Mao Geping Cosmetics Co., Ltd. — Proxy Solicitation & Information Statement 2004

Oct 12, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you are in any 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 in SCMP Group Limited, you should at once hand this circular and the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

**SCMP Group Limited SCMP ***

(Incorporated in Bermuda with limited liability)

(Stock Code: 583)

MAJOR TRANSACTION

Sale of certain assets relating to the “Daily Stop” convenience store retail business carried on in Hong Kong

A notice convening the SGM (as defined herein) to be held at The Chater Room I-III, Level B1, The Ritz Carlton Hong Kong, No. 3 Connaught Road Central, Hong Kong on Thursday, 28 October 2004 at 11:00 a.m. is set out on pages 62 to 63 of this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of SCMP Group Limited in Hong Kong, Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (or any adjourned meeting thereof) should you so wish.

* For identification purpose only.

12 October 2004

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2. The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
3. Financial effects of the Disposal on the SCMP Group . . . . . . . . . . . . . . . .	11
4. Reasons for the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
5. Major transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
6. SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
7. General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
8. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
9. Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
APPENDIX I – FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .	15
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .	56
APPENDIX III – NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . .	62
APPENDIX IV – RIGHT TO DEMAND A POLL . . . . . . . . . . . . . . . . . . . . .	64

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DEFINITIONS

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

• “ Agreement ” the conditional sale and purchase agreement dated 13 September 2004 entered into between the Vendor and the Purchaser in relation to, among other things, the disposal by the Vendor of the Assets;

• “ Announcement ” the announcement of SCMP dated 15 September 2004 in respect of the Disposal;

• “ Assets ” the assets of the Vendor relating to the Business as described in the paragraph headed “The Agreement” of this circular;

• “ Board ” the board of Directors;

• “ Business ” the convenience store retail business presently carried on in Hong Kong by the Vendor at the Stores under the name “Daily Stop” or “ ”;

• “ Bye-laws ” the Bye-laws of SCMP as amended, supplemented or modified from time to time;

• “ Completion ” the completion of the sale by the Vendor and the purchase by the Purchaser of the Assets in accordance with the terms of the Agreement;

• “ Completion Date ” the date of Completion, which shall be a date which is no later than 30 November 2004 (unless otherwise agreed in writing by the Vendor and the Purchaser);

• “ Conditions ” the conditions precedent to Completion as described in the paragraph headed “Conditions” of this circular and “ Condition ” shall mean any of them;

• “ Consideration ” the consideration for the Disposal, being the aggregate amount of HK$105.0 million (subject to adjustment);

• “ Deposit ” the sum of HK$10.5 million which has been paid by the Purchaser in cash by way of deposit and which is held in escrow by the Vendor’s solicitors;

• “ Directors ” the directors of SCMP;

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DEFINITIONS

“ Disposal ”

the sale by the Vendor, and the purchase by the Purchaser, of the Assets and the other matters contemplated by the Agreement;

“ Excluded Stock ”

the following stock of the Business which has been agreed to be excluded from the Assets to be sold to the Purchaser pursuant to the Agreement:

• (a) all damaged stock;

• (b) stock, except for dairy products, batteries, film and medicinal items, that is less than 2 months from its expiry date;

• (c) batteries, film and medicinal items with an expiry date that is less than 3 months from its expiry date;

• (d) dairy products that are less than 7 days from their respective expiry dates;

• (e) newspapers which are not the current day’s edition; and

• (f) magazines which are not editions of the preceding week, current week, preceding month or current month (as the case may be);

• “ HK$ ”

Hong Kong dollars, the lawful currency of Hong Kong;

• “ Hong Kong ” Hong Kong Special Administrative Region of the People’s Republic of China;

• “ Latest Practicable Date ” 7 October 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;

• “ Leases ” the leases, tenancy agreements, offer letters or other documents granted or agreed to be granted to the Vendor or pursuant to which the Vendor holds or occupies the Stores which are subsisting at Completion;

• “ Lessors ” the parties who granted the Leases to the Vendor, being MTR Corporation Limited, Kowloon-Canton Railway Corporation, the Housing Authority as well as the owners of various shopping arcades;

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DEFINITIONS

• “ Listing Rules ”

the Rules Governing the Listing of Securities on the Stock Exchange for the time being in force;

• “ Long Stop Date ”

31 December 2004 (or such other date as the Vendor and the Purchaser may mutually agree in writing);

• “ Purchaser ”

The Dairy Farm Company, Limited, a company incorporated in Hong Kong with limited liability;

• “ Retention Fund ” the sum of HK$5.0 million;

• “ SCMP ”

SCMP Group Limited (SCMP *), a company incorporated in Bermuda, the shares of which are listed on the Stock Exchange;

• “ SCMP Group ” SCMP and its subsidiaries;

• “ SCMP Publishers ”

“ SCMP Publishers ” South China Morning Post Publishers Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SCMP; “ SFO ” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);

• “ SGM ”

• the special general meeting of SCMP to be convened for the purpose of considering and (if appropriate) approving the Disposal;

• “ Share(s) ” ordinary shares of HK$0.10 each in the capital of SCMP;

• “ Shareholder(s) ” registered holder(s) of Share(s);

• “ Stock Exchange ” The Stock Exchange of Hong Kong Limited;

• “ Stores ”

the stores relating to the Business which are operated by the Vendor and/or held or occupied by the Vendor pursuant to the Leases and those which are operated by the franchisees of the Business which are agreed by the Vendor and the Purchaser to be transferred to the Purchaser pursuant to the terms and subject to the conditions of the Agreement, and “ Store ” shall mean any one of them;

* For identification purpose only.

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DEFINITIONS

“ Vendor ” SCMP Retailing (HK) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SCMP; “ Warranties ” the representations, warranties and undertakings given by the Vendor contained or referred to in the Agreement; “ Warranty Period ” the period of 9 months from the Completion Date.

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LETTER FROM THE BOARD

**SCMP Group Limited SCMP ***

(Incorporated in Bermuda with limited liability)

(Stock Code: 583)

Directors:

• Mr. Kuok Khoon Ean (Chairman)

• Mr. Roberto V. Ongpin (Deputy Chairman)

• Mr. Ronald J. Arculli[#]

• Tan Sri Dr. Khoo Kay Peng

Registered office:

Canon’s Court 22 Victoria Street Hamilton, HM 12 Bermuda

• Ms. Kuok Hui Kwong

• Mr. Peter Lee Ting Chang[#]

• Dr. The Hon. David Li Kwok Po[#]

• Mr. Robert Ng Chee Siong

• # Independent Non-Executive Director

Head office and principal

place of business: Morning Post Centre 22 Dai Fat Street Tai Po Industrial Estate New Territories Hong Kong

12 October 2004

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION

Sale of certain assets relating to the “Daily Stop” convenience store retail business carried on in Hong Kong

1. INTRODUCTION

On 15 September 2004, the Board announced that the Vendor, a wholly-owned subsidiary of SCMP, entered into the Agreement with the Purchaser on 13 September 2004 in relation to the sale of the Assets for an aggregate consideration of HK$105.0 million (subject to adjustments).

The purpose of this circular is to provide Shareholders with further details of the Disposal and to give you notice of the SGM.

* For identification purpose only.

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LETTER FROM THE BOARD

2. THE AGREEMENT

Details of the Agreement are set out below:

Date

13 September 2004

Parties

Vendor: SCMP Retailing (HK) Limited Purchaser: The Dairy Farm Company, Limited

To the best of the Directors’ information, knowledge and belief, having made all reasonable enquiries, the Purchaser and its ultimate beneficial owner(s) are third parties independent of and are not connected with SCMP, the directors, chief executive or substantial shareholders of SCMP or any of its subsidiaries or any of their respective associates (as defined in the Listing Rules).

Sale

The Agreement provides for the sale by the Vendor and the purchase by the Purchaser of the Assets upon the terms and conditions contained therein.

Assets

The Assets comprise certain tangible and intangible assets relating to the Business (including, but not limited to, certain fixed assets and other assets used in connection with the Business (such as, the stock relating to the Business (other than the Excluded Stock)), the trade name, trade mark and logo “Daily Stop” and “ ”, the records relating to the Stores, the Leases, the franchise agreements which are novated to the Purchaser and certain trading and service contracts relating to the Business).

Although the Vendor has appointed franchisees to operate and manage certain Stores, the assets relating to the Business are owned by the Vendor (and not by such franchisees) and the Leases relating to the Stores operated by the franchisees are also entered into by the Vendor (and not by such franchisees). The consent of the franchisees is, however, required for the novation of the franchise agreements, and the transfer of the Stores operated by such franchisees, to the Purchaser.

Consideration for the Disposal

The Consideration for the sale and purchase of the Assets is HK$105.0 million (subject to adjustments as described below), comprising the Deposit, the sum of HK$89.5 million which will be paid by the Purchaser in cash upon Completion and the Retention Fund, which will be paid in the manner described in the paragraph headed “Retention Fund” below.

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LETTER FROM THE BOARD

If Completion does not take place on or before 30 November 2004 (or such other date as the parties may agree in writing) solely as a result of the non-fulfillment of the Condition set out in sub-paragraph (b) of the paragraph headed “Conditions” below, the Deposit together with all interests accrued thereon shall be released by the escrow agent to the Purchaser. If Completion does not take place on or before 30 November 2004 (or such other date as the parties may agree in writing) for any other reason, the Vendor shall be entitled to retain the Deposit together with all interests accrued thereon.

The Consideration has been agreed after arm’s length negotiations between the parties taking into consideration of the number, size and location of Stores through which the Business is being conducted, the value of the related Assets (including, among other things, the expected book value of the fixed assets and of the stock relating to the Business (other than the Excluded Stock) at Completion) and the agreed value of each Store, which was agreed by the parties after arm’s length negotiations (having regard to the size and location of the relevant Store). Based on the information currently available, it is expected that the number of Stores through which the Business will be conducted at the time of Completion will be 86.

The Consideration shall be adjusted by deducting therefrom:

• (1) the pre-agreed value of any Store (as set out in the Agreement) the possession of which has not been handed over at Completion;

• (2) any shortfall in the aggregate book value of the stock to which the Disposal relates (as at the date of handover of the relevant Store) and calculated on bases agreed by the parties (being the Vendor’s purchase cost for such relevant items of stock as of 31 July 2004 less an average suppliers’ rebate rate (as set out in the Agreement)) and which will be determined in accordance with the joint stock verification exercises described in the paragraph headed “Retention Fund” below) below the sum of HK$10.0 million, which is further described in the paragraph headed “Retention Fund” below; and

• (3) the book value of any fixed assets (as at the date of handover of the relevant Store) which are missing and cannot be accounted for at any location or which are not in working order or repair (calculated on bases agreed by the parties and as set out in the Agreement), which is described in greater detail in the paragraph headed “Retention Fund” below,

provided that, in respect of the Stores handed over after Completion but on or before the Long Stop Date, the Purchaser shall pay the relevant portion of the Consideration related thereto (as calculated by reference to the pre-agreed value for the relevant Store) to the Vendor on the relevant completion date relating to that Store.

Conditions

Completion of the Agreement is subject to and conditional upon:

• (a) the Warranties remaining true and accurate in all material respects and not misleading in any material respect as at the date of the Agreement and as at Completion;

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LETTER FROM THE BOARD

• (b) the approval of the terms of the Agreement by the Shareholders in a duly convened special general meeting of SCMP having being obtained;

• (c) the assignment or novation of the existing Leases from the Vendor to the Purchaser or the entry into new leases or offer letters by the Lessors and the Purchaser in place of such Leases or the written consent of the relevant Lessors in respect of the foregoing being obtained in respect of the agreed minimum number of Stores (described in paragraph (d) below); and

• (d) at least the agreed minimum number of Stores being handed over to the Purchaser on Completion.

The Purchaser may waive all or any of the Conditions set out in paragraphs (a), (c) and (d) above at any time by notice in writing.

If the Conditions set out in paragraphs (a), (c) and (d) are not fulfilled or waived by the Purchaser by 30 November 2004 (or such other date as the parties may agree in writing), the Purchaser may, among other things, rescind the Agreement.

Completion

Completion shall take place at 11:00 a.m. on the 7th day following the date of the written notice of Completion, which shall be issued by the Vendor to the Purchaser as soon as possible after the Conditions set out in sub-paragraphs (b) and (c) of the paragraph headed “Conditions” above have been fulfilled or (in the case of the Condition set out in sub-paragraph (c) of the paragraph headed “Conditions” above) waived by the Purchaser, or at such other time as the parties may agree in writing. In the event that such 7th day shall fall on a day that is not a business day, then Completion shall take place on the first business day immediately following such 7th day.

In the event that either party is unable to comply with its Completion obligation, the party not in breach has the right to rescind the Agreement.

In the event that the Agreement is rescinded, the provisions of the Agreement will have no effect and no party shall have any liability under it (without prejudice to the rights of any party in respect of antecedent breaches), save that the Purchaser shall, among other things, provide all reasonable assistance to the Vendor to unwind transactions effected in connection with the proposed assignment or novation of the Leases or the entry into new leases or offer letters to replace such Leases and comply with its confidentiality provisions under the Agreement and save for certain provisions in respect of the payment of the Deposit (which is described in greater detail in the paragraph headed “Consideration for the Disposal” above) and certain indemnities and warranties given by the Purchaser to the Vendor under the Agreement.

If there is any waiver or non-fulfillment of the Conditions or if either party rescinds the Agreement or any material adjustment is made to the Consideration after Completion, SCMP will make a further announcement as and when appropriate.

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LETTER FROM THE BOARD

Retention Fund

The Retention Fund will be retained by the Purchaser for Warranty Period as retention money. The Vendor and the Purchaser will conduct joint stock take verification exercises in respect of all the stock to which the Disposal relates. The Vendor and the Purchaser will agree a schedule to conduct such joint stock take verification exercises. The Retention Fund will be used to cover, among other things, any shortfall of the aggregate stock value in relation to all such stock (excluding Excluded Stock), as determined by joint verification exercises conducted by the parties on bases agreed by the parties and as set out in the Agreement, below the sum of HK$10.0 million.

The parties will also conduct joint fixed asset verification exercises after Completion and after the handover of Stores post-Completion (i.e., after Completion but on or before the Long Stop Date). The Vendor and the Purchaser will agree a schedule to conduct such joint fixed asset verification exercises. If there is any fixed asset which is missing and cannot be accounted for at any location or which is not in working order (as determined by the joint verification exercise conducted by the parties), the Retention Fund will also be used to cover the book value of such fixed assets as at the date of handover of the relevant Store (calculated on bases agreed by the parties and as set out in the Agreement).

