Min Xin Holdings Limited — Proxy Solicitation & Information Statement 2005

Apr 1, 2005

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in China Investments Holdings Limited , you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank, stockbroker, or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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

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CHINA INVESTMENTS HOLDINGS LIMITED ( )[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 132)

MAJOR TRANSACTION DISPOSAL OF ASSETS

The notice convening a special general meeting of China Investments Holdings Limited to be held at 10:00 a.m. on 18th April, 2005 at the Garden Rooms, 2nd Floor, the Royal Garden, 69 Mody Road, Tsimshatsui, Kowloon, Hong Kong, is set out on pages 82 to 83 of this circular. Whether or not you intend to attend the meeting, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon and return the same to the principal place of business of the Company in Hong Kong at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong as soon as possible, but in any event not less than 48 hours before the time for holding of the meeting. Completion and return of the proxy form will not preclude you from attending and voting at the meeting or any adjourned meeting should you so wish.

* for identification purpose only

31st March, 2005

CONTENTS

Page(s)	Page(s)
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2. The Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3. Reasons for the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
4. Information of the Group and the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
5. Financial and Trading Prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
6. Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
7. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
8. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Appendix II — Property Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
Appendix III — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	75
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82

— i —

DEFINITIONS

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

“Board”	the board of Directors
“Company”	China Investments Holdings Limited, an exempted company
	incorporated in Bermuda with limited liability, the shares of
	which are listed on the Stock Exchange
“Developer”	a company established in the PRC, an Independent Third
	Party
“Development Agreement”	the development agreement dated 6th February, 1993 entered
	into between Wise Lite Limited, Skyway Limited and the
	Developer in relation to the development of Lot No.18-07 and
	18-08 located at District No.18, Jiang Bei, Huizhou,
	Guangdong Province, the PRC, into commercial buildings
“Directors”	the directors of the Company
“Disposal”	the transactions contemplated under the Preliminary
	Agreement
“Group” “Heng Da”	the Company and its subsidiaries (Nanhai Heng Da Timber Company
	Limited*), a foreign wholly-owned enterprise established in
	the PRC and an indirect wholly-owned subsidiary of the
	Company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)”	party independent of and not connected with the Company
	and its connected persons (as defined in the Listing Rules),
“Jia Shun”	and is not a connected person of the Company (Nanhai Jia Shun Timber Company
	Limited*), a foreign wholly-owned enterprise established in
	the PRC and an indirect wholly-owned subsidiary of the
“Land Bureau”	Company (The Bureau of State Land and Resources of
	Huizhou City, the PRC*)

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DEFINITIONS

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||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Latest|Practicable|Date”|29th|March,|2005,|being|the|latest|practicable|date|prior|to|
|the|printing|of|this|circular|for|the|purpose|of|ascertaining|
|certain|information|contained|herein|
|“Listing|Rules”|The|Rules|Governing|the|Listing|of|Securities|on|the|Stock|
|Exchange|
|“People’s|Government|of|(People’s|Government|of|Huizhou|City)|
|Huizhou|City”|
|“PRC”|the|People’s|Republic|of|China|
|“Preliminary|Agreement”|the|preliminary|agreement|on|land|use|right|transfer|dated|6th|
|February,|2005|entered|into|between|the|Vendors|and|the|
|Purchaser|in|relation|to,|among|others,|the|transfer|of|either|
|the|Sale|Land|or|the|Sale|Shares|
|“Purchaser”|(Bo|Lou|County|Heng|Xin|Zhi|Ye|
|Ltd.),|a|limited|liability|company|established|in|the|PRC,|an|
|Independent|Third|Party|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|
|“Sale|Land”|Lot|No.18-07,|18-08|and|18-09|located|at|District|No.18,|
|Jiang|Bei,|Huizhou,|Guangdong|Province,|the|PRC,|owned|by|
|Wise|Lite|Limited,|Skyway|Limited|and|Fairwind|
|International|Limited|respectively|
|“Sale|Shares”|the|entire|issued|share|capital|of|Wise|Lite|Limited,|Skyway|
|Limited|and|Fairwind|International|Limited|
|“SFO”|the|Securities|and|Futures|Ordinance|(Chapter|571|of|the|
|Laws|of|Hong|Kong)|
|“SGM”|the|special|general|meeting|of|the|Company|to|be|held|at|
|10:00|a.m.|on|18th|April,|2005|at|the|Garden|Rooms,|2nd|
|Floor,|the|Royal|Garden,|69|Mody|Road,|Tsimshatsui,|
|Kowloon,|Hong|Kong,|a|notice|of|which|is|set|out|on|pages|
|82|to|83|of|this|circular|
|“Share(s)”|ordinary|share(s)|of|HK$0.10|each|in|the|issued|share|capital|
|of|the|Company|
|“Shareholder(s)”|holder(s)|of|the|Share(s)|
|“Stock|Exchange”|The|Stock|Exchange|of|Hong|Kong|Limited|

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	DEFINITIONS
“Surveyors”	Associated Surveyors	& Auctioneers Ltd., an independent
	property valuer appointed by the Company, which prepared
	the Valuation Report
“Valuation Report”	the valuation report	on the Sale Land prepared by the
	Surveyors, the text of	which is set out in Appendix II to this
“Vendors”	circular Wise Lite Limited ( ), Skyway Limited ( ) and Fairwind International Limited ( ), companies all incorporated in Hong Kong
	and all wholly-owned	subsidiaries of the Company
“%”	per cent.

Note: In this circular, unless otherwise stated, certain amounts denominated in RMB have been translated into HK$ using an exchange rate of HK$1.00 : RMB1.06 and vice versa, for information only.

* for identification purpose only

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LETTER FROM THE BOARD

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CHINA INVESTMENTS HOLDINGS LIMITED ( )[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 132)

Executive Directors:

Mr. Leung Siu Fai (Chairman) Mr. Kam Hung Chung (Managing Director) Mr. Wang Jin Yuan

Registered Office: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda

Independent Non-executive Directors:

Mr. Chan Kwok Wai Mr. You Guang Wu Mr. Chen Da Cheng

Head office and Principal place of business in Hong Kong: Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong

31st March, 2005

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION DISPOSAL OF ASSETS

1. INTRODUCTION

The Company announced on 9th March, 2005 that the Vendors, all wholly-owned subsidiaries of the Company, entered into the Preliminary Agreement on 6th February, 2005 with the Purchaser in respect of the disposal of the Sale Land in Huizhou, Guangdong Province, the PRC, of an aggregate site area of approximately 63,079 square meters, for an aggregate consideration of RMB51 million (equivalent to approximately HK$48.11 million).

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LETTER FROM THE BOARD

The Disposal constitutes a major transaction for the Company under the Listing Rules. The main purpose of this circular is to provide you with details of the Disposal together with a notice of the SGM.

2. THE DISPOSAL

• (a) Date of the Preliminary Agreement

• 6th February, 2005

(b) Parties to the Preliminary Agreement

• (i) Vendors: Wise Lite Limited, Skyway Limited and Fairwind International Limited, all wholly-owned subsidiaries of the Company

• (ii) Purchaser: (Bo Lou County Heng Xin Zhi Ye Ltd.*)

(c) Interest to be disposed of

The interest to be disposed of under the Preliminary Agreement is either the Sale Land or the Sale Shares.

The Vendors and the Purchaser shall enter into either a land use right transfer contract in respect of the Sale Land at the Land Bureau or a shares transfer contract in respect of the Sale Shares within 2 months from the date of the Preliminary Agreement.

In the event that the Land Bureau does not approve the transfer of the land use right of the Sale Land from the Vendors to the Purchaser or the Purchaser is of the opinion that the expenses incurred in such transfer of land use right are too high, the Purchaser may opt to purchase the Sale Shares instead of the Sale Land.

(d) Information of the Sale Land and the Sale Shares

The information of the Sale Land is set out in paragraph 3 below.

Wise Lite Limited, Skyway Limited and Fairwind International Limited are companies incorporated in Hong Kong in 1992 for the purpose of acquiring the Sale Land. The net asset values of Wise Lite Limited, Skyway Limited and Fairwind International Limited as at 31st December, 2004 as stated in their respective unaudited accounts for the year ended 31st December, 2004 are approximately HK$25,704,000, HK$32,552,000 and HK$21,744,000 respectively. Wise Lite Limited, Skyway Limited and Fairwind International Limited do not hold any other asset apart from the Sale Land.

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LETTER FROM THE BOARD

The net losses of Wise Lite Limited, Skyway Limited and Fairwind International Limited as stated in their respective unaudited accounts for the year ended 31st December, 2004 and as stated in their respective audited accounts for the year ended 31st December, 2003 are set out below:

	Net loss as stated	Net loss as stated
	in the unaudited	in the audited
	accounts for	accounts for
	the year ended	the year ended
	31st December, 2004	31st December, 2003
Wise Lite Limited	HK$2,705	HK$3,905
Skyway Limited	HK$2,705	HK$3,905
Fairwind International Limited	HK$2,705	HK$3,905

The aforesaid net asset values and net losses were prepared under the Hong Kong Financial Reporting Statement issued by the Hong Kong Institute of Certified Public Accountants.

(e) Consideration

The aggregate consideration payable by the Purchaser to the Vendors in relation to the Disposal is RMB51 million (equivalent to approximately HK$48.11 million).

Such consideration was arrived at after arm’s length negotiations and was determined with reference to the value of RMB50 million (equivalent to approximately HK$47.17 million) in respect of the Sale Land as stated in the Valuation Report. The Disposal involves a loss of approximately RMB33.8 million (equivalent to approximately HK$31.89 million) to the Group, which loss is calculated on the basis of the difference between the book value of HK$80 million in respect of the Sale Land as at 30th June, 2004 as included in the interim results of the Company for the six months ended 30th June, 2004 and the aggregate consideration of RMB51 million (equivalent to approximately HK$48.11 million) of the Disposal. The net asset value of the Group is expected to decrease by approximately RMB33.8 million (equivalent to approximately HK$31.89 million) before deduction of any related costs and expenses.

(f) Payment terms and termination

The aggregate consideration of RMB51 million (equivalent to approximately HK$48.11 million) in relation to the Disposal shall be paid by the Purchaser in the following manner:-

• (i) A deposit of RMB5.1 million (equivalent to approximately HK$4.81 million) has been paid by the Purchaser upon the signing of the Preliminary Agreement. If the Purchaser is in breach of the terms of the Preliminary Agreement or the Preliminary Agreement lapses due to the Purchaser solely, the initial deposit of RMB5.1 million (equivalent to approximately HK$4.81 million) paid by the Purchaser shall be forfeited by the Vendors. If the Vendors fail to transfer the land use right of the Sale Land or the Sale Shares to the Purchaser due

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LETTER FROM THE BOARD

• to the Vendors solely, the Vendors shall return to the Purchaser the initial deposit of RMB5.1 million (equivalent to approximately HK$4.81 million) paid by the Purchaser and pay an additional sum of RMB5.1 million (equivalent to approximately HK$4.81 million) to the Purchaser;

• (ii) A further sum of RMB5.1 million (equivalent to approximately HK$4.81 million) shall be paid by the Purchaser either upon (1) the execution of the land use right transfer contract by the Purchaser and the Vendors in relation to the Sale Land at the Land Bureau or (2) the signing of written confirmations in respect of the sale and purchase of the Sale Shares by the Purchaser and the Vendors; and

• (iii) The initial deposit of RMB5.1 million mentioned in (i) above shall be used to settle the balance of the consideration and the remaining balance of the consideration of RMB40.8 million (equivalent to approximately HK$38.49 million) after payment of the further sum of RMB 5.1 million as mentioned in (ii) above shall be paid within one month after either (1) the issuance of a written confirmation on the transfer of the Sale Land from the Vendors to the Purchaser by the Land Bureau and the delivery of the original land use right certificates in relation to the Sale Land from the Vendors to the Purchaser, or (2) the completion of the sale and purchase of the Sale Shares. If the Purchaser pays such balance of the consideration within 1 month after the completion of the sale and purchase of the Sale Shares, the Vendors shall forthwith deliver the original land use right certificates in relation to the Sale Land to the Purchaser.

If (1) the Purchaser fails to obtain the aforesaid written confirmation from the Land Bureau within 4 months from the date of the Preliminary Agreement and the sale and purchase of the Sale Shares is not completed due to the Purchaser solely within 4 months from the date of the Preliminary Agreement, or (2) the Purchaser fails to pay the consideration in full within 5 months from the date of the Preliminary Agreement, the Vendors shall be entitled to deal with the Sale Land and the Sale Shares and all payments paid by the Purchaser to the Vendors shall become non-refundable and be forfeited by the Vendors.

(g) Tax and expenses

All taxation (save for the sales tax for the purpose of issuance of sales invoices which shall be borne by the Vendors), fees and expenses in relation to the Disposal shall be borne by the Purchaser.

(h) Shareholders’ approval

The Preliminary Agreement does not provide for any condition precedent. Since the Disposal constitutes a major transaction, it is subject to approval of the Shareholders at the SGM under the Listing Rules. The Preliminary Agreement has not however made the approval of the Disposal by the Shareholders a condition precedent because (i) the Directors consider that the Disposal represents a good opportunity for the Company to dispose of the Sale Land (as more particularly elaborated in paragraph (3) below) and (ii) the Purchaser would only agree to an unconditional sale and purchase of the Sale Land. In the event that the Shareholders at the SGM do not approve the Disposal, the Company may consider not to proceed with the completion of the Disposal, in which case the Vendors

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LETTER FROM THE BOARD

shall return to the Purchaser the initial deposit of RMB5.1 million (equivalent to approximately HK$4.81 million) paid by the Purchaser and pay an additional sum of RMB5.1 million (equivalent to approximately HK$4.81 million) as compensation to the Purchaser pursuant to the Preliminary Agreement. Mighty Management Limited (which is wholly owned by Mr. Leung Siu Fai, the chairman of the Company) and Sintex Investment Limited (which is 50% owned by Mr. Kam Hung Chung, the managing director of the Company) have undertaken to vote in favour of the Disposal at the SGM. Mighty Management Limited and Sintex Investment Limited hold 16.57% and 6.44% of the total issued share capital of the Company respectively.

3. REASONS FOR THE DISPOSAL

The Company acquired the Sale Land in 1992 for the purpose of development of commercial buildings for sale. Wise Lite Limited and Skyway Limited entered into the Development Agreement with the Developer on 6th February, 1993. Under the Development Agreement, the Developer shall be responsible for seeking and paying contractors to carry out construction work of the commercial buildings and shall be entitled to share profit derived from the sale of such commercial buildings with Wise Lite Limited and Skyway Limited. However, the Developer failed to fulfill its obligations under the Development Agreement. Wise Lite Limited and Skyway Limited therefore terminated the Development Agreement in 2000. As regards the portion of the Sale Land owned by Fairwind International Limited, Fairwind International Limited had tried to look for interested parties to jointly develop the said portion since its acquisition in 1992 in vain.

On the other hand, since the acquisition of the Sale Land, the prices of commercial premises have been decreasing and the vacancy rate of commercial premises has been high in Huizhou, the PRC. As the land use right of the Sale Land is restricted to development of the Sale Land into commercial buildings, the Company had made application to the relevant government authority of the PRC for conversion of such land use right into development of the Sale Land into residential and commercial buildings. However, such application was not approved by the relevant government authority of the PRC.

Since the termination of the Development Agreement, the Group had been seeking buyers for the Sale Land. In the meantime, the Group had also been seeking developers to develop the Sale Land with the Group in vain because the aforesaid application of conversion of land use was not approved.

