (Wuhan Tobacco (Group) Company Limited)) and its subsidiaries including, but not limited to, Xiangfan Factory and its subsidiaries
the independent board committee of the Company comprising all independent non-executive Directors, namely Mr. Lui Tin Nang, Mr. Lam Ying Hung, Andy and Mr. Siu Man Ho, Simon, established to give recommendation to the Independent Shareholders regarding the Acquisition (including the Corporate Guarantee) and the Master Sales Agreement (including the Caps)
(i) in respect of the Acquisition, Shareholders other than, (a) the Vendor, (b) the Placing Down Vendor, (c) Mr. Cai Xiao Ming, David, (d) Sinorise, (e) the First Placee, (f) the Other Placees and (g) those who are involved in, or interested in, the Acquisition and the First Placing Down and their respective associates; and (ii) in respect of the Master Sales Agreement and the Caps, Shareholders other than, the Hubei Tobacco Group and those who are involved in, or interested in, the Master Sales Agreement and their respective associates
independent third party(ies) who is(are) not a connected person(s) of the Company as defined in the Listing Rules and is(are) independent of the Company and connected person of the Company
29 December 2010, being the last trading day for the Shares on the Stock Exchange prior to suspension of trading in Shares pending the release of the Announcement
24 March 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein
the Rules Governing the Listing of Securities on the Stock Exchange

– 4 –

DEFINITIONS

“Master Sales Agreement”
“Mr. Tsoi” or “Vendor” or “Guarantor”
“Other Placee(s)”
“Other Placee’s Placing Down Shares”
“Package Products”
“PG Placing Down Agreement”
“Placing Agent”
“Placing Down Completion”
“Placing Down Price”
“Placing Down Share(s)”
the master sales agreement entered into between XF Jinfeihuan and Xiangfan Factory dated 28 December 2010 in respect of the sale of the Package Products to the Hubei Tobacco Group
Mr. Tsoi Tak, the chairman of the Board, a non-executive Director and a controlling Shareholder
the third party purchaser(s) identified by the First Placee, who/which shall be independent of and not connected with the Company, the Target, the First Placee and any of their respective subsidiaries and associates to acquire the Other Placee’s Placing Down Shares
the part of the Placing Down Shares to be acquired by the Other Placee(s) from the Placing Down Vendor, which shall not in aggregate be more than 13% of the Enlarged Share Capital on a fully diluted basis at the time of Placing Down Completion
the cigarette packages and related services to be sold by the Target Group and purchased by the Hubei Tobacco Group pursuant to the Master Sales Agreement
the conditional sale and purchase agreement dated 29 January 2011 (as supplemented) entered into among the Placing Down Vendor, Partners Group Private Equity (Master Fund), LLC, Partners Group Private Access 336 L.P. (both of them are Other Placees) and the Guarantor
Goldin Equities Limited, a company incorporated in Hong Kong with limited liability and a corporation licensed to carry out type 1 (dealing in securities) and type 2 (dealing in futures contracts) regulated activities under the SFO
completion of the First Placing Down Agreement, PG Placing Down Agreement and YF Placing Down Agreement
the placing price of approximately HK$4.52 per Placing Down Share
up to 176,800,000 Shares to be held by the Placing Down Vendor, representing 26% of the Enlarged Share Capital on a fully diluted basis at Placing Down Completion

– 5 –

DEFINITIONS

“Placing Down Vendor” or “Profitcharm”
Profitcharm Limited, a controlling Shareholder incorporated in the BVI with limited liability, which is wholly and beneficially owned by Mr. Tsoi
“PRC”
the People’s Republic of China, which for the purpose of this circular excludes Hong Kong, Macau Special Administrative Region of the PRC and Taiwan
“Profit Undertaking”
the profit undertaking by Mr. Tsoi and Profitcharm in respect of the pro-forma combined net profit after tax of the Company for the year ending 31 December 2011 of not less than HK$410 million
“Purchaser” CT Management Investments Limited, a company incorporated in the BVI and a wholly-owned subsidiary of the Company
“Sale Share”
one ordinary share of US$1.00 in the share capital of the Target, representing the entire issued share capital thereof
“Second EGM”
the second extraordinary general meeting of the Company to be convened for the purpose of considering and, if thought fit, approving the proposed change of the Company’s name
“SFO”
the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
“Share(s)”
ordinary share(s) of HK$0.01 each in the share capital of the Company
“Shareholder(s)”
the holder(s) of Shares
“Sinorise”
Sinorise International Limited, a substantial Shareholder incorporated in the BVI with limited liability, which is wholly and beneficially owned by Mr. Cai Xiao Ming, David, a son of Mr. Tsoi
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“STMA”
“SZ Kecai”
the State Tobacco Monopoly Administration
深圳市科彩印務有限公司 (Shenzhen Kecai Printing Co., Ltd.*), a company established in the PRC with limited liability, which is an indirect non-wholly owned subsidiary of the Target
“Target”
Brilliant Circle Holdings International Limited, a company incorporated in the BVI which is wholly-owned by the Vendor immediately before the Acquisition Completion

– 6 –

DEFINITIONS

“Target Group”
the Target and its subsidiaries
“Then Auditor”
the auditor to be appointed by the Company, which shall be any one of KPMG, PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young or any of their respective PRC-domiciled affiliates
“Tsoi’s Family”
Mr. Tsoi, Mr. Cai Xiao Ming, David and their respective associates, including, but not limited to, the Placing Down Vendor and Sinorise
“US”
the United States of America
“XF Jinfeihuan”
“Xiangfan Factory”
襄樊金飛環彩色包裝有限公司 (Xiangfan Jinfeihuan Colour Package Co., Ltd*), a sino-foreign equity joint venture established in the PRC, which is an indirect non-wholly owned subsidiary of the Target
襄樊捲煙廠 (Xiangfan Cigarette Factory*), a company established in the PRC with limited liability which is a substantial shareholder of XF Jinfeihuan and a member of the Hubei Tobacco Group
“YF Placing Down Agreement”
the conditional sale and purchase agreement dated 29 January 2011 (as supplemented) entered into among the Placing Down Vendor, YF BCH Investment Limited (which is one of the Other Placees) and the Guarantor
“ZT Antong”
昭通安通包裝材料有限公司 (Zhaotong Antong Package Material Co., Ltd*), a sino-foreign equity joint venture established in the PRC, which is an indirect non-wholly owned subsidiary of the Target
“HK$” Hong Kong dollar, the lawful currency of Hong Kong
“RMB” Renminbi, the lawful currency of PRC
“US$” United States dollar, the lawful currency of US
“sq. m.” square meter
“%” per cent.

For illustration purpose in this circular, save as otherwise provided, all amounts in RMB have been converted into HK$ at the rate of RMB0.850 = HK$1.

Certain English translations of Chinese names or words in this circular are included for identification purpose only and should not be regarded as the official English translation of such Chinese names or words.

– 7 –

LETTER FROM THE BOARD

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CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1008)

Chairman and non-executive Director: Mr. Tsoi Tak

Executive Directors:

Ms. Wu Sin Wah, Eva (Chief Executive Officer) Mr. Cai Xiao Ming, David Mr. Cai Xiao Xing Mr. Kiong Chung Yin, Yttox

Independent non-executive Directors: Mr. Lam Ying Hung, Andy Mr. Lui Tin Nang Mr. Siu Man Ho, Simon

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: Suites 2301-2, 23rd Floor Tower Two, Nina Tower 8 Yeung Uk Road Tsuen Wan New Territories Hong Kong

28 March 2011

To the Shareholders

Dear Sir or Madam,

(I) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS IN RELATION TO THE ACQUISITION OF THE ENTIRE EQUITY INTEREST IN BRILLIANT CIRCLE HOLDINGS INTERNATIONAL LIMITED BY WAY OF ISSUE OF NEW SHARES UNDER A SPECIFIC MANDATE AND THE PROVISION OF FINANCIAL ASSISTANCE TO A CONNECTED PARTY UPON COMPLETION OF THE ACQUISITION; (II) PLACING DOWN ARRANGEMENTS FOR MAINTAINING SUFFICIENT PUBLIC FLOAT; (III) PROPOSED CONTINUING CONNECTED TRANSACTIONS; AND (IV) PROPOSED CHANGE OF THE COMPANY’S NAME

INTRODUCTION

On 29 December 2010 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, and the Vendor entered into the Acquisition Agreement

– 8 –

LETTER FROM THE BOARD

whereby the Purchaser has conditionally agreed to purchase and the Vendor has conditionally agreed to sell the entire equity interest in the Target at a consideration of HK$2,400,000,000 which shall be satisfied by the allotment and issue of 480,000,000 new Shares to the Vendor (or his nominee(s) or any person(s) nominated by him), credited as fully paid, at HK$5 per Consideration Share. It is expected that the Corporate Guarantee, which has been providing by a member of the Target Group to a company wholly and beneficially owned by the Vendor prior to the entering into of the Acquisition Agreement, may continue to exist up to six months after the Acquisition Completion.

Assuming 480,000,000 new Shares are issued to the Vendor (or his nominee(s) or person(s) nominated by him) under the Acquisition, the Tsoi’s Family will be interested in more than 75% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares. With a view to restoring the public float of the Company, the Vendor has entered into the First Placing Down Agreement on 29 December 2010, and the PG Placing Down Agreement, the YF Placing Down Agreement and the Further Placing Down Agreement on 29 January 2011.

Also, on 28 December 2010, XF Jinfeihuan, an indirect non-wholly owned subsidiary of the Target, entered into the Master Sales Agreement with Xiangfan Factory, a substantial shareholder of XF Jinfeihuan, in relation to the sale of the Package Products to the Hubei Tobacco Group.

The Acquisition Agreement and the transactions contemplated thereunder constitute a very substantial acquisition and a connected transaction of the Company by reason that Mr. Tsoi, being the Vendor, is a connected person of the Company, while the transactions contemplated under the Master Sales Agreement will constitute continuing connected transactions of the Company after the Acquisition Completion by reason that, Xiangfan Factory will become a connected person of the Company upon Acquisition Completion under the Listing Rules. The Acquisition Agreement and the transactions contemplated thereunder, including the provision of the Corporate Guarantee, and the Master Sales Agreement and the transactions contemplated thereunder, including the Caps, are therefore subject to the approval of the Independent Shareholders by way of poll.

The Board also puts forward proposals to change the Company’s name.

The purpose of this circular is to provide you with, among other things, (i) details of the Acquisition, the Corporate Guarantee, the First Placing Down Agreement, the Further Placing Down Agreement, the PG Placing Down Agreement, the YF Placing Down Agreement, the Target Group, the Master Sales Agreement and the Caps; (ii) the financial information of the Group; (iii) the accountants’ report on the Target Group; (iv) the financial information of the Enlarged Group; (v) the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders on the Acquisition Agreement, including the provision of the Corporate Guarantee, the Master Sales Agreement, including the Caps and the respective transactions contemplated thereunder; (vi) the letter from Ample Capital to the Independent Board Committee and the Independent Shareholders setting out its advice on the Acquisition Agreement, including the provision of the Corporate Guarantee, the Master Sales Agreement,

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LETTER FROM THE BOARD

including the Caps and the respective transactions contemplated thereunder; (vii) the proposed change of the Company’s name; (viii) the notice convening the First EGM; and (ix) the notice convening the Second EGM.

THE ACQUISITION AGREEMENT

Date

29 December 2010 (as supplemented on 25 March 2011)

Parties

(i) Mr. Tsoi Tak, being the Vendor;
(ii) CT Management Investments Limited, a wholly-owned subsidiary of the Company, being the Purchaser; and
(iii) the Company, being the issuer

The Vendor, being Mr. Tsoi, is the founder of the Target and wholly and beneficially owns the entire issued share capital of the Target. Mr. Tsoi is also a non-executive Director, the chairman of the Board and a controlling Shareholder holding 52.50% of the existing issued share capital of the Company through Profitcharm (a company whose issued share capital is wholly-owned by Mr. Tsoi).

Assets to be acquired

Pursuant to the Acquisition Agreement, the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the Sale Share.

The Sale Share, being one ordinary share of US$1.00 in the issued share capital of the Target, represented and shall represent the entire issued share capital of the Target as at the Latest Practicable Date and the date of the Acquisition Completion respectively.

For further details of the Target Group, please refer to the paragraph headed “Information on the Target Group and its associated company” below.

Consideration of the Acquisition

The consideration of the Acquisition is HK$2,400,000,000, which shall be satisfied entirely by the Company allotting and issuing 480,000,000 new Shares to the Vendor (or his nominee(s) or any person(s) nominated by him), credited as fully paid, at an issue price of HK$5 per Consideration Share upon Acquisition Completion.

Consideration Shares

The Consideration Shares represent 240% of the existing issued share capital of the Company and approximately 70.59% of the issued share capital of the Company as

– 10 –

LETTER FROM THE BOARD

enlarged by the allotment and issue of the Consideration Shares. The Consideration Shares will be issued pursuant to a specific mandate of the Company to be sought at the First EGM. The Consideration Shares shall rank pari passu with the Shares in issue on the date of their allotment and issue.

Application for listing

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

Issue price of the Consideration Shares

The issue price of HK$5 per Consideration Share represents:

(i) a discount of approximately 29.78% to the closing price of HK$7.12 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 28.06% to the average of the closing prices of HK$6.95 per Share for the last ten trading days up to and including the Last Trading Day;
(iii) a discount of approximately 26.36% to the average of the closing prices of approximately HK$6.79 per Share for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of approximately 19.61% to the average of the closing prices of approximately HK$6.22 per Share for the last 60 trading days up to and including the Last Trading Day;
(v) a discount of approximately 40.48% to the closing price of HK$8.4 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(vi) a premium of approximately 257.14% over the unaudited consolidated net asset value per Share as at 30 June 2010 of approximately HK$1.40.

Basis of the consideration of the Acquisition

The consideration of the Acquisition, including the issue price of the Consideration Shares, was determined after arm’s length negotiations between the Company, the Purchaser and the Vendor, and taking into account a number of factors including the historical performance of the Target Group, the business growth and profitability of the Target Group, as well as the prospects of the PRC tobacco industry. Also, the consideration of the Acquisition represents price-earnings multiple of approximately 10.36 times (the “ Acquisition PE ”) (based on the consolidated profit attributable to the equity holder of the Target for the year ended 31 December 2009 of approximately HK$231.7 million), compared to the trading price-earnings multiple of AHL, which is a direct comparable of the Target Group as both companies are engaging in the printing of cigarette packages, of approximately 15.70 times on the date of the Acquisition Agreement.

– 11 –

LETTER FROM THE BOARD

Furthermore, as the consideration of the Acquisition will be satisfied entirely by the Company allotting and issuing 480,000,000 new Shares, the parties to the Acquisition Agreement have taken into consideration the then trading price-earnings multiples of the Company (being about 63 times) and other Hong Kong listed companies with businesses comparable to that of the Company in books printing, packaging printing and other paper products printing when entering into of the Acquisition Agreement. The trading price-earnings multiple of these companies are set out as follows:

	As at
	29 December
	2010 (being the
	date of the
	Acquisition	As at the Latest
	Agreement)	Practicable Date
	(Note 1)	(Note 2)
The Company	62.6 times	73.9 times
Hung Hing Printing Group Limited
(stock code: 450)	17.0 times	16.8 times
Neway Group Holdings Limited
(stock code: 55)	49.9 times	63.5 times
New Island Printing Holdings Limited
(stock code: 377)	103.3 times	58.3 times
Cheong Ming Investments Limited
(stock code: 1196)	23.9 times	32.4 times

Notes:

1. The respective trading price-earnings multiple was calculated based on the market capitalisation of the listed issuer as at 29 December 2010 divided by the then audited consolidated net profit attributable to the equity holders of the listed issuer for the latest financial year available as at 29 December 2010.

2. The respective trading price-earnings multiple was calculated based on the market capitalisation of the listed issuer as at the Latest Practicable Date divided by the audited consolidated net profit attributable to the equity holders of the listed issuer for the latest financial year available as at the Latest Practicable Date.

3. As at 29 December 2010, Midas International Holdings Limited (stock code: 1172) was a loss situation, therefore it has not been considered in determining the Acquisition PE.

In light of the fact that the Acquisition PE of approximately 10.36 times is much lower than the then prevailing trading price-earnings multiple of the Company of about 63 times, and that all other comparable companies considered by the Directors as referred to above are trading on price-earnings multiples higher than the Acquisition PE as at the date of the Acquisition Agreement, the Board (excluding Mr. Tsoi (who is the Vendor and a director of certain members of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of a member of the Target Group) who had abstained from voting at the relevant Board resolutions) considered that the Acquisition PE is fair and reasonable.

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LETTER FROM THE BOARD

In respect of the issue price of the Consideration Shares, although it represents a discount of approximately 29.78% to the closing price of the Shares as quoted on the Stock Exchange on the Last Trading Day, it is noted that the Share price has surged from the average of the closing prices in September 2010 of approximately HK$4.42 (the “ September Average Price ”) to the average of the closing prices in October 2010 of approximately HK$5.22 (the “ October Average Price ”) and further to the closing price of HK$7.12 on the Last Trading Day. In order to eliminate the effects of any short term fluctuations in share prices on the trading pattern of the Shares on the Stock Exchange, the issue price of HK$5 per Consideration Share represents a premium of approximately 13.12% over the September Average Price and a discount of approximately 4.21% to the October Average Price. In considering the fairness and reasonableness of the issue price of the Consideration Shares, the Company has also taken into consideration that the entire consideration of the Acquisition is to be satisfied solely by the allotment and issue of the Consideration Shares and involving no cash outlay of the Company.

It is noted that the consideration under the Acquisition Agreement was different from that paid by the Vendor when he repurchased the Target from AHL in February 2010. However, given that (i) the basis of determining the relevant consideration by the respective board of the directors of the purchasers under the two transactions are different; (ii) the form and manner of consideration payable to the relevant vendor are different; (iii) the timing of the underlying acquisitions and the then market sentiment for the two transactions are different, the Board (excluding Mr. Tsoi (who is the Vendor and a director of certain members of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of a member of the Target Group) who had abstained from voting at the relevant Board resolutions) considered that the consideration of the Acquisition, including the issue price of the Consideration Shares, is fair and reasonable.

Conditions precedent

The Acquisition Completion is conditional upon the satisfaction or waiver (as the case may be) of the following conditions:

(i) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Consideration Shares;
(ii) the Purchaser being reasonably satisfied with the results of the due diligence review to be conducted on the Target Group;
(iii) the Independent Shareholders passing an ordinary resolution at an extraordinary general meeting of the Company to approve the Acquisition Agreement and the transactions contemplated thereunder (including the issue of the Consideration Shares under a specific mandate);
(iv) the Purchaser obtaining a PRC legal opinion (in a form and substance satisfactory to the Purchaser) from a qualified firm of PRC legal advisers on all members of the Target Group established in the PRC (including their incorporation details, business operation, land use rights, etc.);

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LETTER FROM THE BOARD

(v) the warranties given by the Vendor under the Acquisition Agreement remaining true and accurate in all material respects;
(vi) the Vendor shall and shall procure each of Profitcharm and Sinorise to enter into placing agreement(s) with placing agent(s), on a fully underwritten basis, at least three Business Days before the date of despatch of this circular for the purpose of disposing of a sufficient number of Shares in order to maintain the minimum public float requirement as required by the Listing Rules;
(vii) the Acquisition Agreement and the transactions contemplated thereunder not being deemed as a reverse takeover (as defined under the Listing Rules) by the Stock Exchange; and
(viii) all necessary consents, authorisations, licences, and approvals for or in connection with the Acquisition Agreement and the transactions contemplated thereunder having been obtained.

The Purchaser may at any time waive in writing any of the conditions set out in (ii), (iv) and (v) above. If any of the above conditions precedent have not been satisfied (or waived as the case may be) at or before 12:00 noon on 30 April 2011 or such later date as the parties to the Acquisition Agreement may agree, the Acquisition Agreement shall cease and neither party shall have any obligations and liabilities thereunder save for any antecedent breaches of the terms thereof. As at the Latest Practicable Date, other than conditions (vi) and (vii) above which have been satisfied, none of the conditions set out above had been fulfilled and the Purchaser had no intention to waive any waivable conditions.

Declaration of dividend of the Target prior to Acquisition Completion

Pursuant to the Acquisition Agreement, the Vendor has the right to procure the Target to declare dividends for the year ended 31 December 2010 subject to the condition that such declaration of dividends and such dividends: (i) will not negatively affect the normal operations and continuing business of any members of the Target Group; (ii) does not exceed the distributable net profit as indicated in the audited financial statements of the Target Group for the year ended 31 December 2010 prepared in accordance with the International Financial Reporting Standards; (iii) does not result in the amount of cash balance of the Target Group being less than HK$180,000,000 after such declaration; and (iv) will be made in accordance with the applicable laws, rules and regulations.

Provision of the Corporate Guarantee

Prior to the entering into of the Acquisition Agreement, a member of the Target Group has been providing a corporate guarantee of RMB260 million (equivalent to approximately HK$305.88 million) to a private company wholly and beneficially owned by the Vendor. Pursuant to the terms of the Acquisition Agreement, the Vendor has undertaken to the Purchaser that he shall procure the Corporate Guarantee to be released as soon as possible after the date of the Acquisition Agreement and in any event within six

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LETTER FROM THE BOARD

months after the Acquisition Completion. As it is envisaged that the Corporate Guarantee may continue to exist up to six months after the Acquisition Completion, it is provided that the Vendor shall indemnify the Purchaser or the Target Group and shall keep any of them fully indemnified against all damages, losses, claims, fees and expenses (including but not limited to all damages, losses, claims, fees and expenses arising from any cross default triggered on the Target Group) which may be incurred, suffered or arising from the Corporate Guarantee. It is also provided that a finance charge of RMB1.30 million (equivalent to approximately HK$1.53 million), representing 0.5% on the amount of the guarantee provided, be levied against the private company which benefits from the Corporate Guarantee upon the Acquisition Completion and the Vendor shall and shall procure its associates to pay the aforesaid finance charge within three Business Days from the date of Acquisition Completion. The Board (excluding Mr. Tsoi (who is the Vendor and a director of certain members of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of a member of the Target Group) who had abstained from voting at the relevant Board resolutions) considered that the arrangement regarding the provision of the Corporate Guarantee as described above is on normal commercial terms, and fair and reasonable and is in the interests of the Group and the Shareholders as a whole.

Completion

Acquisition Completion shall take place on the date falling the fifth Business Day after all the conditions precedent mentioned above have been fulfilled (or waived as the case may be).

THE PLACING DOWN ARRANGEMENTS

Background

Assuming 480,000,000 new Shares are issued to the Vendor (or his nominee(s) or person(s) nominated by him) under the Acquisition, Mr. Tsoi and Mr. Cai Xiao Ming, David, together with their respective associates, will be interested in more than 75% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

With a view to restoring the public float of the Company, the Company has been informed by the Vendor that, in conjunction with the entering into of the Acquisition Agreement, Profitcharm and Mr. Tsoi have entered into the First Placing Down Agreement with the First Placee on 29 December 2010 and the PG Placing Down Agreement, the YF Placing Down Agreement and the Further Placing Down Agreement on 29 January 2011. The principal terms of the aforesaid agreements are summarised below.

The First Placing Down Agreement

Date

29 December 2010 (as supplemented on 25 March 2011)

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LETTER FROM THE BOARD

Parties

(i) Ares BCH Holdings, L.P., being the First Placee;
(ii) Profitcharm, being the Placing Down Vendor; and
(iii) Mr. Tsoi Tak, being the Guarantor, to guarantee the due and punctual payment and performance by Profitcharm of its obligations under the First Placing Down Agreement

Mr. Tsoi is the chairman of the Board and a non-executive Director and holds the entire equity interest in the Placing Down Vendor. As at the Latest Practicable Date, the Tsoi’s Family, through the Placing Down Vendor and Sinorise, beneficially owned 150,000,000 Shares, representing 75% of the existing issued share capital of the Company. To the best of the Directors’ knowledge and according to the form of disclosure of interests of the Company as published on the website of the Stock Exchange, the First Placee is 100% controlled by ACOF Asia Management, L.P. which in turn is 100% controlled by Ares Management (Cayman), Ltd. (“ Ares Cayman ”).

As advised by the Vendor based on the further information provided by the First Placee, Ares Cayman is owned by 11 individuals (each of whom holds less than 10% of Ares Cayman) and all of the owners of Ares Cayman are independent from the Group, the Target Group and Mr. Tsoi and, prior to the contemplated investment, had no existing relationship with such parties. The principal business of the First Placee is investment holding in respect of a private equity investment in the Pan-Asian region.

Pursuant to the First Placing Down Agreement, the Other Placee(s) to be identified by the First Placee shall be independent of and not connected with the Company, the Target, the First Placee and any of their respective subsidiaries and associates. For the avoidance of doubt, if any Other Placee took up 10% or more of the issued share capital of the Company, it would be connected to the Company and could not become an Other Placee within the meaning of the First Placing Down Agreement.

Subject of the transaction

Pursuant to the First Placing Down Agreement, the Placing Down Vendor has conditionally agreed to sell and the First Placee has conditionally agreed to acquire the First Placee’s Placing Down Shares, representing not less than 13%, but not more than 26% of the Enlarged Share Capital on a fully diluted basis at First Placing Down Completion. Based on the Enlarged Share Capital of 680,000,000 Shares upon the Acquisition Completion, the First Placee’s Placing Down Shares shall represent not less than 88,400,000 Shares but not more than 176,800,000 Shares.

Consideration for the First Placee’s Placing Down Shares

The consideration for the First Placee’s Placing Down Shares shall be an amount equal to HK$800 million multiplied by a fraction, the numerator of which is the First Placee’s Placing Down Shares and the denominator of which is the Placing Down Shares, which shall be satisfied by the First Placee in cash to the Placing Down Vendor at First Placing Down Completion.

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LETTER FROM THE BOARD

As advised by Mr. Tsoi, the consideration was determined after arm’s length negotiations between the Placing Down Vendor and the First Placee by reference to the amount of Profit Undertaking of not less than HK$410 million as set out under the paragraph headed “Profit Undertaking” below.

Based on the initial consideration of HK$800,000,000 for the Placing Down Shares, assuming to be 176,800,000 Shares as set out above, the Placing Down Price, being approximately HK$4.52, represents:

(i) a discount of approximately 36.52% to the closing price of HK$7.12 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 34.96% to the average of the closing prices of HK$6.95 per Share for the last ten trading days up to and including the Last Trading Day;
(iii) a discount of approximately 33.43% to the average of the closing prices of approximately HK$6.79 per Share for the last 30 trading days up to and including the Last Trading Day;
(iv) a discount of approximately 27.33% to the average of the closing prices of approximately HK$6.22 per Share for the last 60 trading days up to and including the Last Trading Day;
(v) a discount of approximately 46.19% to the closing price of HK$8.40 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(vi) a discount of 9.6% to the issue price of the Consideration Shares of HK$5 per Consideration Share.

As advised by Mr. Tsoi, the Placing Down Price of approximately HK$4.52 per Placing Down Share is arrived after arm’s length negotiation between the Placing Down Vendor and the First Placee and after taking into account of, among other things, the preliminary valuation of the Enlarged Group of approximately HK$3.076 billion (based on a price-earnings multiple of about 7.5 times of the Profit Undertaking, which may be adjusted dependent on the actual 2011 Net Income (as defined below)) and the number of Shares to be in issue as enlarged by the allotment and issue of the Consideration Shares.

Conditions precedent

The obligation of the First Placee to complete the First Placing Down at First Placing Down Completion is subject to the fulfilment, prior to or simultaneously with First Placing Down Completion, of the following conditions, any one or more of which may be waived in writing by the First Placee:

(i) the representations, warranties and undertakings given by the Placing Down Vendor and the Guarantor under the First Placing Down Agreement remaining true and correct in all material respects on the date of First Placing Down Completion;

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(ii) each of the Placing Down Vendor and the Guarantor having performed and complied in all respects with all of its agreements and obligations contained in the First Placing Down Agreement to which it/he is a party that are required to be performed or complied with by it/him on or before First Placing Down Completion;
(iii) each of the Placing Down Vendor, the Company and the Target having duly attended to and carried out all corporate procedures that are required under the laws of its place of incorporation or establishment to effect its execution, delivery and performance of the First Placing Down Agreement and each transaction document relating to the Acquisition to which it is a party and the transactions contemplated thereby and having provided copies of all resolutions (and all attachments thereto) described below to the First Placee which corporate procedures shall include:
(a) approval by the Board and the Shareholders, each to the extent required by the applicable law and charter documents of the Company, of the execution, delivery and performance by the Company of the First Placing Down Agreement and each transaction document relating to the Acquisition to which it is a party, and all the transactions contemplated thereby;
(b) approval by the board of directors and the shareholder(s) of the Placing Down Vendor, to the extent required by the applicable law or its charter documents, of the execution, delivery and performance by the Placing Down Vendor of the First Placing Down Agreement and all transactions contemplated thereby; and
(c) approval by the board of directors and the shareholder(s) of the Target, to the extent required by the applicable law or its charter documents, of the execution, delivery and performance by the Target of each transaction document relating to the Acquisition to which it is a party and all transactions contemplated thereby.
(iv) all consents and approvals of, notices to and filings or registrations with any governmental authority or any other person required pursuant to any applicable law or regulation of any governmental authority, or pursuant to any contract binding on the Placing Down Vendor, any member of the Group or any member of the Target Group or whereby their respective assets are subject or bound, to consummate the transactions contemplated under the First Placing Down Agreement and the Acquisition (to the extent that such transactions are to be completed on or prior to the date of First Placing Down Completion), having been obtained or made and copies thereof having been provided to the First Placee;

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LETTER FROM THE BOARD

(v) one nominee of the First Placee having been duly elected to the Board and each committee of the Board as a non-executive director, effective upon First Placing Down Completion;
(vi) there being no governmental authority or other person that has:
(a) (A) instituted or threatened any legal, arbitral or administrative proceedings against the Placing Down Vendor, the Company, any other member of the Group or any member of the Target Group to restrain or prohibit the First Placing Down, the Acquisition or any other transaction contemplated under the First Placing Down Agreement or (B) requested any information in connection with the possible institution of any such proceedings or inquiry; provided that if any governmental authority or other person has instituted or threatened, or requested any information in connection with the possible institution of, any such inquiry, the Placing Down Vendor, the Company, the relevant member of the Group and the relevant member of the Target Group (as applicable) shall have satisfied the regulatory requirements for such inquiry; or
(b) proposed or enacted any law which would prohibit, materially restrict, impact or delay implementation of the transactions contemplated under the First Placing Down Agreement, the Acquisition or the operation of any member of the Group or any member of the Target Group or the operation of any member of the Group after First Placing Down Completion as contemplated in the First Placing Down Agreement;
(vii) there having been since the date of the First Placing Down Agreement, in the opinion of the First Placee, (a) no material adverse change in, and no change in circumstances that has a material adverse impact on the future, business, operations, properties, financial position (including any material increase in provisions), earnings, condition or prospects of the Group or the Target Group, taken as a whole, and (b) no material change in any relevant laws, regulations or policies in any of the jurisdictions or sectors in which any member of the Group or any member of the Target Group does business (whether coming into effect prior to, on or after the date of the First Placing Down Completion) that could materially and adversely affect the Group or the Target Group, taken as a whole;
(viii) the Shares continuing to be listed for trading on Stock Exchange and there having been no suspension of trading of the Shares on the Stock Exchange of more than five consecutive trading days at any time prior to the First Placing Down Completion other than in connection with the Acquisition (including any restoration of public float of the Company in compliance with the requirement under the Listing Rules);

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LETTER FROM THE BOARD

(ix) all necessary waivers or approvals from the Stock Exchange or, if applicable, the Securities and Futures Commission of Hong Kong for the Acquisition and/or for the sale of the Placing Down Shares by the Placing Down Vendor (including the public float waiver, if necessary) having been obtained, and the Acquisition having been completed on terms and conditions satisfactory to the First Placee;
(x) if the Company or the Target declares dividends for the year ending 31 December 2010, the amount of such dividends: (a) does not exceed the distributable net profit of the Company or the Target (as the case may be) as indicated in the audited financial statements of the Company or the audited financial statements of the Target (as the case may be) prepared in accordance with the International Financial Reporting Standards for the year ending 31 December 2010, (b) will not negatively affect the normal operations of the Company or the Target (as the case may be) and (c) does not result in the amount of cash balance of the Group and the Target Group (as the case may be) being less than HK$180,000,000;
(xi) the Placing Down Vendor having delivered to the First Placee (a) a certificate certifying that the conditions set forth in paragraphs (i) through (x) above have been satisfied and (b) such other evidence of the satisfaction of such conditions as the First Placee may request;
(xii) the First Placing Down Agreement having been executed by each party thereto other than the First Placee and delivered to the First Placee;
(xiii) the Placing Down Vendor having delivered evidence to the satisfaction of the First Placee of the appointment of a process agent in accordance with the First Placing Down Agreement;
(xiv) the First Placee having received legal opinions from the Company’s Cayman legal counsel, dated as of the date of the First Placing Down Completion, in form and substance to the satisfaction of the First Placee;
(xv) the First Placee having received legal opinions from the Placing Down Vendor’s BVI legal counsel, dated as of the date of the First Placing Down Completion, in form and substance to the satisfaction of the First Placee; and
(xvi) the First Placee and its investment committee being satisfied with the results of their due diligence investigation of the assets, liabilities, business, financial and legal matters, references and background checks, if any, relating to the Group and the Target Group.

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LETTER FROM THE BOARD

As advised by Mr. Tsoi, as at the Latest Practicable Date, condition (xii) above had been fulfilled.

The Placing Down Vendor’s obligation to complete the First Placing Down at First Placing Down Completion is subject to the fulfillment, prior to or simultaneously with First Placing Down Completion, of the following conditions, any one or more of which may be waived in writing by the Placing Down Vendor:

(i) the representations, warranties and undertakings given by the First Placee under the First Placing Down Agreement remaining true and correct in all material respects on the date of First Placing Down Completion;
(ii) the First Placing Down Agreement having been duly executed and delivered by the First Placee to the Placing Down Vendor;
(iii) the First Placee having performed and complied in all respects with all of its agreements and obligations contained in the First Placing Down Agreement that are required to be performed or complied with by it on or before First Placing Down Completion;
(iv) there being no governmental authority or other person that has:
(a) (A) instituted or threatened any legal, arbitral or administrative proceedings against the First Placee, the Company, any other member of the Group or any member of the Target Group to restrain or prohibit the First Placing Down, the Acquisition or any other transaction contemplated under the First Placing Down Agreement or (B) requested any information in connection with the possible institution of any such proceedings or inquiry; provided that if any governmental authority or other person has instituted or threatened, or requested any information in connection with the possible institution of, any such inquiry, the First Placee, the Company, the relevant member of the Group and the relevant member of the Target Group (as applicable) shall have satisfied the regulatory requirements for such inquiry; or
(b) proposed or enacted any law which would prohibit, materially restrict, impact or delay implementation of the transactions contemplated under the First Placing Down Agreement, the Acquisition or the operation of any member of the Group or any member of the Target Group or the operation of any member of the Group after First Placing Down Completion as contemplated in the First Placing Down Agreement;
(v) the Acquisition having been completed; and
(vi) the sale of the Other Placee’s Placing Down Shares having occurred simultaneously.

As advised by Mr. Tsoi, as at the Latest Practicable Date, condition (ii) above had been fulfilled.

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LETTER FROM THE BOARD

Completion

Completion of the First Placing Down Agreement shall take place on the same Business Day after all the conditions precedent set above are satisfied or waived in writing (as the case may be), or at such other time and place as the parties to the First Placing Down Agreement may agree or as may be determined.

If any condition set above shall not have been fulfilled or waived in writing by 30 April 2011, the First Placee, in the case of a failure of any of the conditions above by the Placing Down Vendor or the Guarantor, and the Placing Down Vendor, in the case of a failure of any of the conditions set above in relation to the First Placee, may, at their respective option, without prejudice to their respective rights hereunder and in accordance with applicable law (i) defer the First Placing Down Completion to a later date; or (ii) so far as practicable, proceed to First Placing Down Completion; or (iii) terminate the First Placing Down Agreement in accordance with the terms thereof.

Profit Undertaking

Each of the Placing Down Vendor and Mr. Tsoi has warranted to the First Placee that the net profit after tax of the Company as indicated in the pro-forma combined financial statements of the Company for the year ending 31 December 2011 prepared as if (i) the Acquisition had taken place on 1 January 2011; (ii) if other companies or equity interests are acquired by the Company or the Target or their respective subsidiaries, including the results of such companies or the contribution from such equity interests from the actual date of acquisition; (iii) the associated acquisition costs are excluded; and (iv) after deducting any income attributable to minority interests (the “ 2011 Net Income ”) shall be no less than HK$410 million. For the avoidance of doubt, it was further stated in the First Placing Down Agreement that the 2011 Net Income shall include the profit contribution from (i) the Company, (ii) the Target (as prepared on the aforesaid basis), (iii) if there is any acquisition of the minority interests of a member of the Target, contribution from such acquisition from the actual date of acquisition, and (iv) if any other companies or equity interests are acquired by the Company or the Target or any of their respective subsidiaries, contribution from such acquired entities or equity interests from the actual date of acquisition.

If the 2011 Net Income is lower than HK$410 million, the Placing Down Vendor shall refund to the First Placee in cash an amount calculated as follows:

Cash amount = HK$3,076,000,000 x P% x (HK$410,000,000 – 2011 Net Income) / HK$410,000,000

where P% = the First Placee’s shareholding percentage in the Company upon First Placing Down Completion calculated on a fully diluted basis

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LETTER FROM THE BOARD

Pursuant to the First Placing Down Agreement, within 30 days after the release of the audited financial statements of the Company for the year ending 31 December 2011, prepared by the Then Auditor, the parties to the First Placing Down Agreement shall cause the Then Auditor to determine the 2011 Net Income. Any refund in cash as referred to above shall be made by the Placing Down Vendor to the First Placee within 14 days after the determination of the 2011 Net Income. There is no restriction whatsoever on either the Company or the Target for proposing any other acquisition(s) or corporate activities for the purpose of meeting the Profit Undertaking either before or after the First Placing Down Completion.

The Profit Undertaking was given by Mr. Tsoi and Profitcharm in their capacity as vendors of the Placing Down Shares in favour of the First Placee as a commercial term of the First Placing Down Agreement. The Company and the Directors consider that the Profit Undertaking is not an anticipation or estimation of future profit of the Company and/or the Enlarged Group as made by any of them, and no representation or warranty whatsoever is given by the Company or the Directors under the Acquisition Agreement or in this circular as to the achievability or possibility of such Profit Undertaking.

Concurrently on the date of the entering into of the First Placing Down Agreement, the First Placee, Mr. Tsoi and Profitcharm have also entered into a non-legally binding memorandum of understanding dated 29 December 2010 in relation to the proposed entering into of an escrow agreement on or before the Acquisition Completion with an independent escrow agent. Pursuant to the memorandum of understanding, Profitcharm will, and Mr. Tsoi will cause Profitcharm to place with the escrow agent 30,000,000 Shares owned by Profitcharm simultaneously with the Acquisition Completion for the purpose of securing the rights of the First Placee in the event that Profitcharm or Mr. Tsoi breaches the Profit Undertaking. If Profitcharm or Mr. Tsoi breaches the Profit Undertaking, the appointed escrow agent will sell a number of such escrowed Shares that will generate an amount of proceeds and pay to the First Placee. As at the Latest Practicable Date, as informed by Mr. Tsoi, the independent escrow agent had not been identified and no legally binding agreement had been entered into by Profitcharm or Mr. Tsoi in respect of the aforesaid escrow arrangement.

Right of appointment of director

The Placing Down Vendor will ensure that the First Placee will have the right to appoint one non-executive Director to the Board and each committee of the Board for so long as the First Placee and/or its affiliates hold not less than 25% of the First Placee’s Placing Down Shares. The First Placee shall procure that any Director nominated by it to the Board and each committee of the Board shall resign with no claims against the Company when the First Placee and/or its affiliates hold less than 25% of the First Placee’s Placing Down Shares.

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LETTER FROM THE BOARD

Restrictive actions

For so long as the First Placee and/or its affiliates hold not less than 2.5% of the total issued and outstanding share capital of the Company on a fully diluted basis (for this purpose, without regard to the reduction of the First Placee’s and/or its affiliates’ ownership percentage in the Company resulting from the issuance of any equity securities by the Company after First Placing Down Completion), neither the Guarantor nor the Placing Down Vendor shall propose, approve or vote for any resolutions relating to: (i) change of the business scope of or enter into a new line of business of the Group; (ii) the listing of any member of the Group on any stock exchange; (iii) dissolve, liquidate, reorganize or restructure or delist the Company from Stock Exchange; or (iv) merge, amalgamate or consolidate with, or acquire, any other entity if the members of the relevant member of the Group do not retain at least a majority of the voting power of the surviving entity.

Other Placee’s Placing Down Shares

Pursuant to the First Placing Down Agreement, as soon as practicable after the date of the First Placing Down Agreement and in any event no later than three Business Days prior to the date of despatch of this circular, the First Placee shall (i) notify the Placing Down Vendor and the Guarantor the identity of the Other Placee(s) and the percentage of the Placing Down Shares to be purchased by each of the Other Placee(s), and (ii) use its commercially reasonable efforts to procure the Other Placee(s) to enter into legally binding share purchase agreement(s) in a form substantially the same as the First Placing Down Agreement (except for certain clauses that are not applicable to the Other Placee(s)) with the Placing Down Vendor and the Guarantor for the purchase of the relevant Other Placee’s Placing Down Shares at the same price per Share and simultaneously with the First Placee’s purchase of the relevant Placing Down Shares under the First Placing Down Agreement. For the avoidance of doubt, the First Placee’s Placing Down Shares shall be reduced by the aggregate number of the Other Placee’s Placing Down Shares, provided that the First Placee’s Placing Down Shares shall represent not less than 13% of the total issued and outstanding share capital of the Company on a fully diluted basis at the time of First Placing Down Completion.

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LETTER FROM THE BOARD

Subsequent to the date of the First Placing Down Agreement, the First Placee has identified some Other Placees and the PG Placing Down Agreement and YF Placing Down Agreement were entered into on 29 January 2011 (as supplemented on 25 March 2011), the key terms of which are set out as follows:

The PG Placing Down Agreement The YF Placing Down Agreement

Parties (i) Profitcharm, being the vendor;
(i) Profitcharm, being the vendor;
(ii) Mr. Tsoi, being the guarantor, (ii) Mr. Tsoi, being the guarantor, to guarantee the due and to guarantee the due and punctual payment and punctual payment and performance by Profitcharm performance by Profitcharm of its obligations under the of its obligations under the YF PG Placing Down Agreement; Placing Down Agreement; and
(iii) Partners Group Private Equity (Master Fund), LLC (“ PGPE ”), being one of the Other Placees; and
(iii) YF BCH Investment Limited (“ YF Investment ”), being one of the Other Placees
(iv) Partners Group Access 336 L.P. (“ PGA ”), being one of the Other Placees
As advised by the Vendor based on the further information provided by the First Placee, PGPE is a private equity investment fund and the investment adviser of which is Partners Group (USA) Inc., a registered investment adviser under the US Securities and Exchange Commission. The interests in PGPE are owned by various shareholders, who are the ultimate beneficial owners of PGPE. Each of the individual shareholders, PGPE, and Partners Group (USA) Inc. are third parties who are independent from the Group, the Target Group and Mr. Tsoi and, prior to the contemplated investment, had no existing relationship with such parties. As advised by the Vendor based on the further information provided by the First Placee, PGA is a special purpose vehicle formed by Partners Group Management (Scotland) Ltd.

As advised by the Vendor based on the further information provided by the First Placee, YF Investment is a special purpose investment vehicle, formed by Yunfeng Fund, L.P. Yunfeng Investment GP, Ltd. is the general partner of Yunfeng Investment, L.P., which is the general partner of Yunfeng Fund, L.P.. The shares of Yunfeng Investment GP, Ltd. are owned by various individual shareholders who are the ultimate beneficial owners of YF Investment. Each of the individual shareholders, Yunfeng Investment GP, Ltd., Yunfeng Investment, L.P., Yunfeng Fund, L.P., YF Investment are all third parties who are independent from the Group, the Target Group and Mr. Tsoi and, prior to the contemplated investment, had no existing relationship with such parties.

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LETTER FROM THE BOARD

The PG Placing Down Agreement

The YF Placing Down Agreement

The interests in PGA are owned by various shareholders, who are the ultimate beneficial owners of PGA. Each of the individual shareholders, PGA and Partners Group Management (Scotland) Ltd are third parties who are independent from the Group, the Target Group and Mr. Tsoi and, prior to the contemplated investment, had no existing relationship with such parties.

Number of (i) PGPE: 0.91% of the Enlarged Placing Share Capital on a fully Down diluted basis at the time of Shares completion of such placing (representing 6,188,000 Shares based on the Enlarged Share Capital of the Company of 680,000,000 Shares upon the Acquisition Completion); and

5.05% of the Enlarged Share Capital on a fully diluted basis at the time of completion of such placing (representing 34,340,000 Shares based on the Enlarged Share Capital of 680,000,000 Shares upon the Acquisition Completion)

(ii) PGA: 6.66% of the Enlarged Share Capital on a fully diluted basis at the time of completion of such placing (representing 45,288,000 Shares based on the Enlarged Share Capital of 680,000,000 Shares upon the Acquisition Completion)
Consideration HK$233,000,000, of which HK$155,339,806 HK$28,053,200 shall be payable by PGPE and HK$204,946,800 shall be payable by PGA
Price approximately HK$4.52 per Placing approximately HK$4.52 per Placing Down Share Down Share

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LETTER FROM THE BOARD

The PG Placing Down Agreement

Profit each of PGPE and PGA is entitled to Undertaking the Profit Undertaking as described and in the paragraph headed “Profit consideration Undertaking” above and the adjustment compensation for each of PGPE and PGA shall be based on their respective shareholding percentage in the Company upon Placing Down Completion calculated on a fully diluted basis

Conditions the conditions precedent to precedent completion of the PG Placing Down Agreement are substantially the same as those for the First Placing Down Agreement except for (i) the exclusion of a condition precedent in relation to one nominee of the First Placee having been duly elected to the Board and each committee of the Board as a non-executive director, effective upon First Placing Down Completion; and (ii) the inclusion of a condition precedent in relation to the closing with respect to the First Placing Down Shares to be sold to the First Placee having occurred simultaneously, the fulfillment of which may be waived in writing by PGPE or PGA (as the case may be)
Completion completion of the PG Placing Down Agreement shall take place on the same Business Day after all the conditions precedent set above are satisfied or waived in writing (as the case may be), or at such other time and place as the parties to the PG Placing Down Agreement may agree or as may be determined

The YF Placing Down Agreement

YF Investment is entitled to the Profit Undertaking as described in the paragraph headed “Profit Undertaking” above and the compensation shall be based on its shareholding percentage in the Company upon Placing Down Completion calculated on a fully diluted basis

the conditions precedent to completion of the YF Placing Down Agreement are substantially the same as those for the First Placing Down Agreement except for (i) the exclusion of a condition precedent in relation to one nominee of the First Placee having been duly elected to the Board and each committee of the Board as a non-executive director, effective upon First Placing Down Completion; and (ii) the inclusion of a condition precedent in relation to the closing with respect to the First Placing Down Shares to be sold to the First Placee having occurred simultaneously, the fulfillment of which may be waived in writing by YF Investment

completion of the YF Placing Down Agreement shall take place on the same Business Day after all the conditions precedent set above are satisfied or waived in writing (as the case may be), or at such other time and place as the parties to the YF Placing Down Agreement may agree or as may be determined

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LETTER FROM THE BOARD

As advised by the Vendor based on the information provided by the First Placee, each of the First Placee, PGPE, PGA and YF Investment is independent to each other. The terms and conditions of the PG Placing Down Agreement and the YF Placing Down Agreement are substantially the same as the First Placing Down Agreement except that the Other Placees shall not be entitled to the right to nominate a non-executive Director and the restrictive actions as described above. Also, completion of each of the PG Placing Down Agreement and the YF Placing Down Agreement is inter-conditional with the First Placing Down Completion.

Based on the aforesaid, the First Placee shall acquire 13.38% of the Enlarged Share Capital and each of PGPE, PGA and YF Investment, being the Other Placees, shall acquire approximately 0.91%, 6.66% and 5.05% of the Enlarged Share Capital respectively. As confirmed by the First Placee, no Other Placees will be further identified.

Further Placing Down Agreement

Based on the current shareholding structure of the Company, and the First Placee will take up 13.38% of the Enlarged Share Capital and procure Other Placee(s) who are Independent Third Party(ies) to the Company and its connected persons to take up the remaining 12.62% as public Shareholders, Mr. Tsoi and the Placing Down Vendor will need to effect a further placing down of approximately 5.03% of the Enlarged Share Capital on or before the Acquisition Completion, in order to maintain the minimum public float requirement.

On 29 January 2011, Mr. Tsoi entered in the Further Placing Down Agreement, pursuant to which Mr. Tsoi has agreed to sell, through the Placing Agent, not less than 31,600,000 Further Placing Down Shares (representing approximately 4.65% of the Enlarged Share Capital) but not more than 120,000,000 Further Placing Down Shares (representing approximately 17.65% of the Enlarged Share Capital), on a best effort basis, to not less than six placees who and whose ultimate beneficial owners shall be Independent Third Parties at a price of HK$4.52 per Further Placing Down Share. No profit undertaking would be given by Mr. Tsoi to the placees procured by the Placing Agent. The Placing Agent has agreed in the Further Placing Down Agreement that the Further Placing Down Shares shall be conducted on a fully underwritten basis when Mr. Tsoi notifies the Placing Agent the actual number of the Further Placing Down Shares on a date at least three Business Days prior to the date of this circular. On 22 March 2011, Mr. Tsoi has notified the Placing Agent that the actual number of the Further Placing Down Shares shall be 34,184,000 Shares (representing approximately 5.03% of the Enlarged Share Capital) which shall be placed by the Placing Agent on a fully underwritten basis.

According to the Further Placing Down Agreement, the Placing Agent has confirmed that each of the Placing Agent and its ultimate beneficial owners is an Independent Third Party and it shall ensure (and shall procure its sub-placing agent(s), if any, to ensure) that each of the placees procured by the Placing Agent (or the sub-placing agent(s), if applicable): (i) is not a connected person of the Company; (ii) shall be third parties independent of and not acting in concert (as defined in the Hong Kong Code on Takeovers and Mergers) with (a) Mr. Tsoi; and (b) the Company or any of its subsidiaries; or (c) any director, chief executive or substantial shareholder of the Company or any of its subsidiaries or any of their respective associates; and (iii) shall, together with his/her/its associates, shall not become a substantial Shareholder as a result of the Further Placing Down.

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LETTER FROM THE BOARD

Completion of the Further Placing Down Agreement is conditional on the Acquisition Completion having taken place, and shall take place on the same Business Day when the Consideration Shares are issued upon Acquisition Completion (or such other time and date as the parties hereto may agree in writing).

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding structures of the Company (i) as at the Latest Practicable Date; (ii) for illustration purpose only, assuming the Consideration Shares are issued to Mr. Tsoi (or his nominees(s) or any person(s) nominated by him) and without any placing down arrangements; and (iii) immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down, all assuming that there are no other changes in the shareholding structure of the Company:

Shareholders Tsoi’s Family First Placee Other Placees – PGPE – PGA – YF Investment Existing public Shareholders Placee(s) under the Further Placing Down Total Public Shareholders	As at the Latest Practicable Date Number of Shares % 150,000,000 75.00 – – – – – – – – 50,000,000 25.00 – – 200,000,000 100.00 50,000,000 25.00	Assuming the Consideration Shares are issued to Mr. Tsoi without any placing down arrangements (Note) Number of Shares Appro- ximate % 630,000,000 92.65 – – – – – – – – 50,000,000 7.35 – – 680,000,000 100.00 50,000,000 7.35	Immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down Number of Shares Appro- ximate % 419,016,000 61.62 90,984,000 13.38 6,188,000 0.91 45,288,000 6.66 34,340,000 5.05 50,000,000 7.35 34,184,000 5.03 680,000,000 100.00 170,000,000 25.00	Immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down Number of Shares Appro- ximate % 419,016,000 61.62 90,984,000 13.38 6,188,000 0.91 45,288,000 6.66 34,340,000 5.05 50,000,000 7.35 34,184,000 5.03 680,000,000 100.00 170,000,000 25.00
				100.00

				25.00

Note: This column is for illustration purpose only, as the Company would not be able to fulfill the public float requirement under the Listing Rules.

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LETTER FROM THE BOARD

It is expected that the Placing Down Completion and completion of the Further Placing Down shall take place on the same Business Day as the Acquisition Completion and it is also contemplated that any further placing down arrangement will take place on the same date of Acquisition Completion for the purpose of restoring sufficient public float of the Company before commencement of the next trading day after the Acquisition Completion. The Company is mindful of its obligation to comply with the public float requirement under the Listing Rules. The Acquisition, the placing down arrangements under the First Placing Down Agreement, the PG Placing Down Agreement, the YF Placing Down Agreement and the Further Placing Down Agreement will not result in a change of control of the Company.

INFORMATION ON THE TARGET GROUP AND ITS ASSOCIATED COMPANY

Business of the Target Group

The Target Group is principally engaged in the printing of cigarette packages, which also engaged in the manufacturing of laminated paper. A majority of the customers of the Target Group for the cigarette package printing business is the state-owned cigarette manufacturers (or their related companies) in the PRC. The Company considers that the Target Group is one of the leading cigarette package printing groups in the PRC with relatively strong presence in various locations throughout the PRC. For the nine months ended 30 September 2010, the Target Group was serving 10 state-owned cigarette manufacturers (or their related companies), out of a total of 18 state-owned cigarette manufacturers to the best knowledge of the Company whose products cover more than for over 20 cigarette brands in the PRC.

The Target Group and its associated company offer full production solutions from assisting the designing of the cigarette packages, procurement of raw materials to after-sales services to all of their customers. The Target Group and its associated company have been working closely with, and providing value-added services to, the customers by tailor-making and assisting in the designing of high quality cigarette packages that highlight and symbolise the class, position, taste and uniqueness of their respective brands of cigarettes, which may include, for instance, printing packages with holographic and/or laser texts and images to distinguish the cigarette packages from counterfeit products.

