Symphony Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your 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 Symphony Holdings Limited, you should at once hand this circular together with the accompanying form of proxy 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.

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223)

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

Financial Adviser to the Company

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

Capitalised terms used on this cover shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 5 to 16 of this circular. A letter from the Independent Board Committee is set out on page 17 of this circular. A letter from Hercules containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 36 of this circular. A notice convening the SGM to be held at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong on Wednesday, 28 August 2013 at 10:00 a.m. is set out on pages SGM-1 to SGM-2 of this circular. A form of proxy for use at the SGM is enclosed.

Whether or not you are able to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor of Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the appointed time for holding of the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) if you so wish.

12 August 2013

For identification purpose only

	Pages
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Letter from Hercules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . .	I – 1
Appendix II – Financial information of the Target Group. . . . . . . . . . . . . . .	II – 1
Appendix III – Unaudited pro forma financial information of
the Remaining Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III – 1
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV – 1
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	SGM – 1

– i –

DEFINITIONS

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

“associate(s)”

has the meaning ascribed to it under the Listing Rules

“Board”

the board of Directors

“Business Day(s)”

a day (excluding Saturday, Sunday and any day on which a tropical cyclone warning signal no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 5:00 p.m. or which a “black” rainstorm warning signal is hoisted or remains in effect between 9:00 a.m. and 5:00 p.m.) on which licensed banks in Hong Kong and the PRC are open for general business

“BVI”

the British Virgin Islands

“Company”

Symphony Holdings Limited, a company incorporated in Bermuda with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange (Stock code: 01223)
“Completion”
completion of the Disposal in accordance with the terms and conditions of the Disposal Agreement
“Completion Accounts”
the audited consolidated financial statements of the Target Group for the eight months ended 31 August 2013 to be prepared by an independent auditor engaged jointly by the Seller and the Purchaser
“Completion Date”

the date on which Completion takes place

“connected person(s)”
has the meaning ascribed thereto under Rule 1.01 and as extended under Rule 14A.11 of the Listing Rules

“Director(s)”

director(s) of the Company

“Disposal”

the proposed disposal of the Sale Share and the Sale Loan by the Seller to the Purchaser pursuant to the Disposal Agreement

– 1 –

DEFINITIONS

“Disposal Agreement”

“GFA”

“Group”

“Hercules”

“Hong Kong”

“Independent Board Committee”
“Independent Shareholders”
“Latest Practicable Date”
“Listing Rules”
“Mr. Chang”
“percentage ratios”

the conditional sale and purchase agreement dated 28 June 2013 entered into between the Seller and the Purchaser in relation to the Disposal

gross floor area

the Company and its subsidiaries

Hercules Capital Limited, a corporation licensed to carry out type 6 regulated activity as defined under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Disposal Agreement

the Hong Kong Special Administrative Region of the PRC

the independent committee of the Board comprising all the independent non-executive Directors, namely Mr. Cheng Kar Shing, Mr. Feng Lei Ming, Mr. Ho Shing Chak and Mr. Huang Shenglan, established to provide recommendations to the Independent Shareholders on the terms of the Disposal Agreement
Shareholders other than Mr. Chang, the Purchaser and their respective associates
9 August 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the Rules Governing the Listing of Securities on the Stock Exchange
Mr. Chang Tsung Yuan, an executive Director

has the meaning ascribed to it under Chapter 14 of the Listing Rules

– 2 –

DEFINITIONS

“PRC”	the People’s Republic of China which, for the purpose
	of this circular, excludes Hong Kong, the Macau Special
	Administrative Region and Taiwan
“Purchaser”	Global Castle Holdings Limited, a company incorporated in
	the BVI with limited liability
“Remaining Group”	the Group other than the Target Group after Completion
“Sale Loan”	the total amount of the Shareholder’s Loan owing by the
	Target Group to the Seller and/or its subsidiaries as at
	Completion Date
“Sale Share”	one issued share of US$1 in the Target, representing the
	entire issued share capital of the Target
“Seller”	Cosmo Group Holdings Limited, a company incorporated
	in the BVI with limited liability and a direct wholly-owned
	subsidiary of the Company
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting to be convened and held by
	the Company for the Independent Shareholders to consider
	and, if thought fit, approve the Disposal Agreement and the
	transactions contemplated thereunder
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital of
	the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Shareholder’s Loan”	the net amount due and owing by the Target Group to the
	Seller and/or its subsidiaries
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

– 3 –

DEFINITIONS

“Target”	Yi Ming Investments Limited, a company incorporated in
	the BVI with limited liability, which is an indirect wholly-
	owned subsidiary of the Company before Completion
“Target Group”	the Target and its subsidiaries
“USA”	the United States of America
“Well Success”	Well Success Investment Limited, a company incorporated
	in the BVI with limited liability
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency in the PRC
“sq.m.”	square metre(s)
“US$”	United States dollars, the lawful currency of the USA
“%”	per cent.

Unless otherwise specified in this circular, translation of US$ into HK$ is made in this circular, for illustration purpose only, at the rate of US$1 to HK$7.76. No representation is made that any amount in US$ could have been converted at that rate or any other rates.

– 4 –

LETTER FROM THE BOARD

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223)

Non-executive Director: Mr. Li I Nan

Independent non-executive Directors:

Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: 10th Floor, Island Place Tower 510 King’s Road, North Point Hong Kong

12 August 2013

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

INTRODUCTION

On 5 July 2013, the Company announced that after trading hours of the Stock Exchange on 28 June 2013, the Seller (a direct wholly-owned subsidiary of the Company) and the Purchaser entered into the Disposal Agreement pursuant to which, among other things, the Seller conditionally agreed to sell and the Purchaser conditionally agreed to purchase the Sale Share and the Sale Loan for an aggregate consideration of HK$429,198,743 (subject to adjustment).

For identification purpose only

– 5 –

LETTER FROM THE BOARD

The Disposal constitutes a very substantial disposal for the Company under Chapter 14 of the Listing Rules. As the Purchaser is an associate of Mr. Chang, an executive Director, the Purchaser is a connected person of the Company under the Listing Rules. The Disposal also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules which is subject to the approval of the Independent Shareholders at the SGM.

The purpose of this circular is to provide you with, among other things, (i) details of the Disposal Agreement; (ii) the financial information of the Target Group and the Remaining Group; (iii) the recommendation of the Independent Board Committee to the Independent Shareholders; (iv) the letter of advice from Hercules to the Independent Board Committee and the Independent Shareholders; and (v) the notice of the SGM together with the form of proxy.

THE DISPOSAL AGREEMENT

Date:

28 June 2013

Parties:

(i) Cosmo Group Holdings Limited, a direct wholly-owned subsidiary of the Company (as seller); and
(ii) Global Castle Holdings Limited (as purchaser).

As at the Latest Practicable Date, Mr. Chang, an executive Director, was interested in 50% of the issued share capital of the Purchaser. The Purchaser is therefore an associate of Mr. Chang and a connected person of the Company under the Listing Rules. The Purchaser is principally engaged in investment holding.

Assets to be disposed of:

Subject to the terms and conditions of the Disposal Agreement, the Seller shall sell and the Purchaser shall acquire from the Seller the Sale Share (representing the entire issued share capital of the Target) and the Sale Loan, free from all liens, charges, encumbrances and third party rights and together with all rights attaching thereto as at the Completion Date.

As at 28 February 2013, the amount of the Shareholder’s Loan was approximately HK$293.3 million.

– 6 –

LETTER FROM THE BOARD

Consideration:

The initial consideration for the Sale Share shall be HK$135,854,242 and the initial consideration for the Sale Loan shall be HK$293,344,501. The initial aggregate consideration for the Sale Share and the Sale Loan of HK$429,198,743 (the “ Initial Consideration ”) is payable by the Purchaser in cash in the following manner:

(i) an initial payment of HK$50 million shall be payable within 10 Business Days from the date of the Disposal Agreement;
(ii) the second installment of HK$50 million shall be payable within 10 Business Days following the fulfillment of conditions precedent (iii) and (iv) as mentioned in the section headed “Conditions” below; and
(iii) the remaining balance of approximately HK$329.2 million shall be payable within one Business Day after the Completion Date.

The Initial Consideration was determined after arm’s length negotiations between the Seller and the Purchaser based on (i) the unaudited consolidated net assets of the Target Group in the amount of approximately HK$119.5 million as at 28 February 2013 based on the consolidated management accounts of the Target Group, and making adjustments by deducting provision for severance payments and leasehold improvements, and adding general provisions for trade receivables, tax and deferred tax provisions as agreed in the Disposal Agreement (the “ Reference NAV ”) with net amount of approximately HK$16.4 million; and (ii) the amount of Shareholder’s Loan owed by the Target Group as at 28 February 2013 of approximately HK$293.3 million. As at the Latest Practicable Date, the initial payment of HK$50 million had been paid by the Purchaser.

The difference between the net asset value of the Target Group as at 28 February 2013 of approximately HK$119.5 million (as extracted from the consolidated management accounts of the Target Group) and approximately HK$134.8 million (as extracted from the financial information of the Target Group in Appendix II to this circular) was mainly attributable to an adjustment made for reversal of tax provision of approximately HK$15.2 million.

– 7 –

LETTER FROM THE BOARD

The parties to the Disposal Agreement agreed that the consideration for the Sale Share and the Sale Loan shall be determined by deducting provision for severance payments and leasehold improvements from, and adding general provisions for trade receivables and tax and deferred tax provisions to, the net asset value of the Target Group, as (i) severance payments are expected to be paid by two factories of the Target Group in the event that the factories are closed down; (ii) the leasehold improvement was related to a leased property of the Target Group and would be fully amortised upon expiration of the lease in near future; and (iii) the general provision for trade receivables, tax and deferred tax provisions were made for prudence sake and may not materialise or require any actual payment by the Target Group. The Purchaser and the Seller shall procure an independent auditor engaged jointly by them to issue the Completion Accounts within 45 days from the Completion Date. The final consideration for the Sale Share and the Sale Loan shall be determined based on (i) the audited net assets of the Target Group as at 31 August 2013 and calculated on the same basis as the Reference NAV is determined (the “ Audited NAV ”); and (ii) the amount of the Shareholder’s loan as at Completion Date. For information only, the amount of the Referenced NAV was approximately HK$149.7 million based on the unaudited consolidated management accounts of the Target Group as at 31 May 2013 and the amount of the Shareholder’s Loan was approximately HK$388 million as at 31 July 2013. The Purchaser is required under the Disposal Agreement to pay to the Seller an amount in cash equivalent to any excess of the Audited NAV and the Shareholder’s Loan over the Initial Consideration within 15 days after the issue of the Completion Accounts. On the other hand, the Seller is required under the Disposal Agreement to refund to the Purchaser an amount in cash equivalent to any shortfall of the Audited NAV and the Shareholder’s Loan as compared to the Initial Consideration within 15 days after the issue of the Completion Accounts. As at the Latest Practicable Date, the Board did not expect that the final consideration for the Sale Share will differ substantially from the initial consideration for the Sale Share, and did not intent to inject further capital into the Target Group by way of shareholder’s loan.

Conditions:

Completion is conditional on the fulfillment or waiver of the following conditions:

(i) the Seller having obtained all approvals, consents, authorisations, waivers, orders or extensions necessary for the execution of the Disposal Agreement and the consummation of the transactions contemplated under the Disposal Agreement;
(ii) the board of directors of the Target having approved the Disposal Agreement and the transactions contemplated thereunder;
(iii) the Seller having complied with applicable requirements of the Listing Rules in relation to the Disposal Agreement and the transactions contemplated thereunder, including but not limited to obtaining the approval of the Independent Shareholders;

– 8 –

LETTER FROM THE BOARD

(iv) no objection having been received from the Stock Exchange in respect of the Disposal Agreement and the transactions contemplated thereunder;
(v) the warranties given by the Purchaser and the Seller in the Disposal Agreement remaining true and complete and not misleading as at Completion;
(vi) the Seller having completed the group reorganisation of the Target Group according to the terms of the Disposal Agreement to the satisfaction of the Purchaser;
(vii) other than the bank loans borrowed by Stateway Enterprises Limited and 中山精美鞋業有限公司 (Zhongshan Jingmei Footwear Company Limited*) (both being wholly-owned subsidiaries of the Target) from the Industrial and Commercial Bank of China with principal amount of approximately US$15.29 million (equivalent to approximately HK$118.7 million), the Target Group having fully repaid its bank borrowings; and
(viii) the Seller having fully repaid the shareholder’s loan due and owing by the Target Group to subsidiaries or related companies of the Seller (other than shareholder’s loan due and owing to the Seller directly by the Target Group), and having the Seller to become the sole creditor of the shareholder’s loan due and owing by the Target Group.

In connection with the Disposal, the Seller has to obtain certain approval or consents, including but not limited to approval from the Board regarding the Disposal and approval from the board of directors of the Seller regarding the Disposal and/or the group reorganisation of the Target Group. As at the Latest Practicable Date, as advised by the legal advisers of the Company, the aforesaid approval and consents had been obtained. The Purchaser may at any time by written notice to the Seller waive the above conditions (except conditions (iii) and (iv) which are incapable of being waived). As advised by the Purchaser, the Purchaser does not have any present intention to waive the above conditions. For the avoidance of doubt, condition (iii) in relation to the compliance of the Listing Rules is not capable of being waived.

Pursuant to the condition (vi) above, internal transfer of equity interests in manufacturing related entities in the Group would be reorganised as a result of which the Target will hold all the manufacturing related entities of the Group. As at the Latest Practicable Date, the group reorganisation had been completed and the Purchaser was conducting due diligence on the results of the group reorganisation.

If the above conditions are not fulfilled or waived on or before 31 August 2013 (or such other later date as the parties may agree), the Disposal Agreement shall lapse. As at the Latest Practicable Date, condition (ii) had been fulfilled.

For identification purpose only

– 9 –

LETTER FROM THE BOARD

Completion:

Completion shall take place on 31 August 2013. Upon Completion, the Company will cease to hold any issued share capital in the Target and the Target will cease to be a subsidiary of the Group.

Termination:

The Disposal Agreement may be terminated by the written consent of the Seller and the Purchaser. The Seller or the Purchaser may terminate the Disposal Agreement by notice in writing issued to the other party if:

(a) the other party commits any breach of the terms under the Disposal Agreement which has not been remedied (if the breach can be remedied) within seven Business Days after receipt of the notice of the breach;
(b) the other party fails to repay its debts and becomes bankrupt, all or part of its assets are being taken possession by liquidator, the insolvency administrator, receiver, trustee or similar officer;
(c) the other party stops or suspends payments to its creditors generally or is unable or admits its inability to pay its debts as they fall due or seeks to enter into any composition or other arrangement with its creditors or is declared or becomes bankrupt or insolvent;
(d) any government or other institutions confiscates all or part of the other party’s business or assets; or
(e) force majeure events or its consequences continue for more than three months and the parties cannot have a fair and reasonable solution.

In the event that the Disposal Agreement is terminated, all rights and obligations of the parties thereunder shall cease and terminate, and no party shall have any claim against the other for any costs or losses (save in respect of any antecedent breaches of the Disposal Agreement). In addition, the Seller shall, within 10 days from termination, return to the Purchaser all sum of consideration paid to it under the Disposal Agreement.

– 10 –

LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

The Target is a company incorporated in the BVI with limited liability and is an investment holding company. As at the Latest Practicable Date, the Target is a direct wholly-owned subsidiary of the Seller, which is in turn an indirect wholly-owned subsidiary of the Company. The Target Group is the manufacturing unit of the Group’s footwear products. It includes the Group’s production facilities in Vietnam, and in Zhongshan and Henan, the PRC. The Target Group also operates a research and development centre at Zhongshan, the PRC. All of the production, research and development facilities operated by the Target Group are leased properties.