As the Sale Land has not been developed and has been vacant since its acquisition in 1992, the PRC government authority has rights to impose (unused land levy) on the Vendors and/or confiscate the Sale Land under (The Urban Real Estate Administration Law of the PRC). The Vendors received a notice dated 1st July, 2004 from the People’s Government of Huizhou City informing the Vendors that as the Sale Land had not been developed, the People’s Government of Huizhou City decided to confiscate the land use right of the Sale Land from the Vendors. The Vendors applied to (People’s Government of Guangdong Province) for an administration review in respect of the aforesaid decision of the People’s Government of Huizhou City through a firm of lawyers in the PRC on the ground that such decision had not complied with the statutory procedure in respect of (unused land) under the PRC law. During the process of the administration review, the People’s Government of Huizhou City withdrew its decision to confiscate the Sale Land on 25th November, 2004. The Vendors received on 22nd February, 2005 a

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LETTER FROM THE BOARD

notice from the Land Bureau requesting the Vendors to explain the status of the usage and the development of the Sale Land, failing which the Land Bureau would deal with the Sale Land in accordance with the relevant PRC law and regulations in respect of (unused land*). The Vendors had explained the status of the usage and the development of the Sale Land to the Land Bureau. The Vendors have not received any further notice in relation to the Sale Land from the Land Bureau or the People’s Government of Huizhou City as at the Latest Practicable Date. The Purchaser is aware of the aforesaid notices received by the Vendors. The Directors understand from the PRC lawyers that the aforesaid notices would not affect the right of the Vendors to dispose the Sale Land under the Preliminary Agreement.

The Directors consider that as the Sale Land remains vacant, the disposal of the Sale Land will not have any material impact on the operations of the Group. The Directors are of the opinion that in view of the aforesaid reasons, the Disposal is in the interest of the Company and its Shareholders as a whole. The Directors confirmed that the terms of the Preliminary Agreement are fair and reasonable. The proceeds of the Disposal will be used as working capital of the Group.

If the disposal of the Sale Shares is completed, the Vendors will cease to be subsidiaries of the Company and the Company will not hold any issued share capital in the Vendors.

4. INFORMATION OF THE GROUP AND THE PURCHASER

The principal business activities of the Group are manufacture and trading of fiberboards and veneers, property development and investment, hotel operation and investment holding.

The Purchaser is a limited liability company established in the PRC. The Purchaser’s principal business activities are development and sales of real estate, conducting civil engineering projects, property management and land valuation. To the best of the Directors’ knowledge, information and belief, and having made due enquiry, the Purchaser and its ultimate shareholder are Independent Third Parties.

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

With a strengthened financial base of the Group upon completion of the Disposal and further increase of operating income by maximising the utilisation of production facilities of the fibreboard factory in Nanhai, the PRC, the Directors believe that the financial and trading prospects of the Group are positive and optimistic.

6. COMPLIANCE WITH THE LISTING RULES

The Disposal constitutes a major transaction for the Company under the Listing Rules and is subject to the approval by the Shareholders at the SGM. To the best of the knowledge, information and belief of the Directors, after making all reasonable enquiries, no Shareholder has a material interest in the Disposal, and therefore no Shareholder is required to abstain from voting in respect of the

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LETTER FROM THE BOARD

proposed resolution to approve the Disposal at the SGM. Neither the Purchaser nor any of its associates have any interest in the Company as at the Latest Practicable Date. If the Purchaser or its associate(s) have interest at the time of holding of SGM, such party(ies) will be required to abstain from voting in respect of the proposed resolution to approve the Disposal at the SGM.

The SGM will be held at 10:00 a.m. on 18th April, 2005 at the Garden Rooms, 2nd Floor, the Royal Garden, 69 Mody Road, Tsimshatsui, Kowloon, Hong Kong. A notice convening the SGM is set out on pages 82 to 83 of this circular. An ordinary resolution will be proposed at the SGM for the Shareholders to approve the Preliminary Agreement and the transactions contemplated thereunder.

Enclosed is a form of proxy for use at the SGM. Whether or not you intend to attend and vote at the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the principal place of business of the Company in Hong Kong at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong as soon as possible, but in any event, not less than 48 hours before the time appointed for holding the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjourned meeting should you so wish.

7. RECOMMENDATION

For the reasons set out above, the Board considers that the Preliminary Agreement and the Disposal are fair and reasonable so far as the Shareholders are concerned and in the interest of the Group and the Shareholders as a whole, and therefore recommends the Shareholders to vote in favour of the ordinary resolution set out in the notice of SGM to approve the Preliminary Agreement and any further agreement and documents in connection with the Preliminary Agreement and the transactions contemplated thereunder.

8. ADDITIONAL INFORMATION

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

By order of the Board Leung Siu Fai Chairman

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APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The following is the auditors’ report extracted from the annual report of the Company for the year ended 31st December 2003:

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Auditors’ Report

TO THE MEMBERS OF CHINA INVESTMENTS HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 26 to 76 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s Directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”), except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, certain audit evidence available to us was limited as set out below:

Accounting records and supporting documents of a subsidiary

The operation of Nanhai Heng Da Timber Company Limited (“Heng Da”), one of the operating subsidiaries of the Company, was suspended on 17th August, 2003 due to the failure of supply of electricity and steam by the power plant which was jointly built and operated pursuant to the power plant agreement dated 18th September, 2001 (the “Power Plant”) resulting from its suspension of operations on that day.

On l9th August, 2003, the bank accounts, assets, books of accounts and part of its accounting records, including the accounting ledgers and vouchers, were seized by the Intermediate People’s Court of Foshan City, Guangdong Province, the People’s Republic of China (the “Court”) in relation to the claim of Shenzhen Development Bank Foshan Branch (the “Claimant”) for a bank loan contract dated 23rd May, 2003 purportedly to be entered between Heng Da and the Claimant. The books and records seized were subsequently released and returned to Heng Da on 2nd April, 2004. During the course of our audit, we noted that the books of accounts and accounting records of Heng Da have only been maintained and updated to 31st July, 2003. No ledgers, vouchers and other source documents were available for Heng Da for the period from 1st August, 2003 to 17th August, 2003 (date of suspension of operation of Heng Da) and certain source documents, mainly goods delivery and receipt notes, and production records for the year, which were not seized by the Court, but kept in Heng Da’s office after the suspension of the operation, had been misplaced or lost. The former legal representative of Heng Da is uncontactable and the other key management and personnel responsible for the accounting and finance function of Heng Da had also left the company in mid August 2003.

Included in the consolidated balance sheet of the Group as at 31st December, 2003 and the consolidated income statement for the year then ended, are the following balances attributable to Heng Da:

• Equipment and machineries of HK$51,954,000;

• Trade and other payables of HK$24,710,000;

• Turnover of HK$36,681,000;

• Cost of sales of HK$35,001,000;

• Administrative expenses of HK$2,641,000; and

• Finance costs of HK$3,000.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the absence of complete accounting records, there were no satisfactory auditing procedures that we could adopt to ascertain whether the balances relating to turnover, cost of sales, administrative expenses, finance costs and the trade and other payables attributable to Heng Da which had been consolidated in the Group’s financial statements have been properly accounted for and are fairly stated. We had performed a limited review on the books and records of the Company and its subsidiaries, including those of Heng Da, for the period from 1st January, 2003 to 30th June, 2003 in accordance with Statement of Auditing Standards 700 “Engagements to Review Interim Financial Reports” issued by the HKSA and we were not aware of any material modifications needed to be made to the reviewed financial statements of the Group for the period then ended.

There were no other satisfactory auditing procedures that we could adopt to ascertain whether matters referred to above have been properly accounted for and are fairly stated in the financial statements. Any adjustments arising in relation to the matters above would have a consequential effect on the loss and cash flows of the Group for the year ended 31st December, 2003 and the net assets of the Group as at that date.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

QUALIFIED OPINION: LIMITATION OF AUDIT SCOPE

Except for any adjustments that might have been found necessary had the books and records of Heng Da been available, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31st December, 2003 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation on our work relating to matters specified in the “Basis of opinion” section:

• we have not obtained all the information and explanations that we considered necessary for the purpose of our audit of Heng Da; and

• we were unable to determine whether proper books of account had been kept by Heng Da for the period from 1st July, 2003 to 17th August, 2003 (date of suspension of operation of Heng Da).

Without qualifying our opinion, we draw to your attention that we have not received any direct confirmations in respect of an alleged guarantee provided by Nanhai Jia Shun Timber Company Limited (“Jia Shun”), a subsidiary of the Company, in favour of a bank as at 31st December, 2003 in respect of certain alleged loan contract between the bank and an independent third party amounting to RMB40,000,000 (equivalent to approximately HK$38,000,000) which is the subject of a litigation between the bank and Jia Shun.

HLM & Co.

Certified Public Accountants

Hong Kong, 15th April, 2004

— 13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Audited financial statements

Set out below are a summary of the audited consolidated income statements of the Group and the audited balance sheets of the Company as at 31st December, 2002 and 2003, the audited consolidated statement of changes in equity of the Group for the two years ended 31st December, 2003 and the audited consolidated cash flow statements of the Group for the two years ended 31st December, 2003, together with the accompanying notes in the accounts as extracted from the annual report of the company for the year ended 31st December, 2003.

CONSOLIDATED INCOME STATEMENT

For the Year Ended 31st December, 2003

NOTES Turnover 5 Cost of sales and services Gross profit Other operating income 6 Selling and distribution costs Administrative expenses Revaluation deficit on investment properties Other operating expenses Impairment loss in respect of investment properties Loss on disposal of investment properties Provision for doubtful amounts 7 (Loss) profit from operations 8 Finance costs 9 (Loss) profit for the year (Loss) earnings per share 13 Basic Diluted	2003 HK$’000 196,782 (149,846)	2002 HK$’000 180,842 (118,799) 62,043 12,033 (1,291) (26,339) (17,900) (6,691) — — — 21,855 (3,810) 18,045 2.3 cents 1.5 cents
	46,936 16,515 (690) (22,462) — (13,461) (5,900) (6,731) (171,950) (157,743) (3,136)	62,043 12,033 (1,291 (26,339 (17,900 (6,691 — — —
		21,855 (3,810
	(160,879) (17.6 cents) N/A

— 14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31st December, 2003

NOTES 2003 2002 HK$’000 HK$’000 Non-current assets Investment properties 14 11,100 64,600 Property, plant and equipment 15 293,606 295,221 Properties held for development 16 80,000 80,000 Goodwill 17 103,103 108,721 Investments in securities 19 — 1 Other receivable 20 — 17,552 Club debenture — 205 487,809 566,300 Current assets Properties held for sale 21 128,700 104,600 Inventories 22 26,481 22,646 Trade and other receivables 23 13,195 43,942 Investments in securities 19 61 63 Pledged bank deposits 32 2,300 10,870 Bank balances and cash 31,858 47,749 202,595 229,870 Current liabilities Trade and other payables 24 77,087 52,710 Provision for loss in litigation 38,000 — Tax payable 2,546 2,546 Bank borrowings — due within one year 25 6,500 16,097 124,133 71,353 Net current assets 78,462 158,517 566,271 724,817 Capital and reserves Share capital 26 91,500 91,500 Reserves 259,721 411,767 351,221 503,267 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 566,271 724,817	NOTES 2003 2002 HK$’000 HK$’000 Non-current assets Investment properties 14 11,100 64,600 Property, plant and equipment 15 293,606 295,221 Properties held for development 16 80,000 80,000 Goodwill 17 103,103 108,721 Investments in securities 19 — 1 Other receivable 20 — 17,552 Club debenture — 205 487,809 566,300 Current assets Properties held for sale 21 128,700 104,600 Inventories 22 26,481 22,646 Trade and other receivables 23 13,195 43,942 Investments in securities 19 61 63 Pledged bank deposits 32 2,300 10,870 Bank balances and cash 31,858 47,749 202,595 229,870 Current liabilities Trade and other payables 24 77,087 52,710 Provision for loss in litigation 38,000 — Tax payable 2,546 2,546 Bank borrowings — due within one year 25 6,500 16,097 124,133 71,353 Net current assets 78,462 158,517 566,271 724,817 Capital and reserves Share capital 26 91,500 91,500 Reserves 259,721 411,767 351,221 503,267 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 566,271 724,817	NOTES 2003 2002 HK$’000 HK$’000 Non-current assets Investment properties 14 11,100 64,600 Property, plant and equipment 15 293,606 295,221 Properties held for development 16 80,000 80,000 Goodwill 17 103,103 108,721 Investments in securities 19 — 1 Other receivable 20 — 17,552 Club debenture — 205 487,809 566,300 Current assets Properties held for sale 21 128,700 104,600 Inventories 22 26,481 22,646 Trade and other receivables 23 13,195 43,942 Investments in securities 19 61 63 Pledged bank deposits 32 2,300 10,870 Bank balances and cash 31,858 47,749 202,595 229,870 Current liabilities Trade and other payables 24 77,087 52,710 Provision for loss in litigation 38,000 — Tax payable 2,546 2,546 Bank borrowings — due within one year 25 6,500 16,097 124,133 71,353 Net current assets 78,462 158,517 566,271 724,817 Capital and reserves Share capital 26 91,500 91,500 Reserves 259,721 411,767 351,221 503,267 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 566,271 724,817
	487,809 128,700 26,481 13,195 61 2,300 31,858 202,595 77,087 38,000 2,546 6,500 124,133 78,462	566,300
		104,600 22,646 43,942 63 10,870 47,749
		229,870
		52,710 — 2,546 16,097
		71,353
		158,517
	566,271	724,817
	91,500 259,721 351,221 16,250 198,800 215,050	91,500 411,767
		503,267
		22,750 198,800
		221,550
	566,271	724,817

— 15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

At 31st December, 2003

NOTES 2003 2002 HK$’000 HK$’000 Non-current asset Investments in subsidiaries 18 23,607 23,607 Current assets Amounts due from subsidiaries 235,534 318,627 Deposits and other receivables 344 226 Bank balances and cash 151 375 236,029 319,228 Current liabilities Other payables 3,702 1,721 Bank borrowings — due within one year 25 6,500 6,500 10,202 8,221 Net current assets 225,827 311,007 249,434 334,614 Capital and reserves Share capital 26 91,500 91,500 Reserves (57,116) 21,564 34,384 113,064 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 249,434 334,614	NOTES 2003 2002 HK$’000 HK$’000 Non-current asset Investments in subsidiaries 18 23,607 23,607 Current assets Amounts due from subsidiaries 235,534 318,627 Deposits and other receivables 344 226 Bank balances and cash 151 375 236,029 319,228 Current liabilities Other payables 3,702 1,721 Bank borrowings — due within one year 25 6,500 6,500 10,202 8,221 Net current assets 225,827 311,007 249,434 334,614 Capital and reserves Share capital 26 91,500 91,500 Reserves (57,116) 21,564 34,384 113,064 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 249,434 334,614	NOTES 2003 2002 HK$’000 HK$’000 Non-current asset Investments in subsidiaries 18 23,607 23,607 Current assets Amounts due from subsidiaries 235,534 318,627 Deposits and other receivables 344 226 Bank balances and cash 151 375 236,029 319,228 Current liabilities Other payables 3,702 1,721 Bank borrowings — due within one year 25 6,500 6,500 10,202 8,221 Net current assets 225,827 311,007 249,434 334,614 Capital and reserves Share capital 26 91,500 91,500 Reserves (57,116) 21,564 34,384 113,064 Non-current liabilities Bank borrowings — due after one year 25 16,250 22,750 Convertible notes 28 198,800 198,800 215,050 221,550 249,434 334,614
	235,534 344 151 236,029 3,702 6,500 10,202 225,827	318,627 226 375
		319,228
		1,721 6,500
		8,221
		311,007
	249,434	334,614
	91,500 (57,116) 34,384 16,250 198,800 215,050	91,500 21,564
		113,064
		22,750 198,800
		221,550
	249,434	334,614

— 16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31st December, 2003

Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated profits (losses) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 THE GROUP At 1st January, 2002 66,620 393,808 39,254 (56,943) (14,668) Exchange translation not recognised in the income statement — — — (293) — Issue of new shares 24,880 — — — — Share premium arising from issue of shares, net of expenses — 32,564 — — — Profit for the year — — — — 18,045 At 31st December, 2002 and 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognised in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 91,500 426,372 48,068 (57,217) (157,502)	Total HK$’000 428,071 (293) 24,880 32,564 18,045 503,267 19 8,814 (160,879) 351,221
	— 24,880 — — 91,500 — — —	— — 32,564 — 426,372 — — —	— — — — 39,254 — 8,814 —	(293) — — — (57,236) 19 — —	— — — 18,045 3,377 — — (160,879)	(293 24,880 32,564 18,045
						503,267
						19 8,814 (160,879
	91,500	426,372	48,068	(57,217)	(157,502)

