S.A.S. Dragon Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in S.A.S. Dragon Holdings Limited , you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the licensed securities dealer or registered institution in securities or other agent through whom the sale was effected for transmission to the purchaser or transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of S.A.S. Dragon Holdings Limited , and it must not be used for the purpose of offering or inviting offers for any securities.

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER AND NOTICE OF SGM

Independent Financial Adviser to the IBC and the Independent Shareholders

A letter from the Board is set out on pages 7 to 23 of this circular. A letter from the IBC containing its recommendation to the Independent Shareholders is set out on pages 24 to 25 of this circular. A letter from the Independent Financial Adviser, Guangdong Securities Limited, containing its advice to the IBC and the Independent Shareholders is set out on pages 26 to 43 of this circular.

A notice convening an SGM to be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 27 July 2012 at 11:00 a.m. is set out on pages 150 to 153 of this circular.

Whether or not you are able to attend the SGM, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Secretaries Ltd, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting thereof and, in such event, the relevant form of proxy shall be deemed to be revoked.

3 July 2012

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE IBC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
LETTER FROM GUANGDONG SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	44
APPENDIX II – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	136
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	150

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms or expressions shall have the meanings set out below:

“acting in concert”	has the meaning ascribed to it in the Takeovers Code and
	the expression “concert party(ies)” shall be construed
	accordingly
“Announcement”	the announcement dated 28 May 2012 of the Company
	regarding the connected transaction involving the
	subscription of the Warrants pursuant to the terms and
	conditions of the Warrant Subscription Agreement together
	with the transactions contemplated thereunder (including
	the issuance of the Warrants), and the application for the
	granting of the Whitewash Waiver
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Business Day”	means a day (excluding a Saturday, Sunday or public
	holidays) on which licensed banks in Hong Kong are
	generally open for business throughout their normal
	business hours
“BVI”	the British Virgin Islands
“Bye-laws”	the bye-laws of the Company, as amended from time to
	time
“Company”	S.A.S. Dragon Holdings Limited（時捷集團有限公司）
	(stock code: 1184), a company incorporated in Bermuda,
	the issued shares of which are listed on the main board of
	the Stock Exchange
“Completion Date”	the fifth Business Day following the date on which the
	conditions precedent set out in the Warrant Subscription
	Agreement are fulfilled (or such other date as the parties to
	the Warrant Subscription Agreement may mutually agree)

– 1 –

DEFINITIONS

“connected person(s)”	has the same meaning ascribed to it under the Listing Rules
“Director(s)”	the director(s) of the Company
“Executive”	the Executive Director of the Corporate Finance Division of
	the Securities and Futures Commission or any delegate of
	the Executive Director
“General Mandate”	the general mandate granted to the Directors by a resolution
	of the Shareholders passed at the annual general meeting of
	the Company held on 16 May 2012
“Group”	the Company and its subsidiaries from time to time
“Guangdong Securities” or	Guangdong Securities Limited, a licensed corporation to carry
“Independent Financial	out type 1 (dealing in securities), type 2 (dealing in futures
Adviser”	contracts), type 4 (advising on securities), type 6 (advising on
	corporate finance) and type 9 (asset management) regulated
	activities as defined under the SFO and the independent
	financial adviser appointed to advise the IBC and the
	Independent Shareholders with regard to the SGM Matters
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“IBC”	the independent committee of the Board comprising all the
	independent non-executive Directors, namely Mr. Cheung
	Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah
	SBS JP, Mr. Wong Tak Yuen, Adrian established to advise the
	Independent Shareholders in respect of the SGM Matters
“Independent Third Party”	a party and, if applicable, the ultimate beneficial owner
	of the party who is independent of the Company and its
	connected persons
“Independent Shareholders”	Shareholders, other than the Subscriber, Mr. Yim and its
	associates and their respective concert parties and those
	parties who are involved or interested in the SGM Matters

– 2 –

DEFINITIONS

“Last Trading Day”	23 May 2012, being the last trading day for the Shares
	before the entering into of the Warrant Subscription
	Agreement and suspension pending publication of the
	Announcement
“Latest Practicable Date”	29 June 2012, being the latest practicable date for
	ascertaining certain information contained in this circular
“Listing Committee”	the listing sub-committee of the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Longstop Date”	31 August 2012 (or such later date as may be agreed by the
	Subscriber and the Company)
“Model Code”	Model Code for Securities Transactions by Directors of
	Listed Companies, being Appendix 10 to the Listing Rules
“Mr. Yim”	Mr. Yim Yuk Lun, StanleyJP, the Chairman, Managing
	Director and Executive Director of the Company
“Outstanding Options”	the options granted by the Company pursuant to the
	applicable rules of the Share Option Scheme, which were
	outstanding as at the Latest Practicable Date
“PRC”	the People’s Republic of China
“Relevant Period”	the period commencing from 28 November 2011, being six
	months prior to 28 May 2012, and up to and including the
	Latest Practicable Date

– 3 –

DEFINITIONS

“Relevant Securities”	securities as defined in Note 4 to Rule 22 of the Takeovers
	Code (which include (a) securities of the Company
	which are being subscribed for pursuant to the Warrant
	Subscription or which carry voting rights; (b) equity share
	capital of the Company and the Subscriber (and parties
	acting concert with it); (c) securities of the Subscriber
	(and parties acting in concert with it) which carry the same
	or substantially the same rights as any to be issued as
	consideration for the Warrant Subscription; (d) securities
	carrying conversion or subscription rights into any of the
	foregoing; and (e) options and derivatives in respect of any
	of the foregoing)
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws
	of Hong Kong) as amended from time to time
“SGM”	a special general meeting of the Company to be convened
	and held to consider and, if thought fit, approve (among
	other matters) the Warrant Subscription Agreement and the
	transactions contemplated thereunder and the Whitewash
	Waiver (or any adjournment thereof)
“SGM Matter”	the matters to be put forward to the Independent
	Shareholders for consideration and, if thought fit, approval
	at the SGM which include (i) the connected transaction
	involving the subscription of the Warrants pursuant to the
	terms and conditions contained in the Warrant Subscription
	Agreement together with the transactions contemplated
	thereunder (including the issuance of the Warrants, and the
	allotment and issuance of the Warrant Shares); and (ii) the
	Whitewash Waiver
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of
	the Company
“Shareholder(s)”	holder(s) of the issued Shares

– 4 –

DEFINITIONS

“Share Option Scheme”	the share option scheme currently in force and adopted by
	the Company on 28 June 2002
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscriber”	Unimicro Limited, a company incorporated in the British
	Virgin Islands whose entire issued share capital is
	solely and beneficially owned by Mr. Yim, a Substantial
	Shareholder of the Company
“Substantial Shareholder”	has the meaning ascribed to it in the Listing Rules
“Takeovers Code”	The Hong Kong Code on Takeovers and Mergers
“Warrant(s)”	50,000,000 non-listed warrants to be issued by the
	Company at the Warrant Subscription Price, each entitles
	the holder thereof to subscribe for one Warrant Share at the
	Warrant Exercise Price (subject to adjustment) at any time
	during a period of twenty four (24) months commencing
	from the date of issue of the Warrants
“Warrant Exercise Price”	an initial exercise price of HK$1.80 per Warrant Share
	(subject to adjustment) at which holder of the Warrants may
	subscribe for the Warrant Share(s)
“Warrants Instrument”	the instrument to be executed by the Company by way
	of deed poll governing the terms and conditions for the
	Warrants
“Warrant Issue”	the issuance of Warrants on the terms set out in the
	Warrants Instrument
“Warrant Share(s)”	up to 50,000,000 new Shares to be allotted and issued upon
	exercise of the subscription rights attaching to the Warrants
“Warrant Subscription”	the subscription of 50,000,000 Warrants pursuant to
	the terms and conditions of the Warrant Subscription
	Agreement

– 5 –

DEFINITIONS

“Warrant Subscription Agreement”

the conditional subscription agreement dated 23 May 2012 entered into between the Company and the Subscriber in relation to the Warrant Subscription

“Warrant Subscription Price” HK$0.01, being the issue price per Warrant payable in full on application under the Warrant Subscription Agreement

“Whitewash Waiver”

a waiver from the Executive pursuant to Note 1 on the Dispensations from Rule 26 of the Takeovers Code in respect of the obligations of the Subscriber and parties acting in concert with it (including Mr. Yim) to make a mandatory general offer for all the securities of the Company not already owned or acquired by the Subscriber and parties acting in concert with it under Rule 26 of the Takeovers Code which would otherwise arise as a result of the exercise of the subscription rights attached to the Warrants and the allotment and issuance of the Warrant Shares (that is, 50,000,000 new Shares)

“HK$” “%”

Hong Kong dollars, the lawful currency of Hong Kong

per cent

– 6 –

LETTER FROM THE BOARD

S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

Executive Directors: Mr. Yim Yuk Lun Stanley JP (Chairman and Managing Director) Mr. Wong Sui Chuen Mr. Lock Shui Cheung Mr. Lau Ping Cheung

Non-executive Director: Dr. Chang Chu Cheng

Independent non-executive Directors: Mr. Cheung Chi Kwan Mr. Liu Chun Ning, Wilfred Dr. Lui Ming Wah SBS JP Mr. Wong Tak Yuen, Adrian

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal place of business in Hong Kong: 6th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong

3 July 2012

To the Shareholders

Dear Sir/Madam,

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER AND NOTICE OF SGM

INTRODUCTION

Reference is made to the Announcement.

The purpose of this circular is to:

(a) provide you with further information relating to the connected transaction involving the Warrant Subscription pursuant to the terms and conditions of the Warrant Subscription Agreement entered into between the Company and the Subscriber together with the transactions contemplated thereunder (including the issuance of the Warrants, and the allotment and issuance of the Warrant Shares upon exercise of the subscription rights attaching to the Warrants under the General Mandate) and the Whitewash Waiver;

– 7 –

LETTER FROM THE BOARD

(b) set out (i) a letter of recommendation from the IBC to the Independent Shareholders in respect of the Warrant Subscription and the Whitewash Waiver; and (ii) the letter from Guangdong Securities to the IBC and the Independent Shareholders; and in respect of the Warrant Subscription and the Whitewash Waiver; and
(c) give you notice of the SGM to consider and, if thought fit, approve the SGM Matters.

THE WARRANT SUBSCRIPTION AGREEMENT

Set out below is a summary of the principal terms on the Warrant Subscription Agreement:

Date

23 May 2012

Issuer

The Company

Subscriber

Unimicro Limited, a company incorporated under the laws of the BVI and an investment holding company. The entire issued share capital of the Subscriber is solely and beneficially owned by Mr. Yim, the Chairman, Managing Director and Executive Director of the Company, who are personally interested in 13,990,000 Shares, representing approximately 5.33% of the issued share capital of the Company as at the Latest Practicable Date. The Subscriber is the Substantial Shareholder. Accordingly, the Subscriber is a connected person of the Company under the Listing Rules.

Mr. Yim and Ms. Tsui Yuk Shan, spouse of Mr. Yim, are the directors of the Subscriber.

Mr. Yim and the Subscriber together hold 77,761,400 Shares, representing approximately 29.66% of the issued share capital of the Company as at the Latest Practicable Date.

– 8 –

LETTER FROM THE BOARD

Conditions of the Warrant Subscription

Completion of the Warrant Subscription Agreement is conditional on the fulfillment of the following conditions by the Longstop Date:

(a) the passing by the Independent Shareholders at the SGM of the necessary resolutions to approve the Warrant Subscription Agreement and the transactions contemplated thereunder (including but not limited to the issuance of the Warrants and the allotment and issuance of the Warrant Shares);
(b) the passing by the Independent Shareholders at the SGM of the necessary resolutions to approve the Whitewash Waiver;
(c) if required, the Listing Committee of the Stock Exchange having approved the issuance of the Warrants either unconditionally or subject to conditions to which neither the Company nor the Subscriber shall reasonably object and the satisfaction of such conditions;
(d) the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in the Warrant Shares which may fall to be allotted and issued upon the exercise of the subscription rights attached to the Warrants; and
(e) the Executive having granted a Whitewash Waiver to the Subscriber.

None of the above conditions could be waived by the parties to the Warrant Subscription Agreement.

In the event that the above conditions are not fulfilled by the Longstop Date, all rights, obligations and liabilities of the parties under the Warrant Subscription Agreement will cease and determine and none of the parties to the Warrant Subscription Agreement will have any claim against any other save for any antecedent breaches.

As at the Latest Practicable Date, none of the conditions precedent to completion of the Warrant Subscription has been fulfilled.

The Completion Date of the Warrant Subscription

Completion will take place on the Completion Date, being on the fifth Business Day after the fulfillment of the conditions referred to in the section headed “Conditions of the Warrant Subscription” above.

– 9 –

LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE WARRANTS

Number of Warrants

A total of 50,000,000 Warrants will be issued under the Warrant Subscription Agreement.

Warrant Subscription Price

HK$0.01 per Warrant and the aggregate Warrant Subscription Price is HK$500,000, which is payable by the Subscriber in cash upon completion of the Warrant Subscription.

The Warrant Subscription Price of HK$0.01 per Warrant and the Warrant Exercise Price of HK$1.80 per Warrant Share in aggregate (the “Aggregate Price”, that is, HK$1.81) represented (i) a premium of approximately 16.03% over the closing price of HK$1.56 per Share quoted on the Stock Exchange on the Last Trading Day; (ii) a premium of approximately 15.29% over the average of the closing prices of HK$1.57 per Share for the last five (5) trading days for the Shares prior to and including the Last Trading Day; and (iii) a premium of approximately 12.42% over the average of the closing prices of HK$1.61 per Share for the last ten (10) trading days for the Shares prior to and including the Last Trading Day.

Warrant Exercise Price and Right

The exercise price per Warrant Shares is HK$1.80. Each Warrant will carry the right to subscribe for one (1) Warrant Share (subject to adjustment) at the Warrant Exercise Price (subject to adjustment).

The Warrant Exercise Price of HK$1.80 per Warrant Share represented (i) a premium of approximately 15.38% over the closing price of HK$1.56 per Share quoted on the Stock Exchange on the Last Trading Day; (ii) a premium of approximately 14.65% over the average of the closing prices of HK$1.57 per Share for the last five (5) trading days for the Shares prior to and including the Last Trading Day; and (iii) a premium of approximately 11.80% over the average of the closing prices of HK$1.61 per Share for the last ten (10) trading days for the Shares prior to and including the Last Trading Day.

– 10 –

LETTER FROM THE BOARD

In order to assess the fairness and reasonableness of the Aggregate Price, the Board have reviewed the historical prices of the Shares. The Board considered that it may not be appropriate to value the Warrants at this stage as the Warrant Shares will be subject to a lock-up period of three years commencing from the date of issue of the Warrant Shares (save and except for top-up placing situation where the Subscriber will be assisting the Company in fund raising activities) and therefore it is difficult to accurately and precisely assume the discount to the value of the Warrants given that (i) the Warrant Shares will be restricted Shares; (ii) the current volatile global economic environment; and (iii) the uncertainties in the Company’s financial position after the lock-up period of three years. Any valuation of the Warrants would be based on various other assumptions, including but not limited to those relating to the Share price on the measurement date, the exercise period, and be very sensitive to the aforementioned discount rate. It is difficult to accurately and precisely value the Warrants and hence inappropriate to value the Warrants at this stage.

Both the Warrant Subscription Price and the Warrant Exercise Price are determined based on negotiations on an arm’s length basis between the Company and the Subscriber with reference to the current market sentiment, liquidity flow in the capital market and the historical Share price. The Directors consider that both the Warrant Subscription Price and the Warrant Exercise Price are fair and reasonable.

Adjustment to Warrant Exercise Price

Both the Warrant Exercise Price and the aggregate number of Warrant Shares are subject to adjustment based on the prescribed formulas as set out in the Warrants Instrument for the happening of, among other things, an alteration of the nominal amount of each Share by reason of any consolidation or subdivision, capitalisation of profits or reserves or capital distributions.

Ranking of the Warrants

The Warrants will be issued to the Subscriber upon completion of the Warrant Subscription in registered form and constituted by a deed poll. The Warrants will rank pari passu in all respects among themselves.

Exercise period

The subscription rights attaching to the Warrants may be exercised at any time during a period of twenty-four (24) months commencing from the date immediately after the date of issue of the Warrants. Any subscription rights attaching to the Warrants which have not been exercised upon the expiration on the second anniversary of the date of issue shall lapse.

– 11 –

LETTER FROM THE BOARD

Ranking of the Warrant Shares

Number of Warrant Shares issuable upon full exercise of the subscription rights attached to the Warrants

A total of 50,000,000 Warrants are proposed to be issued. Upon full exercise of the subscription rights attaching to the Warrants, a total of 50,000,000 Warrant Shares will be issued.

As at the Latest Practicable Date, the Company has 262,140,720 Shares in issue. Assuming the allotment and issuance of the Warrant Shares from the full exercise of the subscription rights attaching to the Warrants, the Warrant Shares represent approximately 19.07% of the existing issued share capital of the Company of 262,140,720 Shares and approximately 16.02% of the issued share capital of the Company of 312,140,720 Shares as enlarged by the allotment and issue of the Warrant Shares.

Mandate to issue the Warrant Shares

The Warrant Shares will be allotted and issued under the General Mandate. The Company is authorised to issue 52,428,144 Shares under the General Mandate. As at the Latest Practicable Date, no Shares have been allotted and issued under the General Mandate. Upon the full exercise of the subscription rights attaching to the Warrants, 50,000,000 Shares will be allotted and issued, representing approximately 95.37% of the General Mandate, and approximately 4.63% of the General Mandate, which entitled the Company to allot and issue 2,428,144 Shares has not been utilized.

Transferability of the Warrants

The Warrants are not transferable.

Voting rights for the holders of the Warrants

The holder of the Warrants will not have any right to attend or vote at any meeting of the Company by virtue of them being holders of the Warrants. The holder of the Warrants shall not have the right to participate in any distributions and/or offers of further securities made by the Company.

– 12 –

LETTER FROM THE BOARD

Rights of the holders of the Warrants on the liquidation of the Company

If the Company is wound up during the subscription period of the Warrants, all subscription rights attaching to the Warrants which have not been exercised shall lapse, save for in the event of a voluntary winding-up, the holders of the Warrants shall be entitled to exercise the subscription rights attaching to the Warrants in accordance with the terms and conditions of the Warrants up to the date immediately preceding the date of the proposed general meeting for the passing of such a resolution approving the winding-up. The Company shall give the holders of the Warrants of the passing of such resolution within seven (7) days after the passing thereof.

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Warrant Shares which may fall to be allotted and issued upon exercise of the subscription rights attaching to the Warrants.

No listing of the Warrants will be sought on the Stock Exchange or any other stock exchanges.

REASONS FOR THE WARRANT SUBSCRIPTION

The Group is engaged in the distribution of electronic components and semiconductors products that can be used in customer electronic products, mobile phone products, computer products, telecommunication and LED lighting products, properties investments and distribution of sports products in the Greater China region.

During the past ten financial years of the Company, the revenue of the Group increased from approximately HK$1,359.48 million for the year ended 31 December 2002 to approximately HK$5,553.31 million for the year ended 31 December 2011. Save for the year ended 31 December 2008 during which the financial performance of the Group was affected by the financial tsunami and the subsequent economic contraction during the latter half of 2008 as referred to in the Company’s annual report for the year ended 31 December 2008, the Group has been profit making during the past ten financial years, and it was soon able to resume the profit making trend in 2009 and its profit reached the peak of approximately HK$107.89 million for the year ended 31 December 2011. As aforementioned, the Group recorded an approximately 27.15% increase in revenue for the year ended 31 December 2011 as compared to the prior year despite the tough market environment as affected by the Eurozone debt crisis and the volatile recovery of the economy of the United States of America.

– 13 –

LETTER FROM THE BOARD

The increase in revenue was mainly derived from the electronic components and semiconductor products business and the Company will continue to focus on this business segment, particularly the China-made smartphones, as to capture the growing demands of high-end and low-end smartphones from the PRC and other emerging markets. Mr. Yim, being the chairman of the Company and an executive Director since its listing in 1994, is responsible for the formulation of corporate strategies and the overall direction for the Group’s management team. The Board considered that the efforts devoted by and the management expertise of Mr. Yim (together with other senior management of the Group) had contributed to the satisfactory historical financial performance of the Group. In view of Mr. Yim’s contribution to the growth of the Group in the past, the Directors, therefore, resolved to enter into the Warrant Subscription, which also represented a gratuity for Mr. Yim’s long term services to the Group and the financial performance of the Group has recovered from the financial tsunami in 2008, although the Warrant Subscription enable Mr. Yim to have in essence a two-year “call option” at a cost of HK$500,000 and Mr. Yim is not obliged to exercise the Warrants (other than the subscription rights attaching to the 2,777,778 Warrants which the Subscriber has undertaken to the Company to exercise) and his maximum loss is only HK$500,000 if the future Share price does not perform.

In addition, the Warrant Subscription also signifies the confidence of the Subscriber in the existing and future development potentials of the Group and demonstrates to the Shareholders and the Company’s potential investors the confidence of the Group’s senior management in the existing and future development of the Group considering the fact that (i) the Warrants are not transferable; (ii) the lock-up period of three years for the Warrant Shares; and (iii) the economic benefits of the Warrants rely on the increase in Share price to be driven by improving fundamentals of the Company, the benefit of the Warrants will only be realised when all the Shareholders are also in a position to benefit, and hence the Warrant Subscription would align the interest of Mr. Yim (through the Subscriber) with the interests of the Shareholders, and thereby improving Mr. Yim’s incentive to manage the business of the Group. Mr. Yim is therefore incentivised by his potential gain from the Warrants to improve the fundamentals of the Company, and in such event other Shareholders would also realise profits from selling their Shares at a possible higher market price.

With the continuing support of the Subscriber and the maintaining of majority shareholding in the Company by Mr. Yim (through the Subscriber) who is one of the management as well as the founder of the business of the Group, it will help promote the stability and business continuance of the Group which is crucial and beneficial to the development of the Group.

The Board considered that the immediate amount of the fund raised from the Warrant Subscription is not essential for the purpose of financing the operations of the Company as the Company currently has sufficient working capital to carry on the principal business activities of the Group. However, a solid financial position is no doubt advantageous for the maintenance and growth of the business of the Group as it allows the Group to capture business opportunities in a timely fashion, and to withstand more easily any adverse change in the economic conditions.

– 14 –

LETTER FROM THE BOARD

On top of the above, the Board considers that the Warrant Subscription is a more appropriate means of fund raising for the Company than debt financing, rights issue or open offers because of the following reasons:–

it would not impose additional interest burden or deteriorate the gearing position of the Group as debt financing;
it involves lesser parties, which reduces the costs incurred for the fund raising activities, and is comparatively simpler and less time consuming and cumbersome when compared with rights issue or open offers; and
the Subscriber has undertaken to the Company to exercise the subscription right of at least 2,777,778 Warrants (representing approximately 1.06% of the existing issued share capital of the Company of 262,140,720 Shares) within 6 months from the completion of the Warrant Subscription Agreement, which is expected to raise approximately HK$5 million.