Group structure

The Target, wholly and beneficially owned by Mr. Tsoi as at the Latest Practicable Date, is an investment holding company incorporated in the BVI on 29 January 1999. Through its subsidiaries and an associated company, the Target is principally engaged in the printing of cigarette packages.

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LETTER FROM THE BOARD

The group structure of the Target Group as at the Latest Practicable Date was as follows:

==> picture [380 x 265] intentionally omitted <==

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

The Target
(Note 1)
100%
Brilliant Circle Printing and Packaging Limited
(Note 2)
100%
BCD
(Note 3)
56.24% 35% 100% 76.90% 80%
Shenzhen
BB CD XF ZT
Guilian
Jinhuangshan Goldroc Jinfeihuan Antong
Printing Ltd.
(Note 4) (Note 5) (Note 8) (Note 9)
(Note 6)
99.31%
SZ
Kecai
(Note 7)
----- End of picture text -----*

Notes:

1. The principal business of the Target is investment holding. The Target was wholly and beneficially owned by the Vendor prior to 2007 when the Vendor disposed of the Target to AHL, whose issued shares are listed on the Stock Exchange, in 2007 at a consideration of HK$1,555,500,000, involving the allotment and issue of 200,000,000 shares of AHL and cash of HK$155,500,000. On 25 February 2010, the Vendor repurchased the Target from AHL at a consideration of HK$2,048,000,000 involving the repurchase of 166,814,000 shares of AHL and cash of HK$880,302,000. Since then, the entire issued share capital of the Target was held by the Vendor. For details of the relevant disposal and repurchase of the Target by the Vendor, please refer to the circulars issued by AHL dated 7 September 2007, 21 October 2009 and 20 January 2010.

The principal business of Brilliant Circle Printing and Packaging Limited is investment holding. The issued share capital of Brilliant Circle Printing and Packaging Limited is held as to 94% by the Target and 6% by Union Virtue International Limited, a wholly-owned subsidiary of the Target.

3. The principal business of BCD is investment holding and trading of machines, paper and spare parts.

4. The principal business of BB Jinhuangshan is printing of cigarette packages.

5. CD Goldroc is an associated company of the Target and its principal business is printing of cigarette packages.

6. The principal business of Shenzhen Guilian Printing Ltd. is printing of packages and trading of paper, package materials, hologram, aluminium foils, machine and related parts.

7. The principal business of SZ Kecai is printing of cigarette packages.

8. The principal business of XF Jinfeihuan is printing of cigarette packages.

9. The principal business of ZT Antong is manufacturing of laminated papers.

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LETTER FROM THE BOARD

History and development

The Target Group was founded by Mr. Tsoi in 1990 when BCD was incorporated and commenced its trading business. The Target Group was first engaged in the printing and packaging industry by establishing Shenzhen Guilian Printing Ltd., which was then a joint venture, in 1990. In 1992, the first cigarette package printing order was obtained from 長沙卷煙廠 (Changsha Cigarette Factory*). Since then, the Target Group has grown rapidly with primary focus on cigarette package printing.

In 1995, the Target Group, through CD Goldroc which was established in Hunan province, PRC, as an associated company of the Target Group, began focusing on the business of printing cigarette packages for large state-owned cigarette manufacturers in the PRC.

With the success of CD Goldroc, the Target Group developed its own business in printing cigarette packages for cigarette manufacturers by establishing BB Jinhuangshan in Anhui province, PRC, in 1997 and XF Jinfeihuan in Hubei province, the PRC, in 2000. 常德金芙蓉鋁箔包裝有限公司 (Chengde Jinfurong Aluminium Foil Packaging Materials Co., Ltd.) (“ CD Jinfurong* ”) and ZT Antong was also established in Hunan Province, the PRC, in 1996 and Yunnan province, the PRC, in 1999 respectively to commence manufacturing laminated papers for cigarette manufacturers and cigarette package manufacturers. In 2003, SZ Kecai was established in Shenzhen as an independent cigarette package printer specifically focusing on printing packages for premium cigarette brands to further expand the customer base for cigarette packages. SZ Kecai is also the research and development base of the Target Group specializing in the development of production technologies for cigarette packages and also the creation of new designs for cigarette packages. In 2008, in order to devote more resources for the development of the printing of cigarette packages businesses, the Target Group decided not to renew the joint venture contract of CD Jinfurong. As at the Latest Practicable Date, the Target Group has developed and registered patents and details of which are set out in the paragraph headed “Patents” below.

In 2007, there had been negotiation between another group of cigarette packages manufacturer, namely AHL, and Mr. Tsoi for the integration of the Target Group to become the largest cigarette package printer in PRC to meet with the ongoing consolidation in the PRC cigarette market and to create synergies to the benefits of both the Target Group and AHL. Taking into account the consideration receivable from AHL which involves both cash and shares of AHL and the possible benefits to the future development of the Target Group, Mr. Tsoi decided to sell the Target to AHL in 2007. However, the results of the Target Group and CD Goldroc in 2009 were not to the satisfaction of AHL and there was real risk to AHL at the material time that the licence of CD Goldroc could not be renewed when it was due to expire in 2010. Being a shareholder of AHL as a result of the merger of the Target Group into AHL in 2007, Mr. Tsoi was also disappointed about the performance of the shares of AHL. As such, Mr. Tsoi agreed to repurchase the Target from AHL by payment of cash and surrendering all the shares of AHL held by Mr. Tsoi to AHL for cancellation. Since February 2010, the Target has been owned by Mr. Tsoi. After the Target has been acquired by Mr. Tsoi, there is greater flexibility for Mr. Tsoi to manage and control the Target Group including negotiation with the joint venture partners of CD Goldroc for the renewal of its licence. With the introduction of 深圳市鶴韻投資有限公司 (Changde City He Yun Investments Co., Ltd.*) as strategic investor in CD Goldroc in September 2010 and the assistance of the Target Group for the technological development of CD Goldroc, the licence of CD Goldroc was extended to April 2013.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Target Group has business and production bases in the provinces of Anhui, Hubei, Yunnan and Guangdong with a total staff of over 1,200. The Target Group is also accredited numerous certifications and awards since its establishment. Further details of BB Jinhuangshan, SZ Kecai, XF Jinfeihuan, ZT Antong and CD Goldroc are set out in the paragraph headed “Information on the operating companies of the Target Group” below.

The following table summarises the key milestones of the Target Group:

1990	–	BCD was incorporated.
	–	Shenzhen Guilian Printing Ltd. was established.
1992	–	The first cigarette package printing order was obtained.
1995	–	CD Goldroc was established.
1997	–	BB Jinhuangshan was established.
1999	–	ZT Antong was established.
2000	–	XF Jinfeihuan was established.
2003	–	SZ Kecai was established.
2005	–	BB Jinhuangshan was awarded Top 100 printing enterprises of
		China.

2007 – SZ Kecai was awarded the gold award of top 10 cigarette package in the PRC.
2008 – BB Jinhuangshan was awarded Top 100 printing enterprises of China.
SZ Kecai was awarded the award of excellence in the 1st China Premier Gravure Printing Competition.
2009 – SZ Kecai was awarded the gold medal in the 7th China Quality Assessment of Packaging & Printing Products.
XF Jinfeihuan was awarded Top 50 enterprises of Hubei printing industry.
2010 – SZ Kecai was awarded Top 500 enterprises in Guangdong province.
SZ Kecai was awarded the award of excellence in the 2nd China Premier Gravure Printing Competition.
SZ Kecai was awarded the silver medal in the 8th China Quality Assessment of Packaging & Printing Products.
XF Jinfeihuang was awarded Top 50 enterprises of Hubei printing industry.
BB Jinhuangshan was awarded the silver award in the 2nd China Premier Gravure Printing Competition.

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LETTER FROM THE BOARD

Competitive advantages

Well established production facilities

The Target Group currently has three operating companies, namely BB Jinhuangshan, SZ Kecai and XF Jinfeihuan, and an associated company, namely CD Goldroc (in which the Target is the single largest shareholder) engaging in the business of printing of cigarette packages. Each of BB Jinhuangshan, SZ Kecai, XF Jinfeihuan and CD Goldroc has established its own production facilities in Anhui, Guangdong, Hubei and Hunan Province, the PRC respectively. In 2009, the annual production capacity of BB Jinhuangshan, SZ Kecai, XF Jinfeihuan, and together with CD Goldroc, amounted to, in aggregate, approximately five million cases of cigarette packages. Moreover, the Company considers that such production facilities have been equipped with advanced machinery and equipment to maintain the efficiency of production and quality of the products. According to National Bureau of Statistics of China, the total output of the total cigarette production in the PRC for the year ended 31 December 2009 was approximately 45.8 million cases of cigarettes. The Target Group has been equipped to capture the development potential of the cigarette package printing business in the PRC.

Experienced management team

The senior management team of the Target Group is experienced in the cigarette package industry in the PRC and has an average of over ten years of experience in the cigarette package industry, and, therefore, has accumulated extensive experience and profound knowledge on the PRC cigarette industry. Furthermore, Mr. Tsoi, who is the founder and chairman of the Target Group, has extensive experience in the printing industry of over 20 years. The experience, knowledge and relationship of the senior management team of the Target Group enabled the Target Group to secure certain large state-owned enterprises as their customers and form joint ventures with state-owned cigarette manufacturers. The Company intends to retain the senior management team of the Target Group subsequent to the Acquisition Completion and considers that the senior management team of the Target Group will enable the Target Group to keep its competitive advantages over its competitors in terms of (i) understanding and satisfying the needs of the cigarette manufacturers; (ii) trust-worthiness and reputation; and (iii) sales and marketing network.

Established business relationship with customers

The Target Group has established long business relationships with its customers, which are fostered through years of continuous operation. The Target Group has maintained business relationship with seven out of the top ten customers for the nine months ended 30 September 2010 for over four years. The Company is of the view that the long established relationships create an entry barrier for other competitors in the market and the Target Group has accumulated valuable experience in coping with market changes and keeping abreast of latest market developments. More importantly, the orders made by the top customers are usually stable and in large quantity which secure a stable source of sales orders for the Target Group and allow the Target Group to enjoy economies of scale in raw materials procurement and production. Moreover, for the nine months ended 30

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LETTER FROM THE BOARD

September 2010, the customers of the Target Group and its associated company include 10 state-owned cigarette manufacturers whose products cover more than 20 brands of cigarettes in the PRC. Given the recent ongoing consolidation direction of the tobacco industry and the limited number of cigarette manufacturers in the PRC, the Company considers that the established business relationships fostered by the Target Group and its associated company serve as a contributing factor for the growth of the cigarette package printing business.

Product quality

The Target Group considers that the high quality of its products has been another factor for its success over the past years. The Target Group has been putting significant emphasis on product quality and has adopted comprehensive quality control measures throughout the production process. Apart from quality control measures on incoming raw materials (such as papers, inks, aluminium foils, metallised films and laser film) and in various stages of production process, all products of the Target Group must undergo full and final inspection before packing and delivering to customers to ensure that the end products can meet the customers’ specifications and the quality requirements of the Target Group and the customers. For the three years ended 31 December 2009 and nine months ended 30 September 2010, the Target Group has not experienced any significant complaints or sales returns from its customers.

Information on the operating companies of the Target Group

As at the Latest Practicable Date, the Target currently has four operating subsidiaries, namely BB Jinhuangshan, SZ Kecai, XF Jinfeihuan and ZT Antong, and an associated company, namely CD Goldroc (in which the Target is the single largest shareholder), as the operating companies. Details of these operating companies are set out below:

BB Jinhuangshan

BB Jinhuangshan was established as a sino-foreign co-operative joint venture on 22 December 1997 in Anhui Province, the PRC. As at the Latest Practicable Date, the registered capital of BB Jinhuangshan of US$7,622,800 had been fully paid up and the term of the joint venture will be expired on 31 December 2018. BB Jinhuangshan is beneficially owned as to 52.64% by BCD and as to 47.36% by 茂名市中誠致信投資有限公司 (Maoming City Zhongcheng Zhixin Investments Co., Ltd.), an Independent Third Party, and is principally engaged in the business of printing of cigarette packages. BB Jinhuangshan was originally established by BCD with 中國安徽蚌埠卷煙廠 (China Anhui Bengbu Cigarette Factory), an Independent Third Party, in which BCD contributed the capital (who owned 100% of BB Jinhuangshan) and 中國安徽蚌埠卷煙廠 (China Anhui Bengbu Cigarette Factory) would provide the land to be used by BB Jinhuangshan. In October 2003, BCD transferred 52% of its interests in BB Jinhuangshan to 安徽安泰投資有限公司 (Anhui Antai Investment Co., Ltd.). Subsequently in November 2004, in order for the Target Group to have control over BB Jinhuangshan, 安徽安泰投資有限公司(Anhui Antai Investment Co., Ltd.*) transferred 4.64% of its interests in BB Jinhuangshan to BCD as a result of which BB Jinhuangshan was owned as to 52.64% by BCD and as to 47.36% by 安徽

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LETTER FROM THE BOARD

安泰投資有限公司(Anhui Antai Investment Co., Ltd.). Pursuant to the joint venture contract of BB Jinhuangshan dated 30 August 2004 entered into between BCD and 安徽安泰投資有限公司 (Anhui Antai Investment Co., Ltd.), the profit and loss of BB Jinhuangshan shall be shared as to 37.64% by BCD and as to 62.36% by the joint venture partner (which was originally 安徽安泰投資有限公司 (Anhui Antai Investment Co., Ltd.) but subsequently replaced by 茂名市中誠致信投資有限公司 (Maoming City Zhongcheng Zhixin Investments Co., Ltd.)) in February 2009. The profit sharing ratio was determined after commercial negotiation and taking into account the strategic relationship established by the joint venture partners in Anhui Province which would be instrumental to the business development of BB Jinhuangshan. Moreover, according to the joint venture contract of BB Jinhuangshan (as supplemented from time to time), the board of directors of BB Jinhuangshan shall comprise five directors, three of which (including the chairman) shall be appointed by the Target Group and the remaining two directors (including the vice-chairman) shall be appointed by 茂名市中誠致信投資有限公司 (Maoming City Zhongcheng Zhixin Investments Co., Ltd.). Moreover, the parties shall jointly nominate a general manager, and each of the Target Group and 茂名市中誠致信投資有限公司 (Maoming City Zhongcheng Zhixin Investments Co., Ltd.) shall entitle to nominate a deputy manager for BB Jinhuangshan. BB Jinhuangshan has established its own production facilities of approximately 29,949.53 sq. m., the annual production capacity of which was approximately 1.2 million cases (equivalent to approximately 3.0 billion packs) of cigarette packages in 2009. As advised by the Vendor, in view of the strategic location of the production facilities of BB Jinhuangshan which offers considerable development potential to the cigarette packages business of the Target Group, the Target Group has been considering to increase its equity interest in BB Jinhuangshan by way of acquiring part or all of the remaining equity interest from the other joint venture partner of BB Jinhuangshan. There has been negotiation with the joint venture partner and as at the Latest Practicable Date, no terms and agreement have been reached but negotiations are still on going. The Company will comply with the requirements of the relevant Listing Rules as and when appropriate.

SZ Kecai

SZ Kecai was established on 21 July 2003 in Shenzhen of the PRC with a registered capital of RMB10,000,000 and was held as to 24% by a private company controlled by Mr. Tsoi (“ BC Enterprise ”) and as to 76% by Mr. Cai Rong, a brother of the Vendor. With the increase in registered capital contributed by BC Enterprise in August 2004, SZ Kecai was then owned as to 92.4% by BC Enterprise and as to 7.6% by Mr. Cai Rong. As part of family arrangement, BC Enterprise transferred 90% of its interest in SZ Kecai to Mr. Cai Rong such that SZ Kecai was owned as to 97.6% by Mr. Cai Rong and as to 2.4% by BC Enterprise. To formalise the structure of the Target Group, in January 2006, both Mr. Cai Rong and BC Enterprise transferred their 96.6% and 2.4% interest in SZ Kecai to Shenzhen Guilian Printing Ltd. such that Shenzhen Guilian Printing Ltd. held 99% interest in SZ Kecai. With the increase in registered capital contributed by Shenzhen Guilian Printing Ltd. in August 2007, Shenzhen Guilian Printing Ltd. increased its equity stakes in SZ Kecai to 99.31%. As at the Latest Practicable Date, the registered capital of SZ Kecai had been fully paid up and it was beneficially owned as to 99.31% by Shenzhen Guilian Printing Ltd. and as to 0.69% by Mr. Cai Rong. SZ Kecai is principally engaged in the business of printing of cigarette packages. SZ Kecai has established its own production facilities of

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LETTER FROM THE BOARD

approximately 128,233.16 sq. m., the annual production capacity of which was approximately 1.2 million cases (equivalent to approximately 3.0 billion packs) of cigarette packages in 2009. SZ Kecai has provided the Corporate Guarantee in favour of a bank in the PRC up to an amount of RMB260 million (equivalent to approximately HK$305.88 million) to secure banking facilities granted to a private company wholly and beneficially owned by Mr. Tsoi, which is expected to be released as soon as possible after the date of the Acquisition Agreement and in any event within six months after the Acquisition Completion. Moreover, the processing factory of the Group and a member of the Group have entered into lease agreements with SZ Kecai on 21 June 2010 to rent certain premises in the Grand Industrial Zone located in Shenzhen, the PRC from SZ Kecai for a term of three years commencing from 1 June 2010 as their production sites, details of which were disclosed in the announcement of the Company dated 22 June 2010.

XF Jinfeihuan

XF Jinfeihuan was established as a sino-foreign equity joint venture on 31 July 2000 in Hubei Province of the PRC with a registered capital of US$3,000,000 for a term of 15 years. As approved by the relevant authorities in August 2001, XF Jinfeihuan was held as to 49% by BCD, 30.6% by Xiangfan Fei Huan Printing Company Limited (“ Xiangfan Feihuan ”), an Independent Third Party, and 20.4% by Xiangfan Factory, an Independent Third Party. In June 2004, to secure control over XF Jinfeihuan, BC Enterprise acquired 8% interest in XF Jinfeihuan from Xiangfan Feihuan and such 8% interest was subsequently transferred to BCD in April 2006. In May 2006, to further consolidate control over XF Jinfeihuan, the remaining 22.6% interest in XF Jinfeihuan held by Xiangfan Feihuan was transferred to BCD. As at the Latest Practicable Date, the registered share capital of XF Jinfeihuan had been fully paid up and it was beneficially owned as to 79.6% by BCD and as to 20.4% by Xiangfan Factory. XF Jinfeihuan is principally engaged in the business of printing of cigarette packages. Pursuant to the joint venture contract of XF Jinfeihuan (as supplemented from time to time), the board of directors of XF Jinfeihuan shall comprise five directors, three of which shall be appointed by the Target Group and the remaining two directors shall be appointed by Xiangfan Factory. Moreover, the Target Group is entitled to nominate a general manager, a deputy manager, a chief financial officer and a chief engineer, while Xiangfan Factory is entitled to nominate a deputy manager, a general accountant and a general technologist for XF Jinfeihuan. Currently, the general manager of XF Jinfeihuan is responsible for the overall management and, in particular, the human resources management. The deputy general manager appointed by Xiangfan Factory is responsible for the sales and marketing, while the deputy general manager appointed by BCD is responsible for production management. The deputy general managers shall report to the general manager. XF Jinfeihuan has established its own production facilities of approximately 16,690.34 sq. m., the annual production capacity of which was approximately 0.6 million cases (equivalent to approximately 1.5 billion packs) of cigarette packages in 2009.

ZT Antong

ZT Antong was established as a sino-foreign equity joint venture on 4 November 1999 in Yunnan Province of the PRC with a registered capital of US$1,000,000 for a term of 12 years which will be expired in November 2011. ZT Antong is principally engaged in

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the manufacturing of laminated paper. As at the Latest Practicable Date, the registered share capital of ZT Antong had been fully paid up and since its establishment up to the Latest Practicable Date, it had been beneficially owned as to 80% by BCD and as to 20% by 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited), an Independent Third Party, while the profit and loss of ZT Antong shall be shared as to 51% by BCD and 49% by 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited). As advised by the Vendor, the profit sharing ratio was determined after commercial negotiation between BCD and 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited) after taking into account the strategic business network of 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited) in Zhaotong City, Yunnan Province which was considered to be instrumental to the business development of ZT Antong. Pursuant to the joint venture contract of ZT Antong, the board of directors of ZT Antong shall comprise five directors, three of which (including the Chairman) shall be appointed by the Target Group and the remaining two directors (including the vice-chairman) shall be appointed by 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited), while the general manager shall be appointed by the board of directors of ZT Antong. ZT Antong leases its production facilities of approximately 5,000 sq. m. with an annual production capacity of approximately 4,000 tonnes of laminated paper in 2009. In December 2010, the board of directors of ZT Antong has resolved to extend the joint venture contract of ZT Antong for a further term of three years up to November 2014 with the profit and loss to be shared as to 51% by BCD and 49% by 昭通龍泉實業有限公司 (Zhao Tong Longquan Enterprise Limited). As advised by the PRC legal advisers of the Company, there should be no legal impediments for ZT Antong to renew the joint venture contract upon its renewal.

CD Goldroc

CD Goldroc is an associated company of the Target and it was established as a sino-foreign equity joint venture on 28 April 1995 in Hunan Province of the PRC with a registered capital of RMB163,051,900 for an initial term of 15 years (which was subsequently extended to 27 April 2013 pursuant to the new joint venture contract dated 12 April 2010). At the time of its establishment, CD Goldroc was held as to 51% by 常德捲煙廠 (Changde Cigarette Factory) (“ Changde Factory ”), an Independent Third Party, and as to 49% by BCD. Since January 2000, CD Goldroc was held as to 49% by BCD and 51% by 常德芙蓉王實業發展有限公司 (Changde Furongwong Enterprise Development Co., Ltd.), an Independent Third Party. With the increase in registered capital in August 2003, the shareholding of CD Goldroc was changed as to 48.85% held by BCD and 51.15% held by 常德芙蓉王實業發展有限公司 (Changde Furongwong Enterprise Development Co., Ltd.). In July and August 2003, there had also shares transfer pursuant to which 常德芙蓉王實業發展有限公司 (Changde Furongwong Enterprise Development Co., Ltd.) transferred 28.45% of its interest in CD Goldroc to Changde Factory and 22.70% of its interest in CD Goldroc to 常德芙蓉投資有限公司 (Changde Furong Investment Company Limited) as a result of which CD Goldroc was owned as to 48.85% by BCD, 28.45% by Changde Factory (which was then controlled by 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.)) and 22.70% by 常德芙蓉投資有限公司 (Changde Furong Investment Company Limited). In September 2010, BCD transferred 13.85% of its interest in CD Goldroc to 深圳市鶴韻投資有限公司 (Shenzhen City Heyun Investments Co., Ltd.), an Independent Third Party, to introduce 深圳市鶴韻投資有限公司 (Shenzhen City Heyun Investments Col, Ltd.*) as strategic investor. As at the Latest Practicable Date, the registered capital of CD Goldroc has been fully paid up and it was beneficially owned as to

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35% by BCD, being the single largest shareholder, and as to 28.45%, 22.7% and 13.85% by three Independent Third Parties, namely 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.), 常德芙蓉投資有限責任公司 (Changde Furong Investment Company Limited) and 深圳市鶴韻投資有限公司 (Shenzhen City Heyun Investments Co., Ltd.) respectively. CD Goldroc is principally engaged in the business of printing of cigarette packages. 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.), a state-owned cigarette manufacturer, is one of the joint venture partners of and has been a major customer of CD Goldroc. In view of the strategic position of 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.) and after commercial negotiation among the joint venture partners of CD Goldroc, it was determined and provided in the new joint venture contract dated 12 April 2010 that the board of directors of CD Goldroc shall comprise nine directors, three of which (including the chairman) shall be appointed by 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.), three of which (including the vice-chairman) shall be appointed by the Target Group, two of which shall be appointed by 常德芙蓉投資有限責任公司 (Changde Furong Investment Company Limited) and the remaining director shall be appointed by 深圳市鶴韻投資有限公司 (Shenzhen City Heyun Investments Co., Ltd.). Moreover, 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.*) is entitled to nominate a general manager with several deputy general managers nominated by each party to the new joint venture contract, and the Target Group is also entitled to nominate a financial controller for CD Goldroc. CD Goldroc owns its production facilities of approximately 38,595.68 sq. m. with an annual production capacity of approximately 2.0 million cases (equivalent to approximately 5.0 billion packs) of cigarette packages in 2009. The Target intends to renew the joint venture contract of CD Goldroc and as advised by the PRC legal advisers of the Company, there should be no legal impediments for CD Goldroc to renew the joint venture contract upon its expiry.

Products and customers

For the printing of cigarette packages business, the Target Group and its associated company produce two types of cigarette packages, namely the packages for packs of cigarettes and packages for long boxes of cigarettes. In general, a “case” is a measurement unit for cigarette packages which equals to 250 long boxes, each of which contains and carries 10 packs of cigarettes and each pack of cigarette contains and carries 20 sticks of cigarettes. Accordingly, a “case” shall be equivalent to 250 long boxes containing 2,500 packs.

As advised by the Vendor, the Target Group has printed more than 1.4 million cases (equivalent to approximately 3.5 billion packs), 1.5 million cases (equivalent to approximately 3.75 billion packs), 1.6 million cases (equivalent to approximately 4.0 billion packs) and 1.2 million cases (equivalent to approximately 3.0 billion packs) of cigarette packages for the three years ended 31 December 2009 and nine months ended 30 September 2010 respectively. For the nine months ended 30 September 2010, all of the sales of cigarette packages of the Target Group are made to customers within the PRC including 10 state-owned cigarette manufacturers (or their related companies) whose products cover more than 20 brands of cigarettes in the PRC and certain other private cigarette package printers in the PRC. The Target Group also engages in the manufacturing of laminated papers and for the nine months ended 30 September 2010, all such sales were made to customers in the PRC. With a view to devoting more resources for the development of the printing of cigarette packages business, the operation of one of the

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then subsidiaries of the Target Group, namely CD Jinfurong which was engaged in the business of laminated paper manufacturing in Hunan Province, was ceased in 2008. For the two years ended 31 December 2008, more than 70% of the laminated paper manufactured by the Target Group was sold to CD Goldroc, which is an associated company of the Target Group located in Hunan, and approximately 22% of the laminated paper manufactured by the Target Group were sold to Independent Third Parties, and the remaining laminated paper manufactured was supplied to other members of the Target Group for the printing of cigarette packages. Following the cessation of business of CD Jinfurong, ZT Antong became the only subsidiary of the Target Group engaging in the business of manufacturing of laminated papers and its production facilities is located in Yunnan Province. Given the Target Group considers that it is not cost-effective to transport the laminated paper manufactured by ZT Antong to CD Goldroc or other members of the Target Group engaging in cigarette package printing business which are located outside the Yunnan Province and the quality of laminated paper produced by other suppliers could meet their requirements, all of the laminated papers manufactured by the Target Group were sold to independent third parties for the year ended 31 December 2009 and nine months ended 30 September 2010.

The customer base of the Target Group is relatively stable and the approximate percentage of sales to the top ten customers, top five customers and largest customer of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 was as follows:

		Year ended	Year ended	Year ended	Nine months
		31 December	31 December	31 December	ended
		2007	2008	2009	30 September
		(Notes 2	(Notes 2, 3	(Notes 3	2010
		and 4)	and 4)	and 4)	(Note 4)
Top	ten customers	99.9%	97.3%	94.2%	95.1%
Top	five customers	93.0%	84.3%	82.1%	78.7%
The	largest customer (Note 1)	42.4%	47.4%	51.5%	50.0%

Notes:

1. The largest customer of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 was a state-owned cigarette manufacturer which has business relationship with the Target Group since 2005.

2. The second largest customer of the Target Group for the year ended 31 December 2007 and the third largest customer of the Target Group for the year ended 31 December 2008 was CD Goldroc, which is an associated company of the Target Group during the relevant periods and as at the Latest Practicable Date. During the relevant periods, CD Goldroc had purchased the laminated papers manufactured by CD Jinfurong in Hunan Province in which CD Goldroc is located, the sales to which accounted for approximately 21.7% and 11.7% of the total revenue of the Target Group for the relevant year respectively. The operation of CD Jinfurong was ceased in 2008 and CD Goldroc had not purchased any laminated papers from the Target Group since then.

3. The tenth largest customer of the Target Group for the year ended 31 December 2008 and the ninth largest customer of the Target Group for the year ended 31 December 2009 was a private cigarette package printer in the PRC which was an associate of the then ultimate holding company of the Target Group, being AHL, the sales to which accounted for approximately 2.1% and 1.7% of the total revenue of the Target Group for the relevant year respectively. In February 2010, the Vendor repurchased the Target from AHL (please refer to the paragraph headed “History and

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development” in this circular for further details) and as a result, this customer ceased to be an associate of the ultimate holding company of the Target Group. For the nine months ended 30 September 2010, this customer has remained to be one of the top ten customers of the Target Group.

4. The third largest customer of the Target Group for the year ended 31 December 2007 and the second largest customer of the Target Group for each of the two years ended 31 December 2009 and nine months ended 30 September 2010 was 湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.*) which is the holding company of Xiangfan Factory (being a substantial shareholder of XF Jinfeihuan), the sales to which accounted for approximately 13.0%, 12.6%, 12.7% and 9.1% of the total revenue of the Target Group for the relevant year/period respectively. Please refer to the section headed “Proposed continuing connected transactions” in this circular for further details.

Save as disclosed above, none of the directors, chief executives and substantial shareholders of the Company or its subsidiaries or any of their respective associates, so far as the Company is aware, immediately following completion of the Acquisition had any material interest in any of the top ten customers of the Target Group during the three years ended 31 December 2009 and nine months ended 30 September 2010.

Out of the top ten customers of the Target Group for the nine months ended 30 September 2010, eight of them were state-owned cigarette manufacturers (or their related companies) and the other two were private cigarette package printers in the PRC, the sales to which accounted for approximately 84.2% and 10.8% of the total turnover of the Target Group for the period respectively. Out of these eight of the top ten customers, seven of which were also among the top ten customers of Target Group for each of the three years ended 31 December 2009 having business relationship with the Target Group for more than four years. Sales to these seven customers of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 accounted for approximately 77.2%, 81.1%, 85.7% and 80.9% of the total turnover of the Target Group.

As a result of the PRC government’s consolidation policy on the tobacco industry in recent years, the market of the production of the cigarettes in the PRC is concentrated on a limited number of cigarette manufacturers. Therefore, the sales of the Target Group have been concentrated on certain large cigarette manufacturers (or their related companies). The Target Group will continue to dedicate significant resources to maintain its relationships with these customers and secure orders from them in the future. The Company considers that over the years the Target Group has accumulated knowledge of the tobacco industry and extensive business relationships with senior management of various tobacco authorities as well as cigarette manufacturers in the PRC. The Target Group holds meetings and seminars to understand the latest product demands and customers’ needs. The Target Group has also assigned specific personnel to station in eight provinces in the PRC to explore business opportunities (particularly the private cigarette package printers located in other regions in the PRC which the Target Group currently has not established its presence) and follow-up with each existing customer (including the delivery of products, technical support and reviewing product feedback). The Target Group will also review the size of the order and the capability of the Target Group in terms of geographical location and delivery timing.

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All revenue of the Target Group are denominated in Renminbi. The Target Group normally grants credit terms of up to 60 to 90 days to its customers. The settlement and credit terms granted to customers are determined with reference to, among other things, (i) length of business relationship; (ii) payment history; and (iii) financial strength and creditability of the customer. In order to manage the credit risks of the Target Group, it performs on-going credit evaluation and reviews the recoverable amount of each individual trade debt regularly. In case of outstanding trade receivables, the Target Group will directly contact the respective customers. If the Target Group cannot recover the outstanding trade receivables being owed by the customers after liaisons and on a case by case basis, legal demand letters will be issued to such customers as and when appropriate.

Based on the information provided by the Vendor, for the nine months ended 30 September 2010, the top five brands for which the Target Group produces and supplies the cigarette packages are 黃山 (Huangshan), 紅金龍 (Hong Jinlong), 白沙 (Baisha), 紅三環 (Hong Sanhuan) and 雙喜紅玫王 (Shuangxi Hong Meiwang*). The historical sales generated from the printing of cigarette packages for the aforesaid brands for the three years ended 31 December 2009 and 30 September 2010 were as follows:

							Nine months ended 30	Nine months ended 30	Nine months ended 30
Brands			Year ended	31 December					September
		2007		2008		2009			2010
	Approximate	Approximate	Approximate	Approximate	Approximate	Approximate	Approximate		Approximate
	HK$’mil	%	HK$’mil	%	HK$’mil	%		HK$’mil	%
黃山(Huangshan*)	300.2	31.0	422.6	37.4	446.8	42.5		341.8	44.4
紅金龍(Hong
Jinlong*)	113.8	11.7	125.3	11.1	125.9	12.0		92.7	12.0
白沙(Baisha*)	76.8	7.9	76.3	6.8	72.8	6.9		54.9	7.1
紅三環(Hong
Sanhuan*)	62.8	6.5	85.6	7.6	67.5	6.4		44.6	5.8
雙喜紅玫王(Shuangxi
Hong Meiwang*)	–	–	25.5	2.3	49.7	4.7		31.6	4.1

Note: All of the aforesaid cigarette brands are produced by PRC state-owned cigarette manufactures.

For CD Goldroc, an associated company of the Target Company, it also sells its cigarette package products to the state-owned cigarette manufactures in the PRC. For the three year ended 31 December 2009 and nine months ended 30 September 2010, it has printed more than 1.2 million cases (equivalent to 3.0 billion packs), 1.1 million cases (equivalent to 2.8 billion packs), 1.1 million cases (equivalent to 2.8 billion packs) and 0.9 million cases (equivalent to 2.3 billion packs) of cigarette packages. The major brand for which CD Goldroc produces and supplies the cigarette packages is 芙蓉王 (Fu Rong Wang*), the historical sales to which has accounted for more than 70% of the total revenue of CD Goldroc for each of the three years ended 31 December 2009 and nine months ended 30 September 2010.

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The Target Group had not maintained product liability insurance for any of its products. Nevertheless, for the three years ended 31 December 2009 and nine months ended 30 September 2010, all products sold by the Target Group complied with the specifications required by its customers and, up to the Latest Practicable Date, the Target Group has not received any material claim from customers relating to any liability arising from or relating to the use of its products.

Raw materials and suppliers

Paper, hot stamping foils and ink are three of the most significant raw materials for the business of the Target Group, the cost of each of which, in terms of percentage of the total cost of goods sold of the Target Group, amounted to approximately 58.1%, 4.0% and 7.4% respectively for the year ended 31 December 2007, approximately 59.7%, 7.2% and 7.2% respectively for the year ended 31 December 2008, approximately 57.9%, 9.5% and 9.7% respectively for the year ended 31 December 2009, and approximately 51.2%, 10.9% and 10.5% respectively for the nine months ended 30 September 2010. Other raw materials include aluminium foils, metallised films and solvents. In view of the significance of paper to the production of the Target Group and in order to reduce the impact of price fluctuations on paper costs of the Target Group and to ensure steady supply of papers, the Target Group has implemented an inventory control policy to maintain the inventory level of papers up to approximately three months of production requirement. The Target Group had made purchases from overseas suppliers in the past. Nevertheless, for the three years ended 31 December 2009 and nine months ended 30 September 2010, the Target Group sourced all the raw materials from the PRC domestic suppliers as the standard of the raw materials supplied by the PRC domestic suppliers can meet with the requirements of the cigarette manufacturers in the PRC.

The Target Group has more than 30 suppliers for each of the three years ended 31 December 2009 and nine months ended 30 September 2010. The Target Group sourced its raw materials from various suppliers to avoid over-reliance on certain suppliers and to ensure stable supply of raw materials.

The approximate percentage of purchases from the top ten suppliers, top five suppliers and largest supplier of the Target Group for each of the three years ended 31 December 2009 and nine months ended 30 September 2010 was as follows:

					Nine months
		Year ended	Year ended	Year ended	ended
		31 December	31 December	31 December	30 September
		2007	2008	2009	2010
		(Notes 2 and 3)	(Note 2)
Top	ten suppliers	75.2%	68.2%	68.8%	67.0%
Top	five suppliers	64.2%	59.5%	57.6%	53.1%
The	largest supplier (Note 1)	27.9%	30.3%	31.1%	26.3%

Notes:

The largest supplier of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 was an independent paper supplier in the PRC for the printing of cigarette packages of the Target Group which has business relationship with the Target Group since 2005.

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2. The second largest supplier of the Target Group for the years ended 31 December 2007 and 2008 was a paper supplier in the PRC for the manufacturing of laminated paper of CD Jinfurong (being a former subsidiary of the Target Group), which is wholly and beneficially owned by an associate of the Vendor and the respective purchases accounted for approximately 23.5% and 12.6% of the total purchases of the Target Group for relevant year respectively. The operation of CD Jinfurong was ceased in 2008 and the Target Group has not purchased any paper from this supplier since then.

For the year ended 31 December 2007, (i) the sixth largest supplier (which accounted for approximately 3.9% of the total purchases) of the Target Group was CD Goldroc which was an associated company of the Target Group during the relevant year and as at the Latest Practicable Date. The Target Group has purchased printed blanks from CD Goldroc for the printing of cigarette packages of the Target Group; (ii) the eighth largest supplier (which accounted for approximately 1.8% of the total purchases) of the Target Group was an ink supplier in the PRC for the printing of cigarette packages of the Target Group which was a company wholly and beneficially owned by the Vendor during the relevant year; and (iii) the ninth largest supplier (which accounted for approximately 1.7% of the total purchases) of the Target Group was Shenzhen Yuen Cheong Hong Trading Co., Ltd. which was an unconsolidated subsidiary of the Target Group at the relevant period (please refer to the accountants’ report on the Target Group set out in Appendix II to this circular for further details). The Target Group has purchased paper and aluminum foils from this supplier for the manufacturing of laminated papers by CD Jinfurong (being a former subsidiary of the Target Group).
Save as disclosed above, none of the directors, chief executives and substantial shareholders of the Company or its subsidiaries or any of their respective associates, so far as the Company is aware, immediately following completion of the Acquisition had any material interest in any of the top ten suppliers of the Target Group during the three years ended 31 December 2009 and nine months ended 30 September 2010.

Out of the top ten suppliers of the Target Group for the nine months ended 30 September 2010, four of them were also among the top ten suppliers of Target Group for each of the three years ended 31 December 2009 having business relationship with the Target Group for more than four years. Purchases from these four suppliers of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 accounted for approximately 38.0%, 46.5%, 53.3% and 44.6% of the total purchases of the Target Group. During the years, the Target Group has maintained good relationship with its principal suppliers. Also, as the raw materials required by the Target Group are not very rare, the Target Group has not entered into any long-term agreements with the suppliers and the Target Group has not experienced any material difficulties to source for any required raw materials for its production. For the three years ended 31 December 2009 and nine months ended 30 September 2010, all purchases made by the Target Group were dominated in Renminbi and the normal payment terms are generally 60 days.

The Target Group places great emphasis on the quality of raw materials and has implemented a stringent quality management system for raw materials procurement. Suppliers of the Target Group are selected based on strict supplier acceptance criteria with emphasis on three key areas, being quality, cost and timely delivery. Once a supplier is accepted by the Target Group, the Target Group will closely and continuously monitor the quality of the raw materials sourced from such supplier, and require the supplier to adopt certain quality control procedures. Any defective or substandard raw material identified by the Target Group will be returned to the supplier. There is generally no specific warranty period for the return of purchases. As advised by the Target Group, the return of

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purchases during the three years ended 31 December 2009 and nine months ended 30 September 2010 encountered by the Target Group was not material, which was principally due to delivery of wrong orders or goods being damaged in transit.

The Target Group has set up adequate internal control policy in monitoring the Target Group’s inventories, which has maintained written policies and guidelines on its inventory control procedures which include raw materials and consumables purchase and receipt, receipt of finished goods produced by the Target Group, stock in-and-out, stock storage and inventory stock take to monitor the Target Group’s inventories. Moreover, the Target Group’s purchasing department works closely with the production team to monitor the inventory movements along the production process. The Target Group reviews the inventory level from time to time in order to monitor for any unusual fluctuation and replenish whenever necessary. In addition, the Target Group performs stock take at least once in every six months.

Production

Production facility and capacity

As at the Latest Practicable Date, the Target Group had established three production facilities for printing cigarette packages with a total gross floor area of approximately 174,873.03 sq. m. in Anhui, Hubei and Guangdong province, the PRC, respectively. These facilities have a total of 27 printing machines, 19 stamping machines and die-cutting machines, as well as other machines and equipment operating 24 hours for each working day normally, which can print up to 3.0 million cases (equivalent to approximately 7.5 billion packs) of cigarette packages per year, taking into account the scheduled maintenance time and down-time.

CD Goldroc, an associated company of the Target, has established the production facilities for printing cigarette packages with a total gross floor area of approximately 38,595.68 sq. m. in Hunan province, the PRC. CD Goldroc has a total of 7 printing machines, 6 stamping machines and die-cutting machines, as well as other machines and equipment operating 24 hours for each working day normally, which can print up to 2.0 million cases (equivalent to approximately 5.0 billion packs) of cigarette packages per year, taking into account of the scheduled maintenance time and down-time.

The Target Group also engages in the manufacturing of laminated papers in the PRC and, as at the Latest Practicable Date, had one factory for manufacturing laminated papers in Yunnan Province. The total gross floor area of the production facilities was approximately 5,000 sq. m. and it has established with two sets of laminating machine operating 24 hours for each working day normally, which can manufacture over 4,000 tonnes of laminated papers per year, taking into account the scheduled maintenance time and down-time.

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The following table sets forth details of each of the production facilities of the Target Group and its associated company:

	Percentage			Owned/leased
	of		Gross floor	(production		Production capacity	Utilisation
Company	ownership	Location	area	facilities)	Product	per year	rate in 2009
	(%)		(sq. m.)		(note 5)	(note 1)	(note 4)
Subsidiaries of the Target
BB Jinhuangshan_(note 2)_	52.64	Anhui	29,949.53	Owned and	Cigarette	1,200,000 cases of	54%
				leased	packages	cigarette packages
XF Jinfeihuan	79.6	Hubei	16,690.34	Owned	Cigarette	600,000 cases of	47%
					packages	cigarette packages
SZ Kecai	99.31	Shenzhen	128,233.16	Owned	Cigarette	1,200,000 cases of	62%
					packages	cigarette packages
ZT Antong_(note 6)_	80	Yunnan	5,000	Leased	Laminated	4,000 tonnes of	29%
					papers	laminated papers
Associated companyof the Target
CD Goldroc	35	Hunan	38,595.68	Owned	Cigarette	2,000,000 cases of	53%
(note 3)					packages	cigarette packages

Notes:

1. Production capacity in this table represents the maximum practical production capacity, taking into account the different production process, the scheduled maintenance time and scheduled down time.

2. The profit and loss is shared as to 37.64% by the Target Group.

3. CD Goldroc is a 35%-owned associated company of the Target Group in which the Target is the single largest shareholder.

4. The utilisation rate was calculated based on the actual output of the respective production facilities. There are a number of factors affecting the utilisation rate, which include the non-operating period of the production facilities, the time required for re-configuration of the production lines, regular maintenance (and minor repairs) of the machinery and equipment, as well as periodic maintenance overhauls. In general, re-configuration of production lines for new batch of products would normally require a few hours whereas the regular maintenance of the machinery and equipment is performed on a weekly or bi-weekly basis (which would normally last up to approximately one to two hours) and the periodic maintenance overhauls (which would, depending on the circumstances, last for a few days or up to a month) is performed on a quarterly or semi-annually basis. For the three years ended 31 December 2009, the production facilities of BB Jinhuangshan, XF Jinfeihuan, SZ Kecai and ZT Antong have been closed for public and factory holidays for approximately 15 to 31 days each year.

5. BB Jinhuangshan, XF Jinfeihuan, SZ Kecai and CD Goldroc are located at different provinces of the PRC and each of them is primarily engaged in the business of printing of cigarette packages.

6. The profit and loss is shared as to 51% by the Target Group.

The demand for the Target Group’s cigarette package products is subject to seasonal fluctuation. It is generally higher in the fourth quarter of a calendar year especially in the peak months from September to December when the Target Group’s customers will generally place more orders to the Target Group to meet their sales demand on or before Chinese Lunar New Year. For the three years ended 31 December 2009, the Target Group’s

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turnover generated from the printing of cigarette packages in September to December accounted for approximately 43.9%, 38.1% and 38.4% of the Target Group’s annual turnover generated from the printing of cigarette packages respectively. As such, the staff of the Target Group is divided into three production shifts on each working day of eight hours each even the utilisation rates of the Target Group for the printing of cigarette packages in 2009 were between 45% and 65%. The Target Group believes that the 24 hours per day non-stop running of the machineries reduces wastage, increases the production efficiency of the Target Group and ensures timely delivery of products to customers.

The Target Group has incurred capital expenditures of approximately HK$130.1 million, HK$53.1 million, HK$42.2 million and HK$55.3 million respectively for the three years ended 31 December 2009 and nine months ended 30 September 2010 mainly for the improvement of production facilities and production capabilities of the Target Group to cater for the seasonal fluctuations during the year and the growing demand for the cigarette package printing business of the Target Group. Apart from increasing the production capacities, the Target Group has been striving to improve the utilisation rate of each of its production facilities by optimising the production schedule of sales orders and delivery time required by the customers of the Target Group.

Machinery and equipment

The Target Group has placed great emphasis on the use of advanced machinery and equipment to maintain the efficiency of production and the quality of products. The majority of the machines and equipment used by the Target Group and its associated company are acquired from overseas manufacturers, including those in Germany, Denmark, Switzerland, Italy, Taiwan and Japan. The major production machines of the Target Group and its associated company include printing machines, automatic stamping machines and die-cutting machines. The Target Group considers that most of its major machinery and equipment are capable to produce high quality products in an efficient manner with advanced technologies.

The Target Group undergoes regular maintenance on its production machineries once per three to six months during which the production will be suspended temporarily. As advised by the Vendor, the Target Group and its associated company have not experienced any material or prolonged suspension of production due to machines or equipment failure for the three years ended 31 December 2009 and nine months ended 30 September 2010.

The Target Group has a maintenance team in each of the production sites with 110 technicians in total, to provide regular maintenance to, and minor repairs of, the machines and equipment. In addition, the technicians also carry out periodic maintenance overhauls which, depending on each factory, usually take approximately a few days to a month.

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Production process

Designing and printing of cigarette packages

Below sets forth a simplified flow chart illustrating the key steps of the Target Group’s production process of the designing and printing of cigarette packages:

==> picture [319 x 530] intentionally omitted <==

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

Customers’ specifications
Design
Design of packages
File and plate making
Sample making
Customers’ approval
Production planning Raw materials
Printing
Gravure printing Offset printing Screen printing
Processing
Hot foil stamping Embossing
Die-cutting
Quality review
Quality review
Finished products
Packaging and delivery
----- End of picture text -----

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The production process of designing and printing cigarette packages can be divided into the following four stages:

(A) Design — The cigarette packages are designed by the internal design team according to the designs and specifications of the customers, as well as the characteristics of the brand of the cigarette. If the designs are approved by the customers, they will then go through the process of image composition in which film positives or negatives are prepared, and the images are transferred to printing plates. Sample products are then made for the customers’ approval.

New design is only required when potential customers and/or cigarette manufacturers intend to launch a new design of cigarette packages for a particular brand of cigarette or a new brand of cigarette and request the Target Group to design the new cigarette packages.

(B) Printing — After the sample cigarette packages are approved by the customers, and upon receipt of the customers’ orders, the production department then arranges the printing process. The production department monitors the quality of the output at each production process and adjusts the settings and parameters, including, but not limited to, the printing speed, pressure and temperature of the machines to reach optimal production speed with the required quality and to reduce production bottleneck, and monitors and adjusts the software system to optimise productivity of machineries and to ensure the system can support mass production in the most cost-effective and efficient way.

The Target Group is capable of using three types of printing methods, namely, gravure printing, offset printing, and screen printing, depending on the specifications and quality required for the cigarette package for each brand of cigarette. These printing methods are briefly described as follows:

Gravure Printing – Ink is transferred directly onto paper by the printing cylinder

Gravure printing uses engraved cylinders as the image carrier. The image to be printed on paper is etched into the surface of the gravure cylinder, which is usually made of metal. The etched image is made up of numerous tiny cells (or cavities), like the pixels of digital image. The etched cylinder rotates in an ink fountain. Ink fills the cells and excess ink will be scraped off the cylinder by a blade (known as the doctor blade). Paper is then passed on the surface of the rotating cylinder and the ink in the cells is transferred to the paper thereby forming the image.

Offset Printing – Ink is transferred indirectly via printing plate and rubber blanket to paper

Offset printing uses a printing plate (made of metal) and a rubber blanket as the image carriers. The image to be printed is exposed onto the printing plate which has a photochemical coating. The photochemical coating retains the image to be printed on the printing plate and becomes ink receptive while the non-image area is not ink receptive. Ink is applied to the printing plate. The printing plate then rolls pass a piece of rubber blanket which will pick up the ink, hence the image, from the printing plate. The rubber blanket rolls pass paper transferring the ink to the paper.

Screen Printing – Ink is transferred directly onto paper through a mesh screen

Screen printing uses a stencil which is attached to a finely woven mesh screen as the image carrier. The image to be printed is made into a stencil and the image

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area on the stencil allows ink to pass through. The stencil is attached to a mesh screen. Ink is forced through the mesh screen onto paper.

(C) Processing — The processing stage involves hot foil stamping and embossing, where various artistic and special effects and other anti-counterfeit features are added on the cigarette packages, in accordance with the specifications of the customers. This is a complicated process and may be required to be repeated several times. Once the hot foil stamping and embossing are finished, the packages are cut into either individual packs or long boxes by die-cutting machines.

(D) Quality review — After the processing stage, each cigarette package is visually inspected by the quality control staff. Once each of the cigarette package passes the inspection, they are packaged and delivered to the customers where cigarettes are packed into packs or long boxes.

Quality control

The Target Group had 52 staff in total to conduct quality assurance services. All of them have to undergo a series of training including class training, workshop and on-site training on production techniques and technologies as well as quality issues before assuming their duties. Quality control inspection is conducted in each stage of production based on well-defined inspection plan. BB Jinhuangshan, SZ Kecai and XF Jinfeihuan have their own quality control department reporting directly to the respective general managers who are under the supervision of the chief executive officer of the Target Group, who is responsible for the production and factory management of the Target Group and has over 10 years of experience in the cigarette package printing industry. The major quality management measures include:

(A) Incoming quality control — All incoming raw materials such as papers, inks, aluminium foils, metallised films and laser films are being reviewed by the Target Group according to the Acceptable Quality Level standard (Note) which is a sample inspection method generally adopted in quality control management. There are also regular communications with the suppliers to ensure that the raw materials are able to meet the high production standards.

Note: Acceptable Quality Level (“AQL”) is a statistical measurement of the consistency or quality predictor of manufactured goods. AQL refers to the maximum number of defective products in a lot that could be considered acceptable for that lot during the random sampling of an inspection. In general, there are three inspection levels, being the reduction inspection level (Level I), normal inspection level (Level II) and tightened inspection level (Level III). A higher inspection level requires more samples to be inspected based on a given production lot. The number of samples in a lot to be inspected will be determined based on the lot size and selected inspection level under the sampling table of AQL and such lot of products will be rejected if the statistical results cannot be passed under the AQL standard. The Target Group has applied the normal inspection level (Level II) of the AQL standard.

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(B) In-process quality control — Various quality control tests are conducted on the work in progress and there is setting of the machines and equipment at different stages of the production process. Methods generally include visual inspection and random checking.

(C) Quality assurance — Products must undergo full and final inspection before packing and delivering to customers to ensure the end products can meet the customers’ specifications and the quality requirements of the Target Group and the customers. In the event that any quality problem is found during any of the above process, it will be reported to the head of quality management department for immediate follow-up and remedial actions.

(D) Quality review — Customers’ feedback and any customers’ complaints relating to products are collected by the Target Group. Upon receipt of a complaint, the staff from the Target Group will investigate the complaint to confirm its validity, find out the root and cause of the problem, follow up with the customer and find solutions to prevent recurrence of similar event. The customers’ feedback is also used for a better understanding of the customers’ needs and for delivering better value-added service to the customers.

In addition to the above quality management measures, there is a production guideline set out for the production staff at each factory.

As advised by the Vendor, the average passing rate (calculated as the total output passing the quality control tests divided by total input which has excluded the loss and wastage throughout the production and the substandard units) of BB Jinhuangshan, SZ Kecai, XF Jinfeihuan for the three years ended 31 December 2009 and nine months ended 30 September 2010 was over 95% and the Target Group did not experience any significant complaints or sales returns for the same period.

Sales and marketing

The Target Group has a marketing committee, comprising 24 members among which six members are management of the Target Group and the remaining are the managements of SZ Kecai, BB Jinhuangshan and XF Jinfeihuan, which is responsible for devising and developing the current and future sales and marketing plans for the Target Group. The marketing committee holds regular meetings to coordinate marketing strategies, programs and special marketing events. In addition, the sales and marketing team comprises of 30 staff and 14 of which are stationed in eight provinces including, but not limited to, Hunan province, Hubei province, Jiangsu province and Fujian province.

The Company considers that the Target Group has accumulated knowledge of the tobacco industry and extensive business relationships with senior management of various state, provincial and municipal level tobacco authorities as well as cigarette manufacturers in the PRC over the years. The Target Group holds meetings and seminars to understand the latest product demand and customers’ needs. The state-owned cigarette manufacturers (or their related companies) in the PRC will usually engage those reliable

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cigarette package printing companies, usually in the same region, to ensure smooth production as well as the quality of the products. The Target Group had also assigned specific personnel to station in eight provinces to follow-up with each customer, including the delivery of products, technical support and receiving product feedback. Through these services, the Target Group is able to strengthen the relationships with the customers and therefore increase the sales orders by providing them relevant business support and value-added services. The Target Group, with positive reputation and expertise in the printing services of tobacco industry in the PRC, often participates in tenders and design sample cigarette packages for existing and potential customers.