— 17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

			Hotel
			property		Accumulated
	Share	Share	revaluation	Exchange	profits
	capital	premium	reserve	reserve	(losses)	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
THE COMPANY
At 1st January, 2002	66,620	393,808	—	—	(391,739)	68,689
Issue of new shares	24,880	—	—	—	—	24,880
Share premium arising
from issue of shares,
net of expenses	—	32,564	—	—	—	32,564
Loss for the year	—	—	—	—	(13,069)	(13,069)
At 31st December,
2002 and 1st
January, 2003	91,500	426,372	—	—	(404,808)	113,064
Loss for the year	—	—	—	—	(78,680)	(78,680)
At 31st December,
2003	91,500	426,372	—	—	(483,488)	34,384

— 18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the Year Ended 31st December, 2003

Operating activities (Loss) profit for the year Adjustment for: Interest income Interest expenses Deficit on revaluation of investment properties Impairment loss on investment properties Gain on disposal of investment in securities Loss on disposal of investment properties Depreciation of property, plant and equipment Impairment loss on property, plant and equipment Provision for doubtful amount Amortisation of goodwill Loss on disposal of club debenture Unrealised holding (gains) losses on other investments Loss on disposal of property, plant and equipment Operating cash flow before movements in working capital Increase in inventories (Increase) decrease in trade and other receivables Increase in trade and other payables Net cash generated from (used in) operating activities Investing activities Acquisition of subsidiaries Acquired loans from former shareholders of subsidiaries Purchases of property, plant and equipment Decrease (increase) in pledged bank deposits Interest received Net proceeds from disposal of investment in securities Net proceeds from disposal of investment properties Increase in other receivable Net proceeds from disposal of property, plant and equipment Net cash generated from (used in) investing activities	2003 HK$’000 (160,879) (98) 3,136 — 5,900 (26) 6,731 10,636 4,788 171,950 5,618 205 (23) 609	2002 HK$’000 18,045 (221) 3,810 17,900 — — — 5,297 — — 3,862 — 93 14 48,800 (5,423) 4,892 14,086 62,355 (130,919) (128,653) (23,904) (133) 221 — — 208 10 (283,170)
	48,547 (8,609) (80,877) 22,389 (18,550) — — (7,540) 8,570 98 52 16,769 — 1,955 19,904	48,800 (5,423 4,892 14,086
		62,355
		(130,919 (128,653 (23,904 (133 221 — — 208 10
		(283,170

— 19 —

APPENDIX I	**FINANCIAL INFORMATION OF THE **	**FINANCIAL INFORMATION OF THE **	GROUP
		2003	2002
		HK$’000	HK$’000
Financing activities
Issue of convertible notes		—	230,000
Issue of new shares, net of expenses		—	26,244
Repayments of secured bank loans		(15,140)	(16,786)
Interest paid		(1,148)	(2,396)
Net cash (used in) generated from financing activities		(16,288)	237,062
**Net (decrease) increase in cash and **	cash equivalents	(14,934)	16,247
Cash and cash equivalents at 1st January		46,792	30,545
Cash and cash equivalents at 31st December		31,858	46,792
Analysis of the balances of cash and cash equivalents
Being:
Bank balances and cash		31,858	47,749
Bank overdraft		—	(957)
		31,858	46,792

— 20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the Year Ended 31st December, 2003

1. GENERAL

The Company is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The principal activities of the Group are manufacture and trading of fibreboards and veneers, property development and investment, raw steel and material trading, hotel operation and investment holding.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared based on the books and records maintained by the Company and its subsidiaries. However, due to the incidences stated herein, certain financial information and accounting records were misplaced, or could not be located, or have not been properly updated.

Financial information and certain source documents of a subsidiary

The operation of Heng Da, was suspended on 17th August, 2003 due to the failure of supply of electricity and steam by the Power Plant resulting from its suspension of operations on that day and on 19th August, 2003, the bank accounts, assets, its books of accounts and part of its accounting records, including the accounting ledgers and vouchers, were seized by the Court in relation to the claim of the Claimant for a bank loan contract dated 23rd May, 2003 purportedly to be entered between Heng Da and the Claimant. The books and records seized were subsequently released and returned to Heng Da on 2nd April, 2004. The books of accounts and accounting records of Heng Da have only been maintained and updated to 31st July, 2003, no ledgers, vouchers and other source documents of Heng Da in respect of the period from 1st August, 2003 to 17th August, 2003 (date of suspension of operation of Heng Da) was available. Furthermore, certain source documents, mainly goods delivery and receipt notes, and production records for the year, which were not seized by the Court, but kept in Heng Da’s office after suspension of the operation had been misplaced or lost. The former legal representative of Heng Da is uncontactable and the other key management and personnel responsible for the accounting and finance function of Heng Da had also left the company in August 2003.

The Directors have used their best endeavor in preparing the financial statements from books and records of Heng Da that were available to them. Accordingly, they were unable to represent the following balances attribute to Heng Da included in the consolidated balance sheet of the Group as at 31st December, 2003 and the consolidated income statement for the year then ended are fairly stated:

• Equipment and machineries of HK$51,954,000;

• Trade and other payables of HK$24,710,000;

• Turnover of HK$36,681,000;

• Cost of sales of HK$35,001,000;

• Administrative expenses of HK$2,641,000; and

• Finance costs of HK$3,000.

— 21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the absence of complete accounting records, the effects of certain transactions of the Group, namely, the turnover, cost of sales, administrative expenses, finance costs and the trade and other payables, as reflected in the financial statements cannot be satisfactorily substantiated or otherwise supported.

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARD

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

SSAP 12 (Revised) Income taxes

The adoption of this standard had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

Income Taxes

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of consolidation

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

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

All significant intercompany transactions and balances have been eliminated on consolidation.

Goodwill

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

Goodwill arising on acquisitions is capitalised and amortised on a straight-line basis over its estimated useful economic life. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

Investments in subsidiaries

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

— 22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investment properties

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

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

On the disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement.

No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years

or less.

Property, plant and equipment

(i) Hotel properties

Hotel properties are stated in the balance sheet at their open market value based on independent professional valuations at each balance sheet date. Any revaluation increase arising on the revaluation of hotel properties is credited to the hotel property revaluation reserve except to the extent that it reverses a revaluation decrease of the same hotel property previously recognised as an expense, in which case this increase is credited to the income statement to the extent of the deficit previously charged. A decrease in net carrying amount arising on revaluation of a hotel property is charged to the income statement to the extent that it exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that hotel property. On the subsequent sale or retirement of a revalued hotel property, the balance on the hotel property revaluation reserve attributable to that property is credited to the accumulated profits.

No depreciation is provided on hotel properties except where the unexpired term of the relevant lease is 20 years or less. It is the Group’s practice to maintain the buildings in a continual state of sound repairs and to make improvements thereto from time to time and accordingly, the Directors consider that depreciation is not necessary due to their high residual value.

(ii) Other property, plant and equipment

Other property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses.

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

Land and buildings in Hong Kong under medium-term leases	Over the lease term
Land and buildings outside Hong Kong under medium-term leases	2.5% to 4.5% or over the lease term, if shorter
Furniture, equipment and leasehold improvements	10% to 20%
Plant and machinery	10% to 30%
Motor vehicles	15% to 30%

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

— 23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (iii) Construction in progress is stated at cost. No depreciation or amortisation is provided for construction in progress until the construction is completed and the assets are ready for their intended use. Costs of completed construction works are transferred to the appropriate categories of other property, plant and equipment.

Properties held for development

Properties held for development are stated at cost less any identified impairment loss.

Depreciation of these properties, provided on the same basis as other property, plant and equipment, commences when the assets are put into use.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value.

Investments in securities

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

At subsequent reporting dates, debt securities that the Group has an expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. Any discount or premium on the acquisition of a held-to-maturity debt security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

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

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

Inventories

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

Impairment

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

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

— 24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Turnover

Turnover represents the gross amounts received and receivable for revenue arising on hotel operations, goods sold by the Group to outside customers, less return and allowances and gross rental income during the year.

Revenue recognition

• (i) Hotel operations

Revenue arising from hotel operations is recognised when the relevant services are rendered.

• (ii) Sales of goods

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

• (iii) Rental income

Rental income arising from properties let under operating leases is recognised on a straight-line basis over the periods of the respective leases.

• (iv) Interest income

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

Taxation

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

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

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

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

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

— 25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowing costs

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

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

Retirement benefits scheme

Payments to defined contribution retirement scheme are charged as an expenses as they fall due.

Operating leases

Rental expenses under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease.

Foreign currencies

Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in the income statement.

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

5. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into five operating divisions - fibreboards and veneers, hotel operations, trading, property investment and property development and trading. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Fibreboards and veneers	—	manufacture and trading of fibreboards and veneers
Hotel operations	—	hotel ownership and management
Property investment	—	holding investment properties
Property development and trading	—	holding properties held for development and properties held for sale
Trading	—	trading of raw steel and material products

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these businesses is presented below.

2003

Fibreboards and veneers Hotel operations HK$’000 HK$’000 REVENUE 178,630 14,215 RESULTS Segment result (87,418) 1,460 Interest income Net unrealized holding gain on other investments Unallocated corporate expenses Loss from operations Finance costs Loss for the year Fibreboards and veneers Hotel operations HK$’000 HK$’000 ASSETS Segment assets 159,496 170,781 Goodwill 103,103 — Investments in securities Pledged bank deposits Bank balances and cash Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 98,735 4,954 Unallocated corporate liabilities Consolidated total liabilities	Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 1,123 2,814 — 196,782 (311) (11,706) (521) (98,496 98 26 (59,371 (157,743 (3,136 (160,879 Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 501 34,374 185,769 550,921 — — — 103,103 61 2,300 31,858 2,161 690,404 786 1,142 569 106,186 232,997 339,183	Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 1,123 2,814 — 196,782 (311) (11,706) (521) (98,496 98 26 (59,371 (157,743 (3,136 (160,879 Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 501 34,374 185,769 550,921 — — — 103,103 61 2,300 31,858 2,161 690,404 786 1,142 569 106,186 232,997 339,183
		690,404
		106,186 232,997
		339,183

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

OTHER INFORMATION

					Property
	Fibreboards	Hotel		Property	development
	and veneers	operations	Trading	investment	and trading	**Unallocated **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	3,599	2,455	—	—	—	—	6,054
Depreciation and
amortisation	13,502	1,148	979	—	—	625	16,254
Revaluation surplus	—	8,814	—	—	—	—	8,814
Provision for
doubtful amounts	133,950	—	—	—	—	38,000	171,950
Impairment losses
recognised in
income statement	—	—	—	5,900	—	4,788	10,688

2002

Fibreboards and veneers Hotel operations HK$’000 HK$’000 REVENUE 104,453 26,260 RESULTS Segment result 50,120 4,339 Interest income Net unrealized holding losses on other investments Unallocated corporate expenses Profit from operations Finance costs Profit for the year	Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 46,156 3,973 — 180,842 413 (15,019) (432) 39,421 221 (93 (17,694 21,855 (3,810 18,045	Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 46,156 3,973 — 180,842 413 (15,019) (432) 39,421 221 (93 (17,694 21,855 (3,810 18,045	Trading Property investment Property development and trading Consolidated HK$’000 HK$’000 HK$’000 HK$’000 46,156 3,973 — 180,842 413 (15,019) (432) 39,421 221 (93 (17,694 21,855 (3,810 18,045
			39,421
			221 (93 (17,694
			21,855 (3,810
			18,045

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

					Property
	Fibreboards	Hotel		Property	development
	and veneers	operations	Trading	investment	**and trading **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
ASSETS
Segment assets	196,014	165,969	14,231	65,177	184,380	625,771
Goodwill	108,721	—	—	—	—	108,721
Investments in securities						64
Club debenture						205
Pledged bank deposits						10,870
Bank balances and cash						47,749
Unallocated corporate assets						2,790
Consolidated total assets						796,170
LIABILITIES
Segment liabilities	34,851	6,381	12,352	1,327	476	55,387
Unallocated corporate liabilities						237,516
Consolidated total liabilities						292,903

OTHER INFORMATION

					Property
	Fibreboards	Hotel		Property	development
	and veneers	operations	Trading	investment	and trading	**Unallocated **	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Capital additions	135,317	967	10	—	—	272	136,566
Depreciation and
amortisation	7,155	1,320	60	—	—	624	9,159
Revaluation deficit	—	—	—	17,900	—	—	17,900

Geographical segments

The Group’s fibreboards and veneers and hotel operations are located in the People’s Republic of China, other than Hong Kong (the “PRC”).

Property investment, development and trading operations are located in both PRC and Hong Kong.

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the goods/services:

The PRC Hong Kong Interest income Net unrealised holding gains (losses) on other investments Unallocated corporate expenses (Loss) profit from operations Finance costs (Loss) profit for the year	Sales reven geographical 2003 HK$’000 192,845 3,937 196,782	ue by market 2002 HK$’000 130,713 50,129 180,842	Contribution to (loss) profit for the year 2003 2002 HK$’000 HK$’000 (86,479) 54,459 (12,017) (15,038 (98,496) 39,421	Contribution to (loss) profit for the year 2003 2002 HK$’000 HK$’000 (86,479) 54,459 (12,017) (15,038 (98,496) 39,421
				39,421
			98 26 (59,371) (157,743) (3,136)	221 (93 (17,694
				21,855 (3,810
			(160,879)	18,045

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

The PRC Hong Kong	Carrying amount of segment assets 2003 2002 HK$’000 HK$’000 638,889 589,999 51,515 206,171 690,404 796,170	Additions to property, plant and equipment and goodwill 2003 2002 HK$’000 HK$’000 6,054 136,283 — 283 6,054 136,566	Additions to property, plant and equipment and goodwill 2003 2002 HK$’000 HK$’000 6,054 136,283 — 283 6,054 136,566
			136,566

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. OTHER OPERATING INCOME

Other operating income included the following items:

	**THE **	GROUP
	2003	2002
	HK$’000	HK$’000
Valued added tax refunded	16,212	10,942
Interest income	98	221
Net unrealised holding gains on other investments	23	—

7. PROVISION FOR DOUBTFUL AMOUNTS

The Group had made the following provision for the loss which might arise in connection with the claims as set out in the statement of claim dated 20th August, 2003 made by Shenzhen Developlment Bank Foshan Branch (the “Claimant”) against, among others, Nanhai Jia Shun Timber Company Limited (“Jia Shun) and Heng Da (the “First Alleged Claims”) and other relevant parties’ ability to pay:

	THE GROUP
	2003
	HK$’000
Provision for prepayments of Jia Shun and Heng Da to suppliers of
raw materials (note i):	45,634
Provision for trade receivables of Jia Shun and Heng Da (note ii):	35,709
Provision for amount owing to Jia Shun by an independent third party (note iii):	28,929
Provision for construction materials of Heng Da lent to town government (note iv):	17,552
Provision for stock of Jia Shun (note v):	1,024
Provision for stock of Heng Da (note vi):	3,750
Provision for other receivables of Heng Da (note vii):	1,352
Provision for loss in litigation of the First Alleged Claims (note viii):	38,000
	171,950

Notes:

• (i) The prepayments were mainly made to the suppliers, independent third parties to the Company, of wood and glue. Jia Shun had contracts with the two suppliers who promised to supply the materials at contract prices. At that time, the management foresaw that the prices for the wood and glue were on a upward trend and the contract prices were much lower than those from the market, accordingly the management of Jia Shun and Heng Da agreed to make prepayments to the suppliers in order to ensure that the supplies of wood and glue were uninterrupted and at the contracted prices. The contracts were already in place when the Company acquired Jia Shun from the previous owner. In August 2003, Jia Shun found that the relevant suppliers had ceased operations and was unable to contact the management of these suppliers. As such, there was uncertainty on the recoverability of the prepayments. Full amount of the prepayments to the two suppliers as at 3lst December, 2003 had, therefore, been provided.

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (ii) Trade receivables arose from the normal sale transactions. The sales were evidenced by the sales invoices but there were no agreements with the buyers. Since the operations of Jia Shun and Heng Da were suspended and with the departure of their previous sales team, the new sales team has difficulties in recovering the outstanding balances recorded in the books of Jia Shun and Heng Da. However, the customers claimed that the outstanding balances had all been paid. The management is trying to get in touch with respective persons to verify the claims of these customers. There was uncertainty on the recoverability of these receivables. Full amount of the trade receivables as at 31st December, 2003 was therefore provided.