Set out below is the consolidated financial information of the Target Group prepared under Hong Kong Financial Reporting Standards for the two years ended 31 December 2011 and 2012 as extracted from the financial information of the Target Group in Appendix II to this circular:

	For the	For the
	year ended	year ended
	31 December	31 December
	2011	2012
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Profit before income tax expense	1,223	55,865
		(Note)
Profit for the year	1,047	33,283

Note: For the year ended 31 December 2012, the Target Group recorded a gain on disposal of land and building of approximately HK$60 million, which was a non-recurring item.

The Target Group recorded unaudited net assets of approximately HK$293.4 million as at 31 December 2012. In January 2013, dividend of HK$160.0 million has been declared by the Target Group.

REASONS FOR THE DISPOSAL

The existing principal activities of the Group are (i) footwear manufacturing; (ii) retailing and sourcing; (iii) property investment and investment holding in Hong Kong and the PRC; (iv) management and operation of outlet mall in the PRC; and (v) development and management of “PONY” brand.

– 11 –

LETTER FROM THE BOARD

As disclosed in the annual report of the Company for the year ended 31 December 2012, the Group’s footwear manufacturing business has been facing formidable challenges, including but not limited to rising labor cost, higher utilities cost, overheads pressures from factory in Zhongshan City, Guangdong Province, the PRC as well as in the interior of the PRC. With a view to enhancing the Group’s competitiveness, the Group has relocated its footwear manufacturing facilities to Henan Province, the PRC and Vietnam since 2011. The Group has also closed down several production lines in Zhongshan City, Guangdong Province, the PRC and the production lines in Panyu District, Guangdong Province, the PRC and Fujian Province, the PRC during the two financial years ended 31 December 2011 and 2012 respectively. In light of the continued increase in labor costs and overheads, it is the business strategy of the Group to downsize its manufacturing operations.

The Disposal is consistent with the aforesaid business strategy and enables the Group to generate financial resources for and direct its focus to concentrate on other core activities in which the Group has competitive advantages and core competencies. Following Completion, the Remaining Group will no longer be engaged in footwear manufacturing business and will be engaged principally in the management and operation of outlet mall in the PRC, as well as development and management of the “PONY” brand. As at the Latest Practicable Date, the Company did not have any negotiation or intention to dispose of or downsize the assets and operations of the Remaining Group. In addition, there is no ongoing business relationship between the Remaining Group and the Target Group after Completion and the Remaining Group does not intend to engage the Target Group to manufacture apparel, swimwear and accessories products for its remaining business.

The net proceeds from the Disposal, after deducting expenses attributable to the Disposal of approximately HK$1.2 million, are estimated to be approximately HK$428.0 million, and are expected to be applied as to approximately (i) HK$48.0 million towards the expansion program of the outlet mall of the Group at Shenyang in the PRC; (ii) HK$50.0 million to develop the “PONY” brand; (iii) HK$250.0 million for the repayment of bank debts of the Group; and (iv) HK$80.0 million as general working capital of the Group.

FINANCIAL EFFECTS OF THE DISPOSAL

Based on the Initial Consideration of approximately HK$429.2 million, the net asset value of the Target Group of approximately HK$134.8 million as at 28 February 2013 and the amount of the Shareholder’s Loan of approximately HK$293.3 million as at 28 February 2013, the Initial Consideration represents an excess of approximately HK$1.1 million over the aggregate amount of the net asset value of the Target Group and the Shareholder’s Loan as at 28 February 2013.

– 12 –

LETTER FROM THE BOARD

Assuming the Disposal has been completed on 31 December 2012, the Group expects to realise a gain on the Disposal of approximately HK$52.0 million, which is calculated based on (i) the difference between the net consideration for the Sale Share of approximately HK$295.9 million (after netting off the estimated legal and professional and related expenses in relation to the Disposal of approximately HK$1.2 million) and the net assets of the Target Group of approximately HK$293.4 million as at 31 December 2012; and (ii) realisation of translation reserve upon Completion of approximately HK$49.4 million. Shareholders should note that the actual gain or loss from the Disposal to be recorded by the Company will depend on the financial position of the Target Group as at the Completion Date.

According to the unaudited pro forma financial information of the Remaining Group as set out in Appendix III to this circular, (i) the Group’s total assets would decrease from approximately HK$2,974.3 million to HK$2,687.4 million and its total liabilities would decrease from approximately HK$1,162.9 million to approximately HK$873.4 million, assuming the Disposal had been completed on 31 December 2012; and (ii) the Group’s loss for the year ended 31 December 2012 would decrease from approximately HK$224.3 million to approximately HK$192.9 million, assuming the Disposal had been completed on 1 January 2012.

INFORMATION ON THE REMAINING GROUP

Upon Completion, the Remaining Group will focus on (i) the development and management of the outlet mall in the PRC; (ii) global development of the “PONY” brand (excluding the PRC and Taiwan); (iii) retail operations of the “Speedo” brand in the PRC; and (iv) property investment and development in the PRC.

Outlet mall

The Remaining Group embarked on its first outlet mall project (the “ Shenyang Park Outlets ”) in Shenbei, Shenyang, the PRC in 2009, partnered with two renowned Japanese corporations, namely Mitsubishi Estate Corporation (“ MEC ”) and Toyota Tsusho Corporation (“ TTC ”). The tri-party strategic alliance enables the Group to benefit from MEC’s knowhow in outlet mall management and TTC’s connection with Japanese fashion brands. The initial phase of the Shenyang Park Outlets commenced business in October 2012 and most of the stores have been rented out. Planning of the second phase of the Shenyang Park Outlets is currently underway.

– 13 –

LETTER FROM THE BOARD

Shortly after the opening of the Shenyang Park Outlets, the Remaining Group was offered a 15-year management and service agreement with a state-owned enterprise in Tianjin, the PRC for the management and operation of another outlet mall with GFA of over 60,000 sq.m.. The outlet mall is part and parcel of Tuanbo New Town Development in Tianjin earmarked for sports and leisure activities for travelers. The outlet mall is currently under construction and expected to commence its operation in December 2013 with approximately 130 shops.

“PONY” brand

“PONY” is a USA-based brand founded by an Uruguay born entrepreneur in 1972. It offers diverse lifestyle and casual products including apparel, footwear and accessories. “PONY” branded products are sold in South Korea, Japan, Argentina, Brazil, Europe, Mexico, Russia, the Philippines, Hong Kong and Macau. 2012 marks the 40th anniversary of the “PONY” brand, which has received positive response worldwide. The Remaining Group recently entered into a license agreement with respect to the use of the “PONY” trademark in the USA and Canada. It is anticipated that considerable resources will be deployed towards brand building. The Remaining Group considers that market presence of the brand in the USA is of primary importance in affirming the brand’s authenticity as a heritage brand of USA origin.

“Speedo” brand

The Remaining Group has been the exclusive distributor of the “Speedo” brand in the PRC since 2007. Currently, there are approximately 355 points-of-sale for “Speedo” products in the PRC of which 40 are directly operated by the Remaining Group and 315 are operated by franchisees. The success of Speedo-sponsored China Swimming Team in the Olympics intensified brand awareness and contributed to fortifying the brand’s leading position in the PRC’s swimwear market. It is expected that the brand will continue to grow through franchisee participation. It is envisaged that the number of points-of-sale will grow to approximately 540 in 2016.

Property investment and development

Apart from the Shenyang Park Outlets, the Remaining Group currently owns three parcels of land in Shenbei, Shenyang, the PRC. The dedicated usages of the three parcels of land are commercial and residential with a total GFA of over 110,000 sq.m. for commercial land and GFA of over 260,000 sq.m. for residential land. As at the Latest Practicable Date, the Remaining Group did not have any concrete development plan for the land and would consider such plan when the Directors consider appropriate.

– 14 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

The Disposal constitutes a very substantial disposal for the Company under the Listing Rules. As at the Latest Practicable Date, Mr. Chang, an executive Director, was interested in 50% of the issued share capital of the Purchaser. The remaining 50% of the issued share capital of the Purchaser was held by family members of Mr. Chang. The Purchaser was therefore an associate of Mr. Chang and a connected person of the Company under the Listing Rules. As such, the Disposal also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Disposal is subject to approval from the Independent Shareholders at the SGM by way of poll. Mr. Chang, the Purchaser and their respective associates shall abstain from voting in respect of the resolution approving the Disposal Agreement and the transactions contemplated thereunder at the SGM. As at the Latest Practicable Date, Mr. Chang held 4,500,000 Shares, representing approximately 0.34% of the issued share capital of the Company, and he controlled or was entitled to exercise control over the voting rights in respect of these Shares. In addition, Mr. Chang held approximately 20% of the issued share capital of Well Success, which in turn held 664,677,468 Shares, representing approximately 50.81% of the issued share capital of the Company. Mr. Chang was not a director of Well Success and Well Success was not an associate of Mr. Chang. As at the Latest Practicable Date, the Purchaser and its associates did not hold any Shares.

Mr. Chang had abstained from voting on the Board resolution approving the Disposal as Mr. Chang has a material interest in the Disposal Agreement.

The Independent Board Committee has been established to give recommendations to the Independent Shareholders on the terms of the Disposal Agreement. Hercules has been appointed by the Company as an independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

SGM

The SGM, the notice of which is set out on pages SGM-1 to SGM-2 of this circular, will be convened and held at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong on Wednesday, 28 August 2013 at 10:00 a.m. for the Independent Shareholders to consider and, if thought fit, approve the Disposal Agreement. The voting at the SGM will be taken by way of poll.

– 15 –

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 17 of this circular which contains its recommendation to the Independent Shareholders in relation to the terms of the Disposal Agreement.

Your attention is also drawn to the letter from Hercules set out on pages 18 to 36 of this circular which contains its recommendations to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Disposal Agreement and the principal factors and reasons taken into account in arriving at its recommendations.

The Directors (other than the independent non-executive Directors who have expressed their views on the transactions contemplated under the Disposal Agreement in this circular after taking into account the advice of Hercules) are of the opinion that the Disposal is 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, and accordingly recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal Agreement.

The Independent Board Committee, having taken into account the terms of the Disposal Agreement and the advice of Hercules, considers that the Disposal is fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal Agreement.

ADDITIONAL INFORMATION

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

By order of the Board Symphony Holdings Limited Chan Ting Chuen

Chairman

– 16 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [45 x 31] intentionally omitted <==

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223)

12 August 2013

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

We refer to the circular of the Company dated 12 August 2013 (the “Circular”) of which this letter forms part. Capitalised terms used herein have the same meanings as those defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the terms of the Disposal Agreement. Hercules has been appointed as the independent financial adviser to advise us and you regarding the terms of the Disposal Agreement. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving its advice, are contained in its letter set out on pages 18 to 36 of the Circular. Your attention is also drawn to the letter from the Board and the additional information set out in the appendices to the Circular.

Having considered the terms of the Disposal Agreement and the advice of Hercules, we consider the Disposal is 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. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal Agreement.

		faithfully,
	Independent	Board Committee
Mr. Cheng Kar Shing	Mr. Feng Lei Ming	Mr. Ho Shing Chak	Mr. Huang Shenglan
Independent	Independent	Independent	Independent
Non-executive	Non-executive	Non-executive	Non-executive
Director	Director	Director	Director

For identification purpose only

– 17 –

LETTER FROM HERCULES

The following is the full text of the letter from Hercules dated 12 August 2013 setting out their opinion to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Disposal Agreement for the purpose of inclusion in this circular.

1503 Ruttonjee House 11 Duddell Street Central Hong Kong

12 August 2013

To the Independent Board Committee and

the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to the terms of the transactions contemplated under the Disposal Agreement, details of which are set out in the letter from the Board (the “Letter from the Board”) contained in the circular dated 12 August 2013 to the Shareholders (the “Circular”), of which this letter forms part. Capitalized terms used in this letter have the same meanings as defined elsewhere in the Circular unless the context requires otherwise.

– 18 –

LETTER FROM HERCULES

On 28 June 2013, the Seller, a direct wholly-owned subsidiary of the Company, and the Purchaser entered into the Disposal Agreement pursuant to which, among other things, the Seller conditionally agreed to sell, and the Purchaser conditionally agreed to purchase, the Sale Share and the Sale Loan for an aggregate consideration of HK$429,198,743 (subject to adjustment).

The Disposal constitutes a very substantial disposal for the Company under the Listing Rules. As at the Latest Practicable Date, Mr. Chang, an executive Director, was interested in 50% of the issued share capital of the Purchaser and the remaining 50% of the issued share capital of the Purchaser was held by family members of Mr. Chang. The Purchaser was therefore an associate of Mr. Chang and a connected person of the Company under the Listing Rules. As such, the Disposal also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Disposal is subject to approval by the Independent Shareholders at the SGM by way of poll. Mr. Chang, the Purchaser and their respective associates shall abstain from voting in respect of the resolution approving the Disposal Agreement and the transactions contemplated thereunder at the SGM. As at the Latest Practicable Date, Mr. Chang held 4,500,000 Shares, representing approximately 0.34% of the issued share capital of the Company. In addition, Mr. Chang held approximately 20% of the issued share capital of Well Success, which in turn held 664,677,468 Shares, representing approximately 50.81% of the issued share capital of the Company as at the Latest Practicable Date. Mr. Chang is not a director of Well Success and Well Success is not an associate of Mr. Chang. As at the Latest Practicable Date, the Purchaser and its associates did not hold any Shares.

The Independent Board Committee, comprising all independent non-executive Directors, namely Mr. Cheng Kar Shing, Mr. Feng Lei Ming, Mr. Ho Shing Chak and Mr. Huang Shenglan, has been established to advise the Independent Shareholders on the terms of the Disposal Agreement. We, Hercules Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard, in particular as to whether the Disposal is 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.

– 19 –

LETTER FROM HERCULES

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that such information and statements, and representations made to us or referred to in the Circular are true, accurate and complete in all material respects as of the date hereof and will continue as such at the date of the SGM. The Directors have collectively and individually accepted full responsibility for the Circular, including particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group and having made all reasonable enquiries have confirmed that, to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular misleading.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have no reasons to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate, and consider that they may be relied upon in formulating our opinion. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs or future prospects of the Group and the related subject of, and parties to, the Disposal Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change this opinion and that we do not have any obligation to update, revise or reaffirm this opinion.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion regarding the Disposal, we have considered the following principal factors and reasons:

1. Information on the Group

– 20 –

LETTER FROM HERCULES

The audited consolidated financial information of the Group for the two years ended 31 December 2012, which was extracted from the 2012 annual report of the Company, is summarized as follows:

Turnover – Footwear manufacturing – Retailing and sourcing – Property investment and holding – Outlet malls (Loss)/profit before income tax expenses (Loss)/profit for the year (Loss)/profit for the year attributable to owners of the Company Total assets Total liabilities Net assets Net assets attributable to owners of the Company	For the year ended 31 December 2012 2011 HK$’000 HK$’000 (restated) 1,818,239 2,344,219 139,657 126,858 8,665 7,203 1,013 – 1,967,574 2,478,280 (202,976) 57,508 (224,346) 35,856 (214,346) 23,811 As at 31 December 2012 2011 HK$’000 HK$’000 (restated) 2,974,287 2,672,184 (1,162,903) (772,754) 1,811,384 1,899,430 1,491,488 1,695,066

– 21 –

LETTER FROM HERCULES

The turnover of the Group for the year ended 31 December 2012 was approximately HK$1,967.6 million, approximately 92.4% of which were derived from its footwear manufacturing business. The Group recorded a decrease of approximately 20.6% in its turnover for the year ended 31 December 2012 as compared to the previous year since the customers from overseas and domestic markets cut their orders in view of the weak global consumer demand and production of certain factories of the Group was halted during the year as a result of the migration of the manufacturing facilities to Vietnam and Henan, the PRC. With the competitive market pressure on selling price and continuous increases in the manufacturing costs, the gross profit margin of the Group lowered from approximately 15.4% for the year ended 31 December 2011 to approximately 9.9% for the year ended 31 December 2012. In addition to the significant drop in gross profit by approximately 49.0%, the severance payments incurred as a result of the closure of manufacturing plants in Fujian and Panyu, the PRC of approximately HK$67.7 million, the written off of fixed assets in these manufacturing plants of approximately HK$11.2 million, the recognition of impairment loss on interests in jointly controlled entities of approximately HK$20.5 million and the increase in share of losses of jointly controlled entities of approximately HK$38.1 million also led to the loss of approximately HK$224.3 million for the year ended 31 December 2012 while a profit of approximately HK$35.9 million was recorded in the previous year. The loss attributable to owners of the Company for the year ended 31 December 2012 was approximately HK$214.3 million while profit attributable to owners of the Company of approximately HK$23.8 million was recorded for the year ended 31 December 2011.