The Target Group normally prepares quotations based on analysis of costs relating to raw materials and labour when receiving enquiries from potential new customers or when being invited to participate in tenders. For the three years ended 31 December 2009 and nine months ended 30 September 2010, the gross profit margins of the Target Group were 23.9%, 26.8%, 31.6% and 32.6% respectively. For new customers, particularly for those private cigarette package printers in the PRC, the Target Group will visit their offices and conduct interviews with their management to, on the one hand, promote the quality printing services provided by the Target Group and on the other hand, have a better understanding on their background and market position in the industry. Also, before confirming the sales orders with customers, the Target Group will ensure that the required size of orders and delivery time by the customers can meet with the production schedule and availability of production capacity at the respective facilities of the Target Group.

Management and staff

Apart from Mr. Tsoi (who is a director of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of BCD), the daily operation of the Target Group is managed by the following senior management:

Mr. Gao Pixing (高丕興), who is aged 58, is the chief executive officer of the Target Group. He is responsible for the production and factory management of the Target Group. He joined CD Goldroc in 2001 and the Target Group in 2007, and has over 10 years of experience in the cigarette package printing industry.

Ms. Huang Xinyi (黃新沂), who is aged 62, is the vice president of the Target Group. She is responsible for the finance and accounting of the Target Group. She joined the Target Group in 2001 and holds a professional certificate in industrial finance and accounting and is a senior registered accountant in the PRC.

Mr. Qin Song (欽松), who is aged 38, is the vice president of the Target Group and the general manager of BB Jinhuangshan. He is responsible for the sales and marketing of the Target Group. He joined the Target Group in 2002.

Mr. Tang Jian Xin (唐建新), who is aged 40, is the general manager of SZ Kecai. He joined CD Goldroc in 1997 and the Target Group in 2006. He has more than 10 years of experience in cigarette package industry and has been awarded 2009 年度廣東省企業優秀管理人材 (Outstanding management of enterprises in Guangdong Province 2009*).

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Mr. Jiang Xiang Yu (蔣祥瑜), who is aged 55, is the general manager of XF Jinfeihuan. He joined the Target Group in 1999 and has over 10 years of experience in cigarette package industry.

Mr. Zheng Chao (鄭超), who is aged 48, is the general manager of ZT Antong. He joined the Target Group in 1999 and has over 10 years of experience in laminated paper manufacturing industry. Mr. Zheng holds a college degree.

Mr. Tsoi, who is the founder of the Target Group, has been the chairman of the Target Group since its establishment. Save for the replacement of Mr. Gao Pixing as the chief executive officer of the Target Group in 2007, there has been no material change in the senior management team of the Target Group. It is expected that there will not be any material change in the management team of the Target Group as a result of the Acquisition Completion.

As at 31 December 2010, the Target Group and CD Goldroc, an associated company of the Target, had a total of 1,263 and 876 employees respectively, the breakdown of which are set out as follow:

Department Management Production Technical support Quality control Research and development Sales and marketing Administration Account and finance Others Total	Number of employees Target Group CD Goldroc 21 5 814 501 29 27 52 47 38 22 30 28 74 49 22 7 183 190 1,263 876	Number of employees Target Group CD Goldroc 21 5 814 501 29 27 52 47 38 22 30 28 74 49 22 7 183 190 1,263 876
		876

Remuneration

The employees of the Target Group are remunerated by way of fixed salary. The Target Group has devised an assessment system for its employees and uses the assessment result for the annual bonus payments, salary reviews and promotion decisions.

All the staff of the Target Group undergoes a performance appraisal once a year. The appraisal enables the Target Group to assess each individual staff’s strengths and areas for improvement, which can help the Target Group to implement measures to train and develop each individual staff.

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Relationship with staff

As advised by the Vendor, the Target Group has been maintaining good working relationship with its staff. The Target Group has not encountered any difficulty in recruitment and retention of staff for its operation or experienced any material disruption of its operation as a result of labour disputes since the establishment of its business.

Research and development

The Target Group keeps abreast of the latest development of the packaging and printing industry in relation to production technology, raw materials and production machinery by attending seminars and exhibitions relating to the packaging and printing industry. During the three years ended 31 December 2009 and nine months ended 30 September 2010, the research and development expenses of the Target Group amounted to approximately nil, HK$2.5 million, HK$3.0 million and HK$3.6 million respectively. The increase in research and development expenses was mainly attributable to the increase in focus on the research and development to maintain and enhance the competitiveness of the Target Group’s products.

SZ Kecai has been designated by the Target Group as the base for research and development. The research and development team consists of 38 members, a majority of which are experienced technicians or have relevant academic background. The research and development team is mainly responsible for developing new production technologies and materials for printing cigarette packages and general printing to achieve the following general objectives:

improve the quality of the products;
increase production efficiency;
increase the use of environmental friendly materials for production;
introduce new products; and
improve the anti-counterfeit features of cigarette packages.

The Target Group has their own internal design team within research and development team, while external reputable designers may also be engaged when needed. Both of the internal design team and the external designer are responsible for developing new designs for cigarette packages per customer specifications.

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Patents

As at the Latest Practicable Date, the Target Group had registered the following patents:

		Place of		Date of
	Description	registration	Patent No.	registration
1.	Improved webfed	PRC	200920132757.0	31 March 2010
	printing in-line sheeter
2.	Generic gravure cylinder	PRC	200920132758.5	31 March 2010
3.	Decurling device	PRC	200920132906.3	31 March 2010
4.	Stamping Foil looping	PRC	200920132756.6	26 May 2010
	device
5.	Small cigarette package	PRC	200920132907.8	26 May 2010
	bundling device
6.	Gravure printing system	PRC	201020144863.3	17 November 2010
	with registered seam
	skipping

As at the Latest Practicable Date, the Target Group had applied for the registration of the following patents:

		Place of	Application	Date of
	Description	registration	number	application
1	Foil stamping machine	PRC	201010243777.2	3 August 2010
	with improved used
	foil rewind device
2	An in-feed device for foil	PRC	201010245986.0	5 August 2010
	stamping machine
3	Plate cylinder storage	PRC	201020270004.9	23 July 2010
	device
4	Water-resistant	PRC	200910108627.8	14 July 2010
	anti-fogging UV
	varnish
5	Special ink for single	PRC	200910108626.3	14 July 2010
	colour gravure printing
6	Gravure printing method	PRC	200910108947.3	22 July 2010
	with foil seam skipping
7	Water-resistant	PRC	201010243728.9	3 August 2010
	anti-fogging UV-cured
	varnish for foil
	stamping

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		Place of	Application	Date of
	Description	registration	number	application
8	A type of carriage for	PRC	201020260636.7	12 July 2010
	transporting and
	storing shafts
9	Dual position mobile	PRC	201020260637.1	12 July 2010
	paper piling device
10	Unwind shaft with	PRC	201020260632.9	12 July 2010
	adjustable reel
	diameter

Competition

The printing and packaging industry is generally a capital-intensive industry which requires substantial investment in machinery and equipment. The Vendor believes that making such intensive capital investments may not be justifiable for certain potential competitors who are in lack of the support in terms of funds and solid sales. Moreover, the printing industry in the PRC is regulated by the PRC government under specific rules and regulations. The Company considers that the Target Group and its associated company have established scalable production capacities and long business relationships with their respective customers and are equipped with high quality equipment and machineries which are imported from overseas and with advanced technology, and the management team of the Target Group is experienced in the industry, and, therefore, believes that the business of the Target Group and its associated company cannot be easily replaced with or adopted by other potential competitors.

In response to the competition from those market players which have comparable or better financial resources, technical expertise and sales and marketing network, the Target Group and its associated company have been continuously improving and upgrading its product features and quality in order to maintain their competitiveness in the market.

Awards and certifications

The Target Group has obtained various awards and certifications relating to its business, including the major awards and certifications set out below:

		Date of
Awards/Certifications	Issuing organisation	issue/award	Date of expiry
SZ Kecai
首屆中國凹版印刷精品	中國印刷技術協會凹版印刷分會	November	Not applicable
賽– 優秀獎	(Rotogravure Division of the	2008
(Award of Excellence – The	Printing Technology
1st China Premier Gravure	Association of China*)
Printing Competition*)

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		Date of
Awards/Certifications	Issuing organisation	issue/award	Date of expiry
上海煙印杯– 2007年中國十大	全球煙草包裝	November	Not applicable
煙標– 金獎	(Global Tobacco Packaging*)	2008
(Gold Award – Shanghai
Cigarette Package Printing
Cup – Top 10 Cigarette
Package in China 2007*)
第七屆中國包裝印刷質量評比–	中國包裝聯合會包裝	November	Not applicable
金獎	印刷委員會	2009
(Gold Medal – The 7th China	(China Packaging Federation
Quality Assessment of	Packaging & Printing
Packaging & Printing	Committee*)
Products*)
GB/T 19001-2008/	China Quality Market	12 November	11 November
ISO 9001:2008 Quality	Certification Group	2009	2012
Management System
Certificate
GB/T 24001-2004/	China Quality Market	12 November	11 November
ISO 14001:2004	Certification Group	2009	2012
Environmental Management
Systems Certificate
GB/T 28001-2001 Occupational	China Quality Market	12 November	11 November
Health and Safety	Certification Group	2009	2012
Management Systems
Certificate
ISO/IEC 17025:2005 General	China National Accreditation	16 November	15 November
Requirements for	Service for Conformity	2009	2012
Competence of Testing and	Assessment
Calibration Laboratories
(CNAS-CL01 Accreditation
Criteria for the Competence
of Testing and Calibration
Laboratories)
廣東省企業500強	廣東省企業聯合會	July 2010	Not applicable
(Top 500 Enterprise in	(Guangdong Province
Guangdong Province	Federation of Enterprise*)
2009-2010*)	廣東省企業家協會
	(Guangdong Province
	Federation of
	Entrepreneurs*)
第二屆中國凹版印刷精品賽	中國印刷技術協會凹版印刷分會	October 2010	Not applicable
– 優秀獎(Award of Excellence	(Rotogravure Division of the
– The 2nd China Premier	Printing Technology
Gravure Printing	Association of China*)
Competition*)
第八屆中國包裝印刷質量評比	中國包裝聯合會包裝印刷委員會	November	Not applicable
– 銀獎	(China Packaging Federation	2010
(Silver Medal – The 8th	Packaging & Printing
China Quality Assessment of	Committee*)
Packaging & Printing
Products*)

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		Date of
Awards/Certifications	Issuing organisation	issue/award	Date of expiry
GB/T 19022-2003/ISO	中啟計量體系認証中心	7 January 2011	6 January 2016
10012:2003 Measurement	(Zhong Qi Measurement
Management Systems	System Certification Centre*)
XF Jinfeihuan
湖北印刷企業50強	湖北省新聞出版局	January 2009	Not applicable
(Top 50 Enterprises of Hubei	(Hubei Province
Printing Industry *)	Administration of Press and
	Publication*)
湖北印刷企業50強	湖北省新聞出版局	January 2010	Not applicable
(Top 50 Enterprises of Hubei	(Hubei Province
Printing Industry *)	Administration of Press and
	Publication*)
襄樊市印刷企業首屆產品質量評	襄樊市印刷技術協會	September	Not applicable
比活動－金獎(Gold Award –	(Xiangfan City Association	2010
The 1st Product Quality of	of Printing Technology*)
Printing Enterprise Contest
of Xiangfan City*)
BB Jinhuangshan
2008年中國印刷企業100強	印刷經理人雜誌	2008	Not applicable
(Top 100 Printing Enterprise	(Printing Manager
of China 2008*)	Magazine*)
第二屆中國凹版印刷精品賽	中國印刷技術協會凹版印刷分會	October 2010	Not applicable
– 銀獎	(Rotogravure Division of
(Silver Award – The 2nd	the Printing Technology
China Premier Gravure	Association of China*)
Printing Competition*)
ISO14001:2004 GB/T	China Quality Certification	27 January	26 January
24001-2004 Environmental	Centre	2011	2014
Management System
Certificate
GB/T 28001-2001 Occupational	China Quality Certification	27 January	26 January
Health and Safety	Centre	2011	2014
Management System
Certificate
ISO9001:2008 GB/T 19001-2008	China Quality Certification	25 January	24 January
Quality Management System	Centre	2011	2014
Certificate

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Environmental protection

The Target Group is aware of the importance of environmental protection, and has controlled its pollutant emissions and ensured compliance with the relevant PRC environmental regulations during its production process. The Target Group has imposed the following measures in relation to the environmental protection:

(i) the production staff will make sure that each production procedure will comply with the requirements of the relevant PRC environmental regulations; and
(ii) the production staff will make sure all wastages produced during production process are properly disposed of in accordance with the requirements of the relevant PRC environmental regulations.

As at the Latest Practicable Date, the Target Group had not been in breach of any environmental regulations in the PRC and was not subject to any environmental claim. The Target Group has obtained all the required permissions from the relevant authorities in the PRC confirming their satisfaction of the Target Group’s environmental protection measures and facilities. During the three years ended 31 December 2009 and nine months ended 30 September 2010, the expenses in relation to the compliance with applicable rules and regulations were approximately HK$51,000, HK$52,000, HK$58,000 and HK$48,000 respectively. The Target Group expects that the expenses to be incurred for environmental compliance in the foreseeable future will remain at similar level. As at the Latest Practicable Date, the Target Group had been handling the applicable laws and regulations in relation to environmental protection internally, whose responsible staff had been involved in formulating and implementing such measures for over 3 years. The Target Group also had external professional consultant available for advising if and when necessary.

Safety matters

The Target Group regards safety matters as important issues to social responsibility. According to the 中華人民共和國安全生產法 (Production Safety Law of the PRC*), the Target Group shall maintain conditions for safe production as provided in the Production Safety Law and other relevant laws and industrial standards. The Target Group is required to provide the employees with education and training programs regarding production safety. The design, manufacture, installation, use, checking and maintenance of the Target Group’s safety equipment are required to conform to applicable national or industrial standards. As at the Latest Practicable Date, there had not been any material labour disputes and non-compliance of safety records reported by the Target Group.

Financial information of the Target Group

The following table is a summary of the results of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 which has been extracted from, and should be read in conjunction with, the accountants’ report on the Target Group set out in Appendix II to this circular.

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LETTER FROM THE BOARD

Consolidated Income Statements

Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976
231,538 47,555 (15,588) (51,125) (15,688) 196,692 42,062 (33,345) 86,265 291,674 (22,818)	302,472 63,723 (19,490) (49,450) (13,763) 283,492 – (32,788) 108,390 359,094 (50,461)	331,784 7,827 (38,331) (60,701) (9,474) 231,105 – (19,367) 115,192 326,930 (45,682)	227,299 4,622 (33,861) (47,911) (9,181) 140,968 – (16,230) 79,894 204,632 (30,414)	251,011 18,383 (21,857 (30,911 (14,627
				201,999 – (15,367 127,183
				313,815 (45,839
268,856	308,633	281,248	174,218
215,340 53,516	261,488 47,145	231,716 49,532	143,260 30,958	223,313 44,663
268,856	308,633	281,248	174,218

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LETTER FROM THE BOARD

Note 1: Set out below is the breakdown of other income of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010:

Other income Interest income Rental income Exchange gain, net Fair value gain of derivative financial instruments, net Gain on sales of scrapped materials Gain on sales of paper Gain on disposals of property, plant and equipment Gain on disposal of an unconsolidated subsidiary Gain on de-registration of a subsidiary Write off of trade and other payables Sundry income	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 4,639 8,460 1,079 617 2,847 1,179 1,676 2,944 2,424 2,365 20,343 25,600 – – 5,823 85 586 – – – 2,151 1,204 3,348 1,104 1,832 11,787 14,148 – – – 723 216 – 31 951 879 – – – – – 10,185 – – – 463 266 53 53 3,589 5,306 1,382 403 393 976 47,555 63,723 7,827 4,622 18,383	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 4,639 8,460 1,079 617 2,847 1,179 1,676 2,944 2,424 2,365 20,343 25,600 – – 5,823 85 586 – – – 2,151 1,204 3,348 1,104 1,832 11,787 14,148 – – – 723 216 – 31 951 879 – – – – – 10,185 – – – 463 266 53 53 3,589 5,306 1,382 403 393 976 47,555 63,723 7,827 4,622 18,383
		18,383

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LETTER FROM THE BOARD

Consolidated statements of financial position

At 2007 HK$’000 479,025 11,739 42,898 234,068 15,496	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242
783,226 120,321 327,410 499 28,637 4,480 66,104 91,365 638,816	830,280 118,440 409,720 680 12,141 – 72,476 155,260 768,717	837,031 138,755 578,913 753 6,538 111,471 45,203 97,447 979,080	835,599
			129,512 321,384 769 2,343 18,171 19,650 179,397
			671,226
1,422,042	1,598,997	1,816,111	1,506,825

1 356,322 356,323 108,804 465,127	1 597,411 597,412 97,738 695,150	1 833,170 833,171 112,655 945,826	1 600,036
			600,037 119,777
			719,814

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At 2007 HK$’000 - - 38,846 9,144 132	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 - - 24,722 - - 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 - - 24,722 - - 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 - - 24,722 - - 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457
48,122 301,119 49,870 69,604 5,959 9,951 132,537 329,745 10,008 908,793 956,915	37,408 294,028 214,709 2 1,618 13,224 – 335,773 7,085 866,439 903,847	18,921 510,040 – – 2,453 9,676 – 327,251 1,944 851,364 870,285	117,940
			330,324 – – 5,067 16,722 – 316,750 208
			669,071
			787,011
1,422,042 (269,977) 513,249	1,598,997 (97,722) 732,558	1,816,111 127,716 964,747	1,506,825

			2,155

			837,754

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LETTER FROM THE BOARD

Qualified opinion in accountants’ report

Shareholders and investors should note that the accountants’ report on the Target Group set out in Appendix II to this circular is qualified in respect of the non-consolidation of some of the former subsidiaries of the Target Group which were disposed of during the year ended 31 December 2007. The Company considers the qualified opinion of the Target will cease to have any impact on the consolidated financial statements of the Target subsequent to the year ended 31 December 2007, and, therefore, will not have any material impact to the Acquisition.

Critical accounting policies and estimates

The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Target Group’s accounting policies. The estimates and judgement are based on historical records, experience and other factors that are considered by the management to be relevant. Actual results may differ from these estimates. The significant accounting policies adopted by the Target Group are detailed in note 2 to the accountants’ report on the Target Group set out in Appendix II to this circular. Certain critical accounting policies and estimates are summarised as follows:

Associates

Associates are entities over which the Target Group has significant influence. Investment in an associate is accounted for by the equity method and is initially recognised at cost. Any excess of the Target Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss.

The Target Group’s share of an associate’s post-acquisition profits or losses is recognised in consolidated profit or loss, and its share of the post- acquisition movements in reserves is recognised in the consolidated reserves.

Business combination

For the three years ended 31 December 2009

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Target Group. Identifiable assets, liabilities and contingent liabilities of the subsidiary in an acquisition are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the Target Group’s share of the net fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill. Any excess of the Target Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised in the consolidated profit or loss.

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LETTER FROM THE BOARD

For the nine months ended 30 September 2010

The acquisition method is used to account for the acquisition of a subsidiary in a business combination. The cost of acquisition is measured at the acquisition-date fair value of the assets given, equity instruments issued, liabilities incurred and contingent consideration. Acquisition-related costs are recognised as expenses in the periods in which the costs are incurred and the services are received. Identifiable assets and liabilities of the subsidiary in the acquisition are measured at their acquisition-date fair values. The excess of the cost of acquisition over the Target’s share of the net fair value of the subsidiary’s identifiable assets and liabilities is recorded as goodwill. Any excess of the Target’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss as a gain on bargain purchase which is attributed to the Target.

In a business combination achieved in stages, the previously held equity interest in the subsidiary is remeasured at its acquisition-date fair value and the resulting gain or loss is recognised in consolidated profit or loss. The fair value is added to the cost of acquisition to calculate the goodwill.

If the changes in the value of the previously held equity interest in the subsidiary were recognised in other comprehensive income, the amount that was recognised in other comprehensive income is recognised on the same basis as would be required if the previously held equity interest were disposed of.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised when it is probable that the economic benefits will flow to the Target Group and the amount of revenue can be measured reliably.

Revenue from the sales of manufactured goods are recognised on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers.

Impairment loss on receivables

The Target Group makes impairment loss on receivables based on assessments of the recoverability of the receivables, including the current creditworthiness and the past collection history of each debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment loss on receivables requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the receivables and impairment loss on receivables in the year/period in which such estimate has been changed.

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LETTER FROM THE BOARD

Depreciation

Depreciation of property, plant and equipment is calculated at rates sufficient to write off their cost less their residual values over the estimated useful lives on a straight-line basis. The principal useful lives are as follows:

Buildings	20 years
Plant and machinery	5-10 years
Office equipment	5 years
Motor vehicles	5 years

Others

For details of the significant accounting policies and key sources of estimation uncertainty relating to the Target Group’s financial information, please refer to notes 2 and 3 to the accountants’ report on the Target Group as set out in Appendix II to this circular.

Dividend policy

The Target may declare dividends after taking into account, among other things, the results of the Target Group, cash flows and financial condition and position, operating and capital requirements. The amount of distributable profits is based on Hong Kong Financial Reporting Standards, the memorandum and articles of association of the Target, applicable laws and regulations and other factors that are relevant to the Target Group, including, but not limited to, the consent from certain banks which have credit lines with the Target Group.

Management discussion and analysis of the results of the Target Group

Turnover

Set out below is an analysis of the turnover of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 as categorized by products:

Turnover Cigarette packages Laminated papers Total	Year ended 31 December 2007 2008 HK$’000 Approximate % HK$’000 Approximate % 699,114 72.2 952,169 84.3 269,659 27.8 176,814 15.7 968,773 100.0 1,128,983 100.0	2009 HK$’000 Approximate % 1,025,350 97.6 25,288 2.4 1,050,638 100.0	Nine months ended 30 September 2010 HK$’000 Approximate % 743,397 96.6 25,902 3.4 769,299 100.0	Nine months ended 30 September 2010 HK$’000 Approximate % 743,397 96.6 25,902 3.4 769,299 100.0
				100.0

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LETTER FROM THE BOARD

The Target Group’s turnover increased from approximately HK$968.8 million in 2007 to approximately HK$1,129.0 million in 2008, representing an increase of approximately 16.5%, which was mainly due to the increase in demand and expansion in the customer base. The turnover of the Target Group amounted to approximately HK$1,050.6 million in 2009, representing a decrease of approximately 6.9% as compared to that of 2008, which mainly due to the scale down of the manufacturing of laminated papers segment in 2008 with a view to devoting more resources for the development of the printing of cigarette packages businesses. For the nine months ended 30 September 2010, the Target Group recorded a turnover of approximately HK$769.3 million, representing a slight increase of approximately 1.6% as compared to that for the same period in 2009.

The printing of cigarette packages has been the major segment of the Target Group throughout the three years ended 31 December 2009 and nine months ended 30 September 2010, which accounted for approximately 72.2%, 84.3%, 97.6% and 96.6% respectively of the total turnover of the Target Group. The turnover generated from the printing of cigarette packages segment has increased from approximately HK$699.1 million in 2007 to approximately HK$952.2 million in 2008, representing a growth of approximately 36.2%, and further increased to approximately HK$1,025.4 million in 2009, representing a growth of approximately 7.7%. For the nine months ended 30 September 2010, the turnover generated from the printing of cigarette packages amounted to approximately HK$743.4 million, representing a growth of approximately 0.64% as compared to that for the same period in 2009. The increase in turnover for the segment was mainly due to the increase in demand of the customers and expansion in customer base of the Target Group.

Apart from the printing of cigarette packages, the Target Group is also engaged in the manufacturing of laminated papers during the three years ended 31 December 2009 and nine months ended 30 September 2010, which accounted for approximately 27.8%, 15.7%, 2.4% and 3.4% respectively of the total turnover of the Target Group. The turnover generated from the manufacturing of laminated papers has decreased from approximately HK$269.7 million in 2007 to approximately HK$176.8 million in 2008, representing a drop of approximately 34.4%, and further dropped to approximately HK$25.3 million in 2009, representing a significant drop of approximately 85.7% as compared to that of 2008. For the nine months ended 30 September 2010, the Target Group recorded a turnover of approximately HK$25.9 million for the manufacturing of laminated papers. The decrease in turnover generated from the manufacturing of laminated papers segment was mainly attributable to the Target Group’s decision in scaling down the segment by not renewing the joint venture contract and ceasing of the operation of CD Jinfurong, being one of the two subsidiaries of the Target Group engaging in the manufacturing of laminated papers with a view to devoting more resources for the development of the printing of cigarette packages businesses in 2008.

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LETTER FROM THE BOARD

Cost of goods sold

During the three years ended 31 December 2009 and nine months ended 30 September 2010, cost of goods sold represents the direct costs of production, which includes primarily raw material costs, manufacturing expenses and direct labour costs of the Target Group. The cost of goods sold is summarised below:

Cost of goods sold Raw materials Direct labour Manufacturing expenses Total	Year ended 31 December 2007 2008 HK$’000 Approximate % HK$’000 Approximate % 606,442 82.3 678,873 82.1 40,076 5.4 49,985 6.1 90,717 12.3 97,653 11.8 737,235 100.0 826,511 100.0	2009 HK$’000 Approximate % 574,928 80.0 42,720 5.9 101,206 14.1 718,854 100.0	Nine months ended 30 September 2010 HK$’000 Approximate % 396,491 76.5 35,151 6.8 86,646 16.7 518,288 100.0	Nine months ended 30 September 2010 HK$’000 Approximate % 396,491 76.5 35,151 6.8 86,646 16.7 518,288 100.0
				100.0

Raw materials

Raw material costs mainly represented the cost of paper, ink and hot stamping foils which are mainly used for the manufacturing of laminated papers. For the three years ended 31 December 2009 and nine months ended 30 September 2010, the raw material costs accounted for over 75% of the total cost of goods sold. Amongst the raw material costs, the cost of paper accounted for approximately 70.7%, 72.7%, 72.4% and 66.9% of the total raw material costs respectively during the three years ended 31 December 2009 and nine months ended 30 September 2010. The cost of paper as a percentage to the total raw material costs during the three years ended 31 December 2009 remained stable and ranged from approximately 70.7% to approximately 72.7%, while the cost of paper as a percentage to the total costs and nine months ended 30 September 2010 dropped to approximately 66.9% mainly due to the implementation of cost control measures to reduce the waste of raw materials during the production process.

Manufacturing expenses

Manufacturing expenses mainly represented depreciation expenses, repair and maintenance costs, staff cost of the factory management and utility expenses. Amongst the manufacturing expenses, depreciation expenses accounted for approximately 40.3%, 40.3%, 39.1% and 42.0% respectively of the manufacturing expenses during the three years ended 31 December 2009 and nine months ended 30 September 2010. The depreciation expenses mainly represented the depreciation for the production plant and machineries of the Target Group.

Direct labour

Direct labour costs mainly represented salaries paid to the production staff of the Target Group, which accounted for approximately 5.4%, 6.1%, 5.9% and 6.8% respectively of the total cost of goods sold of the Target Group during the three years ended 31 December 2009 and the nine months ended 30 September 2010. The generally increasing trend was mainly attributable to the increase in wages of the labour.

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Gross profit and gross profit margin

During the three years ended 31 December 2009 and nine months ended 30 September 2010, the average gross profit margin of the cigarette package products were higher than the average gross profit margin of the laminated papers products, which were set out as follows:

Gross profit Cigarette packages Laminated papers Total Gross profit margin Cigarette packages Laminated papers Overall	2007 HK$’000 Approximate % 193,316 83.5 38,222 16.5 231,538 100.0	Year ended 31 December Nine months ended 30 September 2008 2009 2010 HK$’000 Approximate % HK$’000 Approximate % HK$’000 Approximate % 279,318 92.3 326,827 98.5 244,513 97.4 23,154 7.7 4,957 1.5 6,498 2.6 302,472 100.0 331,784 100.0 251,011 100.0 Year ended 31 December Nine months ended 30 September 2007 2008 2009 2010 Approximate % Approximate % Approximate % Approximate % 27.7 29.3 31.9 32.9 14.2 13.1 19.6 25.1 23.9 26.8 31.6 32.6

Overall

For the three years ended 31 December 2009 and nine months ended 30 September 2010, the gross profit of the Target Group amounted to approximately HK$231.5 million, HK$302.5 million, HK$331.8 million and HK$251.0 million respectively and the gross margin of the Target Group was approximately 23.9%, 26.8%, 31.6% and 32.6% respectively.

Printing of cigarette packages

As a result of the increase in customer demand, increase in customer base and the implementation of cost control policies, the gross profit of the printing of cigarette packages segment of the Target Group has increased during the three years ended 31 December 2009 and nine months ended 30 September 2010. The gross profit margin of the printing of cigarette packages segment increased during the three years ended 31 December 2009 and nine months ended 30 September 2010, from approximately 27.7% in 2007, to approximately 29.3% in 2008, approximately 31.9% in 2009 and approximately 32.9% for the nine months ended 30 September 2010. The continuous improvement in the gross profit margin for the printing of cigarette packages segment was mainly attributable to the implementation of cost control policies of the Target Group.

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Manufacturing of laminated papers

The gross profit of the manufacturing of laminated papers decreased throughout the three years ended 31 December 2009 and nine months ended 30 September 2010, which was mainly due to the Target Group’s decision in not renewing the joint venture contract of CD Jinfurong, being one of the two subsidiaries of the Target Group engaging in the manufacturing of laminated papers in 2008, in order to focus and devote more resources to the development of the Target Group’s cigarette package printing business. Subsequent to cessation of operation of CD Jinfurong, ZT Antong became the only subsidiary of the Target Group engaging in this business segment. For the year ended 31 December 2009 and nine months ended 30 September 2010, the gross profit of the manufacturing of laminated papers only accounted for less than 3% of the total gross profit of the Target Group.

Other income

During the three years ended 31 December 2009 and nine months ended 30 September 2010, other income of the Target Group amounted to approximately HK$47.6 million, HK$63.7 million, HK$7.8 million and HK$18.4 million respectively. The other income of the Target Group was mainly attributable to the net exchange gain, mainly arising from the repayment of non-Renminbi denominated payables, which amounted to approximately HK$20.3 million, HK$25.6 million, nil and HK$5.8 million respectively for the three years ended 31 December 2009 and nine months ended 30 September 2010. Interest income from bank deposit, gain on sales of scrapped materials and rental income accounted for three other major sources of other income which in aggregate amounted to approximately HK$8.0 million, HK$11.3 million, HK$7.4 million and HK$7.0 million respectively for the three years ended 31 December 2009 and nine months ended 30 September 2010. The Target Group also recorded a gain on sale of paper of approximately HK$11.8 million and HK$14.1 million for the two years ended 31 December 2008 respectively. In 2008, the Target Group recorded a gain on deregistration of a subsidiary of the Target Group, being CD Jinfurong, of approximately HK$10.2 million for the year ended 31 December 2008.

Selling and distribution costs

For the three years ended 31 December 2009 and nine months ended 30 September 2010, the selling and distribution costs amounted to approximately HK$15.6 million, HK$19.5 million, HK$38.3 million and HK$21.9 million respectively, representing approximately 1.6%, 1.7%, 3.6% and 2.8% respectively of the turnover of the Target Group. The increase trend of the selling and distribution costs of the Target Group was mainly attributable to the increase in focus on marketing to cope with the growth of the Target Group’s turnover.

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LETTER FROM THE BOARD

Administrative expenses

For the three years ended 31 December 2009 and nine months ended 30 September 2010, the administrative expenses amounted to approximately HK$51.1 million, HK$49.5 million, HK$60.7 million and HK$30.9 million respectively, representing approximately 5.3%, 4.4%, 5.8% and 4.0% respectively of the turnover of the Target Group. The administrative expenses remained stable for the two years ended 31 December 2008 and increased by approximately HK$11.2 million, which was mainly attributable to the staff bonus of approximately HK$8.6 million, to approximately HK$60.7 million for the year ended 31 December 2009. The administrative expenses for the nine months ended 30 September 2010 amounted to approximately HK$30.9 million, representing a decrease of approximately HK$17.0 million as compared to that for the same period in 2009. The decrease was mainly due to the staff bonus of approximately HK$8.6 million made for the nine months ended 30 September 2009, while no such staff bonus was made for the nine months ended 30 September 2010. Also, a net exchange loss of approximately HK$4.6 million was recorded for the nine months ended 30 September 2009, while net exchange gain was recorded for the nine months ended 30 September 2010.

Excess of fair value of net assets acquired over the cost of acquisition of a subsidiary

In 2007, the Target acquired the entire equity interests in Union Virtue International Limited, which held 6% equity interest in Brilliant Circle Printing and Packaging Limited (a subsidiary of the Target), from a related party at a consideration of HK$8 and recorded a gain on the acquisition equal to the difference of the net assets of Union Virtue International Limited and the consideration.

Finance cost

For the three years ended 31 December 2009 and nine months ended 30 September 2010, the finance costs of the Target Group amounted approximately HK$33.3 million, HK$32.8 million, HK$19.4 million and HK$15.4 million respectively. The interest expenses in respect of the bank borrowings accounted for more than 90% of the finance costs of the Target Group while the remaining represented the finance lease charges.

Discussion on the operating results of the Target Group

For the year ended 31 December 2007

Business review

Printing of cigarette packages

For the year ended 31 December 2007, the printing of cigarette packages segment recorded revenue and segmental profit of approximately HK$699.1 million and HK$205.3 million respectively and a gross profit margin for the printing of cigarette packages of approximately 27.7%. During the year, the cost of paper, ink, direct labour, depreciation expenses and hot stamping foil accounted for approximately 58.3%, 10.8%, 6.8%, 6.9% and 5.8% of the cost of goods sold respectively, while the cost of other miscellaneous raw

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materials, consumables and manufacturing expenses including repair and maintenance, and utilities expenses accounted for the remaining approximately 11.4% of the cost of goods sold.

Manufacturing of laminated papers

For the year ended 31 December 2007, the manufacturing of laminated papers segment recorded revenue and segmental profit of approximately HK$269.7 million and HK$25.5 million respectively and a gross margin for the manufacturing of laminated papers of approximately 14.2%. During the year, the cost of paper and aluminum foil accounted for approximately 57.6% and 26.9% of the cost of goods sold respectively, while the cost of other miscellaneous raw materials, direct labour and manufacturing expenses including depreciation expenses, repair and maintenance, and utilities expenses accounted for the remaining approximately 15.5% of the cost of goods sold.

Financial performance

The gross profit of the Target Group amounted to approximately HK$231.5 million for the year ended 31 December 2007 with gross profit margin of approximately 23.9%. The Target Group recorded other income of approximately HK$47.6 million, mainly comprising net exchange gain of approximately HK$20.3 million (mainly arising from the repayment of non-Renminbi denominated payables), gain on sales of paper of approximately HK$11.8 million and interest income of approximately HK$4.6 million. The Target Group recorded a profit attributable to its owners of approximately HK$215.3 million (representing a net profit margin of approximately 22.2%) which included an excess of fair value of net assets acquired over the cost of acquisition of a subsidiary amounted to approximately HK$42.1 million for the year ended 31 December 2007.

The performance of the associate of the Target, being CD Goldroc which was also engaged in the printing of cigarette packages, remained satisfactory, and recorded revenue of approximately HK$912.7 million and net profit of approximately HK$189.2 million for the year ended 31 December 2007. The share of result of such associate by the Target Group for the year ended 31 December 2007 amounted to approximately HK$86.3 million.

Dividend amounted to approximately HK$501.2 million was declared for the year.

Bad debt

For the year ended 31 December 2007, the Target Group recorded an impairment of receivables of approximately HK$8.6 million which mainly represented the impairment on receivables of approximately HK$4.5 million in relation to the selling of paper and the impairment on other receivable of approximately HK$4.0 million.

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Acquisitions and disposals

On 22 June 2007, the Target disposed of CT Printing Limited to Mr. Tsoi, who is a director of the Target, at a consideration of HK$10,000. On 30 September 2007, the Target disposed of Shenzhen Yuen Cheong Hong Trading Co., Ltd. to a related party, at a consideration of approximately HK$2,308,000. On 30 September 2007, the Target disposed of Hunan Yingkun Printing Ink & Chemicals Co., Ltd to an independent third party at a consideration of RMB8,400,000. The Target had not consolidated the results of the aforesaid subsidiaries and the carrying amount of CT Printing Limited, Shenzhen Yuen Cheong Hong Trading Co., Ltd. and Hunan Yingkun Printing Ink & Chemicals Co., Ltd. amounted to HK$10,000, HK$1,429,000 and RMB8,400,000 respectively, resulting in no gain or loss on disposal of CT Printing Limited and Hunan Yingkun Printing Ink & Chemicals Co., Ltd., while a gain on disposal of approximately HK$879,000 for the disposal of Shenzhen Yuen Cheong Hong Trading Co., Ltd.

On 8 June 2007, the Target Group acquired the entire interest in Union Virtue Limited from a related party at a consideration of HK$8 and an excess of fair value of net assets acquired over the cost of acquisition of Union Virtue Limited of approximately HK$42.1 million was recorded as a result of the acquisition. Union Virtue Limited is an investment holding company and its only asset is 6% equity interests in Brilliant Circle Printing & Packaging Limited, a subsidiary of the Target. The Target Group had also acquired additional 4.75% equity interest in Brilliant Circle Printing & Packaging Limited on 26 June 2007 at a consideration of US$9.6 million and goodwill of approximately HK$41.6 million was aroused as a result of the acquisition.

Capital structure

There was no significant change in the capital structure of the Target throughout the year. The Target Group was mainly financed by internal resources and bank borrowings.

Remuneration policies and employee information

As at 31 December 2007, the Target Group had over 1,400 full time employees in Hong Kong and the PRC. Total staffs costs (including directors’ emoluments) amounted to approximately HK$67.2 million for the year. All full time salaried employees were being paid on a monthly basis, plus a discretionary performance bonus. Factory workers were being remunerated based on a basic wages plus production incentive. In addition to salaries, the Target Group provided staff benefits including medical insurance, contribution to staff’s provident fund and in-house training to staff.

Foreign exchange exposure

The Target Group had exposure to foreign currency risk as most of its business transactions, assets and liabilities were principally denominated in RMB. The Target Group did not have a foreign currency hedging policy in respect of foreign currency exposure.

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For the year ended 31 December 2008

Business review

Printing of cigarette packages

For the year ended 31 December 2008, the printing of cigarette packages segment recorded revenue and segmental profit of approximately HK$952.2 million and HK$288.8 million respectively, representing an increase of approximately 36.2% and 40.7% respectively as compared to the same period in 2007. The gross profit margin for the printing of cigarette packages also increased from approximately 27.7% for the year ended 31 December 2007 to approximately 29.3% for the year ended 31 December 2008. The improvement in the segmental revenue, result and gross profit margin were mainly due to increase in demand the expansion of customer base and implementation of cost control policies of the Target Group. During the year, the cost of paper, hot stamping foil, ink, direct labour and depreciation expenses accounted for approximately 59.9%, 8.9%, 8.8%, 6.8% and 5.7% of the cost of goods sold respectively, while the cost of other miscellaneous raw materials, consumables and manufacturing expenses including repair and maintenance, and utilities expenses accounted for the remaining approximately 9.9%.

Manufacturing of laminated papers

For the year ended 31 December 2008, the manufacturing of laminated papers segment recorded revenue and segmental profit of approximately HK$176.8 million and HK$2.5 million respectively, representing a decrease of approximately 34.4% and 90.0% respectively as compared to the same period in 2007. The gross profit margin for the manufacturing of laminated papers slightly dropped from approximately 14.2% for the year ended 31 December 2007 to approximately 13.1% for the year ended 31 December 2008. During the year, the Target Group had decided not to renew the joint venture contract of CD Jinfurong, being one of the two subsidiaries of the Target Group engaging in the manufacturing of laminated papers with a view to devoting more resources for the development of the printing of cigarette packages businesses of the Target Group. The significant decrease in the segmental revenue and result was mainly due to the cessation of the operation of CD Jinfurong. During the year, the costs of paper and aluminum foil accounted for approximately 59.0% and 27.5% of the cost of goods sold for the manufacturing of laminated papers respectively, while the cost of other miscellaneous raw materials, direct labour and manufacturing expenses including depreciation expenses, repair and maintenance, and utilities expenses accounted for the remaining approximately 13.5%.

Financial performance

The Target Group recorded a gross profit of approximately HK$302.5 million for the year ended 31 December 2008, representing an increase of approximately 30.7% as compared to the year 2007, while the gross profit margin reached approximately 26.8% for the year ended 31 December 2008, representing a further improvement in gross profit margin from approximately 23.9% in the year 2007. The improvements in both gross profit and gross profit margin were mainly attributable to the continuous improvement in the

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financial performance of the printing of cigarette packages segment, the implementation of cost control policies and the scale down of the manufacturing of laminated paper segment which was less profitable as compared to the printing of cigarette packages segment of the Target Group. The Target Group recorded other income of approximately HK$63.7 million, mainly comprising net exchange gain of approximately HK$25.6 million (mainly arising from the repayment of non-Renminbi denominated payables), gain on sales of paper of approximately HK$14.1 million, gain on de-registration of a subsidiary, which was engaged in the manufacturing of laminated papers, of approximately HK$10.2 million and interest income of approximately HK$8.5 million. The Target Group recorded a profit attributable to its owners of approximately HK$261.5 million, representing an increase of approximately 21.5% or HK$46.2 million as compared to that for the year ended 31 December 2007. The net profit margin slightly improved from approximately 22.2% for the year ended 31 December 2007 to approximately 23.2% for the year ended 31 December 2008. The increase in profit attributable to the owners of the Target and improvement in net profit margin were mainly attributable to the increase in gross profit of approximately HK$71.0 million as a result of the boost in revenue of the Target Group, improvement in gross margin, increase in other income of approximately HK$16.1 million (which was mainly attributable to the increase in exchange gain, principally arising from the repayment of non-Renminbi denominated payables, of approximately HK$5.3 million, increase in gain on sales of paper of approximately HK$2.3 million and gain on de-registration of a subsidiary of the Target Group, being CD Jinfurong, of approximately HK$10.2 million) and increase in share of profit of an associate of approximately HK$22.1 million. For the same period in 2007, the Target Group recorded an excess of fair value of net assets acquired over the cost of acquisition of a subsidiary of approximately HK$42.1 million, while no such item was recorded by the Target Group for the year ended 31 December 2008.

The performance of the associate of the Target, being CD Goldroc which was also engaged in the printing of cigarette packages, further improved for the year ended 31 December 2008, and recorded revenue of approximately HK$1,102.0 million and net profit of approximately HK$238.6 million for the year ended 31 December 2008, representing an increase of approximately 20.7% and 26.1% respectively as compared to the same period in 2007. As a result of the improvement in revenue of the associate of the Target Group, the share of result of this associate by the Target Group for the year ended 31 December 2008 increased to approximately HK$108.4 million, representing an increase of approximately 25.6% as compared to that for the year ended 31 December 2007.

No dividend was declared for the year (for year ended 31 December 2007: HK$501.2 million).

Bad debt

For the year ended 31 December 2008, the Target Group recorded an impairment of receivables of approximately HK$13.1 million which was mainly due to the impairment of an unrecoverable receivable arising from the disposal of a former subsidiary of the Target Group of approximately HK$9.5 million and trade receivable of approximately HK$3.4 million.

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Capital structure

There was no significant change in the capital structure of the Target throughout the year. The Target Group was mainly financed by internal resources and bank borrowings.

Remuneration policies and employee information

As at 31 December 2008, the Target Group had over 1,200 full time employees in Hong Kong and the PRC. Total staffs costs (including directors’ emoluments) amounted to approximately HK$83.3 million for the year. All full time salaried employees were being paid on a monthly basis, plus a discretionary performance bonus. Factory workers were being remunerated based on a basic wages plus production incentive. In addition to salaries, the Target Group provided staff benefits including medical insurance, contribution to staff’s provident fund and in-house training to staff.

Acquisitions and disposals

During the year, the Target Group did not have any material acquisitions or disposals except for the de-registration of a subsidiary which was engaged in the manufacturing of laminated paper. The de-registration of this subsidiary was due to the expiration of the term of the relevant joint venture agreement and the management of the Target Group decided to concentrate on cigarette packaging business for more efficient resource allocation of the Target Group, and, accordingly, decided not to renew the joint venture agreement. A gain on de-registration of this subsidiary of the Target Group (being CD Jinfurong) of approximately HK$10.2 million was recorded for the year ended 31 December 2008.

Foreign exchange exposure

For the year ended 31 December 2009

Business review

Printing of cigarette packages

For the year ended 31 December 2009, the printing of cigarette packages segment recorded revenue and segmental profit of approximately HK$1,025.4 million and HK$322.0 million respectively, representing an increase of approximately 7.7% and 11.5% respectively as compared to the same period in 2008. The gross profit margin for the printing of cigarette packages increased from approximately 29.3% for the year ended 31 December 2008 to approximately 31.9% for the year ended 31 December 2009. The improvements in the segmental revenue, result and gross profit margin were mainly due to expansion of existing customer base by developing new design for the customers

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despite the global financial downturn and the implementation of cost control policies. During the year, the cost of paper, ink, hot stamping foil, direct labour and depreciation expenses accounted for approximately 58.7%, 9.9%, 9.7%, 5.9% and 5.5% of the cost of goods sold on the printing of cigarette of packages respectively, while the cost of other miscellaneous raw materials, consumables and manufacturing expenses including repair and maintenance, and utilities expenses accounted for the remaining approximately 10.3%.

Manufacturing of laminated papers

For the year ended 31 December 2009, the manufacturing of laminated papers segment recorded revenue and segmental profit of approximately HK$25.3 million and HK$0.3 million respectively, representing a decrease of approximately 85.7% and 88.0% respectively as compared to the same period in 2008. The gross profit margin for the manufacturing of laminated papers increased from approximately 13.1% for the year ended 31 December 2008 to approximately 19.6% for the year ended 31 December 2009. The decrease in overall revenue and result of the segment were mainly due to the effect of the cessation of the operation of CD Jinfurong in 2008. The improvement in gross profit margin was mainly attributable to the implementation of cost control policies and the decrease in cost of paper, being the major raw material of the segment, as a percentage of total cost for the year. During the year, the costs of aluminum foil and paper accounted for approximately 45.5% and 28.7% of the cost of goods sold for the manufacturing of laminated papers respectively, while the cost of other miscellaneous raw materials, direct labour and manufacturing expenses including depreciation expenses repair and maintenance, and utilities expenses accounted for the remaining approximately 25.8%.

Financial performance

Despite the scaling down of the manufacturing of laminated papers segment of the Target Group, the Target Group recorded a gross profit of approximately HK$331.8 million for the year ended 31 December 2009, representing an increase of approximately 9.7% as compared to the year 2008, while the gross profit margin reached approximately 31.6% for the year ended 31 December 2009, representing a further improvement in gross profit margin from approximately 26.8% in the year 2008. The improvements in gross profit and gross profit margin were mainly attributable to the improvement in the financial performance of the printing of cigarette packages segment, the implementation of cost control policies and the scale down of the manufacturing of laminated paper segment which was less profitable as compared to the printing of cigarette packages segment of the Target Group. The Target Group recorded other income of approximately HK$7.8 million, mainly attributable to the gain on sales of scrapped materials of approximately HK$3.3 million and rental income of approximately HK$2.9 million. The Target Group recorded a profit attributable to its owners of approximately HK$231.7 million, representing a decrease of approximately 11.4% or HK$29.8 million as compared to that for the year ended 31 December 2008 and net profit margin of approximately 22.1%, representing a slight drop of approximately 1.1% as compared to that in 2008. The decrease in the profit of the Target Group for the year ended 31 December 2009 when compared to that of 2008, was largely due to other income recorded for the year 2008 in relation to exchange gain, gain on sales of paper and gain on de-registration of a subsidiary of the Target Group

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(being CD Jinfurong) of approximately HK$25.6 million, HK$14.2 million and HK$10.2 million respectively, which were not recorded in 2009. Despite the global financial downturn, which spanned over fourth quarter of 2008 and whole year of 2009, the business of the Target Group had not been materially adversely affected.

The performance of the associate of the Target, being CD Goldroc which was also engaged in the printing of cigarette packages, remained strong for the year ended 31 December 2009, and recorded revenue of approximately HK$1,072.0 million for the year ended 31 December 2009, representing a slight decrease of approximately 2.7% as compared to the same period in 2008. Despite the decrease in revenue of the associate of the Target Group, the net profit of the associate increased by approximately 7.0% as compared to the year ended 31 December 2008 and reached approximately HK$255.2 million for the year ended 31 December 2009, and the share of result of this associate by the Target Group for the year ended 31 December 2009 increased to approximately HK$115.2 million, representing an increase of approximately 6.3% as compared to that for the year ended 31 December 2008.

No dividend was declared for the year (year ended 31 December 2008: nil).

Bad debt

For the year ended 31 December 2009, the Target Group recorded an impairment of receivables of approximately HK$7.5 million which was mainly due to the impairment of receivables of approximately HK$7.2 million in relation to the selling of papers by the Target Group.

Capital structure

There was no significant change in the capital structure of the Target throughout the year. The Target Group was mainly financed by internal resources and bank borrowings.

Remuneration policies and employee information

As at 31 December 2009, the Target Group had over 1,200 full time employees in Hong Kong and the PRC. Total staffs costs (including directors’ emoluments) amounted to approximately HK$87.4 million for the year. All full time salaried employees were being paid on a monthly basis, plus a discretionary performance bonus. Factory workers were being remunerated based on a basic wages plus production incentive. In addition to salaries, the Target Group provided staff benefits including medical insurance, contribution to staff’s provident fund and in-house training to staff.

Acquisitions and disposals

During the year, the Target Group did not have any material acquisitions or disposals.

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Foreign exchange exposure

For the nine months ended 30 September 2010

Business review

Printing of cigarette packages

For the nine months ended 30 September 2010, the printing of cigarette packages segment recorded revenue and segmental profit of approximately HK$743.4 million and HK$282.2 million respectively, representing an increase of approximately 0.6% and 34.1% respectively as compared to the same period in 2009. The gross profit margin for the printing of cigarette packages increased from approximately 30.5% for the nine months ended 30 September 2009 to approximately 32.9% for the nine months ended 30 September 2010. During the period, the cost of paper, hot stamping foil, ink, depreciation expenses and direct labour accounted for approximately 51.8%, 11.3%, 10.9%, 7.2% and 6.9% of the cost of goods sold for the printing of cigarette packages respectively, while the cost of other miscellaneous raw materials, consumables and manufacturing expenses including repair and maintenance, and utilities expenses accounted for the remaining approximately 11.9%. The improvements in the segmental result and gross profit margin were mainly due to the implementation of cost control policies for the period.

Manufacturing of laminated papers

For the nine months ended 30 September 2010, the manufacturing of laminated papers segment recorded revenue and segmental profit of approximately HK$25.9 million and HK$5.3 million respectively, representing an increase of approximately 42.3% and a turnaround from a segment loss position respectively as compare to the same period in 2009. The gross profit margin for the manufacturing of laminated papers increased from approximately 10.2% for the nine months ended 30 September 2009 to approximately 25.1% for the nine months ended 30 September 2010. During the period, the costs of aluminum foil and paper accounted for approximately 47.3% and 35.8% of the cost of goods sold for the manufacturing of laminated papers respectively, while the cost of other miscellaneous raw materials, direct labour and manufacturing expenses including depreciation expenses, repair and maintenance, and utilities expenses accounted for the remaining approximately 16.9%. The improvement in the segmental revenue, profit and gross margin were mainly due to the slight increase in demand in the segment and implementation of cost control policies.

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Financial performance

As a result of the implementation of cost control policies, the Target Group recorded a gross profit of approximately HK$251.0 million for the nine months ended 30 September 2010, representing an increase of approximately 10.4% as compared to the same period in 2009, while the gross profit margin reached approximately 32.6% for the nine months ended 30 September 2010, representing a further improvement in gross profit margin from approximately 30.0% in the same period in 2009. The Target Group recorded other income of approximately HK$18.4 million, mainly comprising net exchange gain of approximately HK$5.8 million (mainly arising from the repayment of non-Renminbi denominated payables), write off of trade and other payables of approximately HK$3.6 million, interest income of approximately HK$2.8 million and rental income of approximately HK$2.4 million. The Target Group recorded a profit attributable to its owners of approximately HK$223.3 million, representing an increase of approximately 55.8% or HK$80.0 million as compared to that for the nine months ended 30 September 2009 and net profit margin of approximately 29.0%, representing an increase of approximately 10.1% as compared to that for the same period in 2009. The increase in the profit and net profit margin of the Target Group for the nine months ended 30 September 2010 when compared to that of 2009, were largely due to the increase in gross profit margin, the increase in share of profit of an associate of approximately HK$47.3 million, the implementation of cost control policies by the Target Group which reduced the selling and distribution costs and administrative expenses by approximately HK$12.0 million and HK$17.0 million respectively and the increase in other income in relation to exchange gain of approximately HK$5.8 million, which was mainly due to the exchange gain recorded in the repayments of non-Renminbi denominated payables as a result of appreciation of RMB, being the functional currency of the Target Group, against other currencies and write off of trade and other payables of HK$3.5 million respectively.

The performance of the associate of the Target, being CD Goldroc which was also engaged in the printing of cigarette packages, remained strong for the nine months ended 30 September 2010, and recorded revenue of approximately HK$1,023.9 million and net profit of approximately HK$321.0 million for the nine months ended 30 September 2010, representing a growth of approximately 39.4% and 78.3% respectively as compared to the same period in 2009. Notwithstanding the disposal of 13.85% equity interest in the associate by the Target Group during the period, the Target Group still recorded a share of result of this associate for the nine months ended 30 September 2010 of approximately HK$127.2 million, representing a growth of approximately 59.2% as compared to the same period in 2009.

Dividend amounted to approximately HK$461.0 million was declared for the period (nine months ended 30 September 2009: nil).

Bad debt

For the nine months ended 30 September 2010, the Target Group did not record any impairment of receivables.

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Capital structure

There was no significant change in the capital structure of the Target throughout the period. The Target Group was mainly financed by internal resources and bank borrowings.

Remuneration policies and employee information

As at 30 September 2010, the Target Group had over 1,100 full time employees in Hong Kong and the PRC. Total staffs costs (including directors’ emoluments) amounted to approximately HK$57.6 million for the year. All full time salaried employees were being paid on a monthly basis, plus a discretionary performance bonus. Factory workers were being remunerated based on a basic wages plus production incentive. In addition to salaries, the Target Group provided staff benefits including medical insurance, contribution to staff’s provident fund and in-house training to staff.

