Shui On Land Limited - Proxy Solicitation & Information Statement 2007

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 you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Shui On Land Limited, you should at once hand this Circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(Stock code: 272)

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

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

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* for identification purposes only

28 September 2007

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Details of the Agreement . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for and benefits of the transaction . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Effects of the Acquisition on the Group . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	7
General Information . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial and trading prospects of the Enlarged Group	. . . . . . . . . . . . . . . . . . . . . . . . . .	7
Implications of the Listing Rules . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Independent Board Committee . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter of advice from BNP Paribas . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix I — Financial information on the Group	. . . . . . . . . . . . . . . . . . . . . . . . . .	20
Appendix II — Accountants’ report on Profitstock	. . . . . . . . . . . . . . . . . . . . . . . . . . .	116
Appendix III — Management discussion and analysis on Profitstock . . . . . . . . . . . . . .		151
Appendix IV — Unaudited Pro forma information on the Enlarged Group . . . . . . . . .		155
Appendix V — Valuation Report . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	161
Appendix VI — General Information . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	166

— i —

DEFINITIONS

In this Circular, the following expressions have the meanings respectively set opposite to them unless the context otherwise requires:

“Acquisition”

the purchase of 30% of the issued share capital of Profitstock and the Loan contemplated under the Agreement;

“Agreement”

the agreement between the Company, SOD, EML and SHC in relation to the sale and purchase of 30% of the issued share capital of Profitstock and the assignment of the Loan;

“Announcement”

the announcement made by the Company dated 31 July 2007 in relation to the Agreement;

“associate”, “substantial shareholder(s)”

each has the meaning ascribed to it in the Listing Rules;

“BNP Paribas” or “Independent Financial Adviser”

BNP Paribas Capital (Asia Pacific) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and a corporation licensed to conduct type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO;

“Board”

the board of Directors;

“Company”

Shui On Land Limited, a company incorporated in the Cayman Islands whose shares are listed on the Stock Exchange;

“Consideration” the cash consideration payable under the Agreement in the amount of US$116,000,000;
“Directors” the directors of the Company;
“EML”

Equity Millennium Limited;

“Enlarged Group” the Group, and Profitstock as its wholly owned subsidiary following the completion of the Agreement;

“Group” the Company and its subsidiaries;
“HK$” Hong Kong dollars, the lawful currency of Hong Kong; “Hong Kong” the Hong Kong Special Administrative Region of the PRC;

— 1 —

DEFINITIONS

“Independent Board Committee”	an independent committee of the board of Directors
	comprising Dr. Edgar W. K. CHENG, Professor Gary C.
	BIDDLE and Dr. Roger L. McCARTHY, being the
	independent non-executive Directors appointed to advise the
	Independent Shareholders on the Acquisition;
“Independent Shareholders”	Shareholders other than EML, SHC and their respective
	associates;
“Latest Practicable Date”	24 September 2007, being the latest practicable date prior to
	the printing of this Circular for ascertaining certain
	information herein;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“Loan”	the non-interest bearing loan repayable on demand owing by
	Profitstock to the Sellers;
“PRC”	the People’s Republic of China, and for the purpose of this
	Circular, excluding Hong Kong, the Macau Special
	Administrative Region and Taiwan;
“Profitstock”	Profitstock Holdings Limited, a 70% owned subsidiary of the
	Company, and the ultimate owner of the PRC project company
	holding the Project, namely, the development at Lot 114,
	Taipingqiao Area, Lu Wan District in Shanghai, PRC;
“Profitstock Group”	Profitstock and its subsidiaries;
“Project”	development at Lot 114, Taipingqiao Area, Lu Wan District in
	Shanghai, PRC;
“RMB”	Renminbi, the lawful currency of the PRC;
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong);
“Sellers”	EML and SHC;
“Share(s)”	ordinary share(s) of US$0.0025 each of the issued share
	capital of the Company;
“Shareholder(s)”	holder(s) of Share(s);
“SHC”	Shun Hing China Investment Limited;
“SOCAM”	Shui On Construction and Materials Limited;

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		DEFINITIONS
“SOD”		Shui On Development (Holding) Limited, a wholly-owned
		subsidiary of the Company;
“Stock	Exchange”	The Stock Exchange of Hong Kong Limited; and
“US$”		US dollars, the lawful currency of the United States of
		America.

Unless otherwise specified in this Circular and for the purpose of illustration only, RMB is translated to HK$ at the rates of HK$1.00 = RMB0.97, and US$ is translated to HK$ at the rates of HK$1.00 = US$0.13. No representation is made that any amounts in RMB or US$ have been sold or could be converted at the above rate or at any other rates or at all.

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LETTER FROM THE BOARD

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(Stock code: 272)

Executive Directors: Mr. Vincent H. S. LO (Chairman and Chief Executive Officer) Mr. William T. ADDISON

Non-Executive Director:

Registered Office: Walker House 87 Mary Street George Town Grand Cayman KY1-9002 Cayman Islands

The Honourable LEUNG Chun Ying

Independent Non-Executive Directors: Sir John R. H. BOND Dr. Edgar W. K. CHENG Dr. William K. L. FUNG Professor Gary C. BIDDLE Dr. Roger L. McCARTHY Mr. David J. SHAW

Place of Business in Hong Kong: 34/F, Shui On Centre 6-8 Harbour Road Wan Chai Hong Kong

28 September 2007

To the Shareholders,

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

INTRODUCTION

The Board announced on 31 July 2007 that the Company, SOD (a wholly-owned subsidiary of the Company) and the Sellers have entered into the Agreement, whereby SOD shall acquire from the Sellers their entire interest in Profitstock, being 30% of the issued share capital of Profitstock and the Loan owing by Profitstock to the Sellers in the amount of RMB121,080,117 (approximately HK$124,824,863) for a cash consideration of US$116,000,000 (approximately HK$892,307,692).

* for identification purposes only

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LETTER FROM THE BOARD

The Acquisition constitutes a major acquisition and connected transaction for the Company under the Listing Rules. The purpose of this Circular is to provide (i) further details of the Agreement, (ii) the recommendations of the Independent Board Committee, and (iii) the advice of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.

DETAILS OF THE AGREEMENT

Date: 31 July 2007

Parties:

(1) SOD, a wholly owned subsidiary of the Company, as the purchaser;
(2) EML and SHC as the Sellers; and
(3) the Company, as holding company of SOD.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, save for the interest in Profitstock and its subsidiaries and certain other subsidiaries of the Company, the Sellers and their respective shareholders are third parties independent of the Directors, chief executive or substantial shareholder of the Company or any of its subsidiaries.

Subject:

30% of the issued share capital of Profitstock, being the entire interest of the Sellers in the share capital of Profitstock, and the Loan owing by Profitstock to the Sellers in the amount of RMB121,080,117.

The audited consolidated net asset values of Profitstock Group as at 30 June 2007 and 31 December 2006 were approximately RMB2,171,814,000 and RMB1,442,724,000 respectively. The audited consolidated profits before and after taxation and extraordinary items of Profitstock Group for the year ended 31 December 2005 were RMB285,000 and RMB621,000 respectively. The audited consolidated profits before and after taxation and extraordinary items of Profitstock Group for the year ended 31 December 2006 were RMB2,161,330,000 and RMB1,433,232,000 respectively. The corresponding unaudited consolidated net asset value and the profits attributable to the 30% interest of Profitstock were approximately RMB432,817,000 (in terms of net asset value as at 31 December 2006), RMB648,399,000 and RMB429,970,000 (in terms of profits for 2006) respectively.

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LETTER FROM THE BOARD

Consideration:

US$116,000,000 (approximately HK$892,307,692) in cash. The first instalment of US$58,000,000 (approximately HK$446,153,846) representing 50% of the entire Consideration was paid on signing of the Agreement. The balance amount of US$58,000,000 (approximately HK$446,153,846) will be paid on completion of the Acquisition. The Consideration was determined based on arm’s length negotiation between the parties with reference to the amount of the Loan and a premium of approximately 6% over the unaudited consolidated net asset value of Profitstock Group in the amount of approximately RMB2,409,929,997 as of 30 June 2007.

Tentatively, 50% of the Consideration will be funded by internal resources of the Company and the other 50% will be funded by banking facilities.

Conditions:

The Agreement is conditional upon, among others:

(1) obtaining the approval of the Agreement and all transactions contemplated thereunder from the Shareholders in such manner permissible under the Listing Rules; and
(2) issuance of a circular in accordance with the requirement of the Listing Rules,

by 14 December 2007 unless otherwise agreed by the parties to the Agreement.

Completion:

Completion of the Acquisition under the Agreement will take place after the above conditions have been fulfilled and in any event no later than 28 December 2007 unless otherwise agreed by the parties, but shall not be earlier than the day which is two weeks after the above conditions are fulfilled.

As stated in “Implications of the Listing Rules” below, the Company has obtained a written approval of the Agreement and the transactions contemplated thereunder from Shui On Properties Limited, Shui On Investment Company Limited and New Rainbow Investments Limited, a closely allied group of Shareholders. The Company has obtained a waiver from the Stock Exchange of the requirement to hold a Shareholders’ meeting based on such written approval in accordance with Rule 14A.43 of the Listing Rules. Accordingly, subject to the issuance of this Circular, all the above conditions will be fulfilled.

REASONS FOR AND BENEFITS OF THE TRANSACTION

Profitstock is a 70% owned subsidiary of the Company. Following the completion of the Agreement, Profitstock will become a wholly-owned subsidiary of the Company enabling the Company to better manage and plan for the entire Project. In addition, it will allow the Company the flexibility to use Profitstock Group as the vehicles for future project developments, and allow the Company to retain the profits in the PRC for future development, instead of having to pay dividends from the Project out of the PRC to its overseas shareholders.

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LETTER FROM THE BOARD

EFFECTS OF THE ACQUISITION ON THE GROUP

Earnings

Upon completion of the Acquisition, Profitstock Group will remain as subsidiaries of the Group. Accordingly, there will be no impact on the turnover of the Group. However, the consolidated net profit attributable to the Shareholders may be increased by an amount equal to approximately 30% of the profit contributed by Profitstock Group as a result of the Acquisition.

Assets and liabilities

On the other hand, the total liabilities of the Group will be increased by RMB321 million as a result of the payment of the remaining 50% of the Consideration by bank facilities of RMB442 million and the settlement of the Loan owing by Profitstock Group to the Sellers in the amount of RMB121 million.

GENERAL INFORMATION

The Company is one of the leading property developers in the PRC. It engages principally in the development, sale, leasing, management and long-term ownership of high-quality residential, office, retail, entertainment and cultural properties in the PRC.

The principal business activity of EML and SHC respectively is investment holding. On 16 December 2005, 20 shares in Profitstock were allotted to EML at a consideration of US$20, and 10 shares in Profitstock were allotted to SHC at a consideration of US$10.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Enlarged Group continues to focus on the unique business model of creating value through master planning in city-core development and integrated residential development projects. Through this unique model, the Board is confident to maintain a sustainable growth by accelerating capital value appreciation in the Enlarged Group’s property portfolio and premium pricing of our residential projects in prime city areas.

As a result of the completion of the Acquisition, Profitstock will become a wholly-owned subsidiary of the Company. It will allow the Enlarged Group the flexibility to use Profitstock Group as the vehicles for future project developments, and allow the Enlarged Group to retain the profits in the PRC for future development, instead of having to pay dividends from the Project out of the PRC to its overseas shareholders. The Board believes that the Acquisition is in line with the business objectives and unique business model of the Enlarged Group.

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LETTER FROM THE BOARD

Leveraging on our master planning expertise, the Board will continue to explore the right opportunities which are in the best interests of the Company and its shareholders as a whole.

IMPLICATIONS OF THE LISTING RULES

Profitstock is a 70% owned subsidiary of the Company, and indirectly holds 99% of the PRC project company holding the Project, namely, the development at Lot 114, Taipingqiao Area, Lu Wan District in Shanghai, PRC. The Acquisition constitutes a major transaction of the Company and, as each of the Sellers is a substantial shareholder of Profitstock, it also constitutes a connected transaction of the Company. The Acquisition is subject to the reporting, announcement and Independent Sharheolders’ approval requirements under the Listing Rules.

As of the date of the Announcement, Shui On Properties Limited, Shui On Investment Company Limited and New Rainbow Investments Limited, a closely allied group of Shareholders, each being a subsidiary of Shui On Company Limited, hold 940,000,000 shares, 563,713,901 shares and 746,695,324 shares in the Company respectively. Together they hold approximately 53.77% in the issued share capital of the Company as of the date of the Announcement. To the best of the knowledge, information and belief of the Directors, the Sellers do not own any Shares. Since none of the Shareholders is required to abstain from voting on the Acquisition and the entering into of the Agreement, written approval of Shui On Properties Limited, Shui On Investment Company Limited and New Rainbow Investments Limited has been obtained for the Acquisition and the entering into of the Agreement, in lieu of an approval from the Independent Shareholders at a Shareholders’ meeting pursuant to Rule 14.44 and Rule 14A.43 of the Listing Rules.

The Company has obtained a waiver from the Stock Exchange of the requirement for the Company to hold a Shareholders’ meeting in accordance with Rule 14A.43 of the Listing Rules, on the basis that the Acquisition and the entering into of the Agreement have been approved by a written approval of a closely allied group of Shareholders.

RECOMMENDATION

The Directors consider that the terms and conditions of the transaction are fair and reasonable, and that the transaction is on normal commercial terms and in the best interests of the Company and its Shareholders as a whole.

The Independent Board Committee and BNP Paribas, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, consider that the terms and conditions of the Acquisition are fair and reasonable in so far as the Company and the Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. The full text of the letter from BNP Paribas containing its advice and the principal factors and reasons taken into account as regards the Acquisition is set out on pages 12 to 19 of this Circular.

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LETTER FROM THE BOARD

OTHER INFORMATION

Your attention is drawn to the letter from the Independent Board Committee and the letter from BNP Paribas contained in this Circular and the additional information set out in the appendices to this Circular.

Yours faithfully, By Order of the Board Shui On Land Limited Vincent H. S. LO Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Stock code: 272)

28 September 2007

To the Independent Shareholders,

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

We refer to the circular to the Shareholders dated 28 September 2007 (the “Circular”), of which this letter forms part. Unless the context requires otherwise, terms used in this letter shall have the same meanings given to them in the definition section of the Circular.

In compliance of the Listing Rules, we have been appointed by the Board to advise the Independent Shareholders in relation to the Acquisition which constitutes a major and connected transaction by the Company under the Listing Rules. In this connection, BNP Paribas has been appointed as an independent financial adviser to advise on whether the terms and conditions of the Acquisition are fair and reasonable so far as the Company and the Shareholders are concerned, and whether they are in the interests of the Company and the Shareholders as a whole. Details of and the reasons for the Acquisition are contained in the letter from the Board set out on pages 4 to 9 of this Circular of which this letter forms part.

As the members of the Independent Board Committee, we have discussed with management of the Company the reasons for the Acquisition. We also wish to draw your attention to the letter of advice from BNP Paribas set out on pages 12 to 19 of this Circular. We have also discussed with BNP Paribas the basis upon which its advice has been given to us. We have also noted the letter and the advice contained therein and have considered, amongst others, the various factors contained in such letter.

for identification purposes only

— 10 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

In our opinion, the terms and conditions of the Acquisition are fair and reasonable so far as the Company and the Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole.

Yours faithfully,

Dr. Edgar W. K. CHENG Independent Non-executive Director

Independent Board Committee of Shui On Land Limited Professor Gary C. BIDDLE Independent Non-executive Director

Dr. Roger L. McCARTHY Independent Non-executive Director

— 11 —

LETTER OF ADVICE FROM BNP PARIBAS

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28 September 2007

The Independent Board Committee and the Independent Shareholders of Shui On Land Limited 34/F, Shui On Centre, 6-8 Harbour Road, Wan Chai, Hong Kong

Dear Sirs and Madams,

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the acquisition of 30% of the issued share capital of Profitstock and the Loan owing by Profitstock to the Sellers in the amount of RMB121,080,117 (approximatley HK$124,824,863) for a cash consideration of US$116,000,000 (approximately HK$892,307,692), details of which are set out in the letter from the Board in the Circular, of which this letter forms part. It is noted that the Acquisition constitutes a major transaction of the Company and, as each of the Sellers is a substantial shareholder of Profitstock, it also constitutes a connected transaction of the Company under the Listing Rules. Terms defined in the Circular shall have the same meanings when used in this letter unless the context requires otherwise.

The Independent Board Committee has been established to consider the terms and conditions of the Acquisition and to advise the Independent Shareholders as to the fairness and reasonableness of the Acquisition. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give them an opinion as to whether the Acquisition is on normal commercial terms, and in the ordinary and usual course of business, and as to the fairness and reasonableness of the Acquisition in respect of the interests of the Company and Shareholders as a whole.

As at the date of the Announcement, Shui On Properties Limited, Shui On Investment Company Limited, New Rainbow Investments Limited, a closely allied group of Shareholders, each being a subsidiary of Shui On Company Limited, held 940,000,000 shares, 563,713,901 shares and 746,695,324 shares in the Company respectively. Together they hold approximately 53.77% in the issued share capital of the Company. Since none of the Shareholders is required to abstain from voting

— 12 —

LETTER OF ADVICE FROM BNP PARIBAS

on the Acquisition, written approval of Shui On Properties Limited, Shui On Investment Company Limited and New Rainbow Investments Limited has been obtained for the purpose of approving the Acquisition and entering into the Agreement in lieu of an approval from the Independent Shareholders at a shareholders’ meeting. The Stock Exchange has granted the waiver to the Company from strict compliance with the requirements pursuant to Rule 14A.43 of the Listing Rules.

We are a licensed corporation holding a license to conduct Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong). We shall receive a fee from the Company for the delivery of this letter. The Company has also agreed to indemnify BNP Paribas and certain related persons against certain liabilities and expenses in connection with this engagement.

As at the Latest Practicable Date, a group of companies (“BNP Paribas Group”), to which we belong, had banking related businesses with various members of the Group which represents less than 0.05% of total assets of BNP Paribas Group (based on its consolidated balance sheet as at 31 December 2006). Save as described in this letter and apart from normal professional fees for our services to the Company as described above, no other arrangement exists whereby we are entitled to receive any fees or benefits from the Company, its subsidiaries or associates. Accordingly, we consider ourselves suitable to give independent financial advice to the Independent Board Committee and the Independent Shareholders on the terms and conditions of the Acquisition. As at the Latest Practicable Date, BNP Paribas S.A., our parent company, beneficially owned certain Shares, representing less than 0.05% of the issued share capital of the Company. We do not consider that these shareholding interests would affect the objectivity of our advice, given the fact that the interests held in the Company are no different from that of the Independent Shareholders in relation to the Acquisition.

In arriving at our advice, we have relied on the statements, information and facts supplied, the opinions expressed and the representations made by the Directors, the Company’s advisers and the management of the Company including those set out in the Circular and assumed that all statements, intentions, opinions and representations made, for which the Company and the Directors are solely and wholly responsible, were true, complete and accurate at the time they were made and continue to be so in all respects up to and including the date of the Circular and that they may be relied upon. We have also assumed that all statements of intention of the management or the Directors, as set forth in the Circular, will be implemented and that all of the expectations of the Directors can be met. We have also relied on the assumptions described in the Circular and certain information available to the public and we have assumed such information to be accurate and reliable. We have reviewed, among others, the Agreement, the accountants’ report on Profitstock dated 28 September 2007 prepared by Deloitte Touche Tohmatsu, and the property valuation report of Profitstock dated 28 September 2007 prepared by Knight Frank Petty Limited. We consider that we have received and reviewed sufficient information to enable us to form a reasonable basis for our opinion. We have not, however, carried out any independent verification of such information, nor have we conducted an independent investigation into the business and affairs of the Group nor have we conducted any valuation or appraisal of any assets or liabilities, nor have we conducted any form of investigation into the commercial viability of the future prospects of the Group or future prospects of any of the other parties to the aforementioned agreement. We have further assumed that all government, regulatory or other consents and approvals necessary for the effectiveness and implementation of the agreement have been or will be obtained without any adverse effect on the contemplated benefits to the Company. We have been advised by the

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LETTER OF ADVICE FROM BNP PARIBAS

Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular and we have no reasons to believe that any material information has been withheld, or doubt the truth or accuracy of the information provided. We have sought confirmation from the Directors that no material facts or information have been omitted from the information supplied and/or opinions expressed.

Our opinion is necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information publicly available to us as of the date of the opinion. We have no obligation to update this opinion to take into account subsequent events occurring after this opinion is delivered to the Independent Board Committee and the Independent Shareholders. It should be understood that subsequent developments or changes could occur that, if known at the time we rendered our opinion, would have affected or altered our opinion. We assume no responsibility or liability under such circumstances.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our view on the Acquisition, we have taken into consideration the principal factors and reasons as set out below. In reaching our conclusion, we have considered the results of the analysis in light of each other and ultimately reached our opinion based on the results of all analysis taken as a whole.

1. Background

Profitstock is a 70% owned subsidiary of the Company, which in turn is the ultimate owner of the PRC project company holding the Project, namely, the development at Lot 114, Taipingqiao Area, Lu Wan District in Shanghai, PRC with a total site area of approximately 32,603 square metres. The unsold portion of the properties comprises residential units with a total gross floor area of 13,461.66 square metres and 386 car parking spaces as of 31 July 2007.

As set out in the accountants’ report on Profitstock as Appendix II to the Circular, the audited consolidated net asset values of Profitstock Group as at 31 December 2006 and as at 30 June 2007 were approximately RMB1,422,724,000 and RMB2,171,814,000 respectively. The audited consolidated profits before and after taxation and extraordinary items of Profitstock Group for the year ended 31 December 2006 were RMB2,161,330,000 and RMB1,433,232,000, respectively.

On 31 July 2007, SOD (a wholly-owned subsidiary of the Company), entered into the Agreement with the Sellers where SOD shall acquire from the Sellers their entire interest in Profitstock, being 30% of the issued share capital of Profitstock and the Loan in the amount of RMB121,080,117 (approximately HK$124,824,863), for a cash consideration of US$116,000,000 (approximately HK$892,307,692.

— 14 —

LETTER OF ADVICE FROM BNP PARIBAS

It is noted from the letter from the Board in the Circular, that, save for their interest in Profitstock and its subsidiaries and certain other subsidiaries of the Company, the Sellers and their respective shareholders are third parties independent of any of the Directors, chief executive or substantial shareholder of the Company or any of its subsidiaries.

2. Reasons for the Acquisition

As stated in the letter from the Board in the Circular, following completion of the Agreement, Profitstock will become a wholly-owned subsidiary of the Company enabling the Enlarged Group to better manage and plan for the entire Project. In addition, it will allow the Enlarged Group the flexibility to use Profitstock Group as the vehicles for future project developments, and allow the Enlarged Group to retain the profits in the PRC for future development, instead of having to pay dividends from the Project out of the PRC to its overseas shareholders.

3. Principal terms and conditions of the Agreement

Under the Agreement, the entire consideration is US$116,000,000 (approximately HK$892,307,692) in cash. The first instalment of US$58,000,000 (approximately HK$446,153,846) representing 50% of the entire Consideration has been paid on signing of the Agreement. The balance amount of US$58,000,000 (approximately HK$446,153,846) will be paid on completion of the Acquisition.

As stated in the letter from the Board, tentatively, 50% of the Consideration will be funded by internal resources of the Company and the other 50% will be funded by banking facilities.

The Agreement is conditional upon, among others:

(1) obtaining the approval of the Agreement and all transactions contemplated thereunder from the Shareholders in such manner permissible under the Listing Rules; and
(2) issuance of a circular in accordance with the requirements of the Listing Rules,

by 14 December 2007 unless otherwise agreed by the parties to the Agreement.

4. Basis for determining the Consideration

We understand that the Consideration was determined based on arm’s length negotiations between the parties with reference to the amount of the Loan and a premium of approximately 6% over the unaudited consolidated net asset value of Profitstock in the amount of approximately RMB2,409,929,997 as of 30 June 2007.

— 15 —

LETTER OF ADVICE FROM BNP PARIBAS

In formulating our opinion, we have conducted a comparison between the Consideration and the fair value on net assets of Profitstock Group on the following grounds:

the principal activities of Profitstock Group are the property development of Lot 114, Taipingqiao and the project was significantly completed in 2006 so the earnings rose tremendously with the one-off commencement of sales for the same period and are not recurrent. Accordingly, we do not consider it appropriate to use the price to earnings multiple as an appropriate measure of valuation for the purpose of our advice to the Independent Board Committee and Independent Shareholders;
given that Profitstock is a private company, we do not also consider it appropriate to use the price to book multiple (which more often values listed companies. In addition, the book value may not fully reflect fair market value of property interests) as an appropriate measure of valuation for the purpose of our advice to the Independent Board Committee and Independent Shareholders.

We, therefore, consider assessment of the Consideration by way of a comparison between the Consideration and the fair value on net assets of Profitstock Group, adjusted by certain taxes, expenses and liabilities commonly found in land and property transaction, is the most appropriate approach.

Comparison between the Consideration and the fair value on net assets of Profitstock Group

The aggregate market value of the unsold portion of the properties under the Project was appraised at RMB804,000,000 as at 31 July 2007 by Knight Frank Petty Limited, an independent valuer, the report of which is set out in Appendix V to the Circular.

We have discussed with Knight Frank Petty Limited the valuation methodology adopted for the preparation of the Valuation Report and noted that it has complied with the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules and the HKIS valuation standards on properties (First Edition 2005).

The valuation basis adopted by Knight Frank Petty Limited is the opinion of the market value of the property which it would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

— 16 —

LETTER OF ADVICE FROM BNP PARIBAS

Extracted from the footnotes to the unaudited proforma information on the Enlarged Group as set out in Appendix IV, the calculation of the discount for the consideration is summarised below. As advised by the Company, there is no material difference between the aggregate market value of the unsold portion of the properties under the Project as of 30 June 2007 and 31 July 2007 for the purpose of this illustration.

	RMB million
Net assets of Profitstock Group as at 30 June 2007 as
stated in accountants’ report in Appendix II	2,172
Add: Reallocation of costs of certain common facilities
incurred by other entities of the Group	253
Add: Fair value adjustments on properties held for sale
as of 30 June 2007, net of tax	409
Fair value on net assets of Profitstock Group	2,834
30% acquired equity interest thereon	850
The Loan	121
Total acquired interests	971 (equivalent to US$127 million)
The entire Consideration	884 (equivalent to US$116 million)
Discount on acquisition	87
Representing a discount of	9.8%

It should however be noted that since the carry amounts of the identifiable assets and liabilities of Profitstock at the date of completion may be substantially different from their carrying amounts as at 30 June 2007, the actual discount on acquisition arising from the Acquisition may be different from the estimated discount on acquisition shown above.

In light of such discount, the Directors consider that the Consideration is justified. We concur with such view.

5. Financial impact on the Group

Under the Agreement, the entire consideration is US$116,000,000 (approximately HK$892,307,692) in cash. Tentatively, 50% of the Consideration will be funded by internal resources of the Company and the other 50% will be funded by banking facilities.

In this respect, we note that from the 2007 interim results of the Company that the Group had total cash and cash equivalent (including cash and bank balance of approximately RMB4,067 million and pledged deposit of approximately RMB826 million) of approximately RMB4,893 million as at 30 June 2007. Total borrowings of the Group amounted to RMB4,184 million and the unutilised banking

— 17 —

LETTER OF ADVICE FROM BNP PARIBAS

facilities were approximately RMB3,028 million as at the same date. The Directors have advised that unallocated cash and available unutilised banking facilities not scheduled for the capital commitment for existing projects and other corporate uses (approximately RMB5,892 million) amounted to RMB1,203 million as at 30 June 2007. Accordingly, the Directors believe that the Group has sufficient financial resources to satisfy the Consideration.

Assuming that completion of Acquisition took place on 1 January 2006, the 30% additional unaudited consolidated profit after taxation and extraordinary items of Profitstock of RMB425,315,000 for the year ended 31 December 2006 would contribute to the Company. Based on 50% of the Consideration (approximately RMB442 million) would be funded by banking facilities at the Group’s total average funding cost of approximately 7.5% for the year ended 31 December 2006, an opportunity cost of approximately RMB33.1 million would be incurred. As such, the profit attributable to equity holders of the Company for the year ended 31 December 2006 would have been enhanced.

In addition, the negative goodwill on the Acquisition, that is the excess of interest in the net fair value of the Profitstock’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition, will be recognised immediately in the income statement.

The assets and liabilities of Profitstock Group will continue to be consolidated to the Group. The total assets of the Group will be reduced by RMB442 million upon the payment of 50% of the Consideration by cash and the total liabilities of the Group will be increased by RMB321 million as a result of the payment of the remaining 50% of Consideration by bank facilities of RMB442 million and the settlement of the Loan owing by Profitstock Group to the Sellers in the amount of RMB121 million. Accordingly, the net asset value of the Group will be reduced by RMB763 million.

6. Matters to draw to shareholders’ attention

All income from the sale and transfer of state-owned land use right, buildings and their attached facilities in the PRC is subject to land appreciation tax (“LAT”) at the progressive rates ranging from 30% to 60% of the appreciated value of the property (as defined in relevant tax regulations and rules).

— 18 —

LETTER OF ADVICE FROM BNP PARIBAS

As advised by the Company, local tax bureaus in certain cities, including Lu Wan District, Shanghai City, currently require property developers to make LAT prepayment on the pre-sales or sales proceeds of properties. The relevant tax authorities may require the property developers to settle LAT if any of the following criteria are met:

for completed property development projects, the transferred gross floor area accounts for more than 85% of total saleable gross floor area, or the proportion represented is less than 85% but the remaining saleable gross floor area has been leased out or occupied by the developer;
the project has not been sold out for more than three years after obtaining the sale or pre-sale permit;
the developer applies for cancellation of tax registration without having settled the relevant LAT; or
other conditions stipulated by tax authorities.

Profitstock is subject to the LAT in the PRC. However, the implementation and settlement of the tax varies amongst different tax jurisdictions in various cities of the PRC and Profitstock has not finalised its LAT liability and made the final payments with any local tax authorities in the PRC. Given that significant judgment is required in determining the amount of the LAT and its related income tax provisions, Profitstock recognised the LAT based on its management’s best estimates. The final tax outcome could be different from the amounts that were prepaid and initially recorded, and these differences will impact the cost of sales and the related income tax provisions in the periods in which such tax is finalised with local tax authorities. Accordingly, profitability of Profitstock may be affected by enforcement of LAT collection on the difference between the prepaid amount and the actual LAT payment. To their best knowledge, as at the date of the Circular, the Directors believe that Profitstock has made sufficient LAT prepayment and the difference between the prepaid amount and the actual LAT payment is insignificant.

CONCLUSION

Having considered the above principal reasons and factors set out in this letter, we are of the view that the terms and conditions of Acquisition are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Yours faithfully, For and on behalf of

BNP Paribas Capital (Asia Pacific) Limited Isadora Li

Head of Investment Banking — North Asia

— 19 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION

The financial information for the interim results of the Group for the six months ended 30 June 2006 and 2007 have been extracted from the interim report of the Group for the six months ended 30 June 2007, the financial information for the audited annual results of the Group for the year ended 31 December 2004 and 31 December 2005 have been extracted from the prospectus of the Company, and the financial information for the audited annual results of the Group for the year ended 31 December 2006 have been extracted from the annual report of the Group for the year ended 31 December 2006.

(i) Results

	31 December	31 December	31 December	30 June	30 June
	2004	2005	2006	2006	2007
	_RMB’ million _	_RMB’ million _	_RMB’ million _	_RMB’ million _	RMB’ million
				(unaudited)	(unaudited)
Turnover	1,039	1,018	4,729	2,158	2,178
Cost of sales	(600)	(327)	(1,745)	(646)	(665)
Gross profit	439	691	2,984	1,512	1,513
Other income	17	102	256	61	128
Staff costs	(66)	(78)	(146)	(64)	(134)
Depreciation and release of
prepaid lease payments	(16)	(24)	(27)	(13)	(13)
Other expenses	(194)	(252)	(512)	(100)	(181)
Share of results of associates	—	—	1	—	—
Net (loss) gain on change in
fair value of derivate
financial instruments	—	(1)	(478)	15	(14)
Gain on disposal of equity
interest in subsidiaries	—	—	582	—	1
Increase in fair value of
investment properties	1,687	607	145	168	267
Finance costs	(109)	(167)	(219)	(167)	(56)
Profit before taxation	1,758	878	2,586	1,412	1,511
Income tax expense	(648)	(332)	(946)	(578)	(180)
Profit for the year	1,110	546	1,640	834	1,331

— 20 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	31 December	31 December	31 December	30 June	30 June
	2004	2005	2006	2006	2007
	_RMB’ million _	_RMB’ million _	_RMB’ million _	_RMB’ million _	RMB’ million
				(unaudited)	(unaudited)
Attribute to:
— Equity holders of
the Company	786	380	1,146	558	1,098
— Minority interests	324	166	494	276	233
	1,110	546	1,640	834	1,331
Dividends	—	—	248	—	203
Earnings per shares
Basic	RMB 0.46	RMB 0.22	RMB 0.48	RMB 0.31	RMB 0.26
Diluted	RMB 0.39	RMB 0.14	RMB 0.38	RMB 0.19	RMB 0.26

— 21 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) Assets and liabilities

	31 December	31 December	31 December	30 June
	2004	2005	2006	2007
	_RMB’ million _	_RMB’ million _	_RMB’ million _	RMB’ million
				(unaudited)
Investment properties	5,142	5,877	6,205	7,652
Property, plant and equipment	146	168	188	184
Prepaid lease payments	855	2,665	3,710	4,198
Properties under development	455	1,127	1,760	1,368
Investment in associates	—	3	3	4
Accounts receivables	12	33	147	296
Pledged bank deposits	611	2	368	336
Defined benefit assets	—	3	5	4
Deferred tax assets	73	94	4	—
	7,294	9,972	12,390	14,042
Current assets	4,955	8,657	13,645	13,682
Current liabilities	(3,038)	(5,145)	(3,852)	(4,515)
Net current Assets	1,917	3,512	9,793	9,167
Non-current liabilities	(4,100)	(8,421)	(7,019)	(6,960)
Net assets	5,111	5,063	15,164	16,249

— 22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2006

Set out below are the audited consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity and consolidated cash flow statement of the Group and the balance sheet of the Company and notes to the accounts reproduced from the audited accounts published in the Company’s annual report for the year ended 31 December 2006.