In addition, deduction may also be made from the Retention Fund in respect of any sums payable by the Vendor to the Purchaser in respect of successful and agreed warranty claims made by the Purchaser against the Vendor during the Warranty Period. Within 3 days of the expiry of the Warranty Period, the Retention Fund or the remaining balance thereof shall be paid by the Purchaser to the Vendor, subject to certain agreed deductions for unsettled warranty claims. In the event that the amount so deducted for unsettled warranty claims shall exceed the aggregate amount finally adjudicated or agreed as being payable in respect of the same, an amount equal to such excess shall be paid to the Vendor upon final settlement of such claims.

Other Material Aspects of the Disposal

As a term of the Agreement, the Purchaser has requested SCMP to give certain confidentiality, non-compete and non-solicitation undertakings to the Purchaser at the time of Completion. The confidentiality undertaking, which relates to confidential information relating to the Assets, the Business or the Agreement, has no fixed term and is subject to certain exceptions including (i) any information properly available to the public or disclosed pursuant to an order of a court of competent jurisdiction, (ii) the disclosure of information in the course of carrying on the business of the SCMP Group, (iii) the disclosure of information as required by law or by any authority or any supervisory or regulatory or governmental body and (iv) the disclosure of information to the SCMP Group’s professional advisers, employees and officers. The non-compete undertaking, which is for five years from the date of Completion, will provide that no member of the SCMP Group will directly or indirectly be engaged or interested in a competing business, save that: (a) they may hold up to 10% of the issued shares or debentures of any competing business whose securities are listed on a recognised stock

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LETTER FROM THE BOARD

exchange; (b) they may continue to carry on businesses which they carry on as at the date of Completion; and (c) the Vendor may continue to carry on the Business at the Stores which are not handed over to the Purchaser at Completion prior to the handover date of such Store or the Long Stop Date (whichever is the earlier). The non-solicitation undertaking is for two years from the date of Completion and is in respect of suppliers, clients, representatives, agents or correspondents of the Vendor in connection with the Business and employees of the Business who take up employment with the Purchaser.

In respect of Stores which are not handed over to the Purchaser at Completion, the Purchaser will:

• (i) supply stock to any such Store, if so requested by the Vendor, from the Completion Date until the earlier of the date of hand over of such Store or the Long Stop Date pursuant to the terms of the Stock Supply Agreement (as defined in the Agreement). This will facilitate the continued operations of the Stores which are not handed over to the Purchaser at Completion; and

• (ii) grant to the Vendor a non-exclusive, non-assignable, royalty free licence for the use of the trade name, trade mark and logo “Daily Stop” and “ ” in Hong Kong during the period from the Completion Date until the end of 3 months after the Long Stop Date.

The Vendor will continue to operate such Stores under the “Daily Stop” trade name until the handover date of the relevant Store or the Long Stop Date (whichever is the earlier). In the event that there is any Store which is not handed over to the Purchaser on or before the Long Stop Date, the Vendor will cease to conduct the convenience store retail business under the “Daily Stop” trade name at such Store.

In addition to the Agreement, the Purchaser has also undertaken to enter into:

• (1) an agreement with effect from Completion until the expiry of a period of 3 years after the Long Stop Date with SCMP Publishers pursuant to which SCMP Publishers shall be entitled to use at no consideration the top shelf newspaper rack position and to have the exclusive right to display header cards above such top shelf newspaper rack at all of the Stores transferred to the Purchaser pursuant to the Agreement; and

• (2) a one-year agreement with SCMP Publishers which agreement will become effective from the date on which the current agreement between SCMP Publishers and the Purchaser, which was entered into prior to the date of the Agreement, expires (i.e., 15 August 2005), pursuant to which SCMP Publishers shall, in consideration of an annual fee of approximately HK$1.1 million, be entitled to use the top shelf newspaper rack position and to have the exclusive right to display header cards above the top shelf newspaper rack at all of the Purchaser’s 7-Eleven convenience stores in Hong Kong (excluding, the Stores) from time to time,

in each case, subject to the terms and conditions set out in such agreements.

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LETTER FROM THE BOARD

Terms of the Agreement

The terms of the Agreement were arrived at after arm’s length negotiations between the parties, and, taking into consideration of the factors described in the paragraph headed “Reasons for the Disposal” below, the Directors consider that the terms of the transaction (including, the giving of the confidentiality, non-compete and non-solicitation undertakings to the Purchaser at the time of Completion as described in the first sub-paragraph under the paragraph headed “Other material aspects of the Disposal” above) are fair and reasonable and are in the interests of SCMP and the Shareholders as a whole.

3. FINANCIAL EFFECTS OF THE DISPOSAL ON THE SCMP GROUP

The unaudited net loss both before and after taxation and extraordinary items of the Vendor which is attributable to the Business for the six months ended 30 June 2004 was approximately HK$0.5 million. The unaudited net loss both before and after taxation and extraordinary items of the Vendor which is attributable to the Business for the financial year ended 31 December 2003 was approximately HK$1.3 million. (The unaudited net loss both before and after taxation and extraordinary items of the Vendor which is attributable to the Business for the six months ended 30 June 2004 and for the financial year ended 31 December 2003 was the same as no tax was payable in respect of such six-month period or that financial year (as the case may be) due to the net loss position of the Vendor nor were there any extraordinary items of the Vendor which were attributable to the Business for the same period.) The unaudited net profit before and after taxation and extraordinary items of the Vendor which is attributable to the Business for the financial year ended 31 December 2002 were approximately HK$1.0 million and HK$1.3 million, respectively.

The unaudited turnover of the Business for the financial years ended 31 December 2003 and 2002 was approximately HK$379.9 million and approximately HK$362.0 million, respectively. The unaudited turnover of the Business for the six months ended 30 June 2004 and for the six months ended 30 June 2003 was approximately HK$197.6 million and approximately HK$184.2 million, respectively.

The unaudited net asset value of the Business as at 31 December 2003 and as at 31 December 2002 was approximately HK$9.4 million and approximately HK$14.0 million, respectively. The unaudited net asset value of the Business as at 30 June 2004 and as at 30 June 2003 was approximately HK$8.9 million and approximately HK$8.6 million, respectively.

The financial information relating to the Business as set out in this section headed “Financial effects of the Disposal on the SCMP Group” is based on the unaudited management accounts of the Vendor. The information relating to the Business has been provided on an unaudited basis since the audited accounts of the Vendor for such financial periods related to the entire operation of the Vendor, which comprised the Business as well as the health product retail chain, Health Plus, which was disposed of by the Vendor in June 2003 to a party which, insofar as the Directors are aware, is not related to the Purchaser or its ultimate beneficial owner(s).

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LETTER FROM THE BOARD

The effect of the Disposal on the earnings of the SCMP Group, will be a gain (net of expenses) of approximately HK$76.0 million, assuming that there is no material adjustment to the Consideration as described in the paragraph headed “Consideration for the Disposal” above. Such gain is calculated with reference to the unaudited net book value of the Assets of approximately HK$23.0 million based on the unaudited management accounts of the Vendor as at 31 July 2004. The actual gain for the Vendor resulting from the Disposal will be determined at the date of handover of the last Store and the amount may be different from that as shown above. In addition, in view of the continuing losses of the Business, it is anticipated that there will be a positive financial effect on the earnings of the SCMP Group after the Disposal.

The effect of the Disposal on the assets and liabilities of the SCMP Group includes:

• (1) an increase in current assets of approximately HK$83.9 million, representing the increase in cash of approximately HK$99.0 million received as the Consideration (net of expenses) and a decrease in inventories of approximately HK$15.1 million; and

• (2) a decrease in non-current assets of approximately HK$7.9 million, representing intangible assets and fixed assets of approximately HK$1.1 million and approximately HK$6.8 million, respectively.

The effect of the Disposal described under items (1) and (2) above is calculated with reference to the unaudited net book value of the Assets of approximately HK$23.0 million based on the unaudited management accounts of the Vendor as at 31 July 2004. The actual effect for the Vendor resulting from the Disposal will be determined at the date of handover of the last Store and the amount may be different from that as shown above.

4. REASONS FOR THE DISPOSAL

The Directors are of the view that the Disposal represents a good opportunity for the Vendor to dispose of the Assets and to realise a reasonable profit from its investment in the Business.

The net proceeds from the Disposal will be used for general working capital purposes.

5. MAJOR TRANSACTION

The Disposal constitutes a major transaction of SCMP pursuant to Chapter 14 of the Listing Rules and is therefore subject to compliance with the relevant requirements of the Listing Rules, including the approval by the Shareholders at a general meeting.

To the best of the Directors’ information, knowledge and belief, having made all reasonable enquiries, no Shareholder or its associates (as defined in the Listing Rules) has a material interest in relation to the Disposal for purposes of Rule 2.15 of the Listing Rules, and that, accordingly, no Shareholder will be required to abstain from voting on the matter at the SGM.

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LETTER FROM THE BOARD

6. SGM

A notice convening the SGM (as defined herein) to be held at The Chater Room I-III, Level B1, The Ritz Carlton Hong Kong, No. 3 Connaught Road Central, Hong Kong on Thursday, 28 October 2004 at 11:00 a.m. is set out on pages 62 to 63 of this circular. Whether or not you are able to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of SCMP in Hong Kong, Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (or any adjourned meeting thereof) should you so wish.

Your right to demand a poll on the proposed ordinary resolution at the SGM is set out in Appendix IV to this circular.

7. GENERAL INFORMATION

The SCMP Group is engaged principally in newspaper and magazine publishing. In addition, the SCMP Group also engages in the Business through the Vendor, which is a wholly-owned subsidiary of SCMP, a business which it will cease to engage in after completion of the Disposal, and book publishing, video and film post-production, property investment and entertainment business. The SCMP Group publishes and distributes South China Morning Post , Sunday Morning Post and leading Chinese editions of international magazine titles in Hong Kong. For the six months ended 30 June 2004, the SCMP Group reported unaudited consolidated turnover of approximately HK$697.6 million and unaudited consolidated net profit of approximately HK$111.4 million.

During the same period, the SCMP Group’s publishing business accounted for approximately 67% of its consolidated turnover and approximately 93% of operating profits.

The Purchaser is a wholly-owned subsidiary of Dairy Farm International Holdings Limited, a company which has its primary listing on the London Stock Exchange, and secondary listings on the Singapore and Bermuda stock exchanges. Based on the information supplied by the Purchaser, the principal businesses of Dairy Farm International Holdings Limited and its associates (including the Purchaser) include the operation of retail outlets, supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishing stores, and restaurants.

8. RECOMMENDATION

Having considered the reasons set out herein, the Directors are of the opinion that the terms of the Disposal are fair and reasonable and the Disposal is in the interests of SCMP and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution to be put forward at the SGM.

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LETTER FROM THE BOARD

9. ADDITIONAL INFORMATION

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

Yours faithfully,

For and on behalf of the Board SCMP Group Limited Kuok Khoon Ean

Chairman

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FINANCIAL INFORMATION

APPENDIX I

Terms defined in this Appendix I are only applicable to this Appendix I. References to the “Company” and the “Group” in this Appendix I refer to “SCMP” and the “SCMP Group”, respectively.

1. SUMMARY OF AUDITED FINANCIAL INFORMATION

The financial information set out below is copied from pages 44 to 76 of the annual report of SCMP for the financial year ended 31 December 2003. All information in Part 1 of this Appendix I should be read in conjunction with the audited accounts which are included in the annual report of SCMP for the financial year ended 31 December 2003.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31 December 2003

Notes Turnover 4 Other revenue 4 Staff costs 5 Cost of production materials/sales Rental and utilities Depreciation and amortisation 5 Advertising and promotion Other operating expenses Deficit on revaluation of investment properties Loss on disposal of investments in associates Loss on disposal of long-term investment shares Provision for asset impairment Gain on disposal of subsidiaries Profit from Operating Activities 5 Finance costs 6 Operating Profit Share of profits less losses of associates Share of loss of a jointly controlled entity Profit before Taxation Taxation 8 & 2(b)(iv) Profit after Taxation Minority interests 2(b)(iv) Profit Attributable to Shareholders 9, 25 & 2(b)(iv) Dividend Distributions 10 Earnings per share 11 Basic Diluted	2003 HK$’000 1,279,996 4,091 (368,799) (410,416) (83,456) (83,261) (15,259) (153,117) (1,110,217) (112,046) (2,612) (2,267) (780) 600 (117,105) 52,674 (5,194) 47,480 3,981 (4,048) 47,413 (41,674) 5,739 (3,977) 1,762 93,657 0.11 cents N/A	2002 (Restated) HK$’000 1,364,925 8,739 (417,177) (427,582) (97,973) (78,996) (31,465) (133,979) (1,178,433) (75,061) – – – 25,136 (49,925) 136,567 (1,097) 135,470 4,952 (5,624) 134,798 (22,654) 112,144 (3,378) 108,766 124,876 6.38 cents N/A

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FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2003

Notes At 1 January As previously stated Changes in accounting policies 25 As restated Surplus/(deficit) on revaluation of long-term investment shares 25 Deferred taxation directly credited to reserve 25 Exchange differences on consolidation 25 Net gains/(losses) not recognised in the profit and loss account Net profit for the year 25 Investment revaluation reserve released on disposal 25 Translation reserve released on disposal 25 Dividends 2003 interim dividend distribution 25 2002 final dividend distribution 25 2002 interim dividend distribution 25 Repurchase of shares Contributed surplus 25 Share capital 24 Share premium 25 At 31 December	2003 HK$’000 1,537,245 (8,491) 1,528,754 29,796 – 2,416 32,212 1,762 (1,212) 2,165 (31,219) (62,438) – – – – (90,942) 1,470,024	2002 (Restated) HK$’000 2,150,075 (14,718) 2,135,357 (23,091) 8 (463) (23,546) 108,766 6 – – – (62,438) (607,034) (17,343) (5,014) (583,057) 1,528,754

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FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED BALANCE SHEET