Acquisitions and disposals

During the nine months ended 30 September 2010, the Target Group did not have any material acquisitions or disposals except for the disposal of 13.85% equity interest in an associate, being CD Goldroc, to an independent third party, at a consideration of approximately RMB35.8 million which resulted in a loss on disposal of approximately HK$14.6 million.

Foreign exchange exposure

Discussion on major balance sheet items and key financial ratios

				For the
				nine
				months
	For the year ended			ended 30
		31 December		September
	2007	2008	2009	2010
Gross profit margin (note 1)	23.9%	26.8%	31.6%	32.6%
Net profit margin (note 2)	22.2%	23.2%	22.1%	29.0%
Current ratio (note 3)	70.3%	88.7%	115.0%	100.3%
Gearing ratio (note 4)	83.4%	52.8%	34.8%	44.0%
Debtors’ turnover days (note 5)	91 days	76 days	65 days	69 days
Creditors’ turnover days (note 6)	108 days	101 days	122 days	109 days

Notes:

1. Gross profit margin is calculated based on the gross profit divided by turnover and multiplied by 100%.

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2. Net profit margin is calculated based on the net profit attributable to owners of the Target divided by turnover and multiplied by 100%.

3. Current ratio is calculated based on the current assets divided by current liabilities and multiplied by 100%.

4. Gearing ratio is calculated based on the amount of interest bearing borrowings (including obligations under finance leases) divided by shareholders equity and multiplied by 100%.

5. Debtors’ turnover ratio is calculated based on the average of beginning and closing trade and bills receivable of the year/period divided by a factor of 1.17 (for eliminating the effect of value added tax) and the total turnover and multiplied by 365 days or 275 days.

6. Creditors’ turnover days is calculated based on the trade payables and bills payables at the end of the year/period divided by the total cost of sales during the year and multiplied by 365 days or 275 days.

Net current assets/liabilities and current ratio

The Target Group recorded net current liability position as at 31 December 2007 of approximately HK$270.0 million and improved to net current liabilities position of approximately HK$97.7 million as at 31 December 2008, and further improved to a net current assets position of approximately HK$127.7 million as at 31 December 2009 and approximately HK$2.2 million as at 30 September 2010. The current ratio of the Target Group improved from approximately 70.3% as at 31 December 2007 to approximately 88.7% as at 31 December 2008, and further improved to 115.0% as at 31 December 2009 and dropped to approximately 100.3% as at 30 September 2010. The improvement in net current assets/liabilities and current ratio for the three years ended 31 December 2009 was mainly attributable to the strong financial performance of the Target Group, while the decrease in net current assets and drop in current ratio as at 30 September 2010 as compared to that as at 31 December 2009 was mainly due to the declaration of dividend of approximately HK$461.0 million during the nine months ended 30 September 2010, the impact of which was partially set off by the strong financial performance of the Target Group for the same period.

Gearing ratio

The gearing ratio of the Target Group improved during the three years ended 31 December 2009 from approximately 83.4% as at 31 December 2007 to 52.8% as at 31 December 2008 and reached approximately 34.8% as at 31 December 2009. The improvement was mainly due to the increase in shareholders’ equity as a result of the strong financial performance of the Target Group during the three years ended 31 December 2009. Despite the continuous strong financial of the Target Group for the nine months ended 30 September 2010, the gearing ratio of the Target Group increased from approximately 34.8% as at 31 December 2009 to approximately 44.0% as at 30 September 2010 as the Target has declared a dividend of approximately HK$461.0 million during the period which reduced the shareholders’ equity of the Target Group.

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Borrowing and banking facilities

The Target Group’s borrowing and banking facilities mainly comprised bank loans and obligation under finance leases, and the Target Group also had bank overdrafts as at 31 December 2007. The bank loans of the Target Group decreased from approximately HK$368.6 million as at 31 December 2007 to approximately HK$357.9 million as at 31 December 2008, and further decreased to approximately HK$327.3 million as at 31 December 2009 and approximately HK$316.8 million as at 30 September 2010. The majority of the bank loans of the Target Group were secured bank loans. The decrease in the outstanding balance of the bank loans during the period was mainly due to the repayment of bank loans by the internal resources generated from the ordinary business of the Target Group. The obligation under finance leases amounted to approximately HK$19.2 million as at 31 December 2007, and decreased to approximately HK$9.2 million as at 31 December 2008, and further decreased to approximately HK$2.0 million and HK$0.2 million as at 31 December 2009 and 30 September 2010 respectively. The decrease in the obligation under finance leases during the period was mainly due to the repayment of the facilities by the internal resources generated from the ordinary business of the Target Group. The Target Group also had bank overdraft of approximately HK$0.1 million as at 31 December 2007, while the Target Group did not have any bank overdraft as at 31 December 2008, 31 December 2009 and 30 September 2010.

As at 31 December 2007, the bank borrowings of the Target Group, including the finance leases, were secured by the pledge of bank deposits of approximately HK$66.1 million, pledge of property, plant and machinery of approximately HK$45.7 million, corporate guarantee given by a related company, corporate guarantee given by an associated company, corporate guarantee given by subsidiaries, personal guarantees executed by a director and his family members and properties held by a director.

As at 31 December 2008, the bank borrowings of the Target Group, including the finance leases, were secured by the pledge of bank deposits of approximately HK$72.5 million, pledge of property, plant and machinery of approximately HK$225.8 million, prepaid land lease payments of approximately HK$11.6 million, corporate guarantee given by ultimate holding company, corporate guarantee given by a related company, corporate guarantee given by an associated company, corporate guarantee given by subsidiaries, personal guarantees executed by a director and his family members and properties held by a director.

As at 31 December 2009, the bank borrowings of the Target Group, including the finance leases, were secured by the pledge of bank deposits of approximately HK$45.2 million, pledge of property, plant and machinery of approximately HK$146.5 million, prepaid land lease payments of approximately HK$17.4 million, corporate guarantee given by the Target, corporate guarantee given by ultimate holding company, corporate guarantee given by subsidiaries and personal guarantee executed by a director.

As at 30 September 2010, the bank borrowings of the Target Group, including the finance leases, were secured by the pledge of bank deposits of approximately HK$19.7 million, property, plant and machinery of approximately HK$164.8 million, prepaid land lease payments of approximately HK$17.5 million, corporate guarantee given by the Target, corporate guarantee given by subsidiaries and personal guarantee executed by a director.

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Debtors’ turnover days

The debtors’ turnover days of the Target Group as at 31 December 2007, 2008 and 2009 and 30 September 2010 were generally in line with the Target Group’s credit terms of 60 days to 90 days and have improved from approximately 91 days as at 31 December 2007 to approximately 76 days as at 31 December 2008, and further improved to approximately 65 days as at 31 December 2009 as a result of the tightening of credit control of the Target Group, while the debtors’ turnovers days raised slightly to approximately 69 days as at 30 September 2010.

As part of credit control, the sales and marketing team of the Target Group monitors the credit quality of trade receivables and closely follows up with the customers for any outstanding receivables. In determining impairment losses, the Target Group conducts regular reviews of aging analysis and evaluates collectibles on an individual basis. The Target Group recorded impairment loss on receivables of approximately HK$8.6 million, HK$13.1 million and HK$7.5 million respectively for the three years ended 31 December 2009 and did not record any impairment loss on receivables for the nine months ended 30 September 2010. Amongst the impairment loss on receivables recorded for the three years ended 31 December 2009, only approximately HK$4.0 million, HK$3.4 million and nil respectively was related to the impairment loss on trade receivables, and the remaining impairment loss was attributable to other receivables of the Target Group.

Property, plant and equipment

The Target Group’s property, plant and equipment increased by approximately 3.7% or HK$17.8 million from approximately HK$479.0 million as at 31 December 2007 to approximately HK$496.8 million as at 31 December 2008. The increase was primarily due to the addition of approximately HK$46.0 million of construction in progress for the improvement of production facilities of the Target Group and net exchange differences of approximately HK$24.4 million, which were offset by the depreciation expenses of approximately HK$52.5 million.

The Target Group’s property, plant and equipment decreased by approximately 2.0% or HK$9.7 million from approximately HK$496.8 million as at 31 December 2008 to approximately HK$487.1 million as at 31 December 2009. The decrease was primarily due to the depreciation expenses of approximately HK$53.1 million, which was partially offset by the addition of construction in progress and buildings of the Target Group amounted to approximately HK$17.6 million and HK$16.1 million respectively for the improvement of production facilities of the Target Group.

The Target Group’s property, plant and equipment increased by approximately 3.2% or HK$15.7 million from approximately HK$487.1 million as at 31 December 2009 to approximately HK$502.8 million as at 30 September 2010. The increase was primarily due to the addition of building of approximately HK$36.6 million and plant and machinery of approximately HK$7.6 million for the improvement of production facilities of the Target Group, addition of office equipment of approximately HK$5.1 million and net exchange differences of approximately HK$10.3 million, which were offset by the depreciation expenses of approximately HK$41.1 million for the nine months ended 30 September 2010.

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Creditors’ turnover days

The creditors’ turnover days of the Target Group as at 31 December 2007 and 2008 and 30 September 2010 ranged from approximately 101 days to 109 days respectively, while the creditors’ turnover days as at 31 December 2009 increased to approximately 122 days which was mainly due to the increase in purchase in the fourth quarter in 2009 to cater for the increase in orders.

Amount due from/to non-controlling shareholders

The amount due to non-controlling shareholders mainly represents the dividend payable and cash advances to the relevant non-controlling shareholder of the subsidiaries of the Target. The decrease in outstanding balance as at 31 December 2008, as compared to that as at 31 December 2007, was mainly due to the settlement of dividend payable to the non-controlling shareholders in 2008. The increasing trend of the amount due to non-controlling shareholders from approximately HK$1.6 million in 31 December 2007 to approximately HK$2.5 million as at 31 December 2008 and to approximately HK$5.1 million as at 30 September 2010 was mainly due to the increase in unsettled dividend payable to the non-controlling shareholders. The amount due from non-controlling shareholders represents the cash advances to the non-controlling shareholder of the subsidiaries of the Target and over 80% of the outstanding amount due from non-controlling shareholder as at 31 December 2009 was settled by 30 September 2010.

Capital expenditures

The Target Group has incurred capital expenditure of approximately HK$130.1 million, HK$53.1 million, HK$42.2 million and HK$55.3 million respectively for the three years ended 31 December 2009 and nine months ended 30 September 2010, amongst which the capital expenditure for each of SZ Kecai, BB Jinhuangshan and XF Jinfeihuan amounted to approximately HK$116.5 million, HK$90.2 million and HK$54.5 million respectively for the three years ended 31 December 2009 and nine months ended 30 September 2010.

The Target Group plans to continue to improve its production facilities and capability and the estimated capital expenditure for the three years ending 31 December 2013 for each of SZ Kecai, BB Jinhuangshan and XF Jinfeihuan is approximately HK$86 million, HK$25 million and HK$75 million respectively, which mainly consist of addition and enhancement of printing machinery and equipment, purchase of research and development system and leasehold improvements. The Target Group intends to finance these capital expenditures through internal resources, finance lease and/or bank borrowings. As at 30 September 2010, the Target Group had entered into contracts amounted to approximately HK$5.1 million in respect of the aforesaid capital expenditure and among which approximately HK$4.2 million of deposits have been paid by the Target Group, resulting in a capital commitment of approximately HK$0.9 million.

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Future prospects and proposed development plan

Future prospects

The Target Group and its associated company have been operating with stable track record and established business network with its customers. For the nine months ended 30 September 2010, the customers of the Target Group include 10 state-owned cigarette manufacturers (or their related companies) in the PRC whose products cover more than 20 brands of cigarettes in the PRC. CD Goldroc, the associated company of the Target, also sells its cigarette package products to the state-owned cigarette manufacturers in the PRC. The Directors are optimistic on the market demand of cigarette and the growth potential of cigarette package printing business given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in recent years. According to the statistics published by STMA, the number of cigarette manufacturers in the PRC was reduced from 84 in 2003 to 30 in early 2009 and the number of cigarette brands in the PRC was reduced significantly from 1,049 in 2001 to 155 in 2008. The consolidation of the tobacco industry presents an opportunity for larger cigarette packaging providers (including the Target Group), and as the business scale of the cigarette manufacturers expands through the consolidation of the tobacco industry, the larger cigarette packaging providers, being the suppliers of the larger cigarette manufacturers (or their related companies), will also benefit from the current reform of the consolidation of the tobacco industry. Leveraging on the established customer relationship and production facilities, the Target Group and its associated company are well positioned to capture business opportunities arising from the recent ongoing consolidation of the tobacco industry in the PRC.

Since any flaw in the cigarette packages may cause serious damages to the reputation of a particular brand of cigarettes and mislead consumers to perceive genuine cigarettes as counterfeit cigarettes, cigarette manufacturers in the PRC would usually partner with and keep using those cigarette packaging companies which they can trust in order to ensure the quality and a smooth production and to preserve and enhance goodwill. As a result of the PRC government’s consolidation policy on the tobacco industry in recent years, the enormous market of the production of the cigarettes in the PRC is concentrated on a limited number of state-owned cigarette manufacturers. Therefore, the sales of the Target Group have been concentrated on certain large cigarette manufacturers. For the three years ended 31 December 2009 and nine months ended 30 September 2010, sales to the top five customers of the Target Group accounted for approximately 93.0%, 84.3%, 82.1% and 78.7% of the total revenue of the Target Group. In the circumstances that the Target Group fails to secure orders from these customers, the Target Group’s business operation and results may be adversely affected. In this connection, the Target Group has been making significant efforts to maintain and strengthen the relationships with the customers, as well as the business relationships with senior management of various state, provincial and city level tobacco authorities as well as cigarette manufacturers in the PRC.

In recent years, the general public in the world is more health conscious. The health hazards of cigarettes and the increasing awareness of health in the PRC might negatively influence the size of cigarette market in the PRC. In the event that the size of cigarette

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market in the PRC shrinks, the business prospects of the Target Group might be avoidably affected. Notwithstanding the above, according to the China Statistics Yearbook 2009, there has been a steady growth in the output of cigarettes in the PRC within the past few years. Given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in the coming years, the Target Group is optimistic on the market demand of cigarette and the growth potential of the business of cigarette package printing business.

Proposed development plan

In order to capture the growing potential of the cigarette package printing business in the PRC, the Enlarged Group may, from time to time, consider further acquisitions of companies engaging in similar cigarette package printing business should suitable opportunities arise, which may be funded through future fund raising exercises in the equity capital market, bank loans, internal resources of the Enlarged Group and/or a combination of the above. As an initial step for this strategic move, as set out in the paragraph headed “Information on the operating companies of the Target Group” under section headed “Information on the Target Group and its associated company”, the Target Group has been considering to increase its equity interest in BB Jinhuangshan by way of acquiring part or all of the remaining equity interest from the other joint venture partner of BB Jinhuangshan. It is expected that the possible acquisition will further expand the scale of operation of the Target Group. As at the Latest Practicable Date, no terms and agreement had been reached but negotiations with the joint venture partner are still on-going. In this regard, the Company will inform the Shareholders and investors of the Company and comply with the requirements of the Listing Rules as and when appropriate.

Apart from the aforesaid, in view of the considerable development potential of the PRC cigarette package printing business, the Enlarged Group plans to further expand and improve the production facilities of the Target Group after Acquisition Completion. For the coming three years, the estimated capital expenditure for each of SZ Kecai, BB Jinhuangshan and XF Jinfeihuan is approximately HK$86 million, HK$25 million and HK$75 million respectively, which mainly consist of addition and enhancement of printing machinery and equipment, purchase of research and development system and leasehold improvements. The Target Group intends to finance these capital expenditures through internal resources, finance lease and/or bank borrowings.

Upon Acquisition Completion, the Target will become a wholly-owned subsidiary and its results will be consolidated into accounts of the Company. Moreover, apart from the proposed appointment of a non-executive Director to be nominated by the First Placee to the Board as set out under the paragraph headed “Right of appointment of director” under the section headed “The placing down arrangements”, it is proposed that Mr. Tsoi will be re-designated as an executive Director following Acquisition Completion. Save for the aforesaid, the Board does not foresee there will be any change in Board composition by reason only of the Acquisition.

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REASONS FOR THE ACQUISITION

The Company is principally engaged in the provision of printing services to customers including international publishers and multi-national corporations. The Group’s printed products include case bound books, paperback books, spiral bound books, novelty books and other paper-related products which include greeting cards, party decoratives, calendars, paper bags and packaging boxes. The Group is also engaged in the production and sale of package and decorative products in the PRC.

For the year ended 31 December 2009, the Group’s operation has been affected by the business environment uncertainties prevailed amongst different levels of the global economy, particularly in two of the major market segments of the Group, namely Europe and the US. The Group’s turnover has decreased by approximately 10.0% from HK$403.2 million for the year ended 31 December 2008 to HK$362.8 million for the year ended 31 December 2009 and audited net income attributable to owners of the Company has decreased by approximately 28.6% from HK$31.8 million for the year ended 31 December 2008 to HK$22.7 million for the year ended 31 December 2009. The six months ended 30 June 2010 was another hard time for the Group which the Group recorded a significant drop in its profit. As stated in the interim report of the Company for the six months ended 30 June 2010, despite the North American market has been reported to show a slow sign of recovery after the financial tsunami in 2008, the Group’s another regional market, namely Europe, was far from satisfaction. There has also been a growing trend that customers of the Group have become more and more prudent in placing of their orders and are particularly cost conscious. Further, the direct manufacturing costs in terms of raw materials such as paper and ink, as well as labour costs have also been increasing. Although the Group was able to achieve a turnover of approximately HK$182.4 million during the six months ended 30 June 2010, the net profit attributable to owners of the Company has recorded a significant fall of approximately 95% to just approximately HK$0.45 million as compare to the same period in 2009.

In view of the challenges mentioned above, in particular in the Europe and the US markets, the Group has been exploring opportunities to further diversify its business operation in the PRC market which has been ranked as one of the top countries with highest gross domestic incomes and considered to have tremendous development potential. Apart from the development of the domestic market of packaging and decorative printed products in the PRC, the Company considered that the Acquisition is a valuable investment opportunity for the Group to participate in the cigarette package printing business in bid to create new growth area for the Group. Nevertheless, the Company has no current intention to discontinue with the existing business of the Group.

The PRC is by far the largest cigarette manufacturer and also has the highest level of cigarette consumption. In the PRC, the STMA is the state government body which makes economic policies for the entire tobacco industry. According to the statistics published by National Bureau of Statistics of China, there has been a steady growth in the output of cigarettes in the PRC within the past few years. The output of cigarette production has increased from 37.5 million cases in 2004 to 47.5 million cases in 2010, representing a compound annual growth rate (“ CAGR ”) of approximately 4.0% over the period. Despite the fact that the general public in the world is more health conscious nowadays, given the

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large population of smokers in the PRC and the expected economic growth and improved consumer spending power in the coming years, the Company is optimistic on the market demand of cigarettes and the growth potential of the business of cigarette package printing business.

Moreover, according to the audited financial results of the Target Group (details of which are set out in the above paragraph headed “Financial information of the Target Group”), for the nine months ended 30 September 2010, the Target Group recorded a turnover of approximately HK$769.3 million and a net profit attributable to owners of the Target of approximately HK$223.3 million. The Target has been established for the purpose of engaging in the printing of cigarette packages since 1999 and has been profit making for at least the latest seven consecutive years, when its first consolidated financial statements were available. Taking into consideration the established scale of the operation of the Target Group and its continuous growing potential, the Company considers the investment opportunity through the Acquisition is valuable and Acquisition Completion would immediately improve the Group’s results and provide better return to the Shareholders in the long run in the absence of unforeseen circumstances.

Nevertheless, the Company considers the Acquisition may be posed with certain risks associated thereto (details of which are set out under the section headed “Risk factors” below) and the fact that the equity interest of the existing Shareholders in the Company will be diluted as a result of the Acquisition. Having balanced the risks associated with the Acquisition, the dilution effect to the existing Shareholders and prospects of the cigarette package printing industry, the Board (excluding Mr. Tsoi (who is the Vendor and a director of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of a member of the Target Group) who had abstained from voting at the relevant Board resolutions) therefore believe that the Acquisition offers the Group a good opportunity to diversify into cigarette package printing business and to enhance the Group’s income stream and are of the opinion that the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FINANCIAL EFFECT OF THE ACQUISITION

Upon Acquisition Completion, the Target will become a wholly-owned subsidiary of the Company and the financial results of the Target Group will be consolidated into the Company’s consolidated accounts. Please refer to the above paragraph headed “Financial information of the Target Group” and Appendix II to this circular for details of the financial information of the Target Group.

As illustrated in the unaudited pro forma consolidated statement of financial position of the Enlarged Group as set out in Appendix III to this circular which has been prepared as if the Acquisition Completion had taken place on 30 June 2010, (i) the total consolidated net assets attributable to the equity holders of the Company would increase from approximately HK$279.4 million to approximately HK$871.4 million; (ii) the total assets would increase from approximately HK$436.6 million to approximately HK$1,942.1 million; and (iii) the total liabilities would increase from approximately HK$157.2 million to approximately HK$950.9 million. The increase in total assets and net assets attributable

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to the equity holders of the Company are mainly attributable to the increase in assets base of the Enlarged Group as a result of the consolidation of the Target Group’s asset into the Company while the increase in total liabilities is mainly due to the consolidation of liabilities of the Target Group into the Company as a result of the Acquisition Completion.

Based on the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group as set out in Appendix III to this circular which has been prepared as if the Acquisition Completion had taken place on 1 January 2009, the profit attributable to the owners of the Company for the year ended 31 December 2009 would increase from approximately HK$22.7 million to approximately HK$254.4 million mainly due to the consolidation of profit attributable to the owner of the Target of approximately HK$231.7 million for the year ended 31 December 2009.

INDUSTRY OVERVIEW

OVERVIEW OF THE PRC ECONOMY

According to the statistics published by the National Bureau of Statistics of China, the PRC’s gross domestic product (“ GDP ”) showed a steady growth trend in the last decade, increasing from approximately RMB9,921.5 billion (equivalent to approximately HK$11,672.4 billion) to approximately RMB39,798.3 billion (equivalent to approximately HK$46,821.5 billion), and grew at a CAGR of approximately 14.9% per annum from 2000 to 2010. The GDP per capita of the PRC increased from approximately RMB7,858 (equivalent to approximately HK$9,244.7) to approximately RMB25,575.5 (equivalent to approximately HK$30,088.8) from 2000 to 2009. The following chart illustrates the PRC’s GDP and GDP per capita from the year 2000 to 2009:

PRC’s GDP and GDP per capita (2000-2009)

==> picture [377 x 189] intentionally omitted <==

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

40,000 GDP (RMB’ billion) GDP per capita (RMB) 30,000
35,000
25,000
30,000
20,000
25,000
20,000 15,000
15,000
10,000
10,000
5,000
5,000
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
GDP (RMB’ billion) GDP per capita (RMB)
----- End of picture text -----

Source: National Bureau of Statistics of China

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The PRC’s continuous economic development has given rise to better living standard and higher level of affluence for its population. This is evidenced by the gradual increase in the average annual consumption level of the population in the PRC, which enjoyed a CAGR of approximately 10.7% from 2000 to 2009, increasing from approximately RMB3,632 (equivalent to approximately HK$4,272.9) in 2000 to approximately RMB9,098 (equivalent to approximately HK$10,703.5) in 2009. The chart below illustrates the annual household consumption expenditure in the PRC from 2000 to 2009:

==> picture [408 x 264] intentionally omitted <==

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

Annual household consumption expenditure in the PRC (2000-2009)
(RMB)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
----- End of picture text -----

Source: National Bureau of Statistics of China

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Moreover, according to the National Bureau of Statistics of China, the total retail sales of consumer goods in the PRC tripled in nine-years time and increased from approximately RMB3,910.6 billion (equivalent to approximately HK$4,600.7 billion) in 2000 to approximately RMB13,267.8 billion (equivalent to approximately HK$15,609.2 billion) in 2009, representing a CAGR of approximately 14.5%. The chart below shows the total retail sales of consumer goods in the PRC from 2000 to 2009:

Total retail sale of consumer goods in the PRC (2000-2009)

==> picture [399 x 253] intentionally omitted <==

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

RMB (’billion)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
----- End of picture text -----

Source: National Bureau of Statistics of China

The Directors believe that with the increase in the living standard of the people, consumer product packaging industry would benefit by the surging retail sales in the PRC.

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According to the National Bureau of Statistics of China, the consumption of food and beverage, tobacco and liquor increased from approximately RMB882.2 billion (equivalent to approximately HK$1,037.9 billion) in 2003 to RMB2,211.2 billion (equivalent to approximately HK$2,601.4 billion) in 2009 and the total sales of tobacco and liquor has amounted for more than 50% of the total sales of food, beverages, tobacco and liquor during the period from 2003 to 2009. The total consumption of tobacco and liquor in the PRC had been growing at a CAGR of approximately 13.4% during the same period. The following chart illustrates the total sales of food, beverage, tobacco and liquor above designated size and the total sales of tobacco and liquor above designated size from 2003 to 2009:

==> picture [378 x 223] intentionally omitted <==

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

RMB Total sales of food, beverages, tobacco and
(’ billion) liquor above designated size (2003-2009)
2,600
2,200
1,800
1,400
1,000
600
200
2003 2004 2005 2006 2007 2008 2009
Year
Total sales of food, beverages, tobacco and liquor Total sales of tobacco and liquor
----- End of picture text -----

Source: National Bureau of Statistics of China

Note: Criteria for wholesale and retail sale trades, hotels and catering services above designated size is as follows: wholesale trade with annual principal business sales over RMB20 million, retail trade with annual principal business sales over RMB5 million and hotels, catering services with principal business sales with annual income over RMB2 million, defined by the National Bureau of Statistics of China.

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OVERVIEW OF THE PRC TOBACCO INDUSTRY

The PRC is by far the largest cigarette manufacturing country and also has the highest level of cigarette consumption. In PRC, the STMA is the state government body which makes economic policies for and governs the entire tobacco industry. According to the statistics published by National Bureau of Statistics of China, there has been a steady growth in the output of cigarettes in the PRC within the past few years.

Despite the general public in the world being generally more health conscious nowadays, given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in the coming years, the Company is optimistic on the market demand of cigarettes and the growth potential of the business of cigarette package printing business.

Production of tobacco in the PRC

According to the statistics published by National Bureau of Statistics of China, there had been a steady growth in the output of cigarette production in the PRC for the past seven years, increasing from approximately 37.5 million cases of cigarette in 2004 to approximately 47.5 million cases in 2010 (which represented a CAGR of approximately 4.0% over the period). In general, one case of cigarettes comprises 2,500 packs and each pack contains and carries 20 sticks of cigarettes. The following chart sets forth the output of cigarette production in the PRC from 2004 to 2010:

==> picture [158 x 9] intentionally omitted <==

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

PRC tobacco production output (2004-2010)
----- End of picture text -----

==> picture [381 x 214] intentionally omitted <==

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

50.0
48.0
46.0
44.0
42.0
40.0
38.0
36.0
34.0
2004 2005 2006 2007 2008 2009 2010
Year
(million cases)
----- End of picture text -----

Source: National Bureau of Statistics of China

Note: The data from National Bureau of Statistics of China is number of cigarettes output, and the above figures are converted into number of cases based on the assumption that one case of cigarette comprises 2,500 packs and each pack contains and carries 20 sticks of cigarettes.

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Based on the statistics published by National Bureau of Statistics of China, in 2009, the top ten cigarette producing regions in the PRC were Yunnan, Hunan, Henan, Shandong, Hubei, Guangdong, Anhui, Guizhou, Jiangsu and Sichuan, of which Yunnan ranked first in the production of cigarettes of approximately 345.8 billion sticks of cigarettes followed by Hunan and Henan which produced approximately 169.3 billion sticks of cigarettes and 161.4 billion sticks of cigarettes respectively.

The following table sets forth the top ten cigarette producing regions in the PRC in 2009.

	Output
		*No. of*	% of the
		*sticks of*	total output
	*No. of cases*	*cigarettes*	of cigarettes
*Region*	*(million)*	*(billion)*	in the PRC
Yunnan	6.9	345.8	15.1%
Hunan	3.4	169.3	7.4%
Henan	3.2	161.4	7.0%
Shandong	2.6	130.0	5.7%
Hubei	2.6	127.9	5.6%
Guangdong	2.5	126.2	5.5%
Auhui	2.4	119.0	5.2%
Guizhou	2.3	116.1	5.1%
Jiangsu	1.9	92.5	4.0%
Sichuan	1.7	87.4	3.8%
Other	16.3	814.6	35.6%
Total	45.8	2,290.2	100%

Source: National Bureau of Statistics of China

The Target Group, together with its associated company, has set up factories in five provinces, namely Anhui, Hubei, Hunan, Guangdong and Yunnan, each of which is one of the top ten cigarette production regions in the PRC in 2009. These aggregated output of cigarettes of these five regions in aggregate accounted for approximately 38.8% of the cigarette production of the PRC in 2009. Also, eight of the top ten customers of the Target Group for the year ended 31 December 2009 are cigarette manufacturers (or their related companies) in Hunan, Hubei, Guizhou, Anhui, Jiangsu, Guangdong, Yunnan and Sichuan, which are all amongst the top ten cigarette production regions in the PRC in 2009.

To the best information, knowledge and belief of the Directors, there are about 18 cigarette manufacturers in the PRC, which are state-owned enterprises and under supervision of the STMA, namely 河北中煙工業公司 (China Tobacco Hebei Industrial Corporation), 江蘇中煙工業有限責任公司 (China Tobacco Jiangsu Industrial Co., Ltd.), 浙江中煙工業有限責任公司 (China Tobacco Zhejiang Industrial Co., Ltd.), 安徽中煙工業公司 (China Tobacco Anhui Industrial Corporation), 福建中煙工業公司 (China Tobacco Fujian Industrial Corporation*), 江西中煙工業有限責任公司 (China Tobacco Jiangxi Industrial

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LLC), 山東中煙工業有限責任公司 (China Tobacco Shandong Industrial Co., Ltd.), 河南中煙工業有限責任公司 (China Tobacco Henan Industrial Co., Ltd.), 湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.), 湖南中煙工業有限責任公司 (China Tobacco Hunan Industrial Co., Ltd.), 廣東中煙工業有限責任公司 (China Tobacco Guangdong Industrial Co., Ltd.), 廣西中煙工業有限責任公司 (China Tobacco Guangxi Industrial LLC), 川渝中煙工業公司 (China Tobacco Chuanyu Industrial Corporation), 貴州中煙工業有限責任公司 (China Tobacco Guizhou Industrial Co., Ltd.), 雲南中煙工業有限責任公司 (China Tobacco Yunnan Industrial Co., Ltd.), 陜西中煙工業有限責任公司 (China Tobacco Shaanxi Industrial Co., Ltd.), 上海煙草集團有限責任公司 (Shanghai Tobacco Group Co., Ltd.) and 中煙實業發展中心 (China Tobacco Business Development Centre*).

Regulation under the STMA

The PRC tobacco industry is strictly regulated, controlled and monopolised by the PRC Government in accordance with 中華人民共和國煙草專賣法 (Law of the PRC on Tobacco Monopoly) promulgated by 全國人民代表大會常務委員會 (the Standing Committee of the National People’s Congress) on 29 June 1991, and 中華人民共和國煙草專賣法實施條例 (Regulations for the Implementation of the Law of the PRC on Tobacco Monopoly) by 國務院 (the State Council of the PRC) on 3 July 1997. The 中華人民共和國煙草專賣法 (Law of the PRC on Tobacco Monopoly*) specifies that the PRC Government has the monopoly administration over the production, sale, import and export of tobacco monopoly commodities (which includes cigarettes, cigars, cut tobacco, redried leaf tobacco, leaf tobacco, cigarette paper, filter rods, cigarette tow and cigarette manufacturing equipment) and practises the tobacco monopoly licence system.

The main regulatory body of the tobacco industry in the PRC is the STMA and 中國煙草總公司 (China National Tobacco Corporation) (“ CNTC ”) which operates under the directions and supervision of the STMA. The STMA is responsible for promulgating and implementing all the laws and policies relating to the PRC tobacco industry. The 中華人民共和國煙草專賣法 (Law of the PRC on Tobacco Monopoly) authorises STMA to regulate the production, sales, transportation, import and export trade and economic and technological cooperation with foreign countries in the PRC tobacco industry. STMA is also responsible for approving production in excess of annual production quota for each cigarette manufacturer.

CNTC, on the other hand, oversees the monopoly of the PRC tobacco products in the PRC, the overall management and operation of the production, supply, sales, raw materials as well as the import and export of tobacco products in the PRC. CNTC is also responsible for supervising the cigarette manufacturers and cigarette brands in the PRC.

Ongoing reform of the PRC tobacco industry

According to STMA, in 2004, there were a large number of small-sized cigarette manufacturers with low production capacity scattered around the PRC and the tobacco industry in the PRC was too fragmented, and this phenomenon had remained since the reform of the PRC’s political and economic systems and the opening-up of its domestic market. STMA was of the view that such industry structure limited the overall economic efficiency of the tobacco industry in the PRC and was not beneficial to the competitiveness of the domestic cigarette market, and the relevant reform was necessary.

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As such, STMA announced and adopted the following reform policy for consolidating the cigarette industry in the PRC in order to enhance the competitiveness of the cigarette manufacturers in the PRC: small cigarette factories which manufacture 0.1 million cases or less of cigarettes annually would be closed down or acquired, cigarette factories which manufacture between 0.1 million to 0.3 million cases of cigarettes annually would be faced with amalgamation, merger or reorganisation, and the cigarette factories with annual production volume more than 0.3 million cases would be enhanced.

As a result of the reform, the number of cigarette manufacturers has been greatly reduced from about 180 in 1998 to about 84 in 2003.

To further consolidate the cigarette industry in the PRC, the STMA announced 卷煙產品百牌號目錄 (Catalogues of One Hundred Brands of Tobacco Products) in August 2004 and planned to reduce the number of brands of tobacco product in the PRC to approximately 100 within two to three years. In July 2008, 全國性卷煙重點骨幹品牌評價體系 (National Cigarette Brand Evaluation System) was formally introduced, and STMA has assessed the top 20 national cigarette brands and another ten cigarette brands, which, together, was generally referred as the “20+10” key brands.

As a result of the ongoing consolidation process, the number of cigarette manufacturers in the PRC was reduced from approximately 84 in 2003 to approximately 30 in early 2009, representing a decrease of more than 64% during the five-year-period, and the number of cigarette brands in the PRC was reduced significantly from approximately 1,049 in 2001 to approximately 155 in 2008, among which nine brands, namely, 白沙 (Bai Sha), 紅梅 (Hong Mei), 紅河 (Hong He), 紅塔山 (Hong Ta Shan), 黃果樹 (Huang Guo Shu), 雙喜 (Shuang Xi), 雲煙 (YunYan), 黃山 (Huang Shan) and 七匹狼 (Septwolves), individually had an output of over one million cases in 2008, and in particular 白沙 (Bai Sha) had an output of over two million cases in 2008. Among the total volume of tobacco production in the PRC of approximately 44.4 million cases in 2008, the Target Group had sold approximately 1.5 million cases of cigarette packaging and out of which approximately 0.6 million cigarette cases of cigarette packaging were sold to the aforesaid nine brands in 2008.

In early 2010, the STMA has laid down the five-year development direction with a “532” plan and a “461” plan in order to make the tobacco industry grow stronger and to modernize the tobacco industry. The “532” plan targets to develop the tobacco industry in the PRC by way of establishing five cigarette brands with individual annual production volume of over two million cases (equivalent to five billion packs of cigarettes), three cigarette brands with individual annual production volume of over three million cases (equivalent to 7.5 billion packs of cigarettes) and two cigarette brands with individual annual production volume of over five million cases (equivalent to 12.5 billion packs of cigarettes) by 2015. In 2009, there were twelve cigarette brands with individual annual production volume of over one million cases (equivalent to 2.5 billion packs of cigarettes), including five out of the twelve cigarette brands with individual annual production volume of over two million cases (equivalent to five billion packs of cigarettes). The “461” plan targets to develop the tobacco industry in the PRC by way of establishing twelve cigarette brands with individual annual revenue of over RMB40 billion, among which six cigarette brands with individual annual revenue of over RMB60 billion and one cigarette

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brand with annual revenue of over RMB100 billion by 2015. In 2009, there were 21 cigarette brands with individual annual revenue of over RMB10 billion, including 13 cigarette brands with individual annual revenue of over RMB20 billion.

The Company considers that the consolidation of the tobacco industry presents an opportunity for larger cigarette packaging providers (including the Target Group), and as the business scale of the cigarette manufacturers expands through the consolidation of the tobacco industry, the larger cigarette packaging provider, being the supplier of the larger cigarette manufacturers, will also benefit from the current reform of the consolidation of the tobacco industry.

OVERVIEW OF THE PRC CIGARETTE PACKAGE PRINTING INDUSTRY

General

The economy of the PRC and living standard of its population has been growing since 2000 as evident by the rising GDP and household consumption expenditure level in the PRC. The GDP of the PRC increased from approximately RMB9,921.5 billion (equivalent to approximately HK$11,672.4 billion) in 2000 to approximately RMB39,798.3 billion (equivalent to approximately HK$46,821.5 billion) in 2010, while the annual household consumption expenditure in the PRC increased from approximately RMB3,632 (equivalent to approximately HK$4,272.9) in 2000 to approximately RMB9,098 (equivalent to approximately HK$10,703.5) in 2009. The production of the tobacco in the PRC has been growing in the same period as the output of cigarette production in the PRC increased from approximately 6.8 million cases in 2000 to approximately 47.5 million cases in 2010 (based on the assumption that one case of cigarettes comprises 2,500 packs and each pack contains and carries 20 sticks of cigarettes), which in turn increased the demand of the cigarette packaging.

The Directors are of the view that the customers in the PRC are likely to expect better quality, more attractive packaging and be more attentive to the image of the brand of the consumer products, and the cigarette package printing industry will be beneficial from the competition between cigarette manufacturers in the PRC to gain higher market share in the PRC which creates new business opportunity for cigarette package printing companies.

Barriers faced by new entrants

The Company considers that as the quality of cigarette packages is of significant importance for cigarette manufacturers, as such, cigarette manufacturers will normally have lower intention to switch to other cigarette package printing company in order to ensure a consistent standard of quality control and counterfeit measures for their cigarette packages, and this poses itself as one of the main barriers faced by new entrants to the cigarette packaging industry.

The Company is of the view that other barriers faced by new entrants include (i) the lack of capital and other resources to purchase the machinery used for the printing particularly as many of the machinery used for the printing of cigarette packages are

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imported; (ii) the lack of good relationships with cigarette manufacturers and an in-depth understanding of the cigarette industry of the PRC; and (iii) the lack of requisite technology and skill to produce cigarette packages of high quality.

Competition landscape in the cigarette packaging industry in the PRC

Cigarette manufacturers in the PRC place a heavy emphasis on the packaging of their cigarette. In comparison to packaging of other products and cigarette packages in other countries (including foreign brands cigarettes), the PRC cigarette packages have the distinct characteristics of: (i) promoting and marketing the cigarettes by placing high emphasis on the quality, design and appearance of their cigarette packages because aside from personal consumption, cigarettes are commonly used as gifts in the PRC and consumers generally perceive that the brand of cigarette can reflect the social status of an individual; and (ii) acting as a counterfeit measure in view of the rampant counterfeit cigarettes in the PRC, in which the cigarette manufacturers are willing to invest a large amount of money and resources. Foreign brands cigarettes and PRC brands cigarettes represent different markets and are not competing with each other.

In the PRC, it is common practice for cigarette factories to outsource cigarette package printing because it is not their core business and they do not possess the necessary resources and management expertise to do so. Since there are unique and distinct values for cigarette packages in the PRC, any flaw in the cigarette packages may cause serious damages to the reputation of a particular brand of cigarettes and mislead consumers to perceive genuine cigarettes as counterfeit cigarettes. As such, the cigarette manufacturers usually partner with and keep using those cigarette package printing companies which they can trust in order to ensure the quality and a smooth production and to preserve and enhance goodwill.

As mentioned before, due to the ongoing consolidation process, the number of cigarette manufacturers in the PRC and the number of cigarette brands in the PRC are both significantly reduced in recent years. To the best information, knowledge and belief of the Directors, there are about 18 cigarette manufacturers in the PRC and they are scattered around the PRC. These cigarette manufacturers will usually partner with those reliable cigarette package printing companies, which are usually in the same region, to ensure the smooth production as well as the quality of the products but they generally would not only rely on a single cigarette package printing company as a means to reduce the risk of reliance. Given the barrier of entry as mentioned above, the Company considers that there are not too many market players, especially sizeable one, in this industry.

The Target Group has been focusing on high end segment for those cigarette brands with good market recognition and relatively high saleable values. The Company considers that the Target Group, with its solid track record, is one of the leading cigarette package printing groups in the PRC with relatively strong presence in various locations throughout the PRC. For the nine months ended 30 September 2010, the Target Group had been serving 10 cigarette manufacturers (out of a total of 18 state-owned cigarette manufacturers to the best knowledge of the Company) in the PRC, covering major top class brands of cigarettes such as 白沙 (Baisha), 黃山 (Huangshan) and 紅金龍 (Hong Jinlong*). As such, the Directors believe that the Target Group has various competitive advantages (details of which please refer to the paragraph headed “Competitive

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advantages” above) among other competitors in the changing cigarette package printing market. Given the nature of this industry which are relatively driven by just a few cigarette manufacturers but scattered around the PRC, the Company considers that it is not easy for other competitors to compete against the Target Group in its areas of establishment, nor will it be easy for the Target Group to compete against other sizeable competitors in their principal areas of operation. The import of foreign brands cigarettes will not affect the competitive advantages enjoyed by the Target Group.

Regulation matters

Companies in the printing industry in the PRC have to comply with certain regulatory requirements established and published by the PRC government including but not limited to (i) the Regulations of Administration of Printing Industry (印刷業管理條例) promulgated and implemented on 2 August 2001 by the PRC State Council (中華人民共和國國務院); and (ii) the Temporary Regulations for the Establishment of Foreign Investment Printing Enterprises (設立外商投資印刷企業暫行規定) jointly promulgated and implemented by the General Administration of Press and Publication of the PRC and the Ministry of Foreign Trade and Economic Cooperation of the PRC (now known as the Ministry of Commerce of the PRC) on 29 January 2002 (collectively, the “ Printing Laws and Regulations ”).

Pursuant to the Printing Laws and Regulations, foreign entities are allowed to set up foreign capital invested printing enterprises which can be (i) a joint venture or cooperation engaging in the printing industry in the PRC (a PRC partner is required); or (ii) a wholly foreign owned enterprise engaging in package decoration of printed matter of the printing industry. Moreover, any legal entities (including those foreign capital invested enterprises) operating in the printing business and engaging in activities such as publishing, packaging and decoration of printed matter and other printed matters in the PRC must make an application to the local department of the General Administration of Press and Publication of the PRC of the province, autonomous region or municipal directly under the government of the PRC (the “ GAPP ”) for approval of the《印刷經營許可證》(Printing Business Licence*). Each local department of the GAPP has the flexibility to determine and grant the validation period of such licence on a case-to-case basis.

As advised by the PRC legal advisers of the Company, each member of the Target Group in the PRC has complied with all the relevant regulatory requirements and obtained all relevant permits/licenses for its operation. The Target Group and its associated company are permitted to engage in, among others, the printing of packaging and decorative printed products which are produced for sale within the PRC. The following table sets forth the detail of the printing license for the members of the Target Group that were established in the PRC and the associated company of the Target Group.

Company	License	Date of issue	Expiration date
BB Jinhuangshan	《印刷經營許可證》	4 March 2010	30 March 2012
	(Printing Business
	Licence*)

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Company	License	Date of issue	Expiration date
CD Goldroc	《印刷經營許可證》	23 March 2010	31 March 2013
	(Printing Business
	Licence*)
SZ Kecai	《印刷經營許可證》	1 January 2010	31 December 2013
	(Printing Business
	Licence*)
Shenzhen Guilian	《印刷經營許可證》	1 January 2010	31 December 2013
Printing Limited	(Printing Business
	Licence*)
XF Jinfeihuan	《印刷經營許可證》	9 April 2010	8 April 2012
	(Printing Business
	Licence*)

Each member of the Target Group and its associate company has its own staff to be responsible to oversee any regulatory compliance issues (including applying for renewal of their licences at their respective local department of the GAPP before they expire).

Further, as the business licences of the members of the Target Group and its associated company have been duly approved by the appropriate PRC authority, the PRC legal advisers and the Directors are of the view that the business scope of the Target Group and its associated company does not violate any of the required PRC laws and regulations. There has not been any material non-compliance records with any relevant regulatory requirements which had or have a material adverse effect on the business and operation of the Target Group. The Target Group also has not encountered any tax disputes with the tax authority although the Inland Revenue Department of Hong Kong has raised certain enquiries for the previous years of assessment including the deductibility of interest expenses on the bank borrowings which was used to finance its trading of raw materials with third parties and machinery with the other group companies or associated companies. Accordingly, the Target Group and its associated company is allowed to engage in the printing of cigarette packages, subject to the compliance of the Regulations on Administration of Printing Industry (the “ Administration Regulations ”).

According to the Administration Regulations, the 《印刷經營許可證》 (Printing Business Licence*) of a printing enterprise might be revoked or suspended by the relevant department of the government of the PRC under the following circumstances:

(i) without acquiring the permit issued by the publication administration department, operating a concurrent business or making a change to the printing business activities with regard to publications, packaging and decorating printed matter or other printed matter, or incorporating other printing operators;
(ii) establishing a new printing operator as a result of merger or division without going through the formalities according to the provisions of the Administration Regulations;

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(iii) selling, renting, lending the printing business license or assigning it in other manners;
(iv) where a printing operator prints publications, packaging and decorating printed matter or other printed matter which, it or he knows clearly or ought to know, contain the reactionary, obscene or superstitious contents or other contents explicitly prohibited by the government of the PRC, or prints publications explicitly prohibited by the government of the PRC or published by non-publishing units;
(v) failure to establish the systems such as the system of verification of print undertaking, the system of registration of print undertaking, the system of storage of printed matter, the system of delivery of printed matter, the system of imperfections destruction of printing activities;
(vi) failure to report promptly to the public security department or publication administration department illegal or criminal acts found in printing business activities;
(vii) failure to report for the record to the publication administration department that originally approves the establishment where a change is to be made to any main registration item such as the name, legal representative or responsible person, domicile or premise, or the printing business activities are to be terminated;
(viii) failure to keep the documents for examination and verification according to the provisions of the Administration Regulations;
(ix) undertaking a commission to print the representation of a registered trade mark without verifying and checking, according to the provisions of the Administration Regulations, the copy of the Trade Mark Registration Certificate with the seal of the department for industry and commerce administration, the drawing of the registered trade mark or the copy of the licensing contract of the registered trade mark;
(x) undertaking a commission to print advertising materials or printed matter used to package or decorate a product without verifying, according to the provisions of these Regulations, the business license of the unit or the resident identity card of the individual commissioning printing, or undertaking a commission from an advertising operator to print advertising materials without verifying the advertising qualifications certificate;
(xi) pirating packaging and decorating printed matter of other person; or
(xii) undertaking a commission to print overseas packaging and decorating printed matter without reporting for the record to the publication administration department according to the provisions of these Administration Regulations, or failing to transport all printed matter overseas.

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As advised by the PRC legal advisers of the Company, after making enquiries with the relevant authority and according to the existing relevant rules and regulations in the PRC, there would be no legal impediments for each of SZ Kecai, XF Jinfeihuan, BB Jinhuangshan and CD Goldroc in renewing the 《印刷經營許可證》(Printing Business Licence) upon the expiry of their respective 《印刷經營許可證》 (Printing Business Licence). Save as disclosed above, the PRC legal advisers of the Company and the Directors confirm that there are no other material regulations in the PRC in respect of printing industry applicable to the Target Group and its associated company and its business operation.

RISK FACTORS

Fluctuation in raw materials prices

Paper, hot stamping foils and ink are three of the most significant raw materials for the business of the Target Group, the cost of each of which, in terms of percentage of the total cost of goods sold of the Target Group, amounted to approximately 58.1%, 4.0% and 7.4% respectively for the year ended 31 December 2007, approximately 59.7%, 7.2% and 7.2% respectively for the year ended 31 December 2008, approximately 57.9%, 9.5% and 9.7% respectively for the year ended 31 December 2009, and approximately 51.2%, 10.9% and 10.5% respectively for the nine months ended 30 September 2010. For the past few years, the Target Group has not experienced significant fluctuations in the cost of raw materials. The increase in the cost of hot stamping foils and ink as a percentage of the total cost of goods sold are coupled with the change in the design of the packaging boxes as required by the customers of the Target Group. In order to reduce the impact of price fluctuations on its production, it has always been the strategy of the Target Group to pass all or part of the increase in cost of raw materials to its customers. For the three years ended 31 December 2009 and nine months ended 30 September 2010, the gross profit margins of the Target Group were 23.9%, 26.8%, 31.6% and 32.6% respectively. However, there is no assurance that papers, hot stamping foils, ink or other raw materials will not be subject to significant price fluctuations in the future. Any substantial increase in the price of raw materials may adversely affect the profitability of the Target Group if it is not able to pass all or part of such increase to its customers, and its results of operations may be adversely affected.

Reliance on key personnel

Mr. Tsoi, together with other senior management members of the Target Group, has been the key driver of the strategy of the Target Group. There is no assurance that the Target Group will be able to retain member(s) of the management team or recruit further competent personnel for its future development. There may be adverse impact on the operations of the Target Group should any of the member(s) of the management team cease to be involved in the operations of the Target Group for any reason, and the Target Group is unable to recruit adequate replacement personnel.

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Reliance on major customers

For the three years ended 31 December 2009 and nine months ended 30 September 2010, the top five customers of the Target Group accounted for approximately 93.0%, 84.3%, 82.1% and 78.7% of the total revenue of the Target Group respectively and the single largest customer of the Target Group accounted for approximately 42.4%, 47.4%, 51.5% and 50.0% of its total revenue respectively. As a result of the PRC government’s consolidation policy on the tobacco industry in recent years, the enormous market of the production of the cigarettes in the PRC is concentrated on a limited number of state-owned cigarette manufacturers. Therefore, the sales of the Target Group have been concentrated on certain large cigarette manufacturers. There is no assurance that the Target Group will be able to maintain its relationship with these customers and to continue to secure orders from them in the future. In the event that the Target Group fails to secure orders from these customers and the Target Group fails to secure orders from other customers to replace such loss of business, the Target Group’s business, results of operations and profitability may be adversely affected.

Regulatory licences and permits

The carrying on of printing business and operations in the PRC require the members of the Target Group to obtain licences and permits from the relevant authorities. For the Target Group’s printing business, it is required to obtain a printing licence in addition to its business licence. The printing licence is generally renewable at the end of its validity in accordance with the relevant regulatory provisions. There is no assurance that such printing licence could be renewed upon its expiry or would be renewed with the same scope. Should the members of the Target Group fail to obtain or renew these licences or permits or should any of them be revoked or suspended, the Target Group’s business and financial performance would be adversely affected.

Reliance on the operation of the joint ventures

Except SZ Kecai (which is a company established in the PRC with limited liability), BB Jinhuangshan, XF Jinfeihuan, ZT Antong and CD Goldroc are foreign investment enterprises established by the Target Group through its strategic partnership in the PRC. The term of the joint venture contracts for each of BB Jinhuangshan, XF Jinfeihuan, ZT Antong and CD Goldroc will be expired in December 2018, July 2015, November 2011 and April 2013 respectively. The Target Group has been maintaining good working relationships with the joint venture partners. However, there is no guarantee that these joint venture contracts would be renewed on a timely basis upon their expiration and that the terms of such renewal may be the same or no less favourable than those of the existing ones. If any of these agreements cannot be renewed on a timely basis upon expiry or if there is any major alteration in the terms of these agreements, the Target Group’s business operation and financial position may be materially and adversely affected. In respect of

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the joint venture contracts which will be expiring in the next three years time, namely ZT Antong and CD Goldroc, the Target Group considers that there should be no legal impediments to extend and/or renew the term of the joint venture contacts upon their expiry. For the three years ended 31 December 2009 and nine months ended 30 September 2010, ZT Antong recorded a profit of approximately HK$2.4, HK$0.2, HK$1.4 million and HK$2.7 million respectively (representing approximately 1.1%, 0.1%, 0.6% and 1.2% of the profit attributable to the shareholder of the Target) whereas the Target recorded a share of profit from an associated company of HK$86.3 million, HK$108.4 million, HK$115.2 million and HK$127.2 million respectively (representing approximately 40.1%, 41.5%, 49.7% and 57.0% of the profit attributable to the shareholder of the Target).

Seasonal fluctuation in turnover

Demand for the Target Group’s cigarette package products is subject to seasonal fluctuation. It is generally higher in the fourth quarter of a calendar year especially in the peak months from September to December when the Target Group’s customers will generally place more orders to the Target Group to meet their sales demand on or before Chinese Lunar New Year. For the three years ended 31 December 2009, the Target Group’s turnover in September to December accounted for approximately 43.9%, 38.1% and 38.4% of the Target Group’s annual turnover respectively. This seasonality fluctuation may affect the Target Group’s production costs and the utilisation rate of the production facilities. The results of the Target Group for the peak months of each calendar year may not be taken as an indication of its performance for the entire calendar year. Hence, prospective investors should be aware of this seasonal fluctuation when making any comparison of the Target Group’s results of operation.

Ability to sustain gross profit margin and net profit margin

During the three years ended 31 December 2009 and nine months ended 30 September 2010, the Target Group reported gross profit margin of approximately 23.9%, 26.8%, 31.6% and 32.6% respectively; and net profit margin of approximately 22.2%, 23.2%, 22.1% and 29.0% respectively. There is no assurance that the Target Group will be able to maintain gross profit margin or net profit margin at a similar level in the future.