• (iii) There was no agreement for the amount owing to Jia Shun by Nanhai Investment Management Company Limited (“Nanhai Investment”), an independent third party, however, the amount was evidenced by a bank deposit slip. The transaction was instructed by the former director of Jia Shun, Mr. Sun Pak Fun, and the Directors cannot get in touch with Mr. Sun Pak Fun. The management will continue to contact Mr. Sun Pak Fun to obtain the reason of the transaction. Since the management of Jia Shun could not get in touch with the responsible person of Nanhai Investment and could not obtain a written confirmation, there was uncertainty on the recoverability of the amount. Full amount of the loan as at 31st December, 2003 had, therefore, been provided.

• (iv) The former owner of Shi Men Properties Limited, a subsidiary of the Company, planned to purchase land and build a factory for Heng Da, therefore he had stocked up certain construction materials. When the Company took control of Heng Da, the management of the Company preferred to lease a factory premises to house Heng Da’s operation rather than build one of their own in order that Heng Da could commence operation in a shorter time. In view that losses could result if the construction materials were left to weathering, and that the Shatou town government, who at that time, happened to be in need of construction materials for infrastructure in the town, Heng Da’s directors decided to lend the materials to the town government. Heng Da had an agreement dated 8th August, 2002 which was renewed for a further term of six months on 7th February, 2003 with the Shatou town government to lend the construction material to it. During the 2002 annual audit, the responsible person from the Shatou town government signed and returned to Heng Da an audit confirmation regarding the lending of the construction materials to it. During the 2003 annual audit, the responsible person from the town government could no longer be contacted nor was a confirmation obtained in relation to the lending of the construction materials to the Shatou town government. Under the circumstances, there was uncertainty on the recoverability of the materials and full amount of the materials as at 31st December, 2003 had been provided.

• (v) In August 2003, Jia Shun ran out of space for keeping their stock, therefore, they borrowed the warehouse of Nanhai Heng Yi Timber Company Limited (“Heng Yi”) to store their finished goods. The amount provided being the stock placed in the warehouse of Heng Yi at the time of the suspension of operation. When the Court froze the assets of Heng Yi, they also froze the finished goods of Jia Shun as they took those to be the stock of Heng Yi. Jia Shun was unable to retrieve these stocks and, therefore, the full amount had been provided.

• (vi) The amount being the stock of Heng Da as at 30th June, 2003, where physical stock count had been performed. The management had not been able to locate these stock during the stock count as at 31st December, 2003 which were probably taken over by the Court when they froze the assets of Heng Da, therefore, full amount had been provided.

• (vii) The amount being other receivables such as payment for purchasing machineries and spare parts. With the departure of the former management team and accounting personnel, the existing management could not readily locate the suppliers and to confirm the balances during the annual audit for the year ended 31st December, 2003. However, the current management is trying to get in touch with respective persons to verify the balances with these suppliers. There was uncertainty on the recoverability of these receivables, full amount of these prepayments had, therefore, been provided.

• (viii) The amount was alleged to have been lent to Heng Da by the Claimant. Although the Directors have never approved the entering into of the bank loan contract and the guarantee as mentioned in the First Alleged Claims and Jia Shun and Heng Da are defending against the Claimant in the Court vigorously, there is still a possibility that Jia Shun and Heng Da will have to bear the amount. Full value of the amount claimed as at 31st December, 2003 had therefore been provided.

— 32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. (LOSS) PROFIT FROM OPERATIONS

	**THE **	GROUP
	2003	2002
	HK$’000	HK$’000
(Loss) profit from operations has been arrived at after charging (crediting):
Auditors’ remuneration	800	1,077
Amortisation of goodwill (included in other operating expenses)	5,618	3,862
Depreciation of property, plant and equipment	9,177	5,297
Staff costs (including directors’ remuneration)	23,163	16,701
Unrealised holding (gains) losses on other investments	(23)	93
Loss on disposal of property, plant and equipment	609	14
Net foreign exchange losses (gains)	112	(164)

9. FINANCE COSTS

Interest on convertible notes Interest on bank borrowings wholly repayable within five years Total borrowing costs Less: Amount capitalized	THE GROUP 2003 2002 HK$’000 HK$’000 1,988 1,493 1,148 2,396	THE GROUP 2003 2002 HK$’000 HK$’000 1,988 1,493 1,148 2,396
	3,136 —	3,889 (79)
	3,136	3,810

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

a. Directors’ emoluments

The aggregate emoluments of the Directors of the Company are as follows:

Fees: Executive Directors Independent Non-Executive Directors Other emoluments (Executive Directors): Salaries and other benefits Retirement benefits scheme contributions	THE GROUP 2003 2002 HK$’000 HK$’000 — — 200 200	THE GROUP 2003 2002 HK$’000 HK$’000 — — 200 200
	200 3,823 125 3,948	200
		4,113 136
		4,249
	4,148	4,449

The emoluments of the Directors were within the following bands:

	Number of Directors	Number of Directors
	2003	2002
Nil - HK$1,000,000	4	3
HK$1,000,001 - HK$1,500,000	2	3

No Directors waived any emoluments for both years.

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

b. Employees’ emoluments

During the year, the five highest paid individuals included four Directors (2002: four Directors), details of whose emoluments are set out above. In order to preserve the confidentiality of the specific individual’s salary, the aggregate for top two individuals had been disclosed. The emoluments of the two individuals (2002: one individual) were as follows:

Salaries and other benefits Retirement benefits scheme contributions	THE GROUP 2003 2002 HK$’000 HK$’000 607 445 27 12 634 457	THE GROUP 2003 2002 HK$’000 HK$’000 607 445 27 12 634 457
		457

The total number of employees of the Group is approximately 1,913. The remuneration of each employee of the Group is determined on the basis of his or her performance or experience. The Group provides education allowances to the employees.

11. RETIREMENT BENEFITS SCHEME

The Group contributes to a defined contribution retirement benefits scheme which is available to Hong Kong permanent employees. This retirement benefits scheme is administered by independent trustees with their assets held separately from those of the Group. Contributions under the staff retirement benefits scheme for each year are based on a percentage of the eligible employees’ salaries and are charged to the income statement as incurred. The total contribution to the scheme amounted to HK$167,000 (2002: HK$169,000) for the year and has been charged to the income statement. Forfeited employer contributions in respect of former employees before vesting period from the staff retirement scheme may be used by the Group to reduce its ongoing employer contributions. The forfeited contributions utilised during the year amounted to HK$41,000 (2002: HK$97,000).

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

Since the introduction of the Mandatory Provident Fund (“MPF”) Scheme in Hong Kong, the Group has also participated in an approved MPF Scheme with Bankers’ Consortium effective 1st December, 2001 to provide an MPF Scheme to all employees.

The contributions borne by the Group are calculated at 5% of the salaries and wages (monthly contribution is limited to 5% of HK$20,000 for each eligible employee) as calculated under the MPF legislation. During the year under review, the total amount contributed by the Group to the MPF Scheme and charged to the income statement amounted to HK$43,000 (2002: HK$51,000).

12. TAXATION

No provision for Hong Kong Profits Tax or overseas taxation has been made in the financial statements as the Company and its subsidiaries have no assessable profits for both years according to the PRC tax regulations. One of the Group’s PRC subsidiary is in tax holiday and is exempted from PRC enterprise income tax for the first two years starting from its first profit-making year followed by a 50% reduction for the next three years.

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The tax credit for the year can be reconciled to the (loss) profit for the year per the consolidated income statement as follows:

(Loss) profit for the year Tax at the domestic income tax rate of 17.5% (2002: 16%) Tax effect of non deductible expenses Tax effect of non taxable revenue Effect of tax exemptions granted to PRC subsidiaries Tax effect of tax loss for the year Tax effect for the year	2003 HK$’000 (160,879)	2002 HK$’000 18,045
	(28,154) 35,516 (15) (8,517) 1,170	2,887 5,861 (76) (9,332) 660
	—	—

At the balance sheet date, the Group has unused estimated tax losses of HK$14,412,000 (2002: HK$13,215,000) available for offset against future profits. No deferred tax asset has been recognised in respect of the estimated tax losses due to the unpredictability of future profit streams.

The revaluation surplus for the year (2002: deficit) arising on the revaluation of properties of the Group does not constitute a timing difference. Therefore, deferred tax has not been recognised in respect of the valuation surplus (2002: deficit) relating to properties.

13. (LOSS) EARNINGS PER SHARE

The calculation of basic (loss) earnings per share is based on the loss for the year of HK$160,879,000 (2002: a gain of HK$18,045,000) and on the weighted average number of 914,995,817 ordinary shares (2002: 783,482,109 ordinary shares) in issue during the year.

The computation of diluted earnings per share for the year does not assume the conversion of the Company’s outstanding convertible notes since their exercise would result in an increase in net profit per share from continuing ordinary operations for the year.

The computations of diluted earnings per share for both 2002 and 2003 do not assume the exercise of the Company’s share options because the exercise price of the Company’s share option is higher than the average market price per share for both years.

The calculation of the diluted earnings per share for the year ended 31st December, 2002 is based on the adjusted profit for that year of HK$19,336,000 after adjusting for the effect of dilutive potential ordinary shares of the convertible notes of HK$1,291,000, and on the weighted average number of 1,261,570,390 ordinary shares.

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INVESTMENT PROPERTIES

In the PRC held under medium- term leases In Hong Kong held under medium-term leases HK$’000 HK$’000 THE GROUP VALUATION As at 1st January, 2003 900 63,700 Impairment loss — (5,900) Reclassified to property held for sale — (24,100) Disposal — (23,500) As at 31st December, 2003 900 10,200	Total HK$’000 64,600 (5,900) (24,100) (23,500)
	11,100

Investment properties were revalued at their open market value at 31st December, 2003 by Associated Surveyors & Auctioneers Ltd., an independent firm of professional valuers, on an open market value basis. This valuation gave rise to a revaluation deficit of HK$Nil (2002: HK$17,900,000), which has been charged to the consolidation income statement.

All of the Group’s investment properties are rented out under operating leases.

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. PROPERTY, PLANT AND EQUIPMENT

	Land and buildings Furniture, equipment and leasehold improvements HK$’000 HK$’000 47,748 17,900 — 94 — 816 (2,597) (996) — — 39 —	Land and buildings Furniture, equipment and leasehold improvements HK$’000 HK$’000 47,748 17,900 — 94 — 816 (2,597) (996) — — 39 —	Plant and machinery HK$’000 90,486 5,079 11,858 (27) — 167	Motor vehicles C HK$’000 2,680 — — (454) — 15	onstruction in progress HK$’000 11,493 2,367 (13,860) — — —	Total HK$’000 325,307 7,540 — (4,074 8,814 221
165,000 — 165,000 165,000 — — — — — —	45,190 45,190 — 45,190 2,824 1,420 — (138) 27 4,133	17,814 17,814 — 17,814 12,216 1,475 3,732 (926) — 16,497	107,563 107,563 — 107,563 12,722 7,639 1,056 (27) 167 21,557	2,241 2,241 — 2,241 2,324 102 — (419) 8 2,015	— — — — — — — — — —	337,808
						172,808 165,000
						337,808
						30,086 10,636 4,788 (1,510 202
						44,202
	41,057 1,317 86,006 226 — 44,924 5,684 77,764 356 11,493					293,606
						295,221

Hotel properties situated in the PRC were revalued on the basis of their open market value on 31st December, 2003 by Associated Surveyors & Auctioneers Ltd., an independent firm of professional valuers. There was no revaluation surplus or deficit arising from the revaluation as at 31st December, 2003.

If hotel properties had not been revalued, they would have been included in these financial statements at historical cost less accumulated depreciation of HK163,035,000 (2002: HK$161,849,000).

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The net book value of land and buildings shown above comprises:

	**THE **	GROUP
	2003	2002
	HK$’000	HK$’000
In Hong Kong held under medium-term leases	—	2,459
In the PRC held under medium-term leases	41,057	42,465
	41,057	44,924
Included in construction in progress is interest capitalised of HK$Nil (2002: HK$79,000).

16. PROPERTIES HELD FOR DEVELOPMENT

			THE GROUP
			In the PRC held
			under long leases
			2003 & 2002
			HK$’000
Cost			199,267
Less:	Impairment	loss	(119,267)
			80,000

17. GOODWILL

	THE GROUP
	HK$’000
COST
At 1st January, 2003 and 31st December, 2003	112,583
AMORTISATION
At 1st January, 2003	3,862
Charge for the year	5,618
At 31st December, 2003	9,480
NET BOOK VALUE
At 31st December, 2003	103,103
At 31st December, 2002	108,721

The goodwill is arising on acquisition of subsidiaries during 2002. The amortisation period adopted for the goodwill is 20 years.

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. INVESTMENTS IN SUBSIDIARIES

THE COMPANY

Unlisted investments, at cost Less: Impairment loss	2003 HK$’000 1,096,607 (1,073,000) 23,607	2002 HK$’000 1,096,607 (1,073,000
		23,607

Particulars of the Company’s principal subsidiaries as at 31st December, 2003 are set out in note 35.

19. INVESTMENTS IN SECURITIES

THE GROUP Listed shares in Hong Kong Overseas debt securities Market value of listed shares Carrying amount analysed for reporting purposes as: Current Non-current	Investment 2003 HK$’000 — 1 1 —	securities 2002 HK$’000 — 1 1 —	Other investments 2003 2002 HK$’000 HK$’000 60 63 — — 60 63 60 63	Other investments 2003 2002 HK$’000 HK$’000 60 63 — — 60 63 60 63	Total 2003 2002 HK$’000 HK$’000 60 63 1 1 61 64 60 63	Total 2003 2002 HK$’000 HK$’000 60 63 1 1 61 64 60 63
						64
						63
	1 —	— 1	60 —	63 —	61 —	63 1
	1	1	60	63	61	64

20. OTHER RECEIVABLE

THE GROUP

In 2002, amount represents construction materials purchased for construction of a factory building but subsequently lent to town government of the PRC.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. PROPERTIES HELD FOR SALE

THE GROUP

Properties held for sale are stated at net realisable value.

22. INVENTORIES

THE GROUP

Fibreboards and veneers Raw materials Work in progress Finished goods Food, beverages and hotel supplies	2003 HK$’000 18,110 3,354 3,573	2002 HK$’000 18,368 611 2,145
	25,037 1,444	21,124 1,522
	26,481	22,646

23. TRADE AND OTHER RECEIVABLES

The Group allows an average credit period of 90 days to its trade customers.

The following is an aged analysis of the Group’s trade receivables at the balance sheet date:

0 - 60 days 61 - 90 days 91 - 120 days > 120 days Trade receivables Other receivables	THE GROUP 2003 2002 HK$’000 HK$’000 4,146 27,123 527 933 291 513 1,276 2,345 6,240 30,914 6,955 13,028 13,195 43,942	THE GROUP 2003 2002 HK$’000 HK$’000 4,146 27,123 527 933 291 513 1,276 2,345 6,240 30,914 6,955 13,028 13,195 43,942
		30,914 13,028
		43,942

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER PAYABLES

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

0 - 60 days 61 - 90 days 91 - 120 days > 120 days Trade payables Other payables	THE GROUP 2003 2002 HK$’000 HK$’000 5,548 11,952 4,151 982 4,948 450 806 210	THE GROUP 2003 2002 HK$’000 HK$’000 5,548 11,952 4,151 982 4,948 450 806 210
	15,453 61,634	13,594 39,116
	77,087	52,710

25. BANK BORROWINGS

Secured bank loans Secured bank overdraft The maturity of the bank borrowings is as follows: Within one year or on demand More than one year but not exceeding two years More than two years but not exceeding five years Less: Amount due within one year shown under current liabilities Amount due after one year	THE GROUP 2003 2002 HK$’000 HK$’000 22,750 37,890 — 957 22,750 38,847	THE GROUP 2003 2002 HK$’000 HK$’000 22,750 37,890 — 957 22,750 38,847	THE COMPANY 2003 2002 HK$’000 HK$’000 22,750 29,250 — — 22,750 29,250	THE COMPANY 2003 2002 HK$’000 HK$’000 22,750 29,250 — — 22,750 29,250
				29,250
	6,500 6,500 9,750 22,750 (6,500)	16,097 6,500 16,250 38,847 (16,097)	6,500 6,500 9,750 22,750 (6,500)	6,500 6,500 16,250
				29,250 (6,500
	16,250	22,750	16,250	22,750

The secured bank loans bear interest at market rates. The secured bank loans amounting to HK$16,250,000 (2002: HK$22,750,000) are repayable in instalments over a period of 3.5 years (2002: 4.5 years) and the remaining secured bank loans of HK$6,500,000 (2002: HK$15,140,000) are repayable within one year.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: At beginning of the year Increase during the year At end of the year Issued and fully paid: At beginning of the year Rights issue of shares Conversion of convertible notes At end of the year	Number of shares 2003 2002 3,000,000,000 1,000,000,000 — 2,000,000,000 3,000,000,000 3,000,000,000	Number of shares 2003 2002 3,000,000,000 1,000,000,000 — 2,000,000,000 3,000,000,000 3,000,000,000	Nominal value 2003 2002 HK$’000 HK$’000 300,000 100,000 — 200,000 300,000 300,000	Nominal value 2003 2002 HK$’000 HK$’000 300,000 100,000 — 200,000 300,000 300,000
				300,000
	914,995,817 — —	666,200,219 133,240,043 115,555,555	91,500 — —	66,620 13,324 11,556
	914,995,817	914,995,817	91,500	91,500

Pursuant to the special resolution passed on 8th April, 2002 in the special general meeting, the authorised share capital of the Company was increased from HK$100,000,000 to HK$300,000,000 by the creation of additional 2,000,000,000 new ordinary shares of HK$0.10 each.