Consolidated Income Statement

For the year ended 31 December 2006

		2006	2005
	NOTES	RMB’000	RMB’000
Turnover	6	4,729,266	1,017,798
Cost of sales		(1,745,404)	(326,698)
Gross profit		2,983,862	691,100
Other income	7	255,890	101,827
Staff costs		(145,788)	(77,650)
Depreciation and release of prepaid lease payments		(27,474)	(23,987)
Other expenses		(512,497)	(252,208)
Share of profit of associates		694	—
Share of loss of a jointly controlled entity		—	(52)
Net loss on change in fair value of derivative financial
instruments	8	(477,504)	(1,180)
Increase in fair value of investment properties		144,849	606,565
Gain on partial disposal of equity interest in subsidiaries	38	582,337	—
Finance costs	9	(218,777)	(166,873)
Profit before taxation		2,585,592	877,542
Income tax expense	10	(946,052)	(331,856)
Profit for the year	11	1,639,540	545,686
Attributable to:
Equity holders of the Company		1,145,797	379,962
Minority interests		493,743	165,724
		1,639,540	545,686
Proposed dividend	13	248,065	—
Earnings per share	14
— Basic		RMB0.48	RMB0.22
— Diluted		RMB0.38	RMB0.14

— 23 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

As at 31 December 2006

NOTES Non-current assets Investment properties 15 Property, plant and equipment 16 Prepaid lease payments 17 Properties under development 18 Interests in associates 19 Accounts receivable 21 Pledged bank deposits 22 Defined benefit assets 39 Deferred tax assets 34 Current assets Inventories 24 Properties under development 18 Properties held for sale 25 Accounts receivable, deposits and prepayments 21 Loan receivable 23 Amount due from an associate 19 Amounts due from related parties 26 Amount due from a minority shareholder of a subsidiary 27 Early redemption rights 28 Pledged bank deposits 22 Bank balances and cash 22 Current liabilities Accounts payable, deposits received and accrued charges 29 Amounts due to related parties 26 Amounts due to minority shareholders of subsidiaries 27 Warrants 28 Tax liabilities Bank borrowings — due within one year 30 Net current assets Total assets less current liabilities	2006 RMB’000 6,204,900 188,265 3,710,446 1,759,836 3,194 146,907 367,791 4,541 4,439	2005 RMB’000 5,877,300 168,006 2,664,625 1,126,833 2,500 33,214 1,619 3,433 94,260
	12,390,319 2,330 4,749,259 1,799,400 1,444,008 227,067 1,758 99,924 5,624 29,829 833,716 4,452,011 13,644,926 1,752,878 72,806 267,003 — 75,592 1,683,314 3,851,593 9,793,333	9,971,790
		2,222 5,244,106 156,744 678,747 — 1,821 164,053 5,624 7,058 407,839 1,988,944
		8,657,158
		1,739,473 138,002 272,699 231,474 106,962 2,657,022
		5,145,632
		3,511,526
	22,183,652	13,483,316

— 24 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

NOTES Capital and reserves Share capital 31 Reserves Equity attributable to equity holders of the Company Minority interests Total equity Non-current liabilities Loan from a minority shareholder of a subsidiary 33 Notes 28 Bank borrowings — due after one year 30 Deferred tax liabilities 34 Convertible redeemable preference shares 35 Derivative financial instrument designated as hedging instrument 36	2006 RMB’000 84,415 13,867,457 13,951,872 1,212,860 15,164,732 182,869 2,762,124 2,031,634 2,034,636 — 7,657 7,018,920 22,183,652	2005 RMB’000 36,164 4,719,630
		4,755,794 306,059
		5,061,853
		173,714 2,787,811 1,262,794 1,321,908 2,875,236 —
		8,421,463
		13,483,316

— 25 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

Share capital RMB’000 35,689	Share premium Merger reserve Special reserve RMB’000 RMB’000 RMB’000 (note 32(a)) (note 32(b)) 2,314,911 121,988 (91,573)	Share premium Merger reserve Special reserve RMB’000 RMB’000 RMB’000 (note 32(a)) (note 32(b)) 2,314,911 121,988 (91,573)	Share premium Merger reserve Special reserve RMB’000 RMB’000 RMB’000 (note 32(a)) (note 32(b)) 2,314,911 121,988 (91,573)	Attributable Capital reserve RMB’000 266,600	to equity h Exchange reserve RMB’000 792	olders of the Company Hedge reserve Other reserves Ac RMB’000 RMB’000 (note 32(c)) — 483,330	olders of the Company Hedge reserve Other reserves Ac RMB’000 RMB’000 (note 32(c)) — 483,330	cumulated profits RMB’000 1,387,035	Minority interests RMB’000 592,285	Total RMB’000 5,111,057
— —	— — — (475) — — — — — 2,314,436 — — — — — — — 4,433,055 (5,617) 3,507,094 581,160 (145,697) — — — —	— — — — — — — — — 121,988 — — — — — — — — — — — — — — — —	— — — — — — — — (332,382) (423,955) — — — — — — — — — — — — — — — 22,893	— — — — — — — 155,974 — 422,574 (28) — — (28) — — (28) — — (422,546) — — — — — —	31,116 — 31,116 — — — — — — 31,908 76,954 (40,449) — 36,505 — — 36,505 — — — — — — — — —	— — — — — — — — — — — — (7,657) (7,657) — 2,868 (4,789) — — — — — — — — —	— — — — — 20,464 — — — 503,794 — — — — — — — — — — — — — 99,000 — —	— 379,962	5,713 165,724	36,829 545,686
— 475 — — — — —
36,164
— — —
— — —
—
16,176 5,617 24,334 2,124 — — — — —

— 26 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2006

NOTES OPERATING ACTIVITIES Profit before taxation Adjustments for: Allowance for bad and doubtful debts Allowance for amount due from a jointly controlled entity Depreciation of property, plant and equipment Release of prepaid lease payments Gain on change in fair value of early redemption rights Loss on change in fair value of conversion option of senior preference shares Loss on change in fair value of warrants Net foreign exchange gain Loss on cash flow hedge transfer to profit and loss Share of profit of associates Share of loss of a jointly controlled entity Gain on partial disposal of equity interest in subsidiaries Finance costs Loss (gain) on disposal of property, plant and equipment Interest income Increase in fair value of investment properties Increase in defined benefit assets Release of special reserve Operating cash flows before movements in working capital Increase in inventories Increase in accounts receivable, deposits and prepayments Decrease in properties held for sale Increase in accounts payable, deposits received and accrued charges Cash generated from operations PRC Income Tax paid NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Additions to investment properties	2006 RMB’000 2,585,592 657 1,294 26,362 1,112 (23,013) 143,168 357,349 (109,552) 2,868 (694) — (582,337) 218,777 3,299 (96,253) (144,849) (1,108) 22,893	2005 RMB’000 877,542 984 10,143 22,875 1,112 (1,952) — 3,132 — — — 52 — 166,873 (160) (15,701) (606,565) (3,433) — 454,902 (617) (617,538) 306,330 60,190 203,267 (90,713) 112,554 15,701 (43,813) 341 (128,488)
	2,405,565 (108) (490,696) 1,552,401 13,405 3,480,567 (215,322) 3,265,245	454,902 (617 (617,538 306,330 60,190
		203,267 (90,713
		112,554
	89,770 (51,632) 270 (104,322)

— 27 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

NOTES Additions to prepaid lease payments Additions to properties under development Repayment from (advance to) an associate Advance to a jointly controlled entity Acquisition of subsidiaries 37 Acquisition of additional interests in subsidiaries Proceeds from disposal of equity interest in subsidiaries 38 Investment in an associate Investment in a jointly controlled entity (Increase) decrease in pledged bank deposits Increase in loan receivable NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Net proceeds on issuance of shares Net proceeds on issuance of notes Net proceeds on issuance of preference shares Advance from minority shareholders of subsidiaries Repayment to an associate Net repayment to related parties Capital injected from minority shareholders New bank loans raised Repayment of bank loans Share issue expenses Interest and bank charges paid NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash	2006 RMB’000 (1,194,978) (2,619,626) 63 (1,294) — — 604,058 — — (794,008) (227,067)	2005 RMB’000 (1,876,435) (2,329,682) (492) (10,143) 2,490 (269,645) — (2,500) (52) 273,404 — (4,369,314) — 2,994,334 1,220,310 202,730 (221) (464,399) 4,380 1,680,676 (74,199) — (402,160) 5,161,451 904,691 1,090,706 (6,453) 1,988,944 1,988,944
	(4,298,766) 4,449,231 — — 3,459 — (1,067) 5,515 3,476,516 (3,611,065) (145,697) (617,612) 3,559,280 2,525,759 1,988,944 (62,692) 4,452,011	(4,369,314
		— 2,994,334 1,220,310 202,730 (221 (464,399 4,380 1,680,676 (74,199 — (402,160
		5,161,451
		904,691 1,090,706 (6,453
		1,988,944
	4,452,011

— 28 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2006

1. GENERAL

Shui On Land Limited (the “Company”) was incorporated on 12 February 2004 as an exempted company with limited liability in the Cayman Islands under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The shares of the Company have been listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) with effect from 4 October 2006. The directors of the Company consider that its parent and ultimate holding company is Shui On Company Limited, a private limited liability company incorporated in the British Virgin Islands. The addresses of the registered office and principal place of business of the Company are disclosed in the Corporate Information section of the annual report.

The Company acts as an investment holding company. The principal activities of the Company’s subsidiaries are set out in note 46. The Company and its subsidiaries are hereinafter collectively referred to as the Group.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) NOT YET EFFECTIVE

The Group has not early applied the following new standards, amendment and interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards, amendment or interpretations will have no material impact on the results and financial position of the Group.

IAS 1 (Amendment)	Capital Disclosures1
IFRS 7	Financial Instruments: Disclosures1
IFRS 8	Operating Segments2
IFRIC 7	Applying the Restatement Approach	under	IAS	29	Financial	Reporting	in
	Hyperinflationary Economies3
IFRIC 8	Scope of IFRS24
IFRIC 9	Reassessment of Embedded Derivatives5
IFRIC 10	Interim Financial Reporting and Impairment6
IFRIC 11	IFRS 2 — Group and Treasury Share Transactions7
IFRIC 12	Service Concession Arrangements8

1 Effective for annual periods beginning on or after 1 January 2007 2 Effective for annual periods beginning on or after 1 January 2009 3 Effective for annual periods beginning on or after 1 March 2006

4 Effective for annual periods beginning on or after 1 May 2006

5 Effective for annual periods beginning on or after 1 June 2006

6 Effective for annual periods beginning on or after 1 November 2006

7 Effective for annual periods beginning on or after 1 March 2007

8 Effective for annual periods beginning on or after 1 January 2008

— 29 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for investment properties and certain financial instruments which are measured at fair values as explained in the accounting policies set out below.

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

The principal accounting policies adopted are set out as follows:

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 policy 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 income statement 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 in line with those used by other members of the Group.

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

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Merger accounting for common control combinations

The consolidated financial statements incorporate the financial statements of the combining entities in which the common control combination occurs as if they had been combined from the date when the combining entities first came under the control of the controlling party.

The net assets of the combining entities are combined using the existing book values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated income statement includes the results of each of the combining entities from the earliest date presented or since the date when the combining entities first came under the common control, where there is a shorter period, regardless of the date of the common control combination.

The comparative amounts in the consolidated financial statements are presented as if the entities had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter.

— 30 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Acquisition of additional interest in a subsidiary

When the Group increases its interest in an enterprise that is already an entity controlled by the Company, goodwill arising on such acquisition represents the difference between the cost of additional interest acquired and the increase in the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities. No revaluation surplus or deficit on revaluation of the identifiable assets, liabilities and contingent liabilities of the subsidiary to current fair value is recognised in the consolidated balance sheet. The difference between the fair value, representing the amount of consideration less the amount of goodwill, and the carrying amount of the net assets attributable to the additional interest acquired is recognised as a reserve movement. This difference represents the portion of the revaluation difference that arose since the original acquisition date that is attributable to the Group’s increased interest in the subsidiary.

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. 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.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. 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 consolidated income statement in the year in which the item is derecognised.

Property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment loss.

Depreciation is provided to write off the cost of buildings over their estimated useful lives or where shorter, the terms of leasehold land where the buildings located, using the straight-line method.

Depreciation is provided to write off the cost of items of property, plant and equipment, other than buildings, over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

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 derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

Prepaid lease payments

Prepaid lease payments are charged to the income statements on a straight-line basis over the period of the land use rights.

Properties under development

When the leasehold land and buildings are in the course of development for production, rental or for administrative purposes, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of the costs of the properties under development. Properties under development are carried at cost, less any identified impairment losses.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Properties under development which are intended to be held for own use or their investment potential are shown as non-current assets.

Properties under development which are intended to be held for sale are shown as current assets.

Interests 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 these 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 carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which excludes 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. An additional share of losses is recognised as liability 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 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 the income statement.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Interests in 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 results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the jointly controlled entities, less any identified impairment loss. Where the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entities (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entities), the Group discontinues recognising its share of further losses. An additional share of losses is recognised as liability only to the extent the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Where a group entity transacts with a jointly controlled entity of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant jointly controlled entity.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price less costs to be incurred in marketing, selling and distribution.

Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value. Cost includes the costs of land, development expenditure incurred and, where appropriate, borrowing costs capitalised. Net realised value is determined based on prevailing market conditions.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet 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 the income statement.

Financial assets

The Group’s financial assets are mainly loans and receivables. 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.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including accounts receivable, loan receivable, amount due from an associate, amount due from a jointly controlled entity, amounts due from related parties, amount due from a minority shareholder of a subsidiary and bank balances and deposits) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction 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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

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 Company are recorded at the proceeds received, net of direct issue costs.

Convertible redeemable preference shares

Junior convertible redeemable preference shares are regarded as compound instruments, consisting of a liability component, an equity component and embedded derivatives which are not closely related to the host contract. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt without the conversion feature. The difference between the proceeds of issue of the convertible redeemable preference shares and the fair value assigned to the liability component, representing the embedded call option for the holder to convert the preference shares into equity of the Company, is included in equity (capital reserve).

In subsequent periods, the liability component of the convertible redeemable preference shares is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in capital reserve until the embedded option is exercised (in which case the balance stated in capital reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in capital reserve will be released to the retained earnings. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Senior preference shares consist a liability component, embedded derivatives which are not closely related to the host contract (the liability component) and conversion options that are not settled by the exchange of a fixed amount for fixed number of equity instrument. The liability component, embedded derivatives and conversion options are recognised at their fair values at initial recognition. The liability component is subsequently measured at amortised cost by using the effective interest method. The embedded derivatives are subsequently measured at fair value with changes recognised in the income statement. The conversion options which is linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured is measured at cost. When, subsequently, the reliable measure is available, the conversion options shall be remeasured at fair value, and the difference between its carrying amount and fair value shall be recognised in the income statement.

Issue costs that relate to the issue of the convertible redeemable preference shares are allocated to the liability and equity/conversion option components in proportion to the allocation of the proceeds. Issue costs relating to the equity component and conversion option derivative are charged directly to equity and the income statement immediately, respectively. Issue costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan notes using the effective interest method.

Notes and Warrants

At the date of issue, the net proceeds received were assigned to the notes and the warrants according to their fair values. Issue costs are apportioned between the notes and the warrants based on their relative fair value at the date of issue. Notes are subsequently measured at amortised cost, using the effective interest method.

— 34 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Other financial liabilities

The Company’s other financial liabilities including accounts payable, amounts due to related parties, amounts due to minority shareholders of subsidiaries, loan from a minority shareholder of a subsidiary 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 each balance sheet date. The resulting gain or loss is recognised in the income statement 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. The Group designates certain derivatives as cash flow hedges.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the income statement.

Hedge accounting

The Group designates certain derivatives as hedging instruments as cash flow hedges. At the inception of the hedge relationship the entity documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement as part of other expenses or other income. Amounts deferred in equity are recycled in the income statement in the periods when the hedged item is recognised in the income statement.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the income statement.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, 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 directly in equity is recognised in the income statement.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the income statement.

Leasing

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Borrowing costs

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

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 income statement 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 balance sheet date.

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, 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.

— 36 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.

Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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 each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet 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 translation of monetary items, are recognised in the income statement in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

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. RMB) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the exchange reserve). Such exchange differences are recognised in the income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the exchange reserve.

Retirement benefit costs

Payments to state-managed retirement benefit schemes and the Mandatory Provident Fund Scheme are charged as an expense when employees have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses which exceed 10 per cent of the greater of the present value of the Group’s pension obligations and the fair value of plan assets are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the amended benefits become vested. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The amount recognised in the consolidated balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

Government grants

Government grants with no further related cost are recognised as income when they are unconditional and become receivable.

Revenue recognition

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

Income from properties developed for sale, where there is no pre-sales arrangement prior to completion of the development, is recognised on the execution of a binding sales agreement entered into subsequent to the completion of the development.

Income from properties under pre-sale arrangement prior to completion of the development is recognised on the execution of a binding sales agreement or when the relevant completion certificates are issued by the respective government authorities, whichever is the later. Payments received from the purchasers prior to this stage are recorded as customers’ deposits received on sale of properties and presented as current liabilities.

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased assets and recognised on straight-line basis over the lease term.

Revenue from serviced apartment operation is recognised upon the provision of the services.

Property management, project management and service fee are recognised on an appropriate basis over the relevant period in which the services are rendered.

Sales of goods are recognised when significant risks and rewards of ownership of goods are transferred to the buyers, generally when goods are delivered and title has passed.

Interest income from a financial assets 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.

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Critical judgement in applying the Group’s accounting policies

In the process of applying the Group’s accounting policies, which are described in note 3, the directors of the Company have made the following judgement and key sources of estimation uncertainty at the balance sheet date. The key assumptions concerning the future that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Investment properties

Investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have based on a method of valuation which involves certain estimates of market condition. In relying on the valuation report, the directors of the Company have exercised their judgement and are satisfied that the assumptions used in the valuation is reflective of the current market conditions. Changes to these assumptions would result in changes in the fair values of the Group’s investment properties and the corresponding adjustments to the amount of gain or loss reported in the income statement.

Taxation

As at 31 December 2006, deferred tax assets of RMB61,856,000 (2005: RMB37,597,000) in relation to tax losses have been recognised, as set out in note 34. The realisability of the deferred tax assets mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. The directors of the Company determine the deferred tax assets based on the enacted or substantially enacted tax rates and laws and the best knowledge of profit projections of the Group for coming years during which the deferred tax assets are expected to be utilised. The directors of the Company will review the assumptions and profit projections by the balance sheet date. In cases where the actual future profits generated are more or less than expected, an additional recognition or a reversal of deferred tax assets may arise, which would be recognised in the income statement for the period in which such a recognition or reversal takes place.

Land Appreciation Tax

The Group is subject to land appreciation tax in The People’s Republic of China (“PRC”). However, the implementation and settlement of the tax varies amongst different tax jurisdictions in various cities of the PRC and the Group has not finalised its land appreciation tax calculation and payments with any local tax authorities in the PRC. Accordingly, significant judgment is required in determining the amount of the land appreciation and its related income tax provisions. The Group recognised the land appreciation tax based on management’s best estimates. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the cost of sales and the related income tax provisions in the periods in which such tax is finalised with local tax authorities.

5. FINANCIAL INSTRUMENTS

a. Financial risk management objectives and policies

The Group’s major financial instruments include accounts receivable, loan receivable, amount due from an associate, amount due from a jointly controlled entity, amounts due from related parties, amount due from a minority shareholder of a subsidiary, bank deposits, accounts payable, amounts due to related parties, amounts due to minority shareholders of subsidiaries and loan from a minority shareholder of a subsidiary, bank borrowings and notes. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and 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 on a timely and effective manner.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Foreign currency risk

All of Group’s turnover is denominated in RMB. However, the Group has certain debt obligations that are denominated in foreign currency. As a result, the Group is exposed to fluctuations in foreign exchange rates. In order to mitigate the foreign currency risk, the Group has entered into a highly effective cross currency interest

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

swap (which has been designated as an hedging instrument) whereby half of the principal of the US dollar note repayable in October 2008 has been hedged against RMB at an exchange rate close to the balance sheet date. Details of the hedging instrument are set out in note 36. In early January 2007, a similar arrangement has undertaken to hedge the remaining portion of the US dollar note.

The Group continues reviewing the effectiveness of these hedging instruments, and may consider other opportunities to further reduce the currency risk where feasible and cost effective.

Cash flow interest rate risk

The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s exposure to changes in interest rates is mainly attributable to its bank borrowings at variable rates. The Group has a policy to place surplus funds with creditable financial institutions which offer the best return for the Group on a short-term basis.

The Group continuously monitors the cash flow interest rate risk and may implement effective hedging arrangements when necessary.

Credit risk

The Group’s principal financial assets are bank balances and cash, accounts receivable, loan receivable and amounts due from related companies, which represent the Group’s maximum exposure to credit risk in relation to financial assets.

The Group’s credit risk is primarily attributable to its accounts receivable and loan receivable. The amounts presented in the balance sheets are net of allowances for bad and doubtful debts, estimated by the Group’s management based on prior experience and their assessment of the current economic environment.

The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and the flexibility through the use of bank and other borrowings. The Group also monitors the current and expected liquidity requirements and its compliance with lending covenants regularly to ensure it maintains sufficient working capital and adequate committed lines of funding to meet its liquidity requirement.

b. Fair value

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

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices and ask prices respectively;
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions; and

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

the fair value of derivative instruments, are calculated using quoted prices. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.

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

6. TURNOVER AND SEGMENTAL INFORMATION

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

Property sales Rental income received from investment properties Income from operations of serviced apartments Property management fees Others	2006 RMB’000 4,283,412 358,239 25,250 22,166 40,199 4,729,266	2005 RMB’000 603,989 333,736 24,802 16,888 38,383
		1,017,798

Business segment

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

Principal activities are as follows:

— Property development Property investment —

—

development and sale of properties property letting

— 41 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

For the year ended 31 December 2006

Property development Property investment RMB’000 RMB’000 TURNOVER External sales 4,283,412 428,867 RESULTS Segment results 2,395,349 471,083 Interest income Finance costs Share of profit of associates Net loss on change in fair value of derivative financial instruments Gain on partial disposal of equity interest in subsidiaries Net unallocated expenses Profit before taxation Income tax expense Profit for the year OTHER INFORMATION Allowance for amount due from a jointly controlled entity — — Allowance for bad and doubtful debts — 657 Capital additions 4,462,738 134,571 Depreciation of property, plant and equipment charged to consolidated income statement 1,698 14,073 Release of prepaid lease payments charged to consolidated income statement — 1,112 Loss on disposal of property, plant and equipment 74 2,208 BALANCE SHEET ASSETS Segment assets 13,306,449 6,439,571 Interests in associates Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities (1,500,350) (172,638) Unallocated corporate liabilities Consolidated total liabilities	Others Consolidated RMB’000 RMB’000 16,987 4,729,266 (9,344) 2,857,088	Others Consolidated RMB’000 RMB’000 16,987 4,729,266 (9,344) 2,857,088
		2,857,088
		96,253 (218,777 694 (477,504 582,337 (254,499
		2,585,592 (946,052
	1,294 — 18,147 10,591 — 1,017 61,607	1,639,540
		1,294 657 4,615,456 26,362 1,112 3,299
		19,807,627
		3,194 6,224,424
	(3,490)	26,035,245
		(1,676,478
		(9,194,035
		(10,870,513

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

For the year ended 31 December 2005

Property development Property investment RMB’000 RMB’000 TURNOVER External sales 603,989 397,289 RESULTS Segment results 271,112 932,134 Interest income Finance costs Share of loss of a jointly controlled entity Net loss on change in fair value of derivative financial instruments Net unallocated expenses Profit before taxation Income tax expense Profit for the year OTHER INFORMATION Allowance for amount due from a jointly controlled entity — — Allowance for bad and doubtful debts — 984 Capital additions 4,588,144 146,684 Depreciation of property, plant and equipment charged to consolidated income statement 282 16,485 Release of prepaid lease payments charged to consolidated income statement — 1,112 BALANCE SHEET ASSETS Segment assets 9,791,730 6,112,337 Interests in associates Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities (720,529) (301,818) Unallocated corporate liabilities Consolidated total liabilities	Others Consolidated RMB’000 RMB’000 16,520 1,017,798 (9,733) 1,193,513	Others Consolidated RMB’000 RMB’000 16,520 1,017,798 (9,733) 1,193,513
		1,193,513
		15,701 (166,873 (52 (1,180 (163,567
		877,542 (331,856
	10,143 — 21,574 6,108 — 36,359	545,686
		10,143 984 4,756,402 22,875 1,112
		15,940,426
		2,500 2,686,022
	(2,931)	18,628,948
		(1,025,278
		(12,541,817
		(13,567,095

— 43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segment

Over 90% of the Group’s turnover and contribution to operating profit is attributable to customers in the PRC. Accordingly, no analysis of geographical segment is presented.

No geographical segment information of the Group’s assets and liabilities is shown as the Group’s assets and liabilities are substantially located in the PRC.

7. OTHER INCOME

Interest income Imputed interest income on consideration receivable on disposal of equity interest in subsidiaries (notes 21 & 44(h)(i)) Sundry income Net exchange gain Grant received from local government Gain on disposal of property, plant and equipment	2006 RMB’000 89,770 6,483 13,637 78,395 67,605 — 255,890	2005 RMB’000 15,701 — 9,843 44,670 31,453 160
		101,827

8. NET LOSS ON CHANGE IN FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

Loss on change in fair value of warrants (note 28) Loss on change in fair value of conversion option of senior preference shares (note 35) Gain on change in fair value of early redemption rights (note 28)	2006 RMB’000 357,349 143,168 (23,013) 477,504	2005 RMB’000 3,132 — (1,952)
		1,180

— 44 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

9. FINANCE COSTS

Interest on bank loans and overdrafts wholly repayable within five years Interest on amounts due to shareholders and a fellow subsidiary wholly repayable within five years (note 44(h)(i)) Interest on amount due to a minority shareholder of a subsidiary wholly repayable within five years (notes 27 and 44(h)(i)) Imputed interest on loan from a minority shareholder of a subsidiary wholly repayable within five years (notes 33 and 44(h)(i)) Interest on consideration payable on acquisition of additional interests in subsidiaries (notes 29(b) and 44(h)(i)) Interest on convertible redeemable preference shares Interest on notes Other finance costs Less: Amount capitalised to properties under development	2006 RMB’000 212,693 1,174 4,200 9,155 31,765 273,102 322,204 7,996 862,289 (643,512) 218,777	2005 RMB’000 130,959 26,306 4,200 2,948 — 296,398 73,144 9,036
		542,991 (376,118
		166,873

Borrowing cost capitalised during the year ended 31 December 2006 arose on the general borrowing pool of the Group were calculated by applying a capitalisation rate of approximately 12% (2005: 12%) to expenditure on the qualifying assets.

10. INCOME TAX EXPENSE

PRC Enterprise Income Tax: Current taxation - Provision for the year - Underprovision in prior year Deferred taxation	2006 RMB’000 166,525 17,427	2005 RMB’000 115,355 —
	183,952 762,100	115,355 216,501
	946,052	331,856

PRC Enterprise Income Tax has been provided at the applicable income tax rate of 33% on the assessable profits of the companies in the Group during the year.

No provision for Hong Kong Profits Tax has been made as the income of the Group neither arises in, nor is derived from, Hong Kong.

Details of the deferred taxation are set out in note 34.

— 45 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

Profit before taxation PRC Enterprise Income Tax at 33% Tax effect of share of profit of associates Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Tax effect on tax losses not recognised Tax effect on utilisation of tax losses previously not recognised Tax effect on recognition of deferred tax assets arising from tax losses previously not recognised Underprovision in prior year Tax charge for the year	2006 RMB’000 2,585,592 853,245 (229) 322,658 (252,385) 12,783 (4,103) (3,344) 17,427 946,052	2005 RMB’000 877,542
		289,589 — 66,737 (5,186) 25,365 (10,473) (34,176) —
		331,856

— 46 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. PROFIT FOR THE YEAR

Profit for the year has been arrived at after charging (crediting): Allowance for bad and doubtful debts Allowance for amount due from a jointly controlled entity Auditors’ remuneration Depreciation and release of prepaid lease payments: Depreciation of property, plant and equipment Less: Amount capitalised to properties under development Release of prepaid lease payments Less: Amount capitalised to properties under development Loss on disposal of property, plant and equipment Staff costs Directors’ emoluments Other staff costs Staff costs excluding retirement benefit costs Retirement benefits costs Total staff costs Less: Amount capitalised to properties under development Cost of properties held for sale recognised as an expense Rental charges under operating leases	2006 RMB’000 657 1,294 5,750 27,748 (1,386)	2005 RMB’000 984 10,143 3,950 24,741 (1,866)
	26,362 117,858 (116,746) 1,112 27,474 3,299 28,736 166,787 14,599 210,122 (64,334) 145,788	22,875
		66,784 (65,672)
		1,112
		23,987
		— 22,740 142,387 12,975
		178,102 (100,452)
		77,650
	1,552,401 24,054	306,330 20,237

— 47 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. DIRECTORS’ EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES

Directors

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

Name of director Notes Mr. Vincent H.S. Lo Mr. Wilfred Y.W. Wong Mr. William T. Addison Sir John R.H. Bond (a) The Honourable Chun Ying Leung (a) Dr. Edgar W.K. Cheng (a) Dr. William K.L. Fung (a) Professor Gary C. Biddle (a) Dr. Roger L. McCarthy (a) Mr. David J. Shaw (a) Mr. Louis H.W. Wong (b) Mr. Shing Sun Hui (b) Ms. Helen H.L. Li (c) Total for 2006 Total for 2005	Fees RMB’000 — — — 97 182 130 242 303 242 182 — — — 1,378 —	Salaries and other benefits Performance related incentive payments Retirement benefit costs RMB’000 RMB’000 RMB’000 13 — — 6,885 4,098 414 3,036 3,074 — — — — — — — — — — — — — — — — — — — — — — 3,381 3,074 232 1,973 1,025 153 — — — 15,288 11,271 799 11,626 10,099 1,015	2006 Total RMB’000 13 11,397 6,110 97 182 130 242 303 242 182 6,687 3,151 — 28,736 22,740	2005 Total RMB’000 56 13,448 1,668 — — — — — — — 5,698 1,282 588
				22,740

Notes:

(a) Independent non-executive directors

(b) Executive directors resigned and remained as key management during the year
(c) Non-executive director resigned during the year

— 48 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Of the five highest paid individuals in the Group, four (2005: two) are executive directors of the Company whose emoluments are set out above. The emolument of the remaining (2005: three) individual was as follows:

2006 RMB’000 Salaries, performance related incentive payments and allowances 6,665 Retirement benefits cost 145 6,810 The emoluments of the remaining highest paid employees were within the following bands: 2006 Number of employees of Emolument bands HK$2,000,001 - HK$2,500,000 — HK$6,500,001 - HK$7,000,000 1 1 13. PROPOSED DIVIDEND 2006 RMB’000 Final dividend proposed for 2006 of HK$0.06 (equivalent to RMB0.0593) per share 248,065	2005 RMB’000 7,278 174
	7,452
	2005 Number employees 3 —
	3
	2005 RMB’000 —

The final dividend for 2006 of HK$0.06 (equivalent to RMB0.0593) (2005: nil) per ordinary share has been proposed by the directors and is subject to approval by the Company’s shareholders in the forthcoming annual general meeting.

— 49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to equity holders of the Company is based on the following data:

Earnings

Earnings for the purposes of basic earnings per share, being profit for the year attributable to equity holders of the Company Effect of dilutive potential ordinary shares: Interest on convertible redeemable preference shares charged to consolidated income statement Loss on change in fair value of conversion option of senior preference shares Earnings for the purpose of diluted earnings per share Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares: Convertible redeemable preference shares Warrants (Note a) Additional consideration in respect of the Taipingqiao Sale and Purchase Agreement (note 44(f)) Additional consideration in respect of the Rainbow Sale and Purchase Agreement (note 44(g)) Weighted average number of ordinary shares for the purposes of diluted earnings per share Notes:	2006 RMB’000 1,145,797 3,704 143,168 1,292,669 2006 ’000 2,405,144 1,002,775 — — 1,929 3,409,848	2005 RMB’000 379,962 62,537 —
		442,499
		2005 ’000 1,725,476 1,147,756 23,066 272,000 35,200
		3,203,498

(a) The computation of diluted earnings per share does not assume the exercise of the Company’s outstanding warrants since their exercise would result in an increase in profit per share from continuing operations.
(b) The weighted average number of ordinary shares in issue for the year ended 31 December 2005 has been retrospectively adjusted for the effects of the sub-division of the ordinary shares took place in May 2006.

— 50 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. INVESTMENT PROPERTIES

AT FAIR VALUE At beginning of the year Additions Transfer from prepaid lease payments and properties under development (notes 17 and 18) Increase in fair value recognised in the consolidated income statement At end of the year	2006 RMB’000 5,877,300 104,322 78,429 144,849 6,204,900	2005 RMB’000 5,142,247 128,488 — 606,565
		5,877,300

The investment properties are all situated in the PRC under long/medium-term leases. All the investment properties are rented out under operating leases.

The fair values of the Group’s investment properties at 31 December 2006 and 31 December 2005 have been arrived at on the basis of valuations carried out on those dates by Knight Frank Petty Limited (formerly known as Chesterton Petty Limited), an independent qualified professional valuers not connected to the Group, who has appropriate qualifications and recent experience in the valuation of similar properties in relevant locations. The valuations, which conform to the “First Edition of The HKIS Valuation Standards on Properties” published by Hong Kong Institute of Surveyors, have been arrived at by considering the capitalised income to be derived from the properties.

All of the Group’s investment properties held under operating leases to earn rentals are classified as investment properties and are accounted for using the fair value model.

— 51 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. PROPERTY, PLANT AND EQUIPMENT

			Furniture,
			fixtures,
			equipment
		Plant and	and motor
	Buildings	machinery	vehicles	Total
	RMB’000	RMB’000	RMB’000	RMB’000
AT COST
At 1 January 2005	116,583	287	63,641	180,511
Acquisition of a subsidiary	—	—	3,771	3,771
Additions	17,480	246	26,087	43,813
Disposals	—	—	(1,331)	(1,331)
At 31 December 2005	134,063	533	92,168	226,764
Exchange realignment	(51)	—	(5)	(56)
Additions	16,628	27	34,977	51,632
Disposals	—	(143)	(25,016)	(25,159)
At 31 December 2006	150,640	417	102,124	253,181
ACCUMULATED DEPRECIATION
At 1 January 2005	10,361	151	24,471	34,983
Acquisition of a subsidiary	—	—	184	184
Charge for the year	6,166	70	18,505	24,741
Eliminated on disposals	—	—	(1,150)	(1,150)
At 31 December 2005	16,527	221	42,010	58,758
Charge for the year	6,872	87	20,789	27,748
Eliminated on disposals	—	(113)	(21,477)	(21,590)
At 31 December 2006	23,399	195	41,322	64,916
CARRYING VALUES
At 31 December 2006	127,241	222	60,802	188,265
At 31 December 2005	117,536	312	50,158	168,006

The above items of property, plant and equipment, other than buildings, are depreciated using the straight-line method after taking into account of their estimated residual values at the following rates per annum:

Plant and machinery

Furniture, fixtures, equipment and motor vehicles

10 - 25% 20 - 33%

— 52 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Buildings are depreciated using the straight-line method over their estimated useful lives of 50 years or, where shorter, the terms of leasehold land where the buildings are located.

The buildings are all situated in the PRC.

17. PREPAID LEASE PAYMENTS

At beginning of the year Additions Transfer to investment properties (note 15) Release for the year (note 11) At end of the year	2006 RMB’000 2,664,625 1,194,978 (31,299) (117,858) 3,710,446	2005 RMB’000 854,974 1,876,435 — (66,784)
		2,664,625

The cost of prepaid lease payments represents the amount paid to the government of the PRC with lease terms ranging from 40 to 70 years.

18. PROPERTIES UNDER DEVELOPMENT

AT COST At beginning of the year Exchange realignment Additions Release of prepaid lease payments capitalised to properties under development (note 11) Transfer to investment properties (note 15) Transfer to properties held for sale At end of the year Carrying amount analysed for reporting purposes as: Non-current Current	2006 RMB’000 6,370,939 (927) 3,264,524 116,746 (47,130) (3,195,057) 6,509,095	2005 RMB’000 3,999,855 (557) 2,707,666 65,672 — (401,697)
		6,370,939
	1,759,836 4,749,259	1,126,833 5,244,106
	6,509,095	6,370,939

The properties under development are all situated in the PRC.

Included in the current portion of properties under development as at 31 December 2006 is carrying value of RMB4,133,483,000 (2005: RMB2,893,233,000) which represents the carrying value of the properties expected to be completed and available for sale after more than twelve months from the balance sheet date.