In the event that the Subscribers fully exercise their subscription rights attached to the Warrants, which is expected to raise approximately HK$90 million (assuming the full exercise of the subscription rights to the Warrants), the Warrant Subscription will further provide a good opportunity to strengthen the Company’s capital base and financial position to better equip the Group with the financial flexibility for development of the business of the Group.

In view of the above, the Directors consider that the Warrant Subscription is in the interests of the Company and the Shareholders as a whole.

The Subscriber has indicated that, as a result of completion of the Warrant Subscription and the transactions contemplated thereunder, it does not have any intention to introduce any material change to the existing businesses, operations or assets of the Group (including any deployment of the fixed assets of the Group), nor does it intend to terminate the continued employment of the employees of the Group. As such , no benefit will be given to any Director as compensation for loss of office or otherwise in connection with the Warrant Subscription and/or the Warrant Subscription Agreement.

Mr. Yim had abstained from voting on the resolutions of the Board approving the Warrant Subscription Agreement and the transactions contemplated thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares).

– 15 –

LETTER FROM THE BOARD

Except for Mr. Yim, none of the Directors has material interest in the Warrant Subscription Agreement and the transactions contemplated thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares) and, accordingly, none of the Directors (other than Mr. Yim) were required to abstain from voting on the resolutions of the Board approving the Warrant Subscription Agreement and the transactions contemplated thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares) in accordance with the Bye-laws.

The Directors consider that the terms of the Warrant Subscription Agreement were entered into upon normal commercial terms following arm’s length negotiations between the Company and the Subscriber, and that the terms of the Warrant Subscription Agreement are fair and reasonable so far as the interests of the Company and the Shareholders as a whole are concerned.

USE OF PROCEEDS

The gross proceeds of the Warrant Subscription will amount to HK$500,000. The net proceeds of the Warrant Subscription, after the deduction of related expenses (including the fees for the legal and independent financial adviser and the printing), are estimated to be approximately HK$100,000, will be applied as general working capital of the Company.

Assuming the full exercise of the subscription rights attaching to the Warrants, it is expected HK$90 million will be raised. The net proceeds of approximately HK$90 million (with a net exercise price of approximately HK$1.80 per Warrant Share) will be applied towards general working capital of the Group, as funds for possible investment plans of the Group. As at the Latest Practicable Date, the Company had not identified any specific investment plans. Therefore, the Company does not has an estimated proportion for the net proceeds to be used towards general working capital or possible investment plans of the Group.

EFFECT ON THE SHAREHOLDING STRUCTURE

As at the Latest Practicable Date:

(1) the Company had 262,140,720 Shares in issue;
(2) the Company has no Outstanding Options nor any other outstanding convertible securities, options, warrants or other derivatives in issue which are convertible or exchangeable into Shares;

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LETTER FROM THE BOARD

(3) other than approximately 29.66% of the issued share capital of the Company held by the Subscriber, the Subscriber and the parties acting in concert with it:
(a) did not hold any other shares, convertible securities, warrants or options of the Company, or any outstanding derivative in respect of the Relevant Securities of the Company;
(b) there was no arrangement (whether by way of option, indemnity or otherwise) in relation to shares of the Subscriber or the Company which may be material to the Warrant Subscription Agreement and the Whitewash Waiver;
(c) there was no agreements or arrangements to which the Subscriber is a party which related to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Warrant Subscription Agreement and the Whitewash Waiver, other than those set out in the section headed “Conditions of the Warrant Subscription” above;
(d) did not receive any irrevocable commitment or arrangements to vote in favour of or against the resolutions in respect of the Warrant Subscription Agreement or the Whitewash Waiver; and
(e) did not borrow or lent any Relevant Securities in the Company.

– 17 –

LETTER FROM THE BOARD

The effect of the Warrant Subscription on the shareholding structure of the Company immediately upon completion of the Warrant Subscription and full exercise of the subscription rights attaching to the Warrants is set out below (assuming that there is no change in the shareholding structure of the Company from the Latest Practicable Date to date immediately prior to completion of the Warrant Subscription):

Name Shareholders: Mr. Yim The Subscriber (Note 1) Subtotal for the Subscriber and its concert parties Chang Chu Cheng (Director) Lock Shui Cheung (Director) Wong Sui Chuen (Director) Lau Ping Cheung (Director) Foxconn Holdings Ltd. (“Foxconn”) (Note 2) Chung Shun Ming (“Mr. Chung”) (Note 3) Other public Shareholders Total	As at the Latest Practicable Date Shares % 13,990,000 5.33 63,771,400 24.33 77,761,400 29.66 1,800,000 0.69 1,000,000 0.38 912,000 0.35 300,000 0.11 46,000,000 17.55 27,343,400 10.43 107,023,920 40.83 262,140,720 100.00	Assuming completion of exercise of the Warrant Subscription and full subscription rights exercise of the Warrant(Note 4) Shares % 13,990,000 4.48 113,771,400 36.45 127,761,400 40.93 1,800,000 0.58 1,000,000 0.32 912,000 0.29 300,000 0.10 46,000,000 14.74 27,343,400 8.76 107,023,920 34.28 312,140,720 100.00

Notes:

The Subscriber is solely and beneficially owned by Mr. Yim.
Foxconn, an investment holding company incorporated in the British Virgin Island, is wholly owned by Hon Hai Precision Industry Co. Ltd., a company listed in Taiwan Stock Exchange (Stock Code: 2317), being the world’s leading computer, communication, consumer electronics manufacturing services provider. Accordingly Hon Hai Precision Industry Co. Ltd. is deemed to be interested in those ordinary shares of the Company beneficially owned by Foxconn. Foxconn is independent of and not connected with the Subscriber and Mr. Yim (as defined in the Listing Rules) nor a concert party of the Subscriber and Mr. Yim (as defined in the Takeover Codes).

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LETTER FROM THE BOARD

Mr. Chung is one of the directors and shareholders of Kitronix Limited, a joint venture held by the Company. Kitronix Limited was held by S.A.S. Investment Co. Ltd, a wholly owned subsidiary of the Company, Mr. Chung and 4 other shareholders of Kitronix Limited respectively in the percentages of 35%, 15% and 50%. S.A.S. Investment Co. Ltd has appointed two directors to the board of directors of Kitronix Limited. Mr. Yim is one of them. Kitronix Limited discontinued operation and had no turnover in 2011. Save as disclosed, Mr. Chung is independent of and not connected with the Subscriber, Mr. Yim (as defined in the Listing Rules) and the other 4 shareholders nor a concert party of any of them (as defined in the Takeover Codes).
It is for illustration purpose only in the event that the Warrants are fully exercised.

As at the Latest Practicable Date, the Subscriber has no intention to, nor have it entered into any agreement, arrangement or understanding with any other person to, transfer, charge or pledge any of the Warrant Shares to be allotted and issued to the Subscriber upon exercise (in full or in part) of the subscription rights attaching to the Warrants.

As disclosed in the above shareholding table, immediately after the full exercise of the subscription rights attaching to the Warrants, over 25% of the then issued share capital of the Company will be in public hands.

ISSUE OF WARRANTS

Pursuant to Rule 15.02(1) of the Listing Rules, the Warrant Shares to be issued upon exercise of the Warrants must not, when aggregated with all other equity securities which remain to be issued on exercise of any other subscription rights, if all such rights were immediately exercised, whether or not such exercise is permissible, exceed 20% of the issued share capital of the Company at the time the Warrants are issued. Options granted under employee or executive share schemes which comply with Chapter 17 of the Listing Rules are excluded for the purpose of such limit.

As at the Latest Practicable Date, the Company did not have other securities with subscription rights outstanding and not yet exercised. Assuming full exercise of the subscription rights attaching to the Warrants, a maximum of 50,000,000 Warrant Shares (representing approximately 19.07% of the existing issued share capital of the Company) will be issued. Accordingly, the issue of the Warrants will be in compliance with the Rule 15.02(1) of the Listing Rules.

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LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

The Subscriber is wholly owned by Mr. Yim, the chairman of the Company, Managing Director and Executive Director of the Company. The Subscriber is the Substantial Shareholder. Accordingly, the Subscriber is a connected person of the Company and the Warrant Subscription constitutes a non-exempt connected transaction for the Company under the Listing Rules and is subject to reporting, announcement and Independent Shareholders’ approval requirements.

TAKEOVERS CODE IMPLICATIONS

The Subscriber (together with its concert parties) is beneficially interested in 77,761,400 Shares, representing approximately 29.66% of the entire issued share capital of the Company as at the Latest Practicable Date. Upon full exercise of the Warrants and the allotment and issuance of the Warrant Shares, the shareholding of the Subscriber (together with its concert parties) will be increased to approximately 40.93% and will be obliged to make an unconditional mandatory general offer for all the Shares not already owned or will be acquired by the Subscriber (together with its concert parties) under Rule 26.1 of the Takeovers Code unless a waiver from strict compliance with Rule 26.1 has been obtained from the Executive.

An application has been made by the Subscriber (for itself and its concert parties) to the Executive for the granting of the Whitewash Waiver. The Whitewash Waiver, if granted by the Executive, would be subject to among other things the approval of the Independent Shareholders who are not interested in or involved in the Warrant Subscription Agreement and any transactions contemplated thereunder (including the Whitewash Waiver) at the SGM by way of poll. The Subscriber, Mr. Yim, its associates and concert parties, and any shareholders who are involved in, or interested in, the Warrant Subscription and the Whitewash Waiver will abstain from voting on the resolutions to be proposed at the SGM to approve, among others, the Warrant Subscription Agreement and the transactions contemplated thereunder (including the Whitewash Waiver). Save for the Subscriber and Mr. Yim, none of the shareholders has a material interest in the Warrant Subscription Agreement and the transactions contemplated thereunder (including the Whitewash Waiver). Mr. Wong Sui Chuen, Mr. Lock Shui Cheung, Mr. Lau Ping Cheung and Dr. Chang Chu Cheng, who are the Directors involved in the negotiations of the Warrant Subscription Agreement shall also abstain from voting in respect of the ordinary resolutions for approving the SGM Matters at the SGM.

There were no restrictions on any shareholders and/or commitment from any shareholders to cast votes for or against the Warrant Subscription Agreement and any transactions contemplated thereunder (including the Whitewash Waiver) at the SGM.

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LETTER FROM THE BOARD

The Executive may or may not grant the Whitewash Waiver. The Warrant Subscription Agreement and the Warrant Subscription will not proceed if Whitewash Waiver is not granted.

The Subscriber and its concert parties have confirmed that they have not acquired any voting rights in the Company in the six-month period prior to the date of the Warrant Subscription Agreement but subsequent to the negotiations, discussions or the reaching of understandings or agreements with the Directors in relation to the Warrant Subscription and the transactions contemplated thereunder. The Subscriber and its concert parties also confirmed that they have not acquired any voting rights in the Company in the period between the date of the Warrant Subscription Agreement and the date of the Latest Practicable Date.

FUND RAISING ACTIVITY IN THE PAST TWELVE-MONTH PERIOD

The Group has not carried out any fund raising activities during the 12 months immediately preceding at the Latest Practicable Date.

GENERAL

– 21 –

LETTER FROM THE BOARD

SGM

The notice convening the SGM to be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 27 July 2012 at 11:00 a.m. is set out on pages 150 to 153 of this circular.

The SGM will be convened at which ordinary resolutions will be proposed to the Independent Shareholders to approve, among other things, the SGM Matters (namely, (i) the connected transaction involving the subscription of the Warrants pursuant to the terms and conditions contained in the Warrant Subscription Agreement together with the transactions contemplated thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares); and (ii) the Whitewash Waiver). Pursuant to the Listing Rules, any vote at the SGM shall be taken by poll.

According to Note 1 to Rule 26 of the Takeovers Code, those who are involved or interested in the SGM Matters will be required to abstain from voting in respect of the ordinary resolutions for approving the SGM Matters at the SGM. In this connection, the Subscriber, its beneficial owner (namely, Mr. Yim) and parties acting in concert with any of them (who, in aggregate, were beneficially interested in a total of 77,761,400 Shares, representing approximately 29.66% of the total issued share capital of the Company as at the Latest Practicable Date) and Mr. Wong Sui Chuen, Mr. Lock Shui Cheung, Mr. Lau Ping Cheung and Dr. Chang Chu Cheng, who are the Directors involved in the negotiations of the Warrant Subscription Agreement (who, in aggregate, were beneficially interested in a total of 4,012,000 Shares, representing approximately 1.53% of the total issued share capital of the Company as at the Latest Practicable Date) shall abstain from voting in respect of the ordinary resolutions for approving the SGM Matters at the SGM.

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to Tricor Secretaries Ltd, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof.

An announcement on the results of the SGM will be made by the Company following the SGM in accordance with the Takeovers Code and the Listing Rules.

– 22 –

LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to:

(1) the letter from the IBC set out on pages 24 to 25 of this circular which contains the recommendation of the IBC to the Independent Shareholders concerning the SGM Matters; and
(2) the letter from Guangdong Securities set out on page 26 to page 43 of this circular which contains its recommendations to the IBC and the Independent Shareholders on the SGM Matters and the principal factors and reasons considered by Guangdong Securities in arriving at its recommendations.

Having considered the above principal factors and reasons, the Directors (other than the independent non-executive Directors who will express their view after considering the advice from the Independent Financial Adviser) are of the views that (i) the connected transaction involving the Warrant Subscription pursuant to the terms and conditions contained in the Warrant Subscription Agreement together with the transactions contemplated thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares upon exercise of the subscription rights attaching to the Warrants under the General Mandate); and (ii) the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (other than the independent non-executive Directors who will express their view after considering the advice from the Independent Financial Adviser) recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve, ratify and/or confirm (as the case may be) the SGM Matters.

FURTHER INFORMATION

Your attention is also drawn to the information set out in the appendices to this circular and the notice of the SGM.

Yours faithfully,

By Order of the Board

S.A.S. Dragon Holdings Limited Wong Sui Chuen

Director

– 23 –

LETTER FROM THE IBC

The following is the text of a letter from the IBC setting out its recommendation to the Independent Shareholders in relation to the Warrant Subscription Agreement and the Whitewash Waiver:

S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

3 July 2012

To the Independent Shareholders

Dear Sir or Madam

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER

We refer to the circular dated 3 July 2012 of the Company (the “Circular”) of which this letter forms part.

Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

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LETTER FROM THE IBC

thereunder (including the issuance of the Warrants and the allotment and issuance of the Warrant Shares upon exercise of the subscription rights attaching to the Warrants under the General Mandate); and (ii) the Whitewash Waiver (collectively, the “Proposed Transactions”) and to advise the Independent Shareholders as to whether, in our opinion, the terms of the Proposed Transactions are fair and reasonable so far as the Independent Shareholders are concerned and as to voting.

Guangdong Securities has been appointed as the independent financial adviser to advise the IBC and the Independent Shareholders in respect of the Proposed Transactions.

We wish to draw your attention to the letter from the Board set out on pages 7 to 23 of the Circular which contains, among others, information on the Proposed Transactions as well as the letter from Guangdong Securities as set out on pages 26 to 43 of the Circular which contains its advice in respect of the Proposed Transactions.

Having considered the principal factors and reasons considered by and the advice of Guangdong Securities as set out in the letter from Guangdong Securities, we consider that the terms of the Proposed Transactions are fair and reasonable, entered into on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM in respect of the Proposed Transactions.

Yours faithfully

The IBC

Mr. Cheung Chi Kwan Mr. Liu Chun Ning, Wilfred Dr. Lui Ming Wah SBS JP Mr. Wong Tak Yuen, Adrian

Independent Non-Executive Directors

– 25 –

LETTER FROM GUANGDONG SECURITIES

Set out below is the text of a letter received from Guangdong Securities, the Independent Financial Adviser to the IBC and the Independent Shareholders in respect of the Warrant Subscription and the Whitewash Waiver for the purpose of inclusion in this circular.

Units 2505-06, 25/F. Low Block of Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

3 July 2012

To: The independent board committee and the independent shareholders of S.A.S. Dragon Holdings Limited

Dear Sirs,

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the IBC and the Independent Shareholders in respect of the Warrant Subscription and the Whitewash Waiver, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 3 July 2012 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

The Warrant Subscription

On 23 May 2012 (after trading hours), the Company entered into the Warrant Subscription Agreement with the Subscriber. Pursuant to the Warrant Subscription Agreement, the Subscriber has conditionally agreed to subscribe for 50,000,000 Warrants at the Warrant Subscription Price of HK$0.01 per Warrant, which entitle the holder thereof to subscribe for up to 50,000,000 Warrants Shares at the Warrant Exercise Price of HK$1.80 per Warrant Share (subject to adjustment).

– 26 –

LETTER FROM GUANGDONG SECURITIES

According to the Board Letter, the Subscriber is wholly owned by Mr. Yim, the chairman, managing director and executive Director of the Company. The Subscriber is the Substantial Shareholder. Accordingly, the Subscriber is a connected person of the Company and the Warrant Subscription constitutes a non-exempt connected transaction for the Company under the Listing Rules. The Warrant Subscription is therefore subject to the reporting, announcement and independent shareholders’ approval requirements.

The Whitewash Waiver

According to the Board Letter, upon full exercise of the Warrants and the allotment and issuance of the Warrant Shares, the Subscriber (together with its concert parties) will be obliged to make an unconditional mandatory general offer for all the Shares not already owned or will be acquired by the Subscriber (together with its concert parties) under Rule 26.1 of the Takeovers Code unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code has been obtained from the Executive.

An application has been made by the Subscriber (for itself and its concert parties) to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on the Dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, will be subject to, among other things, the approval of the Independent Shareholders at the SGM by way of poll. The Subscriber, Mr. Yim, its associates and concert parties, and any Shareholders who are involved in or interested in the Warrant Subscription and the Whitewash Waiver will abstain from voting on the resolutions to be proposed at the SGM to approve, among others, the Warrant Subscription Agreement and the transactions contemplated thereunder (including the Whitewash Waiver). Mr. Wong Sui Chuen, Mr. Lock Shui Cheung, Mr. Lau Ping Cheung and Dr. Chang Chu Cheng who are the Directors involved in the negotiations of the Warrant Subscription Agreement shall also abstain from voting in respect of the ordinary resolutions for approving the SGM Matters at the SGM. If the Whitewash Waiver is not granted by the Executive, the Warrant Subscription will not proceed.

– 27 –

LETTER FROM GUANGDONG SECURITIES

According to Rule 2.8 of the Takeovers Code, members of an independent committee of the Company should comprise all non-executive Directors. However, since Dr. Chang Chu Cheng, the non-executive Director and a Shareholder, was involved in the negotiations of the Warrant Subscription Agreement, Dr. Chang Chu Cheng will not be one of the members of the IBC so as to enhance the independency of the IBC. In this connection, the IBC comprising Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah SBS JP and Mr. Wong Tak Yuen, Adrian (all being the independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Warrant Subscription Agreement and the Whitewash Waiver are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Warrant Subscription and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the relevant resolutions to approve the Warrant Subscription Agreement and the transactions contemplated thereunder, and the Whitewash Waiver at the SGM. None of the members of the IBC have been involved in or are interested in the Warrant Subscription and the Whitewash Waiver. We, Guangdong Securities Limited, have been appointed as the Independent Financial Adviser to advise the IBC and the Independent Shareholders in the aforementioned respects, and such appointment has been approved by the IBC.

BASIS OF OUR OPINION

In formulating our opinion to the IBC and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date, and should there be any material changes to our opinion after the despatch of the Circular, Shareholders would be notified as soon as possible. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

– 28 –

LETTER FROM GUANGDONG SECURITIES

The Circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular (other than information relating to the Subscriber) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the Subscriber) in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

The directors of the Subscriber (namely, Mr. Yim and Ms. Tsui Yuk Shan, spouse of Mr. Yim) accept full responsibility for the accuracy of the information contained in the Circular (other than information relating to the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the Group) in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, the Subscriber, Mr. Yim or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Warrant Subscription and the Whitewash Waiver. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of Guangdong Securities is to ensure that such information has been correctly extracted from the relevant sources.

– 29 –

LETTER FROM GUANGDONG SECURITIES

PRINCIPAL FACTORS AND REASONS CONSIDERED

(I) THE WARRANT SUBSCRIPTION

In arriving at our opinion in respect of the Warrant Subscription, we have taken into consideration the following principal factors and reasons:

(1) Background of the Warrant Subscription

Business of and financial information on the Group

As referred to in the Board Letter, the Group is engaged in the distribution of electronic components and semiconductors products that can be used in customer electronic products, mobile phone products, computer products, telecommunication and LED lighting products, properties investments and distribution of sports products in the Greater China region.

Tabularised below is a summary of the audited consolidated financial information on the Group as extracted from the annual report of the Company for the year ended 31 December 2011 (the “ Annual Report ”):

	For the	For the
	year ended	year ended
	31 December	31 December
	2011	2010
	HK$’000	HK$’000
Revenue	5,553,312	4,367,400
Profit before tax	124,920	114,161
Profit for the year	107,893	92,835

As depicted by the table above, the revenue of the Group amounted to approximately HK$5,553.31 million for the year ended 31 December 2011, representing an increase of approximately 27.15% as compared to the prior year. According to the Annual Report, the increase in revenue was mainly attributable to the Group’s strategy to focus on high growth potential products in the Greater China market and the growing demand for smartphones, LED televisions, tablet personal computers and LED lighting products from such market. As confirmed by the Directors, the Group will continue to focus on its electronic components and semiconductor products business, particularly the China-made smartphones, to capture the growing demands for high-end and low-end smartphones from the PRC and other emerging markets and hence producing a significant and stable income for the Group.

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LETTER FROM GUANGDONG SECURITIES

Fund raising activities in the past 12 months

According to the Board Letter, the Group has not carried out any fund raising activities during the 12 months immediately preceding the Latest Practicable Date.

Reasons for the Warrant Subscription and the use of proceeds

In assessing the possible benefits associated with the issue of the Warrants, we noted that during the past ten financial years of the Company, the revenue of the Group increased from approximately HK$1,359.48 million for the year ended 31 December 2002 to approximately HK$5,553.31 million for the year ended 31 December 2011. Save for the year ended 31 December 2008 during which the financial performance of the Group was affected by the financial tsunami and the subsequent economic contraction during the latter half of 2008 as referred to in the Company’s annual report for the year ended 31 December 2008, the Group has been profit making during the past ten financial years, and it was soon able to resume the profit making trend in 2009 and its profit reached the peak of approximately HK$107.89 million for the year ended 31 December 2011. As aforementioned, the Group recorded an approximately 27.15% increase in revenue for the year ended 31 December 2011 as compared to the prior year despite the tough market environment as affected by the Eurozone debt crisis and the volatile recovery of the economy of the United States of America. As advised by the Directors, the increase in revenue was mainly derived from the electronic components and semiconductor products business and the Company will continue to focus on this business segment, particularly the China-made smartphones, to capture the growing demands for high-end and lowend smartphones from the PRC and other emerging markets. In this regard, we were advised by the Directors that Mr. Yim, being the chairman of the Company and an executive Director since its listing in 1994, is responsible for the formulation of corporate strategies and the overall direction for the Group’s management team. The Directors considered that the efforts devoted by and the management expertise of Mr. Yim (together with other senior management of the Group) had contributed to the satisfactory historical financial performance of the Group.