As at 31 December 2012, the non-current assets of the Group amounted to approximately HK$1,701.4 million, of which approximately HK$571.4 million were property, plant and equipment, approximately HK$506.9 million were investment properties, approximately HK$291.4 million were prepaid lease payments, approximately HK$150.3 million were deposit paid for acquisition of an investment property and approximately HK$108.3 million were advances to jointly controlled entities, while the current assets of the Group amounted to approximately HK$1,272.8 million, which mainly consisted of inventories of approximately HK$254.2 million, trade and other receivables of approximately HK$328.2 million, bank balances and cash of approximately HK$558.4 million, of which HK$78.3 million were pledged bank deposit, and assets classified as held for sales of approximately HK$120.4 million. The non-current liabilities of the Group amounted to approximately HK$74.3 million, being deferred tax liabilities, as at 31 December 2012. The current liabilities of the Group as at 31 December 2012 amounted to approximately HK$1,088.6 million, which mainly included trade and other payables of approximately HK$551.7 million and bank borrowings of approximately HK$437.4 million, of which HK$120.0 million were secured by certain leasehold land and buildings and investment properties of the Group. As at 31 December 2012, the net assets attributable to owners of the Company amounted to approximately HK$1,491.5 million.

– 22 –

LETTER FROM HERCULES

On 27 March 2013, the Company announced that the Group had entered into an acquisition agreement in relation to the acquisition of 50% equity interest in China Ocean Resources Limited, the principal assets of which are various trademarks relating to the brand name of “PONY” worldwide. China Ocean Resources Limited and its subsidiaries are principally engaged in marketing of footwear, apparel and accessories under the “PONY” brand name and provision of trademark rights and licensing services of the PONY trademarks. Meanwhile, the Group also entered into a disposal agreement relating to the disposal of 18.32% equity interest in Grand Wealth Group Limited, the principal assets of which is an investment in an associated company principally engaged in the marketing and trading of men’s apparel under the brand name of “HAGGAR” in the USA. Grand Wealth Group Limited together with its subsidiaries and associated companies hold the HAGGAR trademark for the PRC, Hong Kong, Taiwan and Macau. Following completion of the above transactions in June 2013, (i) China Ocean Resources Limited has become a wholly-owned subsidiary of the Group and, thus, the Group has obtained “PONY” brand’s direct global brand ownership, excluding the PRC and Taiwan; and (ii) the Group ceased to hold any equity interest in Grand Wealth Group Limited. Details of the transactions are set out in the circular of the Company dated 9 May 2013.

2. Information on the Target Group

The Target is a company incorporated in BVI with limited liability and is an investment holding company. As at the Latest Practicable Date, the Target was a direct wholly-owned subsidiary of the Seller, which was in turn an indirect wholly-owned subsidiary of the Company. The Target Group is the manufacturing unit of the Group’s footwear products. It includes the Group’s production facilities in Vietnam, and in Zhongshan and Henan, the PRC. It also operates a research and development centre in Zhongshan, the PRC. All of the production, research and development facilities operated by the Target Group are leased properties.

– 23 –

LETTER FROM HERCULES

The unaudited consolidated financial information of the Target Group, which was prepared under Hong Kong Financial Reporting Standards, for the two months ended 28 February 2013 and the two years ended 31 December 2012 as extracted from the financial information of the Target Group in Appendix II to the Circular is summarized as follows:

			For the	For the	year
	For the two	months ended	ended 31	December
	28 February	29 February
	2013	2012	2012		2011
	HK$’000	HK$’000	HK$’000		HK$’000
Revenue	155,686	90,362	1,517,498		2,039,903
Profit/(loss) before
income tax expense	1,023	(10,003)	55,865		1,223
Profit/(loss) for the period/year	1,023	(9,835)	33,283		1,047
					As at
				28 February
					2013
					HK$’000
Total assets					858,352
Total liabilities					(723,593)
Net assets					134,759

The revenue of the Target Group for the year ended 31 December 2012 was approximately HK$1,517.5 million, representing a decrease of approximately 25.6% as compared to that of the last year. Such decrease was mainly attributable to the reduction of orders from customers owing to the weak global consumer demand and the temporary suspension of operation of certain manufacturing facilities in Zhongshan, the PRC as a result of the relocation of manufacturing facilities to Henan, the PRC. Despite the decrease in revenue, the improvement in raw material wastage helped boosting the gross profit of the Target Group by approximately 14.1% from approximately HK$83.1 million in 2011 to HK$94.8 million in 2012. However, as a result of the increases in distribution costs, staff costs and finance costs, loss before income tax expense of approximately HK$4.8 million, excluding the non-recurring gain on disposal of land and building in Zhongshan, the PRC of approximately HK$60.7 million, was recorded for the year ended 31 December 2012. The profit after income tax expense for the year ended 31 December 2012 amounted to approximately HK$33.3 million, which was mainly attributable to the non-recurring gain on disposal of land and building in Zhongshan. Had such non-recurring gain been excluded, a loss would have been recorded by the Target Group for the year ended 31 December 2012. In January 2013, the Target Group declared a total dividend of HK$160.0 million.

– 24 –

LETTER FROM HERCULES

As the manufacturing plants in Vietnam and Henan, the PRC were tuned up during the two months ended 28 February 2013, the revenue of the Target Group increased by approximately 72.2% as compared to the last corresponding period and reached approximately HK$155.7 million. Resulted from improvement in labor efficiency and lower labour costs in Vietnam and Henan during the period, the total labour costs of the Target Group reduced from approximately 40.1% of the revenue for the two months ended 29 February 2012 to approximately 30.5% of the revenue for the two months ended 28 February 2013 and a gross profit of approximately HK$14.3 million was recorded for the two months ended 28 February 2013 as compared to a gross loss of approximately HK$2.2 million for the previous corresponding period. The results of the Target Group turned around from a loss before income tax expense of approximately HK$10.0 million for the two months ended 29 February 2012 to a profit before income tax expense of approximately HK$1.0 million for the two months ended 28 February 2013. The Target Group’s profit after income tax expense for the two months ended 28 February 2013 amounted to HK$1.0 million while the loss after income tax expense for the two months ended 29 February 2012 amounted to HK$9.8 million.

As at 28 February 2013, the non-current assets of the Target Group amounted to approximately HK$90.6 million, most of which were property, plant and equipment, while the current assets of the Target Group amounted to approximately HK$767.8 million, which comprised inventories of approximately HK$235.6 million, trade and other receivables of approximately HK$230.8 million, amounts due from ultimate holding company and fellow subsidiaries of approximately HK$28.3 million, pledged bank deposits of approximately HK$78.5 million and bank balances and cash of approximately HK$194.6 million. The current liabilities of the Group amounted to approximately HK$720.4 million, which consisted of trade and other payables of approximately HK$232.0 million, amounts due to immediate holding company and fellow subsidiaries of approximately HK$321.6 million, bank borrowings of approximately HK$157.0 million and tax payable of approximately HK$9.8 million. The non-current liabilities of the Target Group amounted to approximately HK$3.2 million, which were deferred tax liabilities. As at 28 February 2013, the Shareholder’s Loan was approximately HK$293.3 million and the net asset value of the Target Group was approximately HK$134.8 million.

– 25 –

LETTER FROM HERCULES

Although the performance of the Target Group is improving for the two months ended 28 February 2013 as compared to the last corresponding period, the management of the Company considers that the improved performance of the Target Group may not be sustainable in the long run in view of the ascending trend on production costs, in particular the labour cost and raw material cost. The management of the Company also considers that the future prospect of footwear manufacturing may not be promising as compared to other businesses of the Remaining Group.

3. Information on the Remaining Group

According to the Directors, the Remaining Group will focus on the development and management of the outlet mall in the PRC, global development of the “PONY” brand (excluding the PRC and Taiwan), retail operations of the “Speedo” brand in the PRC, and property investment and development in the PRC.

Outlet malls

The Remaining Group started its outlet mall business in 2009 by partnering with two renowned Japanese corporations, namely, Mitsubishi Estate Corporation (“MEC”) and Toyota Tsusho Corporation (“TTC”) to establish an outlet mall in Shenbei, Shenyang, the PRC (the “Shenyang Park Outlets”). The tri-party strategic alliance enables the Remaining Group to benefit from the knowhow of MEC in outlet mall management and the connections of TTC with Japanese fashion brands. The initial phase of the Shenyang Park Outlets commenced business in October 2012. We understand from the management of the Company that most of the stores in the Shenyang Park Outlets have been rented out and they are planning for the second phase of development of the Shenyang Park Outlets.

Shortly after the opening of the Shenyang Park Outlets, the Remaining Group was offered a 15-year management and service agreement by a state-owned enterprise in Tianjin, the PRC for the management and operation of another outlet mall with GFA of over 60,000 sq.m.. The outlet mall is part and parcel of Tuanbo New Town Development in Tianjin earmarked for sports and leisure activities for travelers. The outlet mall is currently under construction and expected to commence its operation in December 2013 with approximately 130 shops.

– 26 –

LETTER FROM HERCULES

“PONY” brand

“PONY” is a US-based brand which has more than 40 years of history. It offers diverse lifestyle and casual products including apparel, footwear and accessories. In the 1970’s, “PONY” became the dominant basketball brand and it was widely known in the footwear industry, with endorsement from the likes of boxing great Mohammed Ali and soccer legend Pele, by the 1980’s. However, it ran into a financial trouble in early 2000’s. The Remaining Group formed a partnership, the principals of which were the same as those which turned around Converse successfully, to buyout Pony International in 2006. Subsequent to the buyout in 2006, “PONY” was repositioned and its product lines have been redesigned. It also started to launch products in the PRC and Taiwan. “PONY” branded products are currently also sold in South Korea, Japan, Argentina, Brazil, Europe, Russia, the Philippines, Mexico, Hong Kong and Macau.

Following the completion of the acquisition of 50% equity interest in China Ocean Resources Limited in June 2013, the Remaining Group has got the complete control over the brand strategy, product development and marketing of the “PONY” brand. Recently, the Remaining Group entered into a license agreement with respect to the use of the “PONY” trademarks in the USA and Canada. It is anticipated that considerable resources will be deployed towards brand building. The Remaining Group considers that market presence of the brand in the USA is of primary importance in affirming the brand’s authenticity as a heritage brand of USA origin.

“Speedo” brand

The Remaining Group has been the exclusive distributor of the “Speedo” brand in the PRC since 2007. Currently, there are approximately 355 points-of-sale for “Speedo” products in the PRC, of which 40 are directly operated by the Remaining Group and 315 are operated by franchisees. The success of Speedo-sponsored China Swimming Team in the Olympics has intensified the brand awareness and enabled the brand in fortifying its leading position in the swimwear market of the PRC. It is expected that the brand will continue to grow through franchisee participation and it is envisaged that the number of points-of-sale will grow to about 540 in 2016.

– 27 –

LETTER FROM HERCULES

Property investment and development

Apart from the Shenyang Park Outlets, the Group currently owns three parcels of land in Shenbei, Shenyang, the PRC. The land is dedicated to be developed for commercial use with total GFA of over 110,000 sq.m. and residential use with total GFA of over 260,000 sq.m.. As at the Latest Practicable Date, the Remaining Group did not have any concrete development plan for the land and would consider such plan when the Directors consider appropriate.

Having considered the above developments, the Directors are optimistic about the future development of the Remaining Group and are confident that the above-mentioned businesses shall generate a stable income to the Remaining Group in the future.

4. Reasons for the Disposal

As disclosed in the annual report of the Company for the year ended 31 December 2012, the footwear manufacturing business of the Group has encountered formidable challenges such as generally rising labour cost, higher utilities cost and overheads pressure from its factories in Zhongshan and the interior of the PRC. The continuous increasing trend of raw materials, oil price, transportation and logistics cost, inflationary pressures and volatile foreign currency regime have also imposed pressures on the footwear manufacturing business of the Group. Meanwhile, prospective buyers tend to centralize their purchases by placing orders with only a few well-known factory groups in view of industry consolidation and tight credit policies. The Group has therefore closed down several production lines in Zhongshan and Panyu of Guangdong Province, the PRC and Fujian Province, the PRC.

According to the “Footwear Manufacturing in China: Market Research Report” published by IBISWorld, an independent industry and market researcher, in January and June 2013, the PRC has been the largest global footwear manufacturer supplying products to countries all over the World. However, in recent years, a heavy reliance on foreign markets has brought significant challenges to the industry as the global recession in 2008 and 2009 led to lower export demand. Besides, as the PRC’s currency appreciates and labour costs rise, export price advantages diminish and some Southeast Asian countries, such as Vietnam, begin to replace the PRC as manufacturers of low-priced footwear. IBISWorld expected that the growth of the footwear manufacturing industry in the PRC for the next five years would mainly come from increasing domestic demand and some pricing rises. The reports of IBISWorld also revealed that the annual growth rate of revenue for the footwear manufacturing industry in the PRC over the five years to 2013 has decreased to around 12.3% per year as compared to 15.0% for the five years to 2012. IBISWorld further forecasted that the revenue for the footwear manufacturing industry in the PRC would only increase by 9.2% in 2013.

– 28 –

LETTER FROM HERCULES

Given that (i) the growth in revenue for the footwear manufacturing industry in the PRC has been slowed down in recent years; (ii) the future growth is expected to be come from domestic demand; (iii) the Target Group relies heavily on export sales to the USA and European countries; and (iv) the labour costs, raw material costs and other overheads in the PRC are increasing continuously, the Directors consider, and we concur with their view, that breakthrough improvement on the performance of the Target Group’s footwear manufacturing business is difficult, although not impossible, to achieve whereas the Disposal can provide the Company with an opportunity to realize its investment in the Target Group at a fair price and allow the Group to reallocate more resources on other prospective businesses.

The Company stated in its circular dated 9 May 2013 that it intended to dedicate more efforts on development of the businesses where the Group has competitive advantages and core competencies, such as “PONY” brand development and outlet mall management, details of which are set out in the section of “Information of the Remaining Group” in this letter. We understand from the management of the Company that following Completion, the Remaining Group will no longer be engaged in footwear manufacturing business and will focus on the development and management of the outlet mall in the PRC, global development of the “PONY” brand, retail operations of the “Speedo” brand in the PRC, and property investment and development in the PRC.