— 53 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. INTERESTS IN ASSOCIATES/AMOUNT DUE FROM AN ASSOCIATE

Cost of investments, unlisted Share of post-acquisition profits Amount due from an associate	2006 RMB’000 2,500 694 3,194 1,758	2005 RMB’000 2,500 —
		2,500
		1,821

Particulars of the Group’s associates at 31 December 2006 are as follows:

			Proportion of
			nominal value
			of issued
		Place of	ordinary share
		incorporation/	capital/registered
	Form of	registration and	capital held by
Name of associate	legal entity	operations	the Group	Principal activities
Synergis Shui On Management	Limited liability	Hong Kong	50%	Investment holding
Services (Shanghai) Limited	company Sino-Foreign	PRC	25%	Traffic system
(Shanghai Songhu Public Traffic	Joint Venture			development
Hinge Construction Development
Co., Ltd.)

Note: The Group is able to exercise significant influence over Synergis Shui On Management Services (Shanghai) Limited because the Group has the power to appoint 2 out of the 5 directors of that Company.

The amount due from an associate is unsecured, interest free and repayable on demand.

— 54 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

20. INTEREST IN A JOINTLY CONTROLLED ENTITY/AMOUNT DUE FROM A JOINTLY CONTROLLED ENTITY

Cost of investment, unlisted Share of post-acquisition losses Amount due from a jointly controlled entity Less: Allowance	2006 RMB’000 52 (52) — 11,437 (11,437) —	2005 RMB’000 52 (52)
		—
		10,143 (10,143)
		—

Particulars of the Group’s jointly controlled entity at 31 December 2006 are as follows:

			Proportion of
			nominal value
			of issued
		Place of	ordinary
	Form of legal	incorporation	capital held
Name of jointly controlled entity	entity	and operation	by the Group Principal activity
Crystal Jade Food and Beverage	Limited liability	Hong Kong	50% Investment holding
(Hangzhou) Limited	company

The amount due from a jointly controlled entity is unsecured, interest free and repayable on demand.

— 55 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

21. ACCOUNTS RECEIVABLE, DEPOSITS AND PREPAYMENTS

Current accounts receivable (net of allowance for bad and doubtful debts) aged analysis:

Trade receivables Not yet due Within 30 days 31 - 60 days 61 - 90 days Over 90 days Consideration receivable on partial disposal of equity interest in subsidiaries (note a) Prepayments of relocation costs Deposits, other prepayments and receivables Non-current accounts receivable comprise: Receivables from sales of properties (note b) Deferred rental receivables	2006 RMB’000 189,904 52,588 12,230 3,710 32,608	2005 RMB’000 9,021 5,266 1,910 1,656 3,667
	291,040 388,914 617,338 146,716	21,520 — 600,867 56,360
	1,444,008 2006 RMB’000 113,587 33,320 146,907	678,747
		2005 RMB’000 — 33,214
		33,214

Trade receivables comprise:

(i) receivables arising from sales of properties which are due for settlement in accordance with the terms of the related sale and purchase agreements; and
(ii) rental receivables which are due for settlement upon issuance of monthly debit notes to the tenants.

Notes:

(a) The amounts are unsecured, interest free and repayable in accordance with the terms set out in note 38. The amounts are carried at amortised cost at effective interest rate of 8% per annum.

— 56 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) The amount is unsecured and repayable on or before 31 December 2010. Interest are payable as follows:
(i) the whole amount is interest free from 1 January 2007 to 31 December 2007
(ii) half of the amount is interest free and the remaining amount bears interest at 5% per annum from 1 January 2008 to 31 December 2008
(iii) the whole amount bears interest at simple interest rate of 6% per annum from 1 January 2009 to 31 December 2009
(iv) the full amount bears interest at simple interest rate of 8% per annum from 1 January 2010 to 31 December 2010

The amount is carried at amortised cost at effective interest rate of 8% per annum.

22. PLEDGED BANK DEPOSITS/BANK BALANCES

Pledged bank deposits represents deposits pledged to the banks to secure the banking facilities granted to the Group. Deposits amounting to RMB367,791,000 (2005: RMB1,619,000) have been pledged to secure long-term bank loans and are therefore classified as non-current assets.

Bank balances carry interest at market rates which range from 0.7% to 5.0%. The pledged bank deposits carry fixed interest rate range from 0.72% to 5.1%. The pledged bank deposits will be released upon the settlement of relevant bank borrowings.

23. LOAN RECEIVABLE

The loan is denominated in RMB, unsecured, interest bearing at 5.022% per annum and repayable on 26 June 2007.

24. INVENTORIES

The amount represents finished goods which are carried at cost.

25. PROPERTIES HELD FOR SALE

The Group’s properties held for sale are situated in the PRC. All the properties held for sale are stated at cost.

— 57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. AMOUNTS DUE FROM/TO RELATED PARTIES

Particulars of the amounts due from/to related parties are as follows:

Amounts due from: - shareholders - fellow subsidiaries - a company in which a director of the Company has a beneficial interest (note) - a director - close family members of key management Amounts due from related parties Amounts due to: - shareholders - fellow subsidiaries Amounts due to related parties	2006 RMB’000 777 69,496 4,382 10,675 14,594 99,924	2005 RMB’000 103,176 57,241 3,636 — —
		164,053
	19,451 53,355	18,346 119,656
	72,806	138,002

Note: Mr. Vincent H.S. Lo, a director of the Company, has a beneficial interest in this related company.

The amounts due from a director and close family members of key management represent receivables arising from sales of properties which are due for settlement in accordance with the terms of the related sale and purchase agreements. The remaining amounts due from/to related companies are unsecured, interest free and repayable on demand.

27. AMOUNTS DUE FROM/TO MINORITY SHAREHOLDERS OF SUBSIDIARIES

As at 31 December 2006, other than an amount of RMB84,000,000 (2005: RMB84,000,000) due to a minority shareholder of a subsidiary, which bears interest at 5% (2005: 5%) per annum, the remaining amounts are unsecured, interest free and repayable on demand.

28. NOTES AND WARRANTS

On 12 October 2005, the Company, being issuer of warrants, and Shui On Development (Holding) Limited (the “Note Issuer”), a wholly owned subsidiary of the Company, issued 1,750 Class A Units and 2,000 Class B Units (together referred to as the “Units”). Each Class A Unit consists of one US$100,000 principal amount note and 1,071 warrants and each Class B Unit consists of one US$100,000 principal amount note and 1,000 warrants. The notes and the warrants were immediately separable upon the issue date.

— 58 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The principal terms of the notes

The notes are:

(a) general, unsecured obligations of the Note Issuer;
(b) senior in right of payment to any existing and future obligations of the Note Issuer expressly subordinated in right of payment to the notes;
(c) pari passu in right of payment with all other unsecured, unsubordinated indebtedness of the Note Issuer (subject to any priority rights of such unsubordinated indebtedness pursuant to applicable law); and
(d) effectively subordinated to all existing and future obligations of the Note Issuer’s subsidiaries.

The notes bear interest at the rate of 8.5% per annum, payable semi-annually in arrears and will mature on 12 October 2008, unless earlier redeemed.

The Note Issuer may, at its option, redeem all or part of the notes at the redemption prices equal to the percentage of the principal amount set forth below plus accrued and unpaid interest to the redemption date if redeemed during the twelve-month period beginning on 12 October of the years indicated below:

12-month	period	commencing	in	year	Percentage
2005					108.50%
2006					104.25%
2007					100.00%

The principal terms of the warrants

Each warrant:

(a) will be exercisable on 30 June 2007, 31 December 2007, 30 June 2008 or 12 October 2008 or, following a Qualifying IPO (as defined in the warrant agreement), the warrants will be exercisable at any time on or after the date of the Qualifying IPO;
(b) when exercised prior to a Qualifying IPO will entitle the holder thereof to receive cash from the Company in an amount equal to the Fair Value (as defined in Section 6.01 (g) of the warrant agreement) of, a number of fully paid and non-assessable ordinary shares of the Company equal to X (as defined in Section 4.01 (k) of the warrant agreement) at an exercise price of US$0.01 per share; subject to adjustments in certain cases as defined in the warrant agreement.
(c) when exercised at any time on or after the date of a Qualifying IPO will entitle the holder thereof to receive cash from the Company in an amount equal to the Fair Value of a number of fully paid and non-assessable ordinary shares of the Company equal to Y (as defined in Section 4.01 (k) of the warrant agreement) at an exercise price of US$0.01 per share, subject to adjustments in certain cases as defined in the warrant agreement; provided that, if the issuance or delivery of ordinary shares by the Company to a holder would not be subject to any pre-emption right of holders of ordinary shares and the exercise price per ordinary shares is equal to or greater than the par value per ordinary share, the Company may deliver, at the Company’s sole option, ordinary shares in lieu of cash.

— 59 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The net proceeds received from the issue of the Units contain the following components that are required to be separately accounted for in accordance with IAS 32 and IAS 39:

(a) Notes represent the present value of the contractually determined stream of future cash flows discounted at the rate of interest at that time by the market to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option.

The interest charged for the year is calculated by applying an effective interest rate of approximately 12% to the notes for the year since the Units were issued.

(b) Warrants represent the fair value of the conversion option.
(c) The issuer’s option to early redeem all or part of the notes during the period from 12 October 2005 to 11 October 2008.

3,750 Units at issue price, net of issue costs, as at 12 October 2005 Exchange realignment Interest charged during the year Interest paid during the year Loss (gain) on changes in fair values (note 8) As at 31 December 2005 Exchange realignment Interest charged during the year Interest paid during the year Loss (gain) on changes in fair values (note 8) Exercised during the year As at 31 December 2006	Notes RMB’000 2,771,086 (188) 73,144 (56,231) —	Warrants Early redemption rights RMB’000 RMB’000 228,376 (5,128) (34) 22 — — — — 3,132 (1,952)	Warrants Early redemption rights RMB’000 RMB’000 228,376 (5,128) (34) 22 — — — — 3,132 (1,952)	Total RMB’000 2,994,334 (200) 73,144 (56,231) 1,180
	2,787,811 (109,552) 322,204 (238,339) — —	231,474 (5,539) — — 357,349 (583,284)	(7,058) 242 — — (23,013) —	3,012,227 (114,849) 322,204 (238,339) 334,336 (583,284)
	2,762,124	—	(29,829)	2,732,295

Pursuant to an amendment agreement in relation to the warrant agreement dated 12 October 2005 entered into in August 2006 among the Company, JP Morgan Chase Bank, N.A. as warrant agent and J.P. Morgan Bank Luxembourg S.A. as registrar, in the event that a prospectus has been issued pursuant to a HK Qualifying IPO (as defined in the agreement), all of the warrants of the Company shall be deemed to be automatically exercised on the same day as the ordinary shares are allotted to investors under the HK Qualifying IPO, without the need for any holder to deliver the warrants or any exercise notice or the payment of the exercise price in respect of those warrants and the warrant shares shall be issued and allotted upon such automatic exercise on the same day. On 4 October 2006, all the warrants were automatically exercised and were converted into 107,370,582 ordinary shares in the Company.

— 60 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

29. ACCOUNTS PAYABLE, DEPOSITS RECEIVED AND ACCRUED CHARGES

Accounts payable aged analysis: Trade payable Not yet due Within 30 days 31 - 60 days Retention payables (note a) Deed tax, business tax and other tax payables Deposits received and receipt in advance from property sales Deposits received and receipt in advance in respect of rental of investment properties Consideration payable on acquisition of additional interests in subsidiaries (note b) Other payables and accrued charges	2006 RMB’000 721,649 14,366 —	2005 RMB’000 399,064 24,419 308
	736,015 75,986 673,375 20,018 124,210 — 123,274	423,791 95,953 323,770 12,340 110,280 625,970 147,369
	1,752,878	1,739,473

Notes:

(a) Retention payables are expected to be repaid upon the expiry of the retention periods according to the respective contracts.
(b) The amount was unsecured, interest bearing at three months average London Interbank Offered Rates plus 150 basis points and was fully repaid during the year.

— 61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. BANK BORROWINGS

Repayable within a period of - Not more than 1 year or on demand - More than 1 year, but not exceeding 2 years - More than 2 years, but not exceeding 5 years Less: Amount due within one year shown under current liabilities Amount due after one year Analysis of the bank loans by currency: Denominated in Hong Kong dollars (note a) Denominated in RMB (note b)	2006 RMB’000 1,683,314 286,863 1,744,771 3,714,948 (1,683,314) 2,031,634	2005 RMB’000 2,657,022 596,000 666,794
		3,919,816 (2,657,022
		1,262,794
	2,183,348 1,531,600	2,497,098 1,422,718
	3,714,948	3,919,816

Notes:

(a) The bank loans denominated in Hong Kong dollars are interest bearing at the following rates per annum:

Hong Kong Interbank Offered Rates (“HIBOR”) plus 0.8% HIBOR plus 0.6125% HIBOR plus 0.875% HIBOR plus 0.725% 90% of The People’s Bank of China (“PBOC”) Prescribed Interest Rate	2006 RMB’000 1,120,708 618,877 443,763 — — 2,183,348	2005 RMB’000 1,185,942 579,358 — 606,798 125,000 2,497,098

— 62 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(b) The bank loans denominated in RMB are interest bearing at the following rates per annum:

90% of PBOC Prescribed Interest Rate 97.8% of PBOC Prescribed Interest Rate 6-months RMB Base Lending Rate stipulated by the PRC PBOC Prescribed Interest Rate Interest bearing at a floating interest rate (note c) Interest bearing at 4.698%	2006 RMB’000 186,600 470,000 875,000 — — — 1,531,600	2005 RMB’000 201,410 470,000 — 106,308 595,000 50,000
		1,422,718

(c) The loan balance is interest bearing at floating rate (which has initially designed as 6.6% per annum). In the event that the PBOC adjusts its interest rate policy during the loan period, the portion of 6.5% of the applicable interest rate shall be correspondingly adjusted in proportion and the new interest rate shall be applied starting in the month following such adjustment of the PBOC’s interest rate policy.

The bank loans as at the balance sheet dates were secured by the pledge of assets as set out in note 40.

31. SHARE CAPITAL

On 20 May 2006, the Company passed a resolution that the par value of the ordinary shares of US$0.01 each in the authorised and issued share capital of the Company be sub-divided into four ordinary shares of US$0.0025 each (“Share Split”). In addition, the authorised share capital of the Company was increased by the creation of a further 8,000,000,000 new ordinary shares of US$0.0025 each. All references in the consolidated financial statements referring to share and amount per share of the Company have been restated for the Share Split.

Ordinary shares of US$0.0025 each (after Share Split): At 1 January 2005 Issue of shares (note 44(g)) At 31 December 2005 Increase on 20 May 2006 Issue of shares to HSBC Investor (note a) Issues of shares upon placing and public offer (note b) Issue of shares on conversion of convertible redeemable preference shares (note 35)) Issue of shares on exercise of warrants (note 28) Issue of shares (note 44(f) and (g)) At 31 December 2006	Authorised Number of shares US$000 4,000,000,000 10,000 — —	Authorised Number of shares US$000 4,000,000,000 10,000 — —	Issued and fully paid Number of shares US$000 1,724,000,000 4,310 23,466,668 59	Issued and fully paid Number of shares US$000 1,724,000,000 4,310 23,466,668 59
	4,000,000,000 8,000,000,000 — — — — —	10,000 20,000 — — — — —	1,747,466,668 — 145,009,345 671,874,600 1,229,642,644 107,370,582 283,733,332	4,369 — 363 1,680 3,074 268 709
	12,000,000,000	30,000	4,185,097,171	10,463

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

							2006	2005
							RMB’000	RMB’000
Shown	in	the	consolidated	balance	sheet	as	84,415	36,164

Notes:

(a) Pursuant to an agreement entered into between the Company and HSBC Securities Investments (Asia) Limited (“HSBC Investor”) dated 4 June 2006, the Company issued 145,009,345 ordinary shares of US$0.0025 each to HSBC Investor of HK$5.35 per ordinary share for a total cash consideration of US$100,000,000.
(b) On 4 October 2006, 556,000,000 new ordinary shares of the Company of US$0.0025 each were issued at HK$5.35 per share for cash through an initial public offering by way of placing and public offer.

On 11 October 2006, the over-allotment option was exercised and 115,874,600 new ordinary shares of the Company of US$0.0025 each were issued at HK$5.35 per share issued for cash.

All shares issued during the year rank pari passu in all respects with other shares in issue.

32. OTHER RESERVES

(a) Merger reserve represents the aggregate of:
(i) the difference between the nominal value of the share capital and share premium issued by the Company and the aggregate of the share capital and share premium of the holding companies of the subsidiaries acquired;
(ii) the share of profit attributable to the deemed minority shareholders exchanged upon the group reorganisation in 2004; and
(iii) the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in the subsidiaries being acquired from a minority shareholder upon the group reorganisation in 2004.
(b) Special reserve represents the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in the subsidiaries being acquired from minority shareholders, which will be recognised in the income statement upon the earlier of the disposal of the subsidiaries or the disposal by the subsidiaries of the assets to which it relates.

During the year ended 31 December 2006, an amount of RMB22,893,000 (2005: nil) was released to the consolidated income statement upon the disposal by the subsidiaries of the assets to which it relates.

(c) Other reserve comprises:
(i) The amount of RMB483,330,000 represents payable waived in 2004 by Shui On Investment Company Limited, a subsidiary of Shui On Company Limited, in respect of development costs of the same amount originally paid by Shanghai Shui On Property Development Management Co., Ltd., a fellow subsidiary of Shui On Investment Company Limited, and recharged to certain subsidiaries of the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Capital contribution of RMB20,464,000 arising on the fair value adjustments at the initial recognition of an interest free loan advanced by a minority shareholder of a subsidiary in 2005, as set out in note 33.
(iii) Non-distributable reserve of RMB99,000,000 arising from the capitalisation of retained profits as registered capital of a subsidiary in the PRC.

33. LOAN FROM A MINORITY SHAREHOLDER OF A SUBSIDIARY

The amount is unsecured, interest free and repayable in two instalments of RMB100,000,000 each on 31 March 2008 and 31 March 2009. The amount is carried at amortised cost at effective rate of 5.27% (2005: 5.27%) per annum. Fair value adjustment of RMB29,234,000 at the initial recognition was credited to equity.

34. DEFERRED TAX ASSETS/LIABILITIES

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

		Tax losses Recognition of sales and related cost of sales RMB’000 RMB’000 (25,664) — (11,933) —	Tax losses Recognition of sales and related cost of sales RMB’000 RMB’000 (25,664) — (11,933) —	Others RMB’000 39,394 (14,013)	Total RMB’000 1,011,147 216,501
112,619 42,752 —	1,127,245 47,800 —	(37,597) (24,259) —	— 698,492 —	25,381 (2,685) 40,449	1,227,648 762,100 40,449

For the purposes of balance sheet presentation, certain deferred tax (assets) liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities	2006 RMB’000 (4,439) 2,034,636 2,030,197	2005 RMB’000 (94,260 1,321,908
		1,227,648

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

As at the balance sheet date, the Group had unused tax losses of RMB288,726,000 (2005: RMB199,044,000) available to offset against future profits. A deferred tax asset has been recognised in respect of such tax losses amounting to RMB187,443,000 (2005: RMB113,930,000). No deferred tax asset has been recognised in respect of the remaining tax losses of RMB101,283,000 (2005: RMB85,114,000) due to the unpredictability of future profit streams. The unrecognised tax losses will expire in the following years ending 31 December:

2007 2008 2009 2010 2011	2006 RMB’000 1,285 5,110 14,622 41,530 38,736 101,283	2005 RMB’000 1,285 5,110 14,899 63,820 —
		85,114

35. CONVERTIBLE REDEEMABLE PREFERENCE SHARES

Authorised:

		Number of shares	Number of shares	Junior	Senior
				preference	preference
	Junior	Senior		shares of	shares of
	preference	preference		US$0.01	US$0.01
	shares	shares	Total	each	each	Total
				US$’000	US$’000	US$’000
At 1 January 2005 and
31 December 2005	220,000,000	180,000,000	400,000,000	2,200	1,800	4,000
Cancelled upon conversion of
issued preference shares to
ordinary shares	(220,000,000)	(180,000,000)	(400,000,000)	(2,200)	(1,800)	(4,000)
At 31 December 2006	—	—	—	—	—	—

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Issued and fully paid:

Balance at 1 January 2005 Issued on 20 May 2005 Issued on 20 June 2005 Balance at 31 December 2005 Conversion during the year Balance at 31 December 2006	Junior preference shares 137,500,000 55,000,000 27,500,000	Number of shares Senior preference shares Total 112,500,000 250,000,000 45,000,000 100,000,000 22,500,000 50,000,000	Number of shares Senior preference shares Total 112,500,000 250,000,000 45,000,000 100,000,000 22,500,000 50,000,000	Junior preference shares of US$0.01 each RMB’000 1,139,017 447,447 223,724	Senior preference shares of US$0.01 each RMB’000 931,922 366,093 183,046	Total RMB’000 2,070,939 813,540 406,770
	220,000,000 (220,000,000)	180,000,000 (180,000,000)	400,000,000 (400,000,000)	1,810,188 (1,810,188)	1,481,061 (1,481,061)	3,291,249 (3,291,249
	—	—	—	—	—	—

All the above junior preference shares and senior preference shares were issued at US$1 per share.

In January 2006, the Company received notice from a holder of convertible redeemable preference shares for the conversion of 10,000,000 senior preference shares of US$0.01 each into 8,115,547 ordinary shares of US$0.01 each (which were subsequently sub-divided into 32,462,188 ordinary shares of US$0.0025 each in May 2006). The ordinary shares were issued in March 2006.

On 4 October 2006, all the then junior preference shares and remaining senior preference shares were converted into 1,197,180,456 ordinary shares of US$0.0025 each pursuant to the provision of the Company’s Article of Association which requires that all the preference shares be converted into ordinary shares upon the date on which the securities of the Company are first listed on a stock exchange in connection with a Qualifying IPO (as defined in the Company’s Articles of Association).

Pursuant to the resolution passed by the Company on 6 June 2006, upon the issue of the ordinary shares into which the junior preference shares and senior preference shares were converted, all the authorised but unissued share capital attributable to the junior preference shares and senior preference shares (including the authorised but unissued share capital attributable to the senior preference shares and junior preference shares arising from conversion) have been cancelled.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The movement of convertible redeemable preference shares are as follows:

Liability component Equity component Conversion options of senior preference shares RMB’000 RMB’000 RMB’000 At 1 January 2005 1,743,213 266,572 — Exchange realignment (38,348) — — 1,704,865 266,572 — Convertible redeemable preference shares issued on 20 May 2005 708,491 105,049 — Convertible redeemable preference shares issued on 20 June 2005 355,845 50,925 — Net proceeds received 1,064,336 155,974 — Interest charged during the year 296,398 — — Interest paid during the year (190,363) — — At 31 December 2005 2,875,236 422,546 — Exchange realignment (70,334) — — Interest charged during the year 273,102 — — Interest paid during the year (112,290) — — Change in fair value (note 8) — — 143,168 Conversion during the year (2,965,714) (422,546) (143,168) At 31 December 2006 — — —	Liability component Equity component Conversion options of senior preference shares RMB’000 RMB’000 RMB’000 At 1 January 2005 1,743,213 266,572 — Exchange realignment (38,348) — — 1,704,865 266,572 — Convertible redeemable preference shares issued on 20 May 2005 708,491 105,049 — Convertible redeemable preference shares issued on 20 June 2005 355,845 50,925 — Net proceeds received 1,064,336 155,974 — Interest charged during the year 296,398 — — Interest paid during the year (190,363) — — At 31 December 2005 2,875,236 422,546 — Exchange realignment (70,334) — — Interest charged during the year 273,102 — — Interest paid during the year (112,290) — — Change in fair value (note 8) — — 143,168 Conversion during the year (2,965,714) (422,546) (143,168) At 31 December 2006 — — —	Liability component Equity component Conversion options of senior preference shares RMB’000 RMB’000 RMB’000 At 1 January 2005 1,743,213 266,572 — Exchange realignment (38,348) — — 1,704,865 266,572 — Convertible redeemable preference shares issued on 20 May 2005 708,491 105,049 — Convertible redeemable preference shares issued on 20 June 2005 355,845 50,925 — Net proceeds received 1,064,336 155,974 — Interest charged during the year 296,398 — — Interest paid during the year (190,363) — — At 31 December 2005 2,875,236 422,546 — Exchange realignment (70,334) — — Interest charged during the year 273,102 — — Interest paid during the year (112,290) — — Change in fair value (note 8) — — 143,168 Conversion during the year (2,965,714) (422,546) (143,168) At 31 December 2006 — — —	Total RMB’000 2,009,785 (38,348)
1,704,865 708,491 355,845 1,064,336 296,398 (190,363) 2,875,236 (70,334) 273,102 (112,290) — (2,965,714)	266,572 105,049 50,925 155,974 — — 422,546 — — — — (422,546)	— — — — — — — — — — 143,168 (143,168)	1,971,437
			813,540 406,770
			1,220,310
			296,398 (190,363)
			3,297,782 (70,334) 273,102 (112,290) 143,168 (3,531,428)
—	—	—	—

The principal terms of these preference shares include the following:

Conversion

(i) Mandatory conversion:

The Company may, having given notice to the holders of the preference shares pursuant to the provisions of the Company’s Articles of Association, require that all of the preference shares be converted into ordinary shares, provided that (a) the conversion date shall be at least 18 months after 31 May 2004; and (b) the conversion shall be effective only upon, but not before, the date on which the securities of the Company are first listed on a stock exchange in connection with a Qualifying IPO (as defined in the Company’s Articles of Association), or such earlier date as may be approved by the holders then outstanding, whereupon all the preference shares shall automatically be converted without any further act by the Company or the members of the Company into such number of fully paid ordinary shares as determined in accordance with the then effective conversion rate.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Optional conversion:
(a) at the option of the holder thereof, at any time after the date of their allotment and without the payment of any additional consideration thereof, into such number of ordinary shares as determined in accordance with the then effective conversion rate credited as fully paid; and
(b) at the option of the Company pursuant to the Agreement (see note 44(a)), at any time after the date falling 60 days from the date of issue of a capital call by the Company, if the holder thereof shall continue to be in default of its obligation to subscribe for further preference shares under such capital call and the preference shares to be subscribed by such holder shall not have been subscribed by other members of the Company, into such number of ordinary shares as determined in accordance with the then effective conversion rate credited as fully paid.
(iii) Conversion price:

The junior preference shares and the senior preference shares are convertible into ordinary shares at an initial conversion price of US$1.07 and US$1.35, respectively. The conversion prices are subject to adjustments in accordance with the Company’s Articles of Association. Following the Share Split of the Company’s ordinary shares, the conversion prices of the junior preference shares and the senior preference shares have been adjusted in accordance with the Company’s Articles of Association.

(iv) In the event of a mandatory conversion of senior preference shares, the number of ordinary shares to which the holder of senior preference shares shall be entitled upon such mandatory conversion shall be capped at that number of ordinary shares which shall provide the holder with an internal rate of return on the holder’s investment in such senior preference shares of 27.5%, computed in accordance with accepted financial practice in Hong Kong and on the basis that the ordinary shares arising from such conversion shall be valued at the price at which shares of the Company are on offer for subscription pursuant to an initial public offering.

Redemption

(i) Junior preference shares
(a) a holder may, at any time prior to 31 May 2009, by notice in writing require the Company to redeem all or some of its shares, in multiples of not less than 100,000 shares, on 31 May 2010;
(b) if an Event of Default (as defined in the Agreement) has been declared in accordance with the Agreement, the holders of at least 70% of the then outstanding junior preference shares may, by a written notice, require the Company to redeem all or part of their shares within 6 months from the date of the written notice; and
(c) subject to points (i)(a) and (i)(b) above and the mandatory conversion, the Company shall redeem all of the then outstanding junior preference shares on 31 May 2011.

The redemption price payable by the Company shall be a sum equal to any arrears or accruals of cash dividends payable in respect of the junior preference shares calculated up to the relevant redemption date, plus the issue price paid on the junior preference shares, plus a premium equal to the amount derived by dividing the Equity Participation (as defined in the Company’s Articles of Association) by the total number of junior preference shares issued up to the relevant redemption date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(ii) Senior preference shares
(a) a holder may, at any time prior to 31 May 2008, by notice in writing require the Company to redeem all or some of its shares, in multiples of not less than 100,000 shares, on 31 May 2009;
(b) if an Event of Default (as defined in the Agreement) has been declared in accordance with the Agreement, the holders of at least 70% of the then outstanding senior preference shares may, by a written notice, require the Company to redeem all or part of their shares within 6 months from the date of the written notice; and
(c) subject to points (ii)(a) and (ii)(b) above and the mandatory conversion, the Company shall redeem all of the then outstanding senior preference shares on 31 May 2011.

The redemption price payable by the Company shall be a sum equal to any arrears or accruals of cash dividends and cumulative dividends payable in respect of the senior preference shares calculated up to the relevant redemption date, plus the issue price paid on the senior preference shares, plus a premium equal to the amount derived by dividing the Equity Participation (as defined in the Company’s Articles of Association) by the total number of senior preference shares issued up to the relevant redemption date. The overall return, including Equity Participation, on the senior preference shares investment to the holders thereof shall be capped at an internal rate of return of 27.5% before the application of the Discount Factor (as defined in the Company’s Articles of Association).

Dividend

(i) The junior preference shares confer on the holders thereof the entitlement to a fixed cumulative preferential cash dividend at the rate of 7% per annum of the issue price commencing from the date of issue of the junior preference shares, payable semi-annually and in priority to the dividend in respect of the ordinary shares.
(ii) The senior preference shares confer on the holders thereof the following entitlements:
(a) a fixed cumulative preferential cash dividend at the rate of 7.5% per annum of the issue price commencing from the date of issue of the senior preference shares and payable semi-annually; and
(b) a fixed cumulative preferential cash dividend at the rate of 7.5% per annum of the issue price commencing from the date of issue of the senior preference shares and payable on the redemption date.

The cash dividends of senior preference shares are rank in priority to the ordinary shares and the junior preference shares on payment of dividend.

The net proceeds received from the issue of convertible redeemable preference shares contain the following components that are required to be separately accounted for in accordance with IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”:

(a) Debt component represents the present value of the contractually determined stream of future cash flows discounted at the rate of interest at that time by the market to instruments of comparable credit status and providing substantially the same cash flows, on the same terms, but without the conversion option.

The interest charged for the year is calculated by applying effective interest rates of approximately 12% (2005: 12%) to the debt component for the year since the convertible redeemable preference shares were issued.

(b) Equity component represents the fair value of the embedded conversion option to convert the liability into equity of the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(c) Embedded derivatives, comprising:
(i) The holder’s option to extend the redemption date from 31 May 2010 to 31 May 2011 and from 31 May 2009 to 31 May 2011 for junior preference shares and senior preference shares, respectively.
(ii) Premium payable by the Company upon redemption of the junior preference shares and the senior preference shares, equal to the amount derived by dividing the Equity Participation (as defined in the Clauses 3B.22 and 3A.22 of the Company’s Articles of Association) by the total number of junior/senior preference shares issued up to the redemption date. For senior preference shares, the overall return, including Equity Participation, on the senior preference shares investment to the holders thereof shall be capped at an internal rate of return of 27.5% before the application of the Discount Factor (as defined in clause 3A.22 of the Company’s Articles of Association).

In the opinion of the directors of the Company, the fair value of the embedded derivatives is nil as at 31 December 2005 and 4 October 2006, the date that all outstanding preference share were converted.

(d) Conversion options of senior preference shares — in the event of a mandatory conversion of senior preference share, the number of ordinary shares to which the holders of senior preference shares shall be entitled upon mandatory conversion shall be capped at that number of ordinary shares which shall provide the holders with an internal rate of return on the holder’s investment in such senior preference shares of 27.5%, computed in accordance with accepted financial practice in Hong Kong and on the basis that the ordinary shares arising from such conversion shall be valued at the price at which shares of the Company are on offer for subscription pursuant to an initial public offering.

The conversion options are linked to and must be settled by delivery of the equity shares of the Company whose fair values cannot be reliably measured as at 1 January 2005 or 31 December 2005.

Fair value of the conversion options at 4 October 2006, the date that all outstanding senior preference shares were converted, amounting to RMB143,168,000.

36. DERIVATIVE FINANCIAL INSTRUMENT DESIGNATED AS HEDGING INSTRUMENT

At 31 December 2006, the Group has outstanding cross currency swap to receive interest at fixed rate of 8.5% per annum based on notional amount of US$187,500,000, pay interest at fixed rate of 5.2% per annum based on notional amount of RMB1,467,000,000 and to exchange the principal at maturity. The Group has designated the cross currency swap to hedge against the cash flow arising from the fluctuation of currency in relation to the notes issued by the Group. The terms of the cross currency swap have been negotiated to match the terms of the notes.

As at 31 December 2006, fair value loss of RMB7,657,000 arising from cross currency swap have been deferred in equity and are expected to be released to the income statement at various dates in the coming twenty-two months after the balance sheet date, the period in which the interest and principal of the notes are expected to settle.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

37. ACQUISITION OF SUBSIDIARIES

On 11 July 2005, the Group acquired the entire equity interests in Chinalink Capital Limited and New Asia Limited, which are companies under common control of Shui On Company Limited, for an aggregate cash consideration of RMB5,000. The acquisition of the above subsidiaries are accounted for using the principles of merger accounting.

Net liabilities acquired: Property, plant and equipment Inventories Bank balances and cash Accounts receivable, deposits and prepayments Accounts payable and accrued charges Amounts due to related parties Net identifiable liabilities Deemed distribution to a shareholder upon acquisition of subsidiaries Total consideration, satisfied by cash Net cash flow arising on acquisition: Cash consideration paid Cash and cash equivalents acquired	RMB’000 3,587 154 2,495 1,266 (2,024 (23,585
	(18,107 18,112
	5
	(5 2,495
	2,490

38. DISPOSAL OF INTEREST IN SUBSIDIARIES

Pursuant to a sale and purchase agreement dated 1 September 2006 entered into between Shui On Development (Holding) Limited (“Shui On Development”) as seller and an independent third party as purchaser, Shui On Development agreed to sell to the purchaser a 9.9% of the issued share capital of Score High Limited, a then wholly owned subsidiary of the Company. The consideration for the sale of the equity interests, which amounted to RMB503,382,000, is payable by two instalments in US dollars. The first instalment in the sum of RMB352,367,000 was settled on 15 November 2006 and the second instalment of RMB151,015,000 shall be paid on or before 30 June 2007.

Pursuant to a sale and purchase agreement dated 9 September 2006 entered into between Shui On Development as seller and a preference shareholder of the Company as purchaser, Shui On Development agreed to sell to the purchaser another 9.9% of the issued share capital of Score High Limited, a then wholly owned subsidiary of the Company, subject to the terms and conditions of the agreement. The consideration for the sale of the equity interests, which amounted to RMB503,382,000, is payable by three instalments in US dollars. The first instalment in the sum of RMB251,691,000 was settled on 15 November 2006, the second instalment in the sum of RMB75,507,000 was settled on 31 March 2007 and the third instalment on the remaining sum of RMB176,184,000 shall be paid on or before 30 June 2007.

A gain of RMB582,337,000 arose from the above disposals, after deducting the fair value adjustment of RMB20,274,000 at the initial recognition in respect of the considerations due on 31 March 2007 and 30 June 2007, has been recognised in the consolidated income statement for the year ended 31 December 2006.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

39. PROVIDENT AND RETIREMENT FUND SCHEMES

Hong Kong

The Group participates in both a defined benefit plan (the “Plan”) which is registered under the Occupational Retirement Schemes Ordinance and in a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000. The Plan was set up by the Group during 2004. The assets of the schemes are held separately from those of the Group and are invested in securities and funds under the control of trustees. Employees who were members of the Plan prior to the establishment of MPF Scheme were offered a choice of staying within the Plan 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.