– 31 –

LETTER FROM GUANGDONG SECURITIES

In view of Mr. Yim’s contribution to the growth of the Group in the past and to incentivise Mr. Yim to further improve the fundamentals of the Company in the future, the Directors resolved to enter into the Warrant Subscription although the Warrant Subscription enable Mr. Yim to have in essence a two-year “call option” at a cost of HK$500,000 and Mr. Yim is not obliged to exercise the Warrants (other than the subscription rights attaching to the 2,777,778 Warrants which the Subscriber has undertaken to the Company to exercise) and his maximum loss is only HK$500,000 if the future Share price does not perform. Moreover, the Warrant Subscription may also demonstrate to the Shareholders and the Company’s potential investors the confidence of the Group’s senior management in the existing and future development of the Group. With the continuing support of the Subscriber and the maintaining of majority shareholding in the Company by Mr. Yim (through the Subscriber) who is one of the management as well as the founder of the business of the Group, it will help promote the stability and business continuance of the Group which is crucial and beneficial to the development of the Group. Given also (i) the fact that the Warrants are not transferable; (ii) the lock-up period of three years for the Warrant Shares; and (iii) the economic benefits of the Warrants rely on the increase in Share price to be driven by improving fundamentals of the Company, the benefit of the Warrants will only be realised when all the Shareholders are also in a position to benefit, and hence the Warrant Subscription would align the interest of Mr. Yim (through the Subscriber) with the interests of the Shareholders, and thereby improving Mr. Yim’s incentive to manage the business of the Group. As considered that (i) the Warrant Subscription represented a gratuity for Mr. Yim’s long term services to the Group and the financial performance of the Group has recovered from the financial tsunami in 2008; and (ii) Mr. Yim is incentivised by his potential gain from the Warrants to improve the fundamentals of the Company, and in such event other Shareholders would also realise profits from selling their Shares at a possible higher market price, we consider that the Warrant Subscription is in the interests of the Shareholders and the timing of the Warrant Subscription is reasonable.

The net proceeds from the Warrant Subscription are expected to be approximately HK$100,000. As advised by the Directors, the Group has no immediate funding need for the Group’s current operations and the Company currently has sufficient working capital to carry on the principal business activities of the Group. However, the Directors considered that a solid financial position allows the Group to capture business opportunities in a timely manner, which is key to the competitive advantage of the Company, and to withstand more easily any adverse change in the economic conditions.

– 32 –

LETTER FROM GUANGDONG SECURITIES

In addition, the Board considered that the Warrant Subscription is a more appropriate means of fund raising for the Company as compared to debt financing, rights issue or open offer when the Subscriber exercises the Warrants because of the following reasons:

(i) it would not impose additional interest burden or deteriorate the gearing position of the Group as debt financing;
(ii) it involves lesser parties, which reduces the costs incurred for the fund raising activities, and is comparatively simpler and less time consuming and cumbersome when compared with rights issue or open offer; and
(iii) the Subscriber has undertaken to the Company to exercise the subscription right of at least 2,777,778 Warrants (representing approximately 1.06% of the existing issued share capital of the Company of 262,140,720 Shares) within six months from the completion of the Warrant Subscription Agreement, which is expected to raise approximately HK$5 million.

As further advised by the Directors, in the event that the Subscriber fully exercise its subscription rights attaching to the Warrants, approximately HK$90 million (assuming the full exercise of the subscription rights attaching to the Warrants) is expected to be raised and the Warrant Subscription will further provide an opportunity to strengthen the Company’s capital base and financial position to better equip the Group with the financial flexibility for development of the business of the Group and timely capture any business opportunities should they arise from time to time.

The net proceeds from the Warrant Subscription are estimated to be approximately HK$100,000. The Directors intend to apply such net proceeds as general working capital of the Company. Assuming the full exercise of the subscription rights attaching to the Warrants, additional estimated net proceeds of approximately HK$90 million will be raised and the Directors intend to apply such additional net proceeds towards general working capital of the Group and as funds for possible investment plans of the Group. As confirmed by the Directors, the Company had not identified any specific investment plan as at the Latest Practicable Date. Therefore, the Company does not have an estimated proportion for the net proceeds to be used towards general working capital or possible investment plans of the Group.

– 33 –

LETTER FROM GUANGDONG SECURITIES

In light of (i) the contribution of Mr. Yim to the growth of the Group in the past; (ii) the significant role of Mr. Yim in the Group for the future development of the Group; (iii) the fact that the Warrant Subscription would align the interest of Mr. Yim (through the Subscriber) with the interests of the Shareholders and incentivise Mr. Yim to manage the business of the Group; and (iv) the Warrant Subscription and the exercise of the subscription rights attaching to the Warrants would strengthen the Group’s capital base and financial position to better equip the Group with the financial flexibility for development of the business of the Group and timely capture any business opportunities should they arise from time to time as represented by the Directors above, we concur with the Directors that the Warrant Subscription is in the interests of the Company and the Shareholders as a whole.

(2) Principal terms of the Warrant Subscription Agreement

The Warrant Subscription Agreement

The aggregate Warrant Subscription Price of HK$500,000 is payable by the Subscriber in cash upon completion of the Warrant Subscription. Each Warrant will carry the right to subscribe for one Warrant Share (subject to adjustment). The subscription rights attaching to the Warrants may be exercised at any time during a period of 24 months commencing from the date immediately after the date of issue of the Warrants. The Warrants are not transferable.

– 34 –

LETTER FROM GUANGDONG SECURITIES

The Warrant Shares, when fully paid and allotted, will rank pari passu in all respects with the then existing issued Shares of the Company but will be subject to a lock-up period of three years commencing from the date of issue of the Warrant Shares, save and except for top-up placing situation where the Subscriber will be assisting the Company in fund raising activities. The Warrant Shares will be allotted and issued under the General Mandate. The Company will apply to the Listing Committee for the listing of, and permission to deal in, the Warrant Shares which may fall to be allotted and issued upon exercise of the subscription rights attaching to the Warrants. No listing of the Warrants will be sought on the Stock Exchange or any other stock exchanges.

Assuming the full exercise of the subscription rights attaching to the Warrants, the total of 50,000,000 Warrant Shares to be allotted and issued represent (i) approximately 19.07% of the existing issued share capital of the Company of 262,140,720 Shares; and (ii) approximately 16.02% of the issued share capital of the Company of 312,140,720 Shares as enlarged by the allotment and issue of the Warrant Shares.

Completion of the Warrant Subscription Agreement is conditional upon the fulfillment of certain conditions which are set out in the Board Letter.

Further details of the Warrant Subscription Agreement are set out in the section headed “The Warrant Subscription Agreement” of the Board Letter.

The Directors are of the view that the terms of the Warrant Subscription Agreement (including the Warrant Subscription Price and the Warrant Exercise Price) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and the Warrant Subscription is in the interests of the Company and the Shareholders as a whole.

– 35 –

LETTER FROM GUANGDONG SECURITIES

The Warrant Subscription Price and the Warrant Exercise Price

The aggregate of the Warrant Subscription Price of HK$0.01 per Warrant and the Warrant Exercise Price of HK$1.80 per Warrant Share, i.e. HK$1.81 (the “ Aggregate Price ”), represents:

(i) a discount of approximately 1.09% to the closing price of HK$1.83 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(ii) a premium of approximately 16.03% over the closing price of HK$1.56 per Share as quoted on the Stock Exchange as at the Last Trading Day;
(iii) a premium of approximately 15.29% over the average closing price of HK$1.57 per Share for the last five trading days for the Shares prior to and including the Last Trading Day; and
(iv) a premium of approximately 12.42% over the average closing price of HK$1.61 per Share for the last ten trading days for the Shares prior to and including the Last Trading Day.

As advised by the Directors, the Warrant Subscription Price and the Warrant Exercise Price were both determined based on negotiations on an arm’s length basis between the Company and the Subscriber with reference to the current market sentiment, liquidity flow in the capital market and the historical Share price.

Analyses on the Aggregate Price

As advised by the Directors, the Board considered that it is inappropriate to value the Warrants at this stage as the Warrant Shares will be subject to a lockup period of three years commencing from the date of issue of the Warrant Shares (save and except for top-up placing situation where the Subscriber will be assisting the Company in fund raising activities) and therefore it is difficult to accurately and precisely assume the discount to the value of the Warrants given that (i) the Warrant Shares will be restricted Shares; (ii) the current volatile global economic environment; and (iii) the uncertainties in the Company’s financial position after the lock-up period of three years. Any valuation of the Warrants would be based on various other assumptions, including but not limited to those relating to the Share price on the measurement date, the exercise period, and be very sensitive to the aforementioned discount rate. It is difficult to accurately and precisely value the Warrants and hence inappropriate to value the Warrants at this stage.

– 36 –

LETTER FROM GUANGDONG SECURITIES

In light of the aforesaid limitation of valuation of the Warrants at this stage, we concur with the Directors that it may not be appropriate to value the Warrants at this stage and have reviewed the historical prices of the Shares and the average daily trading volume of the Shares in order to assess the fairness and reasonableness of the Aggregate Price. The relevant informative analyses are set out as follows:

The highest and lowest closing prices and the average daily closing price of the Shares as quoted on the Stock Exchange in each month during the period commencing from 1 May 2011 up to and including the Latest Practicable Date (the “ Review Period ”) are shown as follows:

	Highest	Lowest	Average daily	Number of
Month	closing price	closing price	closing price	trading days
	(HK$)	(HK$)	(HK$)
2011
May	2.390	2.040	2.195	20
June	2.120	1.990	2.060	21
July	2.100	2.000	2.050	20
August (Note 1)	2.030	1.880	1.949	22
September	2.010	1.620	1.869	20
October	1.760	1.500	1.657	20
November	1.750	1.570	1.677	22
December	1.700	1.500	1.593	20
2012
January	1.660	1.500	1.573	18
February	1.650	1.520	1.609	21
March	1.740	1.500	1.622	22
April	1.750	1.580	1.654	18
May (Note 2)	1.680	1.530	1.631	19
June (up to and including
the Latest Practicable Date)	1.930	1.680	1.786	21

Source: the Stock Exchange web-site (www.hkex.com.hk)

Notes:

Trading in the Shares was suspended on 25 August 2011.
Trading in the Shares was suspended from 24 May 2012 to 28 May 2012 (both days inclusive).

– 37 –

LETTER FROM GUANGDONG SECURITIES

During the Review Period, the closing prices of the Shares ranged from the lowest of HK$1.50 to the highest of HK$2.39 per Shares while the closing prices of the Shares showed a sliding trend in the open market during the Review Period before the release of the Announcement. The Aggregate Price of HK$1.81 is within the said range of the closing prices of the Shares and is above the average daily closing prices of the Shares from October 2011 up to the Latest Practicable Date. After the release of the Announcement on 28 May 2012 and up to the Latest Practicable Date, the Share price rose and the closing price of the Shares reached the peak of HK$1.93 on 21 June 2012 and 26 June 2012 while the stock market fluctuated (as represented by the fluctuation in the Hang Seng Index which closed at approximately 18,801 as at 28 May 2012 and approximately 19,441 as at the Latest Practicable Date respectively while it also hit the lowest closing of approximately 18,186 as at 4 June 2012 and the highest closing of approximately 19,519 as at 20 June 2012) during the same said period. In addition, we have also reviewed the average daily trading volume of the Shares for each of the month during the Review Period, and we notice that the average daily trading volume of the Shares after the release of the Announcement up to and including the Latest Practicable Date is higher than the average daily trading volume of the Shares for each of the month during the Review Period before the release of the Announcement, save and except for March 2012. According to the Directors, they were not aware of any specific events of the Company after the release of the Announcement other than the entering into of the Warrant Subscription Agreement and as such they considered that such surge of the Share price, together with the increase in average daily trading volume of the Shares after the release of the Announcement may reflect the positive market perception towards the Warrant Subscription and the potential benefits of the Warrant Subscription Agreement to the Company upon completion of the Warrant Subscription. Given that as represented by the Directors, they were not aware of any specific events of the Company after the release of the Announcement other than the entering into of the Warrant Subscription Agreement, we concur with the Directors that the said surge of the Share price, together with the increase in average daily trading volume of the Shares after the release of the Announcement may reflect the positive market perception towards the Warrant Subscription.

In view of that (i) the Aggregate Price represented a premium to the Share prices as at the Last Trading Day, the last five trading days for the Shares prior to and including the Last Trading Day and the last ten trading days for the Shares prior to and including the Last Trading Day; (ii) the lock-up period of the Warrant Shares of three years would bind the interest of Mr. Yim with the interests of the Shareholders; (iii) Mr. Yim is incentivised by his potential gain from the Warrants to improve the fundamentals of the Company and in such event other Shareholders would also realise profits from selling their Shares at a possible higher market price; (iv) the Warrants Subscription together with the exercise of the subscription rights attaching to the

– 38 –

LETTER FROM GUANGDONG SECURITIES

Warrants would help to strengthen the Company’s capital base and financial position; and (v) the surge of the Share price and the increase in average daily trading volume of the Shares while the stock market and the Hang Seng Index fluctuated after the release of the Announcement may reflect the positive market perception towards the Warrant Subscription and the potential benefits of the Warrant Subscription Agreement, we consider that the Aggregate Price is fair and reasonable so far as the Independent Shareholders are concerned.

Other terms of the Warrant Subscription Agreement

We have also reviewed the other major terms of the Warrant Subscription Agreement (such as “Announcements and Confidentiality”, “Notices” and “Governing Law, Jurisdiction and Process Agent”) and consulted the legal adviser to the Company regarding those major terms of the Warrant Subscription Agreement. To the best of our knowledge and based on the representation of the legal adviser to the Company, save for (i) the fact that the Warrants are not transferable; and (ii) the lock-up period of three years for the Warrant Shares, the major terms of the Warrant Subscription Agreement are not uncommon. Consequently, we are of the view that the terms of the Warrant Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(3) Dilution effect on the shareholding interests of the existing public Shareholders

The table below demonstrates the possible shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately upon full exercise of the subscription rights attaching to the Warrants:

Mr. Yim The Subscriber (Note 1) Subtotal for the Subscriber and its concert parties Chang Chu Cheng (Director) Lock Shui Cheung (Director) Wong Sui Chuen (Director) Lau Ping Cheung (Director) Foxconn Holdings Ltd. (“Foxconn”) (Note 2) Chung Shun Ming (“Mr. Chung”) (Note 3) Existing public Shareholders Total	As at the Latest Practicable Date Number of Shares % 13,990,000 5.33 63,771,400 24.33 77,761,400 29.66 1,800,000 0.69 1,000,000 0.38 912,000 0.35 300,000 0.11 46,000,000 17.55 27,343,400 10.43 107,023,920 40.83 262,140,720 100.00	Immediately upon full exercise of the subscription rights attaching to the Warrants(Note 4) Number of Shares % 13,990,000 4.48 113,771,400 36.45 127,761,400 40.93 1,800,000 0.58 1,000,000 0.32 912,000 0.29 300,000 0.10 46,000,000 14.74 27,343,400 8.76 107,023,920 34.28 312,140,720 100.00	Immediately upon full exercise of the subscription rights attaching to the Warrants(Note 4) Number of Shares % 13,990,000 4.48 113,771,400 36.45 127,761,400 40.93 1,800,000 0.58 1,000,000 0.32 912,000 0.29 300,000 0.10 46,000,000 14.74 27,343,400 8.76 107,023,920 34.28 312,140,720 100.00
			40.93 0.58 0.32 0.29 0.10 14.74 8.76 34.28
			100.00

– 39 –

LETTER FROM GUANGDONG SECURITIES

Notes:

The Subscriber is solely and beneficially owned by Mr. Yim.
Foxconn, an investment holding company incorporated in the BVI, is wholly owned by Hon Hai Precision Industry Co. Ltd., a company listed on the Taiwan Stock Exchange (Stock code: 2317). Accordingly, Hon Hai Precision Industry Co. Ltd. is deemed to be interested in those Shares beneficially owned by Foxconn. Foxconn is independent of and not connected with the Subscriber and Mr. Yim (as defined in the Listing Rules) nor a concert party of the Subscriber and Mr. Yim (as defined in the Takeovers Code).
Mr. Chung is one of the directors and shareholders of Kitronix Limited, a joint venture held by the Company. Kitronix Limited is held by S.A.S. Investment Co. Ltd. (a wholly-owned subsidiary of the Company), Mr. Chung and four other shareholders of Kitronix Limited respectively in the percentages of 35%, 15% and 50%. S.A.S. Investment Co. Ltd. has appointed two directors to the board of directors of Kitronix Limited. Mr. Yim is one of them. Kitronix Limited discontinued operation and had no turnover in 2011. Save as disclosed, Mr. Chung is independent of and not connected with the Subscriber, Mr. Yim (as defined in the Listing Rules) and the other four shareholders nor a concert party of any of them (as defined in the Takeovers Code).
It is for illustration purpose only in the event that the Warrants are fully exercised.

As depicted by the table above, the shareholding interests of the existing public Shareholders in the Company would be diluted by approximately 6.55 percent point (being the difference between the shareholding interests of the existing public Shareholders as at the Latest Practicable Date of 40.83% and the shareholding interests of the existing public Shareholders immediately upon full exercise of the subscription rights attaching to the Warrants of 34.28%) immediately upon full exercise of the subscription rights attaching to the Warrants. Taking into account (i) the reasons for and benefits of the Warrant Subscription; (ii) the Warrant Subscription together with the exercise of the subscription rights attaching to the Warrants would strengthen the capital base of the Company; and (iii) the terms of the Warrant Subscription Agreement being fair and reasonable so far as the Independent Shareholders are concerned, we are of the view that the aforementioned level of dilution to the shareholding interests of the existing public Shareholders would be balanced by the potential benefits to the Shareholders and hence is acceptable.

– 40 –

LETTER FROM GUANGDONG SECURITIES

(4) Possible financial effects of the Warrant Subscription

Effect on net asset value and gearing

As extracted from the Annual Report, the audited consolidated net asset value and the net gearing ratio (calculated based on the Group’s net borrowings and total equity) of the Group were approximately HK$612.66 million and approximately 13% respectively as at 31 December 2011. As confirmed by the Directors, the Group’s net asset value and net gearing ratio would not be materially affected by the Warrant Subscription. In the event that the subscription rights attaching to the Warrants are exercised in full, the Group’s net asset value is expected to increase and the Group’s net borrowings (calculated as total bank borrowings minus total cash and bank balances minus financial assets at fair value through profit or loss) is expected to decrease, both by the net proceeds therefrom in the maximum amount of approximately HK$90 million. Since the exercise of the subscription rights attaching to the Warrants would lead to a decrease in the net borrowings of the Group while the total equity of the Group is expected to increase, the net gearing ratio of the Group is expected to drop immediately upon exercise of the subscription rights attaching to the Warrants.

Effect on working capital

As confirmed by the Directors and aforementioned, the net proceeds from the Warrant Subscription will be applied as general working capital of the Company and part of the net proceeds from the possible full exercise of the subscription rights attaching to the Warrants will be applied towards general working capital of the Group. Therefore, the Group’s working capital position would be strengthened as a result of the Warrant Subscription.

– 41 –

LETTER FROM GUANGDONG SECURITIES

RECOMMENDATION ON THE WARRANT SUBSCRIPTION

Having considered the above factors and reasons, in particular, in the sub-sections headed “Reasons for the Warrant Subscription and the use of proceeds” and “Analyses on the Aggregate Price” above, we are of the opinion that (i) the terms of the Warrant Subscription Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Warrant Subscription is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the IBC to advise the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the Warrant Subscription Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

(II) THE WHITEWASH WAIVER

The Subscriber (together with its concert parties) was beneficially interested in approximately 29.66% of the entire issued share capital of the Company as at the Latest Practicable Date. Upon full exercise of the Warrants and the allotment and issuance of the Warrant Shares, the shareholding of the Subscriber (together with its concert parties) will be increased to approximately 40.93% and will be obliged to make an unconditional mandatory general offer for all the Shares not already owned or will be acquired by the Subscriber (together with its concert parties) under Rule 26.1 of the Takeovers Code unless a waiver from strict compliance with Rule 26.1 of the Takeovers Code has been obtained from the Executive.

– 42 –

LETTER FROM GUANGDONG SECURITIES

In view of (i) the reasons for and the possible benefits of the Warrant Subscription to the Group as set forth under the sub-section headed “Reasons for the Warrant Subscription and the use of proceeds” above; and (ii) the terms of the Warrant Subscription Agreement being fair and reasonable so far as the Independent Shareholders are concerned, we are of the opinion that the approval of the Whitewash Waiver, which is a prerequisite for the completion of the Warrant Subscription, is in the interests of the Company and the Shareholders as a whole and is fair and reasonable for the purpose of proceeding with the Warrant Subscription.

RECOMMENDATION ON THE WHITEWASH WAIVER

Having taken into account the reasons for and possible benefits of the Warrant Subscription, and that the Warrant Subscription is conditional upon the grant of the Whitewash Waiver, we consider that the Whitewash Waiver is in the interests of the Company and the Shareholders as a whole and is fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the IBC to advise the Independent Shareholders to vote in favour of the relevant resolution(s) to be proposed at the SGM to approve the Whitewash Waiver and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of Guangdong Securities Limited Graham Lam Managing Director

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Set out below is a summary of the audited consolidated results of the Group for the three financial years ended 31 December 2011 as extracted from the audited financial statements set out in the relevant annual reports of the Company for each of the three financial years ended 31 December 2011.

The reports of the independent auditors of the Company, Deloitte Touche Tohmatsu, in respect of the consolidated financial statements of the Company for the three financial years ended 31 December 2011 were unqualified.