As at 31 December 2003

Notes Non-Current Assets Intangible assets 13 Fixed assets 14 Defined benefit plan’s assets 23(a) Interests in associates 16 Interest in a jointly controlled entity 16 Long-term investment shares 17 Current Assets Inventories 18 Accounts receivable 19 Prepayments, deposits and other receivables Bank balances and deposits Current Liabilities Accounts payable and accrued liabilities 20 Taxation payable Subscriptions in advance Bank overdraft, secured Net Current Assets Total Assets Less Current Liabilities Non-Current Liabilities Minority interests 2(b)(iii) Interest-bearing bank loan, unsecured 21 Deferred taxation 22 & 2(b)(iii) Capital and Reserves Share capital 24 Reserves Proposed final dividend distribution 25	2003 HK$’000 33,172 1,347,348 27,070 37,425 7,527 128,320 1,580,862 40,618 162,182 42,994 159,804 405,598 148,292 5,817 22,931 2,814 179,854 225,744 1,806,606 9,677 230,000 96,905 336,582 1,470,024 156,095	2002 (Restated) HK$’000 14,130 1,507,475 37,858 41,875 9,375 128,523 1,739,236 43,172 155,326 49,146 138,992 386,636 169,533 1,360 16,285 – 187,178 199,458 1,938,694 8,692 310,000 91,248 409,940 1,528,754 156,095
	1,251,491 62,438	1,310,221 62,438
	1,313,929 1,470,024	1,372,659 1,528,754

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FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2003

Notes Net cash inflow from operations 29(a) Interest paid Hong Kong profits tax paid Overseas tax paid Net cash inflow from operating activities Investing Activities Additions to fixed & intangible assets Interest received Dividends received from: Listed investments Associates Purchase of additional interests in associates Purchase of additional interests in subsidiaries Purchase of a subsidiary 29(d) Purchase of long-term investment shares Proceeds from disposals of subsidiaries 29(c) Proceeds from disposals of interests in associates Proceeds from disposals of fixed assets Proceeds from disposals of long-term investment shares Decrease in bank deposits with maturity more than three months Net cash outflow from investing activities Net cash inflow before financing activities Financing Activities 29(b) Repurchase of shares (Repayment)/drawdown of bank loan Dividends paid to minority shareholder in a subsidiary Dividends paid Net cash outflow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Analysis of cash and cash equivalents Bank balances and deposits Bank overdraft	2003 HK$’000 249,944 (5,194) (29,927) (231) 214,592 (58,483) 1,543 1,231 2,306 – – (1,687) – 3,051 5,564 602 25,936 – (19,937) 194,655 – (80,000) (3,000) (93,657) (176,657) 17,998 138,992 156,990 159,804 (2,814) 156,990	2002 HK$’000 290,802 (1,097) (33,810) – 255,895 (61,740) 4,958 2,462 7,171 (42) (269) – (129) 31,724 – 115 1 1,323 (14,426) 241,469 (629,391) 310,000 (3,000) (62,438) (384,829) (143,360) 282,352 138,992 138,992 – 138,992

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FINANCIAL INFORMATION

APPENDIX I

BALANCE SHEET

As at 31 December 2003

Notes Non-Current Assets Interests in subsidiaries 15 Current Assets Bank balances and deposits Total Assets Capital and Reserves Share capital 24 Reserves Proposed final dividend distribution 25	2003 HK$’000 1,656,265 254 1,656,519 156,095 1,437,986 62,438 1,500,424 1,656,519	2002 HK$’000 1,749,922 254 1,750,176 156,095
		1,531,643 62,438
		1,594,081 1,750,176

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FINANCIAL INFORMATION

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

1. Corporate Information

The registered office of SCMP Group Limited is located at Canon’s Court, 22 Victoria Street, Hamilton, HM12 Bermuda.

The Company acted as an investment holding company during the year. The principal activities of the Group during the year comprised the publishing, printing, and distribution of the South China Morning Post , Sunday Morning Post and other print and on-line publications, retailing, video and film post-production and holding of properties for rental income purposes.

2. Restatement of the Group’s Consolidated Balance Sheet and Profit and Loss Account for the Year Ended 31 December 2002

Owing to the adoption of a revised Statement of Standard Accounting Practice (“SSAP”) issued by the Hong Kong Society of Accountants (“HKSA”) in the current reporting period as stated in note 3(a), certain figures have been restated. The changes are set out below:

(a) Deferred taxation

Up to the year ended 31 December 2002, deferred taxation was provided, using liability method, on all significant timing differences to the extent it is probable that liability will crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond doubt.

Commencing from 1 January 2003, the Group has adopted SSAP 12 (revised) “Income Taxes” whereby deferred taxation is provided for in full, using liability method, on temporary difference arising between tax bases of assets and liabilities (i.e. amounts attributed to those assets and liabilities for taxation purposes) and their carrying value in the accounts.

The adoption of SSAP 12 (revised) represents a change in accounting policy which has retrospective effect and the changes are set out below:

Changes to the consolidated balance sheet as at 31 December 2002 are:

(i) Retained profits were decreased by HK$8,313,000

(ii) Asset revaluation reserve was decreased by HK$178,000

(iii) Net assets were decreased by HK$8,491,000

Changes to the consolidated profit and loss account for the year ended 31 December 2002 are:

(iv) Taxation was decreased by HK$6,230,000

(v) Minority interest was increased by HK$11,000

(b) Summary of restatements to the Group’s consolidated balance sheet and profit and loss account for the year ended 31 December 2002:

(i) Retained profits as at 31 December 2002

Note As previously reported SSAP12 (revised) adjustment 2(a)(i) As restated	HK$’000 117,959 (8,313) 109,646

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APPENDIX I

FINANCIAL INFORMATION

(ii) Asset revaluation reserve as at 31 December 2002

Note As previously reported SSAP12 (revised) adjustment 2(a)(ii) As restated	HK$’000 1,503 (178)
	1,325

(iii) Net assets as at 31 December 2002

Note As previously reported SSAP12 (revised) adjustment 2(a)(iii) As restated	Deferred taxation HK$’000 (82,770) (8,478) (91,248)	Minority interests HK$’000 (8,679) (13) (8,692)	Total HK$’000 (91,449) (8,491)
			(99,940)

(iv) Profit attributable to shareholders for the year ended 31 December 2002

Note As previously reported SSAP12 (revised) adjustment 2(a)(iv) & (v) As restated	Taxation HK$’000 (28,884) 6,230 (22,654)	Profit Minority attributable to interests shareholders HK$’000 HK$’000 (3,367) 102,547 (11) 6,219 (3,378) 108,766	Profit Minority attributable to interests shareholders HK$’000 HK$’000 (3,367) 102,547 (11) 6,219 (3,378) 108,766
			108,766

3. Summary of Significant Accounting Policies

(a) Basis of preparation

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the HKSA. They have been prepared under the historical cost convention, except for the re-measurement of investment properties, and certain fixed assets and long-term investment shares, as further explained below.

In the current year, the Group adopted SSAP12 (revised) issued by HKSA which is effective for accounting periods commencing on or after 1 January 2003.

The comparatives have been adjusted or extended to take into account the requirements of the new accounting standard. The effect of adopting SSAP 12 (revised) is set out in the accounting policies below.

(b) Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2003. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

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

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

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FINANCIAL INFORMATION

APPENDIX I

(c) Goodwill

Goodwill arising on the acquisition of subsidiaries, associates and jointly controlled entities represents the excess of purchase consideration paid over the fair values ascribed to the identifiable assets and liabilities acquired.

Goodwill is included in intangible assets and is stated in the balance sheet at cost less accumulated amortisation and provision for impairment in value, if any. Goodwill is amortised on a straight-line basis over an estimated useful life, but not exceeding 20 years. Provision for impairment on any excess of the carrying amount of the goodwill over its estimated recoverable amount is expensed in the profit and loss account in the year in which the impairment occurs.

(d) Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(i) on the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

(ii) newspaper advertisements and other services, based on the period in which such services are rendered;

(iii)rental income, in the period in which the properties are let out and on the straight-line basis over the lease terms;

• (iv) interest income, on a time proportion basis taking into account the principal amounts outstanding and the effective interest rates applicable; and

(v) dividends, when the shareholder’s right to receive payment is established.

(e) Subsidiaries

A subsidiary is a company other than a jointly controlled entity in which the Company, directly or indirectly, controls more than half of its voting power or holds more than half of the issued share capital or controls the composition of its board of directors or has the power to govern its financial and operating policies so as to obtain benefits from its activities.

Interests in subsidiaries in the Company’s balance sheet are stated at cost less provision for impairment losses which are deemed necessary by the directors. The results of subsidiaries are accounted for by the Company on the basis of dividend received or receivable.

(f) Associates

An associate is a company, not being a subsidiary or a joint venture, in which the Group has a long-term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence in its management. The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any provisions for impairment in value which are deemed necessary by the Directors.

(g) Jointly controlled entities

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

Joint venture arrangements which involve the establishment of a separate entity in which the Group and other parties have an interest are referred to as jointly controlled entities. A jointly controlled entity is a joint venture which involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The jointly controlled entity operates in the same way as other enterprises, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

The Group’s share of the post acquisition results and reserves of the jointly controlled entity is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in a jointly controlled entity are stated in the consolidated balance sheet at the Group’s share of net assets of the jointly controlled entity under the equity method of accounting less any provisions for impairment in value which are deemed necessary by the Directors.

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FINANCIAL INFORMATION

APPENDIX I

(h) Intangible assets

(i) Publishing titles

Publishing titles are stated at cost less accumulated amortisation and provision for impairment in value, if any. The Group’s publishing titles are amortised on a straight-line basis over ten years, taking into account the rapid change in the business environment and other factors.

(ii) Software cost

Software costs are stated at cost less accumulated amortisation. Software cost comprises purchase price and any costs incurred to bring the asset in use. Software costs are amortised on a straight-line basis over their estimated useful lives. Other software costs that do not meet the above criteria are accounted for in the profit and loss account in the period incurred.

(i) Investment properties

Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are intended to be held on a long term basis for their investment potential.

Investment properties held under leases with unexpired periods of 20 years or less are depreciated over the unexpired terms of the leases.

Investment properties held under leases with unexpired periods greater than 20 years are stated at open market values on the basis of annual professional valuations performed at the end of each financial year. Changes in the values of investment properties are dealt with as movements in the investment property revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on a portfolio basis, the excess of the deficit is charged to the profit and loss account. Any subsequent revaluation surplus is credited to the profit and loss account to the extent of the deficit previously charged.

On disposal of an investment property, the relevant portion of the investment property revaluation reserve realised in respect of previous valuations is released to the profit and loss account.

(j) Fixed assets and depreciation

Fixed assets, other than investment properties and assets in progress, are stated at cost or valuation less accumulated depreciation and accumulated impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.

Surpluses arising from the revaluation of fixed assets are dealt with in the asset revaluation reserve. Revaluation deficits are charged to the profit and loss account to the extent that they exceed surpluses arising previously on the individual assets. A subsequent revaluation increase is recognised as income to the extent that it reverses a revaluation deficit of the same asset previously charged to the profit and loss account.

Depreciation is provided on the straight-line method over the following estimated useful lives:

Land Over the lease term Buildings 25 to 50 years Other fixed assets 2 to 20 years

No depreciation/amortisation is provided for assets in progress.

(k) Impairment and gain or loss on sale

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that assets included in land and buildings and other fixed assets are impaired. If any such indication exists, the recoverable amount of the assets is estimated and where relevant, an impairment loss is recognised to reduce the assets to its recoverable amount. Such impairment losses are recognised in the profit and loss account except where the assets is carried at valuation and the impairment loss does not exceed the revaluation surplus for that same assets, in which case it is treated as a revaluation decrease.

The gain or loss on disposal of a fixed asset other than investment properties is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account. Any revaluation reserve balance remaining attributable to the relevant asset is transferred to retained earnings and is shown as a movement in reserves.

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FINANCIAL INFORMATION

APPENDIX I

(l) Long-term investment shares

Long-term investment shares, which represent share investments not held for trading purposes, are carried at their fair values. The unrealised gain or loss so arising is recognised directly in equity, as a movement in the investment revaluation reserve, until the investment is sold or otherwise disposed of, or until the investment is determined to be impaired, as deemed necessary by the Directors, at which time the cumulative unrealised gain or loss is included in the net profit or loss for the year.

(m)Inventories

Inventories are stated at the lower of cost and net realisable value after making due allowance for any obsolete or slow-moving items. Costs of inventories are stated at weighted average cost and in the case of work in progress and finished goods, comprise direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

(n) Deferred taxation

Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts.

Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation.

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

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

As detailed in note 25 to the accounts, opening retained earnings at 1 January 2002 and 2003 have been reduced by HK$14,532,000 and HK$8,313,000 respectively, which represent the addition net deferred tax liabilities required by the SSAP 12 (revised). This change has resulted in an increase in deferred tax liabilities and minority interests by HK$8,478,000 and HK$13,000 respectively, and the reduction in asset revaluation reserve by HK$178,000 as at 31 December 2002. The profit for the year ended 31 December 2002 has been increased by HK$6,219,000.

(o) Foreign currencies

The Group’s financial records are maintained and the financial statements are stated in Hong Kong dollars.

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable market rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of subsidiaries, jointly controlled entities and associates denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss is translated at an average rate. The resulting translation differences are included in the translation reserve.

(p) Operating leases

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

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APPENDIX I

(q) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Employee retirement schemes

The Group operates four staff retirement schemes comprising a defined benefit pension (“DB”) scheme, a defined contribution pension (“DC”) scheme, a Mandatory Provident Fund (“MPF”) and a Top-up (“Top-up”) scheme for its employees. The assets of which are held separately from those of the Group in independently administered funds. The retirement schemes are generally funded by payments from employees and by the relevant Group companies.

Contributions to the DC, MPF and Top-up schemes are charged to the profit and loss account as incurred and the DC and Top-up schemes may be reduced by contributions forfeited by employees who leave these schemes prior to vesting fully in the contributions.

The Group’s contributions to the DB scheme are made based on the periodic recommendations of independent qualified actuaries. Pension costs are assessed using the projected unit credit method: the cost of providing pensions is charged to the profit and loss account so as to spread the regular cost over the service lives of employees in accordance with the advice of the actuaries who carry out a full valuation of the plans. The pension obligation is measured as the present value of the estimated future cash outflows by reference to market yields of Government securities which has similar terms as the related liabilities. Actuarial gains and losses are recognised over the average remaining service lives of employees. Past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested.

(iii) Equity compensation benefits

The Company has a share option scheme which is a part of remuneration policy with rewards determined based upon the performance of the Group and individual employees. When options are granted, no compensation cost is recognised. When the options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium.

(r) Accounts receivable

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

(s) Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use.

(t) Provisions and contingent liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is possible that an outflow of sources will be required to settle the obligation, and a reliable estimate of the amount can be made.

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

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

(u) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical segments as secondary reporting format. No geographical reporting format is presented as the substantial businesses are based in Hong Kong.

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FINANCIAL INFORMATION

APPENDIX I

Segment assets consist primarily of long-term investment shares, defined benefit plan’s assets, intangible assets, fixed assets, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation, deferred taxation, minority interests and bank borrowing. Capital expenditure mainly comprises additions to intangible assets (note 13) and fixed assets (note 14).