Fluctuation of exchange rate

The Target Group’s reporting currency is Hong Kong dollars but its sales are denominated in Renminbi. In addition, the Target Group’s costs and expenses are mainly denominated in Renminbi, while the Target Group’s purchases of machineries are mainly denominated in Renminbi, Euro, US dollars and Hong Kong dollars. These foreign currencies are converted into Hong Kong dollars as a reporting currency for the purpose of preparing the Target Group’s financial statements.

The value of Renminbi is subject to changes of the PRC government’s policies and, to a large extent, depends on the PRC’s domestic and international economic and political developments, as well as supply and demand in the PRC market. In recent years, driven by the economic growth of the PRC economy, Renminbi has appreciated against US dollars. Any fluctuation in the exchange rate of the Renminbi may affect the results of the Target Group’s operations or financial performance.

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As a result of the foreign exchange conversion, the Target Group recorded net foreign exchange gain in the amount of approximately HK$20.3 million, HK$25.6 million and HK$5.8 million for the year ended 31 December 2007, 31 December 2008 and the nine months ended 30 September 2010 respectively, and net foreign exchange losses of approximately HK$4.9 million for the year ended 31 December 2009.

Based on the financial information of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010, the Target Group considers that it is exposed to foreign exchange risks but may not have significant adverse impact to the Target Group’s result. The Target Group currently does not have a formal hedging policy and have not entered into any material foreign currency exchange contracts or derivative transactions to hedge its currency risk. However, the Target Group cannot predict the future exchange rate fluctuations and in the event of any significant change in the exchange rate of any of these currencies, the Target Group’s financial condition or results of operations could be affected.

Risks relating to the industry

Changes in the consumption patterns of cigarettes

With the increasing awareness of health concerns on smoking and the pressure of anti-smoking marketing campaign in the PRC and around the world, the size of the cigarette market in the PRC might be affected. Certain major cities in the PRC have already implemented local regulations to forbid smoking in public areas, and all cigarette packages must now provide a health warning to the cigarette consumers about the hazards of smoking cigarette. In the event that the size of cigarette market in the PRC shrinks, the business, financial position and results of operations of the Target Group might also be adversely affected.

Impact of the PRC’s accession to World Trade Organisation on the cigarette manufacturing industry

Pursuant to the terms of the accession agreement entered into by the PRC for joining the World Trade Organisation in December 2001, the PRC Government should reduce its tariff imposed on imports, and leaf tobacco import licence and quotas in the PRC should be cancelled as of the time of the World Trade Organisation entry. Such reduction in tariff and reform will lower the price of these cigarettes and may substantially lower the entry barrier of overseas, international cigarette manufacturers to access the PRC cigarette market, notwithstanding the import quota set down by STMA every year. In the event that the sales of the domestic cigarette manufacturers is significantly eroded by the opening up of the PRC cigarette market to international cigarette manufacturers, the business operations and profitability of the Target Group might be adversely affected.

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Risks relating to the PRC

The PRC’s economic, political and social conditions, as well as government policies, could affect the business of the Target Group

The majority of the Target Group’s assets are located in the PRC and the Target Group derives most of its revenues from its operations in the PRC. Accordingly, the results of operations and prospects of the Target Group are, to a significant degree, subject to the economic, political and legal developments in the PRC. The economy of the PRC differs from the economies of most developed countries in many respects, including the extent of government involvement, its level of development, its growth rate and its control of foreign exchange. The economy of the PRC has been transitioning from a planned economy to a more market-oriented economy. In recent years, the PRC Government has implemented measures emphasising market forces for economic reform, the reduction of State ownership of productive assets and the establishment of sound corporate governance in business enterprises. However, a portion of productive assets in the PRC is still owned by the PRC Government. The PRC Government continues to play a significant role in regulating industrial development. It also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. All these factors could affect the economic conditions of the PRC and, in turn, affect the business of the Target Group.

Changes in foreign exchange regulations may adversely affect our results of operations

The value of Renminbi may fluctuate due to a number of factors. Since 1994, the conversion of Renminbi into foreign currencies in the PRC, including Hong Kong and US dollars, has been based on exchange rates published by The People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates in the PRC and current exchange rates on the world financial markets. Since 1994, the official exchange rate for the conversion of Renminbi into US dollars had generally been stable. However, as of 21 July 2005, the Renminbi was no longer pegged to the US dollars but instead to a basket of currencies. This change in policy results in the appreciation of Renminbi against the US dollars and Hong Kong dollars by more than 20% since 2005. Since the income and profits of the Target Group are denominated in Renminbi, the revocation of the linked exchange rate between Renminbi and US dollars and Hong Kong dollars will increase the uncertainty of the exchange rate of Renminbi. There is no assurance that any change in the PRC Government’s currency policies or any adverse change in market conditions would not lead to appreciation or depreciation of the Renminbi, and any fluctuation in exchange rates or any shortage of foreign currency may have an adverse impact on the operating costs and financial condition of the Target Group.

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PROPOSED CONTINUING CONNECTED TRANSACTIONS

The Target Group has been selling the Package Products to 湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.), while Xiangfan Factory is a subsidiary of 湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.) and a substantial shareholder of XF Jinfeihuan (an indirect non-wholly owned subsidiary of the Target). Immediately following the Acquisition Completion, the continuing and recurring transactions between the Enlarged Group and 湖北中煙工業有限責任公司 (China Tobacco Hubei Industrial Co., Ltd.*) (which will become a connected person of the Company) or its associates will constitute continuing connected transactions for the Company under the Listing Rules. Accordingly, on 28 December 2010, XF Jinfeihuan entered into the Master Sales Agreement with Xiangfan Factory pursuant to which XF Jinfeihuan shall sell (or shall procure the Target Group to sell) and Xiangfan Factory shall buy (or shall procure its subsidiary(ies), fellow subsidiary(ies) and/or holding company to buy) the Package Products for a term of three years. The Caps of the Package Products to be supplied by the Target Group to the Hubei Tobacco Group under the Master Sales Agreement for each of the three years ending 31 December 2013 are RMB230 million, RMB250 million and RMB300 million respectively.

Based on the financial information of the Target Group, the historical sales of the Package Products by the Target Group to Hubei Tobacco Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 amounted to approximately HK$125.8 million (representing approximately RMB122.0 million (Note) ), HK$142.3 million (representing approximately RMB126.6 million (Note) ), HK$133.4 million (representing approximately RMB117.4 million (Note) ) and HK$70.2 million (representing approximately RMB61.1 million (Note) ) respectively. It is estimated by the Vendor that the sales of the Package Products by the Target Group to Hubei Tobacco Group for the year ended 31 December 2010 was approximately HK$128.6 million (representing approximately RMB111.9 million (Note) ). The Caps under the Master Sales Agreement are principally determined with reference to the historical sales amount, the expected increase in the selling price of the Package Products and the estimated growth in sale order of the Hubei Tobacco Group in coming years due to the implementation of the new PRC government policies in eliminating certain brands of cigarette which are considered to be beneficial to the Hubei Tobacco Group. Pursuant to the Master Sales Agreement, the selling price of the Package Products shall be agreed upon between the parties and shall he determined based on normal commercial terms through arm’s length negotiation or on terms no less favourable than the terms available to independent third parties.

To the best knowledge and information of the Directors, Hubei Tobacco Group is a sizeable enterprise in the PRC specializing in tobacco production and distribution. It is the sole cigarette manufacturer in Hubei Province, the PRC. The Target Group has business relationship with the Hubei Tobacco Group for more than 12 years and is at present one of its key cigarette package printing companies. The strategic relationship between the Enlarged Group and the Hubei Tobacco Group has ensured that the Enlarged Group will be one of the key cigarette package printing companies for them and thus, allow the Enlarged Group to have a stable turnover with respect to its business in Hubei Provinces, the PRC.

Note: For illustration propose the amounts in HK$ have been converted into RMB at the rate of HK$1= RMB0.97, RMB0.89, RMB0.88, RMB0.87 and RMB0.87 for each of the three years ended 31 December 2009, nine months ended 30 September 2010 and year ended 31 December 2010 respectively.

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Based on the aforesaid, the Directors consider that the entering into of the Master Sales Agreement is in the ordinary course of business of the Enlarged Group and that the terms of such agreements are determined on an arm’s length basis with the Hubei Tobacco Group. Accordingly, the Directors are of the view that the terms and conditions of the Master Sales Agreements (including the Caps) are fair and reasonable, on normal commercial terms and in the interests of the Enlarged Group and the Shareholders as a whole.

PROPOSED CHANGE OF THE COMPANY’S NAME

The Board proposes to, subject to the Acquisition Completion, the approval by the Shareholders at the Second EGM and the relevant approval by the Registrar of Companies in the Cayman Islands, change the name of the Company from “CT Holdings (International) Limited (詩天控股（國際）有限公司)” to “Brilliant Circle Holdings International Limited (貴聯控股國際有限公司)” save that if the approval for the use of the new Chinese name 貴聯控股國際有限公司 is not granted, such new Chinese name shall be adopted as a business name for identification purpose only.

The Directors consider that the proposed change of the Company’s name reflects the business strategy and intention of the Company to diversify into cigarette package printing business, which the Directors consider to be in the interests of the Group and the Shareholders.

The proposed change of the Company’s name will not affect any of the rights of the Shareholders or the Company’s daily business operation and its financial position.

The change of the Company’s name will be effective on the date of the issuance of the certificate of change of name by Registrar of the Companies in the Cayman Islands. Thereafter, share certificates of the Company will be issued in the new name of the Company. However, all existing share certificates in issue bearing the existing name of the Company will, after the change of the Company’s name has become effective, continue to be effective as documents of title to and be valid for trading, settlement and registration purposes. There will not be any arrangement for the exchange of the existing share certificates of the Company for new share certificates bearing the new name of the Company.

LISTING RULES IMPLICATIONS

The Acquisition and the transactions contemplated under the Acquisition Agreement constitute a very substantial acquisition for the Company pursuant to Rule 14.06(5) of the Listing Rules and a connected transaction of the Company pursuant to Rule 14A.13(1)(a) of the Listing Rules by reason that Mr. Tsoi, being the Vendor, is a connected person of the Company under the Listing Rules. Also, prior to the release of the Corporate Guarantee, the provision of which constitutes a connected transaction pursuant to Rule 14A.63 of the Listing Rules. The Acquisition and the transactions contemplated under the Acquisition Agreement, including the provision of the Corporate Guarantee, are therefore subject to the approval by the Independent Shareholders at the First EGM by way of poll.

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LETTER FROM THE BOARD

As the Caps under the Master Sales Agreement exceed HK$10 million per annum, the sales of Package Products under the Master Sales Agreement to Hubei Tobacco Group constitutes non-exempt continuing connected transactions after the Acquisition Completion. The entering into of the Master Sales Agreement including the Caps in relation to the sales of Package Products will therefore be subject to the reporting, announcement, annual review and the Independent Shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules after the Acquisition Completion. Ordinary resolution will be proposed at the First EGM to approve the Master Sales Agreement and transactions contemplated thereunder (including the Caps).

No Shareholder, except for Mr. Tsoi, Profitcharm, Mr. Cai Xiao Ming, David, Sinorise, the First Placee and the Other Placees, together with their respective associates, has a material interest in the Acquisition which is different from other Shareholders and is required to abstain from voting on the relevant resolution to be proposed at the First EGM to approve the Acquisition Agreement and the transactions contemplated thereunder (including the allotment and issue of the Consideration Shares and the provision of the Corporate Guarantee). No Shareholder has a material interest in the Master Sales Agreement which is different from other Shareholder and is required to abstain from voting on the relevant resolution to be proposed at the First EGM to approve the Master Sales Agreement and the transactions contemplated thereunder (including the Caps). As at the Latest Practicable Date, Mr. Tsoi, the ultimate beneficial owner of Profitcharm and a controlling Shareholder, was interested in 105,000,000 Shares, representing 52.50% of the existing issued share capital of the Company and Mr. Cai Xiao Ming, David, a son of Mr. Tsoi, the ultimate beneficial owner of Sinorise, was interested in 45,000,000 Shares, representing 22.50% of the existing issued share capital of the Company. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the First Placee, the Other Placees, the Hubei Tobacco Group, their respective ultimate beneficial owners and their respective associates did not hold any Shares, options or securities convertible or exchangeable into Shares as at the Latest Practicable Date. The First Placee, the Other Placees and their respective associates would be required to abstain from voting on the relevant resolution to be proposed at the First EGM to approve the Acquisition Agreement and the transactions contemplated thereunder, including the provision of the Corporate Guarantee, if any of them hold any Shares as at the date of the First EGM. The Hubei Tobacco Group and its associates would be required to abstain from voting on the relevant resolution to be proposed at the First EGM to approve the Master Sales Agreement and the transactions contemplated thereunder (including the Caps), if any of them hold any Shares at the date of the First EGM.

THE FIRST EGM AND THE SECOND SGM

The First EGM will be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong, on Thursday, 14 April 2011 at 11:00 a.m. for the purpose of considering and, if thought fit, approving the Acquisition Agreement, including the provision of the Corporate Guarantee, and the Master Sales Agreement, including the Caps, and the respective transactions contemplated thereunder. The notice convening the First EGM is set out on pages EGM–1 to EGM–3 of this circular.

– 110 –

LETTER FROM THE BOARD

The Second EGM will be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong on Wednesday, 20 April 2011 at 11:00 a.m. for the purpose of considering and, if thought fit, approving the proposed change of the Company’s name. The notice convening the Second EGM is set out on pages EGM–4 to EGM–5 of this circular.

Whether or not you are able to attend the First EGM and/or the Second EGM, you are requested to complete the accompanying forms of proxy in accordance with the instructions printed thereon and return them to Tricor Investor Services Limited, the branch share registrar and transfer office of the Company in Hong Kong, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for the holding of each of the First EGM and the Second EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at each of the First EGM and the Second EGM or any adjournment thereof should you so wish.

RECOMMENDATION

The Company has established the Independent Board Committee, comprising all independent non-executive Directors, namely Mr. Lui Tin Nang, Mr. Lam Ying Hung, Andy and Mr. Siu Man Ho, Simon, to advise the Independent Shareholders as to whether the terms and conditions of the Acquisition Agreement (including the provision of the Corporate Guarantee) and the Master Sales Agreement (including the Caps) are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders on how to vote, taking into account the recommendations of Ample Capital, the independent financial adviser appointed by the Independent Board Committee. The letter of recommendation from the Independent Board Committee and the letter of advice from Ample Capital are set out on pages 113 to 114 and 115 to 143 of this circular respectively. You are advised to read these letters carefully before making your voting decisions.

The Board (excluding Mr. Tsoi (who is the Vendor and a director of certain members of the Target Group) and Mr. Cai Xiao Ming, David (who is a director of a member of the Target Group) who had abstained from voting at the relevant Board resolutions, and the independent non-executive Directors whose views are set out in the “Letter from the Independent Board Committee” below), having considered the reasons set out in the paragraphs above, and the Independent Board Committee, having taken into account the advice of Ample Capital, consider the terms of the Acquisition Agreement (including the provision of the Corporate Guarantee) and the Master Sales Agreement (including the Caps) and the respective transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition and the entering into of the Master Sales Agreement are in the interests of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the proposed resolutions at the First EGM approving the Acquisition Agreement (including the provision of the Corporate Guarantee), the Master Sales Agreement (including the Caps) and the respective transactions contemplated thereunder.

– 111 –

LETTER FROM THE BOARD

The Directors consider the proposed change of the Company’s name is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolution to be proposed at the Second EGM.

ADDITIONAL INFORMATION

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

By Order of the Board CT Holdings (International) Limited Wu Sin Wah, Eva Executive Director

– 112 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1008)

28 March 2011

To the Independent Shareholders

Dear Sir or Madam,

(II) PLACING DOWN ARRANGEMENTS FOR MAINTAINING SUFFICIENT PUBLIC FLOAT; AND (III) PROPOSED CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 28 March 2011 (the “ Circular ”) of which this letter forms part. Capitalised terms used herein have the same meanings as those defined in the Circular unless otherwise stated.

We have been appointed as members of the Independent Board Committee to consider the terms of the Acquisition Agreement, including the provision of the Corporate Guarantee, the Master Sales Agreement, including the Caps, and the respective transactions contemplated thereunder. Ample Capital has been appointed as the independent financial adviser to advise us in this regard. Details of the advice of Ample Capital are contained in its letter set out on pages 115 to 143 of the Circular.

– 113 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of Ample Capital, we consider the terms of the Acquisition Agreement, including the provision of the Corporate Guarantee, the Master Sales Agreement, including the Caps, and the respective transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition and the transactions contemplated under the Master Sales Agreement are in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the proposed resolutions at the First EGM to approve the Acquisition Agreement, including the provision of the Corporate Guarantee, the Master Sales Agreement, including the Caps, and the respective transactions contemplated thereunder.

Yours faithfully,

Lam Ying Hung, Andy Independent non-executive Director

Independent Board Committee Lui Tin Nang Independent non-executive Director

Siu Man Ho, Simon Independent non-executive Director

– 114 –

LETTER FROM AMPLE CAPITAL

The following is the full text of the letter from Ample Capital Limited setting out its advice to the Independent Board Committee and the Independent Shareholders for inclusion in this circular.

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Ample Capital Limited Unit A, 14th Floor Two Chinachem Plaza 135 Des Voeux Road Central Hong Kong

28 March 2011

To: the Independent Board Committee and the Independent Shareholders of CT Holdings (International) Limited

Dear Sirs,

(I) THE ACQUISITION AND THE TRANSACTIONS CONTEMPLATED UNDER THE ACQUISITION AGREEMENT; AND (II) MASTER SALES AGREEMENT AND THE CAPS

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in connection with (1) the Acquisition and the transactions contemplated under the Acquisition Agreement; and (2) the Master Sales Agreement and the Caps, details of which are set out in the “Letter from the Board” in the circular dated 28 March 2011 to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

The Acquisition and the transactions contemplated under the Acquisition Agreement (together, the “Connected VSA”) constitute a very substantial acquisition for the Company pursuant to Rule14.06(5) of the Listing Rules and a connected transaction of the Company pursuant to Rule14A.13(1)(a) of the Listing Rules by reason that Mr. Tsoi, being the Vendor, is a connected person of the Company under the Listing Rules. Also, prior to the release of the Corporate Guarantee, the provision of which constitutes a connected transaction pursuant to Rule14A.63 of the Listing Rules. The Acquisition and the transactions contemplated under the Acquisition Agreement, including the provision of the Corporate Guarantee, are therefore subject to the approval by the Independent Shareholders at the EGM by way of poll.

– 115 –

LETTER FROM AMPLE CAPITAL

As the Caps under the Master Sales Agreement exceed HK$10 million per annum, the sales of Package Products under the Master Sales Agreement to Hubei Tobacco Group constitutes non-exempt continuing connected transactions after the Acquisition Completion. The Master Sales Agreement including the Caps in relation to the sales of Package Products will therefore be subject to the reporting, announcement, annual review and the Independent Shareholders’ approval requirements pursuant to Rule 14A.35 of the Listing Rules after the Acquisition Completion. Ordinary resolution(s) will be proposed at the EGM to approve the Master Sales Agreement and transactions contemplated thereunder (including the Caps).

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Lui Tin Nang, Mr. Lam Ying Hung, Andy and Mr. Siu Man Ho, Simon, has been constituted to consider the fairness and reasonableness of the terms of the Connected VSA and Master Sales Agreement (including the Caps) and to advise the Independent Shareholders in this respect. We, Ample Capital Limited, have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Connected VSA and Master Sales Agreement (including the Caps) are fair and reasonable, in the interest of the Company and Shareholders as a whole and as to how the Independent Shareholders should vote at the EGM.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that such information, facts and opinions are true and accurate and will remain true and accurate up to the time of the EGM. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed. We consider that the information we have received is sufficient for us to reach an informed view and have no reason to believe that any material information has been withheld, or to doubt the truth or accuracy of the information provided. We have however not conducted an independent investigation into the business and affairs of the Group nor have we carried out any independent verification of the information supplied.

CONNECTED VSA

I. Background and Reasons for the Acquisition

The Group is principally engaged in the provision of printing services to customers including international publishers and multi-national corporations. The Group’s printed products include case bound books, paperback books, spiral bound books, novelty books; and other paper-related products which include greeting cards, party decoratives, calendars, paper bags and packaging boxes. The Group is also engaged in the production and sale of packaging and decorative products in the PRC.

– 116 –

LETTER FROM AMPLE CAPITAL

The table and graphs below set out the key financial information of the Group for the 5 financial years ended 31 December 2009 and 6 months ended 30 June 2010:

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

Six months ended 30
Year ended 31 December June
In HK$million 2005 2006 2007 2008 2009 2009 2010
(Audited) (Audited) (Audited) (Audited) (Audited) (Unaudited) (Unaudited)
Revenue 170 268 335 403 363 142 182
Profit after tax 17 28 30 32 23 9.3 0.4
Revenue
HK$’ million
450
403
400
363
350 335
300
268
250
200 182
170
150
100 142
Six months ended
50
30 June 2009
0
2005 2006 2007 2008 2009 Six months
ended
For the year ended 31 December 30 June 2010
Profit After Tax
HK$’ million
35.0
31.8
29.9
30.0
27.6
25.0
22.7
20.0
16.8
15.0
10.0
9.3
5.0 Six months ended
30 June 2009 0.4
0
2005 2006 2007 2008 2009 Six months
ended
For the year ended 31 December 30 June 2010
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– 117 –

LETTER FROM AMPLE CAPITAL

From 2009 onwards, the Group’s business has been affected by the uncertainties prevailing amongst different major markets of the Group. Both the Group’s turnover and profit for the financial years 2009 and 2010 were adversely affected by the slowdown of the North American and Europe markets as well as the increase in the cost of raw materials and labour. For the six months ended 30 June 2010, the net profit of the Company recorded a significant fall to merely HK$0.4 million. On 9 February 2011, the Company issued a profit warning announcement as there will be a significant drop in net profit of the Group for the year ended 31 December 2010 as compared to the year ended 31 December 2009. Based on the preliminary review on the unaudited management accounts of the Group, the upsurge in cost of raw materials, direct manufacturing costs and freight and transportation cost have caused an erosion of the gross profit margin of the Group for the year.

In view of the challenges mentioned above, the Group has been exploring opportunities to further diversify its business operation in the PRC market. The Directors are of the view that the Acquisition enables the Group to participate in the cigarette package printing business which will create a new growth area for the Group.

The PRC is by far the largest cigarette manufacturer and has the highest level of cigarette consumption. According to the China Statistics Yearbook 2009 and the latest statistics published on the website of the National Bureau of Statistics of China, there has been a steady growth in the output of cigarettes in the PRC in the past few years. Given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in the coming years, the Directors are optimistic of the market demand for cigarettes and the growth potential of the business of cigarette package printing business. The output of cigarette production in the PRC increased from approximately 6.8 million cases in 2000 to approximately 47.5 million cases in 2010, which in turn increased the demand for cigarette packaging. Please refer to “Industry Overview” and “Risk Factors” sections of “Letter from the Board” for further information of the PRC tobacco Industry and PRC cigarette printing industry. Furthermore, the Target Group has been engaged in the printing of cigarette packages since 1999 and has been profit making for at least the latest seven consecutive years. Taking into consideration the established scale of the operation of the Target Group and its continuous growing potential, the Directors consider the Acquisition valuable and Acquisition Completion would immediately improve the Group’s results and provide better returns to the Shareholders in the long run in the absence of unforeseen circumstances.

II. Issuance of Consideration Shares

The consideration of the Acquisition shall be satisfied entirely by the Company allotting and issuing 480,000,000 new Shares to the Vendor (or his nominee(s) or any person(s) nominated by him) upon Acquisition Completion.

– 118 –

LETTER FROM AMPLE CAPITAL

The Company considered and discussed with the Vendor several forms of financing as the consideration of the Acquisition, including cash, borrowing, issue of convertible securities, issue of new Shares of the Company or a combination of the above, which are considered to be the ways commonly adopted in the market:

• Cash

The Group recorded a cash and cash equivalent of approximately HK$48 million as at 30 June 2010. Based on the 2010 interim report of the Company, which merely represents approximately 2% of the consideration of the Acquisition of HK$2,400 million. Therefore, cash payment is not a viable option for the Company in considering the financing of the consideration of the Acquisition.

• Bank Borrowing

Based on the 2010 interim report of the Company, the Group has total assets and net assets of approximately HK$436.6 million and HK$279.4 million respectively. Given the existing size of the Company, it would be practically impossible for the Company to arrange such a bank financing as the amount of consideration involved is about eight times the net assets of the Group as at 30 June 2010. Also, further debt financing will deteriorate the Company’s financial position and gearing ratio and even if such financial arrangement can be arranged, the relevant finance cost involved would have significant burden and impact on the result of the Group.

• Issue of Convertible Securities

It is expected that the Group would incur a substantial finance cost in the case of issuing of convertible securities. Significant cash outlay would also be required to repay the relevant convertible note at its maturity if the relevant convertible bonds are not fully converted into Shares. The convertible securities, if issued, would have accounting implication on the Group’s overall results in the later years, the impact of which are unable to be assessed at the moment.

• Issue of New Shares

The Company considers the Acquisition Completion would immediately improve the Group’s results and provide better return to the Shareholders in the long run. As such the Director are of the view that it will be desirable to finance the Group’s long term growth by way of issue of new Shares or Consideration Shares. Moreover, issuance of Consideration Shares will have overall positive financial impact on the Group (please refer to the section headed “VI. Financial Impact of the Connected VSA on the Group” below for details).

In view of the above, and having considered the positive overall financial impact of the issuance of the Consideration Shares on the Company, we are of the view that the issuance of Consideration Shares is a preferred method compared to other means of financing to raise funding for opportunistic investments in the PRC.

– 119 –

LETTER FROM AMPLE CAPITAL

III. The Target Group

A. Group structure

The Target, wholly and beneficially owned by Mr. Tsoi as at the Latest Practicable Date, is an investment holding company incorporated in the BVI on 29 January 1999. As at the Latest Practicable Date, the Target has four operating subsidiaries, namely BB Jinhuangshan, SZ Kecai, XF Jinfeihuan and ZT Antong, and an associated company, namely CD Goldroc (in which the Target is the single largest shareholder), as the operating companies.

The group structure of the Target Group as at the Latest Practicable Date was as follows:

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Notes:

The principal business of Brilliant Circle Printing and Packaging Limited is investment holding. The issued share capital of Brilliant Circle Printing and Packaging Limited is held as to 94% by the Target and 6% by Union Virtue International Limited, a wholly-owned subsidiary of the Target.

– 120 –

LETTER FROM AMPLE CAPITAL

3. The principal business of BCD is investment holding and trading of machines, paper and spare parts.

4. The principal business of BB Jinhuangshan is printing of cigarette packages.

5. CD Goldroc is an associated company of the Target and its principal business is printing of cigarette packages.

6. The principal business of Shenzhen Guilian Printing Ltd. is printing of packages and trading of paper, package materials, hologram, aluminium foils, machine and related parts.

7. The principal business of SZ Kecai is printing of cigarette packages.

8. The principal business of XF Jinfeihuan is printing of cigarette packages.

9. The principal business of ZT Antong is manufacturing of laminated papers.

B. Business of the Target Group

The Target Group and its associated company are principally engaged in the design and printing of cigarette packages. They offer full production solutions from the design of the cigarette packages, procurement of raw materials to after-sales services to their customers, mainly large state-owned cigarette manufacturers in the PRC. They produce and supply the cigarette packing for over 30 brands in the PRC such as 白沙 (Baisha), 紅金龍 (Hong Jin Long), 蘇煙 (Su Yan), 黃果樹 (Huang Guo Shu), 黃山 (Huang Shan) and 芙蓉王 (Fu Rong Wang). They are able to tailor-make and design high quality cigarette packages that highlight and symbolise the class, position, taste and uniqueness of their respective brands of cigarettes, such as printing the packages with holographic and/or laser texts and images to distinguish the cigarette packages from counterfeit products.

Sales to the top five customers of the Target Group, in aggregate, accounted for approximately 93.0%, 84.3%, 82.1% and 78.7% of the total revenue of the Target Group for the three years ended 31 December 2009 and nine months ended 30 September 2010 respectively and almost all of these customers have maintained business relationships with the Target Group for over 6 years.

Paper is the major raw material of the Target Group. It accounted for about 50% of total cost of the production for the three years ended 31 December 2009 and nine months ended 30 September 2010. Other raw materials include inks, aluminium foils, metallised films and solvents. The Target Group has implemented an inventory control policy to maintain the inventory level of papers equivalent to approximately three months of production requirement in order to reduce the impact of paper price fluctuations and to ensure their steady supply. The Target Group places great emphasis on the quality of raw materials to ensure the high standard of products and has implemented a stringent quality management system. Papers are mainly sourced from high quality manufacturers in the PRC, Finland and US, while other raw materials such as aluminium foils, films and holographic and/or laser texts and images are mainly sourced from Korea, Germany and the PRC.

– 121 –

LETTER FROM AMPLE CAPITAL

The following table sets forth details of each of the production facilities of the Target Group and its associated company:

	Percentage			Owned/leased
	of		Gross floor	(production		Production capacity	Utilisation
Company	ownership	Location	area	facilities)	Product	per year	rate in 2009
	(%)		(sq. m.)		(note 5)	(note 1)	(note 4)
Subsidiaries of the Target
BB Jinhuangshan_(note 2)_	52.64	Anhui	29,949.53	Owned and	Cigarette	1,200,000 cases of	54%
				leased	packages	cigarette packages
XF Jinfeihuan	79.6	Hubei	16,690.34	Owned	Cigarette	600,000 cases of	47%
					packages	cigarette packages
SZ Kecai	99.31	Shenzhen	128,233.16	Owned	Cigarette	1,200,000 cases of	62%
					packages	cigarette packages
ZT Antong_(note 6)_	80	Yunnan	5,000	Leased	Laminated	4,000 tonnes of	29%
					papers	laminated papers
Associated companyof the Target
CD Goldroc	35	Hunan	38,595.68	Owned	Cigarette	2,000,000 cases of	53%
(note 3)					packages	cigarette packages

Note:

2. The profit and loss is shared as to 37.64% by the Target Group.

3. CD Goldroc is a 35%-owned associated company of the Target Group in which the Target is the single largest shareholder.

5. BB Jinhuangshan, XF Jinfeihuan, SZ Kecai and CD Goldroc are located at different provinces of the PRC and each of them is primarily engaged in the business of printing of cigarette packages.

6. The profit and loss is shared as to 51% by the Target Group.

The majority of the machines and equipment used by the Target Group and its associated company were acquired from overseas manufacturers, including Germany, Denmark, Switzerland, Italy, Taiwan and Japan, which supplies the major production machines of the Target Group and its associated company including printing machines, automatic stamping machines and die-cutting machines. Most of the machinery and equipment are capable of producing high quality products in an efficient manner with advanced technologies.

– 122 –

LETTER FROM AMPLE CAPITAL

The printing and packaging industry is generally a capital-intensive industry which requires substantial investment in machinery and equipment. For the past years, the Target Group has been continuously improving and upgrading its product design and quality and established a reputable history and amicable strategic relationships with its major customers in order to maintain their competitiveness in the market.

For more details of the business of the Target Group, please refer to “Information on the Target Group and its associated company” section of “Letter from the Board”.

C. Financial Information of the Target Group

The Target Group has been engaging in the printing of cigarette packages since 1999 and has been profit making for at least the latest seven consecutive years. The following is a summary of the audited financial results of the Target Group extracted from the accountants’ report on the Target Group set out in Appendix II to the Circular for the years ended 31 December 2007, 2008 and 2009 and the nine months ended 30 September 2010:

				Nine
				months
				ended 30
		Year ended 31 December		September
	2007	2008	2009	2010
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	968,773	1,128,983	1,050,638	769,299
Net profit before tax	291,674	359,094	326,930	313,815
Net profit after tax	268,856	308,633	281,248	267,976
Net profit after tax and
minority interests	215,340	261,488	231,716	223,313

According to the accountants’ report on the Target Group, the audited consolidated net assets attributable to the equity holder of the Target as at 30 September 2010 was approximately HK$600.0 million.

Shareholders and investors should note that the accountants’ report on the Target Group set out in Appendix II to the Circular is qualified in respect of the non-consolidation of some of the former subsidiaries of the Target Group which were disposed of during the year ended 31 December 2007. The Company considers that the qualified opinion of the Target will cease to have any impact on the consolidated financial statements of the Target subsequent to the year ended 31 December 2007, and, therefore, will not have any material impact on the Acquisition.

– 123 –

LETTER FROM AMPLE CAPITAL

D. Future prospects, risk factors and proposed development plan

The Target Group and its associated company have been operating with stable track record and established business network with its customers. However, like any other businesses, the Target Group is also facing various business and operational risks which may adversely affect the prospects and the profitability of the Target Group, including:

1) Fluctuation in raw materials prices

Paper is the most significant raw material for the business of the Target Group which accounted for approximately 58%, 60%, 58% and 52% of the total cost of goods sold for the three financial year ended 31 December 2009 and the nine months ended 30 September 2010. The Target Group has not experienced significant fluctuation in the its cost of raw material. Moreover, based on the fact that the Target Group offers high quality or unique cigarette packages which may include premium features such as holographic and/or laser texts and images, and is thus capable of passing some cost increments to customers. As such, the gross profit margin of the Target Group has been increasing during the three years ended 31 December 2009 and nine months ended 30 September 2010. Although there is no assurance that papers or other raw materials will not be subject to significant price fluctuations in the future, the Target Group can adopt an active inventory management by accumulating paper inventory of up to approximately three months of production level in anticipation of significant paper fluctuations. Despite this measure to endure short term paper cost fluctuations, any prolonged substantial increase in the price of raw materials may adversely affect the profitability of the Target Group if it is not able to pass all or part of such increase to its customers, and its results of operations may be adversely affected.

2) Renewal of the joint venture agreements

As at the Latest Practicable Date, the Target Group had four operating subsidiaries, namely BB Jinhuangshan, SZ Kecai, XF Jinfeihuan and ZT Antong, and an associated company, namely CD Goldroc (in which the Target is the single largest shareholder), as the operating companies. BB Jinhuangshan, XF Jinfeihuan, ZT Antong and CD Goldroc are joint ventures established by the Target Group through its strategic partnership in the PRC and their terms of the joint venture contracts will expire in December 2018, July 2015, November 2011 and April 2013 respectively. The expiry of joint venture contracts of ZT Antong and CD Goldroc will take place within around two years from the date of the Circular.

– 124 –

LETTER FROM AMPLE CAPITAL

ZT Antong contributed less than 3.5% of the Target Group’s turnover for each of the financial year ended 31 December 2009 and nine months ended 30 September 2010. The directors of ZT Antong, which also includes representatives of the joint venture partner of ZT Antong, have agreed to extend the joint venture contract for another three years to November 2014. The Target Group considers that there should be no legal impediments for ZT Antong to extend or renew the term of the joint venture contract upon its expiry. In the event that the joint venture contract of ZT Antong fails to be renewed, it will not have an adverse financial impact on the Target Group.

CD Goldroc contributed about 40% of the Target Group’s profit before tax for each of the financial year ended 31 December 2009 and nine months ended 30 September 2010. Should the Target Group fail to renew the joint venture contract of CD Goldroc in 2013, the Target Group’s profit will be adversely affected. In April 2010, the joint venture contract of CD Goldroc has been extended for three years to April 2013. According to the Directors, as both joint venture parties of CD Goldroc are satisfied with the operation of CD Goldroc given its good financial performance, the Target Group believes it is likely that joint venture contract of CD Goldroc will be extended or renewed in 2013. The Target Group also considers that there should be no legal impediments in extending or renewing the joint venture contract.

3) Regulatory licences and permits

The members of the Target Group are required to apply for the Printing Business Licenses from local government departments of the General Administration of Press and Publication of the PRC for the engagement in the printing and packaging business. Each local department has the flexibility to determine and grant the validation period of such licence on a case-by-case basis. The Target Group’s licenses will expire between April 2012 to December 2013. In the event that the Target Group fails to renew these licenses, the Group’s profit will be adversely affected. As confirmed by the PRC legal adviser and the Target Group, they do not foresee any material difficulty in renewing the Printing Business Licence upon their expiry. For further details, please refer to the section headed “Regulation matters” under “Letter from the Board”.

4) Foreign exchange risk

– 125 –

LETTER FROM AMPLE CAPITAL

December 2008 and the nine months ended 30 September 2010 respectively, and net foreign exchange losses of approximately HK$4.9 million for the year ended 31 December 2009.

The Target Group’s currency exposures are mainly from two areas: (1) sales and purchases; and (2) capital expenditures. As the Target Group’s sales and purchases are mainly denominated in Renminbi and as it is a profit making group, there is a foreign exchange risk of receiving Renminbi on one hand. On the other hand, the Group’s capital investments in machineries exposes itself to foreign exchange risk of paying mainly in Renminbi, Euro and US dollars. So, in the year of low capital investments in machineries, the Target Group’s foreign exchange risk is mainly the inflow of Renminbi. Whereas, in the year of heavy capital investments in machineries, there might be foreign exchange risk of net outflow of Renminbi, Euro and US dollar. According to the Directors, more than 75% of the capital investment of the Target Group in foreign currencies will be denominated in Renminbi for the financial years 2011 and 2012. Furthermore, the Renminbi outflow for the capital expenditures will only represent a fraction of the Renminbi to be generated from the operating activities for these two years. It is expected that there will be net Renminbi inflows for the financial years 2011 and 2012. As the Directors expect that Renminbi will continue to appreciate, therefore, they do not plan to engage in any hedging activities.

5) Risk associated with the reliance on few customers

The sales to the top five customers of the Target Group, in aggregate, accounted for approximately 82.1% and 78.7% of the total revenue of the Target Group for the year ended 31 December 2009 and nine months ended 30 September 2010 respectively. Most of these customers have maintained business relationships with the Target Group ranging from four to six years. As you may be aware, the Target Group was less reliant on the top five customers for the nine months ended 30 September 2010 as compared with the situation in 2009. As the Target Group will from time to time consider further acquisitions of companies engaging in similar cigarette package printing business should suitable opportunities arise, such acquisitions will further increase the Target Group’s customer base and hence further reduce the risk of reliance on few customers.

For further details of the risks faced by the Target Group, please refer to the section headed “Risk Factors” under “Letter from the Board”.

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LETTER FROM AMPLE CAPITAL

Notwithstanding the risks mentioned above, the Directors are optimistic of the market demand for cigarettes and the growth potential of cigarette package printing business given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in recent years. The recent ongoing consolidation direction of the tobacco industry in the PRC is also considered to be one of the contributing factors for the growth of the business of the Target Group and its associated company.

In order to capture the growing potential of the cigarette package printing business in the PRC, the Target Group may, from time to time, consider further acquisitions of companies engaging in similar cigarette package printing business should suitable opportunities arise.

IV. Principal Terms of the Connected VSA

A. Consideration
(i) Basis for the Consideration

The consideration of the Acquisition amounts to HK$2,400,000,000. It was determined after arm’s length negotiations between the Company, the Purchaser and the Vendor, and taking into account factors such as:

the historical performance of the Target Group;
the business growth and profitability of the Target Group;
the prospects of the PRC tobacco industry;
price-earnings multiple of AHL (engaged in printing of cigarette packages) and other Hong Kong listed companies with businesses comparable to that of the Company in books printing, packaging printing and other paper products printing.

The consideration of the Acquisition represents price-earnings multiple of approximately 10.36 times (the “ Acquisition PE ”) (based on the unaudited consolidated profit attributable to the equity holder of the Target for the year ended 31 December 2009 of approximately HK$231.7 million), compared to the trading price-earnings multiple of AHL, of approximately 15.70 times on the date of the Acquisition Agreement, 29 December 2010.

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LETTER FROM AMPLE CAPITAL

We set out below PE multiples of the Hong Kong listed companies with businesses comparable to that of the Company in books printing, packaging printing and other paper products printing when entering into of the Acquisition Agreement.

	Market
	Capitalisation/
	Consideration	PE multiple
	(HK$’million)
Target Company	2,400	10.36 times
AHL_(note 1)_	5,576	15.70 times
The Company (note 1)	1,760	62.6 times
Hung Hing Printing Group Limited (note 1)	3,105	17.0 times
Neway Group Holdings Limited (note 1)	3,721	49.9 times
New Island Printing Holdings Limited	1,359	103.3 times
(note 1)
Cheong Ming Investments Limited (note 1)	485	23.9 times
Starlite Holdings Limited (note 1)	239	5.81 times
Midas International Holdings Limited	202	n/a
(note 2)
Average of the above companies		39.7 times
Average of the companies with		58.2 times
comparable size

Notes:

The trading price-earnings multiple as at 29 December 2010 is calculated based on the market capitalisation of the listed issuer as at 29 December 2010 divided by the audited consolidated net profit attributable to the equity holders of the listed issuer for the most recent financial year.
Midas International Holdings Limited (stock code: 1172) was in a loss situation, therefore it has not been considered in determining the Acquisition PE.

As shown in the table above, the Acquisition PE of approximately 10.36 times is much lower than that of AHL, the Company and almost all other comparable companies (except Starlite Holdings Limited). The Acquisition PE of Target Group, being an unlisted group before the Acquisition Completion, represents a discount of about 73% as compared with average PE of the comparable listed companies. If we compare PE of listed companies with comparable size of the Target Group (within 50% range of the size of the Target Group, i.e. market capitalization of between HK$1,200 million to HK$3,600 million), we notice that the Acquisition PE represented a discount of about 82% as compared with the average PE of these companies. We consider that the discount is reasonable as the Acquisition PE represented huge

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LETTER FROM AMPLE CAPITAL

discounts to the average PEs of these relevant listed companies and it would be even lower if the net profit of the Target Group improves over time. As stated in Appendix II “the Accountants’ report on the Target Group”, the audited profit after tax for the nine months ended 30 September 2010 amounted to about HK$273 million, approximately 57% increment from HK$174 million, unaudited profit after tax for the nine months ended 30 September 2009.

We consider that PE multiple is a more relevant method of valuation as far as the Target Group is concerned. Given the fact that the Target Group is not a property group and it is not the intention of the Directors to strip the Target Group and sell its assets, the valuation based on net assets or total assets is not appropriate. As the Group will rely on the Target Group to generate income and contribute to the Enlarged Group’s earnings after the Acquisition Completion, therefore, using PE multiple is the most appropriate method in the valuation of the Target Group and for the comparison purpose.

(ii) Considerations for the previous acquisitions of the Target Group

The Target was wholly and beneficially owned by the Vendor prior to 2007 when the Vender disposed of the Target to AHL in 2007 at a consideration of HK$1,555,500,000. Pursuant to the agreement dated 22 December 2009, the Vendor repurchased the Target from AHL (the “Repurchase”) at a consideration of HK$2,048,000,000. Since then, the entire issued share capital of the Target has been held by the Vendor. The consideration of the Acquisition amounts to HK$2,400,000,000. It is not unreasonable to see that the consideration of the Target Group has increased over time when the value of the Target increased due to improving financial performance.

The Target’s recent years’ profits after tax are stated below:

						Nine months
					Year ended 31	ended 30
	Year ended 31 December		Six months 30 June		December	September
	2007	2008	2008	2009	2009	2010
	HK$’million	HK$’million	HK$’million	HK$’million	HK$’million	HK$’million
	(unaudited)*	(unaudited)*	(unaudited)*	(unaudited)*	(audited)	(audited)
Profit after tax	241	257	122	33	232	223

financial information available on 22 December 2009 when Vendor repurchased the Target from AHL

The consideration of the Repurchase represents price-earnings multiple of approximately 8 times (the “Repurchase PE”) (based on the unaudited profit after tax of the Target for the year ended 31 December 2008 of approximately HK$257 million). It is noted that the Repurchase PE (8 times) is lower than the Acquisition PE (10 times). As you may be aware, at the time of Repurchase, the unaudited net profit of the Target has shrunk about 73% from HK$122 million for the six months ended 30 June 2008 to HK$33 million for the six months ended 30 June 2009. Whereas, at the time of the Acquisition, the

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financial performance of the Target is improving. Therefore, we are of the view that it is not unreasonable to have the Acquisition PE higher than the Repurchase PE.

Given the factors mentioned above, we consider that the Acquisition PE and the Consideration is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

B. Price of Consideration Shares

The issue price of HK$5 per Consideration Share represents:

a discount of approximately 29.78% to the closing price of HK$7.12 per Share as quoted on the Stock Exchange on the Last Trading Day;
a discount of approximately 28.06% to the average of the closing prices of HK$6.95 per Share for the last ten trading days up to and including the Last Trading Day;
a discount of approximately 26.36% to the average of the closing prices of approximately HK$6.79 per Share for the last 30 trading days up to and including the Last Trading Day;
a discount of approximately 19.61% to the average of the closing prices of approximately HK$6.22 per Share for the last 60 trading days up to and including the Last Trading Day;

On 6 December 2010, the Company made an announcement pursuant to Rule 13.09(1) (“Rule 13.09 Announcement”) of the Listing Rules that there would be a possible acquisition of the Target Group which is principally engaged in the design and printing of cigarette packages in mainland China. The closing price of the Shares on 3 December 2010, the trading date immediately before the Rule13.09 Announcement was made, was HK$6.41 per Share. On 6 December 2010, the closing price increased about 15% to HK$7.36 per Share. The price of the Shares shot up further to $9.55 per Share on 8 December 2010. As the market has already reacted to the news that the Group is very likely going into the PRC cigarette printing business when Rule 13.09 Announcement was made public, we are of the view that the closing price on 3 December 2010 would represent a better reference price than the closing price on the Last Trading Day.

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LETTER FROM AMPLE CAPITAL

The issue price of HK$5 per Consideration Share represents:

a discount of approximately 22% to the closing price of HK$6.41 per Share as quoted on the Stock Exchange on 3 December 2010;
a discount of approximately 18% to the average of the closing prices of HK$6.09 per Share for the last ten trading days up to and including 3 December 2010;
a discount of approximately 17% to the average of the closing prices of approximately HK$6.05 per Share for the last 30 trading days up to and including 3 December 2010;
a discount of approximately 7.5% to the average of the closing prices of approximately HK$5.41 per Share for the last 60 trading days up to and including 3 December 2010; and
a premium of approximately 6.4% over the average of the closing prices of approximately HK$4.7 per Share for the one year ended 3 December 2010.

Set out below chart of historical closing prices of the Shares on the Stock Exchange for the period of twelve full calendar months prior to the date of the Rule 13.09 Announcement (the “Relevant Period”).

Closing price per Share on the Stock Exchange

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

7.0
Issue price of HK$5.0 per Consideration Share
6.0
5.0
4.0
3.0
Approximate average closing price of HK$4.7 per Share
2.0
1.0
0.0
07-Dec-0906-Jan-1005-Feb-1007-Mar-1006-Apr-1006-May-1005-Jun-1005-Jul-1004-Aug-1003-Sep-1003-Oct-1002-Nov-1003-Dec-10
Closing price per Share (HK$)
----- End of picture text -----

Source: http://www.hkex.com.hk/ and http://finance.yahoo.com/

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LETTER FROM AMPLE CAPITAL

As you may see from the chart above, the Share has been constantly traded below HK$5 since December 2009 (except on a few occasions when the Share traded slightly above HK$5). The Share price only started to surge in October 2010 from the average closing price in September 2010 of approximately HK$4.42 (the “ September Average Price ”) to the average closing price in October 2010 of approximately HK$5.22 (the “ October Average Price ”) and increased further to the closing prices of HK$6.41 on 3 December 2010 and HK$7.12 on the Last Trading Day. In order to eliminate the short term fluctuations in share price, we have also made Share price comparison as follows:

The issue price of HK$5 per Consideration Share represents:

a premium of approximately 24% over the lowest closing price of the Shares of HK$4.02 during the Relevant Period recorded on 2 June 2010;
a premium of approximately 6.4% over the approximate average of the closing prices of HK$4.7 per Share during the Relevant Period;
a premium of approximately 13.12% over the September Average Price;
a discount of approximately 4.21% over the October Average Price.

Set out below chart of historical daily trading volume of the Shares on the Stock Exchange for the Relevant Period.

Daily trading volume of the Shares on the Stock Exchange

==> picture [358 x 162] intentionally omitted <==

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

1,000,000
900,000
800,000
700,000
600,000
500,000
Approximate average daily turnover of 46,423 shares
400,000
300,000
200,000
100,000
-
07-Dec-0906-Jan-1005-Feb-1007-Mar-1006-Apr-1006-May-1005-Jun-1005-Jul-1004-Aug-1003-Sep-1003-Oct-1002-Nov-1003-Dec-10
Trading volume (Shares)
----- End of picture text -----

Source: http://www.hkex.com.hk/ and http://finance.yahoo.com/

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LETTER FROM AMPLE CAPITAL

The average daily trading volume during the Relevant Period was approximately 46,423 Shares, representing 0.023% of the existing issued share capital of the Company. The highest daily trading volume during the Relevant Period was 866,000 Shares, representing 0.43% of the existing issued share capital of the Company. As we noted that the 480,000,000 Consideration Shares represent 240% of the existing issued share capital of the Company, this makes the Placing Down Price a better reference because Placing Down Shares (to be placed to the independent third parties) amounted to not less than 88,400,000 or 44.2% of the existing issued share capital of the Company. The Consideration Share price represents a 10% premium over the Placing Down Price of HK$4.52.

In assessing the fairness and reasonableness of the Consideration Share price, we have considered the followings:

a) the Consideration Share price represents a 10% premium over the Placing Down Price of HK$4.52 and the Placing Down Shares are to be placed to the independent third parties. The Placing Down Price was negotiated on an arm’s length basis between the Place Down Vendor and the First Placee which is an Independent Third Party;
b) the entire consideration of the Acquisition is to be satisfied solely by the allotment and issue of the Consideration Shares and involving no cash outlay of the Company;
c) given the low average daily turnover of the Shares and the size of the Consideration Shares, as well as the fluctuation of Share price since October 2010, it would not be unreasonable to have Consideration Share price set at a discount to the closing prices on 3 December 2010 and the Last Trading Date;

In view of the factors mentioned above, we consider that the Consideration Share price is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

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V. Dilution Effect of the Issuance of the Consideration Shares and Placing Down Arrangement to Maintain Minimum Public Float

The following table illustrates the shareholding structures of the Company (i) as at the Latest Practicable Date; (ii) for illustration purpose only, assuming the Consideration Shares are issued to Mr. Tsoi (or his nominees(s) or any person(s) nominated by him) and without any placing down arrangements; (iii) immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down, all assuming that there are no other changes in the shareholding structure of the Company:

Shareholders Tsoi’s Family First Placee Other Placees – PGPE – PGA – YF Investment Existing public Shareholders Placee(s) under the Further Placing Down Total Public Shareholders	As at the Latest Practicable Date Number of Shares % 150,000,000 75.00 – – – – – – – – 50,000,000 25.00 – – 200,000,000 100.00 50,000,000 25.00	Assuming the Consideration Shares are issued to Mr. Tsoi (Note) Number of Shares Appro- ximate % 630,000,000 92.65 – – – – – – – – 50,000,000 7.35 – – 680,000,000 100.00 50,000,000 7.35	Immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down Number of Shares Appro- ximate % 419,016,000 61.62 90,984,000 13.38 6,188,000 0.91 45,288,000 6.66 34,340,000 5.05 50,000,000 7.35 34,184,000 5.03 680,000,000 100.00 170,000,000 25.00	Immediately after Acquisition Completion, Placing Down Completion and completion of Further Placing Down Number of Shares Appro- ximate % 419,016,000 61.62 90,984,000 13.38 6,188,000 0.91 45,288,000 6.66 34,340,000 5.05 50,000,000 7.35 34,184,000 5.03 680,000,000 100.00 170,000,000 25.00
				100.00

				25.00

Note: This column is for illustration purpose only, as the Company would not be able to fulfill the public float requirement under the Listing Rules.

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LETTER FROM AMPLE CAPITAL

Immediately upon completion of the issuance of the Consideration Shares without any placing down arrangements, the shareholding of existing public Shareholders would be diluted from 25% to 7.35%. Although the shareholding of existing public Shareholders will be substantially diluted because of the issuance of the Consideration Shares, the Connected VSA was well received by the market as reflected in the increase of the closing price per Share of HK$6.41 on 3 December 2010 to HK$8.40 on the Latest Practicable Date. As a result of increase in share price, the values of existing public Shareholders’ shareholdings have increased since the date of the Rule 13.09 Announcement. The earnings per share of the Group will also improve from HK0.2 cent for six months ended 30 June 2010 to HK37.4 cents for the pro forma year ended 31 December 2009. Moreover, the Acquisition enables the Shareholders to tap into the fast growing economy of the PRC and the tobacco packages printing industry via an established platform with an experienced management team and close business relationships with state-owned customers. In view of the above, we are of the view that the dilution effect on the shareholdings of the public Shareholders is acceptable.

The Company noted that the Mr. Tsoi’s Family would be interested in more than 75% of the enlarged issued share capital of the Company as a result of the issue of any new Shares to the Vendor. The Company has therefore required the Vendor, as a condition precedent to the Acquisition Completion, to procure the Tsoi’s Family to enter into placing arrangements in order to resolve minimum public float issue. Details of the placing down arrangements were set out in the section “Letter from the Board”. We are of the view that such an arrangement is in the interests of the Company and the Shareholders as a whole.

VI. Financial Impact of the Connected VSA on the Group

A. Earnings and profit margin

We set out below the turnover, profit attributable to shareholders and net profit margin of the Group for the two financial year ended 31 December 2009, six months period ended 30 June 2010 and pro forma unaudited financial information of the Enlarged Group for the financial year ended 31 December 2009:

				Pro forma
				Enlarged Group
			Six months	Year ended
	Year ended 31 December		ended	31 December
	2008	2009	30 June 2010	2009
	(HK$’million)	(HK$’ million)	(HK$’ million)	(HK$’million)
	(Audited)	(Audited)	(Unaudited)	(Unaudited)
Turnover	403.2	362.8	182.4	1,413.4
Profit attributable
to shareholders	31.8	22.7	0.4	254.4
Net Profit Margin	8%	6.3%	0.2%	18%

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LETTER FROM AMPLE CAPITAL

We also set out below the turnover, profit attributable to shareholders and net profit margin of the Target Group for the three financial year ended 31 December 2009, nine months period ended 30 September 2010:

					Nine months
					ended
	Year	ended 31 December			30 September
	2007		2008	2009	2010
	(HK$’million)	(HK$’million)		(HK$’million)	(HK$’million)
	(Audited)	(Audited)		(Unaudited)	(Unaudited)
Turnover	969		1,129	1,051	769
Profit attributable
to shareholders	269		309	281	268
Net Profit Margin	27.8%		27.3%	26.7%	34.8%

The Group’s net profit decreased significantly from HK$32.5 million for year ended 31 March 2008 to merely HK$0.4 million (earnings per share: HK 0.2 cents) for the six months ended 30 June 2010. The increase in manufacturing cost, labour cost and shipping cost had gobbled up the operating profit and hence reduced the net profit margin to approximately 0.2% for the six months ended 30 June 2010. The Target Group’s maintained a net profit of above HK$250 million for each of the three financial years ended 31 December 2009 and nine months ended 30 September 2010 with profit margins above 26% during the same periods. The pro forma unaudited net profit and net profit margin of the Enlarged Group for the financial year ended 31 December 2009 amounted to HK$254 million (or earnings per share: HK37.4 cents) and 18% respectively. Both the Group’s net profit, earnings per share and net profit margin will improve significantly after the completion of Connected VSA.