For the three financial years ended 31 December 2011, there were no exceptional items because of size, nature and incidence.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Continuing operations
Revenue
Cost of sales
Gross profit
Other income
Other gains and losses
Distribution and selling expenses
Administrative expenses
Increase in fair value of
investment properties
Share of results of associates
Gain on disposal of distribution rights
Finance costs
Profit before tax
Income tax expense
Profit for the year from
continuing operations
Discontinued operation
Loss for the year from
discontinued operation
Profit for the year

For the year ended 31 December
2011
2010
2009
HK$’000
HK$’000
HK$’000
5,553,312
4,367,400
3,519,915
(5,290,344)
(4,104,174)
(3,338,534)
262,968
263,226
181,381
4,512
5,153
13,684
(932)
(2,826)
–
(49,187)
(55,542)
(30,435)
(135,333)
(104,483)
(104,279)
9,100
16,308
14,700
(185)
(152)
(134)
46,800
–
–
(12,823)
(7,523)
(6,921)
124,920
114,161
67,996
(13,267)
(16,825)
(8,180)
111,653
97,336
59,816
(3,760)
(4,501)
–
107,893
92,835
59,816

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other comprehensive (expense) income
Fair value (loss) gain on
available-for-sale investment
Exchange differences arising on
translation of foreign operations
Reclassification adjustment on disposal of
available-for-sale investment
Share of other comprehensive income of
an associate
Share of translation reserve of an associate
Gain on revaluation of properties
Other comprehensive (expense)
income for the year
Total comprehensive income for the year
Profit (loss) for the year attributable to
owners of the Company
– from continued operations
– from discontinued operation
Profit for the year attributable to
non-controlling interests from
continuing operations
Total comprehensive income
attributable to:
Owners of the Company
Non-controlling interests
Dividends
Dividends per share (HK cents)
Earnings per share (HK cents)
From continuing and discontinued
operations
– basic and diluted
From continuing operations
– basic and diluted

(3,463)
1,789
(43)
2,193
124
–
–
–
(256)
16
–
–
–
–
42
–
–
3,751
(1,254)
1,913
3,494
106,639
94,748
63,310
104,341
84,944
51,929
(3,760)
(4,501)
–
100,581
80,443
51,929
7,312
12,392
7,887
107,893
92,835
59,816
99,085
82,356
55,423
7,554
12,392
7,887
106,639
94,748
63,310
39,321
24,903
11,677
HK15.00 cents
HK9.50 cents
HK4.50 cents
HK38.37 cents
HK30.82 cents
HK20.01 cents
HK39.80 cents
HK32.54 cents
HK20.01 cents
For the year ended 31 December
2011
2010
2009
HK$’000
HK$’000
HK$’000

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Non-current Assets Investment properties Property, plant and equipment Prepaid lease payments Goodwill Interests in associates Available-for-sale investments Club memberships Deposit paid for acquisition of property, plant and equipment Current Assets Inventories Trade and other receivables Bills receivable Prepaid lease payments Financial assets at fair value through profit or loss Taxation recoverable Pledged bank deposits Bank balances and cash Current Liabilities Trade and other payables Bills payable Derivative financial instruments Tax liabilities Bank borrowings – due within one year Net Current Assets Total Assets less Current Liabilities	At 31 December 2011 2010 HK$’000 HK$’000 136,300 127,200 154,149 159,580 9,080 8,650 20,392 17,829 506 675 13,912 17,036 3,278 3,278 14,508 – 352,125 334,248 397,045 379,242 479,520 435,639 7,448 22,556 189 177 113,744 65,213 4,720 76 3,149 19,634 648,860 421,820 1,654,675 1,344,357 460,708 392,369 59,125 122,202 8,776 6,321 5,899 11,502 836,595 576,382 1,371,103 1,108,776 283,572 235,581 635,697 569,829	2009 HK$’000 112,800 142,537 – 16,419 316 7,447 3,278 – 282,797 393,987 475,926 15,279 – 57,133 76 10,751 250,724 1,203,876 319,391 79,949 2,383 7,225 604,888 1,013,836 190,040 472,837

– 46 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Capital and Reserves Share capital Share premium and reserves Equity attributable to owners of the Company Non-controlling interests Total Equity Non-current Liabilities Bank borrowings – due after one year Deferred tax liabilities	26,214 26,214 524,671 464,907 550,885 491,121 61,771 51,389 612,656 542,510 11,250 17,500 11,791 9,819 23,041 27,319 635,697 569,829 At 31 December 2011 2010 HK$’000 HK$’000	25,949 403,744 2009 HK$’000
		429,693 35,819
		465,512
		– 7,325
		7,325
		472,837

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2011

NOTES Continuing operations Revenue 7 Cost of sales Gross profit Other income Other gains and losses 13 Distribution and selling expenses Administrative expenses Increase in fair value of investment properties Share of results of associates Gain on disposal of distribution rights 35 Finance costs 8 Profit before tax Income tax expense 11 Profit for the year from continuing operations Discontinued operation Loss for the year from discontinued operation 12 Profit for the year 13 Other comprehensive (expense) income Fair value (loss) gain on available-for-sale investment Exchange differences arising on translation of foreign operations Share of other comprehensive income of an associate Other comprehensive (expense) income for the year Total comprehensive income for the year	2011 HK$’000 5,553,312 (5,290,344) 262,968 4,512 (932) (49,187) (135,333) 9,100 (185) 46,800 (12,823) 124,920 (13,267) 111,653 (3,760) 107,893 (3,463) 2,193 16 (1,254) 106,639	2010 HK$’000 4,367,400 (4,104,174) 263,226 5,153 (2,826) (55,542) (104,483) 16,308 (152) – (7,523) 114,161 (16,825) 97,336 (4,501) 92,835 1,789 124 – 1,913 94,748

– 48 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Profit (loss) for the year attributable to owners of the Company – from continued operations – from discontinued operation Profit for the year attributable to non-controlling interests from continuing operations Total comprehensive income attributable to: Owners of the Company Non-controlling interests Earnings per share (HK cents) 15 From continuing and discontinued operations – basic and diluted From continuing operations – basic and diluted NOTES	104,341 (3,760) 100,581 7,312 107,893 99,085 7,554 106,639 HK38.37 cents HK39.80 cents 2011 HK$’000	84,944 (4,501) 80,443 12,392 92,835 82,356 12,392 94,748 HK30.82 cents HK32.54 cents 2010 HK$’000

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2011

NOTES Non-current Assets Investment properties 16 Property, plant and equipment 17 Prepaid lease payments 18 Goodwill 19 Interests in associates 20 Available-for-sale investments 22 Club memberships 23 Deposit paid for acquisition of property, plant and equipment Current Assets Inventories 25 Trade and other receivables 26 Bills receivable 26 Prepaid lease payments 18 Financial assets at fair value through profit or loss 27 Taxation recoverable Pledged bank deposits 24 Bank balances and cash 24 Current Liabilities Trade and other payables 28 Bills payable 28 Derivative financial instruments 29 Tax liabilities Bank borrowings – due within one year 30 Net Current Assets Total Assets less Current Liabilities	2011 HK$’000 136,300 154,149 9,080 20,392 506 13,912 3,278 14,508 352,125 397,045 479,520 7,448 189 113,744 4,720 3,149 648,860 1,654,675 460,708 59,125 8,776 5,899 836,595 1,371,103 283,572 635,697	2010 HK$’000 127,200 159,580 8,650 17,829 675 17,036 3,278 –
		334,248
		379,242 435,639 22,556 177 65,213 76 19,634 421,820
		1,344,357
		392,369 122,202 6,321 11,502 576,382
		1,108,776
		235,581
		569,829

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital and Reserves Share capital 31 Share premium and reserves Equity attributable to owners of the Company Non-controlling interests Total Equity Non-current Liabilities Bank borrowings – due after one year 30 Deferred tax liabilities 33 NOTES	26,214 524,671 550,885 61,771 612,656 11,250 11,791 23,041 635,697 2011 HK$’000	26,214 464,907 2010 HK$’000
		491,121 51,389
		542,510
		17,500 9,819
		27,319
		569,829

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2011

At 1 January 2010
Profit for the year
Fair value gain on available-for-sale
investment
Exchange differences arising on
translation of foreign operation
Total comprehensive income for the year
Issue of shares upon exercise of share options
Release of share option reserve on
exercise of share options
Share options lapsed
Acquisition of a subsidiary (note 34)
Dividend paid to non-controlling interests
Dividends paid (note 14)
At 31 December 2010
Profit for the year
Fair value loss on available-for-sale
investment
Exchange differences arising on
translation of foreign operation
– subsidiaries
– an associate
Total comprehensive income for the year
Acquisition of a subsidiary (note 34)
Dividend paid to non-controlling interests
Dividends paid (note 14)
At 31 December 2011

Attributable to owners of the Company
Capital
Property
Investment
Share
Non-
Share
Share
redemption
Capital
Contributed
revaluation
revaluation
Translation
options
Retained
controlling
capital
premium
reserve
reserve
surplus
reserve
reserve
reserve
reserve
profits
Total
interests
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
25,949
29,298
1,109
11,145
38,422
32,225
–
1,477
1,147
288,921
429,693
35,819
465,512
–
–
–
–
–
–
–
–
–
80,443
80,443
12,392
92,835
–
–
–
–
–
–
1,789
–
–
–
1,789
–
1,789
–
–
–
–
–
–
–
124
–
–
124
–
124
–
–
–
–
–
–
1,789
124
–
80,443
82,356
12,392
94,748
265
3,710
–
–
–
–
–
–
–
–
3,975
–
3,975
–
502
–
–
–
–
–
–
(502)
–
–
–
–
–
–
–
–
–
–
–
–
(645)
645
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,378
4,378
–
–
–
–
–
–
–
–
–
–
–
(1,200)
(1,200)
–
–
–
–
(24,903)
–
–
–
–
–
(24,903)
–
(24,903)
26,214
33,510
1,109
11,145
13,519
32,225
1,789
1,601
–
370,009
491,121
51,389
542,510
–
–
–
–
–
–
–
–
–
100,581
100,581
7,312
107,893
–
–
–
–
–
–
(3,463)
–
–
–
(3,463)
–
(3,463)
–
–
–
–
–
–
–
1,951
–
–
1,951
242
2,193
–
–
–
–
–
–
–
16
–
–
16
–
16
–
–
–
–
–
–
(3,463)
1,967
–
100,581
99,085
7,554
106,639
–
–
–
–
–
–
–
–
–
–
–
12,138
12,138
–
–
–
–
–
–
–
–
–
–
–
(9,310)
(9,310)
–
–
–
–
–
–
–
–
–
(39,321)
(39,321)
–
(39,321)
26,214
33,510
1,109
11,145
13,519
32,225
(1,674)
3,568
–
431,269
550,885
61,771
612,656

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The capital reserve of the Group represents the aggregate of:

(i) the reserve of HK$10,445,000 arising on the acquisition of shares in subsidiaries from non-controlling shareholders pursuant to a group reorganisation prior to 1994; and
(ii) the differences between the nominal value of the aggregate share capital of the subsidiaries acquired pursuant to the group reorganisation in September 1994, and the nominal value of the Company’s shares issued in exchange of HK$700,000.

At 31 December 2011, the property revaluation reserve includes an amount of HK$18,658,000 (2010: HK$18,658,000) relating to properties previously held as property, plant and equipment and reclassified as investment properties. The remaining balance of HK$13,567,000 (2010: HK$13,567,000) represents revaluation surplus arising from certain of the Group’s land and building carried at revalued amount prior to 30 September 1995. On the disposal or retirement of the asset, the revaluation reserve will be transferred directly to retained profits.

The contributed surplus of the Group represents the net aggregate of:

(i) the credit arising from the reduction of the nominal value of the consolidated shares from HK$1.00 each to HK$0.10 each by cancelling HK$0.90 paid up on each issued share, after a transfer of HK$10,565,000 towards the elimination of the accumulated losses of the Company as at 31 December 1997, of HK$70,510,000;
(ii) the credit arising from cancellation of the share premium account of HK$237,881,000, after a transfer of HK$180,003,000 towards the elimination of the accumulated losses of the Company as at 31 December 2002, of HK$57,878,000; and
(iii) the distribution to shareholders from 2003 to 2010 of HK$114,869,000.

– 53 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2011

NOTES OPERATING ACTIVITIES Profit before tax from continuing operations Loss for the year from discontinued operation Adjustments for: Interest income Finance costs Share of results of associates Net foreign exchange gain Dividend income from equity investments Increase in fair value of investment properties Change in fair value of derivative financial instruments Change in fair value of financial assets at fair value through profit or loss Depreciation of property, plant and equipment Allowance for trade and other receivables Allowance for inventories Loss (gain) on disposal of property, plant and equipment Gain on disposal of distribution rights Impairment loss in respect of goodwill Amortisation of prepaid lease payment Operating cash flows before movements in working capital (Increase) decrease in inventories Decrease in trade and other receivables Decrease (increase) in bills receivable Increase in investments held for trading (Decrease) increase in bills payable Increase in derivative financial instruments Increase in trade and other payables Cash generated from operations Hong Kong Profits Tax paid NET CASH FROM OPERATING ACTIVITIES	2011 HK$’000 124,920 (3,760) 121,160 (1,469) 12,833 185 – (1,363) (9,100) (2,458) 3,872 14,602 4,420 5,529 1,781 (46,800) 1,410 189 104,791 (14,081) 5,168 15,108 (60,203) (63,077) 4,913 60,165 52,784 (22,691) 30,093	2010 HK$’000 114,161 (4,501) 109,660 (806) 7,566 152 (2,262) (679) (16,308) 1,965 (1,291) 14,062 605 762 (65) – – – 113,361 14,784 39,893 (7,277) (6,789) 42,253 1,973 70,975 269,173 (10,054) 259,119

– 54 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

INVESTING ACTIVITIES Proceeds on disposal of distribution rights 35 Withdrawal (placement) of pledged bank deposits Proceeds on disposal of property, plant and equipment Proceeds from redemption of structured deposits Interest received Dividend received from equity investments Payment for acquisition of property, plant and equipment Deposit paid for acquisition of property, plant and equipment Acquisition of a subsidiary 34 Payment for acquisition of an investment property Payment for acquisition of prepaid lease payments Payment for acquisition of available-for-sale investments Payment for acquisition of an associate Proceeds on disposal of investment property NET CASH FROM (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Bank borrowings raised Repayment of bank borrowings Dividends paid Interest paid Dividend paid to non-controlling interests Proceeds from issue of shares NET CASH FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT 31 DECEMBER, represented by bank balances and cash NOTES	46,800 20,449 9,013 7,800 1,469 1,363 (18,633) (14,508) (14,473) – – – – – 39,280 4,701,495 (4,482,455) (39,321) (12,833) (9,310) – 157,576 226,949 421,820 91 648,860 2011 HK$’000	– (8,883) 65 – 806 679 (24,686) – 2,364 (9,860) (8,827) (7,800) (511) 7,068 (49,585) 3,846,985 (3,857,991) (24,903) (7,566) (1,200) 3,975 (40,700) 168,834 250,724 2,262 421,820 2010 HK$’000

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2011

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 addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section to the annual report.

The consolidated financial statements are presented in Hong Kong dollars, which is also the functional currency of the Company.

The Company acts as an investment holding company and the activities of its principal subsidiaries are set out in note 42.

2. Application of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”)

In the current year, the Group has applied the following new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

Amendments to HKFRSs	Improvements to HKFRSs issued in 2010
HKAS 24 (as revised in 2009)	Related Party Disclosures
Amendments to HKAS 32	Classification of Rights Issues
Amendments to	Prepayments of a Minimum Funding Requirement
HK(IFRIC) – Int 14
HK(IFRIC) – Int 19	Extinguishing Financial Liabilities with Equity
	Instruments

The application of the new and revised HKFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group has not early applied the following new and revised HKFRSs that have been issued but are not yet effective:

Amendments to HKFRS 7	Disclosures – Transfers of Financial Assets1
Amendments to HKFRS 7	Disclosures – Offsetting Financial Assets and
	Financial Liabilities2
Amendments to HKFRS 9	Mandatory Effective Date of HKFRS 9 and
and HKFRS 7	Transition Disclosures3
HKFRS 9	Financial Instruments3
HKFRS 10	Consolidated Financial Statements2
HKFRS 11	Joint Arrangements2
HKFRS 12	Disclosure of Interests in Other Entities2
HKFRS 13	Fair Value Measurement2
Amendments to HKAS 1	Presentation of Items of Other
	Comprehensive Income5
Amendments to HKAS 12	Deferred Tax – Recovery of Underlying Assets4
HKAS 19 (as revised in 2011)	Employee Benefits2
HKAS 27 (as revised in 2011)	Separate Financial Statements2
HKAS 28 (as revised in 2011)	Investments in Associates and Joint Ventures2
Amendments to HKAS 32	Offsetting Financial Assets and Financial Liabilities6
HK(IFRIC) – Int 20	Stripping Costs in the Production Phase of
	a Surface Mine2

1 Effective for annual periods beginning on or after 1 July 2011.

2 Effective for annual periods beginning on or after 1 January 2013.

3 Effective for annual periods beginning on or after 1 January 2015.

4 Effective for annual periods beginning on or after 1 January 2012.

5 Effective for annual periods beginning on or after 1 July 2012.

6 Effective for annual periods beginning on or after 1 January 2014.

HKFRS 9 Financial Instruments

HKFRS 9 issued in 2009 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 amended in 2010 includes the requirements for the classification and measurement of financial liabilities and for derecognition.

– 57 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

HKFRS 9 requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

Based on the Group’s financial assets and financial liabilities as at 31 December 2011, the application of HKFRS 9 will affect the classification and measurement of the Group’s available-for-sale investments. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.

New and revised Standards on consolidation, joint arrangements, associates and disclosures

In June 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued, including HKFRS 10, HKFRS 11, HKFRS 12, HKAS 27 (as revised in 2011) and HKAS 28 (as revised in 2011).

Key requirements of these five standards are described below.

HKFRS 10 replaces the parts of HKAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and HK (SIC)-Int 12 Consolidation – Special Purpose Entities. HKFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in HKFRS 10 to deal with complex scenarios.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures and HK (SIC)-Int 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers. HKFRS 11 deals with how a joint arrangement of which two or more parties have joint control should be classified. Under HKFRS 11, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. In contrast, under HKAS 31, there are three types of joint arrangements: jointly controlled entities, jointly controlled assets and jointly controlled operations.

In addition, joint ventures under HKFRS 11 are required to be accounted for using the equity method of accounting, whereas jointly controlled entities under HKAS 31 can be accounted for using the equity method of accounting or proportionate accounting.

HKFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in HKFRS 12 are more extensive than those in the current standards.

These five standards are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted provided that all of these five standards are applied early at the same time.

The directors anticipate that these five standards will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2013. The application of these five standards may have significant impact on amounts reported in the consolidated financial statements. The application of HKFRS 11 may result in changes in the accounting of the Group’s jointly controlled entities that are currently accounted for using proportionate consolidation. Under HKFRS 11, those jointly controlled entities will be classified as a joint operations or joint venture, depending on the rights and obligations of the parties to the joint arrangement. However, the directors have not yet performed a detailed analysis of the impact of the application of these Standards and hence have not yet quantified the extent of the impact.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Amendments to HKAS 12 Deferred Tax – Recovery of Underlying Assets

The amendments to HKAS 12 provide an exception to the general principles in HKAS 12 that the measurement of deferred tax assets and deferred tax liabilities should reflect the tax consequences that would follow from the manner in which the entity expects to recover the carrying amount of an asset. Specifically, under the amendments, investment properties that are measured using the fair value model in accordance with HKAS 40 Investment Property are presumed to be recovered through sale for the purposes of measuring deferred taxes, unless the presumption is rebutted in certain circumstances.

The amendments to HKAS 12 are effective for annual periods beginning on or after 1 January 2012. The directors anticipate that the application of the amendments to HKAS 12 in future accounting periods may result in adjustments to the amounts of deferred tax liabilities recognised in prior years regarding the Group’s investment properties of which the carrying amounts are presumed to be recovered through sale. If the presumption is not rebutted, the directors anticipate that the application of the amendments to HKAS 12 may decrease deferred tax liabilities recognised for investment properties that are measured using the fair value model.

The directors of the Company anticipate that the application of the other new and revised HKFRSs will have no material impact on the consolidated financial statements.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The principal accounting policies are set out below.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein.

Allocation of total comprehensive income to non-controlling interests

Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance (effective from 1 January 2010 onwards).

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Income Taxes and HKAS 19 Employee Benefits respectively.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation have been initially measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Other types of noncontrolling interests are measured at their fair value or, when applicable, on the basis specified in another Standard.

Goodwill

Goodwill arising on an acquisition of a business or a jointly controlled entity (which is accounted for using proportionate consolidation) is carried at cost less accumulated impairment losses, if any, and is presented separately in the consolidated statement of financial position.

For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or groups of cash-generating units), that is expected to benefit from the synergies of the combination.

– 62 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently whenever there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cashgenerating unit to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associates. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

Jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The Group recognises its interest in jointly controlled entities using proportionate consolidation. The Group’s share of each of the assets, liabilities, income and expenses of the jointly controlled entities are combined with the Group’s similar line items, line by line, in the consolidated financial statements.

When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group’s consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Rental income, including rentals invoiced in advance from properties let under operating leases, is recognised on a straight-line basis over the term of the relevant lease.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair value. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

For a transfer from investment properties to property, plant and equipment because its use has changed as evidence by owner-occupation, the deemed cost of property for subsequent accounting is its fair value at the date of the change in use.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the period in which the item is derecognised.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes are stated in the consolidated statement of financial position at cost, deemed cost or valuation less subsequent accumulated depreciation and accumulated impairment losses, if any.

Certain of the Group’s leasehold land and buildings were revalued at 31 December 1994. The surplus arising on revaluation of these properties was credited to the asset revaluation reserve. Advantage has been taken of the transitional relief provided by paragraph 80A of HKAS 16 Property, Plant and Equipment from the requirement to make regular revaluations of the Group’s land and buildings which had been carried at revalued amounts prior to 30 September 1995, and accordingly no further revaluation of land and buildings is carried out. Prior to 30 September 1995, the revaluation increase arising on the revaluation of these assets was credited to the property revaluation reserve. Any future decreases in value of these assets will be dealt with as an expense to the extent that they exceed the balance, if any, on the revaluation reserve relating to a previous revaluation of the same asset. On the subsequent sale or retirement of a revalued asset, the corresponding revaluation surplus is transferred to retained profits.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Depreciation is recognised so as to write off the cost or valuation of items of property, plant and equipment over their estimated useful lives, using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

If an item of property, plant and equipment becomes an investment property because its use has changed as evidenced by end of owner-occupation, any difference between the carrying amount and the fair value of that item at the date of transfer is recognised in other comprehensive income and accumulated in property revaluation reserve. On the subsequent sale or retirement of the asset, the relevant revaluation reserve will be transferred directly to retained profits.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment losses on tangible assets other than club memberships (see the accounting policy in respect of club memberships below)

At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard.

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

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease.

The Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Leasehold land and building

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lumpsum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated statement of financial position and is amortised over the lease term on a straight-line basis. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (“foreign currencies”) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of the translation reserve (attributed to non-controlling interests as appropriate).