(v) Related parties

Parties are considered to be related if one party has the ability, directly or indirectly , to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

4. Turnover, Revenue and Segment Information

Turnover comprises the aggregate of advertising, circulation and distribution income of newspapers and other publications, the net invoiced amount in respect of goods sold and services rendered and gross rental income.

An analysis of Group’s turnover and other revenue for the year is as follows:

Turnover Newspapers, magazines and other publications Retailing Investment properties Video and film post-production Entertainment and education services Other revenue Dividend income from listed investments Interest income Others Total revenue	2003 HK$’000 773,830 398,620 81,401 20,208 5,937 1,279,996 1,427 1,543 1,121 4,091 1,284,087	2002 HK$’000 831,775 418,641 79,747 19,493 15,269
		1,364,925 2,462 4,958 1,319
		8,739
		1,373,664

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FINANCIAL INFORMATION

APPENDIX I

Substantially all the activities of the Group are based in Hong Kong and below is a segment information by business segments:

Year ended 31 December 2003

Turnover Segment results and operating profit Share of profits less losses of – associates – a jointly controlled entity Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to shareholders Segment assets Interests in associates Interest in a jointly controlled entity Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation Amortisation Impairment charge	Newspapers, magazines and other publications HK$’000 773,830 79,116 3,524 (4,048) 1,195,582 35,009 7,527 (98,677) 35,043 75,666 3,038 780	Retailing HK$’000 398,620 (668) 65,953 2,416 – (64,707) 6,054 3,437 – –	Investment properties HK$’000 81,401 (32,965) 647,923 – – (4,584) 1,046 5 – –	Video and film post- production HK$’000 20,208 (2,301) 457 29,613 – – (2,480) 16,464 1,009 – –	Entertainment and education services HK$’000 5,937 4,298 2,437 – – (775) 22 106 – –	Total HK$’000 1,279,996 47,480 3,981 (4,048) 47,413 (41,674) 5,739 (3,977) 1,762 1,941,508 37,425 7,527 1,986,460 (171,223) (345,213) (516,436) 58,629 80,223 3,038 780

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APPENDIX I

Year ended 31 December 2002

Turnover Segment results and operating profit Share of profits less losses of – associates – a joint controlled entity Profit before taxation Taxation Profit after taxation Minority interests Profit attributable to shareholders Segment assets Interests in associates Interest in a joint controlled entity Total assets Segment liabilities Unallocated liabilities Total liabilities Capital expenditure Depreciation Amortisation	Newspapers, magazines and other publications HK$’000 831,775 109,750 5,077 (5,624) 1,193,003 35,053 9,375 (109,414) 56,371 71,444 71	Retailing HK$’000 418,641 (1,609) – – 74,044 – – (69,526) 3,676 3,324 –	Investment properties HK$’000 Note (a) 79,747 17,197 – – 793,866 – – (3,473) 1,060 1,333 –	Video and film post- production HK$’000 19,493 (3,761) (125) – 12,246 6,822 – (2,387) 624 2,053 –	Entertainment and education services HK$’000 Note (b) 15,269 13,893 – – 1,463 – – (1,019) 9 771 –	(Restated) Total HK$’000 1,364,925 135,470 4,952 (5,624) 134,798 (22,654) 112,144 (3,378) 108,766 2,074,622 41,875 9,375 2,125,872 (185,819) (411,299) (597,118) 61,740 78,925 71

Notes:

(a) Included in operating profit is a receipt of HK$15.9 million from an investment which was written off in prior years, and a provision of HK$75 million for deficit in revaluation of the investment properties as at 31 December 2002.

(b) The Group disposed of its education business in March 2002. Included in operating profit is a gain of HK$11.2 million from the sale of the education business.

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APPENDIX I

FINANCIAL INFORMATION

5. Profit from Operating Activities

Profit from operating activities is stated after charging and crediting:

Charging Operating lease rentals on land and buildings Loss on disposal of fixed assets Deficit on revaluation of investment properties Auditors’ remuneration Depreciation on owned assets Amortisation of intangible assets Office relocation expenses Staff costs (including directors’ remuneration, as set out in note 7): Wages and salaries Pension costs – defined contribution plans Less: Forfeited contributions Net pension costs – defined contribution plans Pension costs – defined benefit plan Crediting Net rental income from investment properties Net rental income from leasehold land and buildings	Group 2003 2002 HK$’000 HK$’000 61,007 75,846 5,438 646 112,046 75,061 1,524 1,549 80,223 78,925 3,038 71 10,916 – 345,165 398,210 17,967 18,534 (4,975) (4,064) 12,992 14,470 10,642 4,497 368,799 417,177 80,802 78,200 1,435 1,435	Group 2003 2002 HK$’000 HK$’000 61,007 75,846 5,438 646 112,046 75,061 1,524 1,549 80,223 78,925 3,038 71 10,916 – 345,165 398,210 17,967 18,534 (4,975) (4,064) 12,992 14,470 10,642 4,497 368,799 417,177 80,802 78,200 1,435 1,435
		14,470 4,497
		417,177
		78,200 1,435

There were no material forfeited pension scheme contributions at the current year and prior period end to reduce contributions in future years.

6. Finance Costs

		Group
	2003	2002
	HK$’000	HK$’000
Interest on bank loans wholly repayable within two years (2002: three years)	5,194	1,097

7. Directors’ Remuneration

Fees: Executive Non-executive Other emoluments: Salaries, allowances and benefits in kind Retirement scheme contributions Bonuses paid and payable	2003 HK$’000 – 400 5,375 75 – 5,850	2002 HK$’000 – 992 6,531 85 320
		7,928

– 29 –

FINANCIAL INFORMATION

APPENDIX I

The remuneration of the above Directors fell within the following bands:

HK$Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$2,000,001 – HK$2,500,000 HK$4,000,001 – HK$4,500,000 HK$4,500,001 – HK$5,000,000	2003 5 1 – 1 – 7	2002 6 – 1 – 1
		8

Non-executive Directors volunteered to waive half of their annual directors’ fees for the year ended 31 December 2003 in support of the Company’s business which was affected by the Sars outbreak during the year. Save as aforesaid, there was no arrangement under which a Director waived or agreed to waive any remuneration in respect of the year.

Directors’ fees paid or payable to Independent Non-executive Directors during the year totalled HK$300,000 (2002: HK$600,000). There were no other emoluments paid to Non-executive Directors during the year.

On 23 September 2003, options were granted to a Director of the Company to acquire 350,000 (2002: Nil) shares of par value HK$0.10 each in the share capital of the Company at an exercise price of HK$3.90 per share under the Company’s share option scheme which was approved by shareholders on 27 October 1997 and amended with shareholders’ approval on 6 November 2000 and further amended at the annual general meeting held on 29 May 2002. The options are exercisable from 23 September 2004 to 27 October 2007. The market value per share at the date of grant was HK$3.90.

Five highest paid individuals

The five highest paid individuals during the year include one (2002: two) Director, details of whose remuneration is set out above. The details of the remuneration of the remaining four (2002: three) highest paid individuals are set out below:

Salaries, allowances and benefits in kind Retirement scheme contributions Bonuses paid and payable	2003 HK$’000 7,403 204 772 8,379	2002 HK$’000 6,582 472 995
		8,049

The remuneration of the four (2002: three) highest paid individuals fell within the following bands:

HK$2,000,001 – HK$2,500,000 HK$3,000,001 – HK$3,500,000	2003 4 – 4	2002 2 1
		3

– 30 –

APPENDIX I

FINANCIAL INFORMATION

8. Taxation

Hong Kong profits tax has been provided for at the rate of 17.5% (2002: 16%) on the estimated assessable profits for the year. In 2003, the government enacted a change in the profits tax rate from 16% to 17.5% for the fiscal year 2003/2004.

Company and subsidiaries: Hong Kong profits tax Overseas taxation Deferred taxation relating to the origination and reversal of temporary differences Deferred taxation resulting from an increase in tax rate Share of taxation attributable to: Associates Jointly controlled entity Taxation charges	Group 2003 2002 (Restated) HK$’000 HK$’000 34,427 26,235 231 – (2,881) (4,566) 8,538 – 40,315 21,669 1,337 985 22 – 41,674 22,654	Group 2003 2002 (Restated) HK$’000 HK$’000 34,427 26,235 231 – (2,881) (4,566) 8,538 – 40,315 21,669 1,337 985 22 – 41,674 22,654
		21,669 985 –
		22,654

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate applicable to the places of operation of the Company and its subsidiaries as follows:

Profit before taxation Calculated at a taxation rate of 17.5% (2002: 16%) Effect of different taxation rates in other countries Temporary difference not recognised Temporary difference recognised on undistributed profit in associates Income not subject to taxation Expenses not deductible for taxation purposes Tax losses not recognised Overprovision in prior year Utilisation of previously unrecognised tax losses Increase in opening net deferred tax liabilities resulting from an increase in tax rate Withholding tax Others Taxation charges	Group 2003 2002 HK$’000 HK$’000 47,413 134,798 8,297 21,568 (1,195) (5,116) 1,643 693 248 22 (2,337) (1,400) 24,516 13,614 5,600 2,909 (2,918) (10,205) (1,251) (572) 8,538 – 231 – 302 1,141 41,674 22,654	Group 2003 2002 HK$’000 HK$’000 47,413 134,798 8,297 21,568 (1,195) (5,116) 1,643 693 248 22 (2,337) (1,400) 24,516 13,614 5,600 2,909 (2,918) (10,205) (1,251) (572) 8,538 – 231 – 302 1,141 41,674 22,654
		21,568 (5,116) 693 22 (1,400) 13,614 2,909 (10,205) (572) – – 1,141
		22,654

9. Profit Attributable to Shareholders

The profit of HK$1,762,000 (2002 Restated: HK$108,766,000) attributable to shareholders included no profit and loss (2002: profit of HK$19,323,000) dealt with in the Company’s own accounts.

10. Dividend Distributions

Interim dividend distribution, HK2 cents per share (2002: HK4 cents) Proposed final dividend distribution, HK4 cents per share (2002: HK4 cents)	Group and Company 2003 2002 HK$’000 HK$’000 31,219 62,438 62,438 62,438 93,657 124,876	Group and Company 2003 2002 HK$’000 HK$’000 31,219 62,438 62,438 62,438 93,657 124,876
		124,876

– 31 –

FINANCIAL INFORMATION

APPENDIX I

11. Earnings per Share

The calculation of basic earnings per share is based on the profit for the year attributable to shareholders of HK$1,762,000 (2002 Restated: HK$108,766,000) and the weighted average of 1,560,945,596 (2002: 1,704,448,053) shares in issue during the year.

The diluted earnings per share for the year is not shown as there was no dilution effect.

12. Goodwill

Group Cost At 1 January 2003 Addition At 31 December 2003 Accumulated amortisation and provision for impairment At 1 January 2003 Amortisation and provision for impairment At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002	HK$’000 610,033 1,670
	611,703
	610,033 1,670
	611,703
	–
	–

13. Intangible Assets

Group Cost At 1 January 2003 Additions Reclassification At 31 December 2003 Accumulated amortisation At 1 January 2003 Provided during the year At 31 December 2003 Net book value At 31 December 2003 At 31 December 2002	Publishing titles HK$’000 1,820,000 – – 1,820,000 1,820,000 – 1,820,000 – –	Software costs HK$’000 4,250 3,987 15,791 24,028 71 1,368 1,439 22,589 4,179	Assets in progress HK$’000 9,951 16,423 (15,791) 10,583 – – – 10,583 9,951	Total HK$’000 1,834,201 20,410 –
				1,854,611
				1,820,071 1,368
				1,821,439
				33,172
				14,130

– 32 –

FINANCIAL INFORMATION

APPENDIX I

14. Fixed Assets

Group

Cost or valuation: At 1 January 2003 Additions Reclassification Acquisition of subsidiaries Disposals Disposal of a subsidiary Revaluation deficit At 31 December 2003 Accumulated depreciation: At 1 January 2003 Provided during the year Acquisition of subsidiaries Disposals Disposal of a subsidiary At 31 December 2003 Net book value: At 31 December 2003 At 31 December 2002 Analysis of cost and valuation: At cost – 2003 At valuation – 1990 – 2003	Investment properties HK$’000 756,000 1,046 – – – – (112,046) 645,000 – – – – – – 645,000 756,000 – – 645,000 645,000	Leasehold land and buildings HK$’000 374,148 – 2,827 – – – – 376,975 66,839 7,949 – – – 74,788 302,187 307,309 343,975 33,000 – 376,975	Other fixed assets HK$’000 907,701 9,090 13,002 183 (16,977) (3,782) – 909,217 471,181 72,274 37 (10,937) (3,599) 528,956 380,261 436,520 909,217 – – 909,217	Assets in progress HK$’000 7,646 28,083 (15,829) – – – – 19,900 – – – – – – 19,900 7,646 19,900 – – 19,900	Total HK$’000 2,045,495 38,219 – 183 (16,977) (3,782) (112,046) 1,951,092 538,020 80,223 37 (10,937) (3,599) 603,744 1,347,348 1,507,475 1,273,092 33,000 645,000 1,951,092

Other fixed assets include plant and machinery, computer and office equipment and leasehold improvements.

Certain of the Group’s leasehold land and buildings were revalued in 1990 by Knight Frank Kan & Baillieu, an independent professional valuer, at HK$33,000,000, being their open market value based on their existing use. No subsequent revaluation was carried out as the Group has adopted the exemption provisions of Statement of Standard Accounting Practice No. 17 “Property, plant and equipment” issued by the Hong Kong Society of Accountants in 1995, of not making regular revaluations by class of those assets stated at revalued amounts based on revaluations which were reflected in prior year financial statements. Had such leasehold land and buildings been carried at cost less accumulated depreciation, the carrying value of such leasehold land and buildings would have been stated at approximately HK$23,246,000 (2002: HK$24,028,000).

The Group’s investment properties and leasehold land and buildings are held under medium term leases in Hong Kong.

The investment properties comprise offices, a studio and car parking spaces. The offices situated at (i) 20/F and 21/F and car parking spaces Nos. 21, 22 and 23 on 4th Floor of Bank of America Tower at 12 Harcourt Road, Hong Kong; (ii) the lobby on the Ground Floor, a portion of the canopy on the 1st Floor level and the front portions of the 1st, 2nd and 3rd Floors of No. 1 Leighton Road and 9 advertising board spaces on the external wall, Yue King Building, 26-30 Canal Road West, 1-7 Leighton Road and 41-47 Morrison Hill Road, Wanchai, Hong Kong; and (iii) the Clear Water Bay TV Studio situated at Clear Water Bay Road, A Kung Wan, Hang Hau, New Territories, were valued by DTZ Debenham Tie Leung Limited, an independent professional valuer, on an open market value basis based on their existing use as at 31 December 2003.