In order to strengthen the equity base of the Group and to secure additional cash resources for the business development of the Group, the Company carried out rights issue of 133,240,043 ordinary shares of HK$0.10 each for a consideration of HK$0.21 per share. These rights shares were issued in April 2002 to the existing shareholders on the basis of one rights share for every five shares then held. These rights shares ranked pari passu with the then existing shares in all respects. Details of the rights issue were set out in the prospectus of the Company dated 19th March, 2002.

On 11th December, 2002, 115,555,555 ordinary shares of HK$0.10 each were converted by the holders of convertible notes at conversion price of HK$0.27 per share. Details of the conversion of convertible note were disclosed in note 28.

27. SHARE OPTION SCHEMES

The share option scheme which was adopted by the Company on 28th June, 1994 (“Old Scheme”) was originally due to expire on 28th June, 2004. As a result of certain changes to the Rules Governing The Listing of Securities on the Stock Exchange (“Listing Rules”) in 2001, the Board proposed and the shareholders in general meeting approved on 20th May, 2003 early termination of the Old Scheme and adoption of a new share option scheme (the “Scheme”). After termination of the Old Scheme, no more option can be granted pursuant to the Old Scheme. During the year, no options was granted, exercised or cancelled under the Old Scheme. At 31st December, 2003, the number of shares in respect of which options had been granted and remained outstanding under the Old Scheme was 23,500,000, representing 2.57% of the shares of the Company in issue at that day.

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The primary purpose of the Scheme is to provide the Company with a flexible means of giving incentive to, rewarding, remunerating, compensating and/or providing benefits to the participants. Under the Scheme, the Board of Directors of the Company may grant options to eligible employees, including Director(s), and business associates of the Company and its subsidiaries, to subscribe for ordinary shares in the Company, in accordance with the terms of the Scheme.

The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the shares of the Company in issue at the date of approval of the Scheme without prior approval from the Company’s shareholders.

An option is deemed to have been granted and accepted by the grantee on the date of offer upon his or her signing the duplicate letter comprising acceptance of the option and paying HK$1 by way of consideration for the grant thereof within 28 days from the date of offer. Options may be exercised at any time for two years commencing on the expiry of one month after the date the options are granted and shall be expired on the last day of the two years period granted. The subscription price of the option shares shall be a price to be determined by the Directors of the Company, being at least the higher of (i) the closing price of the ordinary shares of the Company as stated in the Stock Exchange’s daily quotations sheet on the date of offer of the option, (ii) a price being the average of the closing prices of the ordinary shares of the Company as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of the offer of the option and (iii) the nominal value of the ordinary shares of the Company.

The maximum entitlement for any one participant is that the total number of ordinary shares of the Company issued and to be issued upon exercise of the options granted to such participant under the Scheme and any other option schemes of the Company (including both exercised and outstanding options) in any 12-month period shall not exceed 1 per cent. of the total number of ordinary shares of the Company in issue.

The Scheme is for a term of 10 years from the date of adoption and will be expired on 20th May, 2013. No option has been granted since the adoption of the Scheme.

— 44 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Details of the movements in the Company’s share options during the year are as follows:

2003

Date of option granted Exercise period Exercise price Outstanding at 1st January, 2003 Lapsed during the year Outstanding at 31st December, 2003 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 5,000,000 — Total for directors 20,000,000 5,000,000 15,000,000 Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 9,500,000 1,000,000 8,500,000 Total 29,500,000 6,000,000 23,500,000	Date of option granted Exercise period Exercise price Outstanding at 1st January, 2003 Lapsed during the year Outstanding at 31st December, 2003 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 5,000,000 — Total for directors 20,000,000 5,000,000 15,000,000 Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 9,500,000 1,000,000 8,500,000 Total 29,500,000 6,000,000 23,500,000	Date of option granted Exercise period Exercise price Outstanding at 1st January, 2003 Lapsed during the year Outstanding at 31st December, 2003 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 5,000,000 — Total for directors 20,000,000 5,000,000 15,000,000 Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 9,500,000 1,000,000 8,500,000 Total 29,500,000 6,000,000 23,500,000	Date of option granted Exercise period Exercise price Outstanding at 1st January, 2003 Lapsed during the year Outstanding at 31st December, 2003 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 — 5,000,000 Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 5,000,000 5,000,000 — Total for directors 20,000,000 5,000,000 15,000,000 Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 9,500,000 1,000,000 8,500,000 Total 29,500,000 6,000,000 23,500,000
	5,000,000 5,000,000 20,000,000 9,500,000	— 5,000,000 5,000,000 1,000,000	5,000,000 —
			15,000,000 8,500,000
	29,500,000	6,000,000	23,500,000

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2002

Date of option granted Exercise period Exercise Price Outstanding at 1st January, 2002 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Total for directors — Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Total —	Date of option granted Exercise period Exercise Price Outstanding at 1st January, 2002 HK$ Directors Mr. Leung Siu Fai 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Mr. Kam Hung Chung 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Former Directors Mr. Sun Pak Fun 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Mr. He Yongwen 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Total for directors — Employees 12th August, 2002 15th September, 2002 - 27th June, 2004 0.347 — Total —	Granted during the year Outstanding at 31st December, 2002 5,000,000 5,000,000 5,000,000 5,000,000	Granted during the year Outstanding at 31st December, 2002 5,000,000 5,000,000 5,000,000 5,000,000
	— — — —	5,000,000 5,000,000 20,000,000 9,500,000	5,000,000 5,000,000
			20,000,000 9,500,000
	—	29,500,000	29,500,000

No share options were exercised during the year.

No charge is recognised in the income statement in respect of the value of options granted in the year (2002: Nil).

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. CONVERTIBLE NOTES

At 1st January Issue of convertible notes Conversion of convertible notes At 31st December	THE GROUP AND THE COMPANY 2003 2002 HK$’000 HK$’000 198,800 — — 230,000 — (31,200) 198,800 198,800	THE GROUP AND THE COMPANY 2003 2002 HK$’000 HK$’000 198,800 — — 230,000 — (31,200) 198,800 198,800
		198,800

On 9th May, 2002, the Group issued HK$230,000,000 convertible notes (the “Notes”) which are due on 9th May, 2007 (the “Maturity Date”), bear interest at 1% per annum and in units of HK$1,000,000 each. The Notes are convertible at the discretion of the holders of the Notes, at any time upon the expiry of 6 months from the date of issue of the Notes up to an including its Maturity Date in whole or in part into shares of HK$0.10 each in the Company at an initial conversion price of HK$0.27 per share, subject to adjustment.

During the year, HK$Nil (2002: HK$31,200,000) Notes were converted into shares of the Company at conversion price of HK$0.27 per share.

The Company shall repay such principal moneys outstanding under the Notes to the holders of the Notes on the Maturity Date together with all interest accrued thereon up to and including the maturity date.

29. CONTINGENT LIABILITIES

• a. Bank guarantees

		**THE **	GROUP	**THE **	COMPANY
		2003	2002	2003	2002
		HK$’000	HK$’000	HK$’000	HK$’000
Guarantees	given for banking facilities made
available	to a subsidiary	—	—	—	6,000

At the balance sheet date, the extent of banking facilities utilised by the subsidiary amounted to approximately HK$Nil (2002: HK$910,000).

• b. On 16th January, 2004, Jia Shun and Heng Da both received summons issued by the Court regarding a bank loan contract dated 23rd May, 2003 was entered into between Heng Yi, an independent third party, as borrower and the Claimant as lender in relation to a loan facility in a sum of RMB40 million (equivalent to approximately HK$38 million) and that the Claimant has advanced such loan to Heng Yi. The summons also included a guarantee dated 23rd May, 2003 entered into by, among others, Jia Shun, Heng Da and Hua Guang in favour of the Claimant in relation to such loan (the “Claims”). As the operations of Hua Guang were suspended and Hua Guang was one of the guarantors in relation to the bank loan, Jia Shun and Heng Da, among others, should make full repayment of the loan and interest thereon before maturity under the bank loan contract.

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

We have not been able to obtain direct confirmations in respect of the amount of bank guarantees. Accordingly, we have been unable to satisfy ourselves as to whether the contingent liabilities had been properly disclosed in the financial statements.

Jia Shun and Heng Da had reported to the Public Securities Bureau in Nanhai, PRC on 23rd March, 2004 that, among other things:

• (i) without the knowledge of board of directors of the Company and the respective board of directors of Jia Shun and Heng Da (except Mr. Sun Pak Fun who could not be contacted), the company chops of Heng Da and Jia Shun, and the name chop of Mr. Sun Pak Fun, the then legal person representative and chairman of board of directors of Jia Shun and Heng Da, were affixed to the aforesaid guarantees;

• (ii) neither Jia Shun nor Heng Da had any record recording any details of the aforesaid guarantees; and

• (iii) the claims were suspected to involve criminal offence.

The Group will deny liability and contest the Claims vigorously. The Directors consider that the Claimant does not have any valid claim against Heng Da and Jia Shun in relation to the Claims, and they strongly believe that the Group can successfully defend against the Claims.

• c. The Group had a maximum contingent consideration of HK$48,000,000 in respect of the acquisition of the entire issued share capital of Can Manage. However, as the vendor being uncontactable, the Directors have been unable to ascertain whether this amount has been properly dealt with, which will become payable, among others, when the consolidated net profit of Can Manage and its subsidiary, namely Jia Shun, achieved an amount of HK$80,000,000. However, the operation of Jia Shun was suspended during the period from 17th August, 2003 to 10th October, 2003 due to there was a failure in the supply of electricity and steam from the power plant operated under the power supply agreement and a court order dated 19th August, 2003 to freeze Jia Shun’s assets in relation to an alleged claim from the Shenzhen Development Bank Foshan Branch. In addition, the production facilities were substantially different from those prior to the suspension. In view of all the above incidences, couple with the fact that the vendor was not contactable up to the date of this report, the directors could not reasonably ascertain the amount of contingent consideration, if any, which has to be paid to the vendor.

30. OPERATING LEASE ARRANGEMENTS

Minimum lease payments paid under operating leases during the year: Plant and machinery Premises	The Group as 2003 HK$’000 1,434 1,190 2,624	lessee 2002 HK$’000 — 1,348
		1,348

— 48 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases in respect of rented premises and plant and machinery, which fall due as follows:

Within one year In the second to fifth year inclusive	THE GROUP 2003 2002 HK$’000 HK$’000 22,935 1,854 38,699 1,948 61,634 3,802	THE GROUP 2003 2002 HK$’000 HK$’000 22,935 1,854 38,699 1,948 61,634 3,802
		3,802

Operating lease payments represent rentals payable by the Group for its office premises and plant and machinery. Leases are negotiated for an average terms of 3 years to 4 years, respectively.

The Group as lessor

The Group’s property rental income earned during the year was approximately HK$2,814,000 (2002: HK$3,974,000). All of the properties held have committed tenants for the next 2 years.

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

Within one year In the second to fifth year inclusive	2003 HK$’000 888 322 1,210	2002 HK$’000 1,239 472
		1,711

31. CAPITAL COMMITMENTS

Capital expenditure in respect of the acquisition of property, plant and equipment contracted for but not provided in the financial statements Capital expenditure in respect of the acquisition of property, plant and equipment authorized but not contracted for	THE GROUP 2003 2002 HK$’000 HK$’000 19 2,194 283 —	THE GROUP 2003 2002 HK$’000 HK$’000 19 2,194 283 —
		—

The Company had no capital commitments outstanding as at 31st December, 2003 and 2002.

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. PLEDGE OF ASSETS

At 31st December, 2003, the Group’s investment properties, properties held for sale and bank deposits and all accrued interest thereon amounting to approximately HK$Nil (2002: HK$53,500,000), HK$24,100,000 (2002: HK$Nil) and HK$2,300,000 (2002: HK$10,870,000), respectively, were pledged to secure general banking facilities.

33. EVENTS AFTER THE BALANCE SHEET DATE

Subequent to the balance sheet date, the Group disposed of the entire interests of a wholly owned subsidiary, namely Wen Ying Investments Limited, which held an interest in Shanghai Zhonghui Real Estate Development Co., Ltd ( ) to an independent third party at a consideration of RMB6,000,000.

Subsequent to the balance sheet date, the Group completed the sale and purchase agreement entered into with an independent third party for the disposal of the whole block of Wah Ying Building located at Queen’s Road West at a consideration of HK$24,100,000.

34. RELATED PARTY TRANSACTIONS AND BALANCE

During the financial year of the Company ended 31st December, 2003 , the Group entered into the following transactions, in which Ms. Lu Biru, a then substantial shareholder of the Company, has a beneficial interest. Ms. Lu Biru ceased to be a substantial shareholder of the Company effective from 30th June, 2003. Therefore, the transactions for notes (1) to (3) ceased to be related party transactions effective from 30th June, 2003:

• (1) From 1st January, 2003 to 30th June, 2003 (date when Ms. Lu Biru ceased to be a substantial shareholder of the Company) (the “Period”), the Group paid rental expenses amounted to HK$553,000 (2002: HK$1,106,000) to World Shine Enterprises Limited, in which Ms. Lu Biru has a beneficial interest.

• (2) Two subsidiaries of the Group, Jia Shun and Heng Da have entered into a power supply agreement (the “Agreement”) with Nanhai Hua Guang Decorative Board Company Limited (“Hua Guang”), Nanhai Hua Ying Timber Company Limited (“Hua Ying”), Heng Yi and Smart Giant Investment Limited in relation to the co-management and co-use of a Power Plant jointly built by the above parties for the generation of electricity for their own consumption. Pursuant to the Agreement, the quantity of coal used by the Power Plant in generating electricity for a month is to be shared by these parties according to the actual amount of electricity consumed by each of the parties for that month. The amount of material costs shared by Jia Shun and Heng Da for their electricity consumed for the Period was HK$13,000,000 (2002: HK$11,798,000). Ms. Lu Biru, a substantial shareholder of the Company during the Period, has beneficial interests in Hua Guang and Hua Ying.

Pursuant to the Agreement, Jia Shun and Heng Da are responsible for the following costs relating to the Power Plant:

Jia Shun was responsible for the supply of land, the building of the Power Plant and its related ancillary facilities at its own expenses. Depreciation of HK$311,000 (2002: HK$401,000) for the Period was recorded in the books of Jia Shun.

Jia Shun and Heng Da were responsible to arrange a total of 60 staff for assisting in the daily operations of the power plant. The wages of the staff and other staff benefits borne by Jia Shun and Heng Da for the Period amounted to HK$368,000 (2002: HK$468,000).

Heng Da was responsible for the procurement and installation of 1 boiler of 50 tonnes at its own expenses and such fixed assets belong to Heng Da with the related depreciation being borne by Heng Da. Depreciation of HK$170,000 (2002: HK$ Nil) for the Period was recorded in Heng Da.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Heng Da was also responsible to share 20% of the repair and maintenance work of the Power Plant and all facilities, including the renovation of the Power Plant, and the replacement costs of the spare parts in relation to the routine management of the Power Plant. The repair and maintenance expenses borne by Heng Da for the Period was HK$272,000 (2002: HK$ Nil).