It is estimated that the net proceeds from the Disposal, after deducting expenses attributable to the Disposal of approximately HK$1.2 million, will be approximately HK$428.0 million, which will be applied as to (i) HK$48.0 million towards the expansion program of the outlet mall of the Group in Shenyang, the PRC; (ii) HK$50.0 million for business development of the “PONY” brand; (iii) HK$250.0 million for repayment of bank debts of the Group; and (iv) HK$80.0 million for general working capital of the Group.

Given that (i) the Disposal is consistent with the business strategy of the Group to concentrate on activities in which the Group has competitive advantages and core competencies; and (ii) the Disposal can provide additional funding to the Group for repayment of debt and further development and expansion of its businesses of management and operation of outlet mall in the PRC, as well as development and management of the “PONY” brand, we consider that the entering into of the Disposal Agreement is in the interests of the Company and the Shareholders as a whole.

– 29 –

LETTER FROM HERCULES

5. Principal terms of the Disposal Agreement

On 28 June 2013, the Seller, a direct wholly-owned subsidiary of the Company, and the Purchaser entered into the Disposal Agreement, pursuant to which, among other things, the Seller conditionally agreed to sell, and the Purchaser conditionally agreed to purchase, the Sale Share, being the entire issued share capital of the Target, and the Sale Loan, free from all liens, charges, encumbrances and third party rights and together with all rights attaching thereto as at the Completion Date. As at 28 February 2013, the amount of Shareholder’s Loan was approximately HK$293.3 million. The initial consideration for the Sale Share shall be HK$135,854,242 and the initial consideration for the Sale Loan shall be HK$293,344,501.

The initial aggregate consideration for the Sale Share and the Sale Loan of HK$429,198,743 (the “Initial Consideration”) is payable by the Purchaser in cash in the following manner:

(i) an initial payment of HK$50 million shall be payable within 10 Business Days from the date of the Disposal Agreement;
(ii) the second installment of HK$50 million shall be payable within 10 Business Days following the fulfillment of conditions precedent (iii) and (iv) as mentioned in the section headed “Conditions” in the Letter from the Board; and
(iii) the remaining balance of approximately HK$329.2 million shall be payable within one Business Day after the Completion Date.

The Initial Consideration was determined after arm’s length negotiation between the Seller and the Purchaser based on (i) the unaudited consolidated net assets of the Target Group in the amount of approximately HK$119.5 million as at 28 February 2013 based on the consolidated management accounts of the Target Group, and making adjustments by deducting provision for severance payments and leasehold improvements, and adding general provisions for trade receivables, tax and deferred tax provisions as agreed in the Disposal Agreement (the “Reference NAV”) with net amount of approximately HK$16.4 million; and (ii) the amount of Shareholder’s Loan owed by the Target Group as at 28 February 2013 of approximately HK$293.3 million.

– 30 –

LETTER FROM HERCULES

The consideration for the Sale Share and the Sale Loan shall be subject to adjustment. The Purchaser and the Seller shall procure an independent auditor appointed jointly by them to issue the Completion Accounts within 45 days from the Completion Date. The final consideration for the Sale Share and the Sale Loan shall be determined based on (i) the audited net assets of the Target Group as at 31 August 2013 and adjusted on the same basis as the Reference NAV is determined (the “Audited NAV”); and (ii) the amount of the Shareholder’s Loan as at Completion Date. The Purchaser is required under the Disposal Agreement to pay to the Seller an amount in cash equivalent to any excess of the Audited NAV and the Shareholder’s Loan over the Initial Consideration within 15 days after the issue of the Completion Accounts. On the other hand, the Seller is required under the Disposal Agreement to refund to the Purchaser an amount in cash equivalent to any shortfall of the Audited NAV and the Shareholder’s Loan as compared to the Initial Consideration within 15 days after the issue of the Completion Accounts.

Adjustments on the consideration of the Sale Share

We noted that adjustments have been/will be made on the net asset value of the Target Group for determination of the initial consideration and the final consideration of the Sale Share. We were advised by the management of the Company that the Vendor and the Purchaser have agreed to adjust the consideration of the Sale Share by deducting provision for severance payments and leasehold improvements from, and adding general provisions for trade receivables and tax and deferred tax provisions to, the net asset value of the Target Group as severance payments are expected to be paid by two factories of the Target Group in the event that the factories close down and the leasehold improvements would be fully amortized upon expiration of the properties leasing agreement which will take place shortly. Furthermore, the Directors consider that the general provisions for trade receivables and tax and deferred tax which have been made by the Target Group should be added back for the calculation of the consideration as such provisions are only general provisions and/or the likelihood of payment are remote. Having considered the above reasons and rationale of the consideration adjustment mechanism, we consider that the adjustments on the net asset value of the Target Group are fair and reasonable and commercially justifiable.

– 31 –

LETTER FROM HERCULES

Consideration of the Sale Share

In forming our opinion on the consideration for the Sale Share, we have considered the commonly adopted comparable approaches in evaluation of a company, namely price-to-earnings approach, dividends approach and net assets approach. However, given the Target Group’s profit recognized for the year ended 31 December 2012 was mainly derived from a non-recurring gain on disposal of land and building, the exclusion of which will lead the Target Group to a loss, we consider that the priceto-earnings approach is not applicable for assessing the value of the Target Group. Furthermore, save for the year ended 31 December 2012, the Target has no dividend payment records for the past two years, we consider that the dividends approach is also not applicable for assessing the value of the Target Group as there were no stable trend of dividend payout.

Based on the unaudited management accounts of the Target, the adjusted consolidated net asset value of the Target Group as at 28 February 2013 amounted to approximately HK$135.9 million, which was calculated based on the consolidated net asset value of the Target Group of approximately HK$119.5 million as at 28 February 2013 and adjusted by the factors agreed in the Disposal Agreement which amounted to approximately HK$16.4 million. Accordingly, the price-to-book ratio (PBR) of the Target Group implied by the initial consideration of the Sale Share of HK$135,854,242 is 1.00 times.

In assessing the fairness and reasonableness of the initial consideration of the Sale Share, we have compared the PBR of the Target Group implied by the initial consideration of the Sale Share with those of other comparables, which are (a) currently listed on the Stock Exchange; and (b) over 50% of the turnover was derived from the business of manufacturing of footwear, with share prices as at the Latest Practicable Date. Based on the above-mentioned criteria, we have, to our best knowledge, identified ten comparable companies (the “Comparables”) as valuation benchmarks. Set out in Table 1 is a comparison of the PBR of the Target Group, as implied by the initial consideration of the Sale Share, and the Comparables as at the Latest Practicable Date.

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LETTER FROM HERCULES

Table 1 – PBR of the Comparables and the Target Group

		PBR as at
		the Latest
		Practicable Date
Company name (stock code)	Principal business activities	(times)
Belle International Holdings	Manufacturing, distribution and sales of shoes and	3.41
Limited (1880)	footwear products, and the sales of sportswear
	products
Active Group Holdings	Manufacturing and sales of casual footwear,	1.36
Limited (1096)	apparel and related accessories in the PRC
Yue Yuen Industrial (Holdings)	Manufacturing, marketing and retailing of athletic	1.13
Limited (551)	footwear, athletic style leisure footwear, casual
	and outdoor footwear
Le Saunda Holdings Limited	Manufacturing and sales of shoes	1.47
(738)
Baofeng Modern International	Design and manufacture of slippers for	0.42
Holdings Company Limited	OEM customers
(1121)
Stella International Holdings	Development, manufacturing, sales and retailing of	2.13
Limited (1836)	footwear products
Kingmaker Footwear Holdings	Manufacture, trading and retailing of footwear	1.01
Limited (1170)
Pegasus International Holdings	Manufacture and sales of footwear products	0.85
Limited (676)
Meike International Holdings	Manufacture and trading of sporting goods	0.45
Limited (953)
Flyke International Holdings	Design, production and sales of footwear,	0.30
Limited (1998)	apparels and accessories
Maximum		3.41
Minimum		0.30
Average		1.25
Target Group	Manufacturing of footwear products	1.00

Source: the website of the Stock Exchange

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LETTER FROM HERCULES

As shown in Table 1, the PBRs of the Comparables range from approximately 0.30 times to 3.41 times, with an average of approximately 1.25 times. The implied PBR of the initial consideration of the Sale Share of approximately 1.00 times falls within the range of the PBR of the Comparables but is lower than the average PBR of the Comparables of 1.25.

The above comparison with the Comparables is for illustrative purposes only as each of the Comparables may not be entirely comparable to the Target Group in terms of market capitalization, geographical spread of activities, scale of operations, asset base, cash position, debt structure, minority interest, risk profile, track record, composition of their business activities, future prospects and other relevant criteria. All these factors may affect the valuation of a company as indicated by the varied range of result in our comparison. Therefore, in forming our opinion, we have considered the results of the above comparison together with all other factors stated in this letter as a whole.

Having considered that (i) the implied PBR of the initial consideration of the Sale Share falls within the range of the PBR of the Comparables although it is lower than the average of the Comparables; (ii) 4 out of 10 Comparables were traded with a PBR lower than that of the Sale Share; (iii) the lack of market liquidity usually discounts the value of a private company and thus it is common for stocks of listed companies to have higher PBRs as compared to private companies; and (iv) the final consideration of the Sale Share will be adjusted to an amount equivalent to the adjusted consolidated net asset value of the Target Group, we consider that the consideration for the Sale Share is fair and reasonable so far as the Independent Shareholders are concerned and it is on normal commercial terms.

Consideration of the Sale Loan

As at 28 February 2013, bank balances and cash (excluding the pledged bank deposits) and the Shareholder’s Loan of the Target Group amounted to approximately HK$194.6 million and HK$293.3 million respectively. Given the financial position of the Target Group, the Directors considered that an immediate request on one-off repayment of the Sale Loan may adversely affect the performance and position of the Target Group and the possibility of recovering the full amount of the Sale Loan from the Target Group at one time is uncertain. Having considered that the Sale Loan is an interest-free loan without any option right and the fair value of it should be fairly reflected by its face value, we concurred with the view of the Directors that the consideration for the Sale Loan, which is equal to the face value of the Shareholder’s Loan as at Completion Date, is fair and reasonable.

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LETTER FROM HERCULES

6. Financial effects of the Disposal

Earnings

Upon Completion, the Company will cease to hold any equity interest in the Target and the results of the Target Group will no longer be consolidated into the consolidated financial statements of the Company.

With reference to the unaudited pro forma financial information of the Remaining Group set out in Appendix III to the Circular, had the Completion been taken place on 1 January 2012, the loss for the year attributable to owners of the Company would have decreased from approximately HK$214.3 million to approximately HK$182.9 million.

Cashflow

The Group will receive, after deducting expenses attributable to the Disposal of approximately HK$1.2 million, net cash proceeds of approximately HK$428.0 million from the Disposal.

Net asset value

Upon Completion, the Target will cease to be a subsidiary of the Company and the assets and liabilities of the Target Group will no longer be consolidated into the consolidated financial statements of the Company.

With reference to the unaudited pro forma financial information of the Remaining Group set out in Appendix III to the Circular, had the Completion been taken place on 31 December 2012, the net asset value of the Group attributable to owners of the Company would have increased from approximately HK$1,491.5 million to approximately HK$1,494.0 million.

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LETTER FROM HERCULES

Gearing and working capital

With reference to the unaudited pro forma financial information of the Remaining Group set out in Appendix III to the Circular, had the Completion been taken place on 31 December 2012, total assets of the Group would have decreased by approximately HK$286.9 million from approximately HK$2,974.3 million to approximately HK$2,687.4 million while the total liabilities of the Group would have decreased by approximately HK$289.5 million from approximately HK$1,162.9 million to approximately HK$873.4 million. As such, the gearing of the Group (as expressed in the ratio of total liabilities to total assets) shall improve from 0.39 to 0.32. In addition, the Company intends to use part of the net proceeds from the Disposal for repayment of bank debts and general working capital of the Group. Hence, the working capital of the Group shall be enhanced.

Based on the above analysis, we noted that the Disposal would have a positive effect on the Group’s earnings, cash position, net asset value, gearing ratio and working capital.

RECOMMENDATION

Having considered the principal factors and reasons stated above, we are of the view that the Disposal is on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. We therefore recommend the Independent Board Committee to advise the Independent Shareholders, as well as the Independent Shareholders, to vote in favor of the resolution to be proposed at the SGM to approve the Disposal.

Yours faithfully, For and on behalf of Hercules Capital Limited Louis Koo Amilia Tsang Managing Director Director

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the published financial information of the Group for each of the three years ended 31 December 2010, 2011 and 2012 are disclosed in the annual reports of the Company for the year ended 31 December 2010, 2011 and 2012 respectively. Details of these financial statements have been published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.symphonyholdings.com):

annual report of the Company for the year ended 31 December 2010 published on 27 April 2011 (pages 30 to 128);
annual report of the Company for the year ended 31 December 2011 published on 25 April 2012 (pages 37 to 159); and
annual report of the Company for the year ended 31 December 2012 published on 26 April 2013 (pages 34 to 151).

2. INDEBTEDNESS STATEMENT

Borrowings

At the close of business on 30 June 2013, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had total borrowings of HK$743 million. Details of the total borrowings are summarised below:

Secured Bank loans Unsecured Bank loans Amounts due to jointly controlled entities, unsecured and unguaranteed Total borrowings	HK$’million 321 392
	713 30
	743

The secured bank loans of HK$168 million were secured by certain land and buildings and investment properties of the Group with a total carrying amount of HK$360 million as at 30 June 2013. The remaining secured bank loans of HK$153 were secured by bank deposits of HK$164 million as at 30 June 2013.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The secured and unsecured bank loans include an amount of HK$249 million which are covered by cross guarantees arrangement issued by the Company and certain of its subsidiaries in respect of banking facilities granted to them.

Contingent liabilities

As at 30 June 2013, the Group issued a financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was called upon in entirety amounted to HK$38 million, of which HK$38 million has been utilised by the jointly controlled entity as at 30 June 2013.

Potential tax liabilities in connection with the dispute with Inland Revenue Department (“ IRD ”) as at 30 June 2013, if any, are detailed as below:

From 2008 to 2011, the IRD issued protective profits tax assessments for additional profits tax to certain wholly-owned subsidiaries of the Company relating to the years of assessment of 2001/2002 to 2004/2005, i.e. for the four financial periods ended 31 December 2004.

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of tax reserve certificates (“ TRCs ”) amounted to approximately HK$23 million. These TRCs were purchased and included in tax recoverable as at 31 December 2012 and 2011. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/05 at the request of IRD.

In December 2011, the Deputy Commissioner of the IRD issued his written determinations. Among others, he is of the view that the wholly-owned subsidiaries referred to above are subject to Hong Kong profits tax and confirmed/revised the protective profits tax assessments for 2001/2002 to 2004/2005 in the amount of approximately HK$306 million in aggregate. In January 2012, the Group filed notices of appeal to the Board of Review objecting to the written determinations the IRD issued in December 2011.

In March 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$90.5 million in aggregate in accordance with the written determinations referred to above to the wholly-owned subsidiaries concerned for the year of assessment 2005/2006. The Group had lodged objections with the IRD against these protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the Group purchasing TRCs amounted to HK$12 million which the Group did in July 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The protective assessments issued by IRD according to his determination for additional profits tax in aggregate of HK$396.5 million mentioned above for the years of assessment from 2001/2002 to 2005/2006 were issued on three alternative bases on the same set of profits for each year of assessment.