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and retranslated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in equity under the heading of translation reserve.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Retirement benefit costs

Payments to defined contribution retirement benefits schemes are recognised as an expense when employees have rendered service entitling them to the contributions. Payments made to state-managed retirement benefits schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefits scheme.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

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

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Club memberships

Club memberships with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.

Club memberships are tested for impairment at least annually, and whenever there is any indication that they may be impaired by comparing their carrying amounts with their recoverable amounts. If the recoverable amount of club memberships is estimated to be less than its carrying amount, the carrying amount of the club memberships is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

If an impairment loss subsequently reverses, the carrying amount of the club memberships 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 those club memberships in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method for electronic products and the weighted average cost method for other inventories. Net realisable value represents the estimated selling price for inventories less costs necessary to make the sale.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified as financial assets at fair value through profit or loss (“FVTPL”), loans and receivables and available-for-sale financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments, other than those financial assets classified as at FVTPL, of which interest income is included in net gains or losses.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets at fair value through profit or loss

Financial assets at FVTPL has two subcategories, including financial assets held for trading and those designated at FVTPL on initial recognition.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any interest earned on the financial assets. Fair value is determined in the manner described in note 6.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, bills receivable, pledged bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-tomaturity investments.

Available-for-sale financial assets are measured at fair value at the end of the reporting period. Changes in fair value are recognised in other comprehensive income and accumulated in investment revaluation reserve, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss (see accounting policy on impairment of financial assets below).

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at the end of the reporting period (see accounting policy on impairment of financial assets below).

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an available-for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For all other financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest and principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
disappearance of an active market for that financial asset because of financial difficulties.

Trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period (ranging from 30 days to 120 days), or observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period in which the impairment takes place.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Impairment losses on available-for-sale equity investments will not be reversed through profit or loss. Any increase in fair value subsequent to impairment loss is recognised directly in other comprehensive income and accumulated in the investment revaluation reserve.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial liabilities

Financial liabilities including trade and other payables, bills payable and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Derivative financial instruments and hedging

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to employees

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (share options reserve).

At the end of the reporting period, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the original estimates during the vesting period, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share options reserve.

When share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to retained profits.

4. Key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in note 3, the directors of the Company are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2011, the carrying value of trade receivables is HK$443,985,000 (2010: HK$401,501,000) (net of allowance of HK$8,642,000 (2010: HK$8,334,000)).

Estimated impairment of inventories

Management of the Group reviews inventories on a product-by-product basis at the end of each reporting period, and makes allowance for obsolete and slowmoving inventory items identified that are no longer suitable for use in production. Management estimates the net realisable value for such items based primarily on the latest invoice prices and current market conditions. As at 31 December 2011, the carrying value of inventories is HK$397,045,000 (2010: HK$379,242,000) (net of allowance for inventories of HK$44,018,000 (2010: HK$38,489,000)).

Income tax

As at 31 December 2011, unused tax losses of the Group amounted to approximately HK$94,803,000 (2010: HK$88,286,000), of which approximately HK$12,718,000 (2010: HK$16,434,000) has been recognised as a deferred tax asset. No deferred tax asset has been recognised in respect of the remaining approximately HK$82,085,000 (2010: HK$71,852,000) due to unpredictability of future profit streams. In addition, for the deductible temporary differences in relation to allowance for doubtful debts of the Group which amounted to approximately HK$8,428,000 (2010: HK$9,833,000), a deferred tax asset has been recognised in respect of approximately HK$850,000 (2010: HK$1,006,000). No deferred tax asset has been recognised in respect of the remaining approximately HK$7,578,000 (2010: HK$8,827,000). In cases where the actual future profits generated are more than or less than expected, a material recognition or reversal of deferred tax assets may arise, which would be recognised in profit or loss for the period in which such a recognition or reversal takes place.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of net debt, which includes the bank borrowings, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital, reserves and retained profits.

The directors of the Company review the capital structure regularly. As part of this review, the directors consider the cost of capital and the risks associates with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt.

6. Financial instruments

(a) Categories of financial instruments

	2011	2010
	HK$’000	HK$’000
Financial assets
Fair value through profit or loss
Held for trading	98,186	42,110
Designated at FVTPL	15,558	23,103
Loans and receivables (including
cash and cash equivalents)	1,127,312	883,554
Available-for-sale investments	13,912	17,036
Financial liabilities
Amortised cost	1,341,005	1,078,159
Derivative financial instruments	8,776	6,321

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Financial risk management objectives and policies

The Group’s major financial instruments include available-for-sale investments, trade and other receivables, bills receivable, financial assets at fair value through profit or loss, pledged bank deposits, bank balances, trade and other payables, bills payable, derivative financial instruments and bank borrowings. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and effective manner.

Market risk

(i) Currency risk

Several subsidiaries of the Company have foreign currency sales and purchases and foreign currency trade and other receivables, bills receivable, financial assets at fair value through profit or loss, pledged bank deposits, bank balances, trade and other payables, bills payable and bank borrowings, which expose the Group to foreign currency risk.

The carrying amounts of the Group’s foreign currency denominated monetary liabilities (including intercompany payables within the Group) and monetary assets at the reporting date are as follows:

	Liabilities	Liabilities	Assets
	2011	2010	2011	2010
	HK$’000	HK$’000	HK$’000	HK$’000
United States dollars
(“USD”)	454,948	392,376	444,676	486,695
Renminbi (“RMB”)	4	6	61,201	17,425
Hong Kong dollars (“HK$”)	57,367	53,492	–	–

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Includes in above are the Group’s foreign currency denominated monetary assets designated at FVTPL at the reporting date which are as follows:

	Assets
	2011	2010
	HK$’000	HK$’000
USD	15,558	23,103

The Group currently does not have a foreign currency hedging policy. However, management will monitor foreign exchange exposure closely and consider for further usage of hedging instruments when the need arise.

The carrying amount of foreign exchange forward contract as at year end amounted to approximately HK$2,515,000 classified as current liabilities (2010: HK$213,000), in which the Group was in the position of buying USD with notional amount of USD58,330,000 (2010: buying USD with notional amount of USD52,500,000).

The following table details the Group’s sensitivity to a 5% increase and decrease in relevant foreign currencies against HK dollars (excluding structured deposits designated at FVTPL and foreign currency forward contracts). 5% (2010: 5%) represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 5% (2010: 5%) change in foreign currency rates. The sensitivity analysis includes mainly foreign currency trade and other receivables and bank balances. The sensitivity analysis also includes external loan, as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender in the borrower. A 5% (2010: 5%) strengthening of USD and RMB against HK dollars will decrease/ increase the Group’s profit for the year by the following amount. For 5% (2010: 5%) weakening of USD and RMB against HK dollars, there would be an equal and opposite impact on the profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Increase (decrease) in profit	USD 2011 2010 HK$’000 HK$’000 (1,288) 3,683	RMB 2011 2010 HK$’000 HK$’000 2,539 2,961

No sensitivity analysis was prepared in relation to the currency risk of structured deposits designated at FVTPL and foreign exchange forward contracts as the directors consider the exposure is limited.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year.

(ii) Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances and bank borrowings (see notes 24 and 30 for details). Management will monitor interest rate risk exposure closely. By management’s discretion, the Group keeps its borrowings at floating rates and may enter into interest rate swaps to balance the fair value interest rate risk and cash flow interest rate risk exposure of the Group.

The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of London Inter Bank Offer Rate (“LIBOR”) and Hong Kong Inter Bank Offer Rate (“HIBOR”) arising from the Group’s variable-rate bank borrowings.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for its variable-rate bank balances and bank borrowings. The analysis is prepared assuming the amount of variablerate bank balances and bank borrowings at the end of reporting period were outstanding for the whole year. For variable-rate bank balances, 20 basis point increase and 5 basis point decrease (2010: 20 basis point increase and 5 basis point decrease) are used. For variable-rate bank borrowings, 20 basis point (2010: 20 basis point) increase or decrease is used.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If interest rates had been 20 basis point higher for variable-rate bank balances and variable-rate bank borrowings/5 basis point lower for variable-rate bank balances and 20 basis point lower for variablerate bank borrowings and all other variables were held constant (2010: 20 basis point higher for variable-rate bank balances and variable-rate bank borrowings/5 basis point lower for variable-rate bank balances and 20 basis point lower for variable-rate bank borrowings and all other variables were held constant), the Group’s profit for the year ended 31 December 2011 would decrease by approximately HK$765,000 if interest rate is higher/increase by approximately HK$1,463,000 if interest rate is lower (2010: decrease by approximately HK$669,000/ increase by approximately HK$1,058,000). This is mainly attributable to the Group’s exposure to interest rates on its variable-rate bank balances and bank borrowings.

For interest rate swap, 20 basis point (2010: 20 basis point) increase or decrease is used. If interest rates had been 20 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2011 would increase/decrease by approximately HK$200,000 (2010: increase/decrease by HK$200,000).

(iii) Other price risk

The Group is exposed to other price risk through its investments in structured deposits classified as financial assets designated at fair value through profit or loss, listed equity securities and unlisted equity funds and securities classified as available-for-sale investment. For the available-for-sale investment stated at cost, the exposure to other price risk is not measurable as the range of reasonable fair value estimates is significant, accordingly, sensitivity analysis is not presented. The management manages the other price risk exposure by maintaining a portfolio of investments with different risks.

Sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to equity price risks at the reporting date.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If the market prices of the respective listed equity instruments and the quoted price of the equity funds, and the mark to market valuation amount of the structured deposits provided by financial institutions (which are the counterparties of the structured deposits) had been 5% (2010: 5%) higher/lower and all other variables were held constant:

profit for the year would increase/decrease by approximately HK$5,687,000 (2010: increase/decrease by approximately HK$3,261,000) as a result of the changes in fair value of financial assets through profit or loss; and
the investment revaluation reserve would increase/decrease by approximately HK$379,000 (2010: increase/decrease by approximately HK$552,000) for the Group as a result of the changes in fair value of available-for-sale investments.

Credit risk

As at 31 December 2011, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial assets as stated in the consolidated statement of financial position.

In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The credit risk on structured deposits classified as financial assets at fair value through profit or loss, bank balances and bank deposits and bills receivables is limited because the counterparties are banks with good reputation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other than the concentration of credit risk on bank balances and structured deposits classified as financial assets at fair value through profit or loss, which are deposited with several banks with high credit ratings, the Group has no significant concentration of credit risk on other financial assets and trade receivables, with exposure spread over a number of counterparties and customers.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As at 31 December 2011, the Group has available unutilised overdraft and bank loan facilities of approximately HK$29,000,000 (2010: HK$29,000,000) and HK$1,403,449,000 (2010: HK$729,338,000) respectively.

The following table details the Group’s remaining contractual maturity for its non-derivative and derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Specifically, bank loans with a repayment on demand clause are included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates.

The table includes both interest and principal cash flows. To extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of the reporting period.

In addition, the liquidity analysis for the Group’s derivative financial instruments is prepared based on the expected settlement date as the management considers that such basis is essential for an understanding of the timing of the expected cash flows of the contracts.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity tables

Weighted average effective interest rate % 2011 Non-derivative financial liabilities Trade and other payables – Bills payable – Bank borrowings – variable rate 1.85 Derivatives – net settlement* Foreign exchange forward contracts – Interest rate swap –	On demand or less than 1 month HK$’000 343,959 51,776 830,658 1,226,393 – 695 695	1-3 months HK$’000 72,758 7,349 1,273 81,380 – – –	3 months to 1 year HK$’000 17,318 – 4,774 22,092 – 2,085 2,085	Over 1 year HK$’000 – – 12,570 12,570 2,515 4,864 7,379	Total undiscounted cash flows HK$’000 434,035 59,125 849,275 1,342,435 2,515 7,644 10,159	Carrying amount at 31.12.2011 HK$’000 434,035 59,125 847,845
						1,341,005

						2,515 6,261
						8,776

Weighted average effective interest rate determined based on the variable interest rate of outstanding bank borrowings at the end of the reporting period.

Weighted average effective interest rate % 2010 Non-derivative financial liabilities Trade and other payables – Bills payable – Bank borrowings – variable rate 1.40 Derivatives – net settlement* Foreign exchange forward contracts – Interest rate swap –	On demand or less than 1 month HK$’000 332,912 85,891 570,444 989,247 – 662 662	1-3 months HK$’000 26,980 24,611 1,268 52,859 – – –	3 months to 1 year HK$’000 2,183 11,700 4,753 18,636 – 1,988 1,988	Over 1 year HK$’000 – – 20,017 20,017 213 7,287 7,500	Total undiscounted cash flows HK$’000 362,075 122,202 596,482 1,080,759 213 9,937 10,150	Carrying amount at 31.12.2010 HK$’000 362,075 122,202 593,882
						1,078,159

						213 6,108
						6,321

Weighted average effective interest rate determined based on the variable interest rate of outstanding bank borrowings at the end of the reporting period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank loans with a repayment on demand clause are included in the “on demand or less than 1 month” time band in the above maturity analysis. As at 31 December 2011 and 31 December 2010, the aggregate undiscounted principal amounts of these bank loans amounted to HK$830,345,000 and HK$570,132,000 respectively. Taking into account the Group’s financial position, the directors do not believe that it is probable that the banks will exercise their discretionary rights to demand immediate repayment. The directors believe that such bank loans will be repaid in accordance with the scheduled repayment dates set out in the loan agreements. However, in accordance with Hong Kong Interpretation 5 Presentation of Financial Statements Classification by the Borrower of a Term Loan the Contains a Repayment on Demand Clause, all such bank loans have been classified as current liabilities.

Weighted average effective interest rate % As at 31 December 2011 Bank borrowings – variable rate 1.85 As at 31 December 2010 Bank borrowings – variable rate 1.40	Less than 1 month HK$’000 228,402 363,888	1 – 3 months HK$’000 320,384 118,107	3 months to 1 year HK$’000 258,791 47,757	Over 1 year HK$’000 36,493 49,475	Total undiscounted cash flows HK$’000 844,070 579,227	Carrying amount HK$’000 830,345
						570,132

The amount included above for variable interest rate instruments for non-derivative financial liabilities is subject to change if changes in variable interest rate differ to those estimates of interest rates determined at the end of the reporting period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market bid prices; and
the fair value of other financial assets and financial liabilities (including derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using forward exchange rates, prices or rates from observable current market transactions or unobservable inputs, such as risk filter multiple and coupon payment index of underlying stock.

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets and liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

– 90 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial assets at FVTPL Investments held-for-trading (note) Structured deposits Available-for-sale investments Financial liabilities at FVTPL Derivative financial liabilities Financial assets at FVTPL Investments held-for-trading (note) Structured deposits Available-for-sale investments Financial liabilities at FVTPL Derivative financial liabilities	Level 1 HK$’000 98,186 – – 98,186 – Level 1 HK$’000 42,110 – – 42,110 –	2011 Level 2 Level 3 HK$’000 HK$’000 – – – 15,558 7,573 – 7,573 15,558 8,776 – 2010 Level 2 Level 3 HK$’000 HK$’000 – – – 23,103 11,036 – 11,036 23,103 6,321 –	Total HK$’000 98,186 15,558 7,573
			121,317

			8,776

			Total HK$’000 42,110 23,103 11,036
			76,249

			6,321

Note: Included in the balance with an amount of HK$65,796,000 (2010: HK$19,337,000) represented investment in equity funds/debentures which are quoted in an active market.

There were no transfers between Level 1 and 2 in current and prior

years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Reconciliation of Level 3 fair value measurement of financial assets

At 1 January 2010 Gain recognised in profit or loss (included in change in fair value of financial assets at fair value through profit and loss) – unrealised At 31 December 2010 Gain recognised in profit or loss (included in change in fair value of financial assets at fair value through profit and loss) – realised – unrealised Settlements At 31 December 2011	Structured deposits HK$’000 22,295 808 23,103 335 (80) (7,800) 15,558

Structured deposits are principal protected and only the interest or yield on the deposit may be affected by movements in the relevant reference value. The principal amount deposited will be repayable in full at the end of the deposit period. The structured deposit are valued using valuation techniques with observable and unobservable inputs principally comprising interest rate, foreign currency forward rates and Taiwan listed securities prices, subject to change in the weighting of components of the portfolio. The deposits are classified as Level 3 due to unobservability of the risk filter multiple that includes inputs of swap spreads, equity market volatility, implied foreign exchange option volatility and certain indexes of underlying stock.

– 92 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Structured deposits are measured at fair value. Fair value is estimated using net present value of estimated future cash flow, adjusted as appropriate for market risk (currency risk and other price risk), which included some assumptions that are not supportable by observable market price or risks and was estimated by a high credit rating financial institution. Whilst such valuations are sensitive to estimates, it is believed that changing of one or more of the assumptions to reasonably possible alternative assumptions would not have a big impact on the Group’s financial position (see other price risk above). The total amount of the gain in fair value estimated using this valuation technique that was recognised in the consolidated statement of comprehensive income during the year is HK$255,000 including realised gain of HK$335,000 (2010: HK$808,000).

7. Revenue and segment information

Revenue represents the net amounts received and receivable for goods sold by the Group in the normal course of business to outside customers, net of discounts for the year.

The Group are engaged in the distribution of electronic components and semiconductors products that can be used in consumer electronic products, mobile phone products, computer products, telecommunication products and lighting products, properties investments and distribution of sports products.

Information reported to chairman and managing director of the Company, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses only on revenue analysis excluding the revenue generated by the jointly controlled entity by geographical location of customers. As no other discrete financial information is available for the assessment of different business activities, no segment information is presented other than entity-wide disclosures.

The Group was involved in the manufacturing of liquid crystal display modules (operated through a jointly controlled entity accounted for using proportionate consolidation), which was reporting as a major business product and services of the Group. That operation was discontinued with effect during current year. Details of the discontinued operation are set out in note 12.

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Continuing operations

Entity-wide disclosures

Revenue from major business product and services

The following is an analysis of the Group’s revenue from its major business products and services:

Distribution of electronic components and semiconductors products Distribution of sports products Office building rental	2011 HK$’000 5,519,349 30,230 3,733 5,553,312	2010 HK$’000 4,331,837 31,506 4,057
		4,367,400

Geographical information

The Group’s operations are located in different places of domicile, including mainland PRC, Hong Kong and Taiwan.

The following is an analysis of the Group’s revenue by the geographical locations of customers for the year:

Mainland PRC Hong Kong Taiwan Mexico Singapore India Japan Others	Sales revenue by geographical market 2011 2010 HK$’000 HK$’000 3,008,246 2,433,663 1,928,658 1,385,431 401,253 466,916 125,565 – 27,733 – 18,561 13,733 4,687 18,044 38,609 49,613 5,553,312 4,367,400	Sales revenue by geographical market 2011 2010 HK$’000 HK$’000 3,008,246 2,433,663 1,928,658 1,385,431 401,253 466,916 125,565 – 27,733 – 18,561 13,733 4,687 18,044 38,609 49,613 5,553,312 4,367,400
		4,367,400

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an analysis of the carrying amount of non-current assets excluding financial instruments by geographical area in which the assets are located.

Hong Kong Mainland PRC Taiwan Others	Carrying amount of non-current assets 2011 2010 HK$’000 HK$’000 246,297 219,552 87,014 96,509 3,973 – 929 1,151 338,213 317,212	Carrying amount of non-current assets 2011 2010 HK$’000 HK$’000 246,297 219,552 87,014 96,509 3,973 – 929 1,151 338,213 317,212
		317,212

Information about major customers

During the years ended 31 December 2011 and 2010, no customer contributed over 10% of the total sales of the Group.

8. Finance costs

Continuing operations

Interest on bank borrowings wholly repayable within five years	2011 HK$’000 12,823	2010 HK$’000 7,523

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Directors’ remuneration

The remuneration paid or payable to each of the directors of the Company were as follows:

2011

Fees Other emoluments Salaries and other benefits Retirement benefits scheme contributions Performance related incentive payments (note iii) Total emoluments 2010	Yim Yuk Lun, StanleyJP HK$’000 – 4,320 216 4,000 8,536	Wong Sui Chuen HK$’000 – 689 16 131 836	Lock Shui Cheung HK$’000 – 690 24 868 1,582	Lau Ping Cheung HK$’000 (note i) – 600 8 288 896	Dr. Chang Chu Cheng HK$’000 – – – – –	Cheung Chi Kwan HK$’000 100 – – – 100	Liu Chun Ning, Wilfred HK$’000 – – – – –	Dr. Lui Ming Wah, SBS JP HK$’000 50 – – – 50	Wong Tak Yuen, Adrian HK$’000 50 – – – 50	Total HK$’000 200 6,299 264 5,287 12,050

Fees Other emoluments Salaries and other benefits Retirement benefits scheme contributions Performance related incentive payments (note iii) Total emoluments	Yim Yuk Lun, StanleyJP HK$’000 – 4,320 259 2,500 7,079	Wong Sui Chuen HK$’000 – 600 12 100 712	Lock Shui Cheung HK$’000 (note ii) – 931 47 580 1,558	Dr. Chang Chu Cheng HK$’000 – – – – –	Cheung Chi Kwan HK$’000 100 – – – 100	Liu Chun Ning, Wilfred HK$’000 – – – – –	Dr. Lui Ming Wah, SBS JP HK$’000 50 – – – 50	Wong Tak Yuen, Adrian HK$’000 50 – – – 50	Total HK$’000 200 5,851 318 3,180
									9,549

Notes:

(i) Mr. Lau Ping Cheung was appointed as director of the Company on 1 May 2011.
(ii) Mr. Lock Shui Cheung was appointed as director of the Company on 1 January 2010.
(iii) Performance related incentive payments were determined with reference to the Group’s operating results, individual performance and comparable market statistics.

During the years ended 31 December 2011 and 2010, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. In addition, during the years ended 31 December 2011 and 2010, no directors waived any emoluments.

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Employees’ remunerations

Of the five highest paid individuals in the Group, three (2010: two) were directors of the Company whose remunerations are set out in note 9 above. The remuneration of the remaining two (2010: three) individuals are as follows:

2011 HK$’000 Salaries and other benefits 1,779 Performance related incentive payments 276 Retirement benefits scheme contributions 24 2,079 Their remunerations were within the following bands: 2011 No. of employees Not exceeding HK$1,000,000 1 HK$1,000,001 to HK$1,500,000 1 HK$1,500,001 to HK$2,000,000 –	2010 HK$’000 2,815 1,156 72
	4,043

	2010 No. of employees – 2 1

During the years ended 31 December 2011 and 2010, no emoluments were paid by the Group to these individuals as an inducement to join or upon joining the Group.

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Taxation

Continuing operations The charge comprises: Hong Kong Profits Tax Current year Overprovision in prior years Taiwan Corporate Income Tax Current year Deferred tax (note 33) Current year	2011 HK$’000 11,082 (28) 347 11,401 1,866 13,267	2010 HK$’000 14,771 (440) – 14,331 2,494 16,825

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for both years.