• (3) On 24th September, 2002, the Group entered into a tenancy agreement with Mr. Feng Ming Chang (“Mr. Feng”), the spouse of Ms. Lu Biru, whereby Mr. Feng agreed to lease the factory and warehouse to the Group for a term of three years. The aggregate rental expenses paid for the Period amounted to HK$594,000 (2002: HK$207,000).

• (4) Included in trade and other payables is HK$Nil (2002: 112,000) due to Hua Guang.

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

35. PRINCIPAL SUBSIDIARIES

Particulars of the Company’s principal subsidiaries at 31st December, 2003 are as follows:

		Nominal value of
	Place of	issued and fully
	incorporation	paid ordinary
	or registration/	share capital/	Percentage
Name of subsidiary	operation	registered capital	held	Principal activity
			%
Direct subsidiary
China Investments Limited	Hong Kong	HK$1,000	100	Investment holding
Indirect subsidiaries
Airlane Development Limited	Hong Kong	HK$2	100	Property trading
Barmax Development Limited	Hong Kong	HK$2	100	Property trading
Botex Development Limited	Hong Kong	HK$2	100	Property trading
Centon Development Limited	Hong Kong	HK$2	100	Property trading
Charland Investment Limited	Hong Kong	HK$2	100	Property trading
China Alliance Industries Limited	Hong Kong	HK$2	100	Property trading
Cyro Holdings Limited	British Virgin Islands/	US$1	100	Investment holding
	Hong Kong
Expert Target Development Limited	Hong Kong	HK$2	100	Property trading
Fairwind International Limited	Hong Kong	HK$2	100	Property development
Greenswood Property Limited	Hong Kong	HK$2	100	Property investment
Guilin Li-Feng Real Estate Company	PRC	RMB8,459,827	100	Property development
Ltd. (Note 1)
Guilin Plaza Hotel (formerly known	PRC	RMB14,500,000	100	Hotel operations
as Guilin Sight-Seeing Hotel
Company Limited) (Note 2)
Nanhai Heng Da Timber Company Limited	PRC	RMB40,789,076	100	Manufacturing and trading of veneers
(Note 2)
Jofra Company Limited	Hong Kong	HK$1,000	100	Investment holding

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Nominal value of	Nominal value of
	Place of	issued and fully
	incorporation	paid ordinary
	or registration/	share capital/		Percentage
Name of subsidiary	operation	registered capital		held	Principal activity
				%
Nanhai Jia Shun Timber Company Limited	PRC	RMB39,800,000		100	Manufacturing and trading of
(Note 2)					mediumdensity
					fibreboards
Kawan (HK) Trading Company	Hong Kong	HK$4,000,000		100	Trading of steels and
Limited					other materials
Langmax Investment Limited	Hong Kong		HK$2	100	Property trading
Lina Development Limited	Hong Kong		HK$2	100	Property trading
Metropolitan Development Limited	Hong Kong		HK$2	100	Property trading
Rich Asset Development Limited	Hong Kong		HK$2	100	Property trading
Rich Horn Development Limited	Hong Kong		HK$2	100	Property trading
Senicon Investment Limited	Hong Kong		HK$2	100	Property trading
Sino Sense Development Limited	Hong Kong		HK$2	100	Property trading
Skyway Limited	Hong Kong		HK$2	100	Property development
Tremendous World Property Limited	Hong Kong		HK$2	100	Property investment
Trener Investment Limited	Hong Kong		HK$2	100	Property trading
Universal Talent Development	Hong Kong		HK$2	100	Property trading
Limited
Wen Ying Investments Limited	Hong Kong		HK$100	100	Property development
Wise Lite Limited	Hong Kong		HK$2	100	Property development

Notes:

1. This is a sino-foreign co-operative joint venture.

2. This is a wholly foreign owned enterprise.

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

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

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

PARTICULARS OF MAJOR PROPERTIES

Particulars of major properties held by the Group as at 31st December, 2003 are as follows:

				Total gross
				floor		Expected
	Effective	Category		area on		year of
Name/Location	% held	of lease	Type	completion	Stage	completion
				(s.m.)
Properties held for development
Lot Nos. 18-07, 18-08,	100	Long	Commercial	167,000	Excavation work for	Not yet
100 Long District No. 18,			and office		basement levels of	planned
Jiang Bei, Huizhou,					proposed
Guangdong Province,					development was
The PRC.					completed
Lot Nos. 18-09, District	100	Long	Commercial	36,600	Not yet commenced	Not yet
No. 18, Jiang Bei,					development	planned
Huizhou, planned
Guangdong Province,
The PRC.
Hotel properties
Guilin Plaza,	100	Medium	Hotel	21,708	Existing	N/A
20 Li Jiang Lu, Guilin,
Guangxi,
The PRC.
Investment properties
Kiu Sun Factory Building,	100	Medium	Industrial	4,519	Existing	N/A
Portions A1, B, B1, C, C1,
D, D1 on 5th Floor,
Portions C and C1 on 6th
Floor, Portions A, A1, B,
B1 and C on 7th Floor
and Roofs,
No. 41 King Yip Street,
Kwun Tong
Hong Kong.

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

				Total gross
				floor		Expected
	Effective	Category		area on		year of
Name/Location	% held	of lease	Type	completion	Stage	completion
				(s.m.)
Kai Yip Factory Building,	100	Medium	Industrial	459	Existing	N/A
Portion A on G/F,
No. 15-17 Sam Chuk
Street,
San Po Kong, Kowloon,
Hong Kong.
Room 702, 703 and 704 of	100	Medium	Residential	291	Existing	N/A
Block D of Shantou
Commercial Plaza at the
junction of Jinsha Road
East and Huashan Road,
Shantou Special Economic
Zone, Guangdong
Province,
The PRC.
Properties held for sale
No. 197-201,	100	Medium	Commercial/	13,640	Existing	N/A
Queen’s Road West,			Office
Sai Ying Pun,
Hong Kong.
Levels 5-7, 9, 12-14,	100	Medium	Commercial/	13,323	Existing	N/A
17-22 of Block A and all			Residential
shopping spaces in the
podium under Block B &
C of Shantou Commercial
Plaza at the junction of
Jinsha Road East and
Huashan Road,
Shantou Special Economic
Zone, Guangdong
Province,
The PRC.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Total gross floor Expected Effective Category area on year of Name/Location % held of lease Type completion Stage completion (s.m.) 10th Floor of Building B, 100 Long Commercial/ 4,289 Existing N/A 6th, 8th, 11th, 15th, 17th Office and 25th Floors of Building A, International Commerce Building, Banzhang Lake, South Riverside, Huizhou City, Guangdong Province, The PRC.

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Unaudited interim financial statements

The followings are the unaudited condensed consolidated financial statements and the “Results and business review” section extracted from the Company’s unaudited interim report for the six months ended 30th June, 2004.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30th June, 2004

Notes Turnover 3 Cost of sales and services Gross profit Other income Selling and distribution costs Administrative expenses Profit from operations 4 Provision for doubtful amounts 5 Finance costs Profit (loss) for the period Earnings (loss) per share 8 Basic Diluted	Six months ended 30.6.2004 30.6.2003 HK$’000 HK$’000 (unaudited) (unaudited) 206,044 115,708 (188,368) (77,640) 17,676 38,068 1,159 6,105 (53) (99) (16,681) (15,723) 2,101 28,351 — (159,826) (1,193) (1,730) 908 (133,205) HK0.1 cent (HK14.6 cents) N/A N/A	Six months ended 30.6.2004 30.6.2003 HK$’000 HK$’000 (unaudited) (unaudited) 206,044 115,708 (188,368) (77,640) 17,676 38,068 1,159 6,105 (53) (99) (16,681) (15,723) 2,101 28,351 — (159,826) (1,193) (1,730) 908 (133,205) HK0.1 cent (HK14.6 cents) N/A N/A
	17,676 1,159 (53) (16,681) 2,101 — (1,193)	38,068 6,105 (99 (15,723
		28,351 (159,826 (1,730
	908 HK0.1 cent N/A

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

At 30th June, 2004

30.6.2004 HK$’000 Notes (unaudited) Non-current Assets Investment properties 9 11,100 Property, plant and equipment 289,504 Properties held for development 80,000 Goodwill 10 100,294 480,898 Current Assets Properties held for sale 104,600 Inventories 39,485 Trade and other receivables 11 16,204 Investments in securities 61 Pledged bank deposits — Bank balances and cash 39,478 199,828 Current Liabilities Trade and other payables 12 89,251 Tax payable 2,546 Provision for loss in litigation 38,000 Bank borrowings - due within one year 13 — 129,797 Net Current Assets 70,031 550,929 Capital and Reserves Share capital 91,500 Reserves 260,629 352,129 Non-current Liabilities Convertible notes 198,800 Bank borrowings — due after one year 13 — 198,800 550,929	30.6.2004 HK$’000 Notes (unaudited) Non-current Assets Investment properties 9 11,100 Property, plant and equipment 289,504 Properties held for development 80,000 Goodwill 10 100,294 480,898 Current Assets Properties held for sale 104,600 Inventories 39,485 Trade and other receivables 11 16,204 Investments in securities 61 Pledged bank deposits — Bank balances and cash 39,478 199,828 Current Liabilities Trade and other payables 12 89,251 Tax payable 2,546 Provision for loss in litigation 38,000 Bank borrowings - due within one year 13 — 129,797 Net Current Assets 70,031 550,929 Capital and Reserves Share capital 91,500 Reserves 260,629 352,129 Non-current Liabilities Convertible notes 198,800 Bank borrowings — due after one year 13 — 198,800 550,929	31.12.2003 HK$’000 (audited) 11,100 293,606 80,000 103,103
	480,898 104,600 39,485 16,204 61 — 39,478 199,828 89,251 2,546 38,000 — 129,797 70,031	487,809
		128,700 26,481 13,195 61 2,300 31,858
		202,595
		77,087 2,546 38,000 6,500
		124,133
		78,462
	550,929	566,271
	91,500 260,629 352,129 198,800 — 198,800	91,500 259,721
		351,221
		198,800 16,250
		215,050
	550,929	566,271

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED STATEMENT OF CHANGES IN EQUITY

Share capital Share premium Hotel property revaluation reserve Exchange reserve Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 1st January, 2003 91,500 426,372 39,254 (57,236) 3,377 Exchange translation not recognized in the income statement — — — 19 — Surplus on revaluation of hotel properties — — 8,814 — — Loss for the year — — — — (160,879) At 31st December, 2003 and 1st January, 2004 91,500 426,372 48,068 (57,217) (157,502) Exchange translation not recognized in the income statement — — — — — Profit for the period — — — — 908 At 30th June, 2004 91,500 426,372 48,068 (57,217) (156,594)

Total HK$’000 503,267 19 8,814 (160,879) 351,221 — 908 352,129

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30th June, 2004

Net cash from (used in) operating activities Net cash from investing activities Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Analysis of the balances of cash and cash equivalents: Bank balances and cash Bank overdraft	Six months ended 30.6.2004 30.6.2003 HK$’000 HK$’000 (unaudited) (unaudited) 29,945 (23,435) 628 8,221 (22,953) (12,630) 7,620 (27,844) 31,858 46,792 39,478 18,948 39,478 19,184 — (236) 39,478 18,948

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30th June, 2004

1. BASIS OF PREPARATION

The condensed financial statements have been prepared in accordance with Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain properties and investments in securities.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31st December, 2003.

3. SEGMENT INFORMATION

The Group’s turnover and contribution to profit (loss) for the period by business segments and geographical segments are as follows:

By business segments: Fibreboard and veneer Hotel operations Property investment Trading Interest income Net unrealized holding gains on other investments Unallocated corporate expenses Finance costs Profit (loss) for the period	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 167,619 2,773 107,516 (123,451) 7,893 1,320 5,351 (730) 30,532 5,929 1,719 1,111 — — 1,122 (541) 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 167,619 2,773 107,516 (123,451) 7,893 1,320 5,351 (730) 30,532 5,929 1,719 1,111 — — 1,122 (541) 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 167,619 2,773 107,516 (123,451) 7,893 1,320 5,351 (730) 30,532 5,929 1,719 1,111 — — 1,122 (541) 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 167,619 2,773 107,516 (123,451) 7,893 1,320 5,351 (730) 30,532 5,929 1,719 1,111 — — 1,122 (541) 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 167,619 2,773 107,516 (123,451) 7,893 1,320 5,351 (730) 30,532 5,929 1,719 1,111 — — 1,122 (541) 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)
					(123,611)
			) )		10 39 (7,913)
		2,101 (1,193			(131,475) (1,730)
		908			(133,205)

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

By geographical segments: The People’s Republic of China, other than Hong Kong Hong Kong Interest income Net unrealized holding gains on other investments Unallocated corporate expenses Finance costs Profit(loss) for the period	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 181,551 10,132 112,867 (124,213) 24,493 (110) 2,841 602 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 181,551 10,132 112,867 (124,213) 24,493 (110) 2,841 602 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 181,551 10,132 112,867 (124,213) 24,493 (110) 2,841 602 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 181,551 10,132 112,867 (124,213) 24,493 (110) 2,841 602 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)	For the six months ended 30th June 2004 2003 Turnover Segment results Turnover Segment results HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 181,551 10,132 112,867 (124,213) 24,493 (110) 2,841 602 206,044 10,022 115,708 (123,611) 76 10 — 39 (7,997) (7,913) 2,101 (131,475) (1,193) (1,730) 908 (133,205)
					(123,611)
			) )		10 39 (7,913)
		2,101 (1,193			(131,475) (1,730)
		908			(133,205)

4. PROFIT FROM OPERATIONS

Profit from operations has been arrived at after charging:

						**For **	the six months ended 30th June	the six months ended 30th June
							2004	2003
							HK$’000	HK$’000
							(Unaudited)	(Unaudited)
Depreciation	of	property,	plant	and	equipment		5,837	3,117
Amortisation	of	goodwill					2,809	2,785

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. PROVISION FOR DOUBTFUL AMOUNTS

The Group made provisions in respect of the loss arise from a civil claim of Foshan Branch of Shenzhen Development Bank (“the Claimant”) on 20th August, 2003 against Nanhai Jia Shun Timber Company Limited (“Jia Shun”) and Nanhai Heng Da Timber Company Limited (“Heng Da”), the wholly-owned subsidiaries of the Company, and the repayment capability of other related persons:

Prepayments in advance to suppliers Trade receivables Other receivables Provision for loss in litigation	For the six months ended 30th June 2004 2003 HK$’000 HK$’000 (Unaudited) (Unaudited) — 47,234 — 28,738 — 45,854 — 38,000 — 159,826	For the six months ended 30th June 2004 2003 HK$’000 HK$’000 (Unaudited) (Unaudited) — 47,234 — 28,738 — 45,854 — 38,000 — 159,826
		159,826

6. TAXATION

No provision for Hong Kong Profits Tax or overseas taxation has been made in the financial statements as the Company and its subsidiaries have no assessable profits for either period.

At the balance sheet date, the Group has unused tax losses of HK$12,718,000 (2003: HK$12,718,000) available for offsetting against future profits. No deferred tax assets have been recognised as it is uncertain whether there will be assessable profits in the future.

7. DIVIDENDS

The Board does not declare any interim dividend for the six months ended 30th June, 2004 (2003: nil).

8. EARNINGS (LOSS) PER SHARE

The calculation of basic earnings (loss) per share is based on the profit for the period of HK$908,000 (30th June, 2003: a loss of HK$133,205,000) and on 914,995,817 ordinary shares (30th June, 2003: 914,995,817 ordinary shares) in issue during the period.

No diluted earnings per share has been presented for the period ended 30th June, 2004 because the exercise of conversion of the Company’s outstanding convertible notes would result in an increase in profit per share from continuing ordinary operations for the period.

No diluted loss per share was presented for the period ended 30th June, 2003 as the conversion price of convertible notes is higher than the average market price of the shares of the Company’s shares for the period.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. INVESTMENT PROPERTIES

At 30th June, 2004, the directors considered the carrying amounts of the Group’s investment properties carried at the revalued amounts and estimated that the carrying amounts as at 30th June, 2004 do not differ significantly from the open market value of those properties as at 30th June, 2004. Consequently, no revaluation surplus or deficit has been recognised in the current period.