In March 2011, the Group filed an application to the Court for a judicial review contending, inter alia, whether the IRD has the power to issue multiple assessments against different group companies for the same set of profits for the years of assessment of 2001/2002 to 2004/2005.

The judicial review proceedings were heard on the 1st and 2nd of February in 2012. The judgment in respect of the judicial review was handed down in May 2012. Among others, the Group’s application for relief to quash each of the assessments issued by the IRD and the conditional holdovers were not granted. The Court of First Instance held that the IRD can issue multiple assessments in respect of the same set of profits to different taxpayers on alternative bases, so long as there is no double recovery of tax.

In October 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$124.5 million in aggregate to the wholly owned subsidiaries relating to the year of assessment from 2006/07 to 2009/10 on three alternative bases on same set of profits for each year of assessment. The Group had lodged objections against the IRD regarding these protective profits tax assessments. The IRD agreed to holdover the additional tax claimed subject to the Group’s purchasing tax reserve certificate amounted to HK$6.9 million which were done by the Group in January 2013.

Based on the mode of operations and activities of the subsidiaries and the merit of the Group’s position as assessed by its tax counsel, the Directors are of the opinion that the group companies concerned are not subject to Hong Kong profits tax.

The Group’s appeal to the Board of Review is pending. The eventual outcome of this action which is being handled by the Group’s tax counsel and the financial impact thereof on the Group, if any, cannot be readily ascertained at this stage.

Disclaimers

Save as aforesaid, and apart from intra-group liabilities and normal trade payables, the Group did not have any outstanding bank overdrafts, loans, debt securities, borrowings or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease, hire purchases commitments, which were either guaranteed, unguaranteed, secured or unsecured guarantees or other material contingent liabilities at the close of business on 30 June 2013.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the present financial resources, the banking facilities presently available and the estimated net proceeds from the Disposal, the Group will have sufficient working capital to meet its requirements for at least 12 months from the date of this circular in the absence of unforeseen circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2012, being the date to which the latest published audited financial statements of the Group were made up.

5. FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

Upon Completion, the Company will discontinue the footwear manufacturing business and the principal activities of the Remaining Group will be (i) retailing and sourcing; (ii) property investment and holding in Hong Kong and the PRC; (iii) management and operation of outlet mall in the PRC; and (iv) development and management of the “PONY” brand.

In October 2012, the Remaining Group commenced its operation of the Shenyang outlet mall. In view of the existing high occupancy rate and increasing demand from the potential tenants, the Remaining Group plans to expand the retail space of the Shenyang outlet mall so as to improve the income stream from the outlet mall operation. The management considers its long term prospects to be promising. In June 2013, the Remaining Group completed the acquisition of 50% equity interest in China Ocean Resources Limited, following which the Remaining Group obtained “PONY” brand’s direct global brand ownership, excluding the PRC and Taiwan. Given that the Remaining Group has complete control over the brand strategy, product development and marketing of the brand, the management is optimistic about the development of “PONY” brand.

In view of the above, and given the fact that the Disposal is consistent with the business strategy of the Group and will generate financial resources for the Remaining Group and simultaneously allow the Remaining Group to focus on other core activities where the Group enjoys competitive advantages and core competencies, the Directors are of the view that the trading prospects of the Remaining Group are optimistic.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. MANAGEMENT DISCUSSION AND ANALYSIS

(a) Business review for the year ended 31 December 2012

Operating Results

For the year ended 31 December 2012, the revenue of the Remaining Group was approximately HK$450.1 million and the Remaining Group recorded net loss attributable to its owners of approximately HK$257.6 million.

The revenue of the Remaining Group increased by 2.8% as compared with approximately HK$438.0 million in 2011 due to the increase in retail sales. However, the Remaining Group recorded a loss as a result of (a) severance payment to workers arising from closure of 2 manufacturing factories in Fujian and Panyu, the PRC; (b) the write off of fixed assets in these manufacturing factories; (c) relatively smaller contribution from increase in the fair value of investment properties; (d) increase in sharing of losses from jointly controlled entities; and (e) impairment loss on interests in jointly controlled entities.

Business review

For the year ended 31 December 2012, the Remaining Group is principally engaged in (i) retailing and sourcing; (ii) property investment and holding; and (iii) management and operation of outlet mall. The performance analysis of these business segments is shown as follows:

(i) Retailing and sourcing

Revenue generated from retailing and sourcing for the year ended 31 December 2012 was approximately HK$139.7 million and its segment results suffered a loss of approximately HK$56.9 million. Due to continued expansion of retail network, the revenue increased by 10% as compared to approximately HK$126.9 million in 2011.

(ii) Property investment and holding

Revenue generated from property investment and holding for the year ended 31 December 2012 was approximately HK$8.7 million and its segment results recorded a gain of approximately HK$35.8 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Management and operation of outlet mall

In October 2012, the Remaining Group commenced its operation of outlet mall. For the year ended 31 December 2012, the Remaining Group recorded turnover of approximately HK$1.0 million and loss of approximately HK$17.6 million for this business segment.

Liquidity and financial resources

As at 31 December 2012, the Remaining Group had bank balances and cash of approximately HK$304.3 million (2011: HK$201.9 million). The Remaining Group was offered banking facilities amounting to approximately HK$528.9 million (2011: HK$568.5 million). As at 31 December 2012, the Remaining Group obtained banking borrowings in the amount of approximately HK$430.1 million (2011: HK$120.0 million), which carried variable interest rates ranging from 1.5% to 3.05% per annum. The effective interest rate of the Remaining Group’s bank loans was 1.88% (2011: 1.52%). The gearing ratio stood at 29.7% (2011: 7.3%), based on the total borrowings over shareholders’ equity of the Remaining Group.

Capital Structure and foreign exchange risk

During the year ended 31 December 2012, there was no change in the Remaining Group’s capital structure. The Remaining Group financed its liquidity requirements through a combination of cash flow generated from operations and bank borrowings.

The Remaining Group adopts a prudent funding and treasury policy. The Remaining Group’s monetary assets, loans and transactions were principally denominated in HK$, RMB and US$. The Remaining Group was exposed to foreign exchange risk arising from the exposure of US$ against RMB and HK$. Considering that HK$ was pegged to US$, the Remaining Group believed its exposure to exchange risk would be confined to RMB against US$. The Remaining Group did not intend to hedge its exposure to foreign exchange fluctuations. However, the Remaining Group would constantly monitor the economic situation and its foreign exchange risk position, and would consider appropriate hedging measures in the future as may be necessary and feasible.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities and capital commitment

As at 31 December 2012, the Remaining Group had contingent liabilities of approximately HK$80.0 million (2011: HK$80.0 million). The Remaining Group issued financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was called upon in entirety amounted to approximately HK$80.0 million (2011: HK$60.0 million).

The Remaining Group have potential tax liabilities in connection with the tax disagreement with the IRD. From 2008 to 2011, the IRD issued protective profits tax assessments for additional profits tax to certain wholly-owned subsidiaries of the Company relating to the years of assessment of 2001/2002 to 2004/2005, i.e. for the four financial periods ended 31 December 2004.

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of TRCs amounted to approximately HK$23 million. These TRCs were purchased and included in tax recoverable as at 31 December 2011 and 2010. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/2005 at the request of IRD.

In March 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$90.5 million in aggregate in accordance with the written determinations referred to above to the wholly owned subsidiaries concerned for the year of assessment 2005/2006. The Group had lodged objections with the IRD against these protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the Group purchasing TRCs amounted to HK$12 million which the Group did in July 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The judicial review proceedings were heard on the 1st and 2nd February of 2012. The judgment in respect of the judicial review was handed down in May 2012. Among others, the Group’s application for relief to quash each of the assessments issued by the IRD and the conditional holdovers were not granted. The Court of First Instance held that the IRD can issue multiple assessments in respect of the same set of profits to different taxpayers on alternative bases, so long as there is no double recovery of tax.

In October 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$124.5 million in aggregate to the whollyowned subsidiaries relating to the year of assessment from 2006/07 to 2009/10 on three alternative bases on same set of profits for each year of assessment. The Group had lodged objections against the IRD regarding these protective profits tax assessments. The IRD agreed to holdover the additional tax claimed subject to the Group’s purchasing tax reserve certificate amounted to HK$6.9 million, which were done by the Group in January 2013.

Based on the mode of operations and activities of the subsidiaries and the merit of the Group’s position, the Directors are of the opinion that the group companies concerned are not subject to Hong Kong profits tax.

As the Group’s appeal to the Board of Review is pending, the eventual outcome of this action which is being handled by the Group’s legal and tax advisors and the financial impact thereof on the Group, if any, cannot be readily ascertained at this stage.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2012, the Remaining Group had total capital commitment of approximately HK$82.0 million (2011: HK$361.9 million), of which HK$5.8 million represented capital expenditure contracted for but not provided for acquisition of investment property, plant and equipment and construction of investment properties, and HK$76.2 million represented construction of investment properties and acquisition of a piece of land authorised but not contracted for.

Significant investments, material acquisitions and disposals

For the year ended 31 December 2012, the Remaining Group had ceased the operation of 2 manufacturing factories located in Fujian and Panyu, the PRC respectively, and the manufacturing capacity was relocated to Vietnam.

As a significant milestone in outlet mall investment, the Remaining Group opened its first outlet mall in Shenyang during the year. The outlet mall was well received by customers.

Save for the aforesaid, there were no significant investments, material acquisitions and disposals for the year ended 31 December 2012.

Employee and remuneration policies

As at 31 December 2012, the total number of employees of the Remaining Group was approximately 500. Staff cost for the year ended 31 December 2012 was approximately HK$148.0 million (2011: HK$275.4 million). In addition to competitive remuneration packages, discretionary bonuses and employee share options are awarded to eligible staff of the Remaining Group based on their performance and individual merits.

Charge on assets

As at 31 December 2012, bank loans of approximately HK$120.0 million (2011: HK$120.0 million) were secured by certain land and buildings and investment properties of the Remaining Group with carrying amount of approximately HK$360.0 million (2011: HK$320.0 million).

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of capital assets as at 31 December 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Business review for the year ended 31 December 2011

Operating Results

For the year ended 31 December 2011, the revenue of the Remaining Group was approximately HK$438.0 million and the Remaining Group recorded net profit attributable to its owners of approximately HK$35.0 million.

Due to the migration to upscale footwear product line and a relatively smaller contribution from increase in the fair value of investment properties, revenue of the Remaining Group decreased by 51% to HK$438.0 million (2010: HK$899.0 million) and net profit decreased by 49% to HK$35.0 million (2010: HK$68.7 million) as compared with 2010.

Business review

For the year ended 31 December 2011, the Remaining Group is principally engaged in (i) retailing and sourcing; and (ii) property investment and holding. The performance analysis of these business segments is shown as follows:

(i) Retailing and sourcing

Revenue generated from retailing and sourcing for the year ended 31 December 2011 was approximately HK$126.9 million and its segment results suffered a loss of approximately HK$44.5 million. Due to continued brand building efforts over the years, the revenue increased by 78% as compared to approximately HK$71.3 million in 2010.

(ii) Property investment and holding

Revenue generated from property investment and holding for the year ended 31 December 2011 was approximately HK$7.2 million and its segment results recorded a gain of approximately HK$77.9 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

As at 31 December 2011, the Remaining Group had bank balances and cash of approximately HK$201.9 million (2010: HK$313.1 million). The Remaining Group was offered banking facilities amounting to approximately HK$568.5 million (2010: HK$257.5 million). As at 31 December 2011, the Remaining Group obtained banking borrowings in the amount of approximately HK$120.0 million (2010: HK$80.0 million), which carried variable interest rates ranging from 1.1% to 1.25% per annum. The effective interest rate of the Remaining Group’s bank loans was 1.52% (2010: 1.36%). The gearing ratio stood at 7.3% (2010: 6.3%), based on the total borrowings over shareholders’ equity.

Capital Structure and foreign exchange risk

During the year ended 31 December 2011, the Company issued and allotted 872,022,386 new ordinary shares of HK$0.25 each at par to qualifying shareholders. The net proceeds from such exercise amounted to approximately HK$216.1 million. Following the issuance of new shares, the Company consolidated 2 issued and unissued shares of HK$0.25 each into 1 consolidated share of HK$0.5 each. Following the implementation of the share consolidation, the Company reduced its share capital pursuant to which the par value of each existing share of HK$0.5 in the issued capital was reduced by HK$0.4. The Company’s issued capital was reduced by approximately HK$523.2 million to approximately HK$130.8 million, represented by 1,308,034,000 shares of HK$0.1 each.

The Remaining Group financed its liquidity requirements through a combination of cash flow generated from operations and bank borrowings. The Remaining Group adopts a prudent funding and treasury policy. The Remaining Group’s monetary assets, loans and transactions were principally denominated in HK$, RMB and US$. The Remaining Group was exposed to foreign exchange risk arising from the exposure of US$ against RMB and HK$. Considering that HK$ was pegged to US$, the Remaining Group believed its exposure to exchange risk would be confined to RMB against US$. The Remaining Group did not intend to hedge its exposure to foreign exchange fluctuations. However, the Remaining Group would constantly monitor the economic situation and its foreign exchange risk position, and would consider appropriate hedging measures in the future as may be necessary and feasible.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities and capital commitment

As at 31 December 2011, the Remaining Group had contingent liabilities of approximately HK$80.0 million (2010: HK$50.0 million). The Remaining Group issued financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was called upon in entirety amounted to HK$60.0 million (2010: HK$38.5 million).

The Group had lodged objections with the IRD against the protective profits tax assessments. The IRD agreed to hold over the additional tax claimed subject to the relevant subsidiaries’ purchases of TRCs amounted to approximately HK$23 million. These TRCs were purchased and included in tax recoverable as at 31 December 2011 and 2010. In July and August 2012, the Group purchased additional TRCs amounted to HK$10.2 million relating to the year of assessment of 2004/2005 at the request of IRD.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2011, the Remaining Group had total capital commitment of approximately HK$361.9 million (2010: HK$438.9 million), of which HK$104.1 million represented capital expenditure contracted for but not provided for acquisition of investment property, plant and equipment and construction of investment properties, and HK$257.8 million represented construction of investment properties and acquisition of a piece of land authorised but not contracted for.

Significant investments, material acquisitions and disposals

During the year ended 31 December 2011, the Remaining Group had entered into a joint venture agreement with MEC for the development and operation of Park Outlet in Shenyang, the PRC. In this joint venture, MEC would pay RMB79.6 million to the Remaining Group as consideration for 37.5% of the joint venture interest.

The Remaining Group had also successfully bidden a piece of land situated at North Puhe Road, Shenyang, the PRC at an aggregate consideration of RMB177.9 million.

Save for the aforesaid, there were no significant investments, material acquisitions and disposals for the year ended 31 December 2011.

Employee and remuneration policies

As at 31 December 2011, the total number of employees of the Remaining Group was approximately 4,200. Staff cost for the year ended 31 December 2011 was approximately HK$275.4 million (2010: HK$220.8 million). In addition to competitive remuneration packages, discretionary bonuses and employee share options are awarded to eligible staff of the Remaining Group based on their performance and individual merits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Charge on assets

As at 31 December 2011, bank loans of approximately HK$120.0 million (2010: HK$80.0 million) were secured by certain land and buildings and investment properties of the Remaining Group with carrying amount of approximately HK$320.0 million (2010: HK$310.0 million).

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of capital assets as at 31 December 2011.

(c) Business review for the year ended 31 December 2010

Operating Results

For the year ended 31 December 2010, the revenue of the Remaining Group was approximately HK$899 million and the Remaining Group recorded net profit attributable to its owners of approximately HK$68.7 million.