The MPF Scheme

For members of the MPF Scheme, contributions made by the employees at 5% of relevant income and by the Group at rates ranging from 5% to 10% of the employees’ salaries, depending on the employees’ length of service with the Group.

The Group’s contributions to the MPF Scheme charged to the consolidated income statement as staff costs during the year ended 31 December 2006 amounted to RMB110,000 (2005: RMB171,000). The amount of the employer’s voluntary contributions to the MPF Scheme forfeited for the financial periods referred to above were immaterial and had been used to reduce the existing level of contributions.

The Plan

Contributions to the Plan are made by the members at 5% of their salaries and by the Group which are based on recommendations made by the actuary of the Plan. The current employer contribution rate ranges from 5% to 10% of the members’ salaries. Under the Plan, a member is entitled to retirement benefits which comprise the sum of any benefits transferred from another scheme and the greater of the sum of employer’s basic contribution plus the member’s basic contribution accumulated with interest at a rate of no less than 6% per annum before 1 September 2003 and 1% per annum in respect of contributions made on or after 1 September 2003 or 1.8 times the final salary times the length of employment with the Group on the attainment of the retirement age of 60. For members who joined the Plan before 1997, the retirement age is 60 for male members and 55 for female members. No other post-retirement benefits are provided.

The most recent actuarial valuations of the plan assets and the present value of the defined benefit obligation were carried out at 31 December 2005 and 31 December 2006 by Ms. Elaine Hwang of Watson Wyatt Hong Kong Limited, who is a Fellow of the Society of Actuaries. The present value of the defined benefit obligations and the related current service cost were measured using the Projected Unit Credit Method.

The principal actuarial assumptions used as at the balance sheet date are as follows:

					2006	2005
Discount	rate				3.75%	4.25%
Expected	rate	of	salary	increase	3%	1% for the next
						two years
						commencing 1
						January 2006 and
						2% thereafter
Expected	rate	of	return	on plan assets	8.25%	6.5%

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The actuarial valuation showed that the fair value of the plan assets attributable to the Group at 31 December 2006 was RMB66,190,000 (2005: RMB47,057,000), representing 112% (2005: 107%) of the benefits that had accrued to members. The surplus of the plan assets at 31 December 2006 of RMB6,951,000 (2005: surplus of RMB2,923,000).

Amounts recognised in the consolidated income statement for the years ended 31 December 2005 and 31 December 2006 in respect of the defined benefit plan are as follows:

Current service cost Interest cost Expected return on plan assets Net amount charged to consolidated income statement as staff costs	2006 RMB’000 2,207 1,783 (3,035) 955	2005 RMB’000 2,161 1,631 (2,748)
		1,044

The actual returns on plan assets allocated to the Group for the years ended 31 December 2005 and 31 December 2006 were gains of RMB3,667,000 and RMB16,407,000, respectively.

The amounts included in the consolidated balance sheets arising from the Group’s obligations in respect of the Plan are as follows:

Present value of defined benefit obligations Unrecognised actuarial gain (losses) Fair value of plan assets Defined benefit assets	2006 RMB’000 59,239 2,410 (66,190) (4,541)	2005 RMB’000 44,134 (510) (47,057)
		(3,433)

Movements in the present value of the defined benefit obligations in the current year were as follows:

At 1 January Exchange realignment Current service cost Interest cost Contributions from plan participants Actuarial losses/(gains) Transfer-in liabilities for transferred participants Benefits paid At 31 December	2006 RMB’000 44,134 (1,511) 2,207 1,783 1,561 10,470 1,389 (794) 59,239	2005 RMB’000 42,080 (926) 2,162 1,631 1,405 (948) 3,926 (5,196)
		44,134

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Movements in the fair value of the plan assets in the current year were as follows:

At 1 January Exchange realignment Expected return on plan assets Actuarial gains Contributions from the employer Contributions from plan participants Benefits paid Transfer-in assets At 31 December	2006 RMB’000 (47,057) 1,611 (3,035) (13,372) (2,181) (1,561) 794 (1,389) (66,190)	2005 RMB’000 (41,076) 903 (2,748) (919) (3,082) (1,405) 5,196 (3,926)
		(47,057)

PRC

According to the relevant laws and regulations in the PRC, certain subsidiaries established in the PRC are required to contribute a specified percentage of the payroll of their employees to retirement benefit schemes to fund the retirement benefits of their employees. The only obligation of the Group with respect to the retirement benefit schemes is to make the required contributions under the respective schemes.

40. PLEDGE OF ASSETS

The following assets were pledged to banks as securities to obtain certain banking facilities at the balance sheet date:

Investment properties Property, plant and equipment Prepaid lease rentals Properties under development Properties held for sale Bank deposits	2006 RMB’000 6,204,900 89,550 260,713 1,053,078 949,688 1,201,507 9,759,436	2005 RMB’000 5,877,300 61,330 417,449 3,216,614 147,870 409,458
		10,130,021

In addition, the equity interests in certain subsidiaries were also pledged to banks as securities to obtain banking facilities at the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

41. LEASE ARRANGEMENTS

As lessor

Property rental income in respect of the investment properties earned, net of outgoings, during the year ended 31 December 2006 was RMB322,548,000 (2005: RMB292,868,000). The investment properties held have committed tenants for the next one to fifteen years at fixed rentals. Certain leases contain contingent rental income recognised during the year ended 31 December 2006 amounting to RMB10,497,000 (2005: RMB11,666,000).

As at the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:

Within one year In the second to fifth years inclusive Over five years	2006 RMB’000 404,731 499,279 126,655 1,030,665	2005 RMB’000 325,621 615,752 120,587
		1,061,960

As lessee

As at the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

	2006	2005
	RMB’000	RMB’000
Within one year	30,396	19,977
In the second to fifth years inclusive	48,826	45,478
Over five years	100,500	82,500
	179,722	147,955

Operating lease payments represent rentals payable by the Group for certain of its office and retail properties. Leases are negotiated for an average term of one to twenty years.

— 76 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

42. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As at the respective balance sheet dates, the Group had the following commitments:

Contracted but not provided for: Capital expenditure in respect of properties under development in the PRC Capital expenditure in respect of the acquisition of property, plant and equipment	2006 RMB’000 3,874,165 1,962	2005 RMB’000 5,356,222
		763

(b) Other commitments

(i) On 13 September 2004, the Group entered into an agreement with Shui On Construction Company Limited, a subsidiary of Shui On Company Limited, to form a company in which the Group is entitled to share 1% of the result of, and to provide a funding not exceeding RMB320,000 to, the company. Shui On Company Limited is the ultimate holding company of the Company.

No capital had been contributed by the Group to this company as at 31 December 2006 and 31 December 2005.

In August 2004, the Group issued a letter of guarantee amounting to HK$6,730,000 jointly with Shui On Construction Company Limited in favour of a third party to guarantee the due performance of the company.

(ii) Pursuant to an agreement entered into with the district government (the “Luwan Government”) of the Luwan District, Shanghai, the PRC, the Group has committed to build certain educational facilities to be located in the Taipingqiao area of the Luwan District as compensation for the removal of those educational facilities originally located in that area. As at 31 December 2006, no construction contracts related to the educational facilities were entered into.
(iii) Pursuant to an agreement entered into with the of the Hongkou District, Shanghai, the PRC on 20 June 2006, the Group has committed to build a hospital to be located in the Rui Hong Xin Cheng area of the Hongkou District as compensation for the removal of those medical and health care services originally located in that area. As at 31 December 2006, no construction contracts related to the hospital were entered into.
(iv) Pursuant to an agreement entered into with the on 20 September 2006, the Group has committed to pay a minimum fixed sum of RMB24,000,000 for the right to operate the gymnasium located in the Jian Wan area of the Yangpu District, Shanghai from 1 January 2007 to 31 December 2026.

— 77 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Financial guarantee contracts:

(i) Pursuant to an agreement entered into with the district government (the “Hongkou Government”) and the Education Authority of the Hongkou District, Shanghai, the PRC on 31 July 2002, guarantees of no more than RMB324 million (2005: RMB324 million) will be granted by the Group to support bank borrowings arranged in the name of a company to be nominated by the Hongkou Government, as part of the financial arrangement for the site clearance work in relation to the development of a parcel of land. As at 31 December 2006, no amount had been drawn down under this arrangement.
(ii) At 31 December 2006, certain subsidiaries of the Company had outstanding guarantees issued in favour of banks amounting to RMB414,026,000 (2005: RMB16,408,000) in respect of mortgage facilities granted to the buyers of its residential properties.

In the opinion of the directors of the Company, the fair values of the financial guarantee contracts of the Group are insignificant at initial recognition and the directors consider that the possibility of the default of the parties involved is remote, accordingly, no value has been recognised in the balance sheets as at 31 December 2006 and 31 December 2005.

43. MAJOR NON-CASH TRANSACTIONS

Details of the non-cash transaction entered into during the year ended 31 December 2006 and 2005 in relation to the disposal of equity interest in Score High Limited and the acquisition of additional interest in Interchina International Limited are set out in notes 38 and 44(e), respectively.

44. RELATED PARTY TRANSACTIONS

Apart from the related party transactions and balances as stated in notes 19, 20, 26, 27, 32, 33 and 42, the Group had the following transactions with certain subsidiaries of Shui On Company Limited.

(a) Pursuant to a subscription and shareholders’ agreement dated 18 February 2004 (the “Agreement”) entered into among the Company, NRI Limited (a wholly owned subsidiary of Shui On Construction and Materials Limited), the Investors (as defined in the Agreement), Shui On Investment Company Limited, Shui On Properties Limited, Shui On Company Limited and Shui On Construction and Materials Limited, NRI Limited agreed to subscribe in stages up to 50,000,000 junior preference shares and the Investors agreed to subscribe in stages up to 170,000,000 junior preference shares and 180,000,000 senior preference shares in the Company, in each case at a subscription price of US$1 per share in cash.

On 20 May 2005 and 20 June 2005, the Company issued 12,500,000 and 6,250,000 junior preference shares of US$0.01 each for a total consideration of US$12,500,000 and US$6,250,000 (equivalent to approximately RMB103,456,000 and RMB51,728,000), respectively, to NRI Limited.

(b) Pursuant to a sale and purchase agreement dated 11 July 2005 entered into among the Company as purchaser, Shui On Investment Company Limited as vendor and Shui On Company Limited as guarantor, the Company agreed to acquire the entire equity interests in, and the benefits of debts due from, Chinalink Capital Limited and New Asia Limited. The consideration for acquisition of the equity interests and the benefits of the debts are RMB5,000 and RMB6,292,000, respectively.

— 78 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(c) Pursuant to a promissory note entered into between the Group and Shanghai Ruichen Property Company Limited (“Shanghai Ruichen”), a subsidiary of Shui On Company Limited, in September 2005, a loan of RMB100,000,000 was granted by Ruichen to the Group. The amount was unsecured and interest bearing at 5.22% per annum for the period from September 2005 to November 2005. The promissory note matured in November 2005 and was replaced by a loan agreement with the same amount of loan. Under the agreement, the loan is unsecured, interest free and repayable within one year from the balance sheet date.
(d) On 12 October 2005, 1,000 Class B Units, as set out in note 28, were subscribed by Shui On Investment Company Limited, a shareholder of the Company, for a cash consideration of US$100,000,000.
(e) Pursuant to a sale and purchase agreement dated 7 December 2005 entered into among Equity Millennium Limited (“Equity Millennium”) and Shun Hing China Investment Limited (“Shun Hing”) as vendors and Shui On Development as purchaser, Shui On Development agreed to acquire 20% and 10% of the issued share capital of a then 70% owned subsidiary, Interchina International Limited (“Interchina”), from Equity Millennium and Shun Hing, respectively. In addition, Shui On Development also agreed to acquire the benefit of the shareholders’ loans advanced to Interchina by Equity Millennium and Shun Hing amounting to RMB61,168,000 and RMB30,584,000, respectively. The consideration for the acquisition of the equity interests and the benefit of the shareholders’ loans, which amounted to RMB802,488,000 and RMB91,752,000, respectively, is payable by two instalments in US dollars. The first instalment amounting to RMB268,270,000 was settled in December 2005. The second instalment amounting to RMB625,970,000 was interest bearing at three months average London Interbank Offered Rates plus 150 basis points and was fully paid during the year ended 31 December 2006.
(f) Pursuant to a sale and purchase agreement dated 18 February 2004 (the “Taipingqiao Sale and Purchase Agreement”) entered into among Shui On Investment Company Limited as vendor, the Company as purchaser and Shui On Company Limited as guarantor, the Company agreed to acquire from Shui On Investment Company Limited the Sale Shares, the Interest and the benefits of the Debts (as defined in the Taipingqiao Sale and Purchase Agreement), subject to and in accordance with the terms and conditions stipulated in the Taipingqiao Sale and Purchase Agreement. The acquisition was satisfied by the issue of 301,000,000 ordinary shares of US$0.01 each (which were subsequently sub-divided into 1,204,000,000 ordinary shares of US$0.0025 in May 2006) each in the Company and was completed on 31 May 2004.

Pursuant to the Taipingqiao Sale and Purchase Agreement, Shui On Investment Company Limited, a subsidiary of Shui On Company Limited, is entitled to receive additional consideration up to a maximum amount of US$74,000,000 payable by the Company, if all of the performance targets specified in the Taipingqiao Sale and Purchase Agreement are achieved. Any additional consideration shall be satisfied by the Company by way of allotment and issue to Shui On Investment Company Limited of the relevant number of ordinary shares of par value of US$0.01 each credited as fully paid and valued for this purpose at US$1.00 per share.

On 4 October 2006, the Company issued and allotted a total of 272,000,000 shares of US$0.0025 each, credited as fully paid, to Shui On Investment Company Limited as settlement of additional consideration pursuant to the Taipingqiao Sale and Purchase Agreement.

(g) Pursuant to the sale and purchase agreement dated 18 February 2004 (the “Rainbow Sale and Purchase Agreement”) entered into between Shui On Construction and Materials Limited as vendor and the Company as purchaser, the Company agreed to acquire from Shui On Construction and Materials Limited the entire issued share capital of Foresight Profits Limited and the benefits of the amount owned by Hollyfield Holdings Limited, a wholly owned subsidiary of Foresight Profits Limited, to Shui On Construction and Materials Limited immediately prior to the completion of the Rainbow Sale and Purchase Agreement, subject to and in accordance with the terms and conditions stipulated in the Rainbow Sale and Purchase Agreement. The acquisition was satisfied by the issue of 130,000,000 ordinary shares of US$0.01 each (which were subsequently sub-divided into 520,000,000 ordinary shares of US$0.0025 in May 2006) each in the Company and was completed on 31 May 2004.

— 79 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Pursuant to the Rainbow Sale and Purchase Agreement, Shui On Construction and Materials Limited, a subsidiary of Shui On Company Limited, is entitled to receive additional consideration up to the maximum amount of US$8,800,000 payable by the Company, if all of the performance targets specified in the Rainbow Sale and purchase Agreement are achieved. Any additional consideration shall be satisfied by the Company by way of allotment and issue to Shui On Construction and Materials Limited of the relevant number of ordinary shares of par value of US$0.01 each credited as fully paid and valued for this purpose at US$1.00 per share.

On 9 December 2005, the Company issued and allotted a total of 5,866,667 ordinary shares of US$0.01 each (which were subsequently sub-divided into 23,466,668 shares of US$0.025 each in May 2006), credited as fully paid, to Shui On Construction and Materials Limited as settlement of additional consideration pursuant to the Rainbow Sale and Purchase Agreement.

On 2 March 2006, the Company issued and allotted a total of 2,933,333 ordinary shares of US$0.01 each (which were subsequently sub-divided into 11,733,332 ordinary shares of US$0.0025 each in May 2006), credited as fully paid, to Shui On Construction and Materials Limited as settlement of additional consideration pursuant to the Rainbow Sale and Purchase Agreement.

(h) Pursuant to the Taipingqiao Sale and Purchase Agreement (note 44(f)), an indemnity was granted by Shui On Investment Company Limited, a subsidiary of Shui On Company Limited, to the Company in respect of the potential tax charge that may arise in the event that the development costs in connection with a man-made lake and the underground carpark in the Taipingqiao area in Shanghai cannot be utilised for tax purpose in respect of certain subsidiaries as stated in the Taipingqiao Sale and Purchase Agreement.

— 80 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(h) The Group also had the following transactions with related companies as follows:
(i) Nature of transaction

	2006	2005
	RMB’000	RMB’000
Related companies in which directors of the Company
have beneficial interests
Project consultancy fee	—	4,910
Fellow subsidiaries
Sales and marketing fee income	180	180
Commission expenses	—	141
Interest expenses	—	1,187
Rental and building management income	804	3,299
Property, plant and equipment rental income	—	2,798
Project management fee income	960	960
Project construction fees	30,432	106,220
Rental and building management fee expenses	17,794	16,194
Agency fee	11,410	—
Sales and marketing expenses	1,242	—
Associates
Building management fee expenses	472	556
Rental income	325	238
Sales and marketing fee income	—	240
Shareholders
Interest expenses	1,174	25,119
Reimbursement of staff cost received	597	1,988
Reimbursement of staff cost paid	1,691	—
Rental and building management fee expenses	2,692	—
Minority shareholders of subsidiaries
Interest income	6,483	—
Interest expenses	45,120	7,148
Property management fee	3,272	3,272
Jointly controlled entity
Rental and building management fee income	4,865	4,492
Rental and building management fee expenses	699	487
Sales and marketing fee income	240	240
A director
Property sales	14,906	—
Close family members of key management
Property sales	14,670	—

— 81 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

45. SUMMARISED BALANCE SHEET OF THE COMPANY

Investments in subsidiaries Amounts due from subsidiaries Other receivables Bank balances Total assets Warrants Amount due to a subsidiary Convertible redeemable preference shares Total liabilities Net assets Share capital Reserves Total equity	2006 RMB’000 1,236,899 6,204,374 31,982 2,682,705 10,155,960 — (29,337) — (29,337) 10,126,623 84,415 10,042,208 10,126,623	2005 RMB’000 1,267,219 4,775,299 — 286,140
		6,328,658
		(231,474) (425,736) (2,875,236)
		(3,532,446)
		2,796,212
		36,164 2,760,048
		2,796,212

— 82 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

46. PARTICULARS OF THE SUBSIDIARIES

Particulars of the Company’s subsidiaries at 31 December 2006 are as follows:

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Atlantic Best Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	5 January 2001	of HK$1 each			holding
Bestwealth Holdings	British Virgin Islands	1 ordinary share	100%	Hong Kong	Investment
Limited	(“BVI”)	of US$1			holding
	18 November 2004
Billion Glory Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	14 March 2003	of HK$1 each			holding
Billion World Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	19 November 2003	of HK$1 each			holding
Bondwise Profits	BVI	1 ordinary share	70%	Hong Kong	Investment
Limited	28 December 2000	of US$1			holding
Bright Continental	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
Limited	5 March 2003	of HK$1 each			holding
Bright Power	BVI	1 ordinary share of	100%	Hong Kong	Investment
Enterprises Limited	1 July 2004	US$1			holding
Bright Winner Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	27 December 2002	of HK$1 each			holding
Brixworth	BVI	1 ordinary share of	100%	Hong Kong	Investment
International	3 January 2001	US$1			holding
Limited
Century Team Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	16 January 1998	of HK$1 each			holding
Chinalink Capital	BVI	999 ordinary shares	100%	Hong Kong	Investment
Limited	16 July 2003	of US$1 each			holding
China Advance	Hong Kong	1 ordinary share of	100%	Hong Kong	Investment
Limited	13 November 2006	HK$1			holding
China Wealth (H.K.)	Hong Kong	1 ordinary share of	100%	Hong Kong	Investment
Limited	4 January 2006	HK$1			holding

— 83 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Chongqing Shui On	PRC	Registered and	79.398%	PRC	Property
Tiandi Property	21 November 2003	paid up capital			development
Development Co.		US$71,750,000
Ltd.
Citichamp Limited	Hong Kong	1 ordinary share of	100%	Hong Kong	Investment
	19 July 2006	HK$1			holding
Cititop Pacific Limited	Hong Kong	2 ordinary shares	70%	Hong Kong	Investment
	1 December 2000	of HK$1 each			holding
Costworth Investments	BVI	1 ordinary share of	100%	Hong Kong	Investment
Limited	12 January 2001	US$1			holding
Cybricity Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	28 April 2000	of HK$1 each			holding
East Trend Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	14 February 2001	of HK$1 each			holding
Excel Efficient	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	19 August 2002	of US$1			holding
Fieldcity Investments	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	30 March 2005	of US$1			holding
Focus Top Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	24 April 1998	of HK$1 each			holding
Foresight Profits	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	8 February 2001	of US$1			holding
Galore Profits Limited	BVI	1 ordinary share	70%	Hong Kong	Investment
	23 January 2001	of US$1			holding
Global Ocean	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	1 November 2002	of US$1			holding
Globaland Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	30 October 2002	of HK$1 each			holding
Globe State Properties	BVI	100 ordinary shares	70%	Hong Kong	Investment
Limited	12 October 2005	of US$1 each			holding
Glory Advance	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	18 August 2006	of US$1			holding

— 84 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Grand Hope Limited	Hong Kong	2 ordinary shares	80.2%	Hong Kong	Investment
	14 March 2003	of HK$1 each			holding
Grand Rich Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	14 March 2003	of HK$1 each			holding
Hangzhou Xihu Tiandi	PRC	Registered and	100%	PRC	Property
Management	6 March 2003	paid up capital			management
Company Limited		US$1,400,000
Hangzhou Xihu Tiandi	PRC	Registered and	100%	PRC	Property
Properties Company	12 June 2003	paid up capital			development
Limited		US$34,540,000
Hollyfield Holdings	Mauritius	2 ordinary shares	100%	Hong Kong	Investment
Limited	19 April 2001	of US$1 each			holding
Infoshore International	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	1 November 2002	of US$1			holding
Interchina	BVI	100 ordinary shares	100%	Hong Kong	Investment
International	12 January 2001	of US$1 each			holding
Limited
Join Legend Limited	Hong Kong	1 ordinary share	100%	Hong Kong	Investment
	2 June 2006	of HK$1 each			holding
Keen Allied	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	18 September 2002	of US$1			holding
King Concord Limited	Hong Kong	1 ordinary share	100%	Hong Kong	Investment
	3 October 2006	of HK$1			holding
Kinmax Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	24 April 1998	of HK$1 each			holding
Legend City Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	4 June 1997	of HK$1 each			holding
Lucky Gain Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	8 November 2002	of HK$1 each			holding
Marble Way Limited	BVI	1 ordinary share	100%	Hong Kong	Investment
	28 August 1996	of US$1			holding
Modern Prosper	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	1 November 2002	of US$1			holding

— 85 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
New Asia Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	31 October 2003	of HK$1 each			holding
New Power Profits	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	18 October 2005	of US$1			holding
Onfair Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	13 November 2002	of HK$1 each			holding
Onwin Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	13 November 2002	of HK$1 each			holding
Oriental Gain Limited	Hong Kong	2 ordinary shares	70%	Hong Kong	Investment
	2 February 2001	of HK$1 each			holding
Pacific Gain Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	11 September 2002	of HK$1 each			holding
Portspin Limited	BVI	1 ordinary share	100%	Hong Kong	Investment
	22 May 1997	of US$1			holding
Princemax Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	15 April 1998	of HK$1 each			holding
Profitstock Holdings	BVI	100 ordinary shares	70%	Hong Kong	Investment
Limited	2 June 2005	of US$1 each			holding
Score High Limited	BVI	1,000 ordinary	80.2%	Hong Kong	Investment
	12 February 2003	share of US$1			holding
Shanghai Bai-Xing	PRC	Registered and	97%	PRC	Property
Properties Co.,	2 February 1999	paid up capital			development
Limited		RMB151,300,000
Shanghai Fu Ji	PRC	Registered capital	99%	PRC	Property
Properties Co., Ltd.	18 January 2004	US$35,773,000			development
		Paid up capital
		US$9,184,180
Shanghai Fu-Xiang	PRC	Registered capital	99%	PRC	Property
Properties Co., Ltd.	19 December 2001	RMB345,000,000			development
		Paid up capital
		RMB219,088,690
Shanghai Ji-Xing	PRC	Registered and	97%	PRC	Property
Properties Co., Ltd.	2 February 1999	paid up capital			development
		RMB71,600,000

— 86 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Shanghai Jing-Fu	PRC	Registered and	69.3%	PRC	Property
Property Co., Ltd.	26 December 2001	paid up capital			development
		RMB400,000,000
Shanghai Lakeville	PRC	Registered and	69.3%	PRC	Property
Properties Co., Ltd.	23 May 2001	paid up capital			development
(formerly known as		RMB165,000,000
Shanghai Si Fu
Properties Co.,
Ltd.)
Shanghai Le Fu	PRC	Registered capital	99%	PRC	Property
Properties Co., Ltd.	20 February 2004	US$42,507,000			development
		Paid up capital
		US$39,971,656
Shanghai IPO Food &	PRC	Registered and	100%	PRC	Food and
Beverage Co., Ltd.	6 September 2006	paid up capital			beverage
		US$1,050,000			services
Shanghai Rui Hong	PRC	Registered and	99%	PRC	Property
Xin Cheng Co.,	2 July 2001	paid up capital			development
Ltd.		RMB567,000,000
Shanghai Rui Zhen	PRC	Registered and	99%	PRC	Food and
Food & Beverage	7 November 2003	paid up capital			beverage
Co., Ltd.		US$2,100,000			services
Shanghai Taipingqiao	PRC	Registered and	99%	PRC	Property
Properties	31 August 2001	paid up capital			management
Management		RMB1,655,000
Company Limited
Shanghai Xin-tian-di	PRC	Registered and	97%	PRC	Property
Plaza Co., Ltd.	2 February 1999	paid up capital			development
		RMB101,300,000
Shanghai Xing-Bang	PRC	Registered and	99%	PRC	Property
Properties Co., Ltd.	21 June 2001	paid up capital			development
		RMB290,500,000
Shanghai Xing-Qi	PRC	Registered and	97%	PRC	Property
Properties Co., Ltd.	2 February 1999	paid up capital			development
		RMB274,900,000

— 87 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Shanghai Xing Qiao	PRC	Registered capital	99%	PRC	Property
Properties Co., Ltd.	18 January 2004	US$37,727,000			development
		Paid up capital
		US$37,429,753
Shanghai Xintiandi	PRC	Registered and	100%	PRC	Food and
Huting Food &	14 March 2005	paid up capital			beverage
Beverage Co., Ltd.		US$1,750,000			services
Shanghai Yangpu	PRC	Registered and	70%	PRC	Property
Centre Development	26 August 2003	paid up capital			development
Company Limited		US$60,500,000
Shui On Development	Cayman Islands	22 ordinary shares	100%	PRC	Investment
(Holding) Limited	27 July 2005	of US$0.01 each			holding
Shui On Land	Hong Kong	1 ordinary share	100%	Hong Kong	Provision of
Management	12 May 2004	of HK$1			management
Limited					services
Shui On Secretaries &	Hong Kong	1 ordinary share	100%	Hong Kong	Provision of
Nominees Limited	30 November 2006	of HK$1			secretarial
					services
Shine First Limited	BVI	1 ordinary share	100%	Hong Kong	Investment
	25 October 2006	of US$1			holding
Shine Prime	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	2 November 2006	of US$1			holding
Sino Realty Limited	Hong Kong	1 ordinary share	100%	Hong Kong	Investment
	3 October 2006	of HK$1			holding
Sino Wisdom	BVI	1 ordinary share	100%	Hong Kong	Investment
Investments Limited	12 May 2006	of US$1			holding
Sinoco Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	28 October 2002	of HK$1 each			holding
Sinothink Holdings	BVI	100 ordinary shares	100%	Hong Kong	Investment
Limited	15 September 2000	of US$1 each			holding
Smart Silver Limited	BVI	1 ordinary share	100%	Hong Kong	Investment
	18 December 2002	of US$1			holding
Super Field Limited	Hong Kong	1 ordinary share	100%	Hong Kong	Investment
	25 February 2005	of HK$1			holding

— 88 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
			(Note 1)
Timezone Management	BVI	1 ordinary share	100%	Hong Kong	Investment
Limited	28 February 2001	of US$1			holding
Tip Profit Limited	BVI	1 ordinary share	100%	Hong Kong	Investment
	18 July 2006	of US$1			holding
Union Grow Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	8 November 2002	of HK$1 each			holding
Wuhan Shui On Tiandi	PRC	Registered capital	100%	PRC	Property
Property	2 August 2005	US$97,000,000			development
Development Co.,		Paid up capital
Ltd.	PRC	US$66,000,000 Registered and	100%	PRC	Management
(Shui On	14 June 2004	paid up capital
Development		US$5,350,000
Limited (formerly
known as Shanghai
Shui On Land
Limited))

Notes:

The Company directly holds the equity interest in Shui On Development (Holding) Limited. All other equity interests shown above are indirectly held by the Company.
All subsidiaries established in the PRC are either equity joint ventures or cooperative joint ventures except (Shui On Development Limited (formerly known as Shanghai Shui On Land Limited))

which is a wholly foreign owned enterprise.

Except for Shui On Development (Holding) Limited, none of the subsidiaries had any debt securities subsisting at 31 December 2006 or at any time during the year.

— 89 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. UNAUDITED CONDENSED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2007

Set out below is the condensed consolidated income statement, condensed balance sheet, condensed statement of changes in equity and the condensed consolidated cash flow statement of the Group and notes on such accounts reproduced from the accounts published in the Company’s interim report for the six months ended 30 June 2007.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2007

		Six months ended 30 June	Six months ended 30 June
	Notes	2007	2006
		RMB’million	RMB’million
		(unaudited)	(unaudited)
Turnover	3	2,178	2,158
Cost of sales		(665)	(646)
Gross profit		1,513	1,512
Other income		128	61
Staff costs	4	(134)	(64)
Depreciation and release of prepaid lease payments	5	(13)	(13)
Other expenses		(181)	(100)
(Loss) gain on change in fair value of derivative
financial instruments	6	(14)	15
Increase in fair value of investment properties	12	267	168
Gain on disposal of interests in subsidiaries	19	1	—
Finance costs	7	(56)	(167)
Profit before taxation		1,511	1,412
Income tax expense	8	(180)	(578)
Profit for the period	9	1,331	834
Attributable to:
Equity holders of the Company		1,098	558
Minority interests		233	276
		1,331	834
Dividends	10
— Paid, 2006 final		248	—
— Declared, 2007 interim		203	—
Earnings per share	11
— Basic		RMB 0.26	RMB 0.31
— Diluted		RMB 0.26	RMB 0.19

— 90 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

CONDENSED Consolidated BALANCE SHEET

As at 30 June 2007

Notes 30.6.2007 31.12.2006 RMB’million RMB’million (unaudited) (audited) Non-current assets Investment properties 12 7,652 6,205 Property, plant and equipment 184 188 Prepaid lease payments 4,198 3,710 Properties under development 1,368 1,760 Interests in associates 4 3 Accounts receivable 13 296 147 Pledged bank deposits 336 368 Defined benefit assets 4 5 Deferred tax assets — 4 14,042 12,390 Current assets Inventories 2 2 Properties under development for sale 5,642 4,749 Properties held for sale 1,146 1,799 Accounts receivable, deposits and prepayments 13 1,559 1,445 Loan receivable 233 227 Amount due from an associate 2 2 Amounts due from related parties 43 100 Amount due from a minority shareholder of a subsidiary 6 6 Tax recoverable 141 — Early redemption rights on notes 15 29 Pledged bank deposits 826 834 Bank balances and cash 4,067 4,452 13,682 13,645 Current liabilities Accounts payable, deposits received and accrued charges 14 1,793 1,752 Amounts due to related parties 47 73 Amounts due to minority shareholders of subsidiaries 373 267 Tax liabilities 29 76 Bank borrowings - due within one year 2,273 1,683 4,515 3,851 Net current assets 9,167 9,794 Total assets less current liabilities 23,209 22,184	Notes 30.6.2007 31.12.2006 RMB’million RMB’million (unaudited) (audited) Non-current assets Investment properties 12 7,652 6,205 Property, plant and equipment 184 188 Prepaid lease payments 4,198 3,710 Properties under development 1,368 1,760 Interests in associates 4 3 Accounts receivable 13 296 147 Pledged bank deposits 336 368 Defined benefit assets 4 5 Deferred tax assets — 4 14,042 12,390 Current assets Inventories 2 2 Properties under development for sale 5,642 4,749 Properties held for sale 1,146 1,799 Accounts receivable, deposits and prepayments 13 1,559 1,445 Loan receivable 233 227 Amount due from an associate 2 2 Amounts due from related parties 43 100 Amount due from a minority shareholder of a subsidiary 6 6 Tax recoverable 141 — Early redemption rights on notes 15 29 Pledged bank deposits 826 834 Bank balances and cash 4,067 4,452 13,682 13,645 Current liabilities Accounts payable, deposits received and accrued charges 14 1,793 1,752 Amounts due to related parties 47 73 Amounts due to minority shareholders of subsidiaries 373 267 Tax liabilities 29 76 Bank borrowings - due within one year 2,273 1,683 4,515 3,851 Net current assets 9,167 9,794 Total assets less current liabilities 23,209 22,184	Notes 30.6.2007 31.12.2006 RMB’million RMB’million (unaudited) (audited) Non-current assets Investment properties 12 7,652 6,205 Property, plant and equipment 184 188 Prepaid lease payments 4,198 3,710 Properties under development 1,368 1,760 Interests in associates 4 3 Accounts receivable 13 296 147 Pledged bank deposits 336 368 Defined benefit assets 4 5 Deferred tax assets — 4 14,042 12,390 Current assets Inventories 2 2 Properties under development for sale 5,642 4,749 Properties held for sale 1,146 1,799 Accounts receivable, deposits and prepayments 13 1,559 1,445 Loan receivable 233 227 Amount due from an associate 2 2 Amounts due from related parties 43 100 Amount due from a minority shareholder of a subsidiary 6 6 Tax recoverable 141 — Early redemption rights on notes 15 29 Pledged bank deposits 826 834 Bank balances and cash 4,067 4,452 13,682 13,645 Current liabilities Accounts payable, deposits received and accrued charges 14 1,793 1,752 Amounts due to related parties 47 73 Amounts due to minority shareholders of subsidiaries 373 267 Tax liabilities 29 76 Bank borrowings - due within one year 2,273 1,683 4,515 3,851 Net current assets 9,167 9,794 Total assets less current liabilities 23,209 22,184
	14,042 2 5,642 1,146 1,559 233 2 43 6 141 15 826 4,067 13,682 1,793 47 373 29 2,273 4,515 9,167	12,390
		2 4,749 1,799 1,445 227 2 100 6 — 29 834 4,452
		13,645
		1,752 73 267 76 1,683
		3,851
		9,794
	23,209	22,184

— 91 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

	Notes	30.6.2007	31.12.2006
		RMB’million	RMB’million
		(unaudited)	(audited)
Capital and reserves
Share capital	15	84	84
Reserves		14,708	13,868
Equity attributable to equity holders of the
Company		14,792	13,952
Minority interests		1,457	1,213
Total equity		16,249	15,165
Non-current liabilities
Loan from a minority shareholder of a subsidiary		91	183
Notes	17	2,734	2,762
Bank borrowings - due after one year		1,911	2,032
Deferred tax liabilities		2,178	2,035
Derivative financial instrument designated as
hedging instrument		46	7
		6,960	7,019
		23,209	22,184

— 92 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

		Total	RMB’million		15,165			(14)	(19)	(39)		(72)	1,331		54		1,313	11	8	(248)	16,249
	Minority	interests	RMB’million		1,213			3	—	—		3	233		—		236	—	8	—	1,457
		Total	RMB’million		13,952			(17)	(19)	(39)		(75)	1,098		54		1,077	11	—	(248)	14,792
	Accumulated	profits	RMB’million		2,796			—	—	—		—	1,098		—		1,098	—	—	(248)	3,646
Attributable to equity holders of the Company	Capital Share option Exchange Hedge Other	reserve reserve reserve reserve reserves	RMB’million RMB’million RMB’million RMB’million RMB’million	(Note 18) (Note 16(c))	— — 69 (5) 603			— — (17) — —	— — (19) — —	— — — (39) —		— — (36) (39) —	— — — — —		— — — 54 —		— — (36) 15 —	— 11 — — —	— — — — —	— — — — —	— 11 33 10 603
	Special	reserve	RMB’million	(Note 16(b))	(401)			—	—	—		—	—		—		—	—	—	—	(401)
	Merger	reserve	RMB’million	(Note 16(a))	122			—	—	—		—	—		—		—	—	—	—	122
	Share	premium	RMB’million		10,684			—	—	—		—	—		—		—	—	—	—	10,684
		Share capital	RMB’million		84			—	—	—		—	—		—		—	—	—	—	84
					At 1 January 2007	Net exchange difference arising on	translation of foreign operations and	intra-group balances	Deferred tax on intra-group balances	Loss on cash flow hedge	Net income (expense) recognised directly in	equity	Profit for the period	Transfer to profit or loss on cash flow	hedge	Total recognised income (expense) for the	period	Share-based payments	Capital injection by minority shareholders	Dividends paid	At 30 June 2007 (unaudited)

— 93 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

		Total	RMB’million		5,062			90	(7)	83	834	917	881	1	6	6,867
	Minority	interests	RMB’million		306			1	—	1	276	277	—	—	6	589
		Total	RMB’million		4,756			89	(7)	82	558	640	881	1	—	6,278
	Accumulated	profits	RMB’million		1,749			—	—	—	558	558	—	—	—	2,307
Attributable to equity holders of the Company	Capital Share option Exchange Hedge Other	reserve reserve reserve reserve reserves	RMB’million RMB’million RMB’million RMB’million RMB’million	(Note 18) (Note 16(c))	423 — 32 — 504			— — 89 — —	— — (7) — —	— — 82 — —	— — — — —	— — 82 — —	— — — — —	— — — — —	— — — — —	423 — 114 — 504
	Special	reserve	RMB’million	(Note 16(b))	(424)			—	—	—	—	—	—	1	—	(423)
	Merger	reserve	RMB’million	(Note 16(a))	122			—	—	—	—	—	—	—	—	122
	Share	premium	RMB’million		2,314			—	—	—	—	—	878	—	—	3,192
		Share capital	RMB’million		36			—	—	—	—	—	3	—	—	39
					At 1 January 2006	Net exchange difference arising on	translation of foreign operations and	intra-group balances	Deferred tax on intra-group balances	Net income recognised directly in equity	Profit for the period	Total recognised income for the period	Issue of shares	Release of special reserve	Capital injection	At 30 June 2006 (unaudited)

— 94 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2007

	2007	2006
	RMB’million	RMB’million
	(unaudited)	(unaudited)
Net cash from operating activities	1,453	2,147
Net cash used in investing activities
Additions to properties under development	(1,092)	(1,886)
Additions to prepaid lease payments	(892)	(374)
Decrease (increase) in pledged bank deposits	40	(1,398)
Other investing cash flows	51	10
	(1,893)	(3,648)
Net cash from financing activities
New bank loans raised	1,145	1,358
Repayment of bank loans	(605)	(562)
Dividend paid	(248)	—
Other financing cash flows	(209)	(302)
Net proceeds on issuance of ordinary shares	—	798
	83	1,292
Net decrease in cash and cash equivalents	(357)	(209)
Cash and cash equivalents at the beginning of the period	4,452	1,989
Effect of foreign exchange rate changes	(28)	(54)
Cash and cash equivalents at the end of the period	4,067	1,726
Analysis of the balances of cash and cash equivalents
Bank balances and cash	4,067	1,726

— 95 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2007

1. GENERAL

The Directors of the Company consider that its parent and ultimate holding company is Shui On Company Limited, a private limited liability company incorporated in the British Virgin Islands.