10. GOODWILL

	HK$’000
	(Unaudited)
COST
At 1st January, 2004 and 30th June, 2004	112,583
AMORTISATION
At 1st January, 2004	9,480
Charge for the period	2,809
At 30th June, 2004	12,289
NET BOOK VALUE
At 30th June, 2004	100,294
At 31st December, 2003	103,103

The goodwill is arising on acquisitions on subsidiaries in 2002. The amortisation period adopted for the goodwill is 20 years.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. TRADE AND OTHER RECEIVABLES

The Group allows an average credit period of 90 days to its trade customers. The following is an aging analysis of the Group’s trade receivables at the reporting date:

30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 6,727 4,146 61 - 90 days 491 527 91 -120 days 303 291 > 120 days 1,810 1,276 Trade receivables 9,331 6,240 Other receivables 6,873 6,955 16,204 13,195	30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 6,727 4,146 61 - 90 days 491 527 91 -120 days 303 291 > 120 days 1,810 1,276 Trade receivables 9,331 6,240 Other receivables 6,873 6,955 16,204 13,195	30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 6,727 4,146 61 - 90 days 491 527 91 -120 days 303 291 > 120 days 1,810 1,276 Trade receivables 9,331 6,240 Other receivables 6,873 6,955 16,204 13,195
	9,331 6,873	6,240 6,955
	16,204	13,195

12. TRADE AND OTHER PAYABLES

The following is an aging analysis of the Group’s trade payables at the reporting date:

30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 11,646 5,548 61 - 90 days 2,341 4,151 91 -120 days 1,789 4,948 > 120 days 13,268 806 Trade payables 29,044 15,453 Other payables 60,207 61,634 89,251 77,087	30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 11,646 5,548 61 - 90 days 2,341 4,151 91 -120 days 1,789 4,948 > 120 days 13,268 806 Trade payables 29,044 15,453 Other payables 60,207 61,634 89,251 77,087	30.6.2004 31.12.2003 HK$’000 HK$’000 (unaudited) (audited) 0 - 60 days 11,646 5,548 61 - 90 days 2,341 4,151 91 -120 days 1,789 4,948 > 120 days 13,268 806 Trade payables 29,044 15,453 Other payables 60,207 61,634 89,251 77,087
	29,044 60,207	15,453 61,634
	89,251	77,087

13. BANK BORROWINGS

During the period, the Group repaid HK$22,750,000 (31st December, 2003: HK$16,097,000) of its bank loans.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. OPERATING LEASE ARRANGEMENTS

The Group as lessee

At 30th June 2004, the Group had outstanding lease commitments for future minimum lease payments under non-cancellable operating lease in respect of rented premises and plant and machinery, which falling due as follows:

	30.6.2004	31.12.2003
	HK$’000	HK$’000
	(unaudited)	(audited)
Within one year	22,893	22,935
In the second to fifth years inclusive	27,258	38,699
	50,151	61,634

The Group as lessor

At 30th June 2004, the Group had contracted with tenants for the following future minimum lease payments:

	30.6.2004	31.12.2003
	HK$’000	HK$’000
	(unaudited)	(audited)
Within one year	758	888
In the second to fifth years inclusive	106	322
	864	1,210
CAPITAL COMMITMENTS
	30.6.2004	31.12.2003
	HK$’000	HK$’000
	(unaudited)	(audited)
Capital expenditure in respect of the acquisition of property, plant and
equipment contracted for but not provided in the financial statements	—	19
Capital expenditure in respect of the acquisition of property, plant and
equipment authorized but not contracted for	—	283

15. CAPITAL COMMITMENTS

16. POST BALANCE SHEET EVENTS

On 1st July 2004, the group received a notice from Huizhou Government about the termination of the land use right in respect of the properties held for development with a carrying value of HK$80,000,000. The group has appointed legal representative for application for the land use right extension. As the extension application is under process, the directors consider there is no necessary for providing impairment for properties held for development.

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. CONTINGENT LIABILITIES

• (a) On 16th January 2004, Jia Shun and Heng Da both received summons issued by the Intermediate People’s Court of Foshan City, Guangdong Province, the People’s Republic of China (“the Court”) regarding a bank loan contract dated 23rd May 2003 was entered into between Heng Yi Timber Company Limited (“Heng Yi”), an independent third party, as borrower and the Claimant as lender in relation to a loan facility in a sum of RMB40m (equivalent to approximately HK$38m) and that the Claimant has advanced such loan to Heng Yi. The summons also included a guarantee dated 23rd May 2003 entered into by, among others, Jia Shun, Heng Da and Nanhai Hua Guang Decorative Board Company Limited (“Hua Guang”) in favour of the Claimant in relation to such loan (the “Claims”). As the operation of Hua Guang were suspended and Hua Guang was one of the guarantors in relation to the bank loan, Jia Shun and Heng Da, among others, should make full repayment of the loan and interest thereon before maturity under the bank loan contract.

Jia Shun and Heng Da had reported to the Public Securities Bureau in Nanhai, PRC on 23rd March 2004 that, among other things:

• i. Without the knowledge of board of directors of the Group and the respective board of Jia Shun and Heng Da (except Mr. Sun Pak Fun who could not be contacted), the company chops of Heng Da and Jia Shun, and the name chop of Mr. Sun Pak Fun, the then legal person representative and chairman of board of directors of Jia Shun and Heng Da, were affixed to the aforesaid guarantees;

• ii. Neither Jia Shun nor Heng Da had any record recording any details of the aforesaid guarantees; and

• iii. The claims were suspected to involve criminal offence.

The Group will deny liability and contest the Claims vigorously. The Directors consider that the Claimant does not have any valid claim against Heng Da and Jia Shun in relation to the Claims, and they strongly believe that the Group can successfully defend against the Claims.

Subsequent to this, the Group had applied to the Court to terminate the legal proceedings and the Court has ordered to suspend the legal proceedings in view that as there could involve criminal offences, which should prevail over the civil claims.

(b) The Group had a maximum contingent consideration of HK$48m in respect of the acquisition of the entire issued share capital of Can Manage. However, as the vendor being uncontactable, the Directors have been unable to ascertain whether this amount has been properly dealt with, which would have become payable, among others, when the consolidated net profit of Can Manage and its subsidiary, namely Jia Shun, achieved an amount of HK$80m for the year ended 31st December 2003. However, the operation of Jia Shun was suspended during the period from 17th August 2003 to 10th October 2003 due to there was a failure in the supply of electricity and steam from the power plant operated under the power supply agreement and a court order dated 19th August 2003 to freeze Jia Shun’s assets in relation to an alleged claim from the Shenzhen Development Bank Foshan Branch. In addition, the production facilities were substantially different from those prior to the suspension. In view of all the above incidences, couple with the fact that the vendor was not contactable up to now, the directors could not reasonably ascertain the amount of contingent consideration, if any, which has to be paid to the vendor.

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

RESULTS AND BUSINESS REVIEW

For the six months ended 30th June, 2004, the Group recorded a turnover of HK$206,044,000, representing a substantial increase of 78% over HK$115,708,000 in the corresponding period in 2003. The Group’s operating profit for the first half year was HK$908,000, whilst representing a turnaround compared with the corresponding period in the previous year.

Fiberboard and Veneer

The Company strengthened the leadership on the board factory, and enhanced operation and production management. It implemented and improved various rules and policies. Through leasing the neighbouring plant, the production capacity of medium density fiberboard was enhanced. During the first half year, total output of medium density fiberboard was 145,907.76 m3, representing an increase of 96.95% over the corresponding period in the previous year. During the first half year, the overall board material business recorded a turnover of HK$167,619,000, representing an increase of 56% over HK$107,516,000 in the corresponding period in the previous year. Despite the satisfactory growth in turnover and improvement in production efficiency, the costs of raw materials have increased by approximately RMB18 million during the half year, which was attributable to surge of the prices of raw materials, such as wood, coal, methanol, urea, and resulted in significant trimming in the product gross margin. Under the measures of energy saving and reduction in consumption in the various production segments, the Fiberboard and Veneer business of the Group recorded an operating profit of HK$2,773,000 during the first half year.

HOTEL

During the first quarter, the average occupancy of the Guilin Plaza Hotel was not satisfactory under the impact of avian-flu at the beginning of the year. Followed by the event fading out and the concrete adjustments made by the management to the marketing strategy, emphasis of promotion was placed on business conference groups, the occupancy rate gradually rebounded in the second quarter. As at 30th June, 2004, the Guilin Plaza Hotel recorded a turnover of HK$7,893,000, an increase of 48% over the corresponding period in the previous year, which was turnaround from the corresponding period in the previous year, and recorded an operating profit of HK$1,320,000.

Property Investment

As Shanghai Zhonghui Real Estate Development Company Limited ( ) was in fact insolvent, and was involved in a number of litigation, it was unable to repay the outstanding debts to the Company as agreed. As Wen Ying Investments Limited, a wholly-own subsidiary of the Group, is still a party to the joint venture project, the opportunity of disposal was finally sought through repeated negotiations, so as to avoid the Company having to assume the joint venture’s debts, and minimizing the Group’s losses. The Group completed the disposal of the entire interests in Wen Ying Investments Limited to an independent third party at a consideration of RMB6,000,000.

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Subsequent to the balance sheet date, the Group received a notice from the People’s Government of Huizhou City alleging that the plot of land held by the Company located at district No. 18 in Huizhou has been idle and undeveloped. The People’s Government of Huizhou City intended to dispose the land by public auction in the view of accelerating urban development, and would repay the proceeds after deducting charges to the landlord. In fact, preparation works for the land were commenced by the Company. Therefore, the Company is applying for an administration review to the relevant authority through a lawyer, and has reached the review procedures.

Financial Situation

As at 30th June, 2004, the Group’s total capital and long-term borrowings amounted to HK$550,929,000 (31st December, 2003: HK$566,271,000). Total borrowings was HK$198,800,000 (31st December, 2003: HK$221,550,000), with a gearing ratio of 36% (31st December, 2003: 39%), and net assets per Share was HK¢38 (31st December, 2003: HK¢38). The Group’s bank deposits and cash were approximately HK$39,478,000 (31st December, 2003: HK$34,158,000), which was sufficient to meet the cash requirements for the Group’s future operations.

Foreign Exchange Exposure

The Group mainly earned revenue and incurred cost in Hong Kong Dollar and Renminbi. The Directors consider that the Group’s foreign exchange risks are minimal.

PROSPECTS

Output of the Group’s medium density fiberboard represented approximately 20% of the total output in Guangdong Province. As material resources such as electricity, steam, and glue are produced by the factory itself, it enjoyed stability in the whole production process. Cost controls have been relatively proactive. Currently, there is a shortage of raw materials, and prices of raw materials are still high, which have inevitably caused negative impact to the gross profit margins of products. However, following the price surge for major materials of the board industry, the tendency of increase in price with respect to the finished products has been gradually accepted by the market. In August and September, the Group has gradually raised increase the prices of the Fiberboard and Veneer. The Group will re-integrate the resources of the board factory, and will fully capitalise on the production capacity to focus on enhancing economic efficiency. The Group is still positive and optimistic towards the prospects of the Fiberboard and Veneer industry.

In respect of hotel business, in order to secure customer sources, hotels started to cut prices to promote, creating a vicious cycle. As the Plaza Hotel is near to the convention and exhibition facilities, and the renovation for adding a few conferences due to adoption of positive operational policies, it has certain advantages and competitiveness in absorbing commercial business travellers.

Despite the various difficult situations, with timely and effective measures implemented by the management, and staff of all levels to solve problems and tackle the challenges jointly, efforts are devoted to consolidate the business base as well as exploring potentials for business development. By capitalising on its advantages in business, the Group is confident of gradually creating better efficiency.

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Statement of Indebtedness

As at the close of business of 28th February, 2005, being the latest practicable date for the purpose of ascertaining information contained in this indebtedness statement prior to the printing of this circular, the Group had outstanding convertible notes (included the respective accrued interest thereto) of approximately HK$203,800,000. In addition, the Group had outstanding contingent liabilities amounting to approximately HK$86,000,000.

Save as aforesaid, and apart from intra-group liabilities and normal or trade related payables, the Group did not have any mortgages, charges, debentures, secured or unsecured borrowings, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness or hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities outstanding at the close of business of 28th February, 2005.

Material Changes

Save as those reflected or disclosed in the Company’s interim report for the six months ended 30th June, 2004, the Directors are not aware of any material adverse changes in the financial and trading position of the Group since 31st December, 2003 (being the date to which the latest published audited financial statements of the Group were made up).

Working Capital

The Directors are of the opinion that, after taking into account the intended banking facilities, internal resources of the Group and with the proceeds from the Disposal upon completion of the Disposal, the Group has sufficient working capital for its present requirements (i.e. for at least the next twelve months from the date of this circular) in the absence of unforeseen circumstances.

— 69 —

PROPERTY VALUATION REPORT

APPENDIX II

The following are the texts of a letter, a summary of valuation and a valuation certificate received from Associated Surveyors & Auctioneers Ltd., an independent property valuer, prepared for the purpose of inclusion in this circular, in connection with the valuation as at 4th February, 2005 on the Sale Land.

==> picture [457 x 96] intentionally omitted <==

31st March, 2005

The Directors

China Investments Holdings Limited Unit 901, Wing On Plaza No. 62 Mody Road Tsimshatsui Hong Kong

Dear Sirs,

Re: Lot Nos. 18-07, 18-08 and 18-09 located at District No. 18, Jiang Bei, Huizhou, Guangdong Province, the PRC.

In accordance with your instruction for us to value the captioned property interests of China Investments Holdings Limited (the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”) in the People’s Republic of China (“the PRC”), we confirm that we have carried out inspections, made relevant enquires and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of such property interests as at 4 February 2005 .

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming:

• (a) a willing seller;

• (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

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PROPERTY VALUATION REPORT

APPENDIX II

• (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• (d) that no account is taken of any additional bid by a purchaser with a special interest; and

• (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

In valuing the property interests, we have adopted the Direct Comparison Method by making reference to the comparable site transactions and land prices as available in the relevant market.

Our valuation has been made on the assumption that the owner sells the property interests on the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the value of the property interests.

In valuing the property interest, we have assumed that the grantee or the user of the subject property has free and uninterrupted rights to use or to assign the subject property for the whole of the respective un-expired term as granted.

We have been provided by the Group with extracts of title documents in relation to the title to the property interests. However, we have not searched the original documents to verify ownership or to ascertain any lease amendments which may not appear on the copies available to us.

In respect of the property held by the Group, we have relied on the legal opinion issued by the Group’s PRC legal advisers, Guangdong Kings Law Firm, on the relevant laws and regulations in the PRC in relation to the Group’s legal title to and the nature of the Group’s interest in such properties as at the date of valuation. We have been provided with extracts of title documents, such as Stated-owned Land use Right Certificates.

In valuing the property interests of the Group, we have complied with all the requirements contained in the Practice Note No. 12, and Chapter 5 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong and Guidance Notes on the “Valuation of Property Assets” published by the Hong Kong Institute of Surveyors.

We have relied to a considerable extent on any information given by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation, tenancy schedule, rentals, site and floor areas and all other relevant matters. Dimensions, measurements and areas included are based on information contained in the documents provided to us and are approximations.

No allowance has been made in our valuation of any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of any onerous nature which could affect their values.

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PROPERTY VALUATION REPORT

APPENDIX II

We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all money amounts stated are in Renminbi (RMB). The exchange rate adopted in valuing the property interests in the PRC as at 4 February 2005 was HK$1=RMB1.06. There has been no significant fluctuation in exchange rate between that date and the date of this letter.

We enclose herewith a summary of our valuation and the valuation certificate.

Yours faithfully For and on behalf of

Associated Surveyors & Auctioneers Limited Brian W. K. Li BSc., (Est. Man.) MRICS, MHKIS CIREA Registered Professional Surveyor (GP) Director

Note: Brian W.K. Li is a Chartered Surveyor who has over 25 years’ experience in undertaking valuations of properties in Hong Kong and has over 10 years’ experience in the valuation of properties in the PRC.