B. Net Assets

As at 30 June 2010, the unaudited net assets attributable to Shareholders was approximately HK$279 million. The Target Group’s audited net assets attributable to Shareholders amounted to HK$600 million as at 30 September 2010. After combining the net assets of the Group and the Target Group, the pro forma unaudited net assets attributable to Shareholders of the Enlarged Group will amount to approximately HK$871 million, a substantial increase from the Group’s net assets value as at 30 June 2010. Please refer to section (ii) Unaudited pro forma Consolidated Statement of Financial Position of the Enlarged Group of “Appendix III Financial Information of the Enlarged Group” for the details.

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C. Gearing

The Group’s gearing ratio (total debt/total assets) as at 30 June 2010 was approximately 16.9%. The Target Group’s gearing ratio as at 30 September 2010 was about 21.0%. After combining the financial statements of the Group and the Target Group, the pro forma unaudited debt ratio of the Enlarged Group would be 20.1%.

The Group The Target Group The Enlarged Group (pro forma)	As at: 30 June 2010 30 September 2010	Gearing ratio* 16.9% 21.0%
		20.1%

total debt/total assets

Although the Group’s gearing ratio will increase after the Connected VSA, it is nonetheless still at an acceptable level.

D. Cash position

The Group had unaudited cash and cash equivalents of approximately HK$48 million as at 30 June 2010. The Target Group had cash and cash equivalents of approximately HK$179 million as at 30 September 2010. (Pursuant to the Acquisition Agreement, the Vendor has the right to procure the Target to declare dividends for the year ended 31 December 2010 subject to the conditions that such declaration of dividends and such dividends does not result in the amount of cash balance of the Target Group being less than HK$180 million after such declaration.) After combining the result of the Group and the Target Group, the Enlarged Group’s cash and cash equivalents will increase significantly to HK$227 million. Moreover, the Target Group constantly generated cash of more than HK$200 million from its operating activities for each of the three years financial ended 31 December 2009 and the nine months ended 30 September 2010.

Based on the above, we consider the financial effects of the Connected VSA on the Group are in the interests of the Company and the Shareholders as a whole.

VII. Corporate Guarantee

A member of the Target Group has been providing a corporate guarantee in favour of a bank in the PRC up to an amount of RMB260 million (equivalent to approximately HK$305.88 million) to secure banking facilities granted to a private company wholly and beneficially owned by the Vendor before entering into of the Acquisition Agreement. The provision of the Corporate Guarantee after Acquisition Completion constitutes a connected transaction pursuant to Rule 14A.63 of the Listing Rules.

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A. Terms of the Acquisition Agreement in relation to the Corporate Guarantee

Pursuant to the terms of the Acquisition Agreement,

(i) the Vendor has undertaken to the Purchaser that he shall procure the Corporate Guarantee to be released as soon as possible after the date of the Acquisition Agreement and in any event within six months after the Acquisition Completion;
(ii) that the Vendor shall indemnify the Purchaser or the Target Group and shall keep any of them fully indemnified against all damages, losses, claims, fees and expenses (including but not limited to all damages, losses, claims, fees and expenses arising from any cross default triggered on the Target Group) which may be incurred, suffered or arising from the Corporate Guarantee; and
(iii) a finance charge of RMB1.30 million (equivalent to approximately HK$1.53 million), representing 0.5% on the amount of the guarantee provided, be levied against the private company which benefits from the Corporate Guarantee upon the Acquisition Completion and the Vendor shall and shall procure its associates to pay the aforesaid finance charge within three Business Days from the date of Acquisition Completion (“AC”).

The finance charge of RMB1.30 million represents different interest rates per annum under different release times of the Corporate Guarantee.

				Release at	the end of
		one	two	three	four	five	six
		month	months	months	months	months	months
		from AC	from AC	from AC	from AC	from AC	from AC
Interest	rate	6%	3%	2%	1.5%	1.2%	1%

We consider that the finance charge of not less than 1% interest per annum for the Corporate Guarantee which is fully indemnified reasonable.

As the Corporate Guarantee is only a transitory arrangement and it is fully indemnified by the Vendor, we consider that the terms of the Acquisition Agreement in relation to the Corporate Guarantee are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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B. Financial effects of the Corporate Guarantee on the Group

Although the Corporate Guarantee of approximately HK$305.88 million represents about 31% of the net assets of the Enlarged Group, the amount is fully indemnified by the Vendor and such guarantee is expected to be released as soon as possible after the date of the Acquisition Agreement and in any event within six months after the Acquisition Completion. According to Note 29 to the Accountant’s report on the Target Group set out in Appendix II regarding contingent liabilities, the directors of the Target Group do not consider it probable that a claim would be made against the Target Group of the Guarantee as there are pledged investment properties which are of higher value than the Corporate Guarantee amount. As such, it is expected that there will not be any significant adverse financial effect on the Group.

Based on the above, we concur with the view of the Directors and consider that the Corporate Guarantee is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

OPINION ON THE CONNECTED VSA

Having taken into consideration the above principal factors and reasons, in particular:

in view of the challenging operating environment for the Group’s major existing markets, namely the US and Europe, the Directors consider that the Connected VSA has given the Company a good opportunity to diversify its business to PRC tobacco package printing industry;
the Connected VSA has given the Company an opportunity and sufficient expertise to participate in the fast growing economy of the PRC. Furthermore, generating revenue in China through the Target Group enables the Group to have potential gain from the appreciating RMB, easing the Group’s pressure from increasing raw materials cost and mitigating the income squeeze from possible US and Europe downturn;
according to the National Bureau of Statistics of China, the total consumption of tobacco and liquor in the PRC had been growing at a CAGR of approximately 13.4% from 2003 to 2009. The output of cigarette production in the PRC are on an increasing trend, increasing from approximately 6.8 million cases in 2000 to approximately 47.5 million cases in 2010, which in turn increased the demand for cigarette packaging;
the Target Group has been engaging in the printing of cigarette packages since 1999 and has been profit making for at least the latest seven consecutive years. It maintained a net profit of above HK$250 million for each of the three years ended 31 December 2009 and nine months ended 30 September 2010 with profit margins above 26% during the same periods;

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the Target Group constantly generated cash of more than HK$200 million from its operating activities for each of the three financial years ended 31 December 2009 and the nine months ended 30 September 2010;
Acquisition PE of approximately 10.36 times is much lower than that of AHL, the Company and all other comparable listed companies with the average PE multiple of 39.7 times;
the Consideration Share price of HK$5 represents a 10% premium over the Placing Down Price of HK$4.52 and the Placing Down Shares are to be placed to independent third parties;
the entire consideration of the Acquisition is to be satisfied solely by the allotment and issue of the Consideration Shares and involving no cash outlay of the Company;
although the shareholding of existing public Shareholders will be substantially diluted upon the issuance of the Consideration Shares, the increase of the Share price from HK$6.41 (3 December 2010) to HK$8.40 (the Latest Practicable Date) has resulted in the increase in values of existing public Shareholders’ shareholdings;
the Connected VSA is expected to have positive impact on the Group’s overall financial position; and
the terms of the Acquisition Agreement in relation to the Corporate Guarantee are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

We are of the view that the terms of the Acquisition Agreement, including the provision of the Corporate Guarantee are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the proposed resolution to approve the Acquisition Agreement, including the provision of the Corporate Guarantee at the upcoming EGM.

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LETTER FROM AMPLE CAPITAL

PROPOSED CONTINUING CONNECTED TRANSACTIONS

Set out below are the details of the Continuing Connected Transactions:

==> picture [322 x 169] intentionally omitted <==

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

Target Group Hubei Tobacco Group
湖北中煙工業有限責任公司
Target Sale of Package Products (China Tobacco Hubei
Industrial Co., Ltd.)
subsidiary
Indirect non-wholly
owned subsidiary Xiangfan Factory
substantial shareholder
XF Jinfeihuan
----- End of picture text -----

According to the Directors, Hubei Tobacco Group is a sizeable enterprise in the PRC specializing in tobacco production and distribution. It is designated as one of the 512 key state-owned enterprises by the State Council and is the sole cigarette manufacturer in Hubei Province, PRC. The Target Group has carried on a business relationship with the Hubei Tobacco Group for more than 12 years and is at present one of its key cigarette package printing companies.

Immediately following the Acquisition Completion, the continuing and recurring transactions between the Enlarged Group and the Hubei Tobacco Group (which will become a connected person of the Company) will constitute continuing connected transactions for the Company under the Listing Rules.

A. Terms of the Master Sales Agreement

Date: 28 December 2010 Parties XF Jinfeihuan and Xiangfan Factory

Subject matter XF Jinfeihuan shall sell (or shall procure the Target Group to sell) and Xiangfan Factory shall buy (or shall procure its subsidiary(ies), fellow subsidiary(ies) and/or holding company(ies) to buy) the Package Products for a term of three years.

Pricing Policy: the selling price of the Package Products shall be agreed upon between the parties and shall he determined based on normal commercial terms through arm’s length negotiation or on terms no less favourable than the terms available to independent third parties.

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LETTER FROM AMPLE CAPITAL

B. Proposed Caps

The Caps of the Package Products to be supplied by the Target Group to the Hubei Tobacco Group under the Master Sales Agreement for each of the three years ending 31 December 2013 are RMB230 million, RMB250 million and RMB300 million respectively.

C. Basis in determining the Proposed Caps

The Caps under the Master Sales Agreement are principally determined with reference to:

the historical sales of the Package Products by the Target Group to Hubei Tobacco Group of approximately HK$142.3 million (representing RMB126.7 million), HK$133.4 million (representing RMB117.6 million) and HK$128.6 million (representing RMB112.3 million) (estimated) for the three years ended 31 December 2010 respectively;
the expected increase in the selling price of the Package Products;
the estimated growth in sales order of the Hubei Tobacco Group in coming years due to the implementation of the new PRC government policies in eliminating certain brands of cigarette which are considered to be beneficial to the Hubei Tobacco Group;

We have assessed the reasonableness of the Proposed Caps based on the information provided by the Company. According to the statistics published by STMA, the number of cigarette manufacturers in the PRC was reduced from 84 in 2003 to 30 in early 2009 and the number of cigarette brands in the PRC was reduced significantly from 1,049 in 2001 to 155 in 2008. The consolidation of the tobacco industry presents an opportunity for larger cigarette packaging providers, and as the business scale of the cigarette manufacturers expands through the consolidation of the tobacco industry, the cigarette packaging providers, being the suppliers of the larger cigarette manufacturers, will also benefit from the consolidation of the tobacco industry. Leveraging on the existing annual production capacity of the Target Group and its associated company, the directors of the Target Group expect that there will be an average of 30% volume growth per annum in the coming three years because of brand consolidation. The average selling price for such products is expected to increase by 3%-5% per annum as the Target Group is planning to focus more on higher end products in the coming years.

Sales to Hubei Tobacco Group

Year 2010 Year 2013 = x(1+5%)[3] x(1+30%)[3] RMB112 million RMB286 million

After adding a buffer of RMB14 million or 5% to expected financial year 2013 sales of RMB286 million, the 2013 Cap will be RMB300 million.

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LETTER FROM AMPLE CAPITAL

The directors of the Target Group expected industry consolidation to have a greater impact on the growth of the Target Group in the year 2011 given that fact that 紅金龍 (Hong Jin Long) sales volume is expected to increase by about 150% in 2011 as compared with that of 2010. 紅金龍 (Hong Jin Long) contributed more than 60% of Target Group’s sales to Hubei Tobacco Group in the year 2010. Furthermore, the Target Group is also expected to create sales from new brands, such as 黃鶴樓 (Huang He Lou). The expected sales from 紅金龍 (Hong Jin Long) and 黃鶴樓 (Huang He Lou) will amount to about RMB200 million in 2011. Together with other brands, it is not unreasonable for the Directors to propose a Cap of RMB230 million in 2011 and RMB250 million in 2012.

D. Reasons for the Continuing Connected Transactions

The strategic relationship between the Enlarged Group and the Hubei Tobacco Group has ensured that the Enlarged Group will be one of the key cigarette package printing companies for them and thus, allow the Enlarged Group to have a stable turnover with respect to its business in Hubei Province, the PRC.

OPINION ON THE MASTER SALES AGREEMENT

According to the Directors, the entering into of the Master Sales Agreement is in the ordinary course of business of the Enlarged Group and that the terms of such agreements are determined on an arm’s length basis with the Hubei Tobacco Group. As such, in respect of the above points, we concur with the view of the Directors that the terms and conditions of the Master Sales Agreements (including the Caps) are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the proposed resolution to approve the Master Sales Agreement, including the Caps at the upcoming EGM.

Yours faithfully, For and on behalf of

Ample Capital Limited

H. W. Tang Group President

Jenny Chan President- Investment Banking

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three years ended 31 December, 2007, 2008 and 2009, and the six months ended 30 June 2010 are disclosed in the following documents which have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.ctprinting.com.hk):

annual report of the Company for the year ended 31 December 2008 published on 28 April 2009 (pages 29-96); and
annual report of the Company for the year ended 31 December 2009 published on 29 April 2010 (pages 21-75);
interim report of the Company for the six months ended 30 June 2010 published on 3 September 2010 (pages 10-28).

2. MATERIAL ADVERSE CHANGE

Save for the profit warning as announced by the Company dated 6 August 2010 and 9 February, 2011, 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 2009, the date to which the latest audited consolidated financial statements of the Group were made up.

3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

The following is the management discussion and analysis of the performance of the Group for the three years ended 31 December 2009 and six months ended 30 June 2010.

For the six months ended 30 June 2010

Turnover

The Group recorded a total turnover of approximately HK$182.4 million for the six months ended 30 June 2010, an increase of approximately 28.6% from approximately HK$141.8 million for the same period in 2009, primarily as a result of an increase in our sales to Europe and Australia, partially offset by the decrease in sales to Africa.

Gross Profit

Gross profit decreased by approximately HK$5.7 million, or 14.7%, from approximately HK$38.8 million for the same period in 2009 to approximately HK$33.1 million for the six months period ended 30 June 2010. In addition, the gross profit margin for the six months period ended 30 June 2010 was approximately

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FINANCIAL INFORMATION OF THE GROUP

18.1%, dropped by about 9.2% from 27.3% for the same period in 2009. Such deterioration was caused by the upsurge in material costs and direct manufacturing costs.

Other revenue and other income

Other revenue and other income represent mainly the net proceeds gained from the disposal of scrap materials and bank interest income, representing an increase of approximately HK$1.1 million.

Selling Expenses

For the six months period ended 30 June 2010, the freight and transportation costs included in selling expenses amounted to approximately HK$11.3 million, increased by approximately HK$5.4 million. Consequently, the selling expenses for the Review Period increased by approximately HK$4.8 million, partly compensated by the reduction in customer service expenses and commission paid.

Administrative expenses

The administrative expenses for the six months ended 30 June 2010 was approximately HK$16.7 million and increased by approximately HK$2.7 million when compared to the same period in 2009. The major reason for the increment of administrative expenses was mainly due to the increase in staff salaries and welfare expenses, which was caused by the recruitment of more sales staff. Moreover, exchange loss arising from the depreciation of Euros and Pound Sterling made the Group suffered from an exchange loss amounted to approximately HK$1.4 million, compared to approximately HK$269,000 in the same period of 2009. Besides, an additional directors’ fee amounted to approximately HK$500,000 was paid during the six months period ended 30 June 2010, as a result of the listing of the Company on 30 March 2009.

Finance costs

The Group recorded a decrease in finance costs of about 29.7% during the six months period ended 30 June 2010 when compared with the same period in 2009. The decrease was due to an overall decrease in interest bearing liabilities of the Group.

Profit for the period attributable to owners of the Company

For six months period ended 30 June 2010, profit attributable to owners of the Company dropped by approximately HK$8.8 million when compared with the corresponding period in 2009. Such significant profit contraction was caused by the substantial drop in profit margin and the net increase in operating expenses of the Group.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial position and liquidity

As at 30 June 2010, the Group had cash and cash equivalent amounted to approximately HK$48.0 million. Net current assets of the Group remain stable of approximately HK$162.1 million at period end date.

Normal operations of the Group were well supported by credit facilities granted by financial institutions, which amounted to approximately HK$323 million at period end date. As at 30 June 2010, the Group had interest bearing obligations under finance leases of approximately HK$25.5 million (of which approximately HK$13.9 million were repayable within one year), and outstanding secured interest bearing bank loans of approximately HK$48.2 million, among which HK$46.2 million were repayable within one year. Net book value of fixed assets and fixed deposits pledged for securing these credit facilities amounted to about HK$52 million and HK$25 million respectively.

As at 30 June 2010, the Group’s net gearing ratio was approximately 0.2% which was calculated on the basis of the amount of borrowings less cash and cash equivalents and pledged bank deposits divided by shareholders’ equity. As at 30 June 2010, the Group had capital commitment for purchase of property, plant and equipment of approximately HK$1.2 million. As at 30 June 2010, the Group had no material investment.

Contingent liabilities and guarantees

As at 30 June 2010, the Group did not provide any guarantees for any third party and had no significant contingent liabilities.

Material acquisitions and disposals

There was no acquisition or disposal of subsidiaries or associated companies by the Group during the six months period ended 30 June 2010.

Capital structure

During the six months period ended 30 June 2010, the Group’s operation was mainly financed by funds generated from its operation and borrowings. As at 30 June 2010, the borrowings were mainly denominated in HK$ and US$, while the cash and cash equivalents held by the Group were mainly denominated in HK$ and RMB. All of the Group’s borrowings were variable rate borrowings and no hedging has been employed by the Group during the six months period ended 30 June 2010.

The Group’s turnover is mainly denominated in US$, Pounds Sterling, Euros and HK$, while its costs and expenses are mainly denominated in US$, HK$ and RMB. As majority portion of the Group’s assets, liabilities, revenues and payments during the six months period ended 30 June 2010 were denominated in either HK$ or US$, the Board considers that the risk exposure to foreign exchange rate fluctuations is not significant. The Group does not have a formal hedging policy and

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FINANCIAL INFORMATION OF THE GROUP

has not entered into any material foreign currency exchange contracts or derivative transactions to hedge against its currency risks.

Human resources

As at 30 June 2010, the Group had a total of 37 and 87 full-time staff based in Hong Kong and the PRC respectively. The Group’s remuneration packages are generally structured with reference to market terms and individual merits. The Group operates a defined contribution retirement benefits scheme under the Mandatory Provident Fund Schemes Ordinance for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries. The Group also made contributions to provident funds, elderly insurance, medical insurance, unemployment insurance and work-related injury insurance in accordance with appropriate laws and regulations in the PRC. The Group has also adopted a share option scheme to provide incentive or reward to eligible high-calibre employees and attract human resources that are valuable to the Group.

For the year ended 31 December 2009

Turnover

For the year ended 31 December 2009, the turnover of the Group was approximately HK$362.8 million (2008: HK$403.2 million), representing a decrease of approximately HK$40.4 million or 10.0% when compared with that of last year. Such fall in turnover for the year was mainly due to the impact of the financial crisis on the customers from the US and Europe respectively. However, the recent development of CT Shenzhen has been bringing the Group extra income from the PRC market.

Because of the downturn of the global economy, a few customers had filed for bankruptcy during the year, and which sales in 2008 amounted to HK$24.6 million. Besides, existing customers placed their orders with more caution and meanwhile, the Group had adopted a more prudent approach when accepting orders from new customers. Therefore, turnover generated from existing customers and new customers had dropped HK$30.0 million and HK$22.9 million respectively when comparing to that of 2008. In view of the declining overseas market, the management had put enormous effort in exploring the PRC market. As a result, the Group had successfully obtained sales amounted to HK$29.3 million from the PRC customers.

Gross Profit

For the year ended 31 December 2009, the Group attained a gross profit of approximately HK$91.4 million (2008: HK$99.1 million), which representing a decrease of approximately 7.7 million or 7.8% when compared with last year. Such reduction of gross profit was resulted from the downfall of sales. However, the gross profit margin had improved slightly to 25.2% (2008: 24.6%) by virtue of the higher profit margin product (28.0%) produced by CT Shenzhen.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Other revenue and other net income

The other revenue and other net income representing mainly the net proceed from the sale of scrap materials and bank interest income. During the 12 months ended 31 December 2009, such income decreased by HK$2.3 million.

Selling Expenses

Selling expenses incurred for the year ended 31 December 2009 of HK$25.9 million (2008: HK$29.6 million) had decreased by approximately 12.5% when compared to that of 2008. The major reason for the saving is that the largest selling expenses item, freight and transportation costs, was less consumed in line with the drop of sales as well as the global fall in fuel price. Therefore, approximately HK$3.4 million of the freight charges was scrimped.

Administrative expenses

Administrative expenses had increased by around HK$6.5 million for the year ended 31 December 2009 as compared to the previous year. The maintenance of status as a newly listed company after the Company’s listing on the Main Board of The Stock Exchange on 30 March 2009, gave rise to an extra HK$4.1 million increase in administrative expenses (mainly comprising the professional fees). In addition, Shitian Paper Craft (Shenzhen) Company Limited commenced its operation during the year and thus, approximately HK$2.0 million of administrative expenses were occurred. Owing to the closing down of certain customers, an impairment loss of approximately HK$4.1 million was made to those doubtful account receivables. Apart from the aforementioned, the administrative expenses were kept at a reasonable level similar to previous year.

Finance costs

Finance costs decreased by approximately HK$3.7 million which was in line with the overall decrease in interest bearing borrowings.

Net Profit

As a result of the drop-off of the gross profit, other revenue and other income and together with the increase in administrative expenses, profit for the year attributable to owners of the Company was HK$22.7 million (2008: HK$31.8 million), representing a decrease of HK$9.1 million, despite the retrenchment of the selling expenses and finance costs.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial position and liquidity

The Group generally finances its operations with internally generated resources and banking facilities provided by its bankers. As at 31 December 2009, the Group had net current assets of HK$161.7 million (2008: HK$110.6 million), while the Group’s cash and cash equivalents amounted to HK$56.3 million (2008: HK$14.5 million). The betterment of the cash position was mainly due to the funds raised from the Company’s public offering during the year.

As at 31 December 2009, the Group had interest-bearing bank loans of HK$39.8 million (2008: HK$76.2 million) of which HK$37.0 million were repayable within one year and had interest bearing obligations under finance leases of approximately HK$33.5 million (2008: HK$56.1 million) of which about HK$15.0 million were repayable within one year (2008: HK$17.9 million). Carrying amount of property, plant and equipment and bank deposits pledged for securing these credit facilities amounted to about HK$87.7 million.

As at 31 December 2009, the Group’s gearing ratio represented by the amount of interest bearing borrowings divided by shareholders equity was 26.3% (2008: 63.5%). The sound improvement in the gearing ratio was mainly due to the significant increase in shareholders equity and decrease in the interest bearing borrowings.

As at 31 December 2009, the Group had capital commitment of HK$2.3 million in respect of acquisition of property, plant and equipment which have been contracted but not provided for by the Group.

As at 31 December 2009, the Group had no material contingent liabilities.

As at 31 December 2009, the borrowings were mainly denominated in Hong Kong dollars, while the cash and cash equivalents held by the Group were mainly denominated in HK$ and RMB. All of the Group’s borrowings were variable rate borrowings and no hedging has been employed by the Group during the year.

The Group’s turnover is mainly denominated in US$, British pound, Euros, and HK$, while its costs and expenses are mainly denominated in US$, HK$ and RMB. Most of the Group’s assets, liabilities, revenues and payments were denominated in either HK$ or US$. Therefore, the Group considers that the risk exposure to foreign exchange rate fluctuations is minimal. The Group does not have a formal hedging policy and has not entered into any material foreign currency exchange contracts or derivative transactions to hedge against its currency risks.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Human resources

As at 31 December 2009, the Group had a total of 42 full-time staff based in Hong Kong and the PRC. The Group’s remuneration packages are generally structured with reference to market terms and individual merits. The Group operates a defined contribution retirement benefits scheme under the Mandatory Provident Fund Schemes Ordinance for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries. The Group also made contributions to provident funds, elderly insurance, medical insurance, unemployment insurance and work-related injury insurance in accordance with appropriate laws and regulations in the PRC. The Group has also adopted a share option scheme to provide incentive or reward to eligible persons for their contribution to the Group and/or enable the Group to recruit and retain high-calibre employees and attract human resources that are valuable to the Group.

For the year ended 31 December 2008

Turnover

For the year ended 31 December 2008, the turnover of the Group was approximately HK$403.2 million, representing a growth of approximately HK$67.8 million or 20.2% when compared with the previous financial year. The increase in turnover for the year was mainly due to the continuous market expansion and increase in customer base of the Group.

During the year, United Kingdom (“UK”) market remained as the biggest contributor to the Group’s turnover. Nonetheless, as a result of the marketing effort put in by the Group, turnover from the other parts of Europe increased significantly by 136.9%, representing an increase in its proportion to the Group’s total turnover from 8.3% in 2007 to 16.3% in 2008. The books printed by the Group are primarily leisure books including children’s books, travel books and cookery books. Turnover generated from the sales of case bound books, paperback books, spiral bound books, novelty books and other paper-related products accounted for approximately 49.4%, 16.1%, 16.1%, 14.4% and 4.0% respectively of the Group’s total turnover during the year.

Gross Profit

The gross profit recorded approximately HK$99.1 million for the year ended 31 December 2008, representing an increase of approximately 17.5% when compared with the previous financial year. However, the gross profit margin dropped slightly from approximately 25.2% in 2007 to approximately 24.6% in 2008 as a result of the appreciation of cost of sales. In particular, depreciation expense and rental expense increased as additional machineries were purchased by the Group and additional area was rented by the processing factory of the Group during the year.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Other revenue and other net income

For the year ended 31 December 2008, other revenue and other net income recorded a decrease of approximately 21.0% when compared with year 2007 and the amount mainly represented the sale of scrap materials and bank interest income.

Selling Expenses

The selling expenses of approximately HK$29.6 million for the year ended 31 December 2008 has increased by approximately 1.9% as compared with year 2007. During the year, the Group increased its spending in several international marketing events for the promotion of products of the Group so as to increase its international market diversity. Freight and transportation costs of approximately HK$17.9 million, being the biggest selling expenses item, also experienced an increase of 12.7% from previous year.

Administrative expenses

Administrative expenses as compared to turnover of the Group have risen to 7.2% this year as the Group has employed more administrative staff. Another major cause of increase in administrative expenses is net exchange loss arising from the appreciation of Renminbi against Hong Kong dollars upon exchange of Hong Kong dollars into Renminbi for the payment of processing fees to processing factory in the PRC. Administrative expenses were mainly comprised of staff salaries, net exchange loss, rental expenses, bank and remittance charges and insurance expenses.

Finance costs

The Group recorded a decrease in finance costs of about 6.5% when compared with previous year. The decrease represented a net effect of an increase in finance lease costs and a decrease in interest on bank loan, overdraft and other borrowings. The overall decrease was due to a general decrease in interest bearing liabilities of the Group.

Profit for the year attributable to equity holders of the Company

Despite a decrease in gross profit margin, and increases in selling and administrative expenses, profit for the year attributable to equity holders of the Company still recorded a growth to about HK$31.8 million. This is mainly attributable to the significant jump in sales of approximately 20.2% during the year. As set out in the Prospectus, the profit estimate for the year ended 31 December 2008 was not less than HK$30.0 million. The profit attributable to the equity holders of the Company for the year ended 31 December 2008 was in line with such profit estimate.

Financial position and liquidity

As at 31 December 2008, the Group had cash and cash equivalent amounted to about HK$14.5 million. Net current assets of the Group grew substantially from last year’s about HK$53.1 million to over HK$110.6 million as at 31 December 2008.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Normal operations of the Group were well supported by credit facilities granted by financial institutions which amounted to approximately HK$356.2 million as at 31 December 2008. As at 31 December 2008, the Group had interest bearing obligations under finance leases of approximately HK$56.1 million (of which about HK$17.9 million were repayable within one year), and outstanding secured interest bearing bank and other borrowings of approximately HK$76.2 million which were repayable within one year. Net book value of fixed assets, available-for-sale financial assets and fixed deposits pledged for securing these credit facilities amounted to about HK$109.2 million.

As at 31 December 2008, the Group’s net gearing ratio was 49.3% which was calculated on the basis of the amount of borrowings less cash and cash equivalents and pledged bank deposits divided by shareholders equity. The significant improvement in the net gearing ratio from last year’s 162.5% was partly due to the capitalisation of the balance due to a Director during the course of the reorganisation and partly due to the strengthening of net liquid assets through the Group’s profit making operations. As at 31 December 2008, the Group had no material capital commitment. Save for the contingent liabilities in respect of certain unlimited corporate guarantees provided by the Group to a related company for bank borrowings (the details of which are disclosed in note 32 to the combined financial statements), the Group had no material contingent liabilities at year end date.

Capital structure

During the year ended 31 December 2008, the Group’s operation was mainly financed by funds generated from its operation and borrowings. As at 31 December 2008, the borrowings were mainly denominated in HK$ and US$, while the cash and cash equivalents held by the Group were mainly denominated in HK$ and RMB. All of the Group’s borrowings were variable rate borrowings and no hedging has been employed by the Group during the year.

The Group also held an available-for-sale financial asset during the year ended 31 December 2008, which was denominated in US dollars. As US$ were pegged with Hong Kong dollars during the year, no hedging in respect of the investment was considered necessary by the Group.

The Group’s turnover is mainly denominated in US$, Pounds Sterling, Euros, and HK$, while its costs and expenses are mainly denominated in US$, HK$ and RMB. As majority portion of the Group’s assets, liabilities, revenues and payments during the year were denominated in either HK$ or US$, the Group considers that the risk exposure to foreign exchange rate fluctuations is not significant. The Group does not have a formal hedging policy and has not entered into any material foreign currency exchange contracts or derivative transactions to hedge against its currency risks.

Details of the exposure of the Group on interest rate and exchange rate fluctuations are set out in note 4(a) to the combined financial statements.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Post balance sheet events

The subsidiaries comprising the Group at year end date underwent and fully completed the reorganization in preparation for the initial public offering. The listing exercise was completed on 30 March 2009 and net proceed of about HK$48.9 million was raised from the placing and public offer of 50,000,000 new shares of the Company to investors.

Human resources

As at 31 December 2008, the Group had a total of 42 full-time staff based in Hong Kong and the PRC. The Group’s remuneration packages are generally structured with reference to market terms and individual merits. The Group operates a defined contribution retirement benefits scheme under the Mandatory Provident Fund Schemes Ordinance for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries. The Group also made contributions to provident funds, elderly insurance, medical insurance, unemployment insurance and work-related injury insurance in accordance with appropriate laws and regulations in the PRC. The Group has also adopted a share option scheme to provide incentive or reward to eligible high-calibre employees and attract human resources that are valuable to the Group.

For the year ended 31 December 2007

Turnover

For the year ended 31 December 2007, the Group’s turnover amounted to approximately HK$335.4 million, representing an increase of approximately 25.1% when compared to the year ended 31 December 2006. The increase was mainly due to the growth in turnover across all product lines of the Group, in particular the case bound books. During the year, the Group has further diversified its products types and generated approximately HK$18.6 million from the sales of other paper-related products, representing an increase of approximately 129.6% when compared to the year ended 31 December 2006. The turnover generated from the sales of case bound books, paperback books, spiral bound books, and novelty books increased by approximately 19.2%, 17.0%, 8.2% and 61.2% respectively when compared to their respective turnover for the year ended 31 December 2006.

Gross Profit

The gross profit of the Group was approximately HK$84.4 million, representing an approximately 18.0% increase from the previous year. The increase of gross profit was in line with the increase in turnover. The gross profit margin of the Group for the year has dropped by approximately 1.5% to approximately 25.2% for the year due to the increases in direct labour costs and depreciation charged for the year. The direct labour cost and depreciation charged increased by approximately 36.6% and 66.8% over 2006 respectively due to the increase in number of workers employed by the processing factory of the Group and additional

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

machineries purchased by the Group during the year for the expansion of production capacity of the processing factory of the Group. The direct labour cost and depreciation charged as a percentage to turnover of the Group have increased from approximately 5.7% and 2.4% in 2006 to approximately 6.2% and 3.2% in 2007 respectively, contributing to a drop in gross profit margin.

Other revenue and other net income

The other revenue and other net income amounted to approximately HK$6.2 million, representing an increase of approximately 75.3% when compared to the year ended 31 December 2006. The amount was mainly comprised of sales of scrap materials, gain on disposal of plant, gain on disposal of prepaid lease payments and equipment and bank interest income of approximately HK$2.5 million, HK$2.2 million, HK$0.1 million and HK$1.0 million respectively. For the year ended 31 December 2007, turnover of the Group denominated in US dollars, Hong Kong dollars, and Pound Sterling represented approximately 80.5%, 13.0% and 6.5% of the Group’s turnover respectively. The Group recorded a net foreign exchange loss of approximately HK$1.0 million mainly because of the depreciation of the Pound Sterling against Hong Kong dollars upon exchange of the Pound Sterling received from sales of products into Hong Kong dollars and the appreciation of Renminbi against Hong Kong dollars for the payment of processing fees of the Processing Factory.

Selling Expenses

The selling expenses were approximately HK$29.0 million, representing an increase of approximately 18.9% from that of 2006. The selling expenses as a percentage to turnover of the Group has decreased from approximately 9.1% in 2006 to approximately 8.7% in 2007. As a result of the Group’s expansion in sales and marketing team and its participation in international marketing events, the commission and service fee paid to certain sales personnel in Hong Kong and the UK Representative accounted for a decreased percentage of turnover of the Group. Also, the turnover of the Group attributable to other parts of the international market and the total turnover of the Group had increased for the year. The selling expenses were mainly comprised of freight and transportation cost of approximately HK$15.9 million and commission and service fee of approximately HK$7.6 million.

Administrative expenses

The administrative expenses amounted to approximately HK$19.6 million, representing approximately 5.9% of turnover of the Group. The administrative expenses as compared to turnover of the Group have risen from approximately 5.3% in 2006 to approximately 5.9% in 2007. The number of administrative staff employed by the Group and the processing factory of the Group also increased from 55 as at 31 December 2006 to 66 as at 31 December 2007. The increase in administrative expenses was mainly driven by the increase in staff salaries and exchange losses despite the bad debt expenses have been decreased for the year. The administrative

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FINANCIAL INFORMATION OF THE GROUP

expenses mainly represented staff salaries of approximately HK$10.4 million, bank and remittance charges of approximately HK$1.5 million, rental expenses of approximately HK$1.2 million, net exchange losses of approximately HK$1.0 million, social insurance paid for the staffs employed by the processing factory of the Group of approximately HK$0.7 million and other miscellaneous administrative charges.

Finance costs

The finance costs amounted to approximately HK$9.2 million for the year ended 31 December 2007, representing an increase of approximately 47.7% when compared to the year ended 31 December 2006. The increase was mainly constituted by the increase in both obligations under finance lease, and secured bank loans and other borrowings (which were mainly comprised of secured interest-bearing factoring loans and invoice financing loans) from approximately HK$27.4 million and HK$80.2 million respectively as at 31 December 2006 to approximately HK$66.6 million and HK$99.4 million respectively as at 31 December 2007. The finance costs represented interest and charges on other borrowings (which were mainly comprised of factoring loans) of approximately HK$4.1 million, interest on finance leases of approximately HK$2.8 million and interest on bank loans and overdrafts of approximately HK$2.3 million.

Profit for the year attributable to equity holders of the Company

The profit for the year attributable to equity holders of the Company was approximately HK$29.9 million, demonstrating an increase of approximately 8.6% from the year ended 31 December 2006. The increase was mainly contributed by the growth in turnover of the Group. The net profit margin was approximately 8.9% for the year ended 31 December 2007, representing a drop of approximately 1.4% from the prior year. The drop was mainly attributable to the decrease in gross profit margin for the year.

Financial position and liquidity

As at 31 December 2007, the Group had cash and cash equivalent amounted to about HK$7.2 million and pledged fixed deposit of approximately HK$50.0 million. Net current assets of the Group improve continuously from last year’s about HK$25.0 million to about HK$53.1 million at the year end date. Normal operations of the Group were well supported by credit facilities granted by financial institutions. As at 31 December 2007, the Group had interest bearing obligations under finance leases of approximately HK$66.6 million (of which about HK$15.5 million were repayable within one year), and outstanding secured interest bearing bank and other borrowings of approximately HK$99.4 million which were repayable within one year. Net book value of fixed assets, available-for-sale financial assets and fixed deposits pledged for securing these credit facilities amounted to about HK$97.1 million.

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FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2007, the Group’s net gearing ratio was 162.5% which was calculated on the basis of the amount of borrowings less cash and cash equivalents and pledged bank deposits divided by shareholders equity. The significant improvement in the net gearing ratio from last year’s 277.4% was partly due to the increase in the shareholders equity as a result of the improvement in retained earnings of the Group bought by the profit making operations and partly due to the strengthening of net liquid assets through the Group’s profit making operations.

As at 31 December 2007, the Group had capital commitment of approximately HK$8.2 million.

Save for the pledged of the Group’s fixed deposits with carrying value of HK$50,000,000 to a bank to secure general banking facilities granted to a related company (the facilities drawn down by the related company in respect of the guarantee provided by the Group amounting to the extent of approximately RMB43,000,000), and the unlimited corporate guarantees provided by the Group to a related company for bank borrowings and in return that related company provided unlimited corporate guarantees to the Group for obtaining general banking facilities (the facilities drawn down by that related company in respect of the guarantees provided by the Group amounting to the extent of approximately HK$132,605,000), the Group had no material contingent liabilities as at 31 December 2007.

Capital structure

During the year ended 31 December 2007, the Group’s operation was mainly financed by funds generated from its operation and borrowings. As at 31 December 2007, the borrowings were mainly denominated in Hong Kong dollars and US dollars, while the cash and cash equivalents held by the Group were mainly denominated in Hong Kong dollars and Renminbi. All of the Group’s borrowings were variable rate borrowings and no hedging has been employed by the Group during the year. The Group also held an available-for-sale financial asset during the year ended 31 December 2007, which was denominated in US dollars. As US dollars were pegged with Hong Kong dollars during the year, no hedging in respect of the investment was considered necessary by the Group.

The Group’s turnover is mainly denominated in US dollars, Pounds Sterling, Euros, and Hong Kong dollars, while its costs and expenses are mainly denominated in US dollars, Hong Kong dollars and Renminbi. As majority portion of the Group’s assets, liabilities, revenues and payments during the year were denominated in either Hong Kong dollars or US dollars, the Group considers that the risk exposure to foreign exchange rate fluctuations is not significant. The Group does not have a formal hedging policy and has not entered into any material foreign currency exchange contracts or derivative transactions to hedge against its currency risks.

– I-13 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Human resources

As at 31 December 2007, the Group had a total of 36 full-time staff based in Hong Kong and the PRC. The Group’s remuneration packages are generally structured with reference to market terms and individual merits. The Group operates a defined contribution retirement benefits scheme under the Mandatory Provident Fund Schemes Ordinance for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries. The Group also made contributions to provident funds, elderly insurance, medical insurance, unemployment insurance and work-related injury insurance in accordance with appropriate laws and regulations in the PRC. The Group has also adopted a share option scheme to provide incentive or reward to eligible high-calibre employees and attract human resources that are valuable to the Group.

– I-14 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, from the independent reporting accountants, RSM Nelson Wheeler, Certified Public Accountants, Hong Kong.

==> picture [203 x 67] intentionally omitted <==

29th Floor Caroline Centre Lee Gardens Two 28 Yun Ping Road Hong Kong

28 March 2011

The Board of Directors CT Holdings (International) Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) of Brilliant Circle Holdings International Limited (“Brilliant Circle”) and its subsidiaries (hereinafter collectively referred to as “Brilliant Circle Group”) for each of the three years ended 31 December 2009 and the nine months ended 30 September 2010 (the “Relevant Periods”) for inclusion in the circular dated 28 March 2011 issued by CT Holdings (International) Limited (the “Company”) in connection with the proposed acquisition of the entire equity interest in Brilliant Circle (the “Circular”).

Brilliant Circle was incorporated on 29 January 1999 in the British Virgin Islands (“BVI”) with limited liability and acts as an investment holding company. As at the date of this report, Brilliant Circle has the following subsidiaries:

			Attributable
			equity interest
			of Brilliant	Principal
	Place and date of	Issued and fully	Circle Group/	activities/
Name of	incorporation/	paid share/	percentage of	place of
subsidiary	registration	registered capital	profit sharing	operation
*Bengbu	The People’s	USD7,622,800	52.64%/	Printing of
Jinhuangshan	Republic of		37.64%	cigarette
Rotogravure	China (the			packages/
Printing Co.,	“PRC”) /			The PRC
Ltd. (“BB	22 December
Jinhuangshan”)	1997
Brilliant Circle	Hong Kong /	HK$2,000,000	100%	Investment
Development	30 November			holding/
Limited	1990			Hong Kong
(“BCDL”)

– II-1 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

			Attributable
			equity interest
			of Brilliant	Principal
	Place and date of	Issued and fully	Circle Group/	activities/
Name of	incorporation/	paid share/	percentage of	place of
subsidiary	registration	registered capital	profit sharing	operation
Brilliant Circle	BVI/	USD10,000	100%	Investment
Printing &	16 May 1996			holding/
Packaging				Hong Kong
Limited
(“BCPPL”)
#Shenzhen Guilian	The PRC/	HK$9,600,000	100%	Investment
Printing Limited	22 December			holding/
(“SZ Guilian”)	1990			The PRC
*^Shenzhen Kecai	The PRC/	RMB144,870,000	99.31%/	Printing of
Printing Co.,	21 July 2003		99%	cigarette
Ltd. (“SZ				packages/
Kecai”)				The PRC
Union Virtue	BVI/	USD1	100%	Investment
International	29 June 2006			holding/
Limited (“Union				Hong Kong
Virtue”)
*Xiangfan	The PRC/	USD3,000,000	79.6%	Printing of
Jinfeihuan	31 July 2000			cigarette
Colour Package				packages/
Co., Ltd. (“XF				The PRC
Jinfeihuan”)
*^Zhaotong	The PRC/	USD1,000,000	80%/	Manufacturing
Antong Package	4 November		51%	of laminated
Material Co.,	1999			paper/
Ltd. (“ZT				The PRC
Antong”)

Notes:

a sino-foreign equity/co-operative joint venture established in the PRC.
a wholly-owned foreign enterprise established in the PRC.
^ The English name of this company represents management’s best efforts at translating the Chinese name of the company as no English name has been registered.

All the companies of Brilliant Circle Group have adopted 31 December as the financial year end date.

The statutory financial statements of the following companies have been prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC and were audited by the following certified public accountants registered in the PRC.

– II-2 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Name of company	Financial year	Name of auditors
BB Jinhuangshan	Year ended 31 December	Anhui Huaan Certified Public
	2007	Accountants Ltd.
		(安徽華安會計師事務所有限公司)
	Years ended 31 December	Anhui Yong He Certified Public
	2008 and 2009	Accountants Ltd.
		(安徽永合會計師事務所有限公司)
SZ Guilian	Year ended 31 December	Sensible Accounting Firm of Shenzhen
	2007	(深圳明理會計師事務所)
	Years ended 31 December	Shenzhen Hengdafeng Certified Public
	2008 and 2009	Accountants
		(深圳恒達豐會計師事務所)
SZ Kecai	Years ended 31 December	Sensible Accounting Firm of Shenzhen
	2007 and 2008	(深圳明理會計師事務所)
	Year ended 31 December	Zhong Lian Certified Public
	2009	Accountants Ltd.
		(中聯會計師事務所有限公司)
XF Jinfeihuan	Years ended 31 December	Xiang Fan Hua Ju Accountant Office
	2007, 2008 and 2009	Ltd.
		(襄樊華炬會計師事務有限公司)
ZT Antong	Years ended 31 December	Yunnan Zhaotong Yong Xin Certified
	2007, 2008 and 2009	Public Accountants Ltd.
		(雲南昭通永信會計師事務所有限公司)

The statutory financial statements of BCDL for each of the three years ended 31 December 2009 have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and were audited by Ascenda Cachet CPA Limited (formerly known as Cachet Certified Public Accountants Limited), certified public accountants registered in Hong Kong, in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

We have audited the financial statements of Brilliant Circle for each of the two years ended 31 December 2008 which have been prepared by the directors of Brilliant Circle in accordance with HKFRSs other than the non-compliance with Hong Kong Accounting Standard 27 “Consolidated and Separate Financial Statements” (“HKAS 27”) as detailed in the basis for qualified opinion paragraph below, in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

No audited financial statements of Brilliant Circle for the year ended 31 December 2009 and of BCPPL and Union Virtue for the three years ended 31 December 2009 have been prepared as there is no statutory audit requirement in the country of their incorporation.

For the purpose of this report, the directors of Brilliant Circle have prepared the management accounts of Brilliant Circle for the year ended 31 December 2009, of BCPPL and Union Virtue for the three years ended 31 December 2009 and of all companies of Brilliant Circle Group for the nine months ended 30 September 2010 in accordance with HKFRSs.

– II-3 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

For the purpose of this report, we have examined the audited financial statements or, where appropriate, unaudited management accounts of all companies of Brilliant Circle Group (the “Underlying Financial Statements”) for the Relevant Periods and carried such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The Financial Information has been prepared from the Underlying Financial Statements in accordance with HKFRSs, after making adjustments as we considered necessary for the purpose of preparing our report for inclusion in the Circular.

The directors of the respective companies of Brilliant Circle Group are responsible for the preparation of the Underlying Financial Statements. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

Basis for qualified opinion

The investments in the subsidiaries, CT Printing Limited (“CT”), Shenzhen Yuen Cheong Hong Trading Co., Ltd. (“SZ Yuen Cheong Hong”) and Hunan Yingkun Printing Ink & Chemicals Co., Ltd. (“HN Yingkun”) which were disposed of in the year ended 31 December 2007, were not consolidated in the financial statements of Brilliant Circle Group for the year ended 31 December 2007. The income and expenses of these subsidiaries were not included in the consolidated financial statements of Brilliant Circle Group before the date on which Brilliant Circle ceases to control these subsidiaries. This is not in accordance with HKAS 27 which requires all subsidiaries to be included in the consolidated financial statements of the parent from the date on which control is transferred to the parent and de-consolidated from the date that control ceases. In our opinion, this constitutes a departure from HKAS 27 for the year ended 31 December 2007. We have not been provided with the financial information of these subsidiaries and therefore are unable to quantify the effect of not consolidating these subsidiaries on the Financial Information.

Qualified opinion arising from non-compliance with HKAS 27 and limitations of audit scope

In our opinion, for the purpose of this report, except for the non-compliance with HKAS 27 and for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the matter described above, the Financial Information gives a true and fair view of the state of affairs of Brilliant Circle and of Brilliant Circle Group as at 31 December 2007, 2008 and 2009 and 30 September 2010 and of Brilliant Circle Group’s results and cash flows for the Relevant Periods.

– II-4 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Comparative Financial Information

For the purpose of this report, the directors of Brilliant Circle have prepared the comparative financial information of Brilliant Circle Group for the nine months ended 30 September 2009 (the “Comparative Financial Information”) in accordance with HKFRSs. We have reviewed the Comparative Financial Information in accordance with Hong Kong Standard on Review Engagements 2400 “Engagements to Review Financial Statements” issued by the HKICPA. A review consists principally of making enquiries of Brilliant Circle Group management and applying analytical procedures to the Comparative Financial Information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the Comparative Financial Information.

On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Financial Information.