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with International Accounting Standard 34 “Interim Financial Reporting” issued by the International Accounting Standards Board (the “IASB”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for investment properties and certain financial instruments, which are measured at fair values.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2006 except as described below.

In the current interim period, the Group has applied, for the first time, a number of new International Accounting Standards (“IASs”), International Financial Reporting Standards (“IFRSs”) and International Financial Reporting Interpretations Committee Interpretations (“IFRIC”) which are effective for the Group’s financial year beginning 1 January 2007.

The adoption of these new IASs, IFRSs and IFRIC has had no material effect on the results or financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new IASs, IFRSs and IFRIC that have been issued but are not yet effective. The Directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and the financial position of the Group.

IFRIC 11 IFRS 2 - Group and treasury share transactions[1] IFRIC 12 Service concession arrangements[2] IFRIC 13 Customer loyalty programmes[3] IFRIC 14 IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction[2] IAS 1 (Revised) Presentation of Financial Statements[4] IAS 23 (Revised) Borrowing costs[4] IFRS 8 Operating segments[4]

1 Effective for annual periods beginning on or after 1 March 2007

2 Effective for annual periods beginning on or after 1 January 2008

3 Effective for annual periods beginning on or after 1 July 2008

4 Effective for annual periods beginning on or after 1 January 2009

— 96 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SEGMENT INFORMATION

Business segment

Principal activities are as follows:

Property development - development and sale of properties Property investment - property letting

Segment information about these segments are presented below:

For the six months ended 30 June 2007

Property development Property investment Others Consolidated RMB’million RMB’million RMB’million RMB’million TURNOVER External sales 1,943 214 21 2,178 RESULTS Segment results 1,262 476 12 1,750 Interest income 77 Finance costs (56) Loss on change in fair value of derivative financial instruments (14) Gain on disposal of interests in subsidiaries 1 Net unallocated expenses (247) Profit before taxation 1,511 Income tax expense (180) Profit for the period 1,331	Property development Property investment Others Consolidated RMB’million RMB’million RMB’million RMB’million TURNOVER External sales 1,943 214 21 2,178 RESULTS Segment results 1,262 476 12 1,750 Interest income 77 Finance costs (56) Loss on change in fair value of derivative financial instruments (14) Gain on disposal of interests in subsidiaries 1 Net unallocated expenses (247) Profit before taxation 1,511 Income tax expense (180) Profit for the period 1,331	Property development Property investment Others Consolidated RMB’million RMB’million RMB’million RMB’million TURNOVER External sales 1,943 214 21 2,178 RESULTS Segment results 1,262 476 12 1,750 Interest income 77 Finance costs (56) Loss on change in fair value of derivative financial instruments (14) Gain on disposal of interests in subsidiaries 1 Net unallocated expenses (247) Profit before taxation 1,511 Income tax expense (180) Profit for the period 1,331
		1,750
		77 (56) (14) 1 (247)
		1,511 (180)
		1,331

— 97 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

For the six months ended 30 June 2006

	Property	Property
	development	investment	Others	Consolidated
	RMB’million	RMB’million	RMB’million	RMB’million
TURNOVER
External sales	1,945	201	12	2,158
RESULTS
Segment results	1,323	337	5	1,665
Interest income				23
Finance costs				(167)
Gain on change in fair value of derivative financial
instruments				15
Net unallocated expenses				(124)
Profit before taxation				1,412
Income tax expense				(578)
Profit for the period				834

Geographical segment

Over 90% of the Group’s turnover and contribution to operating profit is attributable to customers in the PRC. Accordingly, no analysis of geographical segment is presented.

— 98 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

4. STAFF COSTS

Six months ended 30 June 2007 2006 RMB’million RMB’million Directors’ emoluments Fees 1 — Salaries and other benefits 16 7 Retirement benefit costs — — Share-based payments 7 — 24 7 Other staff costs Salaries and other benefits 136 94 Retirement benefits costs 11 7 Share-based payments 4 — 151 101 Total staff costs 175 108 Less: Amount capitalised to properties under development (41) (44) 134 64	Six months ended 30 June 2007 2006 RMB’million RMB’million Directors’ emoluments Fees 1 — Salaries and other benefits 16 7 Retirement benefit costs — — Share-based payments 7 — 24 7 Other staff costs Salaries and other benefits 136 94 Retirement benefits costs 11 7 Share-based payments 4 — 151 101 Total staff costs 175 108 Less: Amount capitalised to properties under development (41) (44) 134 64	Six months ended 30 June 2007 2006 RMB’million RMB’million Directors’ emoluments Fees 1 — Salaries and other benefits 16 7 Retirement benefit costs — — Share-based payments 7 — 24 7 Other staff costs Salaries and other benefits 136 94 Retirement benefits costs 11 7 Share-based payments 4 — 151 101 Total staff costs 175 108 Less: Amount capitalised to properties under development (41) (44) 134 64
	24 136 11 4 151 175 (41)	7 94 7 —
		101
		108 (44)
	134	64

5. DEPRECIATION AND RELEASE OF PREPAID LEASE PAYMENTS

Six months ended 30 June 2007 2006 RMB’million RMB’million Depreciation of property, plant and equipment 13 13 Less: Amount capitalised to properties under development (1) (1) 12 12 Release of prepaid lease payments 50 39 Less: Amount capitalised to properties under development (49) (38) 1 1 13 13	Six months ended 30 June 2007 2006 RMB’million RMB’million Depreciation of property, plant and equipment 13 13 Less: Amount capitalised to properties under development (1) (1) 12 12 Release of prepaid lease payments 50 39 Less: Amount capitalised to properties under development (49) (38) 1 1 13 13	Six months ended 30 June 2007 2006 RMB’million RMB’million Depreciation of property, plant and equipment 13 13 Less: Amount capitalised to properties under development (1) (1) 12 12 Release of prepaid lease payments 50 39 Less: Amount capitalised to properties under development (49) (38) 1 1 13 13
	12 50 (49) 1	12
		39 (38)
		1
	13	13

— 99 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

6. (LOSS) GAIN ON CHANGE IN FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

	Six months	ended 30 June
	2007	2006
	RMB’million	RMB’million
(Loss) gain on change in fair value of early redemption rights	(14)	1
Gain on change in fair value of warrants	—	14
	(14)	15

7. FINANCE COSTS

	Six months	ended 30 June
	2007	2006
	RMB’million	RMB’million
Interest on bank loans and overdrafts wholly repayable within five years	103	114
Interest on amount due to a shareholder wholly repayable within five years
(Note 22(b)(i))	—	1
Interest on amount due to a minority shareholder of a subsidiary wholly
repayable within five years (Note 22(b)(i))	2	2
Imputed interest on loan from a minority shareholder of a subsidiary wholly
repayable within five years (Note 22(b)(i))	5	5
Interest on consideration payable on acquisition of additional interests in
subsidiaries (Note 22(b)(i))	—	19
Interest on convertible redeemable preference shares	—	196
Interest on notes	116	155
Other finance costs	7	4
	233	496
Less: Amount capitalised to properties under development	(177)	(329)
	56	167

Borrowing cost capitalised during the six months ended 30 June 2007 arose on the general borrowing pool of the Group and was calculated by applying a capitalisation rate of approximately 8% (six months ended 30 June 2006: 12%) to expenditure on the qualifying assets.

— 100 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. INCOME TAX EXPENSE

Six months ended 30 June 2007 2006 RMB’million RMB’million PRC Enterprise Income Tax: Current taxation 50 67 Deferred taxation - Provision for the period 485 511 - Attributable to a change in tax rate of PRC Enterprise Income tax (355) — 130 511 180 578	Six months ended 30 June 2007 2006 RMB’million RMB’million PRC Enterprise Income Tax: Current taxation 50 67 Deferred taxation - Provision for the period 485 511 - Attributable to a change in tax rate of PRC Enterprise Income tax (355) — 130 511 180 578	Six months ended 30 June 2007 2006 RMB’million RMB’million PRC Enterprise Income Tax: Current taxation 50 67 Deferred taxation - Provision for the period 485 511 - Attributable to a change in tax rate of PRC Enterprise Income tax (355) — 130 511 180 578
	485 (355) 130	511 —
		511
	180	578

PRC Enterprise Income Tax has been provided at the applicable income tax rate of 33% on the assessable profits of the companies in the Group during the period.

No provision for Hong Kong Profits Tax has been made as the income of the Group neither arises in, nor is derived from, Hong Kong.

On 16 March 2007, the People’s Republic of China promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the People’s Republic of China, which will change the tax rate from 33% to 25% for certain subsidiaries from 1 January 2008. The deferred tax balance has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

9. PROFIT FOR THE PERIOD

	Six months	ended 30 June
	2007	2006
	RMB’million	RMB’million
Profit for the period has been arrived at after charging (crediting):
Allowance for bad and doubtful debts	3	—
Allowance for amount due from a jointly controlled entity	—	1
Cost of properties held for sale recognised as an expense	654	631
Rental charges under operating leases	26	17
Exchange loss, net	10	—
Interest income	(77)	(23)
Grant received from local government (Note)	(42)	(17)

Note: The amount represented the unconditional grants from PRC government specifically for encouraging the Group’s property development business in Shanghai and Wuhan Province, the PRC.

— 101 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. DIVIDENDS

	Six months	ended 30 June
	2007	2006
	RMB’million	RMB’million
2006 Final dividend paid	248	—
Interim dividend declared in respect of 2007 at HK$0.05 (equivalent to
RMB0.0484) per share (2006: Nil)	203	—

On 29 June 2007, a dividend of HK$0.06 (equivalent to RMB0.0593) per ordinary share was paid to the shareholders as the final dividend in respect of 2006.

The Board has declared the payment of HK$0.05 (equivalent to RMB0.0484) (2006: Nil) per ordinary share as the interim dividend in respect of 2007.

11. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to equity holders of the Company is based on the following data:

	Six months	ended 30 June
	2007	2006
	RMB’million	RMB’million
Earnings
Earnings for the purposes of basic earnings per share, being profit for the
period attributable to equity holders of the Company	1,098	558
Effect of dilutive potential ordinary shares:
Interest on convertible redeemable preference shares charged to consolidated
income statement	—	54
Gain on change in fair value of warrants	—	(14)
Earnings for the purpose of diluted earnings per share	1,098	598

— 102 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Number of shares

	Six months ended 30 June	Six months ended 30 June
	2007	2006
	’million	’million
Weighted average number of ordinary shares for the purposes of basic
earnings per share	4,185	1,802
Effect of dilutive potential ordinary shares:
Convertible redeemable preference shares (Note a)	—	1,326
Warrants (Note a)	—	4
Additional consideration in respect of the Rainbow Sale and Purchase
Agreement (Note 22(a))	—	4
Weighted average number of ordinary shares for the purposes of diluted
earnings per share	4,185	3,136

Notes:

(a) All the outstanding preference shares and warrants were converted into ordinary shares on 4 October 2006, and accordingly, do not affect the calculation of diluted earnings per share for the six months ended 30 June 2007.
(b) No diluted earnings per share has been presented for the six months ended 30 June 2007 because the exercise price of the Company’s share options was higher than the average market price for shares for that period.

12. INVESTMENT PROPERTIES

The investment properties are all situated in the PRC under either long or medium-term leases. All the investment properties are rented out under operating leases.

During the period, prepaid lease payments and properties under development amounting to RMB354 million and RMB818 million, respectively, were transferred to investment properties upon the completion of the construction of such properties.

All of the Group’s investment properties are accounted for using the fair value model. The fair values of the Group’s investment properties at 30 June 2007 and 31 December 2006 have been arrived at on the basis of valuations carried out on those dates by Knight Frank Petty Limited, an independent qualified professional valuers not connected to the Group, who has appropriate qualifications and recent experience in the valuation of similar properties in relevant locations. The valuations, which conform to the “First Edition of The HKIS Valuation Standards on Properties” published by Hong Kong Institute of Surveyors, was based on the rental capitalisation method . The resulting increase in fair value of investment properties of RMB267 million (30 June 2006: RMB168 million) has been recognised directly in the consolidated income statement.

— 103 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. ACCOUNTS RECEIVABLE, DEPOSITS AND PREPAYMENTS

	30 June	31 December
	2007	2006
	RMB’million	RMB’million
Current accounts receivable
(net of allowance for bad and doubtful debts) aged analysis:
Trade receivables
Not yet due	704	190
Within 30 days	83	53
31 - 60 days	19	12
61 - 90 days	17	4
Over 90 days	10	32
	833	291
Consideration receivable on disposal of interests in subsidiaries	2	389
Prepayments of relocation costs	602	617
Deposits, other prepayments and receivables	122	148
	1,559	1,445
Non-current accounts receivable comprise:
Receivables from sales of properties (Note)	262	114
Deferred rental receivables	34	33
	296	147

Trade receivables comprise:

(i) receivables arising from sales of properties which are due for settlement in accordance with the terms of the related sale and purchase agreements; and
(ii) rental receivables which are due for settlement upon issuance of monthly debit notes to the tenants.

Note:

The amount comprises:

(a) An amount of RMB115 million (31 December 2006: RMB114 million) which is denominated in US dollars, unsecured and repayable on or before 31 December 2010. Interest are payable as follows:
(i) the whole amount is interest free from 1 January 2007 to 31 December 2007;
(ii) half of the amount is interest free and the remaining amount bears interest at 5% per annum from 1 January 2008 to 31 December 2008;

— 104 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(iii) the whole amount bears interest at simple interest rate of 6% per annum from 1 January 2009 to 31 December 2009; and
(iv) the full amount bears interest at simple interest rate of 8% per annum from 1 January 2010 to 31 December 2010.

The amount is carried at amortised cost at effective interest rate of 8% per annum.

(b) An amount of RMB147 million (31 December 2006: Nil) which is unsecured, interest free and repayable on the last day of the 36th month upon the issue of the Certificate of Real Estate to the buyer.

The amount is carried at amortised cost at effective interest rate of 6.75% per annum.

14. ACCOUNTS PAYABLE, DEPOSITS RECEIVED AND ACCRUED CHARGES

30 June 31 December 2007 2006 RMB’million RMB’million Accounts payable aged analysis: Trade payable Not yet due 622 722 Within 30 days 17 14 639 736 Retention payables (Note) 53 76 Deed tax, business tax and other tax payables 658 673 Deposits received and receipt in advance from property sales 92 20 Deposits received and receipt in advance in respect of rental of investment properties 127 124 Deposits received on partial disposal of equity interests in subsidiaries (Notes 23(b) and (c)) 80 — Other payables and accrued charges 144 123 1,793 1,752	30 June 31 December 2007 2006 RMB’million RMB’million Accounts payable aged analysis: Trade payable Not yet due 622 722 Within 30 days 17 14 639 736 Retention payables (Note) 53 76 Deed tax, business tax and other tax payables 658 673 Deposits received and receipt in advance from property sales 92 20 Deposits received and receipt in advance in respect of rental of investment properties 127 124 Deposits received on partial disposal of equity interests in subsidiaries (Notes 23(b) and (c)) 80 — Other payables and accrued charges 144 123 1,793 1,752	30 June 31 December 2007 2006 RMB’million RMB’million Accounts payable aged analysis: Trade payable Not yet due 622 722 Within 30 days 17 14 639 736 Retention payables (Note) 53 76 Deed tax, business tax and other tax payables 658 673 Deposits received and receipt in advance from property sales 92 20 Deposits received and receipt in advance in respect of rental of investment properties 127 124 Deposits received on partial disposal of equity interests in subsidiaries (Notes 23(b) and (c)) 80 — Other payables and accrued charges 144 123 1,793 1,752
	639 53 658 92 127 80 144	736 76 673 20 124 — 123
	1,793	1,752

Note: Retention payables are expected to be repaid upon the expiry of the retention periods according to the respective contracts.

— 105 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. SHARE CAPITAL

Ordinary shares of US$0.0025 each At 31 December 2006 and 30 June 2007 Shown in the condensed consolidated balance sheet a	Authorised Issued and fully paid Number of shares US$’000 Number of shares US$’000 12,000,000,000 30,000 4,185,097,171 10,463 30 June 31 December 2007 2006 RMB’million RMB’million s 84 84

OTHER RESERVES
(a) Merger reserve represents the aggregate of:
- (i) the difference between the nominal value of the share capital and share premium issued by the Company and the aggregate of the share capital and share premium of the holding companies of the subsidiaries acquired;
- (ii) the share of profit attributable to the deemed minority shareholders exchanged upon the group reorganisation in 2004; and
- (iii) the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in the subsidiaries being acquired from a minority shareholder upon the group reorganisation in 2004.
(b) Special reserve represents the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in the subsidiaries being acquired from minority shareholders, which will be recognised in the income statement upon the earlier of the disposal of the subsidiaries or the disposal by the subsidiaries of the assets to which it relates.
(c) Other reserve comprises:
- (i) The amount of RMB483 million represents payable waived in 2004 by Shui On Investment Company Limited, a subsidiary of Shui On Company Limited, in respect of development costs of the same amount originally paid by Shanghai Shui On Property Development Management Co., Ltd., a fellow subsidiary of Shui On Investment Company Limited, and recharged to certain subsidiaries of the Company.
- (ii) Capital contribution of RMB21 million arising on the fair value adjustments at the initial recognition of an interest free loan advanced by a minority shareholder of a subsidiary in 2005.
- (iii) Non-distributable reserve of RMB99 million arising from the capitalisation of retained profits as registered capital of a subsidiary in the PRC.

— 106 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. NOTES

The notes, which are denominated in United States dollars, bear interest at the rate of 8.5% per annum, payable semi-annually in arrears and will mature on 12 October 2008, unless earlier redeemed. The interest charged for the period is calculated by applying an effective interest rate of approximately 12% (30 June 2006: 12%) to the notes for the period since the notes were issued.

The principal terms of the notes

The notes are:

(a) general, unsecured obligations of Shui On Development (Holding) Limited (the “Note Issuer”), a wholly owned subsidiary of the Company;
(b) senior in right of payment to any existing and future obligations of the Note Issuer expressly subordinated in right of payment to the notes;
(c) pari passu in right of payment with all other unsecured, unsubordinated indebtedness of the Note Issuer (subject to any priority rights of such unsubordinated indebtedness pursuant to applicable law); and
(d) effectively subordinated to all existing and future obligations of the Note Issuer’s subsidiaries.

12-month	period	commencing	in	year	Percentage
2005					108.50%
2006					104.25%
2007					100.00%

18. SHARE BASED PAYMENT

The Company’s share option scheme (“the Scheme”) was adopted pursuant to a resolution passed by the shareholders on 8 June 2007. Under the Scheme, 146,888,190 share options were granted on 20 June 2007 to the eligible employees and a director (Grant 1), directors and consultants (Grant 2) and a consultant (Grant 3). The fair values of the options determined at the date of grant using the Binomial option pricing model ranged from HK$2.02 to HK$3.10 per option. Share option expense of RMB11 million was recognised during the six months ended 30 June 2007.

The following assumptions were used to calculate the fair values of share options:

Closing	share	price	at	the	date	of	grant	HK$6.98
Exercise	price							HK$7.00

— 107 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Details of the vesting periods in respect of the options granted during the period are as follows:

Grant 1	Vesting period	Options exercisable period
Tranche 1	From 20 June 2007 to 19 June 2009	From 20 June 2009 to 19 June 2014
Tranche 2	From 20 June 2007 to 19 June 2010	From 20 June 2010 to 19 June 2015
Tranche 3	From 20 June 2007 to 19 June 2011	From 20 June 2011 to 19 June 2016
Tranche 4	From 20 June 2007 to 19 June 2012	From 20 June 2012 to 19 June 2016
Tranche 5	From 20 June 2007 to 19 June 2013	From 20 June 2013 to 19 June 2016
Tranche 6	From 20 June 2007 to 19 June 2014	From 20 June 2014 to 19 June 2016
Tranche 7	From 20 June 2007 to 19 June 2015	From 20 June 2015 to 19 June 2016
Grant 2
Tranche 1	Unconditional and fully vested at 20 June 2007	From 20 June 2007 to 19 June 2012
Tranche 2	Unconditional and fully vested at 20 June 2007	From 20 June 2007 to 19 June 2012
Grant 3
Tranche 1	Unconditional and fully vested at 20 June 2007	From 20 June 2007 to 19 June 2012
Tranche 2	From 20 June 2007 to 19 June 2008	From 20 June 2008 to 19 June 2013
Tranche 3	From 20 June 2007 to 19 June 2009	From 20 June 2009 to 19 June 2014
Tranche 4	From 20 June 2007 to 19 June 2010	From 20 June 2010 to 19 June 2015
Tranche 5	From 20 June 2007 to 19 June 2011	From 20 June 2011 to 19 June 2016
Expected option life		3.42 years to 8.76	years
Expected volatility		40%-45%
Dividend yield			2.5%
Risk-free interest rate		4.45%-4.68%

The Binomial option pricing model has been used to estimate the fair values of the options. The variables and assumptions used in computing the fair values of the share options are based on the Directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

— 108 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. DISPOSAL OF INTERESTS IN SUBSIDIARIES

On 14 February 2007, the Group disposed of the entire equity interests in Bestwealth Holdings Limited and Shanghai Xintiandi Huting Food & Beverage Co., Ltd. to an independent third party for an aggregate cash consideration of RMB11 million. The net assets of the disposed subsidiaries at the date of disposal were as follows:

RMB’million

Net assets disposed of: Property, plant and equipment Bank balances and cash Other payables and accrued charges Exchange reserve realised Gain on disposal Total consideration Satisfied by: Cash consideration Deferred consideration Net cash inflow arising on disposal: Cash consideration Bank balances and cash disposed of	5 7 (1
	11 (1
	10 1
	11
	9 2
	11
	9 (7
	2

The deferred consideration was settled in cash by the purchaser in August 2007.

— 109 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. PLEDGE OF ASSETS

The following assets were pledged to banks as securities to obtain certain banking facilities at the balance sheet date:

	30 June	31 December
	2007	2006
	RMB’million	RMB’million
Investment properties	6,598	6,205
Property, plant and equipment	88	90
Prepaid lease rentals	180	260
Properties under development	939	1,053
Properties held for sale	783	950
Bank deposits	1,162	1,202
	9,750	9,760

In addition, the equity interests in certain subsidiaries were also pledged to banks as securities to obtain banking facilities at the balance sheet date.

21. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As at the respective balance sheet dates, the Group had the following commitments:

	30 June	31 December
	2007	2006
	RMB’million	RMB’million
Contracted but not provided for:
Capital expenditure in respect of properties under development in the PRC	4,469	3,874
Capital expenditure in respect of the acquisition of property, plant and
equipment	3	2

(b) Other commitments

At 30 June 2007, the Group had commitment in respect of an investment project contracted but not provided for in the condensed consolidated financial statements amounting to approximately HK$1,108 million (equivalent to approximately RMB1,120 million). In the event of any third party funding is required for the development of the investment project, the Group shall provide guarantee for the fund up to a maximum aggregate amount of RMB240 million. Details of the transaction subsequent to the balance sheet date are set out in note 23(a).

Except as disclosed above, there have been no material changes in the Group’s other commitments since 31 December

— 110 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 December 2006, certain subsidiaries of the Company had outstanding guarantees issued in favour of banks amounting to RMB414 million in respect of mortgage facilities granted to the buyers of its residential properties. There were no such guarantees outstanding at 30 June 2007.

Except as disclosed above, there have been no material changes in the Group’s other contingent liabilities since 31 December 2006.

22. RELATED PARTY TRANSACTIONS

Apart from the related party transactions and balances as stated in notes 7 and 23 and the consolidated balance sheet, the Group was also had the following transactions with related parties during the period.

(a) On 2 March 2006, the Company issued and allotted a total of 2,933,333 ordinary shares of US$0.01 each (which were subsequently sub-divided into 11,733,332 ordinary shares of US$0.0025 each in May 2006), credited as fully paid, to Shui On Construction and Materials Limited, a subsidiary of Shui On Company Limited, as settlement of additional consideration pursuant to a sale and purchase agreement dated 18 February 2004 (the “Rainbow Sale and Purchase Agreement”) entered into between Shui On Construction and Materials Limited and the Company in a connection with the acquisition of certain subsidiaries from Shui On Construction and Materials Limited.
(b) The Group also had the following transactions with related companies as follows:
(i) Nature of transaction

	Six months	ended 30 June
	2007	2006
	RMB million	RMB million
Related company in which directors of the Company
have beneficial interest
Project management fee income	10	—
Fellow subsidiaries
Project construction fees	19	9
Rental and building management fee expenses	11	9
Associate
Rental and building management fee expenses	2	—
Shareholder
Interest expenses	—	1
Rental and building management fee expenses	1	—
Minority shareholders of subsidiaries
Interest income	14	—
Interest expenses	7	26
Property management fee	2	2
Jointly controlled entity
Rental and building management fee income	2	2

— 111 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. EVENTS AFTER THE BALANCE SHEET DATE

(a) On 25 May 2007, the Group entered into a joint venture agreement with a wholly owned subsidiary of Shui On Construction and Materials Limited and an independent third party in relation to the formation of a joint venture for the development of Dalian Software Park Phase II (“Dalian Project”), whereby the Group ultimately holds a 48% effective interest in the Dalian Project. Pursuant to the joint venture agreement, the Group has provided a shareholder’s loan amounting to HK$1,108 million (equivalent to RMB1,078 million) to the joint venture on 24 July 2007. Details of the transactions are set out in a circular to the shareholders of the Company dated 4 June 2007.
(b) Pursuant to a sale and purchase agreement dated 29 June 2007 entered into between Shui On Development (Holding) Limited (“SOD”), a wholly owned subsidiary of the Company, as seller and an independent third party as purchaser, SOD agreed to sell to the purchaser a 25% of the issued share capital of Fieldcity Investments Limited (“Fieldcity”), a then wholly owned subsidiary of the Company. In addition, the purchaser also agreed to acquire the benefit of the shareholder’s loans advanced to Fieldcity by SOD amounting to US$98 million. The completion of the disposal is subject to the conditions set out in the agreement. The consideration for the disposal of the equity interest and the benefit of the shareholder’s loans, which amounted to RMB1,245 million, is receivable by five instalments. The first instalment in the sum of RMB62 million was settled on 29 June 2007. The second to fifth instalments in the sum of RMB1,183 million, which bear interest at the People’s Bank of China (“PBOC”) Prescribed Interest Rate, shall be received on or before 15 October 2007, 15 March 2008, 15 July 2008 and 15 October 2008 respectively.
(c) Pursuant to a sale and purchase agreement dated 29 June 2007 entered into between SOD as seller and the independent third party referred to in (b) above as purchaser, SOD agreed to sell to the purchaser a 49% of the issued share capital of Portspin Limited (“Portspin”), a then wholly owned subsidiary of the Company. The completion of the disposal is subject to the conditions set out in the agreement. The consideration for the disposal of the equity interest, which amounted to approximately RMB364 million, is receivable by three instalments. The first instalment in the sum of RMB18 million was settled on 29 June 2007. The second instalment in the sum of RMB182 million, which bears interest at PBOC Prescribed Interest Rate, shall be received on or before 15 October 2007. The third instalment on the remaining sum of RMB164 million, which bears interest at PBOC Prescribed Interest Rate, shall be received on or before 15 March 2008.
(d) Pursuant to a sale and purchase agreement dated 31 July 2007 entered into among Equity Millennium Limited (“Equity Millennium”) and Shun Hing China Investment Limited (“Shun Hing”) collectively as sellers (the “Sellers”) and SOD as purchaser, SOD agreed to acquire 30% of the issued share capital of a then 70% owned subsidiary, Profitstock Holding Limited (“Profitstock”), from the Sellers. In addition, SOD also agreed to acquire the benefit of the shareholders’ loans advanced to Profitstock by the Sellers amounting to RMB 121 million. The consideration for the acquisition of the 30% of the issued share capital of Profitstock and the benefit of the shareholders’ loans, which amounted to US$116 million (approximately equivalent to RMB884 million), is payable in cash by two instalments. The first instalment amounting to US$58 million (equivalent to RMB442 million) was settled on 31 July 2007. The second instalment in the remaining sum of US$58 million (equivalent to RMB442 million) will be paid on completion of the above transaction.

The completion of the acquisition is subject to the conditions set out in the agreement. Details of the acquisition have been set out in an announcement of the Company dated 31 July 2007.

— 112 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(e) On 14 August 2007, an agreement (the “Amendment Agreement”) was entered into between and pursuant to which the registered capital in Shanghai Yangpu Centre Development Company Limited (“Yangpu”), a then 70% owned subsidiary of the Company, shall be increased by US$77 million from US$61 million to US$138 million. Bright Continental Limited, a wholly owned subsidiary of the Company and the holder of a 70% equity interest in Yangpu, shall inject US$77 million, being the entire amount of the increase in equity capital of Yangpu. In addition, the Company shall inject a premium of approximately US$9 million in cash as additional capital contribution in Yangpu. The minority shareholders of the remaining 30% equity interest in Yangpu will not participate in the injection of any additional equity capital into Yangpu.

Upon completion of the Amendment Agreement, the Group’s interest in Yangpu will be increased from 70% to 86.8%.

INDEBTEDNESS OF THE GROUP

Indebtedness

As at the close of business on 31 July 2007, being the latest practicable date for the purpose of this indebtedness prior to the printing of this Circular, the Group had the borrowings amounting to approximately RMB8,225 million, details of which are as follows:

Borrowings

The following table illustrates the Group’s bank and other borrowings as at 31 July 2007:

	RMB’ million
Bank borrowings — due within one year	2,333
Bank borrowings — due after one year	1,875
Notes	2,738
Amounts due to related parties	67
Loans from minority shareholders of subsidiaries	838
Amounts due to minority shareholders of subsidiaries	374
	8,225
Secured	4,208
Unsecured	4,017
	8,225

— 113 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

As at 31 July 2007, the Group had the following assets pledged to banks as securities to obtain certain banking facilities:

RMB’ million

Investment properties Property, plant and equipment Prepaid lease payments Properties under development Properties held for sale Bank deposits	6,598 88 180 940 661 1,088
	9,555

In addition, the equity interests in certain subsidiaries, insurance over their assets and properties, the proceeds of the rental and sale of completed properties were also pledged to bank as securities to obtain banking facilities at 31 July 2007.

Contingent liabilities

Pursuant to an agreement entered into with the district government (the “Hongkou Government”) and the Education Authority of the Hongkou District, Shanghai, the PRC on 31 July 2002, guarantees of no more than RMB324 million will be granted by the Group to support bank borrowings arranged in the name of a company to be nominated by the Hongkou Government, as part of the financial arrangement for the site clearance work in relation to the development of a parcel of land. As at 31 July 2007, no amount had been drawn down under this arrangement.

Disclaimer

Save as disclosed above and apart from intra-group liabilities, the Group did not have any loan capital issued and outstanding, and authorised or otherwise created but unissued, or agreed to be issued, bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or hire purchase commitments, guarantees or other material contingent liabilities as at the close of business on 31 July 2007.

WORKING CAPITAL

The Directors are of the opinion that taking into account the Group’s internal resources, available banking and other borrowing facilities, the Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of this Circular.

— 114 —

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

NO MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, being the date to which the latest published audited accounts of the Group were made up.