Business review

For the year ended 31 December 2010, the Remaining Group is principally engaged in (i) retailing and sourcing; and (ii) property investment and holding. The performance analysis of these business segments is shown as follows:

(i) Retailing and sourcing

Revenue generated from retailing and sourcing for the year ended 31 December 2010 was approximately HK$71.3 million and its segment results suffered a loss of approximately HK$42.2 million.

(ii) Property investment and holding

Revenue generated from property investment and holding for the year ended 31 December 2010 was approximately HK$6.8 million and its segment results recorded a profit of approximately HK$164.5 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

As at 31 December 2010, the Remaining Group had bank balances and cash of approximately HK$313.1 million. The Remaining Group was offered banking facilities amounting to approximately HK$257.5 million. As at 31 December 2010, the Remaining Group obtained banking borrowings in the amount of approximately HK$80.0 million, which carried variable interest rates ranging from 1.1% to 1.25% per annum. The effective interest rate of the Remaining Group’s bank loans was 1.36%. The gearing ratio stood at 6.3%, based on the total borrowings over shareholders’ equity.

Capital Structure and foreign exchange risk

During the year ended 31 December 2010, there was no change in the Remaining Group’s capital structure. The Remaining Group financed its liquidity requirements through a combination of cash flow generated from operations and bank borrowings.

Contingent liabilities and capital commitment

As at 31 December 2010, the Remaining Group had contingent liabilities of approximately HK$50.0 million. The Remaining Group issued financial guarantee to a bank in respect of banking facilities granted to a jointly controlled entity. The aggregate amount that could be required to be paid if the guarantee was called upon in entirety amounted to approximately HK$38.5 million.

I – 15

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2010, the Remaining Group had total capital commitment of approximately HK$438.9 million, of which HK$17.3 million represented capital expenditure contracted for but not provided for acquisition of investment property, plant and equipment and construction of investment properties, and HK$421.6 million represented construction of investment properties and acquisition of a piece of land authorised but not contracted for.

Significant investments, material acquisitions and disposals

The Remaining Group recorded an extraordinary gain of HK$20.5 million, being the gain on disposal of an available-for-sale investment which was principally engaged in the design and sale of top ladies fashion footwear in China. The Remaining Group also invested additional capital into two jointly controlled entities with a carrying amount of approximately HK$91.2 million.

Save for the aforesaid, there were no significant investments, material acquisitions and disposals for the year ended 31 December 2010.

Employee and remuneration polices

As at 31 December 2010, the total number of employees of the Remaining Group was approximately 5,800. Staff cost for the year ended 31 December 2010 was approximately HK$220.8 million. In addition to competitive remuneration packages, discretionary bonuses and employee share options are awarded to eligible staff of the Remaining Group based on their performance and individual merits.

Charge on assets

As at 31 December 2010, bank loans of approximately HK$80.0 million were secured by certain land and buildings and investment properties of the Remaining Group with carrying amount of approximately HK$310.0 million.

Future plans for material investments and acquisition of capital assets

There was no specific plan for material investments and acquisition of capital assets as at 31 December 2010.

I – 16

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

I. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

Set out below are the unaudited consolidated statement of financial position of the Target Group as of 31 December 2010, 2011 and 2012 and 28 February 2013 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for each of the years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013 (collectively, the “Unaudited Consolidated Financial Information of the Target Group”), which have been prepared in accordance with Rule 14.68(2)(a)(i)(A) of the Listing Rules.

The auditor of the Company, BDO Limited, has reviewed the Unaudited Consolidated Financial Information of the Target Group in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” and with reference to Practice Note 750 “Review of Financial Information under the Hong Kong Listing Rules for a Very Substantial Disposal” issued by the Hong Kong Institute of Certified Public Accountants and concluded that nothing has come to their attention that causes them to believe the Unaudited Consolidated Financial Information of the Target Group is not prepared, in all material respects, in accordance with the basis of preparation set out in note 2 of the Unaudited Consolidated Financial Information of the Target Group. There is no qualification or modification in the review report issued by BDO Limited.

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013

Revenue Cost of sales Gross profit/(loss) Other income Distribution and selling expenses Administrative expenses Finance costs Other expenses Profit/(loss) before income tax expense Income tax (expense)/credit Profit/(loss) for the year/period	For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 1,048,071 2,039,903 1,517,498 (938,216) (1,956,829) (1,422,705) 109,855 83,074 94,793 8,126 3,787 67,884 (18,921) (11,389) (18,111) (76,038) (68,248) (76,607) – – (993) (3,722) (6,001) (11,101) 19,300 1,223 55,865 (327) (176) (22,582) 18,973 1,047 33,283	For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000 90,362 155,686 (92,590) (141,340) (2,228) 14,346 1,690 2,801 (628) (1,700) (8,679) (13,804) – (259) (158) (361) (10,003) 1,023 168 – (9,835) 1,023	For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000 90,362 155,686 (92,590) (141,340) (2,228) 14,346 1,690 2,801 (628) (1,700) (8,679) (13,804) – (259) (158) (361) (10,003) 1,023 168 – (9,835) 1,023
			14,346 2,801 (1,700) (13,804) (259) (361)
			1,023 –
			1,023

II – 1

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Other comprehensive income Items that may not be reclassified to profit or loss: Surplus arising on revaluation of properties Deferred tax liability arising on revaluation of properties Release of deferred tax liabilities arising on revaluation of properties upon disposal of properties Item that may be reclassified subsequently to profit or loss: Exchange differences arising on translation on foreign operations Other comprehensive income for the year/period (net of tax) Total comprehensive income for the year/period Profit/(loss) for the year/period attributable to: Owners of the Company Non-controlling interests Total comprehensive income attributable to: Owners of the Company Non-controlling interests	1,024 25,035 410 (395) (6,251) (15) – – 11,554 629 18,784 11,949 4,269 7,037 2,375 4,269 7,037 2,375 4,898 25,821 14,324 23,871 26,868 47,607 18,907 1,047 33,283 66 – – 18,973 1,047 33,283 23,814 26,868 47,607 57 – – 23,871 26,868 47,607 For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000	– – – – – – – – (1,064) 396 (1,064) 396 (1,064) 396 (10,899) 1,419 (9,835) 1,023 – – (9,835) 1,023 (10,899) 1,419 – – (10,899) 1,419 For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000	– – – – – – – – (1,064) 396 (1,064) 396 (1,064) 396 (10,899) 1,419 (9,835) 1,023 – – (9,835) 1,023 (10,899) 1,419 – – (10,899) 1,419 For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000
			– 396
			396
			396
			1,419

			1,023 –
			1,023

			1,419 –
			1,419

II – 2

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2010, 2011 and 2012 and 28 February 2013

Non-current asset Property, plant and equipment Prepaid lease payments Available-for-sale investments Current assets Inventories Trade and other receivables Amount due from ultimate holding company Amounts due from fellow subsidiaries Prepaid lease payments Tax recoverable Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables Amount due to ultimate holding company Amount due to immediate holding company Amounts due to fellow subsidiaries Bank borrowings Tax payable	As at 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 161,030 185,300 90,235 19,054 19,382 – – – 2 180,084 204,682 90,237 152,025 162,466 185,142 205,835 295,398 253,296 11,750 – – 35,041 14,607 14,587 518 541 – 46 107 – – – 78,319 52,415 75,811 175,763 457,630 548,930 707,107 200,799 181,991 258,301 – 180,887 73,961 180,717 128,668 138,077 3,747 2,694 2,466 – – 7,362 – – 20,615 385,263 494,240 500,782	As at 28 February 2013 HK$’000 90,611 – 2
		90,613
		235,581 230,859 6,290 21,965 – – 78,475 194,569
		767,739
		232,017 – 309,164 12,446 156,968 9,786
		720,381

II – 3

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities NET ASSETS Capital and reserves Share capital Reserves TOTAL EQUITY	As at 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 72,367 54,690 206,325 252,451 259,372 296,562 7,262 13,557 3,212 245,189 245,815 293,350 – – – 245,189 245,815 293,350 245,189 245,815 293,350	As at 28 February 2013 HK$’000 47,358
		137,971
		3,212
		134,759

		– 134,759
		134,759

II – 4

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013

	Attributable	to owners of the Company	to owners of the Company		Total HK$’000 245,264 18,973
Share capital Contributed surplus HK$’000 HK$’000 – 1,428 – – – – – – – – – – – – – – – 1,428 – – – – – – – – – – – – – – – 1,428		Reserves		Retained profits HK$’000 163,951 18,907 – – – – 18,907 2,209 185,067 1,047 – – – – 1,047 (26,242) 159,872
	Capital reserve HK$’000 82 – – – – – – – 82 – – – – – – – 82	Properties revaluation reserve HK$’000 17,920 – 1,024 (395) 844 1,473 1,473 – 19,393 – 25,035 (6,251) 1,136 19,920 19,920 – 39,313	Translation reserve HK$’000 35,785 – – – 3,434 3,434 3,434 – 39,219 – – – 5,901 5,901 5,901 – 45,120
					1,024 (395) 4,269
					4,898
					23,871 (23,946)
					245,189 1,047
					25,035 (6,251) 7,037
					25,821
					26,868 (26,242)
					245,815

II – 5

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET GROUP

		Reserves		Total HK$’000 245,815 33,283
Contributed surplus HK$’000 1,428 – – – – – – – – – 1,428 – – – – – – 1,428	Capital reserve HK$’000 82 – – – – – – – – (72) 10 – – – – (10) – –	Properties revaluation reserve HK$’000 39,313 – 410 (15) 11,554 (1,948) 10,001 10,001 (48,379) – 935 – – – – – – 935	Translation reserve HK$’000 45,120 – – – – 4,323 4,323 4,323 – – 49,443 – 396 396 396 – – 49,839
				410 (15) 11,554 2,375
				14,324
				47,607 – (72)
				293,350 1,023
				396
				396
				1,419 (10) (160,000)
				134,759

II – 6

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013

		Reserves		Total HK$’000 245,815 (9,835)
Contributed surplus HK$’000 1,428 – – – – 1,428	Capital serves HK$’000 82 – – – – 82	Properties revaluation reserve HK$’000 39,313 – (87) (87) (87) 39,226	Translation reserve HK$’000 45,120 – (977) (977) (977) 44,143
				(1,064)
				(1,064)
				(10,899)
				234,916

II – 7

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013

OPERATING ACTIVITIES Profit/(loss) before income tax expense Adjustments for: Interest income Finance costs Depreciation of property, plant and equipment Amortisation of prepaid lease payment Loss on disposal of property, plant and equipment Gain on disposal of property, plant and equipment and prepaid lease payments Allowance/(reversal of allowance) for bad and doubtful debts Allowance for inventories Operating cash flows before movements in working capital Increase in inventories Decrease/(increase) in amounts due from fellow subsidiaries Increase/(decrease) in amounts due to fellow subsidiaries (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash (used in)/generated from operations Overseas tax (paid)/refunded Hong Kong profits tax paid Net cash (used in)/generated from operating activities	For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 19,300 1,223 55,865 (195) (298) (479) – – 993 21,671 18,775 23,524 518 541 539 134 1,359 92 – – (59,700) 2,180 3,270 (2,200) 1,994 1,782 322 45,602 26,652 18,956 (68,666) (12,223) (22,998) 21,763 20,434 20 3,495 (1,053) (228) (94,383) (92,833) 44,302 63,800 (18,808) 76,310 (28,389) (77,831) 116,362 (396) (187) (787) 101 – – (28,684) (78,018) 115,575	For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000 (10,003) 1,023 (54) (90) – 259 2,995 2,668 – – – 8 – – – – – – (7,062) 3,868 (106,865) (50,439) (68) (7,378) 6,841 9,980 95,959 22,437 (814) (26,284) (12,009) (47,816) 166 (10,970) – – (11,843) (58,786)

II – 8

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

INVESTMENT ACTIVITIES Repayment from/(advance to) ultimate holding company Increase in pledged bank deposits Interest received Purchase of property, plant and equipment Purchase of available-for- sales investment Proceeds from disposal of property, plant and equipment and prepaid lease payments Net cash generated from/ (used in) investing activities FINANCING ACTIVITIES New bank loans obtained Repayment of bank loans Advance from/(repayment to) ultimate holding company (Repayment to)/advance from immediate holding company Acquisition of additional interest in a subsidiary Dividend paid Interest paid Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year/period Effect of foreign exchange rate changes Cash and cash equivalents at end of year/period Analysis of the balances of cash and cash equivalents Bank balances and cash	For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 59,890 11,750 – – – (78,319) 195 298 479 (8,928) (13,705) (31,510) – – (2) 86 106 184,187 51,243 (1,551) 74,835 – – 60,731 – – (53,369) – 180,887 (106,926) (40,589) (52,049) 9,337 (23,946) – – – (26,242) – – – (993) (64,535) 102,596 (91,220) (41,976) 23,027 99,190 96,960 52,415 75,811 (2,569) 369 762 52,415 75,811 175,763 52,415 75,811 175,763	For the two months ended 29 February 28 February 2012 2013 HK$’000 HK$’000 – (6,290) – – 54 90 (1,501) (3,171) – – – 11 (1,447) (9,360) – 149,606 – – 43,954 (73,961) 2 171,077 – – – (160,000) – (259) 43,956 86,463 30,666 18,317 75,811 175,763 (905) 489 105,572 194,569 105,572 194,569

II – 9

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

II. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

For the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013

1. General information and basis of presentation

The Target, an indirect wholly-owned subsidiary of the Company, was incorporated in the BVI with limited liability on 6 September 2011. The address of its registered office is at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The Target and its subsidiaries are hereafter collectively referred to as the Target Group.

The Target is principally engaged in footwear trading and investment holding. During the three years ended 31 December 2010, 2011 and 2012 and the two months ended 28 February 2013 (the “Relevant Periods”), the subsidiaries of the Target (the “Relevant Subsidiaries”) are principally engaged in manufacture and trading of footwear (the “Relevant Businesses”).

Prior to the incorporation of the Target, the Relevant Businesses were carried on by certain Relevant Subsidiaries now comprising the Target Group. All the Relevant Subsidiaries are also controlled by the Company.

In January 2013, the Target acquired the entire equity interests of the Relevant Subsidiaries from their holding company, which is also controlled by the Company. The considerations were the par value of their issued capital. Following the acquisitions, the Target became the holding company of the Relevant Subsidiaries.

In June 2013, the Company entered into the Disposal Agreement with the Purchaser for the proposed disposal of the entire equity interest in the Target and shareholder’s loan due by the Target Group for an aggregate consideration of approximately HK$429 million, subject to adjustments.

Upon completion of the Disposal, the Target Group will cease to be the subsidiaries of the Company.

II – 10

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The acquisition of the entire equity interests in the Relevant Subsidiaries by the Target is a common control combination and the Company is regarded as continuing entity. Accordingly, the unaudited consolidated financial information of the Target Group has been prepared using the principle of Accounting Guideline 5 “Merger Accounting for Common Control Combinations” (“AG 5”) issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”), as if the current group structure had been in existence throughout the Relevant Periods. AG 5 is applied from the first day of the Relevant Periods on 1 January 2010 or the earliest date at which the entities within the Target Group were incorporated.

The functional currency of the Target Group is US$, while the unaudited consolidated financial information is presented in HK$ for the convenience of the users of unaudited consolidated financial information.

2. Basis of preparation

The unaudited consolidated financial information of the Target Group has been prepared in accordance with Rule 14.68(2)(a)(i) of the Listing Rules, and solely for the purposes of inclusion in this circular.