– II-5 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

FINANCIAL INFORMATION

A. CONSOLIDATED INCOME STATEMENTS

Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 968,773 1,128,983 1,050,638 756,861 769,299 (737,235) (826,511) (718,854) (529,562) (518,288) 231,538 302,472 331,784 227,299 251,011 47,555 63,723 7,827 4,622 18,383 (15,588) (19,490) (38,331) (33,861) (21,857) (51,125) (49,450) (60,701) (47,911) (30,911) (15,688) (13,763) (9,474) (9,181) (14,627) 196,692 283,492 231,105 140,968 201,999 42,062 – – – – (33,345) (32,788) (19,367) (16,230) (15,367) 86,265 108,390 115,192 79,894 127,183 291,674 359,094 326,930 204,632 313,815 (22,818) (50,461) (45,682) (30,414) (45,839) 268,856 308,633 281,248 174,218 267,976 215,340 261,488 231,716 143,260 223,313 53,516 47,145 49,532 30,958 44,663 268,856 308,633 281,248 174,218 267,976
231,538 47,555 (15,588) (51,125) (15,688) 196,692 42,062 (33,345) 86,265 291,674 (22,818)	302,472 63,723 (19,490) (49,450) (13,763) 283,492 – (32,788) 108,390 359,094 (50,461)	331,784 7,827 (38,331) (60,701) (9,474) 231,105 – (19,367) 115,192 326,930 (45,682)	227,299 4,622 (33,861) (47,911) (9,181) 140,968 – (16,230) 79,894 204,632 (30,414)	251,011 18,383 (21,857 (30,911 (14,627
				201,999 – (15,367 127,183
				313,815 (45,839
268,856	308,633	281,248	174,218
215,340 53,516	261,488 47,145	231,716 49,532	143,260 30,958	223,313 44,663
268,856	308,633	281,248	174,218

– II-6 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

B. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 268,856 308,633 281,248	Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 268,856 308,633 281,248	Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 268,856 308,633 281,248	Nine months ended 30 September 2009 2010 HK$’000 (Unaudited) HK$’000 174,218 267,976	Nine months ended 30 September 2009 2010 HK$’000 (Unaudited) HK$’000 174,218 267,976
32,634	(11,151)	4,966	6,509	7,188
301,490 239,568 61,922 301,490	297,482 246,031 51,451 297,482	286,214 235,759 50,455 286,214	180,727 148,981 31,746 180,727	275,164

				227,856 47,308
				275,164

– II-7 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

C. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

At 2007 HK$’000 479,025 11,739 42,898 234,068 15,496	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 496,757 487,132 502,784 10,934 20,160 20,007 44,393 44,393 40,401 273,079 285,346 253,165 5,117 – 19,242
783,226 120,321 327,410 499 28,637 4,480 66,104 91,365 638,816	830,280 118,440 409,720 680 12,141 – 72,476 155,260 768,717	837,031 138,755 578,913 753 6,538 111,471 45,203 97,447 979,080	835,599
			129,512 321,384 769 2,343 18,171 19,650 179,397
			671,226
1,422,042	1,598,997	1,816,111	1,506,825

1 356,322 356,323 108,804 465,127	1 597,411 597,412 97,738 695,150	1 833,170 833,171 112,655 945,826	1 600,036
			600,037 119,777
			719,814

– II-8 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

At 2007 HK$’000 – – 38,846 9,144 132	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 – – 24,722 – – 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 – – 24,722 – – 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457	31 December At 30 September 2008 2009 2010 HK$’000 HK$’000 HK$’000 – – 24,722 – – 74,761 22,133 – – 2,128 31 – 13,147 18,890 18,457
48,122 301,119 49,870 69,604 5,959 9,951 132,537 329,745 10,008 908,793 956,915	37,408 294,028 214,709 2 1,618 13,224 – 335,773 7,085 866,439 903,847	18,921 510,040 – – 2,453 9,676 – 327,251 1,944 851,364 870,285	117,940
			330,324 – – 5,067 16,722 – 316,750 208
			669,071
			787,011
1,422,042 (269,977) 513,249	1,598,997 (97,722) 732,558	1,816,111 127,716 964,747	1,506,825

			2,155

			837,754

– II-9 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

D. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Share capital HK$’000 1	Note 27(c)(i) Capital reserve HK$’000 2,202	Attributable to own Note 27(c)(ii) Exchange reserve Note 27(c)(iii) Statutory reserves HK$’000 HK$’000 25,040 41,461	Attributable to own Note 27(c)(ii) Exchange reserve Note 27(c)(iii) Statutory reserves HK$’000 HK$’000 25,040 41,461	ers of Brilliant Circle Retained profits Total HK$’000 HK$’000 549,254 617,958	ers of Brilliant Circle Retained profits Total HK$’000 HK$’000 549,254 617,958	Non- controlling interests HK$’000 135,023	Total equity HK$’000 752,981
– – – – – – – – 1 – – – – – – 1 – – – – 1	– – – – – – – – 2,202 – – – – – – 2,202 – – – – 2,202	24,228 – – – – – – 24,228 49,268 (15,457) – – – (4,942) (20,399) 28,869 4,043 – – 4,043 32,912	– 35,174 10,151 – – – – 45,325 86,786 – 11,248 10,431 – – 21,679 108,465 – 16,565 – 16,565 125,030	215,340 (35,174) (10,151) (501,203) – – – (331,188) 218,066 261,488 (11,248) (10,431) – – 239,809 457,875 231,716 (16,565) – 215,151 673,026	239,568 – – (501,203) – – – (261,635) 356,323 246,031 – – – (4,942) 241,089 597,412 235,759 – – 235,759 833,171	61,922 – – – (12,776) (42,063) (33,302) (26,219) 108,804 51,451 – – (52,301) (10,216) (11,066) 97,738 50,455 – (35,538) 14,917 112,655	301,490 – – (501,203) (12,776) (42,063) (33,302)
							(287,854)
							465,127
							297,482 – – (52,301) (15,158)
							230,023
							695,150
							286,214 – (35,538)
							250,676
							945,826

– II-10 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Share capital HK$’000 – – – –	Note 27(c)(i) Capital reserve HK$’000 – – – –	Attributable to own Note 27(c)(ii) Exchange reserve Note 27(c)(iii) Statutory reserves HK$’000 HK$’000 4,543 – – 13,109 – – – –	Attributable to own Note 27(c)(ii) Exchange reserve Note 27(c)(iii) Statutory reserves HK$’000 HK$’000 4,543 – – 13,109 – – – –	ers of Brilliant Circle Retained profits Total HK$’000 HK$’000 223,313 227,856 (13,109) – (460,990) (460,990) – –	ers of Brilliant Circle Retained profits Total HK$’000 HK$’000 223,313 227,856 (13,109) – (460,990) (460,990) – –	Non- controlling interests HK$’000 47,308 – – (40,186)	Total equity HK$’000 275,164 – (460,990) (40,186)
–	–	4,543	13,109	(250,786)	(233,134)	7,122	(226,012)
1 1 – – – – 1	2,202 2,202 – – – – 2,202	37,455 28,869 5,721 – – 5,721 34,590	138,139 108,465 – 10,744 – 10,744 119,209	422,240 457,875 143,260 (10,744) – 132,516 590,391	600,037 597,412 148,981 – – 148,981 746,393	119,777 97,738 31,746 – (35,247) (3,501) 94,237	719,814

							695,150
							180,727 – (35,247)
							145,480
							840,630

– II-11 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

E. CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 291,674 359,094 326,930 (86,265) (108,390) (115,192) 33,345 32,788 19,367 8,592 13,051 7,470 42,785 52,753 53,689 608 497 2,042 (85) (586) – (4,639) (8,460) (1,079) – (10,185) – (879) – – – – – (557) 2,325 (625) (463) (266) (53) (42,062) – –	Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 291,674 359,094 326,930 (86,265) (108,390) (115,192) 33,345 32,788 19,367 8,592 13,051 7,470 42,785 52,753 53,689 608 497 2,042 (85) (586) – (4,639) (8,460) (1,079) – (10,185) – (879) – – – – – (557) 2,325 (625) (463) (266) (53) (42,062) – –	Year ended 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 291,674 359,094 326,930 (86,265) (108,390) (115,192) 33,345 32,788 19,367 8,592 13,051 7,470 42,785 52,753 53,689 608 497 2,042 (85) (586) – (4,639) (8,460) (1,079) – (10,185) – (879) – – – – – (557) 2,325 (625) (463) (266) (53) (42,062) – –	Nine months ended 30 September 2009 2010 HK$’000 (Unaudited) HK$’000 204,632 313,815 (79,894) (127,183) 16,230 15,367 7,470 – 40,056 41,714 1,991 (951) – – (617) (2,847) – – – – – 14,627 – (973) (53) (3,589) – –	Nine months ended 30 September 2009 2010 HK$’000 (Unaudited) HK$’000 204,632 313,815 (79,894) (127,183) 16,230 15,367 7,470 – 40,056 41,714 1,991 (951) – – (617) (2,847) – – – – – 14,627 – (973) (53) (3,589) – –
242,054 (8,956) (66,694) (8,280) 69,606 13,405 63,326 304,461 (18,534) – 285,927	332,621 (444) 47,709 11,379 (69,602) – (6,825) 314,838 (33,765) – 281,073	292,549 (19,690) 53,573 6,610 (2) – 1,521 334,561 (36,707) (6,542) 291,312	189,815 20,295 (66,590) 9,902 12 – 12,307 165,741 (21,638) (7,828) 136,275	249,980 10,216 (74,926) (15,047) – – 38,417
				208,640 (30,137) (9,664)
				168,839

– II-12 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Nine months ended Year ended 31 December 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

CASH FLOWS FROM INVESTING ACTIVITIES Decrease/(increase) in pledged bank deposits (Increase)/decrease in due from non-controlling shareholders Purchases of property, plant and equipment Payment for prepaid land lease payments Investment in an unconsolidated subsidiary Dividend received from an associate Proceeds from disposals of property, plant and equipment Proceeds from disposal of prepaid land lease payments Interests received Payment for settlement of derivative financial instruments Payment to non-controlling shareholders on de-registration of a subsidiary Proceeds from disposal of derivative financial instruments Net cash (used in)/generated from investing activities	35,545 (93) (126,214) (4,980) (8,077) 75,105 278 – 4,639 (270) – 355 (23,712)	(6,372) 5,229 (37,498) – – 82,267 6,764 1,044 8,460 (27,966) (10,216) 28,552 50,264	27,273 (111,471) (20,946) (3,666) – 105,372 1,138 – 1,079 – – – (1,221)	33,114 (31,743) (9,893) (3,666) – 105,372 1,138 – 617 – – – 94,939	25,553 55,677 (55,297) – – 114,721 9,768 – 2,847 – – –
					153,269

– II-13 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Nine months ended Year ended 31 December 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited)

CASH FLOWS FROM FINANCING ACTIVITIES Increase in other payable Repayment to a director Advances from/(repayment to) ultimate holding company Repayment to related companies Interests on bank borrowings paid Finance leases charges paid Payment of bank borrowings Bank borrowings raised Repayment of obligations under finance leases Dividend paid to non-controlling shareholders Net cash used in financing activities NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF CASH AND CASH EQUIVALENTS Bank and cash balances	– (64,602) 49,870 (158,569) (31,078) (2,267) (518,234) 443,121 (19,584) (26,704) (328,047) (65,832) 8,594 148,603 91,365 91,365	– (135,607) 24,839 – (31,993) (795) (445,084) 418,400 (10,081) (57,708) (238,029) 93,308 (29,413) 91,365 155,260 155,260	– (252,431) (165) – (19,163) (204) (671,234) 637,434 (7,238) (34,703) (347,704) (57,613) (200) 155,260 97,447 97,447	– (209,726) (121) – (16,055) (175) (586,487) 578,967 (6,337) (32,532) (272,466) (41,252) 3,193 155,260 117,201 117,201	24,722 (227,467) – – (15,327) (40) (589,498) 572,426 (1,767) –
					(236,951)
					85,157 (3,207) 97,447
					179,397

					179,397

– II-14 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

F. STATEMENTS OF FINANCIAL POSITION OF BRILLIANT CIRCLE

At 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 74,950 74,950 74,950	At 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 74,950 74,950 74,950	At 31 December 2007 2008 2009 HK$’000 HK$’000 HK$’000 74,950 74,950 74,950	At 30 September 2010 HK$’000 74,950
5 592,874 592,879	12,202 592,874 605,076	12,168 592,874 605,042	12,067 1,008,751
			1,020,818
667,829	680,026	679,992	1,095,768

1 54,000 54,001 – – 50,000 240 563,588 613,828 613,828	1 53,854 53,855 – – 215,000 68 411,103 626,171 626,171	1 45,220 45,221 – 223,600 – 68 411,103 634,771 634,771	1 6
			7
			1,087,093
			8,600 – 68 –
			8,668
			1,095,761
667,829 (20,949) 54,001	680,026 (21,095) 53,855	679,992 (29,729) 45,221	1,095,768

			1,012,150

			1,087,100

– II-15 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

G. NOTES TO FINANCIAL INFORMATION

1. GENERAL INFORMATION

Brilliant Circle was incorporated in the British Virgin Islands (“BVI”) with limited liability. The address of its registered office is OMC Chambers, P.O. Box 3152, Road Town, Tortola, BVI. The address of its principal place of business is Suites 2301-2, 23/F., Tower 2, Nina Tower, 8 Yeung Uk Road, New Territories, Hong Kong.

Brilliant Circle is an investment holding company. The principal activities of Brilliant Circle Group are printing of cigarette packages and manufacturing of laminated paper. In the opinion of the directors of Brilliant Circle, Mr. Tsoi Tak (“Mr. Tsoi”) is the ultimate controlling party of Brilliant Circle for the periods before 5 October 2007 and after 30 June 2009. AMVIG Holdings Limited was the ultimate holding company of Brilliant Circle for the period from 5 October 2007 to 30 June 2009.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The Financial Information has been prepared in accordance with HKFRSs and accounting principles generally accepted in Hong Kong. HKFRSs comprise Hong Kong Financial Reporting Standards (“HKFRS”); Hong Kong Accounting Standards (“HKAS”); and Interpretations. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Company Ordinance.

The Financial Information has been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss.

For the purpose of preparing and presentating Financial Information for the Relevant Periods, Brilliant Circle has adopted all the applicable HKFRSs which are effective for accounting periods beginning on or after 1 January 2010 except that Brilliant Circle Group has not early adopted HKFRS 3 (Revised) “Business Combination” and HKAS 27 (Revised) “Consolidated and Separate Financial Statements”.

Brilliant Circle Group has not applied the new HKFRSs that have been issued but are not yet effective. Brilliant Circle Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a material impact on its results of operations and financial position.

The preparation of Financial Information in conformity with HKFRSs requires the use of certain key assumptions and estimates. It also requires the directors to exercise its judgements in the process of applying the accounting policies. The areas where assumptions and estimates are significant to the Financial Information, are disclosed in Note 3.

The significant accounting policies applied in the preparation of the Financial Information are set out below.

– II-16 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(b) Consolidation

For the three years ended 31 December 2009

The Financial Information includes the financial statements of Brilliant Circle and its subsidiaries (except for CT, SZ Yuen Cheong Hong and HN Yingkun for the year ended 31 December 2007) made up to 31 December. Subsidiaries are entities over which Brilliant Circle Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Brilliant Circle Group has control.

Subsidiaries except for the abovementioned are fully consolidated from the date on which control is transferred to Brilliant Circle Group. They are de-consolidated from the date the control ceases.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and Brilliant Circle Group’s share of its net assets together with any goodwill relating to the subsidiary which was not previously charged or recognised in the consolidated income statement and also any related accumulated exchange reserve.

Inter-company transactions, balances and unrealised profits on transactions between Brilliant Circle Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Brilliant Circle Group.

Non-controlling interests represent the interests of non-controlling shareholders in the operating results and net assets of subsidiaries. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity. Non-controlling interests are presented in the consolidated income statement as an allocation of profit or loss for the year between non-controlling shareholders and owners of Brilliant Circle. Losses applicable to the non-controlling shareholders in excess of the non-controlling shareholder’s interests in the subsidiary’s equity are allocated against the interests of Brilliant Circle Group except to the extent that the non-controlling shareholders has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the interests of Brilliant Circle Group until the non-controlling shareholder’s share of losses previously absorbed by Brilliant Circle Group has been recovered.

In Brilliant Circle’s statement of financial position the investments in subsidiaries are stated at cost less allowance for impairment losses. The results of subsidiaries are account for by Brilliant Circle on the basis of dividends received and receivable.

For the nine months ended 30 September 2010

The Financial Information include the financial statements of the Brilliant Circle and its subsidiaries made up to 30 September. Subsidiaries are entities over which Brilliant Circle Group has control. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Brilliant Circle Group has control.

Subsidiaries are consolidated from the date on which control is transferred to Brilliant Circle Group. They are de-consolidated from the date the control ceases.

– II-17 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The gain or loss on the disposal of a subsidiary that results in a loss of control represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that subsidiary and (ii) Brilliant Circle’s share of the net assets of that subsidiary plus any remaining goodwill relating to that subsidiary and any related accumulated exchange reserve.

Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Brilliant Circle Group.

Non-controlling interests represent the equity in subsidiaries not attributable, directly or indirectly, to Brilliant Circle. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity. Non-controlling interests are presented in the consolidated income statement and consolidated statement of comprehensive income as an allocation of profit or loss and total comprehensive income for the period between the non-controlling shareholders and owners of Brilliant Circle.

Profit or loss and each component of other comprehensive income are attributed to the owners of Brilliant Circle and to the non-controlling shareholders even if this results in the non-controlling interests having a deficit balance.

Changes in Brilliant Circle’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). The carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of Brilliant Circle.

In Brilliant Circle’s statement of financial position the investments in subsidiaries are stated at cost less allowance for impairment losses. The results of subsidiaries are accounted for by Brilliant Circle on the basis of dividends received and receivable.

(c) Business combination and goodwill

For the three years ended 31 December 2009

The purchase method of accounting is used to account for the acquisition of subsidiaries by Brilliant Circle Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities of the subsidiary in an acquisition are measured initially at their fair values at the acquisition date.

The excess of the cost of acquisition over Brilliant Circle Group’s share of the net fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities is recorded as goodwill. Any excess of Brilliant Circle Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised in the consolidated profit or loss.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses of goodwill are recognised in the consolidated profit or loss and are not subsequently reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing.

The interests of non-controlling interests in the subsidiary are initially measured at the non-controlling shareholders’ proportion of the net fair value of the subsidiary’s identifiable assets, liabilities and contingent liabilities at the acquisition date.

– II-18 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

For the nine months ended 30 September 2010

The excess of the cost of acquisition over Brilliant Circle’s share of the net fair value of the subsidiary’s identifiable assets and liabilities is recorded as goodwill. Any excess of Brilliant Circle’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss as a gain on bargain purchase which is attributed to Brilliant Circle.

Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is measured at cost less accumulated impairment losses. The method of measuring impairment losses of goodwill is the same as that of other assets as stated in the accounting policy (2(x)) below. Impairment losses of goodwill are recognised in the consolidated profit or loss and are not subsequently reversed. Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the acquisition for the purpose of impairment testing.

The non-controlling interests in the subsidiary are initially measured at the non-controlling shareholders’ proportionate share of the net fair value of the subsidiary’s identifiable assets and liabilities at the acquisition date.

(d) Associates

Associates are entities over which Brilliant Circle Group has significant influence. Significant influence is the power to participate in the financial and operating policies of an entity but is not control or joint control over those policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether Brilliant Circle Group has significant influence.

Investment in an associate is accounted for in the Financial Information by the equity method and is initially recognised at cost. Identifiable assets and liabilities of the associate in an acquisition are measured at their fair values at the acquisition date. The excess of the cost of acquisition over Brilliant Circle Group’s share of the net fair value of the associate’s identifiable assets and liabilities is recorded as goodwill. The goodwill is included in the carrying amount of the investment and is tested for impairment together with the investment at the end of each reporting period when there is objective evidence that the investment is impaired. Any excess of Brilliant Circle Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss.

Brilliant Circle Group’s share of an associate’s post-acquisition profits or losses is recognised in consolidated profit or loss, and its share of the post- acquisition movements in reserves is recognised in the consolidated reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When Brilliant

– II-19 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Circle Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, Brilliant Circle Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. If the associate subsequently reports profits, Brilliant Circle Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

The gain or loss on the disposal of an associate that results in a loss of significant influence represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that associate and (ii) Brilliant Circle Group’s share of the net assets of that associate plus any remaining goodwill relating to that associate and any related accumulated exchange reserve.

Unrealised profits on transactions between Brilliant Circle Group and its associates are eliminated to the extent of Brilliant Circle Group’s interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by Brilliant Circle Group.

(e) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of Brilliant Circle Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The Financial Information is presented in Hong Kong dollars (“HK$”), which is Brilliant Circle’s presentation currency. The functional currency of Brilliant Circle is Renminbi (“RMB”). The directors consider that choosing HK$ as the presentation currency best suits the needs of the shareholders and investors.

(ii) Transactions and balances in each entity’s financial statements

Transactions in foreign currencies are translated into the functional currency on initial recognition using the exchange rates prevailing on the transaction dates. Monetary assets and liabilities in foreign currencies are translated at the exchange rates at the end of each reporting period. Gains and losses resulting from this translation policy are recognised in profit or loss.

Non-monetary items that are measured at fair values in foreign currencies are translated using the exchange rates at the dates when the fair values are determined.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

(iii) Translation on consolidation

The results and financial position of all Brilliant Circle Group entities that have a functional currency different from Brilliant Circle’s presentation currency are translated into Brilliant Circle’s presentation currency as follows:

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

– II-20 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

–

Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the exchange rates on the transaction dates); and

–

All resulting exchange differences are recognised in the exchange reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings are recognised in the exchange reserve. When a foreign operation is sold, such exchange differences are recognised in consolidated profit or loss as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(f) Property, plant and equipment

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

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Brilliant Circle Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in profit or loss during the period in which they are incurred.

Buildings		20 years
Plant and machinery	5	– 10 years
Office equipment		5 years
Motor vehicles		5 years

The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at the end of each reporting period.

Construction in progress represents buildings under construction and plant and machinery pending installation, and is stated at cost less impairment losses. Depreciation begins when the relevant assets are available for use.

The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets, and is recognised in profit or loss.

(g)

Leases

(i) Operating leases

The Group as leasee

Leases that do not substantially transfer to Brilliant Circle Group all the risks and rewards of ownership of assets are accounted for as operating leases. Lease payments (net of any incentives received from the lessor) are recognised as an expense on a straight-line basis over the lease term.

The Group as lessor

Leases that do not substantially transfer to the lessees all the risks and rewards of ownership of assets are accounted for as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

– II-21 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(ii) Finance leases

Leases that substantially transfer to Brilliant Circle Group all the risks and rewards of ownership of assets are accounted for as finance leases. At the commencement of the lease term, a finance lease is capitalised at the lower of the fair value of the leased asset and the present value of the minimum lease payments, each determined at the inception of the lease.

The corresponding liability to the lessor is included in the statement of financial position as finance lease payable. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Assets under finance leases are depreciated the same as owned assets over their estimated useful lives.

(h) Research and development expenditure

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

(i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average basis. The cost of finished goods and work in progress comprises raw materials, direct labour and an appropriate proportion of all production overhead expenditure, and where appropriate, subcontracting charges. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(j) Recognition and derecognition of financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when Brilliant Circle Group becomes a party to the contractual provisions of the instruments.

Financial assets are derecognised when the contractual rights to receive cash flows from the assets expire; Brilliant Circle Group transfers substantially all the risks and rewards of ownership of the assets; or Brilliant Circle Group neither transfers nor retains substantially all the risks and rewards of ownership of the assets but has not retained control on the assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.

(k) Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of trade and other receivables is established when there is objective evidence that Brilliant Circle Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the receivables’ carrying amount and the present

– II-22 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

value of estimated future cash flows, discounted at the effective interest rate computed at initial recognition. The amount of the allowance is recognised in profit or loss.

Impairment losses are reversed in subsequent periods and recognised in profit or loss when an increase in the receivables’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the receivables at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

(l)

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value. Bank overdrafts which are repayable on demand and form an integral part of Brilliant Circle Group’s cash management are also included as a component of cash and cash equivalents.

(m)

Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument under HKFRSs. An equity instrument is any contract that evidences a residual interest in the assets of Brilliant Circle Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out in (n) to (q) below.

(n) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless Brilliant Circle Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(o) Financial guarantee contract liabilities

Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of:

The amount of the obligations under the contracts, as determined in accordance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”; and
The amount initially recognised less cumulative amortisation recognised in profit or loss on a straight-line basis over the terms of the guarantee contracts.

(p) Trade and other payables

Trade and other payables are stated initially at their fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

(q) Equity instruments

Equity instruments issued by Brilliant Circle are recorded at the proceeds received, net of direct issue costs.

(r) Derivative financial instruments

Derivatives are initially recognised and subsequently measured at fair value. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognised in profit or loss as they arise.

– II-23 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(s) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and is recognised when it is probable that the economic benefits will flow to Brilliant Circle Group and the amount of revenue can be measured reliably.

Revenue from the sales of manufactured goods and trading of paper, spare parts and machines are recognised on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers.

Interest income is recognised on a time-proportion basis using the effective interest method.

Rental income is recognised on a straight-line basis over the lease term.

(t) Employee benefits

(i) Employee leave entitlements

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 end of the reporting period.

Employee entitlements to sick leave and maternity leave are not reognised until the time of leave.

(ii) Pension obligations

Brilliant Circle Group contributes to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by Brilliant Circle Group and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by Brilliant Circle Group to the funds.

(iii) Termination benefits

Termination benefits are recognised when, and only when, Brilliant Circle Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(u) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of Brilliant Circle Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset.

– II-24 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(v) Taxation

Income tax represents the sum of the current tax and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit recognised in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Brilliant Circle Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

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

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and Brilliant Circle Group intends to settle its current tax assets and liabilities on a net basis.

(w) Related parties

A party is related to Brilliant Circle Group if:

(i) directly or indirectly through one or more intermediaries, the party controls, is controlled by, or is under common control with, Brilliant Circle Group; has an interest in Brilliant Circle Group that gives it significant influence over Brilliant Circle Group; or has joint control over Brilliant Circle Group;
(ii) the party is an associate;
(iii) the party is a joint venture;

– II-25 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(iv) the party is a member of the key management personnel of Brilliant Circle or its parent;
(v) the party is a close member of the family of any individual referred to in (i) or (iv);
(vi) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or
(vii) the party is a post-employment benefit plan for the benefit of employees of Brilliant Circle Group, or of any entity that is a related party of Brilliant Circle Group.

(x) Impairment of assets

At the end of each reporting period, Brilliant Circle Group reviews the carrying amounts of its assets except goodwill, inventories and receivables to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, Brilliant Circle Group estimates the recoverable amount of the cashgenerating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(y) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when Brilliant Circle Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

– II-26 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(z) Events after the reporting period

Events after the reporting period that provide additional information about the Brilliant Circle Group’s position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the financial statements. Events after the reporting period that are not adjusting events are disclosed in the notes to the financial statements when material.

3. KEY ESTIMATES

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

(a) Property, plant and equipment and depreciation

Brilliant Circle Group determines the estimated useful lives, residual values and related depreciation charges for Brilliant Circle Group’s property, plant and equipment. This estimate is based on the historical experience of the actual useful lives and residual values of property, plant and equipment of similar nature and functions. Brilliant Circle Group will revise the depreciation charge where useful lives and residual values are different to those previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.

(b) Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the fair value less costs to sell of the cash-generating unit to which goodwill has been allocated. The fair value less costs to sell calculation requires Brilliant Circle Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the end of the reporting period was approximately HK$42,898,000, HK$44,393,000, HK$44,393,000 and HK$40,401,000 as at 31 December 2007, 2008 and 2009 and 30 September 2010 respectively. No impairment loss was recognised during the Relevant Periods.

(c) Impairment loss on receivables

The Brilliant Circle Group makes impairment loss on receivables based on assessments of the recoverability of the receivables, including the current creditworthiness and the past collection history of each debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment loss on receivables requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the receivables and impairment loss on receivables in the year/period in which such estimate has been changed.

(d) Allowance for inventories and net realisable value of inventories

Allowance for inventories is made based on the aging and estimated net realisable value of inventories. The assessment of the allowance amount involves judgement and estimates. Where the actual outcome in future is different from the original estimate, such difference will impact the carrying value of inventories and allowance charge/write-back in the period in which such estimate has been changed.

– II-27 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expense. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature. It could change significantly as a result of changes in customer taste and competitor actions in response to serve market environment. Brilliant Circle Group will reassess the estimates by the end of each reporting period.

4. FINANCIAL RISK MANAGEMENT

Brilliant Circle Group’s activities expose it to a variety of financial risks: foreign currency risk, credit risk, liquidity risk and interest rate risk. Brilliant Circle Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Brilliant Circle Group’s financial performance.

(a) Foreign currency risk

Brilliant Circle Group has certain exposure to foreign currency risk as some of its business transactions, assets and liabilities are denominated in currencies other than the functional currency of Brilliant Circle Group entities, such as HK$. Brilliant Circle Group currently does not have a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. Brilliant Circle Group will monitor its foreign currency exposure closely and will consider hedging significant foreign currency exposure should the need arise.

At 31 December 2007, 2008 and 2009 and 30 September 2010, if the RMB had weakened 7%, 7%, 1% and 1% respectively against HK$ with all other variables held constant, the impact on profit after tax is summarised in the following table. A positive number indicates an increase in profit. If the RMB had strengthened 7%, 7%, 1% and 1% respectively against HK$ with all other variables held constant, there would be an equal and opposite impact on profit after tax and the balances below would be negative.

									At 30
					At	31	December		September
				2007			2008	2009	2010
				HK$’000			HK$’000	HK$’000	HK$’000
Profit	after	tax	(i)	(24,934)			(1,019)	3,043	849

(i) This is mainly a result of the net foreign exchange (loss)/gain on bank and cash balances including pledged bank deposits, other receivables, other payables, bank borrowings and obligations under finance leases denominated in HK$ at the end of each reporting periods.

(b) Credit risk

The carrying amount of the bank and cash balances including pledged bank deposits, trade and other receivables, amounts due from non-controlling shareholders and deposits included in the consolidated statements of financial position represents Brilliant Circle Group’s maximum exposure to credit risk in relation to Brilliant Circle Group’s financial assets.

The amount due from a director represented approximately 22% and 45% of the loans and receivables (including cash and cash equivalents) of Brilliant Circle Group as at 31 December 2008 and 2009, respectively.

Brilliant Circle Group has policies in place for trade receivables and the exposure to credit risk is managed through the application of credit approvals, credit limits and monitoring process. Brilliant Circle Group’s senior management performs on-going credit evaluation and regularly reviews the recoverable amount of each individual trade debt regularly to ensure that adequate impairment losses are recognised for irrecoverable debts. The amounts due from a director and non-controlling shareholders are closely monitored by management.

– II-28 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The credit risk on bank and cash balances is limited because the counterparties are well-established banks in Hong Kong and the PRC.

(c) Liquidity risk

Brilliant Circle Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserve of cash to meet its liquidity requirements in the short and longer term.

The maturity analysis of Brilliant Circle Group’s financial liabilities is as follows:

	Less	Between	Between
	than	1 and 2	2 and 5
	1 year	years	years
	HK$’000	HK$’000	HK$’000
At 31 December 2007
Bank borrowings	348,027	36,810	5,552
Obligations under finance leases	11,023	7,397	2,028
Trade and other payables	301,119	–	–
Due to ultimate holding company	49,870	–	–
Due to an associate	69,604	–	–
Due to non-controlling shareholders	5,959	–	–
Due to a director	132,537	–	–
At 31 December 2008
Bank borrowings	350,713	22,989	–
Obligations under finance leases	7,330	2,143	36
Trade and other payables	294,028	–	–
Due to ultimate holding company	214,709	–	–
Due to an associate	2	–	–
Due to non-controlling shareholders	1,618	–	–
At 31 December 2009
Bank borrowings	332,192	–	–
Obligations under finance leases	1,988	38	–
Trade and other payables	510,040	–	–
Due to non-controlling shareholders	2,453	–	–
At 30 September 2010
Bank borrowings	321,611	–	–
Obligations under finance leases	218	–	–
Trade and other payables	330,324	24,722	–
Due to non-controlling shareholders	5,067	–	–
Due to a director	–	74,761	–

(d) Interest rate risk

Brilliant Circle Group’s exposure to interest-rate risk arises from its bank deposits, bank borrowings and obligations under finance leases. Brilliant Circle Group’s bank deposits of approximately HK$60,912,000, HK$57,171,000, HK$15,556,000 and HK$16,137,000 and bank borrowings of approximately HK$136,348,000, HK$Nil, HK$215,859,000 and HK$257,003,000 as at 31 December 2007, 2008 and 2009 and 30 September 2010 respectively bear interests at fixed interest rates and therefore are subject to fair value interest rate risks.

The directors consider Brilliant Circle Group’s exposure to interest rate risk on bank deposits is not significant as interest bearing bank balances are within short maturity period.

– II-29 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Brilliant Circle Group’s cash flow interest rate risk primarily relates to its bank borrowings and obligations under finance leases. These bank borrowings and obligations under finance leases bear interests at variable rates varied with the then prevailing market condition.

At 31 December 2007, 2008 and 2009 and 30 September 2010, if the interest rate had been 100 basis points lower, with all other variables held constant, the impact on profit after tax is summarised in the following table. The sensitivity analysis includes outstanding bank borrowings and obligations under finance leases and adjusts the respective interest rates at the year end of 100 basis points. A positive number indicates an increase in profit. If the interest rate had been 100 basis points higher, with all other variables held constant, there would be an equal and opposite impact on profit after tax, and the balances below would be negative.

									At 30
					At	31	December		September
				2007			2008	2009	2010
				HK$’000			HK$’000	HK$’000	HK$’000
Profit	after	tax	(i)	2,074			3,065	947	501

(i) This is mainly a result of the decrease in interest expenses on bank borrowings and obligations under finance leases at year end.

(e) Categories of financial instruments

				At 30
		At 31 December		September
	2007	2008	2009	2010
	HK$’000	HK$’000	HK$’000	HK$’000
Financial assets
Loans and receivables
(including cash and cash
equivalents)	489,359	637,456	833,034	538,602
Financial liabilities
Financial liabilities measured
at amortised cost	927,550	868,244	839,744	742,962

(f) Fair values

The carrying amounts of the Brilliant Circle Group’s financial assets and financial liabilities as reflected in the consolidated statement of financial position approximate their respective fair values.

– II-30 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

5. TURNOVER AND OTHER INCOME

Brilliant Circle Group is principally engaged in printing of cigarette packages and manufacturing of laminated paper. An analysis of Brilliant Circle Group’s turnover and other income is as follows:

Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 699,114 952,169 1,025,350 738,706 743,397 269,659 176,814 25,288 18,155 25,902 968,773 1,128,983 1,050,638 756,861 769,299	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 699,114 952,169 1,025,350 738,706 743,397 269,659 176,814 25,288 18,155 25,902 968,773 1,128,983 1,050,638 756,861 769,299	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 699,114 952,169 1,025,350 738,706 743,397 269,659 176,814 25,288 18,155 25,902 968,773 1,128,983 1,050,638 756,861 769,299	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 699,114 952,169 1,025,350 738,706 743,397 269,659 176,814 25,288 18,155 25,902 968,773 1,128,983 1,050,638 756,861 769,299	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) HK$’000 699,114 952,169 1,025,350 738,706 743,397 269,659 176,814 25,288 18,155 25,902 968,773 1,128,983 1,050,638 756,861 769,299
				769,299

4,639 1,179 20,343 85 2,151 11,787 723 879 – 463 5,306	8,460 1,676 25,600 586 1,204 14,148 216 – 10,185 266 1,382	1,079 2,944 – – 3,348 – – – – 53 403	617 2,424 – – 1,104 – 31 – – 53 393	2,847 2,365 5,823 – 1,832 – 951 – – 3,589 976
47,555	63,723	7,827	4,622	18,383

– II-31 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

6. SEGMENT INFORMATION

Brilliant Circle Group has two reportable segments as follows:

Printing of cigarette packages
Manufacturing of laminated paper

Brilliant Circle Group’s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different technology and marketing strategies.

The accounting policies of the operating segments are the same as those described in Note 2 to the Financial Information. Segment profits or losses do not include excess of fair value of net assets acquired over the cost of acquisition of a subsidiary, net exchange gain/(loss), gain on deregistration of a subsidiary, gain on disposal of an unconsolidated subsidiary, loss on disposal of partial interest in an associate and corporate administrative expenses. Segment assets do not include goodwill and property, plant and equipment, other receivables, prepayments and deposits and other assets for general administrative use. Segment liabilities do not include amount due to ultimate holding company, amount due to an associate, amount due to a director, current and deferred tax liabilities and other payables, bank borrowings and obligations under finance leases for general administrative use.

Brilliant Circle Group accounts for intersegment sales and transfers as if the sales or transfers were to third parties, i.e. at current market prices.

– II-32 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

	Nine months ended	30 September	2009 2010	HK$’000 HK$’000	(Unaudited)	756,861 769,299	– 5,371	208,127 287,515	589 981	15,505 14,816	38,925 40,586	79,894 127,183	20,125 36,878		29,733 54,263	N/A 1,378,519	N/A 657,716	N/A 253,165
Total		Year ended 31 December	2007 2008 2009	HK$’000 HK$’000 HK$’000		968,773 1,128,983 1,050,638	25,184 6,795 –	230,467 291,299 322,354	1,354 659 1,046	21,067 25,927 18,585	41,395 51,322 52,144	86,265 108,390 115,192	22,846 36,427 32,045		132,622 52,083 49,691	1,189,303 1,308,327 1,363,515	553,919 635,692 611,917	234,068 273,079 285,346
Manufacturing of laminated paper	Nine months ended	Year ended 31 December 30 September	2007 2008 2009 2009 2010	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	(Unaudited)	269,659 176,814 25,288 18,155 25,902	25,184 6,795 – – –	25,204 2,542 331 (2,366) 5,292	333 107 30 19 –	3,675 2,296 – – –	1,738 1,488 1,123 814 494	– – – – –	7,760 1,963 533 110 917		2,270 4,740 1,721 1,513 591	137,321 29,153 28,488 N/A 33,823	125,100 4,752 5,124 N/A 5,863	– – – N/A –
Printing of cigarette packages	Nine months ended	Year ended 31 December 30 September	2007 2008 2009 2009 2010	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	(Unaudited)	699,114 952,169 1,025,350 738,706 743,397	– – – – 5,371	205,263 288,757 322,023 210,493 282,223	1,021 552 1,016 570 981	17,392 23,631 18,585 15,505 14,816	39,657 49,834 51,021 38,111 40,092	86,265 108,390 115,192 79,894 127,183	15,086 34,464 31,512 20,015 35,961		130,352 47,343 47,970 28,220 53,672	1,051,982 1,279,174 1,335,027 N/A 1,344,696	428,819 630,940 606,793 N/A 651,853	234,068 273,079 285,346 N/A 253,165
						Revenue from external customers	Inter-segment revenue	Segment profit	Interest income	Interest expenses	Depreciation and amortisation	Share of profit of an associate	Income tax expense	Additions to segment –	non-current assets	Segment assets	Segment liabilities	Interest in an associate

– II-33 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Reconciliations of reportable segment revenue, profit or loss, assets and liabilities:

Revenue Total revenue of reportable segments Elimination of inter-segment revenue Consolidated revenue Profit or loss Total profit or loss of reportable segments Excess of fair value of net assets acquired over the cost of acquisition of a subsidiary Exchange gain/(loss), net Gain on de-registration of a subsidiary Gain on disposal of an unconsolidated subsidiary Loss on disposal of partial interest in an associate Other profit or loss Consolidated profit for the year/period	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 993,957 1,135,778 1,050,638 756,861 774,670 (25,184) (6,795) – – (5,371) 968,773 1,128,983 1,050,638 756,861 769,299 Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 230,467 291,299 322,354 208,127 287,515 42,062 – – – – 20,343 25,600 (4,853) (4,206) 5,823 – 10,185 – – – 879 – – – – – – – – (14,627) (24,895) (18,451) (36,253) (29,703) (10,735) 268,856 308,633 281,248 174,218 267,976	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 993,957 1,135,778 1,050,638 756,861 774,670 (25,184) (6,795) – – (5,371) 968,773 1,128,983 1,050,638 756,861 769,299 Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 230,467 291,299 322,354 208,127 287,515 42,062 – – – – 20,343 25,600 (4,853) (4,206) 5,823 – 10,185 – – – 879 – – – – – – – – (14,627) (24,895) (18,451) (36,253) (29,703) (10,735) 268,856 308,633 281,248 174,218 267,976
		267,976

– II-34 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Assets Total assets of reportable segments Property, plant and equipment Goodwill Trade and other receivables Prepayments and deposits Pledged bank deposits Bank and cash balances Other assets Consolidated total assets Liabilities Total liabilities of reportable segments Trade and other payables Due to ultimate holding company Due to an associate Due to a director Current tax liabilities Bank borrowings Obligations under finance leases Deferred tax liabilities Consolidated total liabilities	At 31 December 2007 2008 HK$’000 HK$’000 1,189,303 1,308,327 5,615 6,746 42,898 44,393 57,186 166,954 39,192 10,199 52,104 37,992 34,272 24,386 1,472 – 1,422,042 1,598,997 At 31 December 2007 2008 HK$’000 HK$’000 553,919 635,692 92,706 20,455 49,870 214,709 69,604 2 132,537 – – 209 38,995 10,420 19,152 9,213 132 13,147 956,915 903,847	2009 HK$’000 1,363,515 5,374 44,393 373,768 1,007 600 27,454 – 1,816,111 2009 HK$’000 611,917 229,444 – – – – 8,090 1,975 18,859 870,285	At 30 September 2010 HK$’000 1,378,519 3,689 40,401 55,278 1,007 8,000 19,931 –
			1,506,825

			At 30 September 2010 HK$’000 657,716 35,869 – – 74,761 – – 208 18,457
			787,011

Geographical information:

Over 90% of Brilliant Circle Group’s revenue and assets are derived from customers and operations based in the PRC and accordingly, no further analysis of Brilliant Circle Group’s geographical information is disclosed.

– II-35 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Revenue from major customers:

				Nine months	Nine months	ended
	Year	ended 31 December		30 September
	2007	2008	2009	2009		2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Printing of cigarette packages
Customer A	410,457	535,578	541,351	397,781		384,666
Customer B	125,811	142,281	133,410	89,474		70,201
Customer C	107,190	89,398	72,806	54,547		54,868
Manufacturing of laminated
paper
Customer D	210,327	131,936	–	–		–

7. PROFIT FROM OPERATIONS

Brilliant Circle Group’s profit from operations is stated after charging/(crediting) the following:

Auditors’ remuneration
(Reversal of allowance)/
allowance for inventories
Cost of inventories sold
(Note)
Depreciation
Directors’ emoluments
– For management
Exchange (gain)/loss, net
Impairment loss on receivables
Loss/(gain) on disposals of
property, plant and
equipment, net
Loss on disposal of partial
interest in an associate
Operating lease rentals in
respect of land and buildings
Research and development
costs
Staff costs including directors’
emoluments
Salaries, bonus and
allowances
Retirement benefits scheme
contributions
Write off of trade and other
payables

Year ended 31 December
Nine months ended
30 September
2007
2008
2009
2009
2010
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
120
291
104
53
175
(557)
2,325
(625)
–
(973)
737,235
826,511
718,854
529,562
518,288
42,529
52,541
53,122
39,769
41,146
324
312
312
234
234
(20,343)
(25,600)
4,853
4,206
(5,823)
8,592
13,051
7,470
7,470
–
608
497
2,042
1,991
(951)
–
–
–
–
14,627
3,722
1,736
1,845
1,204
1,276
–
2,545
2,987
1,341
3,576
64,378
79,378
84,284
65,663
54,859
2,778
3,928
3,122
2,326
2,757
67,156
83,306
87,406
67,989
57,616
(463)
(266)
(53)
(53)
(3,589)

– II-36 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Note: Cost of inventories sold includes the following which are included in the respective amounts disclosed separately above for the year/period:

				Nine months	Nine months	ended
	Year	ended 31 December		30 September
	2007	2008	2009	2009		2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Operating lease rentals
in respect of land and
buildings	3,039	1,384	1,241	895		687
Staff costs	43,196	60,512	57,456	43,809		44,015
Depreciation	39,048	46,642	47,433	35,501		36,874
Research and
development costs	–	1,065	2,282	861		2,569
Allowance for
inventories	–	2,325	–	–		–

8. FINANCE COSTS

Interests on bank borrowings Finance lease charges INCOME TAX EXPENSE Hong Kong Profits Tax PRC enterprise income tax – Provision for the year/period – Under/(over)-provision in prior year Withholding tax (Note 25) Other deferred tax (Note 25)	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 31,078 31,993 19,163 16,055 15,327 2,267 795 204 175 40 33,345 32,788 19,367 16,230 15,367 Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 5 1,019 – – – 22,772 35,234 32,236 20,316 36,906 74 1,193 (191) (191) (28) – 13,000 13,784 10,212 8,961 (33) 15 (147) 77 – 22,818 50,461 45,682 30,414 45,839	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 31,078 31,993 19,163 16,055 15,327 2,267 795 204 175 40 33,345 32,788 19,367 16,230 15,367 Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 5 1,019 – – – 22,772 35,234 32,236 20,316 36,906 74 1,193 (191) (191) (28) – 13,000 13,784 10,212 8,961 (33) 15 (147) 77 – 22,818 50,461 45,682 30,414 45,839
		45,839

9. INCOME TAX EXPENSE

Hong Kong Profits Tax is provided at 17.5% for year ended 31 December 2007 and at 16.5% for the two years ended 31 December 2008 and 2009 and nine months ended 30 September 2009 (Unaudited) and 2010 based on estimated assessable profit for that year/period.

– II-37 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

According to relevant tax laws and regulations, XF Jinfeihuan and SZ Kecai was entitled to a full exemption from the PRC enterprise income tax for the first two years and 50% reduction for the following three years commencing from the first profit making year of operation after fully set off against the accumulated losses brought forward. The first profitable year of XF Jinfeihuan and SZ Kecai was 2003 and 2005, respectively.

According to the certificate issued by the Hubei Province Science and Technology Bureau (湖北省科學廳) on 30 December 2008, XF Jinfeihuan is accredited as a High-Tech Enterprise. Pursuant to Articles 7 and 8 of the “Enterprise Income Tax Law for Foreign Investment Enterprises and Foreign Enterprises”, XF Jinfeihuan, being a High-Tech Enterprise, was entitled to a reduced PRC enterprise income tax rate of 15% for the year from 2008 to 2010.

Pursuant to Notice of Corporate Income Tax Preferential Treatment for Foreign Funded Enterprises in Central and Western Region (中西部地區的外商投資企業所得稅的優惠的通知), BB Jinhuangshan was entitled to a reduced enterprise income tax rate of 15% for the year 2007. According to the certificate issued by the Anhui Province Science and Technology Bureau (安徵省科學廳) on 11 November 2009, BB Jinhuangshan is accredited as a High-Tech Enterprise. Pursuant to Articles 7 and 8 of the “Enterprise Income Tax Law for Foreign Investment Enterprises and Foreign Enterprises” BB Jinhuangshan, being a High-Tech Enterprise, is entitled to a reduced PRC enterprise income tax rate of 15% for the year from 2009 to 2011.

Pursuant to Notice of Corporate Income Tax Preferential Treatment for Foreign Funded Enterprises in Central and Western Region (中西部地區的外商投資企業所得稅的優惠的通知), Changde Jinfurong Aluminium Foil Packing Materials Co., Ltd. (“CD Jinfurong”) was entitled to a reduced enterprise income tax rate of 15% for the year 2007.

Pursuant to Notice of Tax Preferential Treatment for Development of Western Region (西部大開發稅收優惠政策問題的通知), ZT Antong was entitled to a reduced enterprise income tax rate of 15% for the year from 2007 to 2010.

On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the PRC (“New CIT Law”), which was effective from 1 January 2008. Under the New CIT Law, the standard corporate income tax rate is 25%, replacing the previous applicable rate of 33%.

On 26 December 2007, the State of Council of the PRC passed an “Notice on the Implementation of Corporation Income Tax Transition Preferential Treatment” (“Notice on Transition Period”) Guofa (2007) No. 39 (“Circular 39”) which sets out details of how the preferential income tax rates of 33% for the year ended 31 December 2007 to be adjusted to the 25% standard rate under the New CIT Law. According to the Notice on Transition Period, certain PRC enterprises of Brilliant Circle Group with tax holiday not fully utilised will be allowed to continue to receive benefits of the full exemption from a reduction in income tax rate until expiry of the tax holiday, after which, the 25% standard rate under the New CIT Law will apply.

Circular 39 also states that the preferential income tax rate of 18% in 2008 pertaining to certain subsidiaries to be adjusted to the standard rate of 25% in 2012 progressively.

The relevant tax rates for Brilliant Circle Group’s PRC subsidiaries before the tax holiday range from 15% to 33% during the Relevant Periods.

Further under the New CIT Law, from 1 January 2008, non-resident enterprises without an establishment or place of business in the PRC or which have an establishment or place of business in the PRC but whose relevant income is not effectively connected with the establishment or a place of business in the PRC, will be subject to withholding tax at the rate of 10% (unless reduced by treaty) on various types of passive income such as dividend derived from sources within the PRC. As the entire Group’s foreign-invested enterprises are directly or indirectly wholly or partial owned by a Hong Kong incorporated subsidiary, a rate of 5% is applicable to the calculation of this withholding tax on dividend according to Comprehensive Arrangement for the Avoidance of Double Taxation on Income and Prevention of Fiscal Evasion between PRC and Hong Kong, and Guoshihan (2009) No. 81.

According to the notice Cai Shui {2008} No.1 released by the Ministry of Finance and the State Administration of Taxation, distributions of the pre-2008 retained profits of a foreign-invested

– II-38 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

enterprise to a foreign investor in 2008 or after is exempt from withholding tax. Accordingly, the retained profits at 31 December 2007 in Brilliant Circle Group’s foreign-invested enterprises’ books and accounts will not be subject to withholding tax on dividend at 5% on future distribution.

The reconciliation between the income tax expense and the product of profit before tax multiplied by the applicable tax rate is as follows:

Profit before tax Tax at applicable tax rate of 25% (2007: 15%) Tax effect of share of profit of an associate Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unrecognised temporary difference Tax effect of unused tax loss not recognised Tax effect of tax concession and tax refund Under/(over)-provision in prior year Effect of different tax rates of subsidiaries operating in other jurisdiction Withholding tax Tax effect of utilisation of tax losses not previously recognised Income tax expense	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 291,674 359,094 326,930 204,632 313,815	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 291,674 359,094 326,930 204,632 313,815	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 291,674 359,094 326,930 204,632 313,815	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 291,674 359,094 326,930 204,632 313,815	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 291,674 359,094 326,930 204,632 313,815
	43,751 (12,940) (13,536) 1,798 22 922 (5,305) 74 17,147 – (9,115)	89,773 (27,097) (9,740) 4,355 (178) 538 (12,885) 1,193 (8,498) 13,000 –	81,733 (28,798) (88) 13,349 (40) – (26,530) (191) (7,537) 13,784 –	51,158 (19,974) (13) 11,216 209 – (17,007) (191) (5,196) 10,212 –	78,454 (31,796) (1,406) 4,617 (116) 437 (10,373) (28) (2,911) 8,961 –
	22,818	50,461	45,682	30,414	45,839

10. RETIREMENT BENEFIT SCHEMES

Brilliant Circle Group operates a mandatory provident fund scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for all qualifying employees in Hong Kong. Brilliant Circle Group’s contributions to the MPF Scheme are calculated at 5% of the salaries and wages subject to a monthly maximum amount of contribution of HK$1,000 per employee and vest fully with employees when contributed into the MPF Scheme.

The employees of Brilliant Circle Group’s subsidiaries established in the PRC are members of a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute certain percentage of the employees’ basic salaries and wages to the central pension scheme to fund the retirement benefits. The local municipal government undertakes to assume the retirement benefits obligations of all existing and future retired employees of these subsidiaries. The only obligation of these subsidiaries with respect to the central pension scheme is to meet the required contributions under the scheme.

– II-39 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

11. DIVIDENDS

Interim dividend Rate of interim dividend per share	Year ended 31 December Nine months ended 30 September 2007 2008 2009 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 501,203 – – – 460,990 501,203 – – – 460,990

12. PROPERTY, PLANT AND EQUIPMENT

Buildings HK$’000 98,447 1,599 26,201 (72) 8,902	Plant and machinery HK$’000 309,837 18,573 36,499 (4,937) 26,832	Office equipment HK$’000 22,405 2,144 960 (4,123) 1,501	Motor vehicles HK$’000 9,931 2,768 189 (3,247) 662	Construction in progress HK$’000 15,150 104,978 (63,849) (3,485) 2,789	Total HK$’000 455,770 130,062 – (15,864) 40,686
135,077 357 408 (4,767) 6,852 137,927 16,133 16,605 – 1,372 172,037 36,634 25,601 – 4,550 238,822	386,804 3,625 65,616 (14,124) 20,156 462,077 5,533 3,084 (2,131) 4,317 472,880 7,580 5,631 (12,046) 10,044 484,089	22,887 1,643 1,593 (920) 1,095 26,298 562 1,838 (522) 142 28,318 5,079 968 (139) 645 34,871	10,303 1,509 – (2,202) 472 10,082 2,407 – (1,776) 83 10,796 2,981 – (672) 252 13,357	55,583 46,002 (67,617) – 2,735 36,703 17,561 (21,527) – 321 33,058 3,023 (32,200) – 253 4,134	610,654 53,136 – (22,013) 31,310
					673,087 42,196 – (4,429) 6,235
					717,089 55,297 – (12,857) 15,744
					775,273

– II-40 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Buildings HK$’000 11,060 5,323 (65) 1,092	Plant and machinery HK$’000 66,277 32,541 (3,286) 6,585	Office equipment HK$’000 8,381 3,146 (3,990) 431	Motor vehicles HK$’000 4,048 1,519 (1,701) 268	Construction in progress HK$’000 – – – –	Total HK$’000 89,766 42,529 (9,042) 8,376
17,410 6,454 (2,168) 904 22,600 7,177 – 231 30,008 6,128 – 722 36,858	102,117 40,869 (10,725) 5,446 137,707 40,548 (91) 1,358 179,522 30,685 (3,337) 4,261 211,131	7,968 3,590 (542) 356 11,372 3,727 (470) 123 14,752 2,782 (98) 316 17,752	4,134 1,628 (1,317) 206 4,651 1,670 (688) 42 5,675 1,551 (605) 127 6,748	– – – – – – – – – – – – –	131,629 52,541 (14,752) 6,912
					176,330 53,122 (1,249) 1,754
					229,957 41,146 (4,040) 5,426
					272,489
117,667 115,327 142,029 201,964	284,687 324,370 293,358 272,958	14,919 14,926 13,566 17,119	6,169 5,431 5,121 6,609	55,583 36,703 33,058 4,134	479,025

					496,757

					487,132

					502,784

Brilliant Circle Group’s buildings are situated in the PRC.

The carrying amounts of the property, plant and equipment held by Brilliant Circle Group under finance leases amounted to approximately HK$63,140,000, HK$40,740,000, HK$21,948,000 and HK$4,666,000 (Note 24) as at 31 December 2007, 2008 and 2009 and 30 September 2010, respectively.

The carrying amounts of Brilliant Circle Group’s property, plant and equipment amounted to approximately HK$45,703,000, HK$225,751,000, HK$146,529,000 and HK$164,816,000 were pledged as security for Brilliant Circle Group’s bank facilities (Note 23) as at 31 December 2007, 2008 and 2009 and 30 September 2010, respectively.

– II-41 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Brilliant Circle Group’s total future minimum lease receivables of its office, factory premises, staff quarters and machineries under non-cancellable operating leases are receivable as follows:

Within one year In the second to fifth years inclusive After five years	At 31 December 2007 2008 HK$’000 HK$’000 2,443 2,998 – 7,391 – 14,782 2,443 25,171	2009 HK$’000 3,168 8,338 – 11,506	At 30 September 2010 HK$’000 4,010 5,750 –
			9,760

13. PREPAID LAND LEASE PAYMENTS

At beginning of year/period Additions Disposal Amortisation for the year/period Exchange differences At end of year/period Current portion Non-current portion	At 31 December 2007 2008 HK$’000 HK$’000 6,782 12,238 4,980 – – (1,044) (256) (212) 732 632	At 31 December 2007 2008 HK$’000 HK$’000 6,782 12,238 4,980 – – (1,044) (256) (212) 732 632	2009 HK$’000 11,614 9,728 – (567) 138	At 30 September 2010 HK$’000 20,913 – – (568) 431
	12,238 (499)	11,614 (680)	20,913 (753)	20,776 (769)
	11,739	10,934	20,160	20,007

Brilliant Circle Group’s prepaid land lease payments represent payments for land use rights in PRC under medium term leases.

The carrying amount of Brilliant Circle Group’s prepaid land lease payments pledged as security for Brilliant Circle Group’s borrowings amounted to HK$Nil, HK$11,614,000, HK$17,418,000 and HK$17,489,000 as at 31 December 2007, 2008 and 2009 and 30 September 2010, respectively (Note 23).

14. GOODWILL

At beginning of year/period Arising on acquisition of a subsidiary (Note 28(b)) Exchange differences Release on de-registration of a subsidiary Release on disposal of partial interest in an associate At end of year/period	At 31 December 2007 2008 HK$’000 HK$’000 – 42,898 41,577 – 1,321 2,148 – (653) – – 42,898 44,393	2009 HK$’000 44,393 – – – – 44,393	At 30 September 2010 HK$’000 44,393 – 1,346 – (5,338)
			40,401

– II-42 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGUs”) that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows:

Printing of cigarette packages XF Jinfeihuan SZ Guilian and SZ Kecai BB Jinhuangshan Changde Goldroc Rotogravure Printing Co., Ltd. (“CD Goldroc”) Manufacturing of laminated paper ZT Antong CD Jinfurong	At 31 December 2007 2008 HK$’000 HK$’000 1,902 1,999 16,975 17,838 5,631 5,917 17,388 18,272 41,896 44,026 349 367 653 – 1,002 367 42,898 44,393	2009 HK$’000 1,999 17,838 5,917 18,272 44,026 367 – 367 44,393	At 30 September 2010 HK$’000 2,059 18,379 6,097 13,488
			40,023
			378 –
			378
			40,401

The recoverable amounts of the CGUs are determined from fair value less costs to sell calculations. The key assumptions for the fair value less costs to sell calculations are those regarding the discount rates, growth rates and budgeted gross margin and turnover during the period. Brilliant Circle Group estimates discount rates using tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Budgeted gross margin and turnover are based on past practices and expectations on market development.

Brilliant Circle Group prepares cash flow forecasts derived from the most recent financial budgets approved by the directors for the next five years with the residual period using the growth rate of 0% to 5%, 5%, 5% and 3% to 5% for the year ended 31 December 2007, 2008 and 2009 and nine months ended 30 September 2010, respectively.