— 115 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

The following is the text of a report, prepared for inclusion in this circular, from the reporting accountants of Shui On Land Limited, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [75 x 57] intentionally omitted <==

==> picture [81 x 35] intentionally omitted <==

28 September 2007

The Directors Shui On Land Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Profitstock Holdings Limited (“Profitstock”) and its subsidiaries (hereinafter collectively referred to as the “Profitstock Group”) for each of the three years ended 31 December 2006 and the six months ended 30 June 2007 (the “Relevant Periods”) for inclusion in the circular of Shui On Land Limited (“SOL”) dated 28 September 2007 (the “Circular”) in connection with a major and connected transaction in respect of the acquisition of further interests in Profitstock, a subsidiary of SOL.

Profitstock is a private limited liability company incorporated in the British Virgin Islands (“BVI”) on 2 June 2005. Pursuant to a business combination between companies under common control (the “Group Reorganisation”) as described in note 30(a), Profitstock became the holding company of the Profitstock Group.

As at the date of this report, Profitstock has the following subsidiaries:

	Place and date of	Issued and fully	Attributable
	incorporation/	paid share capital/	equity	Place of	Principal
Name of subsidiary	establishment	registered capital	interest held	operation	activities
Galore Profits Limited	BVI	1 ordinary share of	100%	Hong Kong	Investment
	23 January 2001	US$1			holding
Oriental Gain Limited	Hong Kong	2 ordinary shares	100%	Hong Kong	Investment
	2 February 2001	of HK$1 each			holding
Shanghai Jing-Fu	People’s Republic of	Registered and	99%	PRC	Property
Property Co., Ltd.	China (“PRC”)	paid up capital			development
	26 December 2001	RMB400,000,000

Notes:

Profitstock directly holds the equity interest in Galore Profits Limited. All other equity interests shown above are indirectly held by Profitstock.
Shanghai Jing-Fu Property Co., Ltd. is a sino-foreign joint venture company established in the PRC with a joint venture period of 70 years.

— 116 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

Profitstock adopts 31 March as the financial year end date. For the purpose of this report, period end date of 31 December, which is consistent to the financial year end date of SOL, is adopted to present the financial information of Profitstock.

Shanghai Jing-Fu Property Co., Ltd. adopts 31 December as the financial year end date. The remaining subsidiaries have adopted 31 March as the financial year end date since the respective dates of incorporation up to 31 March 2006. Subsequent to 31 March 2006, these subsidiaries have changed their financial year end date from 31 March to 31 December.

No audited financial statements have been prepared for Profitstock and Galore Profits Limited as these companies are not subject to any statutory audit requirements in the jurisdiction of incorporation.

We have audited the financial statements of Oriental Gain Limited for each of the three years ended 31 March 2006 prepared under accounting principles generally accepted in Hong Kong.

The statutory financial statements of Shanghai Jing-Fu Property Co., Ltd. for each of the three years ended 31 December 2006, which were prepared in accordance with the relevant accounting principles and financial regulations applicable to the enterprises established in the PRC, were audited by Shanghai Fuxingmingfang Certified Public Accountants ( ).

For the purpose of this report, we have undertaken our own independent audit in accordance with Hong Kong Standards on Auditing (“HKSA”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) on the consolidated financial statements of the Profitstock Group for the Relevant Periods (the “Underlying Financial Statements”) which have been prepared by the directors of Profitstock in accordance with International Financial Reporting Standards (“IFRS”).

We have examined the Underlying Financial Statements for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The Financial Information of the Profitstock Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 2 of Section A below.

The preparation of the Underlying Financial Statements is the responsibility of the directors of Profitstock who approved their issue. The directors of the SOL are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion, based on our examination and review, on the Financial Information and to report our opinion to you.

— 117 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

In our opinion, on the basis of presentation set out in note 2 of Section A below, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Profitstock Group as at 31 December 2004, 31 December 2005, 31 December 2006 and 30 June 2007 and of Profitstock as at 31 December 2005, 31 December 2006 and 30 June 2007 and of the consolidated results and cash flows of the Profitstock Group for each of the three years ended 31 December 2006 and the six months ended 30 June 2007.

The comparative consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements of the Profitstock Group for the six months ended 30 June 2006 together with the notes thereon have been extracted from the Profitstock Group’s unaudited consolidated financial information for the same period (the “30 June 2006 Financial Information”) which was prepared by the directors of the Profitstock solely for the purpose of this report. We have reviewed the 30 June 2006 Financial Information in accordance with the Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquires of the Profitstock Group’s management and applying analytical procedures to the 30 June 2006 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 June 2006 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 30 June 2006 Financial Information.

— 118 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

A. FINANCIAL INFORMATION OF THE PROFITSTOCK GROUP

CONSOLIDATED INCOME STATEMENTS

Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) — — 3,531,113 1,771,714 1,729,451 — — (1,241,441) (566,247) (549,344) — — 2,289,672 1,205,467 1,180,107 921 24,245 17,533 11,228 38,006 — (1,122) (1,654) (169) (2,109) — (5) (91) (31) (68) (19,491) (22,833) (141,480) (43,167) (90,951) — — (2,650) — — (18,570) 285 2,161,330 1,173,328 1,124,985 6,046 336 (728,098) (392,988) (375,895) (12,524) 621 1,433,232 780,340 749,090 (12,401) 628 1,417,717 772,365 741,473 (123) (7) 15,515 7,975 7,617 (12,524) 621 1,433,232 780,340 749,090	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) — — 3,531,113 1,771,714 1,729,451 — — (1,241,441) (566,247) (549,344) — — 2,289,672 1,205,467 1,180,107 921 24,245 17,533 11,228 38,006 — (1,122) (1,654) (169) (2,109) — (5) (91) (31) (68) (19,491) (22,833) (141,480) (43,167) (90,951) — — (2,650) — — (18,570) 285 2,161,330 1,173,328 1,124,985 6,046 336 (728,098) (392,988) (375,895) (12,524) 621 1,433,232 780,340 749,090 (12,401) 628 1,417,717 772,365 741,473 (123) (7) 15,515 7,975 7,617 (12,524) 621 1,433,232 780,340 749,090	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) — — 3,531,113 1,771,714 1,729,451 — — (1,241,441) (566,247) (549,344) — — 2,289,672 1,205,467 1,180,107 921 24,245 17,533 11,228 38,006 — (1,122) (1,654) (169) (2,109) — (5) (91) (31) (68) (19,491) (22,833) (141,480) (43,167) (90,951) — — (2,650) — — (18,570) 285 2,161,330 1,173,328 1,124,985 6,046 336 (728,098) (392,988) (375,895) (12,524) 621 1,433,232 780,340 749,090 (12,401) 628 1,417,717 772,365 741,473 (123) (7) 15,515 7,975 7,617 (12,524) 621 1,433,232 780,340 749,090	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) — — 3,531,113 1,771,714 1,729,451 — — (1,241,441) (566,247) (549,344) — — 2,289,672 1,205,467 1,180,107 921 24,245 17,533 11,228 38,006 — (1,122) (1,654) (169) (2,109) — (5) (91) (31) (68) (19,491) (22,833) (141,480) (43,167) (90,951) — — (2,650) — — (18,570) 285 2,161,330 1,173,328 1,124,985 6,046 336 (728,098) (392,988) (375,895) (12,524) 621 1,433,232 780,340 749,090 (12,401) 628 1,417,717 772,365 741,473 (123) (7) 15,515 7,975 7,617 (12,524) 621 1,433,232 780,340 749,090	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) — — 3,531,113 1,771,714 1,729,451 — — (1,241,441) (566,247) (549,344) — — 2,289,672 1,205,467 1,180,107 921 24,245 17,533 11,228 38,006 — (1,122) (1,654) (169) (2,109) — (5) (91) (31) (68) (19,491) (22,833) (141,480) (43,167) (90,951) — — (2,650) — — (18,570) 285 2,161,330 1,173,328 1,124,985 6,046 336 (728,098) (392,988) (375,895) (12,524) 621 1,433,232 780,340 749,090 (12,401) 628 1,417,717 772,365 741,473 (123) (7) 15,515 7,975 7,617 (12,524) 621 1,433,232 780,340 749,090
— 921 — — (19,491) — (18,570) 6,046	— 24,245 (1,122) (5) (22,833) — 285 336	2,289,672 17,533 (1,654) (91) (141,480) (2,650) 2,161,330 (728,098)	1,205,467 11,228 (169) (31) (43,167) — 1,173,328 (392,988)	1,180,107 38,006 (2,109 (68 (90,951 —
				1,124,985 (375,895
(12,524)	621	1,433,232	780,340
(12,401) (123)	628 (7)	1,417,717 15,515	772,365 7,975	741,473 7,617
(12,524)	621	1,433,232	780,340

— 119 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

BALANCE SHEETS

THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	PROFITSTOCK	PROFITSTOCK	PROFITSTOCK
As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 307 669 506 — — — — — 113,587 — — 135,000 106,124 — — 6,361 6,697 — 112,792 7,366 249,093 1,098,596 1,480,266 — — — 938,102 299 9 210,887 — — 227,067 30,811 18,553 510,727 — — — — — 9,489 — 5,527 — 4,201 79,240 992,220 1,133,907 1,583,595 2,888,492 35,528 73,057 444,984 767,449 795,176 548,476 1,438 1,438 — 263,012 731,798 — 1,067,427 1,601,469 993,460 66,480 (17,874) 1,895,032			As at 30 June 2007 RMB’000 460 — 261,974 135,000 — — 397,434 — 395,921 767,369 232,831 997,086 — 141,496 — 1,211,737 3,746,440 353,752 521,012 — — 874,764 2,871,676	As at 31 December 2005 RMB’000 — 31,453 — — — — 31,453 — — — 1 402,941 — — — 402,942 — 423,093 — — 423,093 (20,151)	As at 31 December 2006 RMB’000 — 51,120 — — — — 51,120 — — — 1 393,370 — — — 393,371 — 417,195 — — 417,195 (23,824)	As at 30 June 2007 RMB’000 — 51,120 — — — —
						51,120
						— — — 1 378,462 — — —
						378,463
						— 408,266 — —
						408,266
						(29,803)
179,272	(10,508)	2,144,125	3,269,110	11,302	27,296	21,317

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APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

THE PROFITSTOCK GROUP As at 31 December As at 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 — 1 1 1 (15,001) (14,373) 1,403,344 2,144,817 (15,001) (14,372) 1,403,345 2,144,818 3,871 3,864 19,379 26,996 (11,130) (10,508) 1,422,724 2,171,814 190,402 — — — — — 721,401 1,097,296 190,402 — 721,401 1,097,296 179,272 (10,508) 2,144,125 3,269,110	PROFITSTOCK	PROFITSTOCK	PROFITSTOCK
As at 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 — 1 1 (15,001) (14,373) 1,403,344 (15,001) (14,372) 1,403,345 3,871 3,864 19,379 (11,130) (10,508) 1,422,724 190,402 — — — — 721,401 190,402 — 721,401 179,272 (10,508) 2,144,125	As at 31 December 2005 RMB’000 1 11,301 11,302 — 11,302 — — — 11,302	As at 31 December 2006 RMB’000 1 27,295 27,296 — 27,296 — — — 27,296	As at 30 June 2007 RMB’000 1 21,316
			21,317 —
			21,317
			— —
			—
			21,317

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

THE PROFITSTOCK GROUP

Attributable to equity holders of Profitstock	Attributable to equity holders of Profitstock	Attributable to equity holders of Profitstock		Total RMB’000 1,394 (12,524) (11,130) 621 1 (10,508) 1,433,232 1,422,724 749,090 2,171,814 (10,508) 780,340 769,832
Share capital Accumulated (losses) profits RMB’000 RMB’000 — (2,600) — (12,401) — (15,001) — 628 1 — 1 (14,373) — 1,417,717 1 1,403,344 — 741,473		Total RMB’000 (2,600) (12,401) (15,001) 628 1 (14,372) 1,417,717 1,403,345 741,473	Minority interests RMB’000 3,994 (123) 3,871 (7) — 3,864 15,515 19,379 7,617	Total RMB’000 1,394 (12,524
				(11,130 621 1
				(10,508 1,433,232
				1,422,724 749,090
1	2,144,817	2,144,818	26,996
1 —	(14,373) 772,365	(14,372) 772,365	3,864 7,975	(10,508 780,340
1	757,992	757,993	11,839

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENTS

Year ended 31 2004 2005 RMB’000 RMB’000 (18,570) 285 — 5 — — — — (53) (18)	Year ended 31 2004 2005 RMB’000 RMB’000 (18,570) 285 — 5 — — — — (53) (18)	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) 2,161,330 1,173,328 1,124,985 91 31 68 2,650 — — 75 — — (17,207) (3,068) (32,853) 2,146,939 1,170,291 1,092,200 (324,465) (720,125) (700,468) 1,228,395 562,321 542,181 371,927 487,470 (91,232) 3,422,796 1,499,957 842,681 (9,489) (9,489) (132,007) 3,413,307 1,490,468 710,674 17,207 3,068 28,452 (67) (51) (22) (636,613) (503,005) — (227,067) — (232,831) — — 227,067 (135,000) — — (492,174) (157) (486,359) 5,527 (1,044,778) — (1,468,187) (1,544,923) (463,693)	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) 2,161,330 1,173,328 1,124,985 91 31 68 2,650 — — 75 — — (17,207) (3,068) (32,853) 2,146,939 1,170,291 1,092,200 (324,465) (720,125) (700,468) 1,228,395 562,321 542,181 371,927 487,470 (91,232) 3,422,796 1,499,957 842,681 (9,489) (9,489) (132,007) 3,413,307 1,490,468 710,674 17,207 3,068 28,452 (67) (51) (22) (636,613) (503,005) — (227,067) — (232,831) — — 227,067 (135,000) — — (492,174) (157) (486,359) 5,527 (1,044,778) — (1,468,187) (1,544,923) (463,693)	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) 2,161,330 1,173,328 1,124,985 91 31 68 2,650 — — 75 — — (17,207) (3,068) (32,853) 2,146,939 1,170,291 1,092,200 (324,465) (720,125) (700,468) 1,228,395 562,321 542,181 371,927 487,470 (91,232) 3,422,796 1,499,957 842,681 (9,489) (9,489) (132,007) 3,413,307 1,490,468 710,674 17,207 3,068 28,452 (67) (51) (22) (636,613) (503,005) — (227,067) — (232,831) — — 227,067 (135,000) — — (492,174) (157) (486,359) 5,527 (1,044,778) — (1,468,187) (1,544,923) (463,693)
(18,623) (181) — 13,909 (4,895) — (4,895) 53 (117) (157,953) — — — (23,911) (87,752) (269,680)	272 290 — 37,529 38,091 — 38,091 18 (441) (330,414) — — — 12,258 100,597 (217,982)	2,146,939 (324,465) 1,228,395 371,927 3,422,796 (9,489) 3,413,307 17,207 (67) (636,613) (227,067) — (135,000) (492,174) 5,527 (1,468,187)	1,170,291 (720,125) 562,321 487,470 1,499,957 (9,489) 1,490,468 3,068 (51) (503,005) — — — (157) (1,044,778) (1,544,923)	1,092,200 (700,468 542,181 (91,232
				842,681 (132,007
				710,674
				28,452 (22 — (232,831 227,067 — (486,359 —
				(463,693

— 123 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

Year ended 31 2004 2005 RMB’000 RMB’000 FINANCING ACTIVITIES Net proceeds on issuance of shares — 1 Advance from (repayment to) related parties 63,284 27,727 Repayment to a minority shareholder of a subsidiary — — New bank loans raised 229,339 278,384 Repayment of bank loans — — Interest paid (27,155) (51,182) NET CASH FROM (USED IN) FINANCING ACTIVITIES 265,468 254,930 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,107) 75,039 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD 13,308 4,201 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR/PERIOD 4,201 79,240 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 4,201 79,240	Year ended 31 2004 2005 RMB’000 RMB’000 FINANCING ACTIVITIES Net proceeds on issuance of shares — 1 Advance from (repayment to) related parties 63,284 27,727 Repayment to a minority shareholder of a subsidiary — — New bank loans raised 229,339 278,384 Repayment of bank loans — — Interest paid (27,155) (51,182) NET CASH FROM (USED IN) FINANCING ACTIVITIES 265,468 254,930 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,107) 75,039 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD 13,308 4,201 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR/PERIOD 4,201 79,240 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 4,201 79,240	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) — — — (246,700) 73,287 (27,464) (1,438) — — 544,647 26,069 — (1,276,445) — — (52,204) (36,606) — (1,032,140) 62,750 (27,464) 912,980 8,295 219,517 79,240 79,240 992,220 992,220 87,535 1,211,737 992,220 87,535 1,211,737	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) — — — (246,700) 73,287 (27,464) (1,438) — — 544,647 26,069 — (1,276,445) — — (52,204) (36,606) — (1,032,140) 62,750 (27,464) 912,980 8,295 219,517 79,240 79,240 992,220 992,220 87,535 1,211,737 992,220 87,535 1,211,737	December Six months ended 30 June 2006 2006 2007 RMB’000 RMB’000 RMB’000 (unaudited) — — — (246,700) 73,287 (27,464) (1,438) — — 544,647 26,069 — (1,276,445) — — (52,204) (36,606) — (1,032,140) 62,750 (27,464) 912,980 8,295 219,517 79,240 79,240 992,220 992,220 87,535 1,211,737 992,220 87,535 1,211,737
265,468 (9,107) 13,308	254,930 75,039 4,201	(1,032,140) 912,980 79,240	62,750 8,295 79,240	(27,464
				219,517 992,220
4,201 4,201	79,240 79,240	992,220 992,220	87,535 87,535

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

1. GENERAL

Profitstock is a private limited liability company incorporated in the BVI. The directors of Profitstock consider that its parent is Shui On Development (Holding) Limited, a private limited liability company incorporated in the Cayman Islands, and its ultimate holding company is Shui On Company Limited, a private limited liability company incorporated in the BVI.

Profitstock acts as an investment holding company. The principal activities of Profitstock’s subsidiaries are investment holding and property development in the PRC. The functional currency of Profitstock is Renminbi (“RMB”), which is the same as the presentation currency of Profitstock.

The address of the registered office of Profitstock is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, BVI. The principal place of business of Profitstock is 34/F, Shui On Centre, 6-8 Harbour Road, Wan Chai, Hong Kong.

2. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements for each of the two years ended 31 December 2005 include the results, changes in equity and cash flows of the companies comprising the Profitstock Group as if Profitstock had always been the holding company of the Profitstock Group throughout the Relevant Periods.

The consolidated balance sheet as at 31 December 2004 has been prepared to present the assets and liabilities of the companies comprising the Profitstock Group as if the group structure after the Group Reorganisation had been in existence at those date.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis and in accordance with the significant accounting policies set out below which conform with IFRS.

For the purposes of preparing and presenting the Financial Information of three years ended 31 December 2006, the Profitstock Group has consistently adopted a number of new and revised standards and interpretations (hereinafter collectively referred to as “IFRSs”) which are either effective for accounting periods beginning on 1 January 2005 or 1 January 2006 issued by the International Accounting Standards Boards (the “IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB.

For the six months period ended 30 June 2007, the Profitstock Group has applied, for the first time, a number of new standard, amendment and interpretations (“new IFRSs”) issued by the IASB.

IAS 1 (Amendment) Capital Disclosures[1] IFRS 7 Financial Instruments: Disclosures[1] IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies[2] IFRIC 8 Scope of IFRS 2[3] IFRIC 9 Reassessment of Embedded Derivatives[4] IFRIC 10 Interim Financial Reporting and Impairment[5]

1 Effective for annual periods beginning on or after 1 January 2007

2 Effective for annual periods beginning on or after 1 March 2006

3 Effective for annual periods beginning on or after 1 May 2006

4 Effective for annual periods beginning on or after 1 June 2006

5 Effective for annual periods beginning on or after 1 November 2006

— 125 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

The adoption of these new IFRSs has had no material effect on the results or financial position of the Profitstock Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

At the date of this report, the IASB has issued the following new and revised standards and interpretations which are not yet effective in respect of the Relevant Periods. The Profitstock Group has not early adopted these new and revised standards and interpretations in the financial statements for the Relevant Periods.

IFRIC 11 IFRS 2 - Group and treasury share transactions[1] IFRIC 12 Service concession arrangements[2] IFRIC 13 Customer loyalty programmes[3] IFRIC 14 IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction[2] IAS 1 (Revised) Presentation of financial statements[4] IAS 23 (Revised) Borrowing costs[4] IFRS 8 Operating segment[4]

1 Effective for annual periods beginning on or after 1 March 2007

2 Effective for annual periods beginning on or after 1 January 2008

3 Effective for annual periods beginning on or after 1 July 2008

4 Effective for annual periods beginning on or after 1 January 2009

The directors of Profitstock have considered these standards and interpretations but do not expect that they will have a material effect on the financial statements prepared and presented.

Basis of consolidation

The Financial Information incorporates the financial statements of Profitstock and entities controlled by Profitstock (its subsidiaries). Control is achieved where Profitstock has the power to govern the financial and operating policy of an entity so as to obtain benefits from its activities.

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

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

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Profitstock Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Profitstock Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Investments in subsidiaries

Investments in subsidiaries are included in Profitstock’s balance sheets at cost less any identified impairment loss.

Merger accounting for common control combinations

The consolidated financial information incorporates the financial statements items of the combining entities in which the common control combination occurs as if they had been combined from the date when the combining entities first came under the control of the controlling party.

— 126 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

The net assets of the combining entities are consolidated using the existing book values from the controlling parties’ perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

Property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment loss.

Depreciation is provided to write off the cost of items of property, plant and equipment, over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

Properties under development

Properties under development are carried at cost less any identified impairment loss.

Properties under development which are intended to be held for sale are shown as current assets.

Impairment

At each balance sheet date, the Profitstock Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Properties held for sale

Financial instruments

— 127 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

(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 the income statement.

Financial assets

The financial assets of the Profitstock Group and Profitstock are classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including accounts receivable, loans to fellow subsidiaries, loan receivable, amounts due from related parties, amount due from subsidiaries, bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction 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.

Financial liabilities and equity

Equity instruments

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

Financial liabilities

The financial liabilities of the Profitstock Group and Profitstock (including accounts payable, amounts due to related parties, amount due to a minority shareholder of a subsidiary, and bank borrowings) are subsequently measured at amortised cost, using the effective interest method.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Profitstock Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Profitstock Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

— 128 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Profitstock Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, 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 directly in equity is recognised in the income statement.

Borrowing costs

All other borrowing costs are recognised in the income statement in the period in which they are incurred.

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 Relevant Periods. Taxable profit differs from profit as reported in the consolidated income statement 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 Profitstock Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the respective balance sheet dates.

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Profitstock 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.

— 129 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

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

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the income statement in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Profitstock’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

Retirement benefit costs

Payments to state-managed retirement benefit schemes and the Mandatory Provident Fund Scheme are charged as an expense when employees have rendered service entitling them to the contributions.

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.

Interest income from a financial asset 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.

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year, are discussed below.

Taxation

As at 31 December 2004, 31 December 2005, 31 December 2006 and 30 June 2007, deferred tax assets of RMB6,361,000, RMB11,174,000, RMB20,089,000 and RMB24,003,000, respectively, in relation to tax losses have been recognised, as set out in note 26. The realisability of the deferred tax assets mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. The directors of Profitstock determine the deferred tax assets based on the enacted or substantially enacted tax rates and laws and the best knowledge of profit projections of the Profitstock Group for coming years during which the deferred tax assets are expected to be utilised. The directors of Profitstock review the assumptions and profit projections by the balance sheet date. In cases where the actual future profits generated are more or less than expected, an additional recognition or a reversal of deferred tax assets may arise, which would be recognised in the income statement for the period in which such a recognition or reversal takes place.

Land Appreciation Tax

The Profitstock Group is subject to land appreciation tax in the PRC. However, the implementation and settlement of the tax varies amongst different tax jurisdictions in various cities of the PRC and the Profitstock Group has not finalised its land appreciation tax calculation and payments with any local tax authorities in the PRC. Accordingly, significant judgment is required in determining the amount of the land appreciation and its related income tax provisions. The Profitstock Group recognised the land appreciation tax based on management’s best estimates. The final tax outcome could be different from the amounts that were initially recorded, and these differences will impact the cost of sales and the related income tax provisions in the periods in which such tax is finalised with local tax authorities.

5. FINANCIAL INSTRUMENTS

a. Financial risk management objectives and policies

The Profitstock Group’s major financial instruments include accounts receivable, loans to fellow subsidiaries, loan receivable, amounts due from related parties, bank deposits and bank balances, accounts payable, amounts due to related parties, amount due to a minority shareholder of a subsidiary and bank borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and 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 on a timely and effective manner.

The main risks arising from the Profitstock Group’s financial instruments are foreign currency risk, cash flow interest rate risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below.

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APPENDIX II

b. Foreign currency risk management

The Profitstock Group’s turnover is denominated in RMB. However, the Profitstock Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuation arises. The Profitstock Group manages its foreign currency risk by closely monitoring the movement of the foreign currency rate.

The carrying amount of the Profitstock Group’s foreign currency denominated monetary assets and liabilities at respective balance sheet date is as follow:

Assets US dollars Hong Kong dollars Liabilities Hong Kong dollars	Year ended 31 December Six months ended 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 — 684 160,941 132,709 72,941 17,866 34,846 3,596 72,941 18,550 195,787 136,305 881,109 1,055,760 316,875 307,097	Year ended 31 December Six months ended 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 — 684 160,941 132,709 72,941 17,866 34,846 3,596 72,941 18,550 195,787 136,305 881,109 1,055,760 316,875 307,097
		136,305
		307,097

The Profitstock Group is mainly exposed to currency fluctuation of US dollars and Hong Kong dollars.

The following table details the Profitstock Group’s sensitivity to a 5% increase and decrease in RMB against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign currency rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for 5% change in foreign currency rates. A positive (negative) number indicates an increase (decrease) in profit for the year/period or decrease (increase) in loss for the year/period where the RMB strengthens against the relevant currency.

				Six months
		Year ended 31 December		ended 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
US dollars
Loss	—	(33)	(7,664)	(6,319)
Hong Kong dollars
Profit	38,770	49,424	13,430	14,452

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

The Profitstock Group has not entered into any forward contracts to hedge the exposures. However, the Profitstock Group is monitoring the situation closely and will implement an effective hedging arrangement should the need arises.

c. Cash flow interest rate risk management

The Profitstock Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Profitstock Group’s exposure to changes in interest rates is mainly attributable to its bank borrowings, bank deposits and bank balances at variable rates. The Profitstock Group has a policy to place surplus funds with creditable financial institutions which offer the best return for the Profitstock Group on a short-term basis.

The Profitstock Group currently does not have an interest rate hedging policy. However, the management continuously monitors the cash flow interest rate risk and may implement effective hedging arrangements should the need arises.

d. Credit risk management

As at 30 June 2007, the Profitstock Group’s maximum exposure to credit risk which will cause a financial loss to the Profitstock Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated balance sheet. In order to minimise the credit risk, the Profitstock Group reviews the recoverable amount of each receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Profitstock consider that the Profitstock Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit rankings assigned by international credit-rating agencies.

The Profitstock Group has no significant concentration of credit risk, with exposure spread over a number of counterparties, except for as at 31 December 2006 and 30 June 2007 where the largest debtor amounting to approximately RMB113,587,000 and RMB564,202,000, respectively, arising from sales of properties which contributed to approximately 35% and 55%, respectively, of the Profitstock Group’s accounts receivable.

At 31 December 2006, the Profitstock Group provided guarantees to banks in respect of mortgage facilities granted to the buyers of its residential properties (see note 29(b)). If the buyers default on the payment of its mortgage during the term of the guarantee, the bank holding the mortgage may demand the Group to repay the outstanding amount under the loan and any accrued interest thereon. Under such circumstances, the Group is able to retain the customer’s deposit and sell the property to recover any amounts paid by the Group to the bank. In this regard, the directors of the Profitstock Group consider that the credit risk is significantly reduced.

e. Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.

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

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

f. Capital and liquidity risk management

The Profitstock Group manages its capital to maintain a balance between continuity of funding and the flexibility through the use of bank and other borrowings. The Profitstock Group also monitors the current and expected liquidity requirements and its compliance with lending covenants regularly to ensure it maintains sufficient working capital and adequate committed lines of funding to meet its liquidity requirement.

The capital structure of the Profitstock Group consists of debts, which includes amounts due to related parties as disclosed in note 20, bank balances and equity attributable to equity shareholders of Profitstock, comprising issued capital, reserves and accumulated profits.

The directors of Profitstock review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the associated risk, and take appropriate actions to adjust the Profitstock Group’s capital structure and gearing ratio.

6. TURNOVER AND SEGMENTAL INFORMATION

Turnover represents revenue arising from sales of properties, net of discounts and sales related taxes, during the Relevant Periods and the six months ended 30 June 2006.

Business segment

No business segment information is presented for the Relevant Periods as the Profitstock Group was engaged solely in the properties development during the Relevant Periods.

Geographical segment

Over 90% of the Profitstock Group’s turnover and contribution to operating profit for the Relevant Periods was attributable to customers in the PRC. Accordingly, no analysis of geographical segment is presented.

No geographical segment information of the Profitstock Group’s assets and liabilities is shown as the Profitstock Group’s assets and liabilities are substantially located in the PRC.

— 134 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

7. OTHER INCOME

Interest income on: - bank deposits - loans to/amounts due from fellow subsidiaries (note 30(c)) - loan receivable Imputed interest income on non-current accounts receivable from sale of properties (note 14) Sundry income Net exchange gain FINANCE COSTS Interest on bank loans and overdrafts wholly repayable within five years Interest paid to related parties (note 30(c)) Less: Amount capitalised to properties under development	Year 2004 RMB’000 53 — — — — 868 921 Year 2004 RMB’000 4,294 22,861	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 18 12,359 3,068 8,237 — 4,762 — 14,451 — 86 — 5,764 — — — 4,401 — 326 87 102 24,227 — 8,073 5,051 24,245 17,533 11,228 38,006 ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 19,564 27,368 18,459 — 32,248 24,836 18,147 —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 18 12,359 3,068 8,237 — 4,762 — 14,451 — 86 — 5,764 — — — 4,401 — 326 87 102 24,227 — 8,073 5,051 24,245 17,533 11,228 38,006 ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 19,564 27,368 18,459 — 32,248 24,836 18,147 —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 18 12,359 3,068 8,237 — 4,762 — 14,451 — 86 — 5,764 — — — 4,401 — 326 87 102 24,227 — 8,073 5,051 24,245 17,533 11,228 38,006 ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 19,564 27,368 18,459 — 32,248 24,836 18,147 —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 18 12,359 3,068 8,237 — 4,762 — 14,451 — 86 — 5,764 — — — 4,401 — 326 87 102 24,227 — 8,073 5,051 24,245 17,533 11,228 38,006 ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 19,564 27,368 18,459 — 32,248 24,836 18,147 —
	27,155 (27,155)	51,812 (51,812)	52,204 (49,554)	36,606 (36,606)	— —
	—	—	2,650	—	—

8. FINANCE COSTS

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

9. DIRECTORS’ REMUNERATION AND THE FIVE HIGHEST PAID EMPLOYEES

During the Relevant Period and the six months ended 30 June 2006, no amounts were paid in respect of directors’ emoluments.

All the five individuals with the highest emoluments during the Relevant Period and the six months ended 30 June 2006 were employees other than directors of Profitstock. The emoluments of those five individuals were as follows:

				Six months ended	Six months ended
	Year	ended 31	December		30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Basic salaries and other benefits	2,751	2,515	3,767	2,277	879
Contributions to retirement benefits scheme	189	145	140	113	91
	2,940	2,660	3,907	2,390	970

Their emoluments were within the following bands:

					Six months ended	Six months ended
	Year ended 31		December			30 June
	2004	2005	2006		2006	2007
	Number of	Number of	Number	of	Number of	Number of
	employee	employee	employee		employee	employee
					(unaudited)
Nil to HK$1,000,000	5	5		3	4	5
HK$1,000,001 to HK$1,500,000	—	—		2	1	—

During the Relevant Periods and the six months ended 30 June 2006, no emoluments were paid by the Profitstock Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Profitstock Group or as compensation for loss of office. None of the directors has waived any emoluments during the Relevant Periods and the six months ended 30 June 2006.

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

10. INCOME TAX CREDIT (EXPENSE)

			Six months ended	Six months ended
Year	ended 31	December		30 June
2004	2005	2006	2006	2007
RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)

The credit (charge) comprises: PRC Enterprise Income Tax: Current taxation Deferred taxation	— 6,046 6,046	— 336 336	— (728,098) (728,098)	— (392,988) (392,988)	— (375,895)
					(375,895)

No provision for PRC Enterprise Income Tax has been made as the Profitstock Group has no assessable profits for the Relevant Periods and the six months ended 30 June 2006.

No provision for Hong Kong Profits Tax has been made as the income of the Profitstock Group neither arises in, nor is derived from, Hong Kong.

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC, which will change the tax rate from 33% to 25% for a subsidiary from 1 January 2008. The change in tax rate has no impact on the deferred tax balances as the directors of the Profitstock expect that the deferred tax balances will be fully realised or settled in 2007.

Details of the deferred taxation are set out in note 26.

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

(Loss) profit before taxation PRC Enterprise Income Tax at 33% Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Others Tax (credit) charge for the year/period	Year 2004 RMB’000 (18,570)	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 285 2,161,330 1,173,328 1,124,985	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 285 2,161,330 1,173,328 1,124,985	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 285 2,161,330 1,173,328 1,124,985	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 285 2,161,330 1,173,328 1,124,985
	(6,128) 387 (305) —	94 2,651 (3,089) 8	713,239 19,632 (4,778) 5	387,198 7,130 (1,655) 315	371,245 8,478 (4,098) 270
	(6,046)	(336)	728,098	392,988	375,895

— 137 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

11. (LOSS) PROFIT FOR THE YEAR/PERIOD

Year 2004 RMB’000 34 68 (68)	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 68 71 32 — 79 155 75 68 (74) (64) (44) —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 68 71 32 — 79 155 75 68 (74) (64) (44) —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 68 71 32 — 79 155 75 68 (74) (64) (44) —	ended 31 December Six months ended 30 June 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 68 71 32 — 79 155 75 68 (74) (64) (44) —
— — — 5,454 681 6,135 (6,135) —	5 — — 5,933 740 6,673 (5,551) 1,122	91 7,342 — 7,858 728 8,586 (6,932) 1,654	31 — — 2,597 405 3,002 (2,833) 169	68
				— — 1,842 267
				2,109 —
				2,109
— —	— —	1,228,395 75	562,321 —	542,181 —

— 138 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

12. PROPERTY, PLANT AND EQUIPMENT

2004 AT COST At 1 January 2004 Additions At 31 December 2004 ACCUMULATED DEPRECIATION At 1 January 2004 Charge for the year At 31 December 2004 CARRYING VALUE At 31 December 2004 2005 AT COST At 1 January 2005 Additions At 31 December 2005 ACCUMULATED DEPRECIATION At 1 January 2005 Charge for the year At 31 December 2005 CARRYING VALUE At 31 December 2005 2006 AT COST At 1 January 2006 Additions Disposals At 31 December 2006	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
	Furniture, fixtures, equipment and motor vehicles RMB’000 347 117 464 89 68 157
		464
		89 68
		157
		307
		464 441
		905
		157 79
		236
		669
		905 67 (75
		897

— 139 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

ACCUMULATED DEPRECIATION At 1 January 2006 Charge for the year Eliminated on disposals At 31 December 2006 CARRYING VALUE At 31 December 2006 2007 AT COST At 1 January 2007 Additions At 30 June 2007 ACCUMULATED DEPRECIATION At 1 January 2007 Charge for the period At 30 June 2007 CARRYING VALUE At 30 June 2007	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
	Furniture, fixtures, equipment and motor vehicles RMB’000 236 155 — 391
		391
		506
		897 22
		919
		391 68
		459
		460

The above items of property, plant and equipment are depreciated using the straight-line method after taking into account of their estimated residual values at the rates of 20 - 33% per annum.