— 72 —

PROPERTY VALUATION REPORT

APPENDIX II

SUMMARY OF VALUATION

		Capital value in
		existing state as at
Property		4 February 2005
		RMB
Lot Nos.18-07, 18-08 and 18-09		50,000,000
located at District No. 18,
Jiang Bei, Huizhou,
Guangdong Province,
the PRC.
	Total:	50,000,000

— 73 —

PROPERTY VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Capital value in existing state as at Property Description Particulars of occupancy 4 February 2005 Lot Nos.18-07, 18-08 and The property comprises three adjoining The property currently RMB50,000,000 18-09 located at plots of land with a total site area of comprises an undeveloped District No. 18, approximately 63,079 sq.m. and vacant site. Jiang Bei, Huizhou, (678,982 sq.ft.). Guangdong Province, the PRC The land use rights of the property have been granted for a term of 70 years from 14 September 1992

Notes:

1. Pursuant to three Certificates for the Use of State-owned Land issued by the People’s Government of Huizhou on the 14 September 1992, the land use rights of the property have been granted for respective term of 70 years from 14 September 1992 to 14 April 2062 for commercial use. Details of the various certificates are summarized as follows:

Certificate No. Site Area User (92)13020100026 20,270 sq.m. Wise Lite Limited ( ) (92)13020100027 25,664 sq.m. Skyway Limited ( ) (92)13020100028 17,145 sq.m. Fairwind International Limited ( )

1. Pursuant to the PRC Legal Opinion and the information provided by the Group:

2. (i) Wise Lite Limited ( ), Skyway Limited ( ) and Fairwind International Limited ( ) have acquired the land use rights of the property.

3. (ii) Wise Lite Limited ( ), Skyway Limited ( ) and Fairwind International Limited ( ) have the right to freely transfer, let or mortgage the land use rights of the property.

4. Pursuant to the information provided by the Group, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:

5. (i) State-owned Land Use Rights Grant Contract yes

6. (ii) Stated-owned Land Use Rights Certificate yes

7. We have relied on the information provided by you and prepared our valuation on the following assumptions:-

8. (i) Wise Lite Limited, Skyway Limited and Fairwind International Limited are in possession of a proper legal title to the respective portion of the property and are entitled to transfer the respective portion of the property with residual term of their respective land use rights at no extra land premium or other onerous payment payable to the government;

9. (ii) All land premium and costs of resettlement and public utilities services have been fully settled; and

10. (iii) The property may be disposed of freely to both local and overseas purchasers.

— 74 —

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF DIRECTORS’ INTERESTS

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

				Approximate
				percentage
	Number	Nature of		of total issued
Name of Director	of Shares	interest	Notes	share capital
Leung Siu Fai	151,610,779	Corporate	1	16.57%
Kam Hung Chung	58,971,428	Corporate	2	6.44%

Notes:

1. These Shares were held by Mighty Management Limited which was wholly-owned by Mr. Leung Siu Fai.

2. These Shares were held by Sintex Investment Limited in which Mr. Kam Hung Chung had 50% interest.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company held any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to the provisions of Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange.

— 75 —

GENERAL INFORMATION

APPENDIX III

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

None of the Directors is materially interested in any contracts or arrangements subsisting at the date of this circular which is significant in relation to the business of the Group.

3. SUBSTANTIAL SHAREHOLDERS’ INTEREST AND SHORT POSITION

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following parties (other than a Director or chief executive of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any options in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		Number of			Approximate
		underlying			percentage
		Shares in			(in aggregate)
	Number	derivative			of total issued
Name	of Shares	interests*	Notes	Capacity	share capital
Mighty Management Limited	151,610,779	—	1	Beneficial owner	16.57%
Industrial and Commercial	131,657,142	—		Beneficial owner	14.39%
Bank of China
Nam Keng Van Investment	89,271,895	32,592,592	2	—	13.32%
Co., Ltd.
Lau Ming En	700,000	111,111,111		Beneficial owner	12.22%
Fung Kam Wing	—	111,111,111		Beneficial owner	12.14%
Topgrow Limited	—	92,592,592		Nominee for	10.12%
				another person
Wideco Investment Limited	—	92,592,592		Nominee for	10.12%
				another person
Delight View Enterprises	—	74,074,074		Nominee for	8.10%
Limited				another person
Sintex Investment Limited	58,971,428	—	3	Beneficial owner	6.44%
Zhong Baoguo	58,971,428	—	3	Controlled	6.44%
				corporation

— 76 —

GENERAL INFORMATION

APPENDIX III

		Number of			Approximate
		underlying			percentage
		Shares in			(in aggregate)
	Number	derivative			of total issued
Name	of Shares	interests*	Notes	Capacity	share capital
Oriental Trade Ltd.	55,555,555	—		Beneficial owner	6.07%
Success Digital International	—	55,555,555		Beneficial owner	6.07%
Limited
Gearway Limited	—	55,555,555		Nominee for	6.07%
				another person
He Yongwen	48,917,142	—	4	Beneficial owner	5.35%
				and controlled
				corporation
New City Holdings Limited	48,917,142	—	4	Beneficial owner	5.35%

• being unlisted physically settled derivatives interests

Notes:

1. These 151,610,779 Shares were held by Mighty Management Limited which was wholly-owned by Mr. Leung Siu Fai.

2. These interests (including derivative interests in respect of 32,592,592 Shares) were disclosed by Nam Keng Van Investment Co., Ltd.

3. These 58,971,428 Shares were held by Sintex Investment Limited in which Mr. Kam Hung Chung had 50% interest and Mr. Zhong Baoguo had 50% interest.

4. These 48,917,142 Shares were held by New City Holdings Limited which was wholly-owned by Mr. He Yongwen.

Save as disclosed above, as at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, no other person (other than Directors or chief executive of the Company) had any interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any options in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Group.

— 77 —

GENERAL INFORMATION

APPENDIX III

4. PROCEDURES FOR DEMANDING A POLL

Pursuant to the bye-laws of the Company, a resolution put to the vote of a general meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman of the meeting; or

• (b) by at least three members present in person or in the case of a member being a corporation by its duly authorsied representative or by proxy for the time being entitled to vote at the meeting; or

• (c) by a member or members present in person or in the case of a member being a corporation by its duly authorsied representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or

• (d) by a member or members present in person or in the case of a member being a corporation by its duly authorsied representative or by proxy and holding Shares 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.

If a poll is demanded, it shall (subject to any poll duly demanded on the election of a chairman of a meeting or on any question of adjournment which shall be taken at the meeting and without adjournment) be taken in such manner and at such time and place, not being more than 30 days from the date of the meeting or adjourned meeting at which the poll was demanded, as the chairman directs. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn, with the consent of the chairman, at any time before the close of the meeting or the taking of the poll, whichever is the earlier.

5. MATERIAL CONTRACTS

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

• (i) on 4th August, 2003, Kawan (HK) Trading Company Limited, a wholly-owned subsidiary of the Company, as vendor and Wing Kee Hong Metals Limited as purchaser entered into an agreement for sale and purchase in respect of the disposal of the property known as unit 1116, 11th Floor, Houston Centre, Tsimshatsui, Kwoloon at a consideration of HK$1,892,550;

— 78 —

GENERAL INFORMATION

APPENDIX III

• (ii) on 10th September, 2003, an agreement was entered into between Greenswood Property Limited, a wholly-owned subsidiary of the Company, as vendor and Chu Kwok Kee Limited as purchaser in respect of the disposal of the property known as the whole of 4th Floor and Flat Roof on 4th Floor, Rooms 601, 602, 603, 605 and 606 on 6th Floor, Austin Tower, Tsimshatsui, Kowloon at a consideration of HK$17,044,650;

• (iii) on 7th November, 2003, Tremendous World Property Limited, a wholly-owned subsidiary of the Company, as vendor entered into an agreement with Harvest Scene Limited as purchaser in relation to the disposal of Wah Ying Building at a consideration of HK$24,100,000;

• (iv) on 9th February, 2004, an agreement was entered into between China Investments Limited, a wholly-owned subsidiary of the Company, as vendor and Hongkong Pan Asia Investment Co., Limited as purchaser in relation to the sale of shares and shareholder’s loan in Wen Ying Investments Limited at an aggregate consideration of RMB6,000,000; and

• (v) the Preliminary Agreement.

None of the counterparties to the above material contracts is a connected person of the Company.

6. LITIGATION

There are certain claims against Heng Da and Jia Shun in relation to certain bank loan contracts and guarantee, details of which are set out in pages 7 to 9 of the annual report of the Company for the year ended 31st December, 2003 and pages 23 to 24 of the interim report of the Company for the six months ended 30th June, 2004. The Group had applied to the relevant court in the PRC to terminate the legal proceedings of such claims and the court has ordered to suspend the legal proceedings on the ground that such claims may involve criminal offences which should first be dealt with. As at the Latest Practicable Date, there is no further development of such claims.

Save as disclosed herein above, neither the Company nor any of its subsidiaries are engaged in any litigation or arbitration or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

— 79 —

GENERAL INFORMATION

APPENDIX III

7. QUALIFICATION OF THE EXPERT

The following is the qualification of the expert who has been named in this circular or has given opinions or advice which are contained in this circular:

Name

Qualification

Associated Surveyors & Auctioneers Ltd. Property Valuer

The Surveyors has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter or reference to its name in the form and context in which they respectively appear.

The Surveyors has no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

The Surveyors has no direct or indirect interest in any assets which have since 31st December, 2003 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

8. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any of its subsidiaries other than contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

9. SECRETARY AND QUALIFIED ACCOUNTANT OF THE COMPANY

The secretary of the Company is Mr. Lo Tai On. Mr. Lo is an associate member of the Hong Kong Institute of Certified Public Accountants.

The qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rule is Mr. Ng Chun Hing. Mr. Ng holds a degree of Bachelor of Commerce (Accounting) and is an associate member of the Hong Kong Institute of Certified Public Accountants and a Certified Practising Accountant member of the CPA Australia.

10. COMPETING INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date, none of the Directors or their respective associate(s) was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

— 80 —

GENERAL INFORMATION

APPENDIX III

11. MISCELLANEOUS

• (a) The branch share registrars of the Company is Progressive Registration Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (b) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

• (c) The principal place of business of the Company in Hong Kong is located at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong.

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

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong up to and including the date of the SGM:

• (a) the Company’s memorandum and bye-laws;

• (b) the material contracts as referred to in the paragraph headed “Material contracts” in this Appendix;

• (c) the Valuation Report as set out in Appendix II to this circular;

• (d) the letter of consent as referred to in the section headed “Qualification of the expert” in this Appendix;

• (e) the annual reports of the Company for the two financial years ended 31st December 2003; and

• (f) the interim report of the Company for the six months ended 30th June, 2004.

— 81 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [77 x 61] intentionally omitted <==

CHINA INVESTMENTS HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 132)

NOTICE IS HEREBY GIVEN that the special general meeting of the Company will be held at the Garden Rooms, 2nd Floor, the Royal Garden, 69 Mody Road, Tsimshatsui, Kowloon, Hong Kong at 10:00 a.m. on Monday, 18th April, 2005 for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :-

• (a) (i) the preliminary agreement on land use right transfer dated 6th February, 2005 entered into between Wise Lite Limited, Skyway Limited and Fairwind International Limited, all wholly-owned subsidiaries of the Company as the Vendors and (Bo Lou County Heng Xin Zhi Ye Ltd.*) as the Purchaser (the

• “Preliminary Agreement”, a copy of which is produced to the meeting and signed by the Chairman of the meeting for the purpose of identification) relating to the transfer of either Lot No.18-07, 18-08 and 18-09 located at District No.18, Jiang Bei, Huizhou, Guangdong Province, the PRC (the “Sale Land”), owned by the Vendors or the entire issued share capital of the Vendors (the “Sale Shares”) for the aggregate consideration of RMB51 million (equivalent to approximately HK$48.11 million);

• (ii) any further agreement or document in connection with the Preliminary Agreement and/or with the disposal of the Sale Land or the Sale Shares; and

• (iii) all transactions contemplated under each of the Preliminary Agreement and any further agreement or document as mentioned in (a)(ii) above,

be and are hereby approved, ratified and/or confirmed; and

— 82 —

NOTICE OF SPECIAL GENERAL MEETING

• (b) any one director of the Company, or any two directors or any one director and the company secretary of the Company if the affixation of the common seal is necessary, be and is/are hereby authorized to do all such acts and things, to sign and execute all such other documents, deeds, instruments and agreements and to take such steps as he/they may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Preliminary Agreement and any further agreement or document as mentioned in paragraph (a)(ii) above or any of the transactions contemplated therein and all other matters incidental thereto.

By Order of the Board LEUNG Siu Fai Chairman

Hong Kong, 31st March, 2005

Registered office:

Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda

Head office and principal place of business in Hong Kong:

Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong.

Notes:

1. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. To be valid, the proxy form, together with any power of attorney or other authority (if any) under which it is signed, or a certified copy thereof, must be lodged with the principal place of business of the Company in Hong Kong at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong not less than forty-eight hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the proxy form shall not preclude any member from attending and voting at the meeting if the member so wishes.

3. As at the date of this circular, the Board comprises of three executive Directors, Mr. LEUNG Siu Fai, Mr. KAM Hung Chung and Mr. WANG Jin Yuan and three independent non-executive Directors, Mr. CHAN Kwok Wai, Mr. YOU Guang Wu and Mr. CHEN Da Cheng.

4. for identification purpose only

— 83 —

==> picture [77 x 61] intentionally omitted <==

CHINA INVESTMENTS HOLDINGS LIMITED ( )[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 132)

PROXY FORM

Proxy form for use at the special general meeting to be held at 10 a.m. on Monday, 18th April, 2005 and at any adjournment thereof

I/We (note 1)

of

being the registered holder(s) of (note 2)

shares of HK$0.10

each in the capital of CHINA INVESTMENTS HOLDINGS LIMITED (“the Company”), HEREBY APPOINT THE CHAIRMAN OF THE MEETING or (note 3)

of

as my/our proxy to attend the special general meeting of the Company to be held at the Garden Rooms, 2nd Floor, the Royal Garden, 69 Mody Road, Tsimshatsui, Kowloon, Hong Kong at 10 a.m. on Monday, 18th April, 2005 and at any adjournment thereof, and vote for me/us as indicated below (note 4).

Ordinary Resolution

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

==> picture [36 x 39] intentionally omitted <==

FOR AGAINST (Note 4) (Note 4)

Dated: 2005 Shareholder’s Signature (note 5) :

Notes:

1. Full name(s) and address(es) to be inserted in BLOCK CAPITALS .

2. Please insert the number of shares of HK$0.10 each registered in your name(s). If no number is inserted, the proxy form will be deemed to relate to all the shares of the Company registered in your name(s).

3. If any proxy other than the Chairman is preferred, strike out “ THE CHAIRMAN OF THE MEETING or” and insert the name and address of the proxy desired in the space provided. ANY ALTERATION MADE TO THIS PROXY FORM MUST BE INITIALLED BY THE PERSON WHO SIGNS IT.

4. IMPORTANT: IF YOU WISH TO VOTE FOR THE RESOLUTION, PLEASE TICK THE BOX MARKED “FOR” BESIDE THE RESOLUTION. IF YOU WISH TO VOTE AGAINST THE RESOLUTION, PLEASE TICK THE BOX MARKED “AGAINST” BESIDE THE RESOLUTION . Failure to complete a box will entitle your proxy to cast his votes on the resolution at his discretion. Your proxy will also be entitled to vote at his discretion on any resolution properly put to the meeting other than those referred to in the notice convening the meeting.

5. This proxy form must be signed by you or your attorney duly authorized in writing or, in the case of a corporation, this proxy form must be under its common seal or under the hand of an officer, attorney or other person duly authorized to sign it.

6. Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either in person or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.

7. To be valid, the proxy form together with any power of attorney or other authority (if any) under which it is signed or a certified copy of such power or authority, must be deposited at the principal place of business of the Company at Unit 901, Wing On Plaza, 62 Mody Road, Tsimshatsui, Kowloon, Hong Kong not less than 48 hours before the time for holding the meeting or any adjournment thereof.

8. The proxy need not be a member of the Company but must attend the meeting in person to represent you.

9. Completion and deposit of the proxy form will not preclude you from attending and voting at the meeting if you so wish.

* For identification purpose only