The unaudited consolidated financial information of the Target Group has been prepared on the historical cost basis. Except for the abovementioned AG 5 applied by the Target Group, the unaudited financial information of the Target Group for the Relevant Periods has been prepared using the same accounting policies as those adopted by the Company in the preparation of the consolidated financial statements of the Company and its subsidiaries for the Relevant Periods, which conform with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The unaudited consolidated financial information of the Target Group does not contain sufficient information to constitute a complete set of financial statements as defined in Hong Kong Accounting Standard 1 (Revised) “Presentation of Financial Statements” issued by the HKICPA or a set of condensed financial statements as defined in Hong Kong Accounting Standard 34 “Interim Financial Reporting”.

II – 11

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION

Introduction to unaudited pro forma financial information

The following is an illustrative and unaudited pro forma consolidated statement of financial position, consolidated statement of comprehensive income and consolidated statement of cash flows (the “Unaudited Pro Forma Financial Information”) of the Group excluding the Target Group, the Remaining Group, which has been prepared by the Directors to illustrate the effect of the proposed disposal of the entire equity interest in the Target and shareholder’s loan due by the Target and its subsidiaries as if it was completed on 31 December 2012 for the pro forma consolidated statement of financial position and had taken place on 1 January 2012 for the pro forma consolidated statement of comprehensive income and consolidated statement of cash flows in accordance with Rule 4.29 of the Listing Rules.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position, financial result and cash flow of the Remaining Group had the Disposal been completed as at 1 January 2012 or 31 December 2012 or at any future date.

The unaudited pro forma consolidated statement of financial position of the Remaining Group is prepared based on the audited consolidated statement of financial position of the Group as at 31 December 2012 extracted from published annual report of the Group for the year ended 31 December 2012, adjusted as described below, as if the Disposal was completed on 31 December 2012. The unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Remaining Group are prepared based on the audited consolidated statement of comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 December 2012 extracted from the 2012 Annual Report of the Group, adjusted as described below, as if the Disposal had taken place on 1 January 2012.

III – 1

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Non-current assets Property, plant and equipment Investment properties Prepaid lease payments Deposit paid for acquisition of an investment property Interests in jointly controlled entities Advances to jointly controlled entities Available-for-sale investments Deferred tax assets Tax recoverable Club debentures Restricted bank deposit Current assets Inventories Amounts due from jointly controlled entities Trade and other receivables Prepaid lease payments Pledged bank deposits Bank balances and cash Assets classified as held for sales	The Group As at 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 2) (Note 3) (Note 4) 571,383 (90,235) 506,880 291,363 150,288 1,242 108,348 2,334 (2) 18,457 45,414 2,003 3,729 1,701,441 254,211 (185,142) 4,212 328,225 (253,296) 7,394 78,319 (78,319) 480,102 (175,763) 295,904 199,917 1,152,463 120,383 1,272,846	Unaudited pro forma of the Remaining Group HKD’000 481,148 506,880 291,363 150,288 1,242 108,348 2,332 18,457 45,414 2,003 3,729
		1,611,204
		69,069 4,212 74,929 7,394 – 800,160
		955,764 120,383
		1,076,147

III – 2

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Current liabilities Trade and other payables Amounts due to jointly controlled entities Bank borrowings Tax payable Shareholder’s Loan Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Capital and reserves Share capital Share premium and reserves Equity attributable to owners of the Company Non-controlling interests	The Group As at 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 2) (Note 3) (Note 4) 551,668 (258,301) 24,259 437,426 (7,362) 75,293 (20,615) – (199,917) 199,917 1,088,646 184,200 1,885,641 74,257 (3,212) 1,811,384 130,804 1,360,684 2,554 1,491,488 319,896 1,811,384	Unaudited pro forma of the Remaining Group HKD’000 293,367 24,259 430,064 54,678 –
		802,368
		273,779
		1,884,983
		71,045
		1,813,938

		130,804 1,363,238
		1,494,042 319,896
		1,813,938

III – 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Notes:

The consolidated statement of financial position of the Group as at 31 December 2012, and the consolidated statement of comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 December 2012 are extracted from the published annual report of the Group for the year ended 31 December 2012.
The adjustment reflects the exclusion of assets and liabilities of the Target Group as at 31 December 2012, as if the Disposal was completed on 31 December 2012.
The adjustment reflects the adjusted consideration (to be settled by cash) received by the Remaining Group and the financial effect for the sale of Sale Share as if the Disposal was completed on 31 December 2012. The adjusted consideration and pro forma gain on the Disposal are calculated as follows:

Consideration – Net asset value of the Target Group as at 31 December 2012 – Adjustments to the consideration (note a) Adjusted consideration Estimated legal and professional fees and related expenses in relation to the Disposal Adjusted consideration, net of expenses Net asset value of the Target Group as at 31 December 2012 Pro forma gain on the Disposal (note b)	HK$’000 293,350 3,754
	297,104 (1,200)
	295,904 (293,350)
	2,554

(a) The consideration is determined based on the unaudited consolidated net assets of the Target Group as at 31 December 2012, and making adjustments by deducting leasehold improvements, and adding back general provisions for trade receivables, tax and deferred tax provisions as at 31 December 2012.

III – 4

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

(b) The final gain or loss on the Disposal may be different from the pro forma amount described above as the carrying amounts of assets and liabilities of the Target Group on the actual date of disposal will differ from their carrying amounts as at 31 December 2012. It is also subject to change as the actual legal and professional fees and related expenses in relation to the Disposal will differ from the assumed amounts used in the preparation of the unaudited pro forma financial information.
(c) Before completion of the Disposal, the Target Group will repay its bank borrowings of HK$7,362,000 in cash which will have no impact on the gain on Disposal.
The adjustment reflects the adjusted consideration (to be settled by cash) received by the Remaining Group for the disposal of Shareholder’s Loan as if the Disposal was completed on 31 December 2012. The adjusted consideration is calculated as follows:

Consideration – Sale of Shareholder’s Loan Adjustments to the consideration – Movement in Shareholder’s Loan from 1 January 2013 to 28 February 2013 Adjusted consideration Carrying amount of Shareholder’s Loan at 31 December 2012	HK$’000 293,355 (93,438)
	199,917 (199,917)
	–

The estimated net gain on the Disposal as if it was completed on 31 December 2012 is calculated as follows:

Sale of Sale Share (Note 3) Sale of Shareholder’s Loan (Note 4) Release of translation reserve	HK$’000 2,554 – 49,443
	51,997

III – 5

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The Group Year ended 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 6) (Note 7) (Note 8) (Note 9) Revenue 1,967,574 (1,517,498) 150,002 Cost of sales (1,772,722) 1,422,705 (151,548) Gross profit 194,852 Other income 122,160 (67,884) 13,946 45,120 7,244 Distribution and selling expenses (160,952) 18,111 Administrative expenses (218,084) 76,607 Finance costs (8,365) 993 Other expenses (86,644) 11,101 Increase in fair value of investment properties 33,843 Impairment loss on interests in jointly controlled entities (20,512) Share of results of jointly controlled entities (59,274) Loss before income tax expense (202,976) Income tax expense (21,370) 22,582 Loss for the year (224,346)	Unaudited Pro forma of the Remaining Group HKD’000 600,078 (501,565)
	98,513 120,586 (142,841) (141,477) (7,372) (75,543) 33,843 (20,512) (59,274)
	(194,077) 1,212
	(192,865)

III – 6

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The Group Year ended 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 6) (Note 7) (Note 8) (Note 9) Other comprehensive income Surplus arising on revaluation of properties 18,924 (410) Deferred tax liability arising on revaluation of properties (2,469) 15 Release of deferred tax liabilities arising on revaluation of properties upon disposal of properties 11,554 (11,554) Fair value gain on available-for-sale investments 670 Release of investments revaluation reserve to profit or loss upon disposal of available-for-sale investments (189) Exchange differences arising on translation of foreign operations 10,109 (2,375) Share of other comprehensive income of jointly controlled entities 1,701 Release of property revaluation reserve and translation reserve upon disposal of subsidiaries – (45,120) Other comprehensive income for the year (net of tax) 40,300 Total comprehensive income for the year (184,046) Loss for the year attributable to: Owners of the Company (214,346) (33,283) 13,946 45,120 5,698 Non-controlling interests (10,000) (224,346) Total comprehensive income attributable to: Owners of the Company (176,778) (47,607) 13,946 – 5,698 Non-controlling interests (7,268) (184,046)	Unaudited Pro forma of the Remaining Group HKD’000 18,514 (2,454) – 670 (189) 7,734 1,701 (45,120)
	(19,144)
	(212,009)

	(182,865) (10,000)
	(192,865)

	(204,741) (7,268)
	(212,009)

III – 7

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

Notes:

The adjustment reflects the exclusion of the results of the Target Group for the year ended 31 December 2012, as if the Disposal had taken place on 1 January 2012. The adjustment is not expected to have a continuing effect on the Remaining Group.
The adjustment reflects the financial effect of the sale of the Sale Share as if the Disposal had taken place on 1 January 2012. The adjustment is not expected to have a continuing effect on the Remaining Group. The adjusted consideration and pro forma gain on the Disposal are calculated as follows:

Consideration – Net asset value of the Target Group as at 1 January 2012 – Adjustments to the consideration (note a) Adjusted consideration Estimated legal and professional fees and related expenses in relation to the Disposal Adjusted consideration, net of expenses Net asset value of the Target Group as at 1 January 2012 Pro forma gain on the Disposal (note b)	HK$’000 245,815 15,146
	260,961 (1,200)
	259,761 (245,815)
	13,946

(a) The consideration is determined based on the unaudited consolidated net assets of the Target Group as at 1 January 2012, and making adjustments by deducting leasehold improvements, and adding back general provisions for trade receivables, tax and deferred tax provisions as at 1 January 2012.
(b) The final gain or loss on the Disposal may differ from the pro forma amount described above as the carrying amounts of assets and liabilities of the Target Group on the actual date of disposal will differ from their carrying amounts as at 1 January 2012. It is also subject to change as the actual legal and professional fees and related expenses in relation to the Disposal will differ from the assumed amounts used in the preparation of the unaudited pro forma financial information.

III – 8

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The adjustment reflects the release of translation reserve of HK$45,120,000 upon the Disposal at 1 January 2012, as if the Disposal had taken place on 1 January 2012. The adjustment is not expected to have a continuing effect on the Remaining Group.
The adjustment reflects the reinstatement of the inter-company transactions between the Target Group and the Remaining Group for the year ended 31 December 2012. The adjustment is not expected to have a continuing effect on the Remaining Group.
The estimated net gain on the Disposal as if it had taken place on 1 January 2012 is calculated as follows:

Sale of Sale Share (Note 7) Sale of Shareholder’s Loan (Note 12) Release of translation reserve (Note 8)	HK$’000 13,946 – 45,120
	59,066

III – 9

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS

OPERATING ACTIVITIES Loss before income tax expense Adjustments for: Interest income Finance costs Impairment on interest in jointly controlled entities Share of results of jointly controlled entities Depreciation on property, plant and equipment Amortisation of prepaid lease payments Loss on disposal of property, plant and equipment Write off of property, plant and equipment Gain on disposal of property, plant and equipment and prepaid lease payments Gain on disposal of available-for-sales investments Increase in fair value of investment properties (Reversal of allowance)/allowance for bad and doubtful debts Allowance for inventories, net Gain on disposal of subsidiaries Operating cash flows before movements in working capital Decrease in inventories Increase in amounts due from jointly controlled entities Decrease in amounts due from the Target Group Decrease in trade and other receivables Increase in trade and other payables Cash generated from operations Purchase of tax reserve certificates Overseas tax paid Hong Kong profits tax paid NET CASH GENERATED FROM OPERATING ACTIVITIES	The Group Year ended 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 11) (Note 7) (Note 12) (Note 8) (Note 9) (202,976) (55,865) 13,946 45,120 5,698 (7,775) 479 8,365 (993) 20,512 59,274 43,362 (23,524) 1,771 (539) 622 (92) 11,218 (59,700) 59,700 (189) (33,843) (1,880) 2,200 12,507 (322) – (13,946) (45,120) (148,732) 79,310 22,998 (2,384) – 97,797 (23,060) 90,503 (44,302) 69,469 (76,310) 88,166 (22,200) (11,134) 787 (69) 54,763	Pro forma of the Remaining Group HKD’000 (194,077) (7,296) 7,372 20,512 59,274 19,838 1,232 530 11,218 – (189) (33,843) 320 12,185 (59,066)
		(161,990) 102,308 (2,384) 74,737 46,201 (6,841)
		52,031 (22,200) (10,347) (69)
		19,415

III – 10

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

INVESTMENT ACTIVITIES Investment in jointly controlled entities Purchase of property, plant and equipment Purchase of investment properties Proceeds from disposal of available-for-sales investments Deposit paid for acquisition of an investment property Increase in restricted bank deposit Increase in pledged bank deposits Interest received Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment properties Proceeds from disposal of Sale Share and Shareholder’s Loan NET CASH (USED IN)/GENERATED FROM INVESTING ACTIVITIES FINANCING ACTIVITIES New bank loans obtained Capital injection from non-controlling interest Dividend paid Repayment of bank loans Repayment to jointly controlled entities Interest paid NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT END OF YEAR, REPRESENTED BY BANK BALANCES AND CASH	The Group Year ended 31 December 2012 Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment Pro forma adjustment HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 (Note 1) (Note 11) (Note 7) (Note 12) (Note 8) (Note 9) (66,045) (82,259) 31,510 (122,113) 3,990 2 (105,898) (3,729) (78,319) 78,319 1,389 (479) 191,453 (184,187) 17,362 5,000 – 259,761 297,642 (256,531) 1,116,258 (7,362) 109,080 (13,080) (798,832) (1,027) (8,365) 993 404,034 202,266 277,715 (75,811) 121 (762) 480,102	Pro forma of the Remaining Group HKD’000 (66,045) (50,749) (122,113) 3,992 (105,898) (3,729) – 910 24,628 5,000 557,403
		243,399
		1,108,896 109,080 (13,080) (798,832) (1,027) (7,372)
		397,665
		660,479 201,904 (641)
		861,742

III – 11

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

Notes:

The adjustment reflects the exclusion of the cash flows of the Target Group for the year ended 31 December 2012, as if the Disposal had taken place on 1 January 2012. The adjustment is not expected to have a continuing effect on the Remaining Group.
The adjustment reflects the adjusted consideration (to be settled by cash) received by the Remaining Group for the disposal of Shareholder’s Loan as if the Disposal had taken place on 1 January 2012. The adjustment is not expected to have a continuing effect on the Remaining Group. The adjusted consideration is calculated as follows:

Consideration – Sale of Shareholder’s Loan Adjustments to the consideration – Movement in Shareholder’s Loan from 1 January 2012 to 28 February 2013 Adjusted consideration Carrying amount of Shareholder’s Loan at 1 January 2012	HK$’000 293,355 4,287
	297,642 (297,642)

–

III – 12

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

APPENDIX III

2. ACCOUNTANTS’ REPORT

The following is the text of an accountants’ report received from the independent reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong, for inclusion in this circular, in respect of the unaudited pro forma financial information of the Group as set out in this Appendix III.