Corporate Income Tax in Taiwan is charged at 17%. The reduction of the Corporate Income Tax in Taiwan to 17% was approved on 15 June 2010. The new rate is effective retrospectively from 1 January 2010 onwards.

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25% from 1 January 2008 onwards.

No PRC income tax is payable by the Group since the Mainland PRC subsidiaries incurred tax losses for both years.

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The tax charge for the year can be reconciled to the profit before tax per the consolidated statement of comprehensive income as follows:

Profit before tax (from continuing operations) Tax at Hong Kong Profits Tax rate of 16.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Overprovision in respect of prior years Tax effect of share of loss of associates Tax effect of tax losses/deductible temporary differences not recognised Utilisation of tax losses/deductible temporary differences previously not recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Tax charge for the year (relating to continuing operations)	2011 HK$’000 124,920 20,612 400 (9,036) (28) 31 2,200 (920) 8 13,267	2010 HK$’000 114,161 18,837 645 (1,060) (440) 25 243 (1,425) – 16,825

12. Discontinued operation

During the year ended 31 December 2011, the Group’s jointly controlled entity accounted for using proportionate consolidation which was engaged in the manufacturing of liquid crystal display modules disposed of certain property, plant and equipment. After these disposals, the Group discontinued the business of manufacturing of liquid crystal display modules (operated through the jointly controlled entity) (the “Discontinued Business”).

– 99 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results of the discontinued operation in current year, which had been included in the consolidated statement of comprehensive income, were as follows:

Revenue Cost of sales Other income Other gains and losses Distribution and selling expenses Administrative expenses Finance cost Loss for the year Loss for the year from discontinued operation has been arrived at after charging and (crediting): Staff costs – salaries and other benefits – retirement benefits scheme contribution Depreciation of property, plant and equipment Cost of inventories recognised as an expense Net foreign exchange loss (gain) Interest income Loss on disposal of property, plant and equipment	2011 HK$’000 – – 19 (2,543) (19) (1,207) (10) (3,760) 2011 HK$’000 41 4 45 734 – 10 (11) 2,533	2010 HK$’000 10,334 (13,372) 212 58 (158) (1,532) (43) (4,501) 2010 HK$’000 1,054 7 1,061 898 13,272 (58) (5) –

During the year, the Discontinued Business contributed net operating outflow of HK$353,000 (2010: inflow of HK$209,000), cash inflow of HK$1,720,000 (2010: outflow of HK$8,000) in respect of investing activities and cash outflow of HK$1,680,000 (2010: HK$420,000) in respect of the financing activities to the Group’s cash flow.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Profit for the year

2011 2010 HK$’000 HK$’000

Profit for the year has been arrived at after charging and (crediting):

Continuing operations

Staff costs, including directors’ remunerations – salaries and other benefits – performance related incentive payments – retirement benefits scheme contributions Auditor’s remuneration Depreciation of property, plant and equipment Amortisation of prepaid lease payment Allowance for trade and other receivables Cost of inventories recognised as an expense (including allowance for inventories of HK$5,529,000 (2010: HK$762,000)) Interest income Dividend income from equity investments Rental income from investment properties, net of outgoings of HK$25,000 (2010: HK$25,000)	62,920 10,424 4,772 78,116 1,387 13,868 189 4,420 5,290,344 (1,458) (1,363) (3,708)	56,067 9,771 4,189 70,027 1,384 13,164 – 605 4,104,174 (801) (679) (4,032)

– 101 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following items are included in other gains and losses:

Change in fair value of derivative financial instruments Impairment loss recognised in respect of goodwill Change in fair value of financial assets at fair value through profit or loss Net foreign exchange (gain) loss Gain on disposal of property, plant and equipment 14. Dividends Dividends recognised as distribution during the year: 2011 Interim dividend of HK3.0 cents (2010: 2010 interim dividend of HK3.0 cents) per share 2010 Final dividend of HK10.0 cents and a special dividend of HK2.0 cents (2010: 2009 final dividend of HK6.5 cents) per share	2011 HK$’000 (2,458) 1,410 3,872 (1,140) (752) 2011 HK$’000 7,864 31,457 39,321	2010 HK$’000 1,965 – (1,291) 2,217 (65) 2010 HK$’000 7,864 17,039 24,903

The final dividend of HK10.0 cents in respect of the year ended 31 December 2011 (2010: final dividend of HK10.0 cents and special dividend of HK2.0 cents in respect of the year ended 31 December 2010) per share have been proposed by the directors and is subject to approval by the shareholders in general meeting.

– 102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. Earnings per share

From continuing and discontinued operations

The calculation of the basic and diluted earnings per share for continuing and discontinued operations for the year is based on the profit for the year attributable to owners of the Company from continuing and discontinued operations of approximately HK$100,581,000 (2010: HK$80,443,000) and on the 262,140,720 (2010: weighted average number of 261,036,553) ordinary shares in issued during the year.

The computation of diluted earnings per share for the year ended 31 December 2011 and 2010 does not assume the exercise of the Company’s outstanding warrants (2010: options) because the exercise prices of those warrants (2010: options) were higher than the average market price for the corresponding period.

From continuing operations

The calculation of the basic and diluted earnings per share for continuing operations for the year is based on the profit for the year attributable to owners of the Company from continuing operations of approximately HK$104,341,000 (2010: HK$84,944,000) and on the 262,140,720 (2010: weighted average number of 261,036,553) ordinary shares in issued during the year. The computation of diluted earnings per share for both years are the same as those detailed above.

From discontinued operation

Basic and diluted loss per share for discontinued operation is HK1.43 cents per share (2010: HK1.72 cents per share) based on the loss for the year attributable to owners of the Company from discontinued operation of approximately HK$3,760,000 (2010: HK$4,501,000) and on the 262,140,720 (2010: weighted average number of 261,036,553) ordinary shares in issued during the year. The computation of diluted loss per share for both years are the same as those detailed above.

– 103 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

16. Investment properties

FAIR VALUE At 1 January 2010 Additions Transferred to property, plant and equipment Net increase in fair value recognised in profit or loss Disposals At 31 December 2010 Net increase in fair value recognised in profit or loss At 31 December 2011	HK$’000 112,800 9,860 (4,700) 16,308 (7,068) 127,200 9,100 136,300

The fair values of the Group’s investment properties at 31 December 2011 and 2010 have been arrived at on the basis of a valuation carried out on that date by B.I. Appraisals Limited (“B.I.”), independent qualified professional valuers not connected with the Group. B.I. are members of the Institute of Valuers. The valuation was arrived at by reference to market evidence of transaction prices for similar properties in similar locations.

The investment properties are held under medium-term leases in Hong Kong and held for rental income under operating leases.

All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties.

– 104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Property, plant and equipment

COST OR VALUATION At 1 January 2010 Exchange realignment Additions Acquired on acquisition of a subsidiary (note 34) Transferred from investment properties Disposals At 31 December 2010 Exchange realignment Additions Disposals At 31 December 2011 Comprising: At cost At valuation – 1994 DEPRECIATION At 1 January 2010 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2010 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2011 CARRYING VALUES At 31 December 2011 At 31 December 2010	Leasehold land and buildings HK$’000 151,124 1,093 11,238 – 4,700 – 168,155 873 – (6,610) 162,418 117,068 45,350 162,418 35,635 26 3,889 – 39,550 75 4,134 (1,945) 41,814 120,604 128,605	Leasehold improve- ments HK$’000 14,545 213 380 – – – 15,138 314 2,402 (1,669) 16,185 16,185 – 16,185 9,297 61 1,430 – 10,788 159 1,383 (3) 12,327 3,858 4,350	Plant and machinery HK$’000 5,152 – 22 403 – – 5,577 330 1,390 (5,377) 1,920 1,920 – 1,920 1,084 – 493 – 1,577 70 597 (1,942) 302 1,618 4,000	Furniture and fixtures HK$’000 20,347 24 7,721 – – – 28,092 67 2,908 (336) 30,731 30,731 – 30,731 12,779 11 3,872 – 16,662 35 3,532 (147) 20,082 10,649 11,430	Office equipment HK$’000 22,766 10 3,106 65 – – 25,947 121 5,635 (1,010) 30,693 30,693 – 30,693 14,369 4 3,324 – 17,697 52 3,541 (366) 20,924 9,769 8,250	Motor vehicles and vessel HK$’000 14,810 25 2,219 – – (479) 16,575 38 6,298 (2,081) 20,830 20,830 – 20,830 13,043 12 1,054 (479) 13,630 20 1,415 (1,886) 13,179 7,651 2,945	Total HK$’000 228,744 1,365 24,686 468 4,700 (479)
							259,484 1,743 18,633 (17,083)
							262,777
							217,427 45,350
							262,777
							86,207 114 14,062 (479)
							99,904 411 14,602 (6,289)
							108,628
							154,149

							159,580

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Leasehold land and buildings Over the shorter of the term of the relevant lease, or 25 years Leasehold improvements Over the term of the relevant lease Others 5 years

The carrying values of leasehold land and buildings held by the Group at the end of the reporting period comprises:

Land and buildings in Hong Kong: Medium-term lease Land and buildings outside Hong Kong: Long lease	2011 HK$’000 62,244 58,360 120,604	2010 HK$’000 64,928 63,677
		128,605

All owner-occupied leasehold land is included in property, plant and equipment, as in the opinion of the directors, allocations between the land and buildings elements could not be made reliably.

18. Prepaid lease payments

The Group’s prepaid lease payments comprise leasehold land located in Mainland PRC held under medium-term lease.

Analysed for reporting purposes as: Non-current asset Current asset	2011 HK$’000 9,080 189 9,269	2010 HK$’000 8,650 177
		8,827

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. Goodwill

CARRYING VALUES At 1 January 2010 Arising on acquisition of a subsidiary At 31 December 2010 Arising on acquisition of a subsidiary Impairment loss in respect of goodwill At 31 December 2011	HK$’000 16,419 1,410
	17,829 3,973 (1,410)
	20,392

Goodwill acquired in business combinations was allocated, at acquisition, to the individual cash-generating units (“CGUs”) that are expected to benefit from that business combination. The carrying amount of goodwill was allocated as follows:

Distribution of sports products Distribution of electronic components and semiconductors products Development and production of light-emitting diode (“LED”) optoelectronics products	2011 HK$’000 1,369 19,023 – 20,392	2010 HK$’000 1,369 15,050 1,410
		17,829

The basis of the recoverable amounts of the CGUs and their major underlying assumptions are summarised below:

Distribution of sports products

The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period using zero (2010: zero) growth rate, and discount rate of 8% (2010: 8%). This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on the unit’s past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of this unit to exceed the aggregate recoverable amount of this unit.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Distribution of electronic components and semiconductors products

The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period with zero (2010: zero) growth rate applied in the first year of projection period and 7.5% (2010: 7.5%) growth rate to apply from the second year of projection period thereafter, and discount rate of 8% (2010: 7%). This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on the unit’s past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of this unit to exceed the aggregate recoverable amount of this unit.

Development and production of LED Optoelectronics products

The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period using zero (2010: 5%) growth rate, and discount rate of 7% (2010: 7%). This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on the unit’s past performance and management’s expectations for the market development.

During the year ended 31 December 2011, the Group recognised an impairment loss of HK$1,410,000 (2010: nil) in relation to goodwill to CGU in the development and production of LED Optoelectronics products.

20. Interests in associates

Cost of unlisted investments in associates Share of post-acquisition losses and other comprehensive expense	2011 HK$’000 1,450 (944) 506	2010 HK$’000 1,450 (775) 675

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2011 and 2010, the Group had interests in the following associates:

				Proportion of	Proportion of
	Form of	Place of		issued share
	business	incorporation/	Class of	capital held
Name of associate	structure	operations	shares held	by the Group		Principal activities
				2011	2010
				%	%
Bestime Technology	Incorporated	Hong Kong	Ordinary	30	30	Trading of electronic
Development Limited						products
Now Electron Inc.	Incorporated	Republic of	Ordinary	29	29	Trading of electronic
(“Now Electron”)		Korea				products
成都凌點科技有限公司	Incorporated	Mainland PRC	Ordinary	30	30	Provision of research and
						development services

Included in cost of investments in associates is goodwill of HK$117,000 (2010: HK$117,000) arising on acquisition of an associate. The movement of goodwill is set out below.

HK$’000

COST At 1 January 2010 Arising on acquisition of an associate At 31 December 2010 and 31 December 2011	– 117
	117

The summarised financial information in respect of the Group’s associates is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of associates Revenue Loss for the year Group’s share of loss of associates for the year	2011 HK$’000 1,700 (1,297) 403 389 3,133 (655) (185)	2010 HK$’000 2,464 (1,444
		1,020

		558

		4,532

		(520

		(152

– 109 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group has discontinued recognition of its share of losses of an associate. The amounts of unrecognised share of the associate, both for the year and cumulatively, are as follows:

Unrecognised share of losses of an associate for the year Accumulated unrecognised share of losses of an associate	2011 HK$’000 3 383	2010 HK$’000 –

		380

21. Interests in jointly controlled entities

As at 31 December 2011 and 2010, the Group had interests in the following jointly controlled entities:

				Proportion of	Proportion of
	Form of	Place of		issued share
Name of	business	incorporation/	Class of	capital held
jointly controlled entity	structure	operations	shares held	by the Group		Principal activity
				2011	2010
				%	%
Kitronix Limited	Incorporated	Hong Kong	Ordinary	35	35	Manufacturing of liquid
						crystal display modules
SPT Technology Limited	Incorporated	Hong Kong	Ordinary	55	–	Distribution of electronic
(“SPT Technology”)						products
(note)

Note: SPT Technology is a jointly controlled entity of the Group as the financial and operating policies requires over 50% approval form the board representatives, while the Group only has 50% of the board representatives in SPT Technology.

– 110 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The summarised financial information in respect of the Group’s interests in jointly controlled entities which is accounted for using proportionate consolidation with the line-byline reporting format is set out below:

Current assets Non-current assets Current liabilities Income recognised in profit or loss Expenses recognised in profit or loss Other comprehensive income 22. Available-for-sale investments Available-for-sale investments comprise: At fair value Investments in unlisted equity funds/club debenture (note) At cost Investments in unlisted equity securities in Hong Kong Investments in unlisted equity securities elsewhere Total Analysed for reporting purposes as: Non-current assets	2011 HK$’000 96,692 5,386 88,903 331,686 333,741 – 2011 HK$’000 7,573 6,000 339 13,912 13,912	2010 HK$’000 3,140
		8,359
		2,311
		10,604
		15,105
		–

		2010 HK$’000 11,036 6,000 –
		17,036

		17,036

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note: Included in the balance with an amount of HK$5,027,000 (2010: HK$8,739,000) represented an investment in unlisted equity fund which can be redeemed or purchased at the fund market value provided by the trustee of the fund. The fair value of the investment is determined by reference to the fund market value as at 31 December 2011 and 2010 provided by the trustee.

Included in Group’s available-for-sale investments with aggregate amount of HK$5,027,000 (2010: HK$8,739,000) denominated in USD which is other than the functional currency of the relevant group entities.

The above unlisted equity securities investments represent investments in equity securities issued by private entities which are measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

23. Club memberships

2011 & 2010 HK$’000 Club memberships outside Hong Kong, at cost 3,278

During the year, the club memberships were tested for impairment by comparing their carrying amounts with their recoverable amounts. The directors determined that no impairment loss was necessary and are of the opinion that the club memberships are worth at least their carrying amounts.

24. Bank balances and cash and pledged bank deposits

At 31 December 2011 and 2010, the pledged bank deposits represent amount pledged to banks to secure short-term banking facilities granted to the Group.

The bank balances and pledged bank deposits carry fixed interest at rates which range from 0.5% to 3% (2010: from 0.001% to 2.5%) per annum and variable interest at rates which range from 0.01% to 3% (2010: from 0.02% to 0.35%) per annum, respectively. The pledged bank deposits will be released upon the settlement of the relevant bank borrowings.

– 112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s bank balances and cash and pledged bank deposits that are denominated in currencies other than the functional currency of the relevant group entities are set out below:

2011 HK$’000 USD 297,732 RMB 3,394 301,126 25. Inventories 2011 HK$’000 Finished goods 397,045 26. Trade and other receivables and bills receivable 2011 HK$’000 Trade receivables 452,627 Less: allowance for doubtful debts (8,642) 443,985 Other receivables 23,870 Prepayment and deposits paid 11,665 Total trade and other receivables 479,520 Bills receivable 7,448	2010 HK$’000 223,456 1,153 224,609 2010 HK$’000 379,242 2010 HK$’000 409,835 (8,334) 401,501 20,955 13,183 435,639 22,556

The Group allows a credit period ranging from 30 days to 120 days to its trade customers.

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is an aged analysis of trade and bills receivable net of allowance for doubtful debts presented based on the due date at the end of the reporting period.

Current Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days	2011 HK$’000 355,921 77,549 7,820 2,547 7,596 451,433	2010 HK$’000 301,403 86,009 9,365 2,182 25,098
		424,057

Before accepting a new customer, the Group assesses the potential customer’s credit quality by investigating their historical credit record and then sets a credit limit for that customer. Limits attributed to customers are reviewed periodically. The majority of the trade receivables that are neither past due nor impaired have no history of defaults on payments.

Other receivables are unsecured, interest-free, repayable on demand and expected to be settled within twelve months from the reporting date.

Included in the Group’s trade receivable balance are debtors with aggregate carrying amount of HK$95,512,000 (2010: HK$122,654,000) which are past due as at the reporting date for which the Group has not provided for impairment loss as these debtors have good repayment history and there has not been a significant change in credit quality. The Group does not hold any collateral over these balances. The average age of these receivables is 58 days (2010: 66 days).

Ageing of trade receivables which are past due but not impaired

Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days Total	2011 HK$’000 77,549 7,820 2,547 7,596 95,512	2010 HK$’000 86,009 9,365 2,182 25,098
		122,654

– 114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group has provided fully for all receivables over 365 days because historical experience is such that receivables that are past due beyond 365 days are generally not recoverable.

Movement in the allowance for doubtful debts

1 January Impairment losses recognised on receivables Reversal of bad debt provision Amounts written off as uncollectible 31 December	2011 HK$’000 8,334 4,504 (84) (4,112) 8,642	2010 HK$’000 7,999 3,084 (2,479) (270)
		8,334

Included in the allowance for doubtful debts are individually impaired trade receivables with an aggregate balance of HK$8,642,000 (2010: HK$8,334,000) which have either been placed under liquidation or in severe financial difficulties. The Group does not hold any collateral over these balances.

The Group trade and other receivables and bills receivable that are denominated in currencies other than the functional currency of the relevant group entities are set out below:

USD RMB	2011 HK$’000 126,359 80 126,439	2010 HK$’000 231,398 5,016
		236,414

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. Financial assets at fair value through profit or loss

Investments held-for-trading: Equity securities listed in Hong Kong Unlisted equity funds/debentures (note) Financial assets designated at fair value through profit or loss: Structured deposits	2011 HK$’000 32,390 65,796 98,186 15,558 113,744	2010 HK$’000 22,773 19,337
		42,110 23,103
		65,213

Note: The amount represented unlisted equity funds/debentures which are quoted in an active market. The fair value of the investments is determined by reference to the quoted prices as at 31 December 2011 and 2010.

Included in financial assets designated at fair value through profit or loss are principal protected structured deposits of HK$15,558,000 (2010: HK$23,103,000) placed with one bank (2010: two banks). Under the relevant agreements, such structured deposits contains an embedded derivative in which its return is determined by reference to the changes in exchange rate of foreign currencies including Australia dollars, Canadian Dollar, Swiss France, Euro, British Pound, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona and USD. At 31 December 2010, the return for the other deposit of approximately HK$7,465,000 was determined by reference to the changes in quoted price of certain equity securities listed overseas, and was matured during the current year. The fair value is based on the mark to market valuation amount provided by the counterparty financial institution, which is based on discounted cash flow analysis taking into account of observable market data and unobservable inputs (see note 6(c) for details).

Included in Group’s financial assets at fair value through profit or loss are balances with aggregate amount of approximately HK$15,558,000 (2010: HK$23,103,000) denominated in USD, and HK$57,727,000 (2010: HK$11,256,000) denominated in RMB, which are other than the functional currency of the relevant group entities.

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Trade and other payables and bills payable

Trade payables Other payables Accruals and deposits received Total trade and other payables Bills payable	2011 HK$’000 404,212 29,823 26,673 460,708 59,125	2010 HK$’000 328,072 34,003 30,294
		392,369

		122,202

The average credit period on purchase of goods ranged from 30 days to 120 days.

Other payables are unsecured, interest-free and repayable on demand.

Included in Group’s trade and other payables and bills payable with aggregate amount of approximately HK$217,061,000 (2010: HK$176,772,000) denominated in USD which is other than the functional currency of the relevant group entities.

The following is an aged analysis of trade and bills payable presented based on the due date at the end of the reporting period.

Current Within 30 days More than 30 days and within 60 days More than 60 days and within 90 days More than 90 days	2011 HK$’000 392,992 53,504 14,521 251 2,069 463,337	2010 HK$’000 324,536 100,906 12,410 85 12,337
		450,274

– 117 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Derivative financial instruments

Fair value of derivatives not under hedge accounting: Foreign currency forward contracts – net settled Interest rate swap	LIABILITIES 2011 2010 HK$’000 HK$’000 2,515 213 6,261 6,108 8,776 6,321	LIABILITIES 2011 2010 HK$’000 HK$’000 2,515 213 6,261 6,108 8,776 6,321
		6,321

As at 31 December 2011, the Group has certain outstanding foreign exchange forward contracts with monthly net-settlement to which the Group is committed are as follows:

Notional amount	Maturity	Forward exchange rates
Twenty contracts to buy USD	Ranging from	HK$/USD ranging from
in total notional amount	13 January 2012 to	7.711 to 7.749
of USD58,330,000	4 September 2013

As at 31 December 2010, the Group had certain outstanding foreign exchange forward contracts with monthly net-settlement to which the Group was committed were as follows:

Notional amount	Maturity	Forward exchange rates
Eight contracts to buy USD	Ranging from	HK$/USD ranging from
in total notional amount	13 January 2012 to	7.725 to 7.749
of USD52,500,000	21 June 2012

The Group uses interest rate swap to swap a portion of the floating rate borrowings from floating rates to fixed rates of which hedge accounting is not applied. The interest rate swap is net-settled in each quarter. Major terms of the interest rate swap are set out below:

31 December 2011 and 2010

Notional amount	Maturity	Swap
HK$100,000,000	24 July 2014	HIBOR to 2.98%

– 118 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. Bank borrowings

Bank borrowings comprise: Bank import loans Other bank loans Analysed as: Secured Unsecured Carrying amount repayable*: – within one year – more than one year, but not exceeding two years – more than two years, but not exceeding five years Carrying amount of bank loans contain a repayment on demand clause are repayable as follows: – within one year – in the second year – in the third to fifth year inclusive – over five year Less: Amounts due within one year under current liabilities Amounts shown under non-current liabilities	2011 HK$’000 588,777 259,068 847,845 789,689 58,156 847,845 2011 HK$’000 6,250 6,250 5,000 17,500 795,056 13,569 19,917 1,803 830,345 847,845 (836,595) 11,250	2010 HK$’000 330,442 263,440 593,882 535,648 58,234 593,882 2010 HK$’000 6,250 6,250 11,250 23,750 522,438 12,816 32,274 2,604 570,132 593,882 (576,382) 17,500

The amounts due are based on scheduled repayment date set out in the loan agreements.