The rates used to discount the forecast cash flows are as follows:

				At 30
		At 31 December		September
	2007	2008	2009	2010
Printing of cigarette packages	14.3%	13.4%	13.4%	16.6%
Manufacturing of laminated paper	14.3%	13.4%	13.4%	16.6%

– II-43 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

15. INVESTMENT IN A SUBSIDIARY

							Brilliant	Circle
									At 30
					At	31	December		September
				2007			2008	2009	2010
				HK$’000			HK$’000	HK$’000	HK$’000
Unlisted	investment,	at	cost	74,950			74,950	74,950	74,950

The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

16. INTEREST IN AN ASSOCIATE

					At 30
		At	31 December		September
	2007		2008	2009	2010
	HK$’000		HK$’000	HK$’000	HK$’000
Unlisted investment in the PRC:
Share of net assets	234,068		273,079	285,346	253,165

(a) At 31 December 2007, 2008 and 2009 and 30 September 2010, Brilliant Circle Group had an investment in an associate as follows:

		Particulars
	Place of	of
	incorporation/	registered					Principal
Name	operation	capital	Percentage of ownership		interest/profit	sharing	activities
						At 30
			At	31 December		September
			2007	2008	2009	2010
CD Goldroc	The PRC	RMB163,052,000	48.85%/	48.85%/	48.85%/	35%/ 35%	Printing of
			45%	45%	45%		cigarette
							packages

(b) The amount due to an associate is unsecured, interest-free and has no fixed terms of repayment.
(c) Summarised financial information in respect of Brilliant Circle Group’s associate is set out below:

31 December 2007 100 per cent Brilliant Circle Group’s effective interest 31 December 2008 100 per cent Brilliant Circle Group’s effective interest	Assets Liabilities HK$’000 HK$’000 651,203 152,514 305,653 71,585 749,353 168,468 352,277 79,198	Equity Revenues HK$’000 HK$’000 498,689 912,746 234,068 410,736 580,885 1,101,951 273,079 495,878	Profit HK$’000 189,169 86,265

			238,631 108,390

– II-44 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

31 December 2009 100 per cent Brilliant Circle Group’s effective interest 30 September 2009 (Unaudited) 100 per cent Brilliant Circle Group’s effective interest 30 September 2010 100 per cent Brilliant Circle Group’s effective interest	Assets Liabilities HK$’000 HK$’000 796,304 189,440 374,420 89,074 N/A N/A N/A N/A 987,677 303,229 365,324 112,159	Equity Revenues HK$’000 HK$’000 606,864 1,071,977 285,346 482,390 N/A 734,697 N/A 330,614 684,448 1,023,933 253,165 401,824	Profit HK$’000 255,230 115,192

			179,976 79,894

			320,993 127,183

Brilliant Circle Group’s share of profit of an associate includes share of associate’s taxation of approximately HK$41,066,000, HK$37,432,000, HK$20,906,000, HK$13,511,000 (Unaudited) and HK$22,334,000 for the year ended 31 December 2007, 2008 and 2009 and nine months ended 30 September 2009 and 2010, respectively.

17. INVENTORIES

Raw materials Work in progress Finished goods	At 31 December 2007 2008 HK$’000 HK$’000 67,410 72,398 13,467 17,132 39,444 28,910 120,321 118,440	2009 HK$’000 73,562 23,009 42,184 138,755	At 30 September 2010 HK$’000 73,077 25,273 31,162
			129,512

Because of the change in market conditions of Brilliant Circle Group’s products during the Relevant Period, there was changes in the net realisable value of inventories. As a result, reversal of allowance and allowance for inventories was made during the Relevant Periods (Note 7).

– II-45 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

18. TRADE AND OTHER RECEIVABLES

The general credit terms of Brilliant Circle Group granted to its trade customers are three months. Brilliant Circle Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by the senior management. An aging analysis of trade receivables, based on the date of invoices, net of allowance is as follows:

Current to 30 days 31 to 90 days Over 90 days Trade receivables Bills receivables Other receivables Due from a director	At 31 December 2007 2008 HK$’000 HK$’000 187,468 190,043 95,204 33,451 29,082 3,201	At 31 December 2007 2008 HK$’000 HK$’000 187,468 190,043 95,204 33,451 29,082 3,201	2009 HK$’000 130,522 66,404 1,821	At 30 September 2010 HK$’000 162,897 41,727 40,780
	311,754 – 15,656 –	226,695 9,590 30,365 143,070	198,747 2,712 4,148 373,306	245,404 6,974 69,006 –
	327,410	409,720	578,913	321,384

An analysis of allowance for estimated irrecoverable trade receivables is as follows:

At beginning of year/period Allowance for the year/ period Write off Exchange differences At end of year/period	At 31 December 2007 2008 HK$’000 HK$’000 158 4,710 4,552 3,500 – (4,630) – 26 4,710 3,606	2009 HK$’000 3,606 – – 33 3,639	At 30 September 2010 HK$’000 3,639 – – 76
			3,715

As of 31 December 2007, 2008 and 2009 and 30 September 2010, trade receivables of approximately HK$29,082,000, HK$3,201,000, HK$1,821,000 and HK$40,780,000 respectively were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The aging analysis of these trade receivables is as follows:

Up to 6 months Over 6 months	At 31 December 2007 2008 HK$’000 HK$’000 28,591 3,156 491 45 29,082 3,201	2009 HK$’000 857 964 1,821	At 30 September 2010 HK$’000 31,615 9,165
			40,780

At 30 September 2010, trade receivables of approximately HK$18,438,000 were indemnified by Mr. Tsoi for any default of payment.

– II-46 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The carrying amount of Brilliant Circle Group’s trade receivables are denominated in the following currencies:

31 December 2007 31 December 2008 31 December 2009 30 September 2010	RMB HK$’000 255,006 201,255 198,747 245,404	USD HK$’000 14,741 18,401 – –	Euro dollars HK$’000 42,007 7,039 – –	Total HK$’000 311,754

				226,695

				198,747

				245,404

Amounts due from/(to) a director are unsecured and interest-free. The amounts due at 31 December 2007, 2008 and 2009 have no fixed terms of repayment. The amount due at 30 September 2010 is not repayable within the next twelve months. Disclosure in relation to the amount due from a director pursuant to section 161B of the Hong Kong Companies Ordinance is as follows:

Brilliant Circle Group

Mr. Tsoi Mr. Tsoi	At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 – 143,070 373,306 – Maximum amount outstanding during the year/period At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 N/A 143,070 373,306 373,306	At 30 September 2010 HK$’000 –

19. PLEDGED BANK DEPOSITS AND BANK AND CASH BALANCES

Brilliant Circle Group’s bank deposits of approximately HK$60,912,000, HK$57,171,000, HK$15,556,000 and HK$16,137,000 as at 31 December 2007, 2008 and 2009 and 30 September 2010 respectively carry fixed interest rates ranged from 1.5% to 2.9%, 0.1% to 3.8%, 0.1% to 1.4% and 0.1% to 1.4% respectively and therefore are subject to fair value interest rate risk. The pledged bank deposits represented deposits pledged to banks to secure banking facilities granted to Brilliant Circle Group (Note 23).

Included in the pledged bank deposits and bank and cash balances of Brilliant Circle Group is an amount of approximately HK$74,358,000, HK$167,391,000, HK$117,228,000 and HK$172,380,000 as at 31 December 2007, 2008 and 2009 and 30 September 2010 respectively denominated in RMB. Conversion of RMB into foreign currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations.

– II-47 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

20. DUE FROM/(TO) NON-CONTROLLING SHAREHOLDERS

The amounts due are unsecured, interest-free and have no fixed terms of repayment.

21. TRADE AND OTHER PAYABLES

The aging analysis of trade payables, based on the date of invoices, is as follows:

Current to 31 days 31 to 90 days Over 90 days Trade payables Bill payables – secured Advances from customers Other payables	At 31 December 2007 2008 HK$’000 HK$’000 77,889 123,251 49,093 33,931 27,440 6,931	At 31 December 2007 2008 HK$’000 HK$’000 77,889 123,251 49,093 33,931 27,440 6,931	2009 HK$’000 129,091 29,425 36,892	At 30 September 2010 HK$’000 117,347 53,087 5,994
	154,422 63,213 130 83,354	164,113 63,630 19 66,266	195,408 44,326 – 270,306	176,428 28,591 8,662 116,643
	301,119	294,028	510,040	330,324

The carrying amount of Brilliant Circle Group’s trade payables are denominated in the following currencies:

31 December 2007 31 December 2008 31 December 2009 30 September 2010	RMB HK$’000 146,987 164,113 195,408 176,428	USD HK$’000 1,472 – – –	Euro dollars HK$’000 5,963 – – –	Total HK$’000 154,422

				164,113

				195,408

				176,428

22. DUE TO ULTIMATE HOLDING COMPANY

The amount due is unsecured, interest-free and has no fixed terms of repayment.

23. BANK BORROWINGS

Bank loans Bank overdrafts	At 31 December 2007 2008 HK$’000 HK$’000 368,485 357,906 106 – 368,591 357,906	2009 HK$’000 327,251 – 327,251	At 30 September 2010 HK$’000 316,750 –
			316,750

– II-48 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Secured Unsecured	At 31 December 2007 2008 HK$’000 HK$’000 368,591 289,086 – 68,820 368,591 357,906	2009 HK$’000 270,326 56,925 327,251	At 30 September 2010 HK$’000 241,195 75,555
			316,750

The borrowings are repayable as follows:

On demand or within one year In the second year In the third to fifth years, inclusive Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	At 31 December 2007 2008 HK$’000 HK$’000 329,745 335,773 33,380 22,133 5,466 –	At 31 December 2007 2008 HK$’000 HK$’000 329,745 335,773 33,380 22,133 5,466 –	2009 HK$’000 327,251 – –	At 30 September 2010 HK$’000 316,750 – –
	368,591 (329,745)	357,906 (335,773)	327,251 (327,251)	316,750 (316,750
	38,846	22,133	–	–

The carrying amounts of Brilliant Circle Group’s borrowings are denominated in the following currencies:

31 December 2007 Bank loans Bank overdrafts 31 December 2008 Bank loans 31 December 2009 Bank loans 30 September 2010 Bank loans	HK$ HK$’000 22,492 106 22,598 – 910 –	RMB HK$’000 329,595 – 329,595 347,486 321,057 316,750	Euro dollars HK$’000 16,398 – 16,398 10,420 5,284 –	Total HK$’000 368,485 106
				368,591

				357,906

				327,251

				316,750

– II-49 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The range of interest rates paid were as follows:

						At 30
				At 31 December		September
			2007	2008	2009	2010
Bank	loans	4.8%	to 8%	2.8% to 7.5%	2.5% to 5.4%	2.5% to 5.4%
Bank	overdrafts		7%	N/A	N/A	N/A

At 31 December 2007, 2008 and 2009 and 30 September 2010, bank borrowings of approximately HK$136,348,000, HK$Nil, HK$215,859,000 and HK$257,003,000 are arranged at fixed interest rates and expose Brilliant Circle Group to fair value interest rate risk. Other bank borrowings are arranged at floating rates, thus exposing Brilliant Circle Group to cash flow interest rate risk.

At 31 December 2007, 2008 and 2009 and 30 September 2010, the above bank borrowings are secured by the following:

(a) certain bank deposits of Brilliant Circle Group (Note 19);
(b) certain property, plant and equipment of Brilliant Circle Group (Note 12);
(c) certain prepaid land lease payments of Brilliant Circle Group at 31 December 2008 and 2009 and 30 September 2010 (Note 13);
(d) corporate guarantee given by Brilliant Circle at 31 December 2009 and 30 September 2010;
(e) corporate guarantee given by ultimate holding company at 31 December 2008 and 2009;
(f) corporate guarantee given by a related company at 31 December 2007 and 2008;
(g) corporate guarantee given by subsidiaries;
(h) corporate guarantee given by an associate at 31 December 2007 and 2008;
(i) personal guarantee executed by a director;
(j) personal guarantee executed by a director’s family members (at 31 December 2007 and 2008); and
(k) properties held by a director at 31 December 2007 and 2008.

24. OBLIGATIONS UNDER FINANCE LEASES

Minimum lease payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 11,023 7,330 1,988 218 9,425 2,179 38 –	Minimum lease payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 11,023 7,330 1,988 218 9,425 2,179 38 –	Minimum lease payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 11,023 7,330 1,988 218 9,425 2,179 38 –	Minimum lease payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 11,023 7,330 1,988 218 9,425 2,179 38 –	Present value of payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 10,008 7,085 1,944 208 9,144 2,128 31 –	Present value of payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 10,008 7,085 1,944 208 9,144 2,128 31 –	Present value of payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 10,008 7,085 1,944 208 9,144 2,128 31 –	Present value of payments At 31 December At 30 September 2007 2008 2009 2010 HK$’000 HK$’000 HK$’000 HK$’000 10,008 7,085 1,944 208 9,144 2,128 31 –
20,448 (1,296)	9,509 (296)	2,026 (51)	218 (10)	19,152 N/A	9,213 N/A	1,975 N/A	208 N/A
19,152	9,213	1,975	208	19,152	9,213	1,975	208
				(10,008)	(7,085)	(1,944)	(208
				9,144	2,128	31	–

– II-50 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

It is Brilliant Circle Group’s policy to lease certain of its plant and machinery under finance leases. The lease terms range from 3 to 5 years.

The average effective borrowing rates were 7.0%, 4.6%, 4.4% and 7.5% as at 31 December 2007, 2008 and 2009 and 30 September 2010 respectively. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

Brilliant Circle Group’s obligations under finance leases are effectively secured as the rights to the leased assets (Note 12) revert to the lessor in the event of default. All finance lease obligations are denominated in Hong Kong dollars.

25. DEFERRED TAX LIABILITIES

The following are the major deferred tax liabilities recognised by Brilliant Circle Group.

Accelerated tax depreciation HK$’000 165 (33)	Withholding tax HK$’000 – –	Total HK$’000 165 (33)
132 15 147 – (147) – – – – –	– 13,000 13,000 (6,542) 13,784 (1,352) 18,890 (9,664) 8,961 270	132 13,015
		13,147 (6,542) 13,637 (1,352)
– – – –		18,890 (9,664) 8,961 270
–	18,457 Number of shares 50,000 1	18,457

		Amount HK$’000 390

		1

Brilliant Circle Group’s objectives when managing capital are to safeguard Brilliant Circle Group’s ability to continue as a going concern and to maximise the return to the shareholders through the optimisation of the debt and equity balance. Brilliant Circle Group currently does not have any specific policies and processes for managing capital.

– II-51 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

27. RESERVES

(a) Brilliant Circle Group

The amounts of Brilliant Circle Group’s reserves and the movements therein are presented in the consolidated statements of comprehensive income and consolidated statements of changes in equity.

(b) Brilliant Circle

At 1 January 2007 Profit for the year Dividend paid (Note 11) At 31 December 2007 Loss for the year At 31 December 2008 Loss for the year At 31 December 2009 Profit for the period Dividend paid (Note 11) At 30 September 2010	Retained profits HK$’000 62,390 492,813 (501,203)
	54,000 (146)
	53,854 (8,634)
	45,220 415,776 (460,990)
	6

(c) Nature and purpose of reserves

(i) Capital reserve

The capital reserve represents the difference between the value of certain assets injected in the subsidiary by a non-controlling shareholder and the amount of the subsidiary’s registered capital.

(ii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in Note 2(e)(iii).

(iii) Statutory reserves

The statutory reserves, which are non-distributable, are appropriated from the profit after taxation of Brilliant Circle Group’s PRC subsidiaries under the applicable laws and regulations in the PRC.

– II-52 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

28. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

(a) Acquisition of interests in a subsidiary

On 8 June 2007, Brilliant Circle acquired the entire equity interests in Union Virtue from a related party at a consideration of HK$8. Union Virtue is an investment holding company and its only asset is 6% equity interests in BCPPL. The carrying amount of net assets of Union Virtue as at the date of acquisition is as follows:

Net assets acquired Excess of fair value of net assets acquired over the cost of acquisition of a subsidiary Consideration settled through the current account of a director	HK$’000 42,063 (42,062)
	1

(b) Acquisition of additional interests in a subsidiary from non-controlling shareholders

On 26 June 2007, Brilliant Circle acquired additional 4.75% equity interests in a subsidiary, BCPPL at a consideration of USD9,600,000. The carrying amount of net assets of BCPPL as at the date of acquisition is as follows:

Net assets acquired: Non-controlling interests Goodwill on acquisition (Note 14) Consideration settled through the current account of a director	HK$’000 33,302 41,577
	74,879

(c) Disposal of interests in unconsolidated subsidiaries

(i) On 22 June 2007, Brilliant Circle disposed of an unconsolidated subsidiary, CT with carrying amount of HK$10,000 to a director of Brilliant Circle at a consideration of HK$10,000. The sales proceeds was settled through the current account of a director.
(ii) On 30 September 2007, Brilliant Circle disposed of an unconsolidated subsidiary, SZ Yuen Cheong Hong with carrying amount of approximately HK$1,429,000 to a related party, at a consideration of approximately HK$2,308,000. The sales proceeds was settled through the current account of a director. The disposal resulted in a gain of approximately HK$879,000.
(iii) On 30 September 2007, Brilliant Circle disposed of an unconsolidated subsidiary, HN Yingkun with carrying amount of RMB8,400,000 to an independent investor, at a consideration of RMB8,400,000. The consideration was not settled as at 31 December 2007.

(d) Disposal of partial interest in an associate

On 1 May 2010, Brilliant Circle disposed of 13.85% equity interest in an associate, CD Goldroc to an independent investor, at a consideration of approximately RMB35,778,000. The disposal resulted in a loss of approximately HK$14,627,000. The consideration was not received as at 30 September 2010.

– II-53 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(e) Major non cash transactions

Save as disclosed elsewhere in this report, the major non cash transactions of Brilliant Circle Group are as follows:

(i) During the years ended 31 December 2007 and 2008, additions of property, plant and equipment of approximately HK$880,000 and HK$142,000 respectively were financed by finance leases.
(ii) During the years ended 31 December 2007, 2008 and 2009 and the nine months ended 30 September 2009 and 2010, dividends of approximately HK$12,777,000, HK$52,301,000, HK$35,538,000, HK$35,247,000 (Unaudited) and HK$40,186,000 were declared to the non-controlling shareholders, of which approximately HK$2,801,000, HK$573,000, HK$835,000, HK$2,716,000 (Unaudited) and HK$2,563,000 were not paid as at the end of each reporting period.
(iii) During the year ended 31 December 2007, dividend declared to an ex-equity holder of approximately HK$501,203,000 was settled through the current account of a director.
(iv) During the year ended 31 December 2008, cash advance to a director of HK$140,000,000 was paid by the ultimate holding company.
(v) During the year ended 31 December 2009 and the nine months ended 30 September 2009, property, plant and equipment and prepaid land lease payments totalled approximately HK$22,195,000 and HK$22,195,000 (Unaudited) respectively, were acquired from a related company and settled through the current account of a director.
(vi) During the nine months ended 30 September 2010, dividend declared to a non-controlling shareholder of approximately HK$37,623,000 was settled through the amount due from the non-controlling shareholder.
(vii) During the nine months ended 30 September 2010, repayment to the ultimate holding company of approximately HK$214,544,000 was paid by a director of Brilliant Circle.

29. CONTINGENT LIABILITIES

On 12 July 2010, a subsidiary of Brilliant Circle issued a corporate guarantee of RMB260,000,000 (the “Guarantee”) to a bank to secure banking facilities granted to a related company. The banking facilities are also secured by personal guarantees executed by Mr. Tsoi and his family members and certain investment properties held by Mr. Tsoi (the “Investment Properties”).

The maximum liability of Brilliant Circle Group under the guarantee was the amount of bank loans drawn on 12 July 2010 of RMB260,000,000.

Based on the valuation report issued by an independent valuer Asset Appraisal Limited on 11 February 2011, the fair value of the Guarantee as at 12 July 2010 was minimal while the fair value of the Investment Properties as at 30 September 2010 was RMB695,040,000. The directors do not consider it probable that a claim against Brilliant Circle for the Guarantee as the fair value of the pledged Investment Properties is sufficient to cover the outstanding bank loans. Therefore the fair value of the Guarantee is not recognised in the Financial Information by Brilliant Circle Group.

Except for the above, Brilliant Circle Group and Brilliant Circle did not have any significant contingent liabilities as at 31 December 2007, 2008 and 2009 and 30 September 2010.

– II-54 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

30. COMMITMENTS

Brilliant Circle Group and Brilliant Circle had the following commitments:

(a) Operating lease commitments

Brilliant Circle Group

Brilliant Circle Group leases certain of its office, factory premises, land, machinery and staff quarters under operating lease arrangements. The original lease terms for the office and factory premises range from eleven years to fifteen years. Rentals are fixed over the lease term and do not include contingent rentals.

Total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within one year In the second to fifth years, inclusive After five years	At 31 December 2007 2008 HK$’000 HK$’000 780 809 2,851 2,670 2,812 2,501 6,443 5,980	2009 HK$’000 816 2,410 1,860 5,086	At 30 September 2010 HK$’000 837 2,260 1,504
			4,601

Brilliant Circle

Brilliant Circle did not have any significant operating lease commitments as at 31 December 2007, 2008 and 2009 and 30 September 2010.

(b) Capital commitments

Brilliant Circle Group

					At 30
		At	31 December		September
	2007		2008	2009	2010
	HK$’000		HK$’000	HK$’000	HK$’000
Contracted but not
provided for:
Acquisition of property,
plant and equipment	100,678		35,344	23,096	936

Brilliant Circle

Brilliant Circle did not have any significant capital commitments as at 31 December 2007, 2008 and 2009 and 30 September 2010.

– II-55 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

31. RELATED PARTY TRANSACTIONS

(a) Save as disclosed elsewhere in this report, Brilliant Circle Group had the following material related party transactions during the Relevant Periods:

				Nine months	Nine months
				ended 30
	Year ended 31 December			September
	2007	2008	2009	2009	2010
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Unaudited)
Sales to an associate	210,327	131,936	–	–	491
Sales to an associate of ultimate
holding company	–	23,935	6,132	6,132	–
Sales of property, plant and
equipment to an associate	22,079	117,529	–	–	–
Purchases from unconsolidated
subsidiaries	9,044	–	–	–	–
Purchases from related companies	160,442	89,043	–	–	–
Purchases from an associate	24,901	–	–	–	–
Purchases from a fellow subsidiary	701	1,152	–	–	–
Purchases of property, plant and
equipment from related companies	12,676	–	16,133	16,133	–
Purchase of prepaid land lease
payments from a related company	–	–	6,062	6,062	–
Disposal of property plant and
equipment to a director	1,400	–	1,036	1,036	–
Rental income received from an
unconsolidated subsidiary	1,081	–	–	–	–
Rental income received from related
companies	98	816	2,070	1,550	2,365
Rental charge paid to an
unconsolidated subsidiary	355	–	–	–	–
Interest income received from a
related company	–	5,089	–	–	–

Notes:

(i) The sales and purchases were made under normal commercial terms.
(ii) Rental income received and charges paid are determined by mutually agreed term.
(iii) During the years ended 31 December 2007 and 2008, several banking facilities were shared by Brilliant Circle Group and CT. The extent of banking facilities granted to CT amounted to approximately HK$294,200,000 and HK$105,200,000 respectively. At 31 December 2007 and 2008, these banking facilities are secured by Brilliant Circle Group’s bank deposits; properties held by a director of Brilliant Circle (at 31 December 2007); corporate guarantees given by a subsidiary, an associate, a related company and the ultimate holding company (at 31 December 2008) of Brilliant Circle Group and personal guarantees executed by a director of Brilliant Circle and his family members.
(iv) An office occupied by Brilliant Circle Group was provided by a related company at no cost.
(v) A director, Mr. Tsoi has significant influence over the related companies.

– II-56 –

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

(b) Save as disclosed elsewhere in this report, Brilliant Circle Group had the following related parties’ balances at the end of each reporting periods:

					At 30
		At	31 December		September
	2007		2008	2009	2010
	HK$’000		HK$’000	HK$’000	HK$’000
Trade and other receivables:
An associate	35,743		–	–	–
An associate of ultimate
holding company	–		5,959	–	–
A director	–		143,070	373,306	–
Trade and other payables:
Fellow subsidiaries	(1,875)		(663)	–	–
An associate	(19,781)		(6,685)	–	–
Related companies	(34,788)		(38)	(38)	(38)

Notes:

(i) The amounts due from/(to) fellow subsidiaries, related companies, an associate and an associate of ultimate holding company are unsecured, interest-free and repayable within 90 days.
(ii) A director, Mr. Tsoi has significant influence over the related companies.

32. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Brilliant Circle or any of its subsidiaries in respect of any period subsequent to 30 September 2010.

Yours faithfully,

RSM Nelson Wheeler Certified Public Accountants Hong Kong

– II-57 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(i) Introduction

The following is the unaudited pro forma financial information of the Enlarged Group after the Acquisition prepared in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of the Hong Kong Limited for the purpose of illustrating the effect of the Acquisition on the financial position of the Group as at 30 June 2010 and the results and cash flows of the Group for the year ended 31 December 2009.

The accompanying unaudited pro forma financial information of the Enlarged Group after the Acquisition is based on certain assumptions, estimates, uncertainties and other currently available financial information, and is provided for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position, results and cash flows of the Group following the Acquisition Completion. Further, the accompanying unaudited pro forma financial information of the Enlarged Group after the Acquisition does not purport to predict the Enlarged Group’s future financial position or results of operations.

Pursuant to the Acquisition Agreement as set out in this circular, the Company has conditionally agreed to acquire 100% equity interest in the Target for an aggregate consideration of HK$2,400,000,000, to be satisfied by 480,000,000 new ordinary shares of the Company of HK$0.01 each at an issue price of HK$5 per share.

The accompanying unaudited pro forma financial information of the Group as enlarged by the Acquisition has been prepared to illustrate the effect of the proposed Acquisition.

The unaudited pro forma combined statement of financial position of the Enlarged Group as at 30 June 2010 is prepared as if the Acquisition had been completed on 30 June 2010 and is based on (i) the unaudited consolidated statement of financial position of the Company as at 30 June 2010, which has been extracted from the interim report of the Company for the six months ended 30 June 2010; and (ii) the audited consolidated statement of financial position of the Target as at 30 September 2010 as extracted from the accountants’ report thereon as set out in Appendix II to this circular, after making pro forma adjustments that are (i) directly attributable to the Acquisition; and (ii) factually supportable.

The unaudited pro forma combined statement of comprehensive income and combined statement of cash flows of the Enlarged Group for the year ended 31 December 2009 are prepared as if the Acquisition had been completed on 1 January 2009 and are based on the audited consolidated statement of comprehensive income and audited consolidated cash flow statement of the Company for the year ended 31 December 2009, which has been extracted from the annual report of the Company for the year ended 31 December 2009, and the audited consolidated income statement and audited consolidated statement of comprehensive income and audited consolidated statement of cash flows of the Target for the year ended 31 December 2009 as extracted from the accountants’ report set out in Appendix II to this circular.

– III-1 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

(ii) Unaudited pro forma Combined Statement of Financial Position of the Enlarged Group

The Group As at 30/6/2010 HK$’000 140,135 – – – – –	Target Group As at 30/9/2010 HK$’000 502,784 20,007 – 253,165 40,401 19,242	Pro forma adjustment HK$’000 Note 2,400,000 (a) (2,400,000) (b)	Enlarged Group HK$’000 642,919 20,007 – 253,165 40,401 19,242
140,135 82,176 – 141,222 – 25,079 48,001 296,478 (72,240) – (13,891) (46,171) (2,089) – (134,391) 162,087 302,222 (11,575) (2,000) (9,252) – –	835,599 129,512 769 323,727 18,171 19,650 179,397 671,226 (330,324) – (208) (316,750) (16,722) (5,067) (669,071) 2,155 837,754 – – (18,457) (24,722) (74,761)	(1,299) (c) 1,299 (c) (8,000) (f)	975,734
			211,688 769 463,650 18,171 44,729 227,398
			966,405
			(409,265 – (14,099 (362,921 (18,811 (5,067
			(810,163
			156,242
			1,131,976 (11,575 (2,000 (27,709 (24,722 (74,761
279,395	719,814		991,209

2,000 277,395 –	– 600,037 119,777	4,800 (a) (b) 2,395,200 (a) (2,400,000) (b) (825,839) (d) 825,839 (d) (8,000) (f)	6,800 864,632 119,777
279,395	719,814	(d)	991,209

– III-2 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

(iii) Unaudited pro forma Combined Statement of Comprehensive Income of the Enlarged Group

The Group For the year ended 31/12/2009 HK$’000 362,750 (271,386)	Target Group For the year ended 31/12/2009 Pro forma adjustment HK$’000 HK$’000 Note 1,050,638 (718,854)	Enlarged Group HK$’000 1,413,388 (990,240)
91,364 2,621 (25,912) (35,562) – 32,511 (4,966) – (1,569) 25,976 (3,243) – 22,733 618 –	331,784 7,827 2,665 (e) (38,331) (60,701) (2,665) (e) (9,474) 231,105 (19,367) 115,192 – 326,930 (45,682) (49,532) 231,716 – 4,023	423,148 13,113 (64,243) (98,928) (9,474)
		263,616 (24,333) 115,192 (1,569)
		352,906 (48,925) (49,532)
		254,449 618 4,023
618 23,351	4,023 235,739	4,641 259,090

– III-3 –

APPENDIX III

FINANCIAL INFORMATION OF THE ENLARGED GROUP

(iv) Unaudited pro forma Combined Statement of Cash Flows of the Enlarged Group

The Group For the year ended 31/12/2009 HK$’000 25,976 15,877 – 4,966 (40) 1 (294) 4,131 – –	Target Group For the year ended 31/12/2009 HK$’000 326,930 53,689 (115,192) 19,367 (1,079) 2,042 – 7,470 (53) (625)
50,617 4,051 s 12,130 21,550 – 88,348 (50) –	292,549 (19,690) 60,183 1,521 (2) 334,561 (36,707) (6,542)	343,166 (15,639 72,313 23,071 (2
		422,909 (36,757 (6,542
88,298	291,312
40 171 – (37,030) – (10,189) 17,160 –	1,079 1,138 (111,471) (20,946) 105,372 27,273 – (3,666)	1,119 1,309 (111,471) (57,976) 105,372 17,084 17,160 (3,666)
(29,848)	(1,221)

– III-4 –

APPENDIX III

FINANCIAL INFORMATION OF THE ENLARGED GROUP

The Group For the year ended 31/12/2009 HK$’000	Target Group For the year ended 31/12/2009 HK$’000
(275,689) 239,282 (3,233) – (1,733) (22,624) – – 62,500 (15,153)	(671,234) 637,434 (19,163) (252,431) (204) (7,238) (165) (34,703) – –	(946,923) 876,716 (22,396) (252,431) (1,937) (29,862) (165) (34,703) 62,500 (15,153)
(16,650)	(347,704)
41,800 – 14,456	(57,613) (200) 155,260	(15,813 (200 169,716
56,256	97,447

(v) Notes to the unaudited pro forma financial information of the Enlarged Group

(a) For the purpose of the unaudited pro form statement of financial position of the Enlarged Group, the Directors of the Company assumed the fair value of the total consideration for the Acquisition is HK$2,400,000,000 which is to be satisfied by the issue and allotment of 480,000,000 Consideration Shares with par value of HK$0.01 each at the issue price of HK$5 per Consideration Share. This results in the increase of share capital and share premium account by HK$4,800,000 and HK$2,395,200,000 respectively.
(b) The Acquisition is considered as a business combination under common control because the Company, the Purchaser and the Target are ultimately controlled by the Vendor both before and after the business combination. The adjustment represents the recognition of merger reserve of HK$2,399,999,992 arising from the business combination, which represents the difference between the cost of combination of HK$2,400,000,000 and the entire share capital of the Target of HK$8.

– III-5 –

APPENDIX III

FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) The adjustments are to eliminate the inter company balances between the Company and one of the subsidiaries of the Target Group.
(d) The adjustment is to eliminate the pre-acquisition result of HK$825,838,622 of the Target Group on or before 10 September 2009, the date on which the Vendor entered into a sale and purchase agreement to acquire the Target Company. Although the completion date of the sale and purchase agreement was on 25 February 2010, according to such agreement, the former shareholding company of the Target Company deconsolidated the net assets of the Target Group after 10 September 2009 and not be involved in the financial and operational policies of the Target Group with effect from 10 September 2009. Therefore, from 10 September 2009, the common control as detailed in note (b) exists. The elimination of the pre-acquisition result also effected in an adjustment to the merger reserve of the same amount.
(e) The adjustment is to reflect the elimination of inter-company transactions between the Company and one of the subsidiaries of the Target company for the year ended 31 December 2009 upon combination since they are considered as within the Group from 1 January 2009.
(f) The adjustment represents the accrual for the estimated legal and professional costs of approximately HK$8,000,000 directly attributable to the Acquisition.

– III-6 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

2. ACCOUNTANT’S REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report from CCIF CPA Limited and World Link CPA Limited, Certified Public Accountants, in respect of the Unaudited Pro Forma Financial Information of the Enlarged Group as set out in this Appendix and prepared for the sole purpose of inclusion in this circular.

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34/F The Lee Gardens 33 Hysan Avenue Causeway Bay Hong Kong

28 March 2011

The Board of Directors CT Holdings (International) Limited

Accountants’ report on the Unaudited Pro Forma Financial Information to the directors of CT Holdings (International) Limited

We report on the unaudited pro forma combined statement of financial position, the unaudited pro forma combined income statement, the unaudited pro forma combined statement of comprehensive income and the unaudited pro forma combined statement of cash flows (collectively the “ Unaudited Pro Forma Financial Information ”) of CT Holdings (International) Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “ Group ”) and Brilliant Circle Holdings International Limited (“ Brilliant Circle ”) and its subsidiaries (together with the Group hereafter referred to as the “ Enlarged Group ”), which has been prepared by the directors of the Company (“ Directors ”) for illustrative purposes only, to provide information about how the proposed acquisition of the entire equity interest in Brilliant Circle, might have affected the financial information presented, for inclusion in Section 1 of Appendix III (“ Unaudited Pro Forma Financial Information of the Enlarged Group ”) to the circular of the Company dated 28 March 2011 (the “ Circular ”). The basis of preparation of the Unaudited Pro Forma Financial Information is also set out in Section 1 of Appendix III to the Circular.

Respective responsibilities of the Directors and reporting accountants

It is the responsibility solely of the Directors to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 4.29(7) 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

– III-7 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

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.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagement (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the Directors. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtained the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the Directors on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group (as defined in the Circular) as at 30 June 2010 or any future dates; or
the financial results and cash flows of the Enlarged Group (as defined in the Circular) for the year ended 31 December 2009 or any future periods.

Opinion

In our opinion:

a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors 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(1) of the Listing Rules.

CCIF CPA Limited World Link CPA Limited Certified Public Accountants Certified Public Accountants Hong Kong, 28 March 2011 Hong Kong, 28 March 2011 Kwok Cheuk Yuen Fung Tze Wa Practising Certificate Number P02412 Practising Certificate Number P01138

– III-8 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

3. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Upon Acquisition Completion, the Enlarged Group will, through the Target Group, engage in the cigarette package printing business in the PRC, which is by far the largest cigarette manufacturer by country and has the highest level of cigarette consumption. The Directors are optimistic on the market demand of cigarette and the growth potential of the cigarette package printing business given the large population of smokers in the PRC and the expected economic growth and improved consumer spending power in recent years. Taking into account the production facilities of the Target Group have already been in operation, the positive and stable track record of the Target Group and the established scale of the operation of the Target Group and its continuous growing potential, it is expected that Target Group will be able to contribute recurring cash flow and favourable returns to the Group. Moreover, the proposed Acquisition will also diversify the Group’s business scope and broaden the Group’s customer base, and is expected to enhance the Group’s net assets value.

4. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 31 January 2011, being the latest practicable date for the purpose of this indebtedness statement, the Group had outstanding indebtedness of approximately HK$57.6 million, comprising secured bank borrowings of approximately HK$40.2 million and obligation under finance lease of approximately HK$17.4 million.

As at 31 January 2011, the Group had pledged bank deposits of approximately HK$25.0 million and factored trade receivables of approximately HK$29.0 million to secure the bank loans granted to the Group. The obligation under finance lease of the Group was secured by the charge over the leases assets of approximately HK$46.0 million.

As at the close of business on 31 January 2011, the Target Group had outstanding indebtedness of approximately HK$367.3 million, comprising secured bank borrowings of approximately HK$301.3 million, unsecured bank borrowings of approximately HK$23.7 million, and amount due to a director of approximately HK$42.3 million. The amount due to a director is unsecured, interest free and not repayable within the next twelve months from 30 September 2010.

– III-9 –

APPENDIX III FINANCIAL INFORMATION OF THE ENLARGED GROUP

As at 31 January 2011, the Target Group had pledged bank deposits, property, plant and equipment and prepaid land lease payments of approximately HK$42.4 million, HK$169.4 million and HK$12.3 million respectively to secure the bank loans granted to the Target Group.

Contingent liabilities

As at 31 January 2011, the Group did not have material contingent liabilities.

As at 31 January 2011, a subsidiary of the Target Group had issued a corporate guarantee of RMB260 million (equivalent to about HK$307.6 million) to a bank to secure banking facilities granted to a related company and the maximum liability of the Target Group under the guarantee was RMB260 million (equivalent to about HK$307.6 million).

Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any outstanding debt securities issued and outstanding or authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, material hire purchase commitments, mortgages and charges, material contingent liabilities and guarantees outstanding at the close of business on 31 January 2011.

The Directors have confirmed that there have not been any material adverse changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 January 2011 and up to the Latest Practicable Date.

5. WORKING CAPITAL STATEMENT

The Directors, after due and careful enquiry, are of the opinion that following the Acquisition Completion, after taking into account the available internal resources, the banking and other credit facilities available to the Enlarged Group, the Enlarged Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this circular, in the absence of unforeseeable circumstances.

– III-10 –

APPENDIX IV

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorised and issued and fully paid up share capital of the Company as at the Latest Practicable Date was as follows:

Authorised: 1,000,000,000 Shares Issued and fully paid: 200,000,000 Shares	HK$ 10,000,000

	2,000,000

The authorised and issued and fully paid up share capital of the Company upon the issue of the Consideration Shares will be as follows:

Authorised: 1,000,000,000 Shares	HK$ 10,000,000

Issued and fully paid: 200,000,000 Shares in issue as at the Latest Practicable Date 480,000,000 Consideration Shares to be issued upon Acquisition Completion	2,000,000 4,800,000
680,000,000	6,800,000

– IV-1 –

APPENDIX IV

GENERAL INFORMATION

3. DISCLOSURE OF INTERESTS

(i) Interests of the Directors and the chief executive of the Company

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as contained in Appendix 10 to the Listing Rules were as follows:

(a) The Company

Name of Director Capacity Mr. Tsoi Interest of controlled corporation Beneficial owner Mr. Cai Xiao Ming, David Interest of controlled corporation	Number of Shares held Position Percentage of the issued share capital of the Company 105,000,000 (Note 1) Long 52.5% 480,000,000 (Note 2) Long 240.0% 585,000,000 292.5% 45,000,000 (note 3) Long 22.5%	Number of Shares held Position Percentage of the issued share capital of the Company 105,000,000 (Note 1) Long 52.5% 480,000,000 (Note 2) Long 240.0% 585,000,000 292.5% 45,000,000 (note 3) Long 22.5%
		292.5%

		22.5%

Notes:

These Shares are held by Profitcharm, the entire issued share capital of which is wholly and beneficially owned by Mr. Tsoi. Due to the First Placing Down Agreement, there has been a change in nature of interests of Profitcharm in respect of 176,800,000 Shares, representing 26% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares. By virtue of the SFO, Mr. Tsoi is deemed to be interested in the entire 105,000,000 Shares held by Profitcharm.
These Shares represent the Consideration Shares to be issued to Mr. Tsoi under the Acquisition Agreement. Due to the Further Placing Down Agreement, there has been a change in nature of interests of Mr. Tsoi in respect of 120,000,000 Shares, representing the maximum number of Consideration Shares subject to Further Placing Down.

– IV-2 –

APPENDIX IV

GENERAL INFORMATION

These shares are held by Sinorise, the entire issued share capital of which is wholly and beneficially owned by Mr. Cai Xiao Ming, David. By virtue of the SFO, Mr. Cai Xiao Ming, David, is deemed to be interested in the entire 45,000,000 Shares held by Sinorise.
(b) Associated corporation

Percentage of Number of shareholding Name of Name of shares in the in the associated registered associated associated corporation owner Capacity Position corporation corporation Profitcharm Mr. Tsoi Beneficial Long 200 shares of 100% owner US$1.00 each

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company had any beneficial or deemed interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required (a) 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 (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as contained in Appendix 10 to the Listing Rules.

(ii) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO

Save as disclosed below, the Directors and the chief executive of the Company were not aware that there was any person who, as at the Latest Practicable Date, had an interest or short position in the shares, underlying shares or debentures of the

– IV-3 –

APPENDIX IV

GENERAL INFORMATION

Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would fall to be disclosed under provisions of Division 2 and 3 of Part XV of the SFO:

				Percentage
				of the
				issued
				share
		Number of		capital of
		Shares		the
Name of shareholder	Capacity	held	Position	Company
Profitcharm (note 1)	Interest of	105,000,000	Long	52.5%
	corporation
	controlled
Sinorise (note 2)	Interest of	45,000,000	Long	22.5%
	corporation
	controlled
ACOF Asia	Interest of	90,984,000	Long	45.49%
Management, L.P.	controlled
	corporation
Ares BCH Holdings,	Beneficial	90,984,000	Long	45.49%
L.P.	owner
Ares Management	Interest of	90,984,000	Long	45.49%
(Cayman), Ltd.	controlled
	corporation
Partners Group	Interest of	51,476,000	Long	25.74%
Holding AG	controlled
	corporation
YF BCH Investment	Beneficial	34,340,000	Long	17.17%
Limited	owner
Yunfeng Fund, L.P.	Interest of	34,340,000	Long	17.17%
	controlled
	corporation
Yunfeng Investment	Interest of	34,340,000	Long	17.17%
GP, Ltd.	controlled
	corporation
Yunfeng Investment	Interest of	34,340,000	Long	17.17%
L.P.	controlled
	corporation

Notes:

Profitcharm is a company incorporated in the BVI with limited liability which is wholly and beneficially owned by Mr. Tsoi. Due to the First Placing Down Agreement, there has been a change in nature of interests of Profitcharm in respect of 176,800,000 Shares, representing 26% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares.
Sinorise is a company incorporated in the BVI with limited liability which is wholly and beneficially owned by Mr. Cai Xiao Ming, David.

– IV-4 –

APPENDIX IV

GENERAL INFORMATION

(iii) Substantial Shareholders

Save as disclosed below, the Directors and the chief executive of the Company were not aware that there was any person who, as at the Latest Practicable Date, 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 member of the Enlarged Group:

			Approximate
			percentage of
			shareholding
			in the
	Equity interest held in		members of
	the members of the		the Enlarged
Name of shareholder	Enlarged Group	Position	Group
襄樊卷煙廠	US$612,000 in the	Long	20.4%
(Xiangfan Factory)	registered capital
	of XF Jinfeihuan
昭通龍泉實業有限公司	US$200,000 in the	Long	20%
(Zhao Tong Longquan	registered capital
Enterprises Limited*)	of ZT Antong
茂名市中誠致信投資有限公	US$3,610,158 in the	Long	47.36%
司(Maoming City	registered capital
Zhongcheng Zhixin	of BB Jinhuangshan
Investments Co., Ltd.*)

4. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective associates has any interest in a business, apart from the Group’s business which competes, or is likely to compete, either directly or indirectly, with the business of the Group pursuant to Rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company.

5. DIRECTORS’ SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Enlarged Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

– IV-5 –

APPENDIX IV

GENERAL INFORMATION

6. DIRECTORS’ INTERESTS IN CONTRACTS AND ASSETS

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been, since 31 December 2009 (being the date up to which the latest published audited accounts of the Group were made up), (i) acquired or disposed of by; or (ii) leased to; or (iii) proposed to be acquired or disposed of by; or (iv) proposed to be leased to, any member of the Enlarged Group.

7. LITIGATION

As at the Latest Practicable Date, so far as the Directors were aware, no member of the Enlarged Group was engaged in any litigation or claims of material importance and no litigation or claims of material importance was known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

8. MATERIAL CONTRACTS

The following material contracts, not being contracts entered into in the ordinary course of business of the Group, have been entered into by members of the Enlarged Group within two years immediately preceding the Latest Practicable Date and is or may be material:

(i) The Group

(a) The Acquisition Agreement.

(ii) The Target Group

(a) The sale and purchase agreement dated 29 March 2010 and entered into between BCD as vendor and 深圳市鶴韵投資有限公司(Shenzhen City Heyun Investments Co., Ltd.*) for the disposal of 13.85% equity interests in CD Goldroc at a consideration of approximately RMB35.8 million;
(b) The corporate guarantee dated 12 July 2010 and entered into by SZ Kecai in favour of 招商銀行股份有限公司深圳泰然支行 (Tairan Branch, Shenzhen, China Merchants Bank Co., Ltd.) to secure the banking facilities granted to 深圳天利地產集團有限公司 (Shenzhen Tianli Property Group Limited) up to the amount of RMB260 million; and
(c) The Master Sales Agreement.

– IV-6 –

APPENDIX IV

GENERAL INFORMATION

9. EXPERTS AND CONSENTS

The following is the name and qualification of the experts who have given opinion or advise, which are contained or referred to in this circular:

Name Qualification RSM Nelson Wheeler Certified Public Accountants CCIF CPA Limited Certified Public Accountants World Link CPA Limited Certified Public Accountants Ample Capital A registered institution licensed to carry out type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

Each of RSM Nelson Wheeler, CCIF CPA Limited, World Link CPA Limited and Ample Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and report and references to its name in the form and context in which they appear.

As at the Latest Practicable Date, each of RSM Nelson Wheeler, CCIF CPA Limited, World Link CPA Limited and Ample Capital did not have any direct or indirect shareholding in any member of the Enlarged Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for any securities in any member of the Enlarged Group.

As at the Latest Practicable Date, each of RSM Nelson Wheeler, CCIF CPA Limited, World Link CPA Limited and Ample Capital did not have any direct or indirect interest in any assets which have been, since 31 December 2009 (the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to, any member of the Enlarged Group.

– IV-7 –

APPENDIX IV

GENERAL INFORMATION

10. GENERAL INFORMATION

(a) The company secretary of the Company is Mr. Yau Chung Hang, who is a fellow member of the Association of Chartered Certified Accountants and certified public accountants of the Hong Kong Institute of Certified Public Accountants.
(b) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and the principal place of business of the Company in Hong Kong is at Suites 2301-2, 23rd Floor, Tower Two, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong.
(c) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text in case of discrepancy.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Suites 2301-2, 23rd Floor, Tower Two, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong during normal office hours from 9:30 a.m. to 12:30 p.m. and from 2:30 p.m. to 5:30 p.m. on any weekday, except Saturdays, Sundays and public holidays, from the date of this circular up to and including the date of the First EGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in the section headed “Material contracts” in this Appendix;
(c) the annual reports of the Company for each of the two years ended 31 December 2008 and 2009;
(d) the interim report of the Company for the six months ended 30 June 2010;
(e) the accountants’ report on the Target Group, the text of which is set out in Appendix II to this circular;
(f) the letter from CCIF CPA Limited and World Link CPA Limited on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;

– IV-8 –

APPENDIX IV

GENERAL INFORMATION

(g) the letter from Ample Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed “Letter from Ample Capital” in this circular;
(h) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed “Letter from the Independent Board Committee” in this circular;
(i) the written consents referred to in this section headed “Experts and consents” in this Appendix; and
(j) this circular.

– IV-9 –

NOTICE OF THE FIRST EGM

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CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1008)

NOTICE OF FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the “ First EGM ”) of CT Holdings (International) Limited (the “ Company ”) will be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong on Thursday, 14 April 2011 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT:
(a) the sale and purchase agreement (the “ Sale and Purchase Agreement ”) entered into among the Company, CT Management Investments Limited and Mr. Tsoi Tak (the “ Vendor ”) dated 29 December 2010 (as supplemented on 25 March 2011) in relation to the acquisition (the “ Acquisition ”) of one ordinary share of US$1.00 in the issued share capital of Brilliant Circle Holdings International Limited (the “ Target ”) at a total consideration of HK$2,400,000,000, a copy of the Sale and Purchase Agreement having been produced to the First EGM and marked “A” and initialed by the chairman of the First EGM for the purpose of identification, and the transactions contemplated thereby be and are hereby approved, confirmed and ratified;
(b) the allotment and issue of 480,000,000 (the “ Consideration Shares ”) new shares of HK$0.01 each in the capital of the Company to the Vendor (or his nominee(s) or any person(s) nominated by him), credited as full paid up, as consideration for the Acquisition be and are hereby approved;
(c) the provision of corporate guarantee by a subsidiary of the Target of RMB260 million to a private company (the “ Private Company ”) wholly and beneficially owned by the Vendor since 12 July 2010 and up to six months after completion (the “ Completion ”) of the Acquisition in consideration of which a finance charge of RMB1.3 million be levied against the Private Company upon Completion be approved, confirmed and ratified; and

– EGM-1 –

NOTICE OF THE FIRST EGM

(d) any one or more directors of the Company be and are hereby authorised to allot and issue the Consideration Shares in accordance with the terms of the Sale and Purchase Agreement and to do all such acts and things as they consider necessary or expedient for the purpose of giving effect to the Sale and Purchase Agreement and completing the transactions contemplated thereby.”
“ THAT , subject to the passing of the resolution numbered 1 above,
(a) the master sales agreement (the “ Master Sales Agreement ”) entered into between 襄樊捲煙廠 (Xiangfan Cigarette Factory) and 襄樊金飛環彩色包裝有限公司 (Xiangfan Jinfeihuan Colour Package Co., Ltd.) dated 28 December 2010 in respect of the sales of cigarette packages and related services subject to the maximum annual values of RMB230 million, RMB250 million and RMB300 million for each of the three years ending 31 December 2013 respectively, a copy of the Master Sales Agreement having been produced to the First EGM and marked “B” and initialed by the chairman of the First EGM for the purpose of identification, and the transactions contemplated thereby be and are hereby approved; and
(b) any one or more directors of the Company be and are hereby authorised to do all such acts and things as they consider necessary or expedient for the purposes of giving effect to the Master Sales Agreement and the transactions contemplated thereby.”

By order of the Board CT Holdings (International) Limited Wu Sin Wah, Eva Executive Director

The English name is provided for identification purpose only

Hong Kong, 28 March 2011

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: Suites 2301-2, 23rd Floor Tower Two, Nina Tower 8 Yeung Uk Road Tsuen Wan New Territories Hong Kong

– EGM-2 –

NOTICE OF THE FIRST EGM

Notes:

A member entitled to attend and vote at the First EGM is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.
Completion and return of the form of proxy will not preclude a member of the Company from attending in person and voting at the First EGM or any adjournment thereof should he/she/it so wish.

– EGM-3 –

NOTICE OF THE SECOND EGM

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CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1008)

NOTICE OF SECOND EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Second EGM ”) of CT Holdings (International) Limited (the “ Company ”) will be held at Sportful Garden Restaurant, Shop No. 312, 3rd Floor, Nina Tower, 8 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong on Wednesday, 20 April 2011 at 11:00 a.m. for the purposes of considering and, if thought fit, passing with or without amendments, the following resolution of the Company:

SPECIAL RESOLUTION

“ THAT subject to and conditional upon: (i) the acquisition of one ordinary share of US$1.00 in the issued share capital of Brilliant Circle Holdings International Limited having completed in accordance with the terms and conditions under the sale and purchase agreement entered into among the Company, CT Management Investments Limited and Mr. Tsoi Tak dated 29 December 2010 (as supplemented on 25 March 2011); and (ii) the relevant approval of the Registrar of Companies in the Cayman Islands being obtained, the name of the Company be and is hereby changed from “CT Holdings (International) Limited (詩天控股（國際）有限公司)” to “Brilliant Circle Holdings International Limited (貴聯控股國際有限公司)” save that if the approval for the use of the new Chinese name 貴聯控股國際有限公司 is not granted, such new Chinese name shall be adopted as a business name for identification purpose only, and that the Directors be and are hereby authorised to do all such acts, deeds and things and execute all documents they consider necessary or expedient to give effect to the aforesaid change of name of the Company.”

By order of the Board CT Holdings (International) Limited Wu Sin Wah, Eva

Executive Director

Hong Kong, 28 March 2011

– EGM-4 –

NOTICE OF THE SECOND EGM

Registered office: Head office and principal place of Cricket Square business in Hong Kong: Hutchins Drive Suites 2301-2, 23rd Floor P.O. Box 2681 Tower Two, Nina Tower Grand Cayman KY1-1111 8 Yeung Uk Road Cayman Islands Tsuen Wan New Territories Hong Kong

Notes:

A member entitled to attend and vote at the Second EGM is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.
Completion and return of the form of proxy will not preclude a member of the Company from attending in person and voting at the Second EGM or any adjournment thereof should he/she/it so wish.

– EGM-5 –

AI assistant

Litu Holdings Limited — Proxy Solicitation & Information Statement 2011

49624_rns_2011-03-27_9f47d80a-38cc-4561-a0b0-2bad46939b98.pdf

CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

DEFINITIONS

CT HOLDINGS (INTERNATIONAL) LIMITED 詩天控股（國際）有限公司

(Stock code: 1008)

INTRODUCTION

THE ACQUISITION AGREEMENT

Date

Parties

Assets to be acquired

Consideration of the Acquisition

Consideration Shares

Application for listing

Issue price of the Consideration Shares

Basis of the consideration of the Acquisition

LETTER FROM THE BOARD

Conditions precedent

Declaration of dividend of the Target prior to Acquisition Completion

Provision of the Corporate Guarantee

Completion

THE PLACING DOWN ARRANGEMENTS

Background

The First Placing Down Agreement

Date

Parties

Subject of the transaction

Consideration for the First Placee’s Placing Down Shares

Conditions precedent

Completion

Profit Undertaking

Right of appointment of director

Restrictive actions

Other Placee’s Placing Down Shares

The PG Placing Down Agreement

The YF Placing Down Agreement

The PG Placing Down Agreement

The YF Placing Down Agreement

Further Placing Down Agreement

EFFECTS ON SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP AND ITS ASSOCIATED COMPANY

Business of the Target Group

Group structure

History and development

Competitive advantages

Well established production facilities

Experienced management team

Established business relationship with customers

Product quality

Information on the operating companies of the Target Group

BB Jinhuangshan

SZ Kecai

LETTER FROM THE BOARD

XF Jinfeihuan

ZT Antong

CD Goldroc

Products and customers

Raw materials and suppliers

LETTER FROM THE BOARD

Production

Production facility and capacity

LETTER FROM THE BOARD

Machinery and equipment

Production process

Offset Printing – Ink is transferred indirectly via printing plate and rubber blanket to paper

Screen Printing – Ink is transferred directly onto paper through a mesh screen

Quality control

Sales and marketing

Management and staff

Remuneration

Relationship with staff

Research and development

Patents

Competition

Awards and certifications

Environmental protection

Safety matters

Financial information of the Target Group

Litu Holdings Limited Proxy Solicitation & Information Statement 2011