– 33 –

FINANCIAL INFORMATION

APPENDIX I

15. Interests in Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries	Company 2003 2002 HK$’000 HK$’000 – – 1,656,265 1,749,922 1,656,265 1,749,922	Company 2003 2002 HK$’000 HK$’000 – – 1,656,265 1,749,922 1,656,265 1,749,922
		1,749,922

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

Details of the principal subsidiaries are set out in note 30 to the financial statements.

16. Interests in Associates and a Jointly Controlled Entity

Associates Share of net assets other than goodwill: Shares listed overseas Unlisted shares Amounts due (to)/from associates Market value of listed shares at the balance sheet date Jointly controlled entity Share of net liabilities other than goodwill Loans advanced	Group 2003 2002 HK$’000 HK$’000 35,879 31,485 2,725 3,732 38,604 35,217 (1,179) 6,658 37,425 41,875 92,911 71,166 Group 2003 2002 HK$’000 HK$’000 (24,966) (20,885) 32,493 30,260 7,527 9,375	Group 2003 2002 HK$’000 HK$’000 35,879 31,485 2,725 3,732 38,604 35,217 (1,179) 6,658 37,425 41,875 92,911 71,166 Group 2003 2002 HK$’000 HK$’000 (24,966) (20,885) 32,493 30,260 7,527 9,375
		9,375

The amounts due (to)/from associates and loans advanced to a jointly controlled entity are unsecured, interest-free and are not repayable within 12 months.

Details of the principal associates and a jointly controlled entity are set out in note 30 to the financial statements.

– 34 –

FINANCIAL INFORMATION

APPENDIX I

17. Long-Term Investment Shares

Listed equity shares, at fair value: Hong Kong Philippines Unlisted equity shares, at fair value Market value of listed equity shares	Group 2003 2002 HK$’000 HK$’000 94,725 74,913 2,395 2,130 97,120 77,043 31,200 51,480 128,320 128,523 97,120 77,043	Group 2003 2002 HK$’000 HK$’000 94,725 74,913 2,395 2,130 97,120 77,043 31,200 51,480 128,320 128,523 97,120 77,043
		77,043 51,480
		128,523
		77,043

18. Inventories

Raw materials Work in progress Finished goods	Group 2003 2002 HK$’000 HK$’000 19,427 16,321 485 208 20,706 26,643 40,618 43,172	Group 2003 2002 HK$’000 HK$’000 19,427 16,321 485 208 20,706 26,643 40,618 43,172
		43,172

At the balance sheet date, there was no inventory carried at its net realisable value (2002: Nil).

19. Accounts Receivable

The Group allows an average credit period of 7 to 90 days to its trade customers and an ageing analysis of trade receivables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total Less: Provision for bad and doubtful debts	Group 2003 2002 Balance Percentage Balance Percentage HK$’000 % HK$’000 % 73,123 41.3 66,307 38.8 56,340 31.9 53,657 31.4 32,353 18.3 36,889 21.6 15,056 8.5 14,246 8.2 176,872 100.0 171,099 100.0 (14,690) (15,773) 162,182 155,326	Group 2003 2002 Balance Percentage Balance Percentage HK$’000 % HK$’000 % 73,123 41.3 66,307 38.8 56,340 31.9 53,657 31.4 32,353 18.3 36,889 21.6 15,056 8.5 14,246 8.2 176,872 100.0 171,099 100.0 (14,690) (15,773) 162,182 155,326
		100.0

– 35 –

FINANCIAL INFORMATION

APPENDIX I

20. Accounts Payable and Accrued Liabilities

Included in accounts payable and accrued liabilities are the following trade payables:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total	Group 2003 2002 Balance Percentage Balance Percentage HK$’000 % HK$’000 % 40,616 55.7 94,412 77.5 19,097 26.2 5,767 4.7 7,761 10.7 9,611 7.9 5,376 7.4 12,089 9.9 72,850 100.0 121,879 100.0	Group 2003 2002 Balance Percentage Balance Percentage HK$’000 % HK$’000 % 40,616 55.7 94,412 77.5 19,097 26.2 5,767 4.7 7,761 10.7 9,611 7.9 5,376 7.4 12,089 9.9 72,850 100.0 121,879 100.0
		100.0

21. Interest-Bearing Bank Loan, Unsecured

The bank loan will be wholly repayable within two years (2002: three years).

22. Deferred Taxation

Deferred taxation are calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2002: 16%).

The movement on the deferred tax liabilities/(assets) account is as follows:

At 1 January Disposal of a subsidiary Charge/(credit) for the year (Note 8) Taxation credited to equity At 31 December	Group 2003 2002 (Restated) HK$’000 HK$’000 91,248 95,922 – (100) 5,657 (4,566) – (8) 96,905 91,248	Group 2003 2002 (Restated) HK$’000 HK$’000 91,248 95,922 – (100) 5,657 (4,566) – (8) 96,905 91,248
		91,248

The deferred taxation credited to equity during the year is as follows:

			Group
		2003	2002
			(Restated)
		HK$’000	HK$’000
Asset revaluation reserve (Note	25)	–	(8)

Deferred income tax assets are recognised for tax loss carry forwards to the extent that realisation of the related tax benefit through the future taxable profits is probable. The Group has unrecognised tax losses of HK$189,960,000 (2002: HK$175,462,000) to carry forward against future taxable income; the expiry dates of these tax losses are shown as follows:

Expiring within one year Expiring in the second to fifth years After the fifth years	Group 2003 2002 HK$’000 HK$’000 – – 13,659 6,654 176,301 168,808 189,960 175,462	Group 2003 2002 HK$’000 HK$’000 – – 13,659 6,654 176,301 168,808 189,960 175,462
		175,462

– 36 –

APPENDIX I

FINANCIAL INFORMATION

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

Group Deferred tax liabilities At 1 January Charged/(credited) to profit and loss account Credited to equity Disposal of a subsidiary At 31 December Group Deferred tax assets At 1 January Charged/(credited) to profit and loss account At 31 December	Accelerated tax depreciation Others Total 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 93,454 93,091 157 5,061 93,611 98,152 5,323 371 457 (4,804) 5,780 (4,433) – (8) – – – (8) – – – (100) – (100) 98,777 93,454 614 157 99,391 93,611 Provisions Tax loss Others Total 2003 2002 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (1,921) (1,866) (441) (364) (1) – (2,363) (2,230) (61) (55) 28 (77) (90) (1) (123) (133) (1,982) (1,921) (413) (441) (91) (1) (2,486) (2,363)	Accelerated tax depreciation Others Total 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 93,454 93,091 157 5,061 93,611 98,152 5,323 371 457 (4,804) 5,780 (4,433) – (8) – – – (8) – – – (100) – (100) 98,777 93,454 614 157 99,391 93,611 Provisions Tax loss Others Total 2003 2002 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (1,921) (1,866) (441) (364) (1) – (2,363) (2,230) (61) (55) 28 (77) (90) (1) (123) (133) (1,982) (1,921) (413) (441) (91) (1) (2,486) (2,363)	Accelerated tax depreciation Others Total 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 93,454 93,091 157 5,061 93,611 98,152 5,323 371 457 (4,804) 5,780 (4,433) – (8) – – – (8) – – – (100) – (100) 98,777 93,454 614 157 99,391 93,611 Provisions Tax loss Others Total 2003 2002 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (1,921) (1,866) (441) (364) (1) – (2,363) (2,230) (61) (55) 28 (77) (90) (1) (123) (133) (1,982) (1,921) (413) (441) (91) (1) (2,486) (2,363)
			93,611
			Total 2002 HK$’000 (2,230) (133)
			(2,363)

Deferred tax liabilities Deferred tax assets	Group 2003 2002 HK$’000 HK$’000 99,391 93,611 (2,486) (2,363) 96,905 91,248	Group 2003 2002 HK$’000 HK$’000 99,391 93,611 (2,486) (2,363) 96,905 91,248
		91,248

23. Employee Retirement Schemes

The Group continues to operate a DB scheme, a DC scheme and a Top-up scheme. These schemes are exempted recognised occupational retirement schemes under the MPF Ordinance. The assets of these schemes are held separately from those of the Group in two administered trust funds. Schemes assets are managed by independent professional investment managers. The Group also operates a MPF which is a master trust scheme established under trust arrangement.

(a) Defined benefit scheme

The defined benefit scheme is a final salary defined benefit plan.

Pension costs are assessed using the projected unit credit method. The pension costs are charged to the profit and loss account so as to spread the regular cost over the service lives of employees. A full valuation based on the projected unit credit method has been carried out by Watson Wyatt Hong Kong Limited, an independent qualified actuary, and the pension costs are charged to the profit and loss account in accordance with their advice.

		Group
	2003	2002
	HK$’000	HK$’000
Defined benefit plan’s assets	27,070	37,858

– 37 –

FINANCIAL INFORMATION

APPENDIX I

The amounts recognised in the balance sheet are determined as follows:

Fair value of plan assets Present value of funded obligations Unrecognised actuarial (gains)/losses Asset in the balance sheet	Group 2003 2002 HK$’000 HK$’000 275,382 243,711 (206,639) (221,246) 68,743 22,465 (41,673) 15,393 27,070 37,858	Group 2003 2002 HK$’000 HK$’000 275,382 243,711 (206,639) (221,246) 68,743 22,465 (41,673) 15,393 27,070 37,858
		22,465 15,393
		37,858

The limit of net asset to be recognised is disclosed as follows:

Cumulative unrecognised net actuarial losses Present value of available future refunds and reductions in future contributions Limit Net asset recognised in the balance sheet Reduction of net asset due to the above limit	Group 2003 2002 HK$’000 HK$’000 – 15,393 68,743 22,465 68,743 37,858 27,070 37,858 – –	Group 2003 2002 HK$’000 HK$’000 – 15,393 68,743 22,465 68,743 37,858 27,070 37,858 – –
		37,858
		37,858
		–

The amounts recognised in the profit and loss account were as follows:

Current service cost Interest cost Expected return on plan assets Net actuarial losses recognised Less: amount capitalised in intangible assets Total, included in staff costs (Note (5))	Group 2003 2002 HK$’000 HK$’000 10,306 13,813 5,454 9,412 (8,820) (18,728) 3,848 – 10,788 4,497 (146) – 10,642 4,497	Group 2003 2002 HK$’000 HK$’000 10,306 13,813 5,454 9,412 (8,820) (18,728) 3,848 – 10,788 4,497 (146) – 10,642 4,497
		4,497 –
		4,497

The actual return on plan assets was HK$61,031,000 (2002 : loss of HK$27,161,000).

Movement in the asset recognised in the balance sheet:

At 1 January Total expenses charged to profit and loss account – as shown above Amount capitalised in intangible assets At 31 December	Group 2003 2002 HK$’000 HK$’000 37,858 42,355 (10,642) (4,497) (146) – 27,070 37,858	Group 2003 2002 HK$’000 HK$’000 37,858 42,355 (10,642) (4,497) (146) – 27,070 37,858
		37,858

– 38 –

FINANCIAL INFORMATION

APPENDIX I

The principal actuarial assumptions used were as follows:

	2003	2002
	%	%
Discount rate	2.80	4.25
Expected rate of return on plan assets	4.00	7.00
Expected rate of future salary increases	–	2.00

(b) Top-up scheme and MPF

The Group makes regular contributions of 10% of the employees’ monthly basic salary (which is subject to a cap of HK$50,000) to the MPF and Top-up Scheme. Out of the 10% contribution, 5% of the employees’ relevant income (which is capped at HK$20,000) is made to the MPF Scheme and the balance to the Top-up Scheme.

(c) Defined contribution scheme

The contributions to the defined contribution pension scheme are currently at 10-15% of the employees’ monthly salaries.

24. Share Capital

Authorised: 5,000,000,000 shares of HK$0.10 each Issued and fully paid: 1,560,945,596 (2002: 1,560,945,596) shares of HK$0.10 each	Group and Company 2003 2002 HK$’000 HK$’000 500,000 500,000 156,095 156,095	Group and Company 2003 2002 HK$’000 HK$’000 500,000 500,000 156,095 156,095
		156,095

On 3 September 2002, the Company announced a conditional voluntary cash offer to repurchase up to 173,438,400 shares at an offer price of HK$3.6 in cash per share. The proposed offer was approved by an ordinary resolution passed at the Special General Meeting of the Company held on 11 October 2002. On 28 October 2002, the Company announced its acceptance of a total of 173,438,400 shares at HK$3.6 per share under the offer for a total consideration of approximately HK$624,378,000 before expenses.

The Company has a share option scheme (the “Scheme”) which was approved by shareholders on 27 October 1997 (the “Effective Date”) and was amended with shareholders’ approval on 6 November 2000 and further amended at the annual general meeting held on 29 May 2002 in conformity with the amended Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Under the Scheme, the Board of Directors of the Company may grant options to subscribe for shares of the Company to any full-time employees or Executive Directors of the Company or any of its subsidiaries (the “Executives”). No consideration is required to be paid by the Executives upon acceptance of the options. No option may be exercised earlier than one year after it has been granted or later than ten years after the Effective Date of the Scheme, i.e. 27 October 2007.

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

Outstanding at 1 January Granted during the year (Note (a)) Exercised during the year Lapsed during the year Outstanding at 31 December (Note (b))	2003 No. of shares in respect of options granted 10,108,500 2,950,000 – (2,837,500) 10,221,000	2002 No. of shares in respect of options granted 11,880,500 – – (1,772,000)
		10,108,500

No share options were cancelled during the year (2002: nil).