13. INVESTMENTS IN SUBSIDIARIES

PROFITSTOCK

				As at 31 December	As at 31 December	As at 30 June
				2005	2006	2007
				RMB’000	RMB’000	RMB’000
Unlisted	investments,	at	cost	31,453	51,120	51,120

Included in the cost of investments in subsidiaries at 30 June 2007 are capital contributions amounting to RMB51,120,000 (31.12.2006: RMB51,120,000 ; 31.12.2005: RMB31,453,000) arising from the fair value adjustments at the initial recognition of amounts due from subsidiaries, calculated by using an effective interest rate of 5% per annum.

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

14. ACCOUNTS RECEIVABLE, DEPOSITS AND PREPAYMENTS

Current

Current accounts receivable (net of allowance for bad and doubtful debts) aged analysis:

THE PROFITSTOCK GROUP

		As at 31 December	As at 31 December	As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Trade receivables
Not yet due	—	—	138,878	657,022
Within 30 days	—	—	35,718	68,985
31 - 60 days	—	—	8,440	15,882
61 - 90 days	—	—	2,321	14,905
Over 90 days	—	—	23,885	4,504
	—	—	209,242	761,298
Deposits, other prepayments and receivables	299	9	1,645	6,071
	299	9	210,887	767,369

Trade receivables comprise receivables arising from sales of properties which are due for settlement in accordance with the terms of the related sale and purchase agreements.

Non-current

Non-current accounts receivable represent receivables from sale of properties. The amounts comprising:

(a) a balance at 30 June 2007 of RMB114,987,000 (31.12.2006: RMB113,587,000; 31.12.2005: nil; 31.12.2004: nil) which is denominated in US dollars, unsecured and repayable on or before 31 December 2010. Interest are payable as follows:
(i) the whole amount is interest free from 1 January 2007 to 31 December 2007
(ii) half of the amount is interest free and the remaining amount bears interest at 5% per annum from 1 January 2008 to 31 December 2008
(iii) the whole amount bears interest at simple interest rate of 6% per annum from 1 January 2009 to 31 December 2009
(iv) the full amount bears interest at simple interest rate of 8% per annum from 1 January 2010 to 31 December 2010

The amount is carried at amortised cost at effective interest rate of 8% per annum.

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

(b) a balance at 30 June 2007 of RMB146,987,000 (31.12.2006: nil; 31.12.2005: nil; 31.12.2004: nil) which is unsecured, interest free and repayable on the last day of the 36 months upon the issue of the Certificate of Real Estate to the buyer.

The amount is carried at amortised cost at effective interest rate of 6.75% per annum.

15. LOANS TO FELLOW SUBSIDIARIES

The Profitstock Group’s loans to fellow subsidiaries are unsecured, interest bearing at 5.832% per annum and repayable on 7 October 2011.

16. PLEDGED BANK DEPOSITS AND BANK DEPOSITS

Pledged bank deposits

The amount represents deposits pledged to the banks to secure the banking facilities granted to the Profitstock Group. As at 31 December 2004, deposits amounting to RMB106,124,000 have been pledged to secure long-term bank loans and are therefore classified as non-current assets.

At 31 December 2005, pledged bank deposits carried interest at market rates which range from 0.72% to 1.62% (31.12.2004: 0.72% to 1.62%).

Bank deposits

At 30 June 2007, bank balances carry interest at market rates which range from 0.72% to 1.98% (31.12.2006: 0.72% to 1.80% ; 31.12.2005: 0.72% to 1.62% ; 31.12.2004: 0.72% to 1.62%).

17. PROPERTIES UNDER DEVELOPMENT

AT COST At beginning of the year/period Additions Transfer to properties held for sale At end of the year/period		THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
		As at 31 December As at 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 913,420 1,098,596 1,480,266 — 185,176 381,670 686,231 — — — (2,166,497) —
		1,098,596	1,480,266	—	—

The properties under development are all situated in the PRC.

Included in the properties under development as at 31 December 2004 was carrying value of RMB1,098,596,000 (2005: nil) which represented the carrying value of the properties expected to be completed and available for sale after more than twelve months from the balance sheet date.

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ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

18. PROPERTIES HELD FOR SALE

The Profitstock Group’s properties held for sale are situated in the PRC. All the properties held for sale are stated at cost.

19. LOAN RECEIVABLE

The amount at 31 December 2006 was unsecured, interest bearing at 5.022% per annum and fully repaid on 26 June 2007.

The amount as at 30 June 2007 is unsecured, interest bearing at 5.913% per annum and repayable on 26 June 2008.

20. AMOUNTS DUE FROM/TO RELATED PARTIES

Particulars of the amounts due from/to related parties are as follows:

THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	PROFITSTOCK	PROFITSTOCK	PROFITSTOCK	PROFITSTOCK
As at 31 December As at 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 — — — 25,292 — — — — 30,811 18,533 485,458 971,794 — 20 — — — — 10,675 — — — 14,594 —					As at 31 December As at 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 1 1 1 — — — — — — — — — — — — — — —
	30,811	18,553	510,727	997,086		1	1	1
	— 44,239 — 286,701 436,509	— 51,277 25,210 718,689 —	121,080 63,991 36,285 327,120 —	121,080 63,991 — 335,941 —		— — — 423,093 —	121,080 — — 296,115 —	121,080 — — 287,186 —
	767,449	795,176	548,476	521,012		423,093	417,195	408,266

Note: Mr. Lo Hong Sui, Vincent, a director of Profitstock, has beneficial interest in this related company.

— 143 —

APPENDIX II

ACCOUNTANTS’ REPORT ON PROFITSTOCK

The amounts due from a director and close family members of key management represent receivables arising from sale of properties which are due for settlement in accordance with the terms of the related sale and purchase agreements.

The amounts due from fellow subsidiaries at 30 June 2007 include balances of RMB805,400,000; (31.12.2006: RMB403,000,000; 31.12.2005: nil ; 31.12.2004: nil) which were unsecured, interest bearing at 5.508% to 5.913% (31.12.2006: 5.022% to 5.508%) per annum and repayable within twelve months from the balance sheet date. The remaining amounts due from/to related companies at each balance sheet date are unsecured, interest free and repayable on demand.

At 31 December 2004, the amounts due from related parties include a balance of RMB12,065,000 which is denominated in Hong Kong dollars.

At 30 June 2007, the amounts due to related parties include balances of RMB307,211,000 (31.12.2006: RMB316,874,000; 31.12.2005: RMB323,391,000; 31.12.2004: RMB411,978,000) which are denominated in Hong Kong dollars.

21. AMOUNTS DUE FROM SUBSIDIARIES

The amounts due from subsidiaries are unsecured, interest free and repayable on demand. The amounts are carried at amortised cost at effective interest rate of 5% per annum.

22. ACCOUNTS PAYABLE, DEPOSIT RECEIVED AND ACCRUED CHARGES

Accounts payable aged analysis:

		THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
		As at 31 December As		at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Trade payable
Not yet due	25,000	41,536	245,431	124,502
Within 30 days	—	5,101	—	—
	25,000	46,637	245,431	124,502
Retention payables (note)	9,907	14,208	13,806	13,850
Business tax and other tax payables	—	26	167,812	138,476
Deposits received and receipt in advance
from property sales	—	7,550	15,557	73,234
Other payables and accrued charges	621	4,636	2,378	3,690
	35,528	73,057	444,984	353,752

Note: Retention payables are expected to be repaid upon the expiry of the retention periods according to the respective contracts.

23. AMOUNT DUE TO A MINORITY SHAREHOLDER OF A SUBSIDIARY

The amount due to a minority shareholder of a subsidiary was unsecured, interest free and repayable on demand. The amount was fully repaid in 2006.

— 144 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

24. BANK BORROWINGS

Repayable within a period of - Not more than 1 year or on demand - More than 1 year, but not exceeding 2 years Less: Amount due within one year shown under current liabilities Amount due after one year		THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
		As at 31 December As at 30 June 2004 2005 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 263,012 731,798 — — 190,402 — — — 453,414 731,798 — — (263,012) (731,798) — — 190,402 — — —
			— —
			—

At 31 December 2005, the bank loans comprising a loan balance of RMB606,798,000 (31.12.2004: RMB453,414,000) which was denominated in Hong Kong dollars and interest bearing at Hong Kong Interbank Offered Rates plus 0.725%. The remaining bank loan at 31 December 2005 was denominated in RMB and interest bearing at 90% of The People’s Bank of China Prescribed Interest Rate. The amounts were fully settled by the Profitstock Group in 2006.

The bank loans were secured by the pledge of assets as set out in note 28 and the corporate guarantees issued in favour of banks by Shui On Land Limited, an intermediate holding company.

— 145 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

25. SHARE CAPITAL

As at 31 December 2004

The balance as at 31 December 2004 represented the issued and fully paid share capital of Galore Profits Limited.

As at 31 December 2005, 31 December 2006 and 30 June 2007

Number of shares As at 31 December As at 30 June 2005 2006 2007 50,000 50,000 50,000 — 100 100 100 — — 100 100 100	Number of shares As at 31 December As at 30 June 2005 2006 2007 50,000 50,000 50,000 — 100 100 100 — — 100 100 100	Share capital	Share capital	Share capital
As at 31 2005 50,000 — 100 100	December 2006 50,000 100 — 100	As at 31 2005 USD’000 50 — — — RMB’000 1	December 2006 USD’000 50 — — — RMB’000 1	As at 30 June 2007 USD’000 50
				— —
				—
				RMB’000 1

— 146 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

26. DEFERRED TAX ASSETS/LIABILITIES

The following are the major components of the deferred tax (assets) liabilities recognised at the balance sheet date:

THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP	THE PROFITSTOCK GROUP
Recognition of sales and related cost of sales RMB’000 — — — — — 741,357 741,357 379,809		Tax losses RMB’000 (315) (6,046) (6,361) (4,813) (11,174) (8,915) (20,089) (3,914)	Others RMB’000 — — — 4,477 4,477 (4,344) 133 —	Total RMB’000 (315) (6,046)
				(6,361) (336)
				(6,697) 728,098
				721,401 375,895
	1,121,166	(24,003)	133	1,097,296

At balance sheet date, the Profitstock Group had unused tax losses of RMB72,736,000 (31.12.2006: RMB60,876,000; 31.12.2005: RMB33,861,000; and 31.12.2004: RMB19,276,000) available to offset against future profits. A deferred tax asset has been recognised in respect of such tax losses amounting to RMB24,003,000 (31.12.2006: RMB20,089,000; 31.12.2005: RMB11,174,000; and 31.12.2004: RMB6,361,000).

27. RETIREMENT FUND SCHEMES

Hong Kong

The Profitstock Group participates in a Mandatory Provident Fund Scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000. Under the MPF Scheme, contributions made by the employees at 5% of relevant income and by the Profitstock Group at rates ranging from 5% to 10% of the employees’ salaries, depending on the employees’ length of service with the Profitstock Group.

The Profitstock Group’s contributions to the MPF Scheme charged to the consolidated income statements as staff costs during the six months ended 30 June 2007 amounted to RMB5,000 (year ended 31.12.2006: RMB125,000; year ended 31.12.2005: RMB107,000; year ended 31.12.2004: RMB222,000). The amount of employer’s voluntary contributions to the MPF Scheme forfeited for the financial periods referred to above were immaterial and had been used to reduce the existing level of contributions.

PRC

According to the relevant laws and regulations in the PRC, the subsidiary established in the PRC is required to contribute a specified percentage of the payroll of its employees to retirement benefit scheme to fund the retirement benefits of its employees. The only obligation of the Profitstock Group with respect to the retirement benefit scheme is to make the required contributions under the scheme.

— 147 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

28. PLEDGE OF ASSETS

The Profitstock Group had pledged the following assets to secure certain banking facilities at the balance sheet date:

Properties under development Bank deposits	As 2004 RMB’000 1,098,596 106,124 1,204,720	at 31 December As at 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 1,480,266 — — 5,527 — — 1,485,793 — —	at 31 December As at 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 1,480,266 — — 5,527 — — 1,485,793 — —
			—

29. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As at the balance sheet date, the Profitstock Group had the following commitments:

		As at 31 December		As at 30 June
	2004	2005	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000
Contracted but not provided for:
Capital expenditure in respect of properties
under development in the PRC	362,479	342,229	—	—

(b) Contingent liabilities

Financial guarantee contracts:

At 31 December 2006, a subsidiary of Profitstock had outstanding guarantees issued in favour of banks amounting to RMB414,026,000 in respect of mortgage facilities granted to the buyers of its residential properties. These guarantees were released during the six months period ended 30 June 2007.

In the opinion of the directors of Profitstock, the fair values of the financial guarantee contracts of the Profitstock Group were insignificant at initial recognition and the directors consider that the possibility of the default of the parties involved was remote, accordingly, no value had been recognised in the balance sheets as at 31 December 2006.

(c) Other commitment

Pursuant to an agreement entered into with the district government (the “Luwan Government”) of the Luwan District, Shanghai, the PRC, the Profitstock Group has committed to build certain educational facilities to be located in the Taipingqiao area of the Luwan District as compensation for the removal of those educational facilities originally located in that area. As at 30 June 2007, no construction contracts related to the educational facilities was entered into.

— 148 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

30. RELATED PARTY TRANSACTIONS

Apart from the related party transactions and balances as stated in notes 15, 20, 23 and 24, the Profitstock Group had the following transactions with certain subsidiaries of Shui On Company Limited.

(a) Pursuant to a reorganisation agreement dated 16 December 2005 entered into between Interchina International Limited (“Interchina”), a subsidiary of Shui On Company Limited, and Profitstock, Interchina agreed to sell, and Profitstock agreed to purchase the entire issued share capital in Galore Profits Limited at a cash consideration of US$1.
(b) Pursuant to a deed of novation of debt dated 5 January 2006 entered into among Equity Millennium Limited (“EM”), Shun Hing China Investment Limited (“Shun Hing”), Shui On Development (Holding) Limited, Interchina and Profitstock (together referred as the “Parties”), in the consideration of HK$100 in favour of Profitstock, the Parties agreed that the full obligations and burdens of the amounts indebted by Interchina to EM and Shun Hing amounted to approximately RMB80,720,000 and RMB40,360,000, respectively be novated from Interchina unto Profitstock with effect from the date of this deed.
(c) The Profitstock Group also had the following transactions with related companies as follows:

Nature of transaction

				Six months ended	Six months ended
	Year	ended 31	December		30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
A related company in which
directors of Profitstock have
beneficial interests
Project construction fees	—	1,831	5,558	574	—
Intermediate holding company
Interest expenses	22,861	26,560	12,654	9,323	—
Immediate holding company
Interest expenses	—	5,688	11,656	8,563	—
Fellow subsidiaries
Sales and marketing fees	17,852	13,333	42,146	21,547	37,079
Project management fees	18,332	13,752	356	—	—
Other expenses	—	301	70	4	—
Commission fees	—	—	73,701	18,650	37,079
Interest income	—	—	4,762	—	14,451
Interest expense	—	—	526	261	—
A director
Property sales	—	—	14,906	—	—
Close family members of
key management
Property sales	—	—	14,670	—	—

— 149 —

ACCOUNTANTS’ REPORT ON PROFITSTOCK

APPENDIX II

B. DIRECTORS’ REMUNERATION

Save as disclosed herein, no remuneration has been paid or is payable to Profitstock’s directors and supervisors by Profitstock or its subsidiary in respect of the Relevant Periods.

C. SUBSEQUENT EVENTS

No significant events took place subsequent to 30 June 2007.

D. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Profitstock Group, Profitstock or its subsidiaries have been prepared in respect of any period subsequent to 30 June 2007.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

— 150 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON PROFITSTOCK

MANAGEMENT DISCUSSION AND ANALYSIS ON PROFITSTOCK

Six months ended 30 June 2007 compared to six months ended 30 June 2006

Turnover

Turnover from property sales slightly decreased by 2% to RMB1,729 million in the six months ended 30 June 2007 from RMB1,772 million in the six months ended 30 June 2006. In the first half of 2007, an aggregate gross floor area (“GFA”) of 34,000 square metres were sold at an average price of approximately RMB54,500 per GFA (before business tax of 5%), compared to 35,000 square metres sold at an average price of approximately RMB53,300 per GFA (before business tax of 5%).

Cost of sales

Our cost of sales decreased to RMB549 million in the six months ended 30 June 2007, from RMB566 million in the six months ended 30 June 2006. The decease was in line with the decrease in GFA sold in the first half of 2007. Sufficient provision for Land Appreciation Tax has been made and included in the cost of sales.

Gross profit

Our gross profit remained at 68% for both six months ended 30 June 2007 and 2006.

Other income

Other income increased substantially to RMB38 million in the six months ended 30 June 2007, from RMB11 million in the six months ended 30 June 2006. The increase was primarily due to interest income from the proceeds on the property sales.

Staff costs

Our staff costs increased significantly to RMB2 million in the six months ended 30 June 2007, from RMB0.2 million in the six months ended 30 June 2006. The increase was due to the staff costs directly attributable to the development were charged to the income statement since the completion of the properties in the second quarter of 2006.

Other expenses

Other expenses almost doubled to RMB91 million in the six months ended 30 June 2007, from RMB43 million in the six months ended 30 June 2006. The increase was largely due to higher sales and marketing expenses and commission fees incurred for the six months ended 30 June 2007.

Income tax expense

Income tax expense decreased to RMB376 million in the six months ended 30 June 2007, from RMB393 million in the six months ended 30 June 2006. Effective tax rate for six months ended 30 June 2007 and 2006 approximated to the Foreign Enterprise Income Tax rate of 33%.

— 151 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON PROFITSTOCK

Profit for the period

The profit for the period decreased to RMB749 million in the six months ended 30 June 2007, from RMB780 million in the six months ended 30 June 2006 as a result of the cumulative effect of the factors as described above.

Year ended 31 December 2006 compared to year ended 31 December 2005

Turnover

Turnover from property sales for the year ended 31 December 2006 was RMB3,531 million. During the year 2006, an aggregate GFA of 74,000 square metres were sold at an average price of approximately RMB50,000 per GFA.

There were no sales recognized in the year of 2005.

Cost of sales

Cost of sales of RMB1,241 million was recognized for the year ended 31 December 2006, representing the cost of properties of approximately RMB17,000 per GFA. Sufficient provision for Land Appreciation Tax has been made and included in the cost of sales.

Gross profit

Our gross profit from the sales of properties was 65%.

Other income

Other income decreased to RMB18 million for the year ended 31 December 2006, from RMB24 million in 2005. The decrease was primarily due to the decrease of exchange gain of RMB24 million, partly offset by interest income from the proceeds on the property sales of RMB17 million.

Staff costs

Our staff costs increased to RMB1.7 million for the year ended 31 December 2006, from RMB1.1 million in 2005. The increase was due to more sales and marketing personnel were employed during the year of 2006.

Other expenses

Other expenses increase significantly to RMB141 million for the year ended 31 December 2006, from RMB23 million in the six months ended 30 June 2006. The increase was largely due to sales and marketing expenses and commission fees to a fellow subsidiary of RMB116 million.

Income tax expense

Income tax expense increased to RMB728 million for the year ended 31 December 2006. Effective tax rate for the year ended 31 December 2006 approximated to the Foreign Enterprise Income Tax rate of 33%.

— 152 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON PROFITSTOCK

Profit for the year

As a result of the cumulative effects as described above, the profit for the year of 2006 increased to RMB1,433 million, compared to RMB0.6 million for the year of 2005.

Year ended 31 December 2005 compared to year ended 31 December 2004

Turnover

There were no sales recognized in the years of 2005 and 2004.

Other income

Other income increased to RMB24 million for the year ended 31 December 2005, from RMB1 million in 2004. The increase was mainly due to the increase in exchange gain from the retranslation of amounts due to fellow subsidiaries and bank loans which were denominated in Hong Kong dollars.

Staff costs

Our staff costs increased to RMB1.1 million for the year ended 31 December 2005, from nil in 2004. The increase was due to staff costs of certain sales and marketing personnel incurred for the preparation of sales and marketing activities.

Other expenses

Other expenses increase to RMB23 million for the year ended 31 December 2005, from RMB19 million for the year ended 31 December 2004. The increase was largely due to generally and administrative expenses of RMB9 million, partly offset by the decrease in sales and marketing expenses of RMB5 million.

Income tax credit

Income tax credit decreased to RMB0.3 million for the year ended 31 December 2005 from RMB6 million for the year ended 31 December 2004.

Profit (loss) for the year

As a result of the cumulative effects as described above, the profit for the year of 2005 was RMB0.6 million, compared to a loss of RMB13 million for the year of 2004.

Financial resources, capital structure and liquidity

Profitstock Group was generally financed by bank loans and amounts due to fellow subsidiaries and a former shareholder. Majority of these finance resources were denominated in Hong Kong dollars. Profitstock manages its foreign currency risk by closely monitoring the movement of the foreign currency rate. During the years ended 31 December 2004, 2005, 2006 and the six months ended 30 June 2006 and 2007, Profitstock Group has not entered into any forward contracts to hedge its foreign currency risk exposures.

— 153 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON PROFITSTOCK

As of 31 December 2004 and 31 December 2005, Profitstock Group had interest bearing bank borrowings of RMB453 million and RMB732 million respectively for financing the construction of the properties. These bank borrowings were secured by pledged deposits of RMB106 million and RMB6 million respectively and were interest bearing at variable rates. All the bank borrowings of Profitstock Group were repaid in 2006. As of 31 December 2006 and 30 June 2007, Profitstock Group had no interest bearing bank borrowings.

Bank and cash balance of Profitstock Group as of 31 December 2004, 2005, 2006 and 30 June 2007 were RMB4 million, RMB79 million, RMB992 million and RMB1,212 million, which were mainly denominated in Hong Kong dollars.

Profitstock Group’s net gearing ratio were 30.8 and 61.6 as of 31 December 2004 and 2005 (calculated on the basis of dividing the excess of bank borrowing over the sum of bank balances and pledged deposits by total equity). Net gearing ratio as of 31 December 2006 and 30 June 2007 were not applicable since the repayment of the bank borrowings in the year 2006.

Remuneration policies

Employee remuneration packages are maintained at competitive levels and employees are rewarded on a performance-related basis. Other staff benefits include provident fund schemes, medical insurance, in-house training and subsidies for job-related seminars, and programmes organized by professional bodies and educational institutes.

Property valuation

The properties held for sale of Profitstock Group as at 31 July 2007 were located in Shanghai, the PRC. Please see Appendix V for details of the properties held for sale as at 31 July 2007 prepared by Knight Frank Petty Limited.

The reconciliation of properties from the audited combined financial statements as at 30 June 2007 to the valuation report as at 31 July 2007 is set out as below:

RMB’000 RMB’000 Valuation of properties held for sale as at 31 July 2007 as set out in the Valuation Report set out in Appendix V 804,000 Carrying value of Profitstock Group’s properties held for sale as at 30 June 2007 395,921 Less: Cost of sales of properties during the period from 1 July 2007 to 31 July 2007 (unaudited) (85,462) Carrying value of properties held for sale as at 31 July 2007 subject to valuation as set out in the Valuation Report included in Appendix V 310,459 Revaluation surplus, before income taxes and land appreciations tax 493,541	RMB’000 RMB’000 Valuation of properties held for sale as at 31 July 2007 as set out in the Valuation Report set out in Appendix V 804,000 Carrying value of Profitstock Group’s properties held for sale as at 30 June 2007 395,921 Less: Cost of sales of properties during the period from 1 July 2007 to 31 July 2007 (unaudited) (85,462) Carrying value of properties held for sale as at 31 July 2007 subject to valuation as set out in the Valuation Report included in Appendix V 310,459 Revaluation surplus, before income taxes and land appreciations tax 493,541	RMB’000 RMB’000 Valuation of properties held for sale as at 31 July 2007 as set out in the Valuation Report set out in Appendix V 804,000 Carrying value of Profitstock Group’s properties held for sale as at 30 June 2007 395,921 Less: Cost of sales of properties during the period from 1 July 2007 to 31 July 2007 (unaudited) (85,462) Carrying value of properties held for sale as at 31 July 2007 subject to valuation as set out in the Valuation Report included in Appendix V 310,459 Revaluation surplus, before income taxes and land appreciations tax 493,541
		310,459
		493,541

— 154 —

APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

The following unaudited pro forma statement of assets and liabilities of the Enlarged Group (referred to as the “Unaudited Pro Forma Financial Information”) which has been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Acquisition as if it had taken place on 30 June 2007 for the pro forma statement of assets and liabilities. This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Acquisition been completed on 30 June 2007 or any future date.

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on (i) the unaudited consolidated balance sheet extracted from the interim report of the Group as at 30 June 2007; and (ii) the audited consolidated balance sheet of Profitstock as at 30 June 2007 as extracted from the accountants’ report thereon set out in Appendix II to this Circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transaction; and (ii) factually supportable, as if the Acquisition had been completed on 30 June 2007.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared to provide the unaudited pro forma financial information of the Enlarged Group as if the Acquisition had been completed on 30 June 2007. As it is prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 30 June 2007 or at any future date.

The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-current assets Investment properties 7,652 — 7,652 Property, plant and equipment 184 — 184 Prepaid lease payments 4,198 — 4,198 Properties under development 1,368 — 1,368 Interests in associates 4 — 4 Accounts receivable 296 — 296 Pledged bank deposits 336 — 336 Defined benefit assets 4 — 4 14,042 — 14,042	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-current assets Investment properties 7,652 — 7,652 Property, plant and equipment 184 — 184 Prepaid lease payments 4,198 — 4,198 Properties under development 1,368 — 1,368 Interests in associates 4 — 4 Accounts receivable 296 — 296 Pledged bank deposits 336 — 336 Defined benefit assets 4 — 4 14,042 — 14,042	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-current assets Investment properties 7,652 — 7,652 Property, plant and equipment 184 — 184 Prepaid lease payments 4,198 — 4,198 Properties under development 1,368 — 1,368 Interests in associates 4 — 4 Accounts receivable 296 — 296 Pledged bank deposits 336 — 336 Defined benefit assets 4 — 4 14,042 — 14,042	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-current assets Investment properties 7,652 — 7,652 Property, plant and equipment 184 — 184 Prepaid lease payments 4,198 — 4,198 Properties under development 1,368 — 1,368 Interests in associates 4 — 4 Accounts receivable 296 — 296 Pledged bank deposits 336 — 336 Defined benefit assets 4 — 4 14,042 — 14,042
	14,042	—	14,042

— 155 —

APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Current Assets Inventories 2 — 2 Properties under development for sale 5,642 — 5,642 Property held for sale 1,146 — 1,146 Accounts receivable, deposits and prepayments 1,559 — 1,559 Loan recoverable 233 — 233 Amount due from an associate 2 — 2 Amounts due from related parties 43 — 43 Amount due from a minority shareholder of a subsidiary 6 — 6 Tax recoverable 141 — 141 Early redemption right of notes 15 — 15 Pledged bank deposits 826 — 826 Bank balances and cash 4,067 (884) 3,183 13,682 (884) 12,798 Current Liabilities Accounts payable, deposits received and accrued charges 1,793 — 1,793 Amounts due to related parties 47 — 47 Amounts due to minority shareholders of subsidiaries 373 (121) 252 Tax liabilities 29 — 29 Bank borrowings — due after one year 2,273 — 2,273 4,515 (121) 4,394 Net Current Assets 9,167 (763) 8,404	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Current Assets Inventories 2 — 2 Properties under development for sale 5,642 — 5,642 Property held for sale 1,146 — 1,146 Accounts receivable, deposits and prepayments 1,559 — 1,559 Loan recoverable 233 — 233 Amount due from an associate 2 — 2 Amounts due from related parties 43 — 43 Amount due from a minority shareholder of a subsidiary 6 — 6 Tax recoverable 141 — 141 Early redemption right of notes 15 — 15 Pledged bank deposits 826 — 826 Bank balances and cash 4,067 (884) 3,183 13,682 (884) 12,798 Current Liabilities Accounts payable, deposits received and accrued charges 1,793 — 1,793 Amounts due to related parties 47 — 47 Amounts due to minority shareholders of subsidiaries 373 (121) 252 Tax liabilities 29 — 29 Bank borrowings — due after one year 2,273 — 2,273 4,515 (121) 4,394 Net Current Assets 9,167 (763) 8,404	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Current Assets Inventories 2 — 2 Properties under development for sale 5,642 — 5,642 Property held for sale 1,146 — 1,146 Accounts receivable, deposits and prepayments 1,559 — 1,559 Loan recoverable 233 — 233 Amount due from an associate 2 — 2 Amounts due from related parties 43 — 43 Amount due from a minority shareholder of a subsidiary 6 — 6 Tax recoverable 141 — 141 Early redemption right of notes 15 — 15 Pledged bank deposits 826 — 826 Bank balances and cash 4,067 (884) 3,183 13,682 (884) 12,798 Current Liabilities Accounts payable, deposits received and accrued charges 1,793 — 1,793 Amounts due to related parties 47 — 47 Amounts due to minority shareholders of subsidiaries 373 (121) 252 Tax liabilities 29 — 29 Bank borrowings — due after one year 2,273 — 2,273 4,515 (121) 4,394 Net Current Assets 9,167 (763) 8,404
13,682 1,793 47 373 29 2,273 4,515 9,167	(884) — — (121) — — (121) (763)	12,798
		1,793 47 252 29 2,273
		4,394
		8,404

— 156 —

APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-Current Liabilities Loan from a minority shareholder of a subsidiary 91 — 91 Notes 2,734 — 2,734 Bank borrowings — due after one year 1,911 — 1,911 Deferred tax liabilities 2,178 — 2,178 Derivative financial instrument designated as hedging instrument 46 — 46 6,960 — 6,960 NET ASSETS 16,249 (763) 15,486 Note:	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-Current Liabilities Loan from a minority shareholder of a subsidiary 91 — 91 Notes 2,734 — 2,734 Bank borrowings — due after one year 1,911 — 1,911 Deferred tax liabilities 2,178 — 2,178 Derivative financial instrument designated as hedging instrument 46 — 46 6,960 — 6,960 NET ASSETS 16,249 (763) 15,486 Note:	The Group as at 30 June 2007 Unaudited proforma adjustment Proforma Enlarged Group Total RMB’ million RMB’million RMB’million Non-Current Liabilities Loan from a minority shareholder of a subsidiary 91 — 91 Notes 2,734 — 2,734 Bank borrowings — due after one year 1,911 — 1,911 Deferred tax liabilities 2,178 — 2,178 Derivative financial instrument designated as hedging instrument 46 — 46 6,960 — 6,960 NET ASSETS 16,249 (763) 15,486 Note:
6,960	—	6,960
16,249	(763)	15,486

The adjustment represents the acquisition by the Group of additional 30% equity interests in Profitstock and the loans owing by the Profitstock to the Sellers in the amount of RMB121 million, for an aggregate consideration of USD116 million (equivalent to RMB884 million, converted at an exchange rate of US$1: RMB7.62). 50% of the consideration will be paid in cash and the remaining 50% will be funded by banking facilities. However, for the purpose of this proforma statement of assets and liabilities, it is assumed that the consideration was paid in fully by cash, as the draw down of the bank facilities is not a pre-condition on the Acquisition.

The calculation of the discount on acquisition is set out as follows:

RMB’ million RMB’ million Net assets of Profitstock Group as at 30 June 2007 as stated in accountants’ report in Appendix II 2,172 Add: Reallocation of costs of certain common facilities incurred by other entities of the Group 253 Add: Fair value adjustment on properties held for sale at 30 June 2007, net of tax 409 Fair value on net assets of Profitstock Group 2,834 30% thereon 850 Consideration 884 Less: Settlement of amounts due to minority shareholders (121) (763 Discount on acquisition 87	RMB’ million RMB’ million Net assets of Profitstock Group as at 30 June 2007 as stated in accountants’ report in Appendix II 2,172 Add: Reallocation of costs of certain common facilities incurred by other entities of the Group 253 Add: Fair value adjustment on properties held for sale at 30 June 2007, net of tax 409 Fair value on net assets of Profitstock Group 2,834 30% thereon 850 Consideration 884 Less: Settlement of amounts due to minority shareholders (121) (763 Discount on acquisition 87	RMB’ million RMB’ million Net assets of Profitstock Group as at 30 June 2007 as stated in accountants’ report in Appendix II 2,172 Add: Reallocation of costs of certain common facilities incurred by other entities of the Group 253 Add: Fair value adjustment on properties held for sale at 30 June 2007, net of tax 409 Fair value on net assets of Profitstock Group 2,834 30% thereon 850 Consideration 884 Less: Settlement of amounts due to minority shareholders (121) (763 Discount on acquisition 87
	2,834 884 (121)	850 (763
		87

— 157 —

APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

The fair value adjustment is estimated by reference to the valuation report of these properties at 31 July 2007 as set out in the Valuation Report in Appendix V in the Circular, and had taken into account of the estimated costs of disposals as follows:

	RMB’million
Valuation of properties as at 31 July 2007 as set out in the Valuation Report in
Appendix V	804
Add: Estimated value of properties sold in July 2007	272
Less: Business tax	(54)
Less: Carrying amounts of properties held for sale as at 30 June 2007 as stated in
the accountants’ report in Appendix II	(396)
Less: Estimated selling expenses, other cost of sales and income tax	(217)
Fair value adjustment on properties held for sale as
at 30 June 2007	409

Since the carrying amounts of the identifiable assets and liabilities of Profitstock at the date of completion may be substantially different from their carrying amounts as at 30 June 2007, the actual discount on acquisition arising from the Acquisition may be different from the estimated discount on acquisition shown above.

— 158 —

APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

The following is the text of a report, prepared for inclusion in this circular, from the reporting accountants of Shui On Land Limited, Deloitte Touche Thomatsu, Certified Public Accountants, Hong Kong.

==> picture [69 x 53] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF SHUI ON LAND LIMITED

We report on the unaudited pro forma financial information of Shui On Land Limited (“the Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the major and connected transaction in connection with the acquisition of further interests in Profitstock Holdings Limited might have affected the financial information presented, for inclusion in Appendix IV of the circular dated 28 September 2007 (“Circular”). The basis of preparation of the unaudited pro forma financial information is set out on Appendix IV to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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APPENDIX IV UNAUDITED PRO FORMA INFORMATION ON THE ENLARGED GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Group as at 30 June 2007 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 28 September 2007

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VALUATION REPORT

APPENDIX V

Set out below is the letter and valuation report received from Knight Frank Petty Limited, an independent property valuer, prepared for the purpose of incorporation in this Circular in connection with the valuation on Project as at 31 July 2007.

4/F Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

28 September 2007

The Directors Shui On Land Limited 26/F Shui On Plaza 333 Huai Hai Zhong Road Shanghai The PRC

Dear Sirs

VALUATION OF UNSOLD PORTION OF LOT 114, TAIPINGQIAO AREA, LU WAN DISTRICT, SHANGHAI, THE PEOPLE’S REPUBLIC OF CHINA (THE “PRC”)

In accordance with your instructions for us to value the captioned property interest held by Shui On Land Limited (hereinafter referred to as the “Company”) and its subsidiaries (hereinafter together referred to as the “Group”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of such property interest as at 31 July 2007.

Our valuation is our opinion of the market value of the property which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

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VALUATION REPORT

APPENDIX V

We have valued property by using “Direct Comparison Approach” whenever market comparable transactions are available and assumed sale of property interest with the benefit of vacant possession.