– 119 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2011, all of the bank borrowings bear interest at LIBOR plus a margin per annum or HIBOR plus a margin per annum with the average effective interest rate of 1.85% (2010: 1.40%).

Included in Group’s borrowings with aggregate amount of approximately HK$237,887,000 (2010: HK$215,604,000) denominated in USD which is other than the functional currency of the relevant group entities.

31. Share capital of the company

Ordinary shares of HK$0.10 each Authorised: At 1 January 2010, 31 December 2010 and 31 December 2011 Issued and fully paid: At 1 January 2010 Exercise of share options At 31 December 2010 and 31 December 2011 Non-redeemable convertible preference shares of HK$0.10 each Authorised: At 1 January 2010, 31 December 2010 and 31 December 2011 Issued and fully paid: At 1 January 2010, 31 December 2010 and 31 December 2011	Number of ordinary shares 1,454,000,000 259,490,720 2,650,000 262,140,720 Number of non-redeemable convertible preference shares 46,000,000 –	Amount HK$’000 145,400

		25,949 265
		26,214

		Amount HK$’000 4,600

		–

– 120 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Warrants

At 31 December 2011, the Company had outstanding 10,000,000 (2010: nil) warrants to be exercised at any time on or before 22 March 2012. Exercise in full of such warrants would result in the issue of approximately 10,000,000 (2010: nil) additional ordinary shares of HK$2.28 each. No warrants are exercised until the maturity date and all warrants are lapsed accordingly.

32. Share-based payment transactions

Pursuant to a resolution passed on 28 June 2002, the Company adopted a share option scheme (the “Scheme”) for recognition of past services contributed by, and giving incentives to the eligible directors and employees.

According to the Scheme, the board of directors (the “Board”) of the Company may at their discretion grant options to any director, executive and employee of each member of the Group to subscribe for shares in the Company for a consideration of HK$1 for each lot of share options granted. Share options granted should be accepted within 28 days from the date of grant. The Board may at its absolute discretion determine the period during which a share option may be exercised, such period should expire no later than 10 years from the date of grant. There is no minimum period that a grantee must hold an option before it can be exercised. The Board may also provide restrictions on the exercise of a share option during the period a share option may be exercised. The exercise price is determined by the Board of the Company, and shall be at least the highest of: (i) the closing price of the Company’s shares on the date of grant; (ii) the average closing price of the Company’s shares for the five business days immediately preceding the date of grant; and (iii) the nominal value of the share.

The maximum number of shares in respect of which options may be granted under the Scheme and any other share option schemes of the Company shall not exceed 10% (or such higher percentage as may be allowed under the Rule Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) of the total number of shares in issue as at the date of adoption of the Scheme.

The maximum number of shares issued and to be issued upon exercise of the options granted to each individual under the Scheme and any other share option schemes (including both exercised, cancelled and outstanding options) in any 12-month period shall not exceed 1% of the total number of shares in issue.

– 121 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table discloses movements of the Company’s share options held by a director and employees during the years ended 31 December 2010 and 2011:

Exercise price per Exercisable Date of grant share period Director: Lock Shui Cheung 3 July 2007 HK$1.50 3 July 2008 to 2 July 2010 Lock Shui Cheung 3 July 2007 HK$1.50 3 July 2009 to 2 July 2010 Employees 3 July 2007 HK$1.50 3 July 2008 to 2 July 2010 Employees 3 July 2007 HK$1.50 3 July 2009 to 2 July 2010	Options outstanding and exercisable as at 1 January 2010 – – 2,750,000 2,750,000 5,500,000	Options transferred during the year (note) 500,000 500,000 (500,000) (500,000) –	Options exercised during the year (500,000) (500,000) (825,000) (825,000) (2,650,000)	Options lapsed during the year – – (1,425,000) (1,425,000) (2,850,000)	Options outstanding and exercisable as at 31 December 2010 and 31 December 2011 – – – –
					–

Note: Options transferred upon appointment of Mr. Lock Shui Cheung as director of the Company during the year ended 31 December 2010.

The weighted market exercise price was HK$1.73 per share at dates of exercise.

33. Deferred taxation

The following are the major deferred tax liabilities (assets) recognised and movements thereon during the current and prior years:

At 1 January 2010 (Credit) charge to profit or loss At 31 December 2010 Acquisition of a subsidiary (note 34) (Credit) charge to profit or loss At 31 December 2011	Decelerated tax depreciation HK$’000 (417) (94) (511) – (169) (680)	Revaluation of properties HK$’000 10,515 2,692 13,207 – 1,502 14,709	Tax losses HK$’000 (2,607) (104) (2,711) – 613 (2,098)	Other deductible temporary differences HK$’000 (166) – (166) 106 (80) (140)	Total HK$’000 7,325 2,494
					9,819 106 1,866
					11,791

– 122 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 31 December 2011, the Group had unused tax losses of HK$94,803,000 (2010: HK$88,286,000) available for offset against future assessable profits. A deferred tax asset has been recognised in respect of HK$12,718,000 (2010: HK$16,434,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$82,085,000 (2010: HK$71,852,000) due to the unpredictability of future profit streams. The tax losses may be carried forward indefinitely.

At 31 December 2011, the Group had deductible temporary differences in relation to allowance for doubtful debts of HK$8,428,000 (2010: HK$9,833,000). A deferred tax asset has been recognised in respect of HK$850,000 (2010: HK$1,006,000) of such deductible temporary differences. No deferred tax asset has been recognised in respect of the remaining HK$7,578,000 (2010: HK$8,827,000) as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

34. Acquisition of a subsidiary

For the year ended 31 December 2011

In October 2011, the Group acquired 51% equity interest of Chenmtech Company Limited 全曄科技股份有限公司 (“Chenmtech”), a company engaged in distribution of electronic components products, for a cash consideration of HK$16,607,000, with the objective of business expansion. This acquisition has been accounted for using the acquisition method of accounting. The amount of goodwill arising as a result of this acquisition was HK$3,973,000. The acquisition-related costs are negligible.

Assets acquired and liabilities recognised at the date of acquisition are as follows:

Available-for-sale investments Inventories Trade and other receivables Pledged bank deposits Bank balances and cash Trade and other payables Tax liabilities Bank borrowings Deferred tax liabilities	HK$’000 339 9,251 53,469 3,964 2,134 (8,313) (1,043) (34,923) (106) 24,772

– 123 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair value of trade and other receivables at the date of acquisition amounted to approximately HK$53,469,000. The gross contractual amounts of those trade and other receivables acquired amounted to approximately HK$53,911,000 at the date of acquisition. The best estimate at acquisition date of the contractual cash flows not expected to be collected amounted to approximately HK$442,000.

Goodwill arising on acquisition: Consideration transferred Plus: non-controlling interests (49% in Chenmtech) Less: net assets acquired Goodwill arising on acquisition	HK$’000 16,607 12,138 (24,772) 3,973

The non-controlling interests (49%) in Chenmtech recognised at the acquisition date was measured by reference to the non-controlling interests’ share of recognised identifiable net assets of Chenmtech at the date of acquisition.

None of the goodwill on this acquisition is expected to be deductible for tax purposes.

Net cash outflow on acquisition of Chenmtech: Cash consideration paid Bank balances and cash acquired	HK$’000 (16,607) 2,134 (14,473)

Included in the profit for the year is HK$1,299,000 attributable to the additional business generated by Chenmtech. Revenue for the year includes HK$46,156,000 generated from Chenmtech.

Had the acquisition been completed on 1 January 2011, total group revenue for the year would have been HK$5,700,202,000, and profit for the year would have been HK$119,000,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2011, nor is it intended to be a projection of future results.

– 124 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The directors consider the goodwill arising on acquisition of Chenmtech was attributable to the anticipated profitability from the continue expansion of the Group’s business in distributing electronic components.

For the year ended 31 December 2010

In October 2010, the Group acquired 51% equity interest of LongFang Fordwin Optical & Electric Co. Ltd. (“Fordwin”), a company engaged in the development and production of LED optoelectronics products, for a cash consideration of HK$5,968,000, with the objective of product diversification. This acquisition has been accounted for using the acquisition method of accounting. The amount of goodwill arising as a result of this acquisition was HK$1,410,000. The acquisition-related costs were negligible.

Assets acquired and liabilities recognised at the date of acquisition were as follows:

Property, plant and equipment Inventories Other receivables Bank balances and cash Trade and other payables Goodwill arising on acquisition: Consideration transferred Plus: non-controlling interests (49% in Fordwin) Less: net assets acquired Goodwill arising on acquisition	HK$’000 468 801 211 8,332 (876) 8,936 5,968 4,378 (8,936) 1,410

The non-controlling interests (49%) in Fordwin recognised at the acquisition date was measured by reference to the non-controlling interests’ share of recognised identifiable net assets of Fordwin at the date of acquisition.

– 125 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

None of the goodwill on this acquisition was expected to be deductible for tax purposes.

Net cash inflow on acquisition of Fordwin: Cash consideration paid Bank balances and cash acquired	HK$’000 (5,968) 8,332 2,364

The subsidiary acquired did not have significant contribution to the Group’s revenue and results for the year ended 31 December 2010.

The directors considered the goodwill arising on acquisition of Fordwin was attributable to the anticipated profitability of the distribution of the Group’s new products and the anticipated future operating synergies from the combination.

35. Disposal of distribution rights

In October 2011, the Group disposed of distribution rights for products of National Semiconductor Manufacturing Hong Kong Limited (“NS”) pursuant to the distribution and other agreements signed with NS, along with customer assignments and business backlogs relating to the products of NS and product solutions and customers’ design registrations for products of NS (the “Disposed Rights”) to an independent third party at a cash consideration of HK$46,800,000. At the date of disposal, there is no carrying value of the Disposed Rights in the consolidated financial statements of the Group, and a gain of HK$46,800,000 is recognised in the current year.

The consideration was fully settled in cash in the current year.

36. Retirement benefits scheme

The Group participates in both a defined contribution retirement benefits scheme which is registered under the Occupational Retirement Scheme Ordinance (the “ORSO Scheme”) and a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Ordinance in December 2000. The assets of the schemes are held separately from those of the Group, in funds under the control of trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Scheme were offered a choice of staying within the ORSO Scheme, or switching to the MPF Scheme, whereas all new employees joining the Group on or after 1 December 2000 are required to join the MPF Scheme.

– 126 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The retirement benefits cost of the ORSO Scheme and MPF Scheme charged to profit or loss represents contributions payable to the funds by the Group at rates specified in the rules of the schemes. Where there are employees who leave the ORSO Scheme prior to vesting fully in the contributions, the contributions payable by the Group are reduced by the amount of forfeited contributions.

Under the ORSO Scheme and MPF Scheme, no forfeited contributions are available to reduce the contributions payable in the future years.

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

37. Pledge of assets

At 31 December 2011, the following assets of the Group were pledged to banks in order to secure general banking facilities granted by these banks to the Group:

(a) investment properties and leasehold land and buildings with carrying values of HK$131,471,000 (2010: HK$122,848,000) and HK$71,031,000 (2010: HK$73,646,000), respectively;
(b) bank deposits of HK$3,149,000 (2010: HK$19,634,000);
(c) trade receivables of HK$69,336,000 (2010: HK$111,931,000);
(d) structured deposits of HK$15,558,000 (2010: HK$23,103,000);
(e) investments held-for-trading of HK$25,229,000 (2010: HK$19,337,000).

– 127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. Operating lease

The Group as lessee

	2011	2010
	HK$’000	HK$’000
Minimum lease payments paid
under operating leases in respect of
rented premises	2,673	984

At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	2011 HK$’000 1,032 – 1,032	2010 HK$’000 912 480
		1,392

Operating lease payments represent rentals payable by the Group for certain of its office and warehouse. Leases are negotiated for lease terms of one to two years with fixed rental.

The Group as lessor

Property rental income earned during the year was HK$3,733,000 (2010: HK$4,057,000). The properties held have committed tenants for the next three (2010: one) years.

At the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	2011 HK$’000 4,376 5,578 9,954	2010 HK$’000 1,031 –
		1,031

– 128 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. Capital commitments

	2011	2010
	HK$’000	HK$’000
Capital expenditure in respect of the acquisition
of property, plant and equipment contracted
for but not provided in the consolidated
financial statements	9,672	–

40. Connected and related party transactions and balances

(I) Connected parties

During the year, the Group had significant transactions and balances with deemed connected parties pursuant to the Listing Rules. The significant transactions during the year and balances at the end of the reporting period with a substantial shareholder and its subsidiaries are as follows:

(a) Transactions Name of party Nature of transactions Hon Hai Precision Industry Co., Ltd. (“Hon Hai”) (note) and its subsidiaries Purchases of electronic products by the Group Sales of electronic products by the Group (b) Balances Name of party Nature of transactions Hon Hai and its subsidiaries Balance – trade receivables – trade payables	2011 HK$’000 517,724 459,802 2011 HK$’000 76,078 169,948	2010 HK$’000 247,898 555,275

		2010 HK$’000 121,676 131,250

Note: Hon Hai is a substantial shareholder of the Company, who held 17.55% (2010: 17.55%) of the issued share capital of the Company as at 31 December 2011.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(II) Related parties, other than connected parties

The significant transactions with related parties, other than connected parties, during the year, and significant balances with them at the end of the reporting period, are as follows:

(a) Transactions Name of party Nature of transactions Jointly controlled entity: SPT Technology Purchases of electronic products Sales of electronic products Associate: Now Electron Sales of electronic products (b) Balances Name of party Nature of transactions Jointly controlled entity: SPT Technology Balance – trade receivables – trade payables Associate: Now Electron Balance – trade receivables	2011 HK$’000 82,922 16,631 225 2011 HK$’000 764 5,351 –	2010 HK$’000 – – 3,444

		2010 HK$’000 – – 284

The directors are the key management personnel of the Company and their compensation for both years is set out in note 9.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

41. Statement of financial position of the company

A summary of the statement of financial position of the Company at 31 December 2011 and 31 December 2010 are as follows:

Assets Investments in subsidiaries Amounts due from subsidiaries Other assets Liabilities Amounts due to subsidiaries Other payables Net assets Capital and reserves Share capital Share premium and reserves (note) Total equity	2011 HK$’000 92,577 242,451 926 335,954 121,758 657 122,415 213,539 26,214 187,325 213,539	2010 HK$’000 92,577 257,114 924
		350,615
		146,995 673
		147,668
		202,947
		26,214 176,733
		202,947

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note:

At 1 January 2010 Loss and total comprehensive expense for the year Issue of shares upon the exercise of share options Release of share option reserve on exercise of share options Share options lapsed Dividends recognised as distribution At 31 December 2010 Profit and total comprehensive income for the year Dividends recognised as distribution At 31 December 2011	Share premium HK$’000 29,298 – 3,710 502 – – 33,510 – – 33,510	Capital redemption reserve HK$’000 1,109 – – – – – 1,109 – – 1,109	Contri- buted surplus HK$’000 130,699 – – – – (24,903) 105,796 – – 105,796	Share options reserve HK$’000 1,147 – – (502) (645) – – – – –	Retained profits HK$’000 35,716 (43) – – 645 – 36,318 49,913 (39,321) 46,910	Total HK$’000 197,969 (43) 3,710 – – (24,903)
						176,733 49,913 (39,321)
						187,325

42. Particulars of principal subsidiaries

Particulars of the Company’s principal subsidiaries at 31 December 2011 and 31 December 2010 are as follows:

		Nominal
		value of issued	Proportion
	Place of	and paid up		of issued
	incorporation/	share capital/	share capital
Name of subsidiary	operations	registered capital	held by the Company			Principal activities
			2011		2010
			%		%
Dragon Trading Limited	British Virgin Islands	Ordinary	100		100	Investment holding
		US$40,000
HAS Electronic	Hong Kong	Ordinary	100		100	Distribution of electronic
Company Limited		HK$1,000,000				products
Hi-Level Technology Limited	Hong Kong	Ordinary	51		51	Distribution of electronic
		HK$25,000,000				products

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Nominal
		value of issued	Proportion
	Place of	and paid up		of issued
	incorporation/	share capital/	share capital
Name of subsidiary	operations	registered capital	held by the Company			Principal activities
			2011		2010
			%		%
RSL Microelectronics	Hong Kong	Ordinary	100		100	Distribution of electronic
Company Limited		HK$500,000				products
S.A.S. Electronic	Hong Kong	Ordinary	100		100	Distribution of electronic
Company Limited		HK$1,000,000				products
S.A.S. Enterprises	Hong Kong	Ordinary	100		100	Distribution of electronic
Company Limited		HK$100				products
		Non-voting	100		100
		deferred*
		HK$1,000,000
S.A.S. Investment	Hong Kong	Ordinary	100		100	Property and investment
Company Limited		HK$100				holding
		Non-voting	100		100
		deferred*
		HK$1,000,000
S.A.S. Lighting	Hong Kong	Ordinary	100		100	Distribution of LED
Company Limited		HK$2				lighting products
S.A.S. Systems	Hong Kong	Ordinary	100		100	Distribution of system
Company Limited		HK$10,000				solutions
SMartech Electronic	Hong Kong	Ordinary	70		70	Distribution of electronic
Company Limited		HK$1,000,000				products
Sportline Limited	Hong Kong	Ordinary	100		100	Distribution of sports
		HK$200,000				products
時捷電子科技（深圳）	Mainland PRC	Registered capital	100		100	Distribution of electronic
有限公司**		HK$20,000,000				products

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Nominal
		value of issued	Proportion
	Place of	and paid up	of issued
	incorporation/	share capital/	share capital
Name of subsidiary	operations	registered capital	held by the Company		Principal activities
			2011	2010
			%	%
LangFang Fordwin Optical	Mainland PRC	Registered capital	51	51	Development and
& Electric Company		RMB10,000,000			production of LED
Limited**					optoelectronics
					products
Chenmtech Company Limited	Taiwan	Registered capital	51	–	Distribution of electronic
全曄科技股份有限公司		TWD70,000,000			products

The non-voting deferred shares practically carry no rights to dividends or to receive notice of or to attend or vote at any general meetings of the company or to participate in any distribution on winding up.
** Foreign wholly-owned enterprise

With the exception of Dragon Trading Limited and S.A.S. Investment Company Limited, all the subsidiaries are indirectly held by the Company.

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

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

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APPENDIX I

3. NO MATERIAL CHANGE

The Directors confirm that there has been no material change in the financial or trading position or outlook of the Group since 31 December 2011, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

4. INDEBTEDNESS

As at 30 April 2012, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding bank borrowings of approximately HK$594,010,000. The borrowings comprised secured guaranteed bank loan of approximately HK$536,163,000 and unsecured guaranteed bank loans of approximately HK$57,847,000. The secured bank borrowings were secured by certain assets of the Group (including investment properties, leasehold land and buildings, bank deposits, trade receivables and financial assets at fair value through profit or loss) with an aggregate carrying value of approximately HK$306 million as at 30 April 2012.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Takeovers Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Subscriber) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the Subscriber) in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The directors of the Subscriber (namely, Mr. Yim and Ms. Tsui Yuk Shan) accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed (other than those expressed by the Group) in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

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APPENDIX II

2. SHARE CAPITAL

(a) Share capital

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date; and (ii) assuming completion of the Warrant Subscription Agreement and immediately following the exercise in full of the subscription rights attaching to the Warrants was/will be as follows:

(i) As at the Latest Practicable Date:

Authorised HK$ 1,454,000,000 Shares 145,400,000.00 Issued and fully paid 262,140,720 Shares 26,214,072.00

(ii) Assuming completion of the Warrant Subscription Agreement and immediately following the exercise in full of the subscription rights attaching to the Warrants (which would result in an aggregate of 50,000,000 new Shares being allotted and issued):

Authorised HK$ 1,454,000,000 Shares 145,400,000.00 Issued and fully paid 262,140,720 Shares 26,214,072.00 50,000,000 Shares 5,000,000.00 312,140,720 Shares 31,214,072.00

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GENERAL INFORMATION

APPENDIX II

All the existing Shares in issue are listed on the Stock Exchange and rank pari passu in all respects with each other including rights to dividends, voting and return of capital.

When issued and fully paid, the Warrant Shares will rank pari passu in all respects with the Shares then in issue. Holders of the fully-paid Warrant Shares will be entitled to receive all dividends and distributions which are declared, made or paid after the date of allotment of the Warrant Shares in their fully-paid form.

Since 31 December 2011 (the date to which the latest published audited financial statements of the Company were made up), the Company has not issued any new Shares nor agreed to issue any new Shares (other than under the Warrant Subscription Agreement).

(b) Share options and convertible securities

As at the Latest Practicable Date, the Company had not granted any options, warrants or other rights to call for the issue of or agreed to issue any share or loan capital or any instrument convertible into or exchangeable for shares of such capital, and the Company is not a party to or otherwise bound by any agreement for the purchase or repurchase of Shares.

3. MARKET PRICE

The table below shows the closing price per Share as quoted by the Stock Exchange (i) on the last day on which trading took place in each of the six calendar months during the period commencing six months preceding the commencement of the offer period, ie., 23 May 2012 and ending on the Latest Practicable Date; (ii) 23 May 2012, being the Last Trading Day; and (iii) as at the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
30 November 2011	1.57
30 December 2011	1.60
31 January 2012	1.60
29 February 2012	1.62
30 March 2012	1.63
30 April 2012	1.64
23 May 2012	1.56
Latest Practicable Date	1.83

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GENERAL INFORMATION

APPENDIX II

The highest and lowest closing prices per Share recorded on the Stock Exchange during the period between 28 November 2011 (being the date falling six months prior to 28 May 2012, the date of the Announcement) and ending on the Latest Practicable Date (both dates inclusive) are HK$1.93 on 21 June 2012 and 26 June 2012 and HK$1.50 on 28 December, 29 December 2011, 9 January, 10 January, 11 January, 12 January, and 29 March 2012 respectively.

4. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

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

Name of Director Nature of interest Long position/ Short position Yim Yuk Lun, StanleyJP Beneficial owner Long Held by controlled corporation (Note 1) Long Chang Chu Cheng Beneficial owner Long Lock Shui Cheung Beneficial owner Long Wong Sui Chuen Beneficial owner Long Lau Ping Cheung Beneficial owner Long	Number of ordinary shares of the Company held 13,990,000 63,771,400 77,761,400 1,800,000 1,000,000 912,000 300,000	Approximate percentage of the issued ordinary share capital of the Company 5.33% 24.33%
		29.66%

		0.69% 0.38% 0.35% 0.11%

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APPENDIX II

Note:

These shares are held by the Unimicro Limited, a company incorporated in BVI, which is beneficially owned by Mr. Yim Yuk Lun, Stanley JP.

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

(b) Substantial Shareholders’ interests and short position and those whose interest is discloseable under Division 2 and 3 of Part XV of the SFO.

So far as is known to each Director or the chief executive of the Company, as at the Latest Practicable Date, the following persons (other than the Directors as disclosed above) or corporations had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group and the amount of each of such person’s/corporate’s interest in such securities, together with particulars of any options in respect of such capital, were as follows:

				Approximate
				percentage of
			Number of	the issued
			ordinary	ordinary share
		Long position/	shares of the	capital of
Name	Capacity	Short position	Company held	the Company
Unimicro Limited (Note 1)	Beneficial owner	Long	63,771,400	24.33%
Foxconn Holdings Ltd.	Beneficial owner	Long	46,000,000	17.55%
(“Foxconn”)
(Note 2)
Chung Shun Ming	Beneficial owner	Long	27,343,400	10.43%
(“Mr. Chung”)
(Note 3)

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APPENDIX II

Note:

Unimicro Limited is wholly owned by Mr. Yim Yuk Lun, Stanley JP, the Chairman, Managing Director and Executive Director of the Company.
Foxconn, an investment holding company incorporated in BVI, is wholly owned by Hon Hai Precision Industry Co. Ltd., a company listed in Taiwan Stock Exchange (Stock Code: 2317), being the world’s leading computer, communication, consumer electronics manufacturing services provider. Accordingly Hon Hai Precision Industry Co. Ltd. is deemed to be interested in those ordinary shares of the Company beneficially owned by Foxconn. Foxconn is independent of and not connected with the Subscriber and Mr. Yim (as defined in the Listing Rules) nor a concert party of the Subscriber and Mr. Yim (as defined in the Takeover Codes).
Mr. Chung is one of the directors and shareholders of Kitronix Limited, a joint venture held by the Company. Kitronix Limited was held by S.A.S. Investment Co. Ltd, a wholly owned subsidiary of the Company, Mr. Chung and 4 other shareholders respectively in the percentages of 35%, 15% and 50%. S.A.S. Investment Co. Ltd has appointed two directors to the board of directors of Kitronix Limited. Mr. Yim is one of them. Kitronix Limited discontinued operation and had no turnover in 2011. Save as disclosed, Mr. Chung is independent of and not connected with the Subscriber, Mr. Yim (as defined in the Listing Rules) and the other 4 shareholders nor a concert party of any of them (as defined in the Takeover Codes).

Save as disclosed above, the Directors and the chief executive of the Company were not aware that there was any person other than a director or chief executive of the Company who, as at the Latest Practicable Date, had an interest or short position in the shares or underlying shares in the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group. Save that Mr. Yim is one of the director of Unimicro Limited, none of the director is a director or employee of a company which has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 of Part XV of the SFO.

5. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contracts with the Company or any member of the Group which:

(a) (including continuous and fixed term contracts) have been entered into or amended within six months before the date of the Announcement (that is, 28 May 2012);
(b) are continuous contracts with a notice period of 12 months or more;

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GENERAL INFORMATION

APPENDIX II

(c) are fixed term contracts with more than 12 months to run irrespective of the notice period; or
(d) are not determinable by any member of the Group within one year without payment of compensation (other than statutory compensation).

6. OTHER INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date:

(a) none of the Directors had any direct or indirect interest in any assets which have, since 31 December 2011, being the date of the latest published audited consolidated financial statements of the Group were made up, been acquired or disposed of by, or leased to, or are proposed to be acquired or disposed of by, or leased to any member of the Group;
(b) none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which contract or arrangement is subsisting as at the date of this circular and which is significant in relation to the business of the Group as a whole; and
(c) save for the Warrant Subscription Agreement there was no material contract entered into by the Subscriber in which any Director had a material personal interest.

7. OTHER DISCLOSURE OF INTERESTS AND DEALINGS IN SECURITIES OF THE COMPANY

A. Interests in the Company held by and dealings in securities of the Company by the Subscriber

(a) The Subscriber did not deal for value in any Relevant Securities during the Relevant Period.
(b) The Subscriber, which is solely and beneficially owned by Mr. Yim (a Director), is a substantial shareholder of the Company. The Subscriber and parties acting in concert with it (including Mr. Yim) is or is deemed to be beneficially interested in a total of 77,761,400 Shares, representing approximately 29.66% of the issued share capital of the Company, as at the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX II

(c) Save as disclosed in the section headed “Effect on the shareholding structure” in the Letter from the Board in this circular and the section headed “Disclosure of Interests” in this Appendix to this circular, as at the Latest Practicable Date, none of the Subscriber, its ultimate beneficial owner and parties acting in concert with them and its directors was beneficially interested in, directly or indirectly, any Relevant Securities. Save as the entry of the Warrant Subscription Agreement, none of the Subscriber, its ultimate beneficial owner and parities acting in concert with them had dealt for value in the Relevant Securities during the Relevant Period.

B. Interests in the Company held by and dealings in securities of the Company by the Director and others

(a) Save as disclosed in the section headed “Effect on the shareholding structure” in the Letter from the Board in this circular and the section headed “Disclosure of Interests” in this Appendix to this circular, as at the Latest Practicable Date, none of the Directors was beneficially interested in, directly or indirectly, any Relevant Securities. Mr. Lau Ping Cheung, the executive Director, purchased 230,000 Shares at the average price of HK$1.88 and 70,000 Shares at the average price of HK$1.93 on 21 June 2012 and 22 June 2012 respectively. Save as disclosed, none of the Directors had dealt for value in the Relevant Securities during the Relevant Period.
(b) As at the Latest Practicable Date, none of (i) the subsidiaries of the Company; (ii) the pension fund of the Company or any of its subsidiaries; and (iii) nor any adviser to the Company (as specified in class (2) of the definition of “associate” under the Takeovers Code), had any interest in the Relevant Securities of the Company and/or had dealt for value in the Relevant Securities of the Company during the Relevant Period.
(c) As at the Latest Practicable Date, no Relevant Securities of the Company were managed on a discretionary basis by any fund managers connected with the Company, nor had any such fund managers dealt for value in any Relevant Securities of the Company during the Relevant Period.
(d) As at the Latest Practicable Date, Mr. Yim, Mr. Wong Sui Chuen, Mr. Lock Shui Cheung, Mr. Lau Ping Cheung and Dr. Chang Chu Cheng shall abstain from voting on resolutions approving the SGM Matter pursuant to the Takeover Code. Save as disclosed, no other Directors hold any Shares as at Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX II

C. Interests in the Subscriber held by and dealings in securities of the Subscriber by the Company and the Directors
(a) As at the Latest Practicable Date, the Company did not have any interest in the Relevant Securities of the Subscriber and had no dealings in the Relevant Securities of the Subscriber during the Relevant Period.
(b) As at the Latest Practicable Date, none of the Directors had any interest in the Relevant Securities of the Subscriber or had any dealings in the Relevant Securities of the Subscriber during the Relevant Period.
(c) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code (being an arrangement involving rights over shares, any indemnity arrangement, and any agreement or understanding, formal or informal, of whatever nature, relating to Relevant Securities which may be an inducement to deal or refrain from dealing) with any of the Subscriber or its concert parties.

D. Arrangement in connection with the Warrant Subscription and the Whitewash Waiver

(a) As at the Latest Practicable Date, no person had irrevocably committed themselves to vote for or against the resolutions to be proposed at the SGM to approve the Warrant Subscription and the Whitewash Waiver.
(b) As at the Latest Practicable Date, no arrangement of the kind referred to in the third paragraph of Note 8 to Rule 22 of the Takeovers Code exists between the Subscriber or any parties acting in concert with it, and any other person.
(c) As at the Latest Practicable Date no agreement, arrangement or understanding (including any compensation arrangement) exists between (i) the Subscriber or any of the parties acting in concert with it; and (ii) any Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Warrant Subscription and the Whitewash Waiver.
(d) As at the Latest Practicable Date, no benefit will be or has been given to any Director as compensation for loss of office or otherwise in any members of the Group in connection with the Warrant Subscription and/or the Whitewash Waiver.

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GENERAL INFORMATION

APPENDIX II

(e) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code nor had such persons dealt for value in any Relevant Securities of the Company during the Relevant Period.
(f) No Shares acquired by the Subscriber or parties acting in concert with it in pursuance of the Warrant Subscription will be transferred, charged or pledged to any other persons.
(g) As at the Latest Practicable Date, save for the Warrant Subscription Agreement, there was no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Warrant Subscription, the Whitewash Waiver or otherwise connected with the Warrant Subscription or the Whitewash Wavier.
(h) As at the Latest Practicable Date, there was no shareholding in the Company which the Subscriber or parties acting in concert with it has borrowed or lent, and there was no dealings in the Shares or other securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Company by person which the Subscriber or parties acting in concert with it has borrowed or lent the Shares or other securities (as defined under Note 4 to Rule 22 of the Takeovers Code) in the Company during the Relevant Period.
(i) As at the Latest Practicable Date, there was no shareholding in the Company which the Company or the Directors has/have borrowed or lent, and there was no dealings in the Shares or other securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Company by person which the Company or the Directors has/have borrowed or lent the Shares or other securities (as defined under Note 4 to Rule 22 of the Takeovers Code) in the Company during the Relevant Period.
(j) As at the Latest Practicable Date, no material contract was entered into by the Subscriber and/or parties acting in concert with it in which any Director had a material personal interest.

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APPENDIX II

8. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates had any interests in a business which competes or may compete, either directly or indirectly, with the business of the Group or any other conflicts of interests with the Group.

9. LITIGATION

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

10. MATERIAL CHANGE

As at the Latest Practicable Date, there has been no material change in the financial or trading position or outlook of the Company since 31 December 2011, being the date to which the latest published audited financial statements of the Company were made up.

11. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in ordinary course of business of the Group, have been entered into by the members of the Group within two years before the commencement of the offer period, ie. 23 May 2012 and are, or maybe, material:

(a) the placing agreement dated 10 March 2011 entered into between UOB KAY HIAN (HONG KONG) LIMITED as the placing agent and the Company as the issuer in relation to the placing up to 10,000,000 non-listed warrants at HK$0.02 to J.P. Morgan Securities Limited and Ajia Partners Asset Management, both of which and their respective ultimate beneficial owners are Independent Third Party. As at the Latest Practicable Date, all the outstanding warrants have expired;
(b) the sale and purchase agreement dated 25 August 2011 entered into between Serial Microelectronics (HK) Limited as purchaser and RSL Microelectronics Company Limited, the wholly-owned subsidiary of the Company as vendor, in relation to the sale of the business of distributing products of National Semiconductor Manufacturing Hong Kong Limited (“ NS ”) pursuant to the distribution and other agreements signed with NS, customer assignments and business backlogs relating to the products of NS and product solutions and customers’ design registrations for products of NS both completed and in progress at the consideration of USD6,000,000;

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GENERAL INFORMATION

APPENDIX II

(c) the subscription agreement dated 3 January 2012 entered into between Luen Fat Securities Co. Ltd. as the placing agent and the Company as the subscriber in relation to the subscription of 25,000,000 shares of PC Partner Group Limited, a company listed on the Main Board of the Stock Exchange (Stock Code: 1263), representing approximately 5.99% of the issued capital of PC Partner Group Limited, at the consideration of HK$40,000,000.00. The subscription has already completed; and
(d) the Warrant Subscription Agreement.

12. EXPERT’S QUALIFICATION AND CONSENT

The following are the qualifications of the expert who has given its opinions and advice which are included in this circular:

Name

Qualification

Guangdong Securities

a licensed corporation to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities as defined under the SFO

Guangdong Securities has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or opinion (as the case may be) and all references to its name in the form and context in which they appear.

As at the Latest Practicable Date, Guangdong Securities was not beneficially interested in the share capital of any member of the Group nor did it has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it has any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Group were made up (that is, 31 December 2011), acquired, disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX II

13. CORPORATE AND OTHER INFORMATION

(a) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
(b) The head office and principal place of business of the Company in Hong Kong is located at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong.
(c) The company secretary of the Company is Mr. Wong Wai Tai, a certified Public Accountant of the Hong Kong Institute of Certified Public Accountants.
(d) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Secretaries Ltd, whose address is 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The address of Guangdong Securities is at Units 2505-06, 25/F., Low Block of Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong.
(f) The registered office of Unimicro Limited is located at P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. The correspondence address of Unimicro Limited is Duplex 9A, Cambridge Road, Kowloon Tong, Kowloon, Hong Kong.
(g) The address of Mr. Yim is at Duplex 9A, Cambridge Road, Kowloon Tong, Kowloon, Hong Kong.
(h) As at the Latest Practicable Date, the Board comprises four executive directors are Mr. Yim Yuk Lun, Stanley JP, Mr. Wong Sui Chuen, Mr. Lock Shui Cheung and Mr. Lau Ping Cheung, one non-executive director is Dr. Chang Chu Cheng and four independent non-executive directors are Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah SBS JP and Mr. Wong Tak Yuen, Adrian.
(i) As at the Latest Practicable Date, the directors of the Subscriber is Mr. Yim and Ms. Tsui Yuk Shan.

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GENERAL INFORMATION

APPENDIX II

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:30 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the principal place of business of the Company in Hong Kong at 6th Floor, Tower B, Hunghom Commercial Centre, 37 Ma Tau Wai Road, Hunghom, Kowloon, Hong Kong, up to and including the dated of the SGM:

(a) this circular;
(b) the memorandum of association and the bye-laws of the Company;
(c) the memorandum of association and the bye-laws of the Subscriber;
(d) the annual reports of the Company for each of the two financial years ended 31 December 2011;
(e) the material contracts as referred to in the paragraph headed “Material Contracts” in this Appendix;
(f) the letter from the Board, the text of which is set out on pages 7 to 23 of this circular;
(g) the letter from the IBC, the texts of which are set out on pages 24 to 25 of this circular;
(h) the letter of advice from Guangdong Securities to the IBC and the Independent Shareholders, the text of which are set out on pages 26 to 43 of this circular; and
(i) the written consent referred to in the paragraph headed “Expert’s qualification and consent” in this appendix.

The above documents (except this circular) will be uploaded at the website of the SFC at www.sfc.hk and the Company’s website at www.sasdragon.com.hk/eng.htm?page=circulars from the date of this circular up to (and including) the date of the SGM in accordance with Notes 1 and 2 to rule 8 of the Takeovers Code.

15. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in case of inconsistency.

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NOTICE OF THE SGM

S.A.S. Dragon Holdings Limited

(Incorporated in Bermuda with limited liability)

(Stock Code: 1184)

NOTICE OF THE SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a Special General Meeting of S.A.S. Dragon Holdings Limited (“ Company ” together with its subsidiaries, the “ Group ”) will be held at 28/F., Noble Centre, No. 1006, 3rd Fuzhong Road, Futian District, Shenzhen, P.R.C. on 27 July 2012 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions which will be proposed as an ordinary resolutions:

ORDINARY RESOLUTION

“ THAT :
(a) the connected transaction constituted by the entering into of the conditional subscription agreement dated 23 May 2012 (the “ Warrant Subscription Agreement ”, a copy of which has been produced to this meeting marked “A” and initialed by the chairman of this meeting for the purpose of identification) between Unimicro Limited (the “ Subscriber ”) as subscriber and S.A.S. Dragon Holdings Limited (the “ Company ”) as issuer in relation to the subscription of 50,000,000 non-listed warrants (the “ Warrants ”) to be issued by the Company at the subscription price of HK$0.01 per Warrant subject to and upon other terms and conditions contained in the Agreement together with the transactions contemplated thereunder and all other matters thereof and incidental thereto or in connection therewith including (without limitation) the creation and issue of the Warrants by the Company conferring rights to subscribe for new ordinary shares (each a “ Share ”) of par value of HK$0.10 each in the capital of the Company exercisable at any time within 24 months commencing from the date of the issue of the Warrants (that is, the date of completion of the Agreement) at an initial exercise price of HK$1.80 per Share, subject to adjustment and to the terms and conditions set out in the warrants instrument (the “ Warrants Instrument ”) (a draft of which has been produced to this meeting marked “B”

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NOTICE OF THE SGM

initialed by the chairman of this meeting for the purpose of identification) and the allotment and issuance of such Shares (the “ Warrant Shares ”) under the general mandate granted to the Directors by a resolution of the Shareholders passed at the annual general meeting of the Company held on 16 May 2012 (the “ General Mandate ”) upon exercise of the subscription rights attaching to the Warrants subject to and upon the terms and conditions set out in the Warrants Instrument be and they are hereby generally and unconditionally approved in all respects and that the Warrant Shares shall, when allotted, issued and fully paid, rank pari passu in all respects with all other Shares in issue at the date of such allotment and issue;

(b) the Directors (or a duly authorised committee thereof) be and they are hereby generally and unconditionally authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of the Directors (or a duly authorised committee thereof), may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Warrant Subscription Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of the Directors (or a duly authorised committee thereof), in the interests of the Company.”
“ THAT , subject to the passing of resolution numbered 1 above and the Executive Director (or any delegate of the Executive Director) of the Corporate Finance Division of the Securities and Futures Commission (the “ Executive ”) granting to Unimicro Limited (the “ Subscriber ”) and parties acting in concert with it (including Mr. Yim Yuk Lun, Stanley (“ Mr. Yim ”)) the waiver (the “ Whitewash Waiver ”) pursuant to Note 1 to the Notes on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers (the “ Takeovers Code ”) waiving any obligation on the part of the Subscriber and parties acting in concert with it (including Mr. Yim) to make a mandatory general offer for all the securities of the Company not already owned or agreed to be acquired by the Subscriber and parties acting in concert with it (including Mr. Yim) which would otherwise arise under Rule 26.1 of the Takeovers Code in the event that (i) upon exercise of the subscription rights attaching to all or some of the Warrants which leads to an increase in the shareholding of the Subscriber and parties acting in concert with it (including Mr. Yim) by 2% or more in any 12-month period; or (ii) the shareholding of the Subscriber and parties acting in concert with it (including Mr. Yim) falls below 30% as a result of the allotment and issue of new ordinary shares of HK$0.10 each in the capital of the Company; and (iii) upon

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NOTICE OF THE SGM

exercise of the subscription rights attaching to all or some of the Warrants by the Subscriber and parties acting in concert with it (including Mr. Yim) which leads to the Subscriber and parties acting in concert with it (including Mr. Yim) holding shares representing more than 30% and the satisfaction of any condition(s) attached to the Whitewash Waiver as may be imposed by the Executive, the Whitewash Waiver be and is hereby approved.”

By Order of the Board S.A.S. Dragon Holdings Limited Wong Sui Chuen Director

Hong Kong, 3 July 2012

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head Office and Principal Place of Business in Hong Kong: 6th Floor, Tower B Hunghom Commercial Centre 37 Ma Tau Wai Road Hunghom, Kowloon Hong Kong

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NOTICE OF THE SGM

Notes:

Every shareholder 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 shareholder of the Company.
A form of proxy for use at the above meeting is enclosed herewith.
Where there are joint registered holders of any shares of the Company, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such shares as if he was solely entitled thereto provided that if more than one of such joint holders be present at the meeting personally or by proxy that one of the said persons so present whose name stands first on the register of shareholders in respect of such shares shall alone be entitled to vote in respect thereof.
In order to be valid, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof, must be deposited with the Company’s branch registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Ltd, at 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting thereof.

As at the date of this notice, the Board comprises four executive directors are Mr. Yim Yuk Lun, Stanley JP, Mr. Wong Sui Chuen, Mr. Lock Shui Cheung and Mr. Lau Ping Cheung, one nonexecutive director is Dr. Chang Chu Cheng and four independent non-executive directors are Mr. Cheung Chi Kwan, Mr. Liu Chun Ning, Wilfred, Dr. Lui Ming Wah SBS JP and Mr. Wong Tak Yuen, Adrian.

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AI assistant

S.A.S. Dragon Holdings Limited — Proxy Solicitation & Information Statement 2012

49752_rns_2012-07-02_5f3261ff-dfce-47ef-b9ee-d158d5508b3e.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

S.A.S. Dragon Holdings Limited

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER AND NOTICE OF SGM

Independent Financial Adviser to the IBC and the Independent Shareholders

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

S.A.S. Dragon Holdings Limited

(Stock Code: 1184)

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER AND NOTICE OF SGM

INTRODUCTION

LETTER FROM THE BOARD

THE WARRANT SUBSCRIPTION AGREEMENT

Date

Issuer

Subscriber

LETTER FROM THE BOARD

Conditions of the Warrant Subscription

The Completion Date of the Warrant Subscription

LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE WARRANTS

Number of Warrants

Warrant Subscription Price

Warrant Exercise Price and Right

LETTER FROM THE BOARD

Adjustment to Warrant Exercise Price

Ranking of the Warrants

Exercise period

LETTER FROM THE BOARD

Ranking of the Warrant Shares

Number of Warrant Shares issuable upon full exercise of the subscription rights attached to the Warrants

Mandate to issue the Warrant Shares

Transferability of the Warrants

Voting rights for the holders of the Warrants

LETTER FROM THE BOARD

Rights of the holders of the Warrants on the liquidation of the Company

Application for listing

REASONS FOR THE WARRANT SUBSCRIPTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

USE OF PROCEEDS

EFFECT ON THE SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

ISSUE OF WARRANTS

LETTER FROM THE BOARD

IMPLICATION OF THE LISTING RULES

TAKEOVERS CODE IMPLICATIONS

LETTER FROM THE BOARD

FUND RAISING ACTIVITY IN THE PAST TWELVE-MONTH PERIOD

GENERAL

LETTER FROM THE BOARD

SGM

LETTER FROM THE BOARD

RECOMMENDATIONS

FURTHER INFORMATION

S.A.S. Dragon Holdings Limited Wong Sui Chuen

LETTER FROM THE IBC

S.A.S. Dragon Holdings Limited

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER

LETTER FROM THE IBC

LETTER FROM GUANGDONG SECURITIES

CONNECTED TRANSACTION SUBSCRIPTION OF NON-LISTED WARRANTS APPLICATION FOR THE GRANTING OF WHITEWASH WAIVER

INTRODUCTION

The Warrant Subscription

LETTER FROM GUANGDONG SECURITIES

The Whitewash Waiver

LETTER FROM GUANGDONG SECURITIES

BASIS OF OUR OPINION

LETTER FROM GUANGDONG SECURITIES

S.A.S. Dragon Holdings Limited Proxy Solicitation & Information Statement 2012