– 39 –

FINANCIAL INFORMATION

APPENDIX I

Note (a)

Details of share options granted during the year were as follows:

Exercise price Date of grant Exercisable period per share HK$ Directors 23/09/2003 23/09/2004 - 27/10/2007 3.90 Other employees 23/09/2003 23/09/2004 - 27/10/2007 3.90	No. of shares in respect of options granted 350,000 2,600,000
	2,950,000

Note (b)

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

Exercise price Date of grant Exercisable period per share HK$ Directors 23/09/2003 23/09/2004 – 27/10/2007 3.90 Other employees 02/08/1999 02/08/2000 – 27/10/2007 5.00 11/01/2000 11/01/2001– 27/10/2007 5.51 20/04/2000 20/04/2001– 27/10/2007 6.05 28/06/2001 28/06/2002– 27/10/2007 4.95 23/09/2003 23/09/2004 – 27/10/2007 3.90	2003 No. of shares in respect of options granted 350,000 1,352,500 1,078,500 3,995,000 845,000 2,600,000 10,221,000	2002 No. of shares in respect of options granted – 1,752,000 1,991,500 5,320,000 1,045,000 –
		10,108,500

25. Reserves

Group At 1 January 2002 As previously stated Effect of adopting SSAP 12 (revised) (note 3(n)) As restated Share premium reduction (Note (a)) Repurchase of shares Change in fair values of long-term investment shares Revaluation reserve released on disposal Exchange differences on consolidation Deferred taxation directly credited to reserve (note 22) Profit for the year 2002 interim dividend distribution At 31 December 2002 (Note (b))	Share premium HK$’000 1,151,275 – 1,151,275 (1,105,290) (5,014) – – – – – – 40,971	Contributed surplus HK$’000 1,925,381 – 1,925,381 – (607,034) – – – – – (62,438) 1,255,909	Investment revaluation reserve HK$’000 27,337 – 27,337 – – (23,091) 6 – – – – 4,252	Asset revaluation reserve HK$’000 1,503 (186) 1,317 – – – – – 8 – – 1,325	Translation reserve HK$’000 (38,981) – (38,981) – – – – (463) – – – (39,444)	Retained profits/ (losses) HK$’000 (1,089,878) (14,532) (1,104,410) 1,105,290 – – – – – 108,766 – 109,646	Total HK$’000 1,976,637 (14,718)
							1,961,919 – (612,048) (23,091) 6 (463) 8 108,766 (62,438)
							1,372,659

Notes:

(a) In 2002, the share premium account was reduced by an amount of HK$1,105,290,000 to enable the Company to eliminate the accumulated losses which were resulted from the amortisation of intangible assets and goodwill on acquisition following the adoption of certain new SSAPs.

(b) The final dividend distribution of HK$62,438,000 for the year ended 31 December 2002 was paid out of the Company’s contributed surplus.

– 40 –

APPENDIX I

FINANCIAL INFORMATION

Group At 1 January 2003 As previously stated Effect of adopting SSAP 12 (revised) (note 3(n)) As restated Change in fair values of long-term investment shares Revaluation reserve released on disposal Translation reserve released on disposal Exchange differences on consolidation Profit for the year 2002 final dividend distribution 2003 interim dividend distribution At 31 December 2003 (Note (a))	Share premium HK$’000 40,971 – 40,971 – – – – – – – 40,971	Contributed surplus HK$’000 1,255,909 – 1,255,909 – – – – – (62,438) (31,219) 1,162,252	Investment revaluation reserve HK$’000 4,252 – 4,252 29,796 (1,212) – – – – – 32,836	Asset revaluation reserve HK$’000 (Note 2(a)(ii)) 1,503 (178) 1,325 – – – – – – – 1,325	Translation reserve HK$’000 (39,444) – (39,444) – – 2,165 2,416 – – – (34,863)	Retained profits HK$’000 (Note 2(a)(i)) 117,959 (8,313) 109,646 – – – – 1,762 – – 111,408	Total HK$’000 1,381,150 (8,491) 1,372,659 29,796 (1,212) 2,165 2,416 1,762 (62,438) (31,219) 1,313,929

Note:

(a) The proposed final dividend distribution of HK$62,438,000 for the year ended 31 December 2003 is to be paid out of the Company’s contributed surplus.

Company At 1 January 2002 Share premium reduction Repurchase of shares Profit for the year 2002 interim dividend distribution At 31 December 2002	Share premium HK$’000 1,151,275 (1,105,290) (5,014) – – 40,971	Contributed surplus HK$’000 2,203,259 – (607,034) – (62,438) 1,533,787	Retained profits/ (losses) HK$’000 (1,105,290) 1,105,290 – 19,323 – 19,323	Total HK$’000 2,249,244 – (612,048) 19,323 (62,438) 1,594,081

– 41 –

APPENDIX I

FINANCIAL INFORMATION

Company At 1 January 2003 2002 final dividend distribution 2003 interim dividend distribution At 31 December 2003 Retained profits/(losses) attributable to: Company and subsidiaries Associates Jointly controlled entity	Share premium HK$’000 40,971 – – 40,971	Contributed surplus HK$’000 1,533,787 (62,438) (31,219) 1,440,130	Retained profit Total HK$’000 HK$’000 19,323 1,594,081 – (62,438) – (31,219) 19,323 1,500,424 Group 2003 2002 (Restated) HK$’000 HK$’000 142,049 142,624 (1,043) (7,450) (29,598) (25,528) 111,408 109,646	Total HK$’000 1,594,081 (62,438) (31,219)
				1,500,424
				109,646

The contributed surplus of the Group represents the excess of the nominal value of the shares of subsidiaries acquired over the nominal value of the Company’s shares issued in exchange therefor during the Group reorganisation in 1990 and the dividend contributions.

The contributed surplus of the Company arose as a result of the Group reorganisation in 1990 and represents the difference between the nominal value of the Company’s shares so allotted and the consolidated net asset value of the acquired subsidiaries and associate. Under Bermudan law, the contributed surplus is distributable to shareholders under certain circumstances.

In addition, the Company’s share premium of HK$40,971,000 (2002: HK$40,971,000) can be distributed as fully paid-up bonus shares or applied towards eliminating the retained losses of the Company.

26. Operating Lease Commitments

Future aggregate commitments for the forthcoming years under non-cancelable operating leases in respect of land and buildings at the balance sheet date are set out below:

Expiring within one year Expiring in the second to fifth years, inclusive	Group 2003 2002 HK$’000 HK$’000 44,944 59,659 55,703 70,694 100,647 130,353	Group 2003 2002 HK$’000 HK$’000 44,944 59,659 55,703 70,694 100,647 130,353
		130,353

The operating lease rentals of certain retail outlets are based on the higher of a minimum guaranteed rental or a sales level based rental. The minimum guaranteed rental has been used to arrive at the above commitments.

– 42 –

FINANCIAL INFORMATION

APPENDIX I

27. Capital Commitments

Capital commitments for property, plant and equipment: Contracted, but not provided for Authorised, but not contracted for	Group 2003 2002 HK$’000 HK$’000 22,166 16,598 36,466 62,415 58,632 79,013	Group 2003 2002 HK$’000 HK$’000 22,166 16,598 36,466 62,415 58,632 79,013
		79,013

28. Future Operating Lease Arrangements

As at 31 December 2003, the Group had future aggregate minimum lease receipts under non-cancelable operating leases in respect of land and buildings as follows:

Not later than one year Later than one year but not later than five years	Group 2003 2002 HK$’000 HK$’000 14,881 78,692 7,216 18,454 22,097 97,146	Group 2003 2002 HK$’000 HK$’000 14,881 78,692 7,216 18,454 22,097 97,146
		97,146

29. Notes to the Consolidated Cash Flow Statement

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

Operating profit Loss on disposal of long-term investment shares Deficit on revaluation of investment properties Depreciation and amortisation Interest income Interest expenses Dividend income from listed investments Loss on disposal of fixed assets Provision for asset impairment Pension costs Loss on disposal of investments in associates Gain on disposal of subsidiaries Increase/decrease in amounts due to/from associates Increase in loan advanced to a jointly controlled entity (Increase)/ decrease in inventories (Increase)/ decrease in accounts receivable Decrease in prepayments, deposits and other receivables (Decrease)/increase in accounts payable and accrued liabilities Increase in subscriptions in advance Net cash inflow from operations	Group 2003 2002 HK$’000 HK$’000 47,480 135,470 2,267 – 112,046 75,061 83,261 78,996 (1,543) (4,958) 5,194 1,097 (1,427) (2,462) 5,438 646 780 – 10,642 4,497 2,612 – (600) (25,136) 399 699 (2,233) (4,003) (3,504) 15,916 (7,257) 2,802 4,020 4,025 (14,277) 4,742 6,646 3,410 249,944 290,802	Group 2003 2002 HK$’000 HK$’000 47,480 135,470 2,267 – 112,046 75,061 83,261 78,996 (1,543) (4,958) 5,194 1,097 (1,427) (2,462) 5,438 646 780 – 10,642 4,497 2,612 – (600) (25,136) 399 699 (2,233) (4,003) (3,504) 15,916 (7,257) 2,802 4,020 4,025 (14,277) 4,742 6,646 3,410 249,944 290,802
		290,802

– 43 –

FINANCIAL INFORMATION

APPENDIX I

(b) Analysis of changes in financing during the year

Group Balance at 1 January 2002 As previously reported Effect of adopting SSAP 12 (revised) (note 3(n)) As restated Non cash movement Share of profit Disposal of subsidiaries Liquidation of a subsidiary Share premium reduction Cash movement Purchases of additional interest in subsidiaries Dividend paid to minority shareholders in subsidiary Drawdown of bank loan Repurchase of shares 2002 interim dividend distribution Balance at 31 December 2002 Balance at 1 January 2003 As previously reported Effect of adopting SSAP 12 (revised) (note 3(n)) As restated Non cash movement Share of profit Acquisition of a subsidiary Cash movement Dividend paid to minority shareholders in subsidiary Repayment of bank loan 2002 final dividend distribution 2003 interim dividend distribution Balance at 31 December 2003	Interest- bearing bank loan HK$’000 – – – – – – – – – 310,000 – – 310,000 310,000 – 310,000 – – – (80,000) – – 230,000	Share capital (including share premium) HK$’000 1,324,713 – 1,324,713 – – – (1,105,290) – – – (22,357) – 197,066 197,066 – 197,066 – – – – – – 197,066	Minority interests HK$’000 10,676 2 10,678 3,378 (2,113) 18 – (269) (3,000) – – – 8,692 8,679 13 8,692 3,977 8 (3,000) – – – 9,677	Contributed surplus HK$’000 1,925,381 – 1,925,381 – – – – – – – (607,034) (62,438) 1,255,909 1,255,909 – 1,255,909 – – – – (62,438) (31,219) 1,162,252

– 44 –

FINANCIAL INFORMATION

APPENDIX I

(c) Disposal of subsidiaries

Net assets disposed of: Fixed assets Inventories Accounts receivable Prepayment, deposit and other receivables Bank balances and deposits Accounts and other payable Taxation payable Deferred taxation Minority interests Satisfied by cash	Group 2003 2002 HK$’000 HK$’000 183 4,620 6,058 83 401 110 2,132 4,902 6 1,660 (6,323) (2,900) – (22) – (100) – (2,113) 2,457 6,240 3,057 33,384

Analysis of the net cash inflow in respect of the disposal of subsidiaries.

Cash consideration Cash and bank balances disposed of Net cash inflow in respect of the disposal of subsidiaries	Group 2003 2002 HK$’000 HK$’000 3,057 33,384 (6) (1,660) 3,051 31,724

(d) Purchase of a subsidiary

During the year, the Group acquired 75% shareholding in a subsidiary with net asset value of HK$28,000. The cash consideration amounted to HK$1,691,000 and the cash balance acquired was HK$4,000.

– 45 –

FINANCIAL INFORMATION

APPENDIX I

30. Subsidiaries, Associates and A Jointly Controlled Entity

Particulars of the Company’s principal subsidiaries and the Group’s principal associates and a jointly controlled entity at 31 December 2003 are as follows:

Subsidiaries

	Place of
	incorporation/	Nominal value
	registration	of issued/
	and operations	registered	Proportion held
Company	(Kind of legal entity)	share capital	Direct	Indirect	Nature of business
Capital Artists Limited	Hong Kong	Ordinary	–	100%	Music publishing
		HK$44,394,500
Coastline International Limited	The Commonwealth	Ordinary	–	100%	Property holding
	of The Bahamas	US$2
Highlight Trading (HK) Limited	Hong Kong	Ordinary	–	100%	Trading of health
		HK$100,000			products
Lyton Investment Limited	The Commonwealth	Ordinary	–	100%	Property holding
	of The Bahamas	US$2
Macheer Properties Limited	British Virgin Islands	Ordinary	–	100%	Property holding
		US$1
Markland Investments Limited	Hong Kong	Ordinary	–	100%	Investment holding
		HK$2
SCMP (1994) Limited	Hong Kong	Ordinary	100%	–	Investment holding
		HK$2
SCMP Book Publishing Limited	Hong Kong	Ordinary	–	100%	Book publishing
		HK$2,000,000
SCMP Hearst Publications Limited	Hong Kong	Ordinary	–	70%	Magazine publishing
		HK$10,000
SCMP Magazines Publishing	Hong Kong	Ordinary	–	100%	Provision of pre-press
Limited		HK$10,000			services
SCMP Retailing (HK) Limited	Hong Kong	Ordinary	–	100%	Operation of retail
		HK$500,000			outlets
SCMP.com Limited	Hong Kong	Ordinary	100%	–	Internet-related
		HK$2			businesses
SCMP.com Holdings Limited	British Virgin Islands	Ordinary	100%	–	Investment holding
		US$1
Shanghai Nan Hong Information	The People’s Republic	Registered capital	–	97%	Recruiting and human
Services Co., Ltd.#	of China (Equity	US$200,000			resources internet
(formerly known as	joint-venture)				services
Shanghai Strongnet Co., Ltd.)
South China Morning Post	Hong Kong	Ordinary	–	100%	Newspaper and
Publishers Limited		HK$201,000,000			magazine publishing
South China Morning Post (S)	Singapore	Ordinary	–	100%	Advertising agent
Pte Ltd		S$3
Sunny Bright Development Limited	Hong Kong	Ordinary	–	100%	Property holding
		HK$2

– 46 –

FINANCIAL INFORMATION

APPENDIX I

	Place of
	incorporation/	Nominal value
	registration	of issued/
	and operations	registered	Proportion held
Company	(Kind of legal entity)	share capital	Direct	Indirect	Nature of business
Sunny Success Development	Hong Kong	Ordinary	–	100%	Property holding
Limited		HK$2
Video-Film Productions Limited	Hong Kong	Ordinary	–	83%	Video and film post-
		HK$12,050			production
West Side Assets Limited	British Virgin Islands	Ordinary	–	100%	Investment holding
		US$1

Associates

	Place of	Percentage of
	incorporation	equity attributable
Company	and operations	to the Group	Nature of business
Dymocks Franchise Systems (China) Limited#	Hong Kong	45%	Bookshop operation
The Post Publishing Public Company Limited#	Thailand	20.3%	Newspaper and magazine
			publishing

# not audited by PricewaterhouseCoopers Hong Kong or other PricewaterhouseCoopers International member firms

A jointly controlled entity

	Place of	Percentage of
	incorporation	equity attributable
Company	and operations	to the Group	Nature of business
SCMP Haymarket Publishing Limited	Hong Kong	51%	Magazine publishing

The above table lists the subsidiaries of the Company, associates and a jointly controlled entity of the Group which, in the opinion of the Directors, principally affected the results of the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries and associates would, in the opinion of the Directors, result in particulars of excessive length.