We have valued the market value of the property interest based on the assumption that proper title have been obtained and all outstanding premium, compensation/resettlement costs and any associated payments have been fully settled.

We have been provided with copies of extracts of title documents relating to the property. However, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. We have relied on the information given by the Group and its PRC legal advisor, Jin Mao Law Firm, regarding the title and other legal matters relating to the property.

We have relied to a considerable extent on the information given by the Group and the legal opinion of the Group’s legal adviser. We have no reason to doubt the truth and accuracy of the information provided to us by the Group and/or its PRC legal adviser which is material to the valuation. We have accepted advice given by the Group on such matters as planning approvals or statutory notices, easements, tenure, ownership, completion date of building, particulars of occupancy, floor and site areas and all other relevant matters. Dimensions, measurements and areas included in the valuation report are based on information contained in the documents provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the correctness of the site and floor areas of the property and we have assumed that the site and the floor areas shown on the documents handed to us are correct. We were also advised by the Group that no material facts have been omitted from the information provided.

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

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

In preparing our valuation report, we have complied with “The HKIS Valuation Standards on Properties (First Edition 2005)” published by the Hong Kong Institute of Surveyors and all the requirements contained in the provision of Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited.

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VALUATION REPORT

APPENDIX V

All money amounts stated are in Renminbi.

Our valuation report is attached.

Yours faithfully For and on behalf of Knight Frank Petty Limited

Alex S L Ng MRICS MHKIS RPS (GP) Executive Director

Clement W M Leung BSc (Hons) MRICS MHKIS RPS (GP) Executive Director

Notes: Alex S L Ng, MRICS, MHKIS, RPS(GP), has been a qualified valuer with Knight Frank Petty Limited since November 1995 and has 21 years’ experience in the valuation of properties in Hong Kong and has been involved in the valuation of properties in the People’s Republic of China and Asia Pacific regions since 1988.

Clement W M Leung, BSc (Hons), MRICS, MHKIS, RPS(GP), has been a qualified valuer with Knight Frank Petty Limited since August 1999 and has 13 years’ experience in the valuation of properties in Hong Kong and has extensive experience in the valuation of properties in the People’s Republic of China and Asia Pacific regions.

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VALUATION REPORT

APPENDIX V

VALUATION REPORT

				Market value in
			Particular of	existing state as at
Property	Description and tenure		occupancy	31 July 2007
Unsold portion of Lot114	The property is part of the Shanghai Taipingqiao		The property is	RMB804,000,000
Taipingqiao Area Lu Wan	Project located at the centre of the development		currently vacant
District Shanghai The	zone with a site area of	approximately 32,603 sq	and held for	(69.3% interest
PRC	m (350,939 sq ft).		sale.	attributable to the
				Group:
	The property is bounded by Zi Zhong Road on			RMB557,172,000)
	the north, Huang Pi Nan Road on the west, Fu
	Xing Central Road on the south and Shun Chang
	Road on the east within	the Taipingqiao Area.
	The property comprises	the unsold portion of
	Lot 114 completed in 2006 with the following
	approximate gross floor	areas:
		Gross Floor Area
		sq m sq ft
	Block 3	434.07 4,672
	Block 5	1,031.93 11,108
	Block 8	182.86 1,968
	Block 9	10,374.77 111,674
	Block 11	192.46 2,072
	Block 12	684.95 7,373
	Block 16	420.48 4,526
	Block 20	140.14 1,508
	Total	13,461.66 144,901

It also comprises basement 386 car parking spaces.

The property is held under a land use right term of 70 years commencing from 7 May 2001 and expiring on 6 May 2071 for residential use.

Notes:

Pursuant to the Equity Joint Venture Contract entered into between Shanghai Fuxing Construction and Development Company Limited (“Party A”) and Oriental Gain Limited (“Party B”) dated 11 September 2001 and the approval letter No. Hu Wai Zi Wei Pi Zi (2001) Di 1811 dated 20 November 2001, both parties agreed to establish a joint venture company. The salient conditions as stipulated in the joint venture contract and the approval letter are as follows:
(i) Name of joint venture company: Shanghai Jing Fu Property Co., Ltd. (the “Joint Venture”)
(ii) Period of operation: 70 years from the date of issuance of business licence

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VALUATION REPORT

APPENDIX V

(iii) Total investment amount: RMB1,200,000,000
(iv) Registered capital: RMB400,000,000 (Party A: 1%, Party B: 99%)
According to the information provided, the profit sharing ratio for the Joint Venture is 1% and 99% for Party A and Party B respectively. In addition, Party B is a subsidiary of the Company whilst Party A is an independent third party.
Pursuant to the Business Licence No. Qi He Hu Zong Zi Di 030025 dated 15 October 2003, the Joint Venture was incorporated with a registered capital of RMB400,000,000 for a valid period from 26 December 2001 to 25 December 2071. Its scope of business includes construction, development and operation of real estate; leasing and sales of real estate; provision and management of amenities, commercial and entertainment facilities in association with real estate development; consultation with regard to real estate and property management.
Pursuant to the Shanghai Real Estate Ownership Certificate No. Hu Fang Di Shi Zi (2003) Di 004176 issued by the Shanghai Real Estate and Land Resources Administration Bureau dated 10 April 2003, the title to the land with a site area of approximately 32,603 sq m is vested in the Joint Venture for a term commencing from 7 May 2001 and expiring on 6 May 2071 for residential use.
Pursuant to the Shanghai Real Estate Ownership Certificate No. Hu Fang Di Lu Zi (2006) Di 003011 issued by the Shanghai Real Estate and Land Resources Administration Bureau dated 24 October 2006, the title to the property with a total gross floor area of approximately 164,246.72 sq m is vested in the Joint Venture.
We have been provided with the Group’s PRC legal adviser’s opinion, which inter-alia, contains the following:
(i) The land use right certificate of the property is legal and valid;
(ii) All necessary permits, approvals for the construction works of the property have been obtained by the Joint Venture and the construction works is legal and valid. The Joint Venture has obtained the land use right certificate of the property and is the sole owner of the land use right and the buildings erected thereon of the property;
(iii) The Joint Venture has obtained all necessary approvals and permits for the pre-sale of the buildings erected thereon and the pre-sale permits are legal and valid. The Joint Venture has the right to pre-sell the relevant buildings as stipulated under the pre-sale permits; and
(iv) The mortgage of the land and construction works of the property has been cancelled. The Joint Venture has the right to occupy, let, transfer or mortgage the unsold portion of the property.

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GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(A) Interests of Directors and chief executive of the Company

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

(a) The Company

(i) Long position in the Shares

			Approximate
			percentage of
	Nature of	Total number	interests in
Name of Director	interests	of Shares	the Company
Mr. Vincent H. S. LO	Other	2,255,125,725	53.87%
(“Mr. LO”)		(Note 1)
Mr. William T. ADDISON	Personal	200,000	0.004%
Dr. William K. L. FUNG	Personal	3,700,000	0.08%

Note:

(1) The Shares are directly held by subsidiaries of Shui On Company Limited (“SOCL”), namely Shui On Properties Limited, Shui On Investment Company Limited, New Rainbow Investments Limited and Shui On Finance Company Limited. SOCL is owned by the Bosrich Unit Trust, the trustee of which is Bosrich Holdings Inc. The units of the Bosrich Unit Trust are the property of a discretionary trust, of which Mr. LO is a discretionary beneficiary and HSBC International Trustee Limited is the trustee. Accordingly, Mr. LO, Bosrich Holdings Inc. and HSBC International Trustee Limited are deemed to be interested in such Shares under the SFO. Mr. LO is also deemed to be interested in Shares held by New Rainbow Investments Limited, a wholly owned subsidiary of SOCAM.

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GENERAL INFORMATION

APPENDIX VI

(ii) Share options of the Company

At the Latest Practicable Date, the following Directors had interests in the share options granted by the Company under the share option scheme adopted by the Company on 8 June 2007:

				Number
		Subscription		of Shares
		price per		subject to
Name of Director	Date of grant	Share	Exercise period	the options
		HK$
Mr. William T. ADDISON	20 June 2007	7.00	20/06/2009 to	5,000,000
			19/06/2016
The Honourable LEUNG	20 June 2007	7.00	20/06/2007 to	500,000
Chun Ying			19/06/2012
Sir John R. H. BOND	20 June 2007	7.00	20/06/2007 to	500,000
			19/06/2012
Dr. Edgar W. K. CHENG	20 June 2007	7.00	20/06/2007 to	500,000
			19/06/2012
Professor Gary C.	20 June 2007	7.00	20/06/2007 to	500,000
BIDDLE			19/06/2012
Dr. Roger L. McCARTHY	20 June 2007	7.00	20/06/2007 to	500,000
			19/06/2012
Mr. David J. SHAW	20 June 2007	7.00	20/06/2007 to	500,000
			19/06/2012

As at the Latest Practicable Date, no short positions were recorded in the register required to be kept under section 352 of the SFO.

(b) Associated Corporation — SOCAM

(i) Long position in the SOCAM Shares

			Approximate
			percentage of
	Nature of	Total number	interests in
Name of Director	interests	of shares	SOCAM
Mr. Vincent H. S. LO	Other	185,981,000	59.33%
		(Note 1)
Dr. William K. L. FUNG	Personal	682,000	0.21%

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GENERAL INFORMATION

APPENDIX VI

Notes:

(1) These shares comprise 181,981,000 SOCAM Shares beneficially owned by SOCL and 4,000,000 SOCAM Shares and SOCAM underlying shares in which SOCL is deemed to be interested under sections 317 and 318 of the SFO.

Among 181,981,000 SOCAM Shares beneficially owned by SOCL, 166,148,000 SOCAM Shares and 15,833,000 SOCAM Shares held respectively by SOCL and Shui On Finance Company Limited, which is an indirect wholly owned subsidiary of SOCL. SOCL is owned by the Bosrich Unit Trust, the trustee of which is Bosrich Holdings Inc. The units of the Bosrich Unit Trust are the property of a discretionary trust, of which Mr. LO is a discretionary beneficiary. Accordingly, Mr. LO is deemed to be interested in such shares under the SFO.

On 27 August 2002, SOCL granted call options over certain existing SOCAM Shares beneficially owned by SOCL to each of Mr. Wilfred Y. W. WONG (“Mr. Wilfred WONG”), Mr. Louis H. W. WONG (“Mr. Louis WONG”) and Mr. Frankie Y. L. WONG as part of the incentive reward for the services to SOCAM. A maximum of 50% of such SOCAM Shares transferred or to be transferred upon exercise of call options shall be subject to a restriction of disposal within 12 months from the date such shares were transferred. Mr. Wilfred WONG and Mr. Louis WONG have exercised all their call options and accordingly are deemed to be parties to an agreement to acquire SOCAM Shares under sections 317 and 318 of the SFO. As such, SOCL is deemed to be interested in the SOCAM Shares, and SOCAM underlying shares owned by Mr. Wilfred WONG and Mr. Louis WONG.

(ii) Short position in the SOCAM Shares

			Approximate
			percentage of
	Nature of	Total number	interests in
Name of Director	interest	of shares	SOCAM
Mr. Vincent H. S. LO	Other	1,600,000	0.51%
		(Note 1)

Note:

(1) Those shares represent the outstanding balance of the call options granted by SOCL under the call option arrangement mentioned in note (1) to item (A)(b)(i) above.

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

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GENERAL INFORMATION

APPENDIX VI

(B) Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as the Directors and the chief executive of the Company were aware, the following persons had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed under Divisions 2 and 3 of Part XV of the SFO, or were, directly or indirectly, interested in 10% or more of the issued share capital carrying rights to vote at general meetings of the Company:

			Approximate
		Total number	percentage of
Name of Shareholder	Capacity	of Shares	shareholding
HSBC International Trustee	Trustee	2,255,125,725	53.87%
Limited		(Note 1)
Bosrich Holdings Inc.	Trustee	2,255,125,725	53.87%
		(Note 1)
Shui On Company Limited	Interest of Controlled	2,255,125,725	53.87%
	Corporation	(Note 1)
Shui On Holdings Limited	Interest of Controlled	1,728,845,761	41.30%
	Corporation	(Note 2)
Shui On Investment Company	Beneficial Owner and	1,728,845,761	41.30%
Limited	Interest of Controlled	(Note 2)
	Corporation
Shui On Properties Limited	Beneficial Owner	940,000,000	22.46%
		(Note 2)
SOCAM	Interest of Controlled	526,279,964	12.57%
	Corporation	(Note 3)
New Rainbow Investments	Beneficial Owner	526,279,964	12.57%
Limited		(Note 3)

Notes:

(1) The 2,255,125,725 Shares are beneficially owned by SOCL through its subsidiaries comprising 940,000,000 Shares, 788,689,761 Shares, 526,279,964 Shares and 156,000 Shares held respectively by Shui On Properties Limited, Shui On Investment Company Limited, New Rainbow Investments Limited and Shui On Finance Company Limited, which is an indirect wholly owned subsidiary of SOCL. SOCL is owned by the Bosrich Unit Trust, the trustee of which is Bosrich Holdings Inc. The units of the Bosrich Unit Trust are the property of a discretionary trust, of which Mr. LO is a discretionary beneficiary and HSBC International Trustee is the trustee. Accordingly, Mr. LO, HSBC International Trustee Limited and Bosrich Holdings Inc. are deemed to be interested in such Shares under the SFO.
(2) The 1,728,845,761 Shares comprise 788,689,761 Shares beneficially owned by Shui On Investment Company Limited (“SOI”), 940,000,000 Shares beneficially owned by Shui On Properties Limited (“SOP”) and 156,000 Shares beneficially owned by Shui On Finance Company Limited (“SOF”), which are wholly owned subsidiaries of SOI. SOI is deemed to be interested in the Shares of SOP and SOF under the SFO and has an aggregate interest in 1,728,845,761 Shares. SOI is owned by Shui On Holdings Limited. Accordingly, Shui On Holdings Limited is also deemed to be interested in the 1,728,845,761 Shares held by SOI under the SFO.

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GENERAL INFORMATION

APPENDIX VI

(3) These Shares are beneficially owned by New Rainbow Investments Limited, a wholly owned subsidiary of SOCAM. Accordingly, SOCAM is deemed to be interested in such Shares under the SFO.

Save as disclosed herein, the Directors and the chief executive of the Company were not aware of anyone who, as at the Latest Practicable Date, had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the issued share capital carrying rights to vote at general meetings of the Company.

(C) Interests in other members of the Group

Save as disclosed below, as at the Latest Practicable Date and so far as the Directors and the chief executive of the Company were aware, there were no other persons other than the Directors or chief executive of the Company or his respective associate(s) who were, directly or indirectly, interested in 10% or more of the issued share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		Approximate
Name of owner of shares	Name of non wholly-owned	percentage of
or equity interest	subsidiary of the Company	shareholding
Equity Millennium Limited	Bondwise Profits Limited	20%
	Cititop Pacific Limited	20%
	Galore Profits Limited	20%
	Globe State Properties Limited	20%
	Oriental Gain Limited	20%
	Profitstock Holdings Limited	20%
	Shanghai Jing-Fu Property Co., Ltd.	19.8%
	Shanghai Lakeville Properties Co. Ltd.	19.8%
Shun Hing China Investment	Bondwise Profits Limited	10%
Limited	Cititop Pacific Limited	10%
	Galore Profits Limited	10%
	Globe State Properties Limited	10%
	Oriental Gain Limited	10%
	Profitstock Holdings Limited	10%
Shanghai Yangpu Knowledge	Shanghai Yang Pu Centre Development	30%
Innovation Zone Investment and	Company Limited
Development Co., Ltd.

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GENERAL INFORMATION

APPENDIX VI

		Approximate
Name of owner of shares	Name of non wholly-owned	percentage of
or equity interest	subsidiary of the Company	shareholding
Trophy Property Development L.P.	Portspin Limited	49%
	Legend City Limited	49%
	Fieldcity Investments Limited	25%
	Super Field Limited	25%
	Wuhan Shui On Tian Di Property	25%
	Development Co., Ltd.
Main Zone Group Limited	Richcoast Group Limited	28.20%
	Teamachieve Holdings Limited	28.20%
	Asia Great Investment Limited	28.20%
	Tennick Holdings Limited	28.20%
	Charmful Investment Limited	28.20%
	Timeglobe Holdings Limited	28.20%
	Garco Investment Limited	28.20%
	Hopeful Zone Investments Limited	28.20%
	Sinoco Investment Limited	28.20%
Many Gain International Limited	Richcoast Group Limited	10.26%
	Teamachieve Holdings Limited	10.26%
	Asia Great Investment Limited	10.26%
	Tennick Holdings Limited	10.26%
	Charmful Investment Limited	10.26%
	Timeglobe Holdings Limited	10.26%
	Garco Investment Limited	10.26%
	Hopeful Zone Investments Limited	10.26%
	Sinoco Investment Limited	10.26%

3. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contract with the Company or any member of the Group other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

4. LITIGATION

As at the Latest Practicable Date, the Group was not engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Group.

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GENERAL INFORMATION

APPENDIX VI

5. COMPETING INTERESTS

Mr. Vincent H. S. LO is the Chairman and Chief Executive Officer of the Company, and the ultimate controlling shareholder, Chairman and Chief Executive Officer of the Shui On Group. The core businesses of the Shui On Group include property development and investment projects in Hong Kong, New York and the PRC, as more fully described in the section headed “Relationship with the Shui On Group” of the Company’s prospectus dated 20 September 2006. The Company has entered into a non-competition agreement with Shui On Company Limited (the ultimate holding company of the Shui On Group) and Mr. Vincent H. S. LO pursuant to which Shui On Company Limited and Mr. Vincent H. S. LO have severally undertaken not to compete with the business of the Company. For more details, see the section headed “Relationship with the Shui On Group” of the Company’s prospectus dated 20 September 2006.

Save as referred to herein, as at the Latest Practicable Date, none of the Directors or their respective associates had any interest in a business which competes or may compete with the business of the Group.

6. EXPERTS AND CONSENTS

The followings are the qualifications of the experts who have given opinion and advice, which is contained in this Circular:

Name Qualification BNP Paribas A licensed corporation in type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities as defined under the SFO Deloitte Touche Tohmatsu Certified Public Accountants Knight Frank Petty Limited Property Valuer

BNP Paribas, Deloitte Touche Tohmatsu and Knight Frank Petty Limited have given and have not withdrawn their written consent to the issue of this Circular with the inclusions of their respective letters and references to their names in the form and context in which they appear.

7. EXPERT’S INTEREST IN ASSETS

As at the Latest Practicable Date, BNP Paribas, Deloitte Touche Tohmatsu and Knight Frank Petty Limited:

(a) were not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to an member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2006, being the date to which the latest published audited accounts of the Company were made up; and
(b) did not have any shareholding interest in any member of the Enlarged Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

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GENERAL INFORMATION

APPENDIX VI

8. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Enlarged Group within the two years immediately preceding the Latest Practicable Date:

(a) the Agreement;
(b) a private placement agreement dated 30 September 2005 and entered into between the Company, SOD and J.P. Morgan Securities Ltd. in relation to the issuance of 1,750 Class A Units, each unit consisting of US$100,000 principal amount of 8.5% senior notes due 2008 and 1,071 warrants issued by the Company on 12 October 2005; and 2,000 Class B Units, each unit consisting of US$100,000 principal amount of 8.5% senior notes due 2008 and 1,000 warrants issued by the Company on 12 October 2005;
(c) a trust deed dated 12 October 2005 and entered into between SOD and J.P. Morgan Corporate Trustee Services Limited as trustee constituting US$100,000,000 8.5% senior notes A due 2008 and US$275,000,000 8.5% senior notes B due 2008;
(d) a warrant agreement dated 12 October 2005 and entered into between the Company, JP Morgan Chase Bank, N.A. as warrant agent and J.P. Morgan Bank Luxembourg S.A. as registrar in relation to the issuance of 3,874,250 warrants;
(e) a sale and purchase agreement relating to the sale and purchase of an aggregate of 30 shares of par value US$1.00 each, representing 30% of the issued share capital of Interchina International Limited dated 7 December 2005 and entered into between EML, SHC, SOD and the Company pursuant to which EML and SHC sold their 20% and 10% shareholding interests, respectively, in Interchina International Limited to SOD for an aggregate consideration of RMB894,240,000;
(f) a reorganisation agreement relating to the entire issued share capital of Galore Profits Limited dated 16 December 2005 and entered into between Interchina International Limited and Profitstock, pursuant to which Interchina International Limited sold its 100% shareholding interest in Galore Profits Limited to Profitstock for a consideration of US$1.00;
(g) a shareholders agreement relating to Profitstock dated 16 December 2005 and entered into between SOD, EML, SHC, Edward Wong Development Company Limited, Shun Hing Holdings Company Limited and Profitstock for the purpose of recording the terms and conditions upon which SOD, EML and SHC are investing in Profitstock;
(h) a reorganisation agreement relating to the entire issued share capital of Bondwise Profits Limited dated 16 December 2005 and entered into between Interchina International Limited and Globe State Properties Limited, pursuant to which Interchina International Limited sold its 100% shareholding interest in Bondwise Profits Limited to Globe State Properties Limited for a consideration of US$1.00;

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APPENDIX VI

(i) a shareholders agreement relating to Globe State Properties Limited dated 16 December 2005 and entered into between SOD, EML, SHC, Edward Wong Development Company Limited, Shun Hing Holdings Company Limited and Globe State Properties Limited for the purpose of recording the terms and conditions upon which SOD, EML and SHC are investing in Globe State Properties Limited;
(j) an entrustment loan contract dated 30 December 2005 and entered into between Shanghai Ruichen Property Company Limited, the Industrial and Commercial Bank of China, Shanghai Luwan Branch and Shanghai Shui On Land Limited (now known as Shui On Development Limited) in relation to an entrusted loan of RMB100 million from Shanghai Ruichen Property Company Limited;
(k) a deed dated 30 May 2006 and entered into between SOD, Shui On Development Limited (formerly known as Shanghai Shui On Land Limited), Shanghai Ruichen Property Company Limited and Shui On Investment Company Limited in relation to the entrustment loan in (j) above;
(l) a trademark licence agreement dated 30 May 2006 and entered into between Shui On Holdings Limited and the Company with regard to the Company’s exclusive use in the PRC of certain trademarks;
(m) an agreement on transfer of domain names dated 30 May 2006 and entered into between Shui On Properties Limited and Shui On Development Limited (formerly known as Shanghai Shui On Land Limited) pursuant to which Shui On Properties Limited agreed to transfer the ownership and control of certain domain names to Shui On Development Limited;
(n) an agreement on transfer of domain names dated 30 May 2006 and entered into between Shanghai Shui On Property Development Management Co., Ltd. (formerly known as Shanghai Shui On Consulting Company Limited) and Shui On Development Limited (formerly known as Shanghai Shui On Land Limited) pursuant to which Shanghai Shui On Property Development Management Co., Ltd. agreed to transfer the ownership and control of certain domain names to Shui On Development Limited;
(o) an agreement on transfer of domain name dated 30 May 2006 and entered into between Shanghai Ruichen Property Co., Ltd. and Shui On Development Limited (formerly known as Shanghai Shui On Land Limited) pursuant to which Shanghai Ruichen Property Co., Ltd. agreed to transfer the ownership and control of the domain name “ruihong.com.cn” to Shui On Development Limited;
(p) a deed of non-competition dated 30 May 2006 and entered into between Mr. Vincent H. S. LO, Shui On Company Limited and the Company pursuant to which Mr. Vincent H. S. LO and Shui On Company Limited have given certain undertakings to the Company, among others, that the Company is to be the flagship company of the Shui On Group for the Shui On Group’s property development and investment business in the PRC and concerning the Shui On Group’s investment in future property development projects in the PRC;

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GENERAL INFORMATION

(q) an option deed dated 30 May 2006 and entered into between Shui On Company Limited and the Company (“Shui On Plaza Option Deed”) (as amended by a supplemental deed to the Shui On Plaza Option Deed dated 7 September 2006 and entered into between Shui On Company Limited and the Company) pursuant to which Shui On Company Limited has granted the Company an option to acquire the Shui On Group’s entire interest in Shanghai Jiu Hai Rimmer Properties Co., Ltd., which is the owner of Shui On Plaza, 333 Huai Hai Zhong Road, Shanghai;
(r) an option deed in respect of Guangzhou Shui Yung Company Limited dated 30 May 2006 and entered into between Shui On Company Limited and the Company (“Centrepoint Option Deed”) (as amended by a supplemental deed to the Centrepoint Option Deed dated 7 September 2006 and entered into between Shui On Company Limited and the Company) pursuant to which Shui On Company Limited has granted the Company an option to acquire the entire interest of Shui On Company Limited and its subsidiaries in Guangzhou Shui Yung Company Limited, which is a wholly-owned subsidiary of Shui On Company Limited and the owner of the property located at 374 Beijing Road, Yuexiu District, Guangzhou (otherwise known as “The Centrepoint”);
(s) a deed of indemnity dated 30 May 2006 and entered into between Shui On Company Limited and the Company pursuant to which Shui On Company Limited agreed to give certain indemnities in respect of litigation and taxation matters in favour of the Company and its subsidiaries;
(t) the HSBC investment agreement dated 4 June 2006 between HSBC Securities Investments (Asia) Limited and the Company pursuant to which HSBC Securities Investments (Asia) Limited subscribed for 102,754,966 Shares at a price of HK$7.55 per Share conditional upon the satisfaction of certain conditions;
(u) an amendment agreement dated 31 August 2006 and entered into between the Company, JP Morgan Chase Bank, N.A. and J.P. Morgan Bank Luxembourg S.A. to amend the terms of the warrants issued by the Company on 12 October 2005 to accelerate conversion;
(v) a global custody agreement dated 31 August 2006 and entered into between the Company and JP Morgan Chase Bank, N.A. (London Branch) setting out the terms governing custodial, settlement and other services to be provided in connection with the conversion to the warrants issued by the Company on 12 October 2005;
(w) a call option deed dated 1 September 2006 and entered into between Shui On Investment Company Limited and the Company pursuant to which Shui On Investment Company Limited has granted the Company an option to purchase 9.9% of the issued share capital of Score High Limited from Shui On Investment Company Limited;
(x) an agreement relating to the sale and purchase of 9.9% of the issued share capital of Score High Limited dated 1 September 2006 and entered into between SOD and Winnington Capital Limited pursuant to which SOD sold 99 shares in Score High Limited, representing 9.9% of the issued share capital of Score High Limited to Winnington Capital Limited for a consideration of RMB503,381,555;

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GENERAL INFORMATION

(y) an agreement relating to the sale and purchase of 9.9% of the issued share capital of Score High Limited dated 9 September 2006 and entered into between SOD and Ocean Equity Holdings Limited pursuant to which SOD sold 99 shares in Score High Limited, representing 9.9% of the issued share capital of Score High Limited to Ocean Equity Holdings Limited for a consideration of RMB503,381,555;
(z) a shareholders’ agreement relating to Score High Limited dated 9 September 2006 and entered into between SOD, Winnington Capital Limited, Ocean Equity Holdings Limited and Score High Limited for the purpose of recording the terms and conditions upon which SOD, Winnington Capital Limited and Ocean Equity Holdings Limited have invested in Score High Limited;
(aa) a call option deed dated 9 September 2006 and entered into between Shui On Investment Company Limited and the Company pursuant to which Shui On Investment Company has granted the Company an option to purchase 9.9% of the issued share capital of Score High Limited from Shui On Investment Company Limited;
(bb) the Hong Kong underwriting agreement dated 19 September 2006 relating to the offer and underwriting of 115,875,000 Shares for subscription by the public in Hong Kong and entered into among the Company, Shui On Company Limited, Mr. Vincent H. S. LO, SOCAM, Deutsche Bank AG, Hong Kong Branch, The Hongkong and Shanghai Banking Corporation Limited, J.P. Morgan Securities (Asia Pacific) Limited and other Hong Kong underwriters;
(cc) the international underwriting agreement dated 27 September 2006 relating to the offer and underwriting of 1,042,871,000 Shares to professional, institutional and other investors and entered into among the Company, Shui On Company Limited, Mr. Vincent H. S. LO, SOCAM, Asia Real Estate Income Fund SICAV, MetroProp (China), Co-Investment Limited Partnership V (SOL), Ocean Equity Holdings Limited, Standard Chartered Bank (Hong Kong) Limited, Jebsen and Company Limited, Shanghai Hope International Limited, Deutsche Bank A.G., Hong Kong Branch, The Hongkong and Shanghai Banking Corporation Limited, J.P. Morgan Securities Ltd. and other international underwriters;
(dd) a guarantee entered into by the Company and SOD and dated 21 December 2006 in favour of The Hongkong and Shanghai Banking Corporation Limited to secure 70% of the principal amount and interest payable under the loan of RMB875,000,000 granted to Shanghai Yang Pu Centre Development Company Limited, a non-wholly owned subsidiary of the Company;
(ee) a joint venture agreement dated 25 May 2007 and entered into among Innovate Zone Group Limited (an indirect wholly owned subsidiary of the Company), Main Zone Group Limited (a direct wholly owned subsidiary of SOCAM) and Many Gain International Limited whereby the parties agreed to form a joint venture company under the name of Richcoast Group Limited for the establishment of a chain of subsidiaries which are formed to acquire a 78% interest in each of the four PRC joint venture companies (the “PRC JV Companies”) from Yida Group. The PRC JV Companies and its two PRC project companies (together the

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APPENDIX VI

“Dalian Onshore Group”) will acquire the 23 plots of land at Dalian Software Park Phase II in Dalian, the PRC and undertake the development and operation of Dalian Software Park Phase II. Pursuant to such joint venture agreement, various agreements have been entered for the acquisitions of the Dalian Onshore Group and the said land, development and operation of Dalian Software Park Phase II.

Mr. Vincent H. S. LO as the chairman of the Company is also interested in 59.33% of the issued share capital of SOCAM as at the Latest Practicable Date. As such, Mr. Vincent H. S. LO is interested in the acquisition of the interests in the PRC JV Companies through its interest in SOCAM and Main Zone Group Limited;

(ff) an agreement relating to the sale and purchase of 25% of the issued share capital of Fieldcity Investments Limited dated 29 June 2007 and entered into between SOD and Trophy Property Development L.P. pursuant to which SOD sold (i) 25 shares in Fieldcity Investments Limited, representing 25% of the issued share capital of Fieldcity Investments Limited and (ii) the shareholder loans in the amount of US$98,095,696 to Trophy Property Development L.P. for a consideration of RMB1,245 million; and
(gg) an agreement relating to the sale and purchase of 49% of the issued share capital of Portspin Limited dated 29 June 2007 and entered into between SOD and Trophy Property Development L.P. pursuant to which SOD sold 49 shares in Portspin Limited, representing 49% of the issued share capital of Portspin Limited to Trophy Property Development L.P. for a consideration of RMB363,915,691.

9. GENERAL

(a) The company secretary of the Company is Mr. UY Kim Lun, a qualified lawyer in Hong Kong.
(b) The qualified accountant of the Company is Mr. George W. K. CHAN, a member of the Institute of Chartered Accountants in England and Wales and a member of the Hong Kong Institute of Certified Public Accountants.
(c) The principal share registrars and transfer office of the Company is Butterfield Fund Services (Cayman) Limited, Butterfield House, 68 Fort Street, P.O. Box 705, George Town, Grand Cayman, Cayman Islands.
(d) The branch share registrars and transfer office of the Company is Computershare Hong Kong Investor Services Limited, Shops 1712-16, 17th Floor Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.

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GENERAL INFORMATION

APPENDIX VI

(e) The registered office of the Company is Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9002, Cayman Islands.
(f) The place of business in Hong Kong is 34th Floor, Shui On Centre, 6-8 Harbour Road, Wan Chai, Hong Kong.
(g) The English version of this Circular shall prevail over the Chinese text.
(h) Save as disclosed in section 8 above, none of the Directors had any direct or indirect interests in any assets which have since 31 December 2006 (being the date to which the latest published audited consolidated accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group as at the Latest Practicable Date.
(i) Save as disclosed in section 5 above, none of the Directors and their respective associates (as defined under the Listing Rules) had any competing interest with the Group as at the Latest Practicable Date.
(j) Save as disclosed herein, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which was subsisting and significant in relation to the business of the Enlarged Group.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the place of business of the Company at 34/F, Shui On Centre, 6-8 Harbour Road, Wan Chai, Hong Kong during normal business hours on any weekday other than public holidays, up to and including 28 October 2007:

(a) the Memorandum and Articles of Association of the Company;
(b) the material contracts referred to in the paragraph headed “Material Contracts” to this Appendix;
(c) the annual report of the Group for the financial year ended 31 December 2006;
(d) the accountants’ report of Profitstock from Deloitte Touche Tohmatsu, the text of which is set out in Appendix II to this Circular;
(e) the letter from Deloitte Touche Tohmatsu regarding the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this Circular.
(f) the valuation report from Knight Frank Petty Limited on the properties of the Group, the text of which is set out in Appendix V to this Circular;
(g) the written consents referred to in paragraph headed “Experts and Consents” of this Appendix;

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APPENDIX VI

(h) connected transaction circular dated 12 January 2007 in relation to the provision of guarantee and security deposit in respect of a loan facility from a bank to Shanghai Yang Pu Centre Company Limited., a non wholly-owned subsidiary of the Company;
(i) discloseable and connected transaction circular dated 4 June 2007 in relation to the formation of a joint venture for the development of Dalian Software Park Phase II; and
(j) discloseable transaction circular dated 17 July 2007 in relation to the disposal of a 25% interest in Fieldcity Investments Limited and a 49% interest in Portspin Limited.

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AI assistant

Shui On Land Limited — Proxy Solicitation & Information Statement 2007

49087_rns_2007-09-27_4165bd6c-4b86-4ac9-ae7c-7f92edc5e8a0.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

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

CONTENTS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

(Stock code: 272)

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

INTRODUCTION

LETTER FROM THE BOARD

DETAILS OF THE AGREEMENT

Parties:

Subject:

Consideration:

Conditions:

Completion:

REASONS FOR AND BENEFITS OF THE TRANSACTION

LETTER FROM THE BOARD

EFFECTS OF THE ACQUISITION ON THE GROUP

Earnings

Assets and liabilities

GENERAL INFORMATION

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

IMPLICATIONS OF THE LISTING RULES

RECOMMENDATION

OTHER INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

LETTER OF ADVICE FROM BNP PARIBAS

MAJOR AND CONNECTED TRANSACTION

ACQUISITION OF FURTHER INTEREST IN A JOINT VENTURE IN RELATION TO LOT 114, TAIPINGQIAO

INTRODUCTION

LETTER OF ADVICE FROM BNP PARIBAS

LETTER OF ADVICE FROM BNP PARIBAS

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background

LETTER OF ADVICE FROM BNP PARIBAS

2. Reasons for the Acquisition

3. Principal terms and conditions of the Agreement

4. Basis for determining the Consideration

LETTER OF ADVICE FROM BNP PARIBAS

Comparison between the Consideration and the fair value on net assets of Profitstock Group

LETTER OF ADVICE FROM BNP PARIBAS

5. Financial impact on the Group

LETTER OF ADVICE FROM BNP PARIBAS

6. Matters to draw to shareholders’ attention

LETTER OF ADVICE FROM BNP PARIBAS

CONCLUSION

BNP Paribas Capital (Asia Pacific) Limited Isadora Li

1. FINANCIAL INFORMATION

(i) Results

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(ii) Assets and liabilities

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2006

Consolidated Income Statement

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

APPENDIX I

Consolidated Cash Flow Statement

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notes to the Consolidated Financial Statements

Shui On Land Limited Proxy Solicitation & Information Statement 2007