31. Related Party Transactions

Neither the Group nor the Company had any significant related party transactions. Details of the Group’s related party transactions are disclosed in the Directors’ Report.

32. Subsequent Event

On 2 March 2004, South China Morning Post Publishers Limited, TVE International Limited and SCMP Publications Limited (all being wholly owned subsidiaries of the Company) and SCMP Haymarket Publishing Limited (a jointly controlled entity in which the Company has a 51% interest) entered into a termination and release agreement with Haymarket Group Limited, Haymarket Publishing Services Limited, Haymarket Publishing (Hong Kong) Limited and Media & Marketing Limited (collectively “Haymarket Group”), pursuant to which the parties terminated the SCMP/Haymarket Publishing joint venture and distributed related assets in the joint venture to respective parties respectively. The overall loss on this transaction to the Group is estimated to be approximately HK$1 million.

33. Approval of the Financial Statements

The financial statements were approved by the Board of Directors on 30 March 2004.

– 47 –

FINANCIAL INFORMATION

APPENDIX I

2. SUMMARY OF UNAUDITED FINANCIAL INFORMATION

The financial information set out below is copied from pages 1 to 7 of the interim report of SCMP for the six months ended 30 June 2004. All the information in Part 2 of this Appendix I should be read in conjunction with the unaudited accounts which are included in the interim report of SCMP for the six months ended 30 June 2004.

INTERIM RESULTS

The unaudited interim results of the SCMP Group for the six months ended 30 June 2004 are as follows:

CONDENSED CONSOLIDATED PROFIT & LOSS ACCOUNT

		Unaudited	Unaudited	Unaudited
		For the six months ended 30 June
		2004		2003
	Note	HK$’000		HK$’000
Turnover	2	697,569		613,635
Other revenue	3	1,052		1,938
Staff costs		(184,546)		(183,268)
Cost of production materials/sales		(218,143)		(203,016)
Rental and utilities		(39,996)		(44,289)
Depreciation and amortisation		(42,471)		(38,869)
Advertising and promotion		(8,884)		(5,438)
Other operating expenses		(70,509)		(79,159)
Gain on disposal of long-term investment shares		4,242		1,955
Gain on disposal of subsidiaries		–		600
Provision for asset impairment		–		(780)
Loss on termination of a jointly controlled entity		(1,076)		–
Profit from Operating Activities		137,238		63,309
Finance costs		(700)		(2,919)
Operating Profit		136,538		60,390
Share of profits less losses of associates		4,138		(1,695)
Share of loss of a jointly controlled entity		(361)		(3,575)
Profit before Taxation		140,315		55,120
Taxation	4	(26,287)		(19,678)
Profit after Taxation		114,028		35,442
Minority interests		(2,615)		(1,465)
Profit Attributable to Shareholders		111,413		33,977
Dividend Distribution
Proposed interim dividend distribution of 5 cents
(2003: 2 cents) per share		78,047		31,219
Earnings per share
Basic	5	7.14 cents		2.18 cents

– 48 –

APPENDIX I

FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEET

Note Non-Current Assets Intangible assets 6 Fixed assets 7 Defined benefit plan’s assets Interests in associates Interest in a jointly controlled entity Long-term investment shares Current Assets Inventories Accounts receivable 8 Prepayments, deposits and other receivables Bank balances and deposits Current Liabilities Accounts payable and accrued liabilities 9 Taxation payable Subscriptions in advance Bank overdraft, secured Net Current Assets Total Assets Less Current Liabilities Non-Current Liabilities Minority interests Interest-bearing bank loan, unsecured Deferred taxation Capital and Reserves Share capital 10 Reserves 11 Proposed dividend distribution 11	Unaudited 30 June 2004 HK$’000 37,663 1,318,407 28,743 37,672 – 123,280 1,545,765 38,428 173,543 39,899 233,608 485,478 131,843 26,881 15,641 – 174,365 311,113 1,856,878 12,292 230,000 94,791 337,083 1,519,795 156,095 1,285,653 78,047 1,363,700 1,519,795	Audited 31 December 2003 HK$’000 33,172 1,347,348 27,070 37,425 7,527 128,320
		1,580,862
		40,618 162,182 42,994 159,804
		405,598
		148,292 5,817 22,931 2,814
		179,854
		225,744
		1,806,606
		9,677 230,000 96,905
		336,582
		1,470,024
		156,095 1,251,491 62,438 1,313,929
		1,470,024

– 49 –

FINANCIAL INFORMATION

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

CONDENSED CONSOLIDATED CASH FLOW	STATEMENT	STATEMENT	STATEMENT
	Unaudited
	For the six months ended 30 June
	2004		2003
	HK$’000		HK$’000
Net cash inflow from operating activities	143,393		103,151
Net cash outflow from investing activities	(4,336)		(25,536)
Net cash outflow from financing activities	(62,439)		(62,439)
Increase in cash and cash equivalents	76,618		15,176
Cash and cash equivalents at 1 January	156,990		138,992
Cash and cash equivalents at 30 June	233,608		154,168

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Unaudited
		For the six months ended	30 June
		2004	2003
	Note	HK$’000	HK$’000
At 1 January
As previously reported		1,470,024	1,537,245
Changes in accounting policy	11	–	(8,491)
As restated		1,470,024	1,528,754
Surplus on revaluation of long-term investment shares	11	4,069	3,055
Deferred taxation directly charged to reserve	11	–	(14)
Exchange differences on consolidation	11	(218)	1,130
Net gains not recognised in the profit and loss account		3,851	4,171
Net profit for the period	11	111,413	33,977
Investment revaluation reserve released on disposal	11	(3,054)	(952)
Dividends	11	(62,439)	(62,439)
At 30 June		1,519,795	1,503,511

– 50 –

FINANCIAL INFORMATION

APPENDIX I

NOTES TO THE ACCOUNTS

1. Basis of Preparation and Accounting Policies

The unaudited condensed consolidated interim accounts (“interim accounts”) are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25, “Interim Financial Reporting”, issued by the Hong Kong Society of Accountants, (as applicable to condensed interim accounts), and Appendix 16 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

These interim accounts should be read in conjunction with the 2003 annual accounts.

The accounting policies and methods of computation used in the preparation of these interim accounts are consistent with those used in the annual accounts for the year ended 31 December 2003.

2. Segment Information

The Company acted as an investment holding company during the period. The principal activities of the Group comprised the publishing, printing and distribution of the South China Morning Post, Sunday Morning Post and other print and online publications, retailing, property holding and video and film post-production.

Substantially all the activities of the Group are based in Hong Kong and below is an analysis of the Group’s turnover and contribution to operating profit by principal activity:

Newspapers, magazines and other publications Retailing Investment properties Video and film post-production Entertainment Total	Turnover For the six months ended 30 June 2004 2003 HK$’000 HK$’000 470,020 354,270 197,407 203,202 7,332 41,392 11,808 10,386 11,002 4,385 697,569 613,635	Contribution to operating profit For the six months ended 30 June 2004 2003 HK$’000 HK$’000 126,650 17,194 (832) (1,201) 4,986 40,024 (2,355) 1,425 8,089 2,948 136,538 60,390	Contribution to operating profit For the six months ended 30 June 2004 2003 HK$’000 HK$’000 126,650 17,194 (832) (1,201) 4,986 40,024 (2,355) 1,425 8,089 2,948 136,538 60,390
			60,390

3. Other Revenue

Dividend income from listed investments Interest income Others Total	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 142 563 199 874 711 501 1,052 1,938	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 142 563 199 874 711 501 1,052 1,938
		1,938

– 51 –

FINANCIAL INFORMATION

APPENDIX I

4. Taxation

Company and subsidiaries: Hong Kong profits tax Overseas taxation Deferred taxation relating to the origination and reversal of temporary differences Deferred taxation relating to an increase in tax rate Share of taxation attributable to associates Taxation charges	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 27,088 12,901 271 113 (2,114) (1,914) – 8,538 1,042 40 26,287 19,678	For the six months ended 30 June 2004 2003 HK$’000 HK$’000 27,088 12,901 271 113 (2,114) (1,914) – 8,538 1,042 40 26,287 19,678
		19,678

Hong Kong profits tax has been provided at a rate of 17.5% (2003: 17.5%) on the estimated assessable profits for the period. Taxation on overseas profits has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the countries in which the Group operates.

5. Earnings per Share

The calculation of basic earnings per share is based on the profit for the period attributable to shareholders of HK$111,413,000 (2003: HK$33,977,000) and 1,560,945,596 (2003: 1,560,945,596) shares in issue during the period.

For the six months ended 30 June 2004 and 2003, the diluted earnings per share is not shown as there was no dilution effect.

6. Intangible Assets

Cost: At 1 January 2004 Additions At 30 June 2004 Accumulated amortisation: At 1 January 2004 Provided during the period At 30 June 2004 Net book value: At 30 June 2004 At 31 December 2003	Publishing titles HK$’000 1,820,000 – 1,820,000 1,820,000 – 1,820,000 – –	Software costs HK$’000 24,028 – 24,028 1,439 1,853 3,292 20,736 22,589	Assets in progress HK$’000 10,583 6,344 16,927 – – – 16,927 10,583	Total HK$’000 1,854,611 6,344
				1,860,955
				1,821,439 1,853
				1,823,292
				37,663
				33,172

– 52 –

APPENDIX I

FINANCIAL INFORMATION

7. Fixed Assets

Cost or valuation: At 1 January 2004 Additions Reclassification Acquisition of subsidiaries Disposals Translation differences At 30 June 2004 Accumulated depreciation: At 1 January 2004 Provided during the period Acquisition of subsidiaries Disposals Translation differences At 30 June 2004 Net book value: At 30 June 2004 At 31 December 2003 Analysis of cost and valuation: At cost At valuation – 1990 – 2003	Investment properties HK$’000 645,000 – – – – – 645,000 – – – – – – 645,000 645,000 – – 645,000 645,000	Leasehold land and buildings HK$’000 376,975 – – – – – 376,975 74,788 3,916 – – – 78,704 298,271 302,187 343,975 33,000 – 376,975	Other fixed assets HK$’000 909,217 5,182 4,539 1,721 (9,662) 36 911,033 528,956 36,702 1,098 (9,199) 24 557,581 353,452 380,261 911,033 – – 911,033	Assets in progress HK$’000 19,900 6,235 (4,539) – – 88 21,684 – – – – – – 21,684 19,900 21,684 – – 21,684	Total HK$’000 1,951,092 11,417 – 1,721 (9,662) 124
					1,954,692
					603,744 40,618 1,098 (9,199) 24
					636,285
					1,318,407
					1,347,348
					1,276,692 33,000 645,000
					1,954,692

8. Accounts Receivable

The Group allows an average credit period of 7 days to 90 days to its trade customers and an ageing analysis of trade receivables is as follows:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total Less: Provision for bad and doubtful debts	30 June 2004 Balance Percentage HK$’000 % 84,144 44.9 51,400 27.4 35,520 18.9 16,489 8.8 187,553 100.0 (14,010) 173,543	31 December 2003 Balance Percentage HK$’000 % 73,123 41.3 56,340 31.9 32,353 18.3 15,056 8.5 176,872 100.0 (14,690) 162,182	31 December 2003 Balance Percentage HK$’000 % 73,123 41.3 56,340 31.9 32,353 18.3 15,056 8.5 176,872 100.0 (14,690) 162,182
			100.0

9. Accounts Payable and Accrued Liabilities

Included in accounts payable and accrued liabilities are the following trade payables:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days Total	30 June 2004 Balance Percentage HK$’000 % 35,392 57.4 12,761 20.7 7,782 12.6 5,713 9.3 61,648 100.0	31 December 2003 Balance Percentage HK$’000 % 40,616 55.7 19,097 26.2 7,761 10.7 5,376 7.4 72,850 100.0	31 December 2003 Balance Percentage HK$’000 % 40,616 55.7 19,097 26.2 7,761 10.7 5,376 7.4 72,850 100.0
			100.0

– 53 –

FINANCIAL INFORMATION

APPENDIX I

10. Share Capital

Share Capital
Authorised: 5,000,000,000 shares of HK$0.10 each Issued and fully paid: 1,560,945,596 (2003: 1,560,945,596) shares of HK$0.10 each	30 June 2004 (Unaudited) HK$’000 500,000 156,095	31 December 2003 (Audited) HK$’000 500,000
		156,095

11. Reserves and Proposed Dividend Distribution

At 1 January 2003 As previously stated Change in accounting policy Effects of adopting SSAP 12 (revised) As restated Change in fair values of long-term investment shares Revaluation reserve released on disposal Exchange differences on consolidation Deferred taxation directly charged to reserve Profit for the period 2002 final dividend distribution At 30 June 2003 At 1 January 2004 Change in fair values of long-term investment shares Revaluation reserve released on disposal Exchange differences on consolidation Profit for the period 2003 final dividend distribution At 30 June 2004 – Note (a)	Share premium HK$’000 40,971 – 40,971 – – – – – – 40,971 40,971 – – – – – 40,971	Contributed surplus HK$’000 1,255,909 – 1,255,909 – – – – – (62,439) 1,193,470 1,162,252 – – – – (62,439) 1,099,813	Investments revaluation reserve HK$’000 4,252 – 4,252 3,055 (952) – – – – 6,355 32,836 4,069 (3,054) – – – 33,851	Asset revaluation reserve HK$’000 1,503 (178) 1,325 – – – (14) – – 1,311 1,325 – – – – – 1,325	Translation reserve HK$’000 (39,444) – (39,444) – – 1,130 – – – (38,314) (34,863) – – (218) – – (35,081)	Retained profits HK$’000 117,959 (8,313) 109,646 – – – – 33,977 – 143,623 111,408 – – – 111,413 – 222,821	Total HK$’000 1,381,150 (8,491)
							1,372,659 3,055 (952) 1,130 (14) 33,977 (62,439)
							1,347,416
							1,313,929 4,069 (3,054) (218) 111,413 (62,439)
							1,363,700

– Note (a) The proposed interim dividend distribution of HK$78,047,000 for the six months ended 30 June 2004 is to be paid out of the Company’s contributed surplus.

12. Approval of the Interim Financial Report

These interim accounts were approved by the Board of Directors on 6 September 2004.

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FINANCIAL INFORMATION

APPENDIX I

3. INDEBTEDNESS

At the close of business on 31 August 2004, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the SCMP Group had an outstanding bank loan of approximately HK$230.0 million, which is an unsecured Hong Kong dollar term loan at floating interest rate repayable in October 2005 and which is guaranteed by SCMP.

Save as aforesaid and apart from intra-group liabilities, the SCMP Group did not have, at the close of business on 31 August 2004, any loan capital issued and outstanding and authorised or otherwise created but unissued, or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, obligations under hire purchases contracts or finance leases, guarantees, or other material contingent liabilities (which are required to be disclosed in the financial statements of the SCMP Group pursuant to Hong Kong statement of standard accounting practice).

4. FINANCIAL AND TRADING PROSPECTS

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

The operating results of the SCMP Group for the six months ended 30 June 2004 improved significantly as compared with the same period last year when a weak economy and the outbreak of the Severe Acute Respiratory Syndrome (SARS) adversely affected the businesses of the SCMP Group. The Disposal is expected to have a material positive effect on the profits of the SCMP Group in the current financial year. The prospects of the SCMP Group will be affected further by the strength and pace of the economic recovery in Hong Kong, the level of advertising spending and inflation.

5. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present available banking facilities, internal resources of the SCMP Group and the proceeds from the Disposal, the SCMP Group has sufficient working capital for its present requirements, that is for the next 12 months from the date of this circular, in the absence of unforeseen circumstances.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the SCMP Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors’ and chief executive’s interest in securities

As at the Latest Practicable Date, the following Directors had the following interests and short positions in the shares, underlying shares or debentures of SCMP or any of its associated corporations (within the meaning of Part XV of the SFO) which were notifiable to SCMP 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 the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules or which were required pursuant to Section 352 of the SFO to be entered in the register referred to therein (collectively, the “Discloseable Interests”):

Name of director Mr. Kuok Khoon Ean (Note 1) Tan Sri Dr. Khoo Kay Peng (Note 2) Dr. The Hon. David Li Kwok Po	Number of ordinary shares in SCMP(Note 4) Approximate % interest in SCMP’s issued share capital Personal interests Family interests Corporate interests Total (Note 3) – – 340,000 340,000 0.022% – – 87,119,145 87,119,145 5.581% 100,000 – – 100,000 0.006%

Notes:

1. The interests in the 340,000 Shares are in respect of deemed corporate interests held by Mr. Kuok Khoon Ean through Allerlon Limited, which is wholly owned by Mr. Kuok and his spouse.

2. The interests in the 87,119,145 Shares are in respect of deemed corporate interests held by Tan Sri Dr. Khoo Kay Peng through (i) MUI Media Ltd. as to 70,969,145 Shares and (ii) Bonham Industries Limited as to 16,150,000 Shares. As at 27 September 2004, Dr. Khoo was deemed to have an interest in approximately 32.31% of the issued capital of Pan Malaysian Industries Berhad which in turn holds approximately 46.56% of the issued capital of Malayan United Industries Berhad (“MUI Berhad”). MUI Media Ltd. is wholly owned by MUI Berhad. Dr. Khoo and his spouse are deemed to have interests in the entire issued capital of Bonham Industries Limited.

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GENERAL INFORMATION

APPENDIX II

1. Approximate percentage calculated based on 1,560,945,596 Shares in issue as at the Latest Practicable Date.

2. All the interests stated above represent long positions in Shares.

Save as otherwise disclosed above, as at the Latest Practicable Date, none of the Directors or any chief executive of SCMP had any other Discloseable Interests.

Interests of other persons in share capital of SCMP

As at the Latest Practicable Date, according to the register required to be kept by SCMP under Section 336 of the SFO and so far as the Directors and the chief executive of SCMP are aware, the following persons (other than a Director or chief executive of SCMP) had, directly or indirectly, an interest or short position in the shares and underlying shares of SCMP which would be required to be disclosed to SCMP under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate
			% interest in
			SCMP’s
	Nature of	Number of	issued share
Name of Shareholder	interest	Shares held	capital	Note
		(Note 10)	(Note 9)
Kerry Media Limited	Beneficial	524,730,000	33.62%	1
	owner
Kerry 1989 (C.I.)	Interest of	525,036,000	33.64%	2
Limited	controlled
	corporations
Kerry Holdings Limited	Interest of	594,576,000	38.09%	3 & 4
	controlled
	corporations
Kerry Group Limited	Interest of	594,576,000	38.09%	4
	controlled
	corporations
Silchester International	Investment	203,005,000	13.01%	5 & 6
Investors Limited	manager
Sprucegrove Investment	Investment	104,918,000	6.72%	5 & 7
Management Ltd.	manager

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GENERAL INFORMATION

APPENDIX II

			Approximate
			% interest in
			SCMP’s
	Nature of	Number of	issued share
Name of Shareholder	interest	Shares held	capital	Note
		(Note 10)	(Note 9)
Madam Chai Siew Phin	Interest of	87,119,145	5.58%	8
Pauline	controlled
	corporation
Templeton Global	Investment	85,259,937	5.46%	5
Advisors Ltd.	manager

Notes:

1. The interests in the 524,730,000 Shares held by Kerry Media Limited are duplicated in the respective interests reported above for Kerry 1989 (C.I.) Limited, Kerry Holdings Limited and Kerry Group Limited.

2. The interests in the 525,036,000 Shares held by Kerry 1989 (C.I.) Limited are duplicated in the respective interests reported above for Kerry Holdings Limited and Kerry Group Limited.

3. The interests in the 594,576,000 Shares held by Kerry Holdings Limited are duplicated in the interests reported above for Kerry Group Limited.

4. SCMP has been notified informally that, as at 30 June 2004, Kerry Group Limited and Kerry Holdings Limited were interested in 595,568,000 Shares (representing approximately 38.15% of SCMP’s issued share capital) and the increase in shareholding was not required to be disclosed under Part XV of the SFO.

5. Investment manager acting on behalf of clients and not connected with SCMP.

6. Silchester International Investors Limited has informally notified SCMP that, as at 27 September 2004, it held 205,523,000 Shares (representing approximately 13.17% of SCMP’s issued share capital) and this increase in shareholding was not required to be disclosed under Part XV of the SFO.

7. Sprucegrove Investment Management Ltd. has informally notified SCMP that, as at 27 September 2004, it held 103,634,000 Shares (representing approximately 6.64% of SCMP’s issued share capital) and this decrease in shareholding was not required to be disclosed under Part XV of the SFO.

8. The interests in the 87,119,145 Shares held by Madam Chai Siew Phin Pauline are duplicated in the interests for Tan Sri Dr. Khoo Kay Peng disclosed under the paragraph headed “Directors’ and chief executive’s interest in securities” of this circular.

9. Approximate percentage calculated based on 1,560,945,596 Shares in issue as at the Latest Practicable Date.

10. All the interests stated above represent long positions in Shares.

11. None of the interests stated above represent options in respect of SCMP’s share capital.

Save as disclosed above, and so far as the Directors and the chief executive of SCMP are aware, there is no person who had an interest or short position in the Shares or underlying Shares which would be required to be disclosed to SCMP under the provisions of Divisions 2 and 3 of Part XV of the SFO as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX II

Interests of other persons in share capital of other members of the SCMP Group

As at the Latest Practicable Date and so far as is known to the Directors and the chief executive of SCMP, no other person was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the SCMP Group:

	Name of
	substantial	% of issued
Name	shareholder	share capital
SCMP Hearst Publications Limited	HMI China	30%
PC Home (Hong Kong) Limited	PC Home Inc.	10%

• Note: None of the interests stated above represent options in respect of the share capital of any other member of the SCMP Group.

Save as disclosed above, and so far as the Directors and the chief executive of SCMP are aware, there is no person who was directly or indirectly beneficially interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the SCMP Group as at the Latest Practicable Date.

3. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors and his associates (as defined in the Listing Rules) are considered by SCMP to have interests in business which compete with, or might compete with, either directly or indirectly, with the business of the SCMP Group, other than those businesses where such Directors have been appointed to represent the interests of SCMP and/or other members of the SCMP Group.

4. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

• (a) none of the Directors had any interest, direct or indirect, in any assets which have been, since 31 December 2003, the date to which the latest published audited consolidated financial statements of the SCMP Group were made up, acquired or disposed of by, or leased to any member of the SCMP Group, or are proposed to be acquired or disposed of by, or leased to, any member of the SCMP Group; and

• (b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the SCMP Group, which contract or arrangement is subsisting as at the Latest Practicable Date and which is significant in relation to the business of the SCMP Group.

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GENERAL INFORMATION

APPENDIX II

5. DIRECTORS’ INTEREST IN SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered into or is proposing to enter into a service contract with any member of the SCMP Group (excluding contracts which may be terminated by the relevant member of the SCMP Group within one year without payment of any compensation (other than statutory compensation)).

6. LITIGATION

As at the Latest Practicable Date, neither SCMP nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against SCMP or any other member of the SCMP Group.

7. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the SCMP Group within the two years preceding 15 September 2004 (being the date of the Announcement) and up to and including the Latest Practicable Date:

• (a) the Agreement;

• (b) the escrow letter between the Purchaser, the Vendor and the Vendor’s solicitors (as escrow agent) in relation to the Deposit; and

• (c) the agreement for sale and purchase of shares dated 30 May 2003 between Growth Achieve Limited (a wholly-owned subsidiary of SCMP) as vendor, Media Group International Limited as purchaser and the Vendor as guarantor of Growth Achieve Limited in relation to the sale and purchase of the entire issued share capital of Retailcorp Limited (owner of the “Health Plus” business). The purchase consideration received by the SCMP Group under the agreement was approximately HK$3.1 million.

8. MISCELLANEOUS

• (a) The company secretary of SCMP is Ms. Vera Leung, who is a solicitor of the Supreme Court of Hong Kong.

• (b) The qualified accountant of SCMP is Ms. Li Yuk Ching (Christine), who is a fellow member of both The Hong Kong Institute of Certified Public Accountants and The Association of Chartered Certified Accountants.

• (c) The Hong Kong branch share registrar and transfer office of SCMP is Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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GENERAL INFORMATION

APPENDIX II

• (d) The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of SCMP at Morning Post Centre, 22 Dai Fat Street, Tai Po Industrial Estate, New Territories, Hong Kong during normal business hours on any weekday, except public holidays, from the date of this circular up to and including the date of the SGM:

• (a) the memorandum of association and Bye-laws of SCMP;

• (b) the annual report of SCMP for each of the two financial years ended 31 December 2002 and 2003;

• (c) the published interim report of SCMP for the six months ended 30 June 2004; and

• (d) the material contracts referred to in paragraph 7 of this Appendix II.

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NOTICE OF THE SGM

APPENDIX III

**SCMP Group Limited SCMP ***

(Incorporated in Bermuda with limited liability)

(Stock Code: 583)

Notice is hereby given that the special general meeting (the “ SGM ”) of SCMP Group Limited (“ SCMP ”) will be held at The Chater Room I-III, Level B1, The Ritz Carlton Hong Kong, No. 3 Connaught Road Central, Hong Kong on Thursday, 28 October 2004 at 11:00 a.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution of SCMP:

ORDINARY RESOLUTION

“ THAT the conditional sale and purchase agreement dated 13 September 2004 entered into between SCMP Retailing (HK) Limited (the “Vendor”), a wholly-owned subsidiary of SCMP, and The Dairy Farm Company, Limited (the “Purchaser”) (the “ Agreement ”), a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purpose, and the transactions contemplated thereunder and the implications of such transactions be and are hereby approved, confirmed and ratified; and the directors of SCMP be and are hereby authorised to exercise all such powers and do all such acts and things as they consider desirable, necessary or appropriate to implement or to give effect to the terms of the Agreement and the transactions contemplated thereunder (including, without limitation, exercising or enforcing any right thereunder) and to make and agree to such variations, amendments or modifications (if any) to the terms of the Agreement and the transactions contemplated therein as they may consider to be desirable, necessary or appropriate in the interest of SCMP.”

By Order of the Board Vera Leung Company Secretary

Hong Kong, 12 October 2004

As at the date hereof, the Board comprises Mr. Kuok Khoon Ean (Chairman), Mr. Roberto V. Ongpin (Deputy Chairman), Mr. Ronald J. Arculli[#] , Tan Sri Dr. Khoo Kay Peng, Ms. Kuok Hui Kwong, Mr. Peter Lee Ting Chang[#] , Dr. The Hon. David Li Kwok Po[#] and Mr. Robert Ng Chee Siong.

# Independent Non-executive Director

Notes:

(1) A member entitled to attend and vote at the SGM (or at any adjournment thereof) is entitled to appoint a proxy or proxies to attend and vote in his or her stead and any such member who is a holder of 2 or more shares in

* For identification purpose only.

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NOTICE OF THE SGM

APPENDIX III

SCMP is entitled to appoint more than one proxy to attend and vote in his/her stead. A proxy need not be a member of SCMP. In the event that a member appoints more than one proxy, on a show of hands, all such proxies shall collectively have one vote unless otherwise provided for in the Bye-laws of SCMP.

• (2) The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised.

• (3) Where there are joint registered holders of any share, any one of such persons may vote at the SGM (or at any adjournment thereof), either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of SCMP in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands will for this purpose be deemed joint holders thereof.

• (4) A form of proxy for use at the SGM is enclosed. To be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof must be deposited at the branch share registrar of SCMP in Hong Kong, Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and, in any event, not less than 48 hours before the time appointed for the holding of the SGM. Completion and deposit of the form of proxy will not preclude a member from attending and voting in person at the SGM (or any adjourned meeting thereof) if the member so wishes.

• (5) Members of SCMP are advised to read the circular to the Shareholders dated 12 October 2004 which contains information concerning the resolution to be proposed in this notice.

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RIGHT TO DEMAND A POLL

APPENDIX IV

The existing Bye-Law 70 of SCMP sets out the procedures by which Shareholders may demand a poll:

At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is demanded (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for a poll). A poll may be demanded by:

• (i) the chairman of the meeting;

• (ii) at least three Shareholders present in person or by a duly authorised corporate representative or by proxy for the time being entitled to vote at the meeting;

• (iii) any Shareholder or Shareholders present in person or by a duly authorised corporate representative or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or

• (iv) by any Shareholder or Shareholders present in person or by a duly authorised corporate representative or by proxy and holding shares in SCMP, conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll be so demanded and the demand is not withdrawn, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of SCMP shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolutions.

−64 −