==> picture [76 x 62] intentionally omitted <==

==> picture [96 x 54] intentionally omitted <==

12 August 2013

The Board of Directors

10/F, Island Place Tower 510 King’s Road North Point Hong Kong

Dear Sirs,

We have completed our assurance engagement to report on the compilation of pro forma financial information of Symphony Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) by the directors of the Company for illustrative purpose only. The pro forma financial information consist of the pro forma consolidated statement of financial position as at 31 December 2012, the pro forma consolidated statement of comprehensive income and the pro forma consolidated statement of cash flow for the year then ended, and the related notes as set out in Appendix III to the circular of the Company dated 12 August 2013 (the “Circular”) with respect to the very substantial disposal and connected transaction in relation to the proposed disposal of the entire equity interest in and shareholder’s loan due by Yi Ming Investments Limited and its subsidiaries (the “Disposal”). The applicable criteria on the basis of which the directors of the Company has complied the pro forma financial information are described on pages III – 1 of the Circular.

III – 13

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

The pro forma financial information has been compiled by the directors of the Company to illustrate the impact of the Disposal on the Group’s consolidated financial position as at 31 December 2012 and the Group’s consolidated statement of comprehensive income and consolidated statement of cash flow for the year then ended as if the Disposal was completed on 31 December 2012 and had taken place on 1 January 2012 respectively. As part of this process, information about the Group’s consolidated financial position, consolidated statement of comprehensive income and consolidated statement of cash flow has been extracted by the directors of the Company from the Group’s consolidated financial statements for the year ended 31 December 2012, on which an audit report has been published.

DIRECTORS’ RESPONSIBILITIES FOR THE PRO FORMA FINANCIAL INFORMATION

The directors of the Company are responsible for compiling the pro forma financial information in accordance with paragraph 4.29 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” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

REPORTING ACCOUNTANT’S RESPONSIBILITIES

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the 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 pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountant comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors of the Company have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

III – 14

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

For the purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of the Disposal on the unadjusted financial information of the Group as if the Disposal had been undertaken at an earlier date selected for purpose of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Disposal at 31 December 2012 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors of the Company in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgement, having regard to the reporting accountant’s understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

III – 15

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE REMAINING GROUP

OPINION

In our opinion:

(a) the pro forma financial information has been properly compiled 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 pro forma financial information as disclosed pursuant to paragraph 29(1) the Listing Rules.

Yours faithfully,

BDO Limited

Certified Public Accountants Hong Kong Shiu Hong NG Practising Certificate Number P03752

III – 16

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(i) Interests of the Directors or chief executive of the Company

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

Long Positions in the Shares

Director Notes Chan Ting Chuen 1, 2 Chang Tsung Yuan 4 Sze Sun Sun Tony 1, 3	Number of Shares held Approximate percentage of the issued share capital of the Company Beneficial owner Controlled corporation Total 3,750,000 664,677,468 668,427,468 51.10% 4,500,000 – 4,500,000 0.344% – 664,677,468 664,677,468 50.81%

IV – 1

GENERAL INFORMATION

APPENDIX IV

Notes:

Well Success was directly interested in 664,677,468 Shares. First Dynamic International Limited (“ First Dynamic ”) held more than one-third of the issued share capital of Well Success. Each of Royal Pacific Limited (“ Royal Pacific ”) and Alexon International Limited (“ Alexon ”) held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Mr. Chan Ting Chuen (“ Mr. Chan ”) had a direct interest in 3,750,000 Shares. Royal Pacific was wholly-owned by TC Chan Family Holdings Limited (“ TCCFHL ”), which in turn was wholly-owned by Mr. Chan. Accordingly, Mr. Chan was deemed to be interested in 668,427,468 Shares.
Mr. Sze Sun Sun Tony (“ Mr. Sze ”) was interested in the entire issued share capital of Alexon and was therefore deemed to be interested in 664,677,468 Shares.
Mr. Chang Tsung Yuan was directly interested in 4,500,000 Shares. He was also a substantial shareholder of Well Success, in which he held 20.0% of its issued share capital.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executives and their associates had or were deemed to have any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), (a) 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 or short positions which the Directors or the chief executives were taken or deemed to have under such provisions of SFO); or (b) which were required, pursuant to section 352 of SFO, to be entered in the register referred to therein; or (c) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

IV – 2

GENERAL INFORMATION

APPENDIX IV

(ii) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders of the Company

So far as was known to the Directors or the chief executive of the Company, as at the Latest Practicable Date, companies and persons who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Long Positions in the Shares

Shareholder
Notes
Capacity
Well Success
1
Beneficial owner
First Dynamic
1
Interest of controlled
corporation
Royal Pacific
1
Interest of controlled
corporation
TCCFHL
2
Interest of controlled
corporation
Mr. Chan
2
Beneficial owner and
interest of controlled
corporation
Ng Shuk Fong
(“Madam Ng”)
2
Spouse
Alexon
1
Interest of controlled
corporation
Mr. Sze
3
Interest of controlled
corporation
Lau Yuk Wah
(“Madam Lau”)
3
Spouse

Number of ordinary Shares held
Approximate
percentage of
the issued share
capital of
the Company
Direct interests
Deemed interests
Total interests
664,677,468
–
664,677,468
50.81%
–
664,677,468
664,677,468
50.81%
–
664,677,468
664,677,468
50.81%
–
664,677,468
664,677,468
50.81%
3,750,000
664,677,468
668,427,468
51.10%
–
668,427,468
668,427,468
51.10%
–
664,677,468
664,677,468
50.81%
–
664,677,468
664,677,468
50.81%
–
664,677,468
664,677,468
50.81%

IV – 3

APPENDIX IV

GENERAL INFORMATION

Shareholder
Notes
Capacity
Frensham Investments
Limited (“Frensham”)
4
Beneficial owner and
interest of controlled
corporation
Pou Yuen Industrial
(Holdings) Limited
(“Pou Yuen”)
4
Interest of controlled
corporation
Yue Yuen Industrial Limited
(“Yue Yuen Industrial”)
4
Interest of controlled
corporation
Pou Hing Industrial
Company Limited
(“Pou Hing“)
4
Interest of controlled
corporation
Yue Yuen Industrial
(Holdings) Limited
(“Yue Yuen”)
4
Interest of controlled
corporation
Wealthplus Holdings
Limited (“Wealthplus”)
4
Interest of controlled
corporation
Pou Chen Corporation
(“Pou Chen”)
4
Interest of controlled
corporation
Shah Capital Management
Investment Manager

Number of ordinary Shares held
Approximate
percentage of
the issued share
capital of
the Company
Direct interests
Deemed interests
Total interests
62,999,572
664,677,468
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
–
727,677,040
727,677,040
55.63%
206,318,375
–
206,318,375
15.77%

Notes:

As at the Latest Practicable Date, Well Success was directly interested in 664,677,468 Shares. First Dynamic held more than one-third of the issued share capital of Well Success. Each of Royal Pacific and Alexon held more than one-third of the issued share capital of First Dynamic. Accordingly, First Dynamic, Royal Pacific and Alexon were deemed to be interested in 664,677,468 Shares.
Madam Ng is the wife of Mr. Chan, a Director of the Company. Royal Pacific is wholly owned by TCCFHL, which in turn is wholly owned by Mr. Chan. As at the Latest Practicable Date, Royal Pacific was deemed to be interested in 664,677,468 Shares (see Note 1), therefore both Mr. Chan and Madam Ng were deemed to be interested in 664,677,468 Shares. Furthermore, Mr. Chan was directly interested in 3,750,000 Shares. Accordingly, Madam Ng was deemed to be interested in a total of 668,427,468 Shares.

IV – 4

GENERAL INFORMATION

APPENDIX IV

Madam Lau is the wife of Mr. Sze, a Director of the Company. As at the Latest Practicable Date, Mr. Sze was interested in the entire issued share capital of Alexon, therefore he was deemed to be interested in 664,677,468 Shares (see Note 1). Accordingly, Madam Lau was deemed to be interested in a total of 664,677,468 Shares.
Frensham was a wholly-owned subsidiary of Pou Yuen which in turn was a wholly-owned subsidiary of Yue Yuen Industrial. Yue Yuen Industrial was a wholly-owned subsidiary of Pou Hing which in turn was a wholly-owned subsidiary of Yue Yuen. Wealthplus, a wholly-owned subsidiary of Pou Chen, held over one-third of the entire issued share capital of Yue Yuen. As at the Latest Practicable Date, Frensham held more than one-third of the issued share capital of Well Success and was therefore deemed to be interested in 664,677,468 Shares. In addition, Frensham had a direct interest in 62,999,572 Shares. Accordingly, all of Frensham, Pou Yuen, Yue Yuen Industrial, Pou Hing, Yue Yuen, Wealthplus and Pou Chen were deemed to be interested in 727,677,040 Shares.

Save as disclosed above, as at the Latest Practicable Date, so far as the Directors or chief executive of the Company were aware, no person was interested in or had a short position in the shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO and none of the Directors was a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DISCLOSURE OF OTHER INTERESTS

(i) Interests in contract or arrangement

Save for the Disposal Agreement, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as the Latest Practicable Date and which was significant in relation to the business of the Group.

(ii) Interests in assets

Save for the Disposal Agreement, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2012, being the date to which the latest published audited accounts of the Group were made up.

IV – 5

GENERAL INFORMATION

APPENDIX IV

(iii) Interests in competing business

As at the Latest Practicable Date, none of the Directors and their respective associates had any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposed to enter, into a service contract with any member of the Group which is not expiring or may not be terminated by the Group within one year without payment of compensation (other than statutory compensation).

5. MATERIAL CONTRACTS

Set out below are the contracts (not being contracts entered into in the ordinary course of business) entered into by any member of the Group within the two years immediately preceding the Latest Practicable Date which were or might be material:

(i) the disposal agreement dated 27 September 2012 between Zhongshan Jingmei Footwear Company Limited (“ Jingmei ”) (an indirect wholly-owned subsidiary of the Company) and Fujian Weilan Company Limited (“ Weilan ”) regarding the disposal of the industrial complex with an aggregate GFA of approximately 82,949 sq.m. (the “ Property ”) erected on the four pieces of land located at Zhangjiabian Village, Zhongshan City, the PRC, with a total site area of approximately 108,171 sq.m. for an aggregate consideration of RMB143 million;
(ii) the lease agreement dated 27 September 2012 between Jingmei and Weilan regarding the lease of certain portions of the Property with an aggregate GFA of 33,211 sq.m. for an initial term of 12 months and extendable on the same terms by mutual agreement of the parties to the Lease Agreement for another 12 months at a monthly rent of RMB265,688;
(iii) the sale and purchase agreement dated 27 March 2013 between Power Plus Limited (“ Power Plus ”) (an indirect wholly-owned subsidiary of the Company) and Canstrong International Limited (“ Canstrong ”) in relation to the acquisition of the 50% of the issued share capital of China Ocean Resources Limited (“ China Ocean ”) and the shareholders’ loan owed by China Ocean to Canstrong at a consideration of US$15.5 million;

IV – 6

GENERAL INFORMATION

APPENDIX IV

(iv) the sale and purchase agreement dated 27 March 2013 between Power Plus and Canstrong in relation to the disposal of 5,000 ordinary shares of US$10.00 each and 2,160 preferred shares of US$5,000.00 each in the capital of Grand Wealth Group Limited (“ Grand Wealth ”) and the shareholders’ loan owed by Grand Wealth to Power Plus at a consideration of US$15.53 million;
(v) the agreement dated 27 March 2013 (“ Trademark Agreement ”) between Always Gain Holdings Limited (“ Always Gain ”) (an indirect wholly-owned subsidiary of China Ocean) and Dream Smart Limited (“ Dream Smart ”) in relation to the transfer of the “PONY” trademarks that were registered in the PRC and Taiwan from Always Gain to Dream Smart at a consideration of US$5 million;
(vi) the sale and purchase agreement dated 22 April 2013 between China Ocean, Sharp Gain Profits Limited, Dream Smart and Always Gain in relation to the disposal of the entire equity interest in Always Gain and shareholders’ loan owed by Always Gain to China Ocean and Sharp Gain Profits Limited at a consideration of US$5 million and the termination of the Trademark Agreement; and
(vii) the Disposal Agreement.

Save as disclosed above, there were no other contracts (not being contracts entered into in the ordinary course of business) being entered into by the members of the Group within the two years immediately preceding the date of this circular and ending on the Latest Practicable Date, which were or might be material.

6. LITIGATION

From 2008 to 2011, the Inland Revenue Department (“ IRD ”) issued protective profits tax assessments for additional profits tax to certain wholly-owned subsidiaries of the Company relating to the years of assessment of 2001/2002 to 2004/2005, i.e. for the four financial periods ended 31 December 2004.

IV – 7

APPENDIX IV

GENERAL INFORMATION

In December 2011, the Deputy Commissioner of the IRD issued his written determinations. Among others, he was of the view that the wholly-owned subsidiaries referred to above were subject to Hong Kong profits tax and confirmed/revised the protective profits tax assessments for 2001/2002 to 2004/2005 in the amount of approximately HK$306 million in aggregate. In January 2012, the Group filed notices of appeal to the Board of Review objecting to the written determinations the IRD issued in December 2011.

In October 2012, the IRD also issued protective profits tax assessments for profits tax or additional profits tax for HK$124.5 million in aggregate to the wholly-owned subsidiaries relating to the year of assessment from 2006/07 to 2009/10 on three alternative bases on same set of profits for each year of assessment. The Group had lodged objections against the IRD regarding these protective profits tax assessments. The IRD agreed to holdover the additional tax claimed subject to the Group’s purchasing tax reserve certificate amounted to HK$6.9 million which were done by the Group in January 2013.

IV – 8

GENERAL INFORMATION

APPENDIX IV

Save as disclosed above, as at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any material litigation or claims and, so far as the Directors were aware, no material litigation or claims were pending or threatened by or against any member of the Group.

7. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualifications

Hercules a corporation licensed to carry out Type 6 regulated activity as defined under the SFO

BDO Limited Certified Public Accountants

As at the Latest Practicable Date, none of the above experts had any direct or indirect shareholdings in any member of the Group, or any right to subscribe for or to nominate persons to subscribe for shares in any members of the Group, or any direct or indirect interests in any assets which have been acquired or disposed of by or leased to or which are proposed to be acquired or disposed of by or leased to the Company or any of their respective subsidiaries since 31 December 2012, the date to which the latest published audited financial statements of the Group were made up.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters or reports and references to its name in the form and context in which they appear.

IV – 9

GENERAL INFORMATION

APPENDIX IV

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on Business Days at the office of the Company at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong from the date of this circular up to and including the date of the SGM:

(i) the memorandum of association and bye-laws of the Company valid as at the Latest Practicable Date;
(ii) the annual reports of the Company for each of the two financial years ended 31 December 2011 and 2012;
(iii) the letter from the Independent Board Committee, the text of which is set out on page 17 of this circular;
(iv) the letter of advice from Hercules, the text of which is set out on pages 18 to 36 of this circular;
(v) the accountants’ report on the unaudited pro forma financial information on the Remaining Group as set out in Appendix III to this circular;
(vi) the material contracts referred to in the section headed “Material contracts” in this appendix;
(vii) the written consents of the experts referred to in the section headed “Experts and consents” in this appendix;
(viii) a copy of the circular of the Company which has been issued pursuant to the requirements set out in Chapter 14 of the Listing Rules since 31 December 2012 (being the date to which the latest published audited accounts of the Group were made up); and
(ix) this circular.

IV – 10

GENERAL INFORMATION

APPENDIX IV

9. MISCELLANEOUS

(i) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and its principal place of business in Hong Kong is at 10th Floor, Island Place Tower, 510 King’s Road, North Point, Hong Kong.
(ii) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Tengis Limited at 26th Floor of Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(iii) The company secretary of the Company is Ms. Chow So Ying Anna, who is a solicitor (as defined in the Legal Practitioners Ordinance).
(iv) In the event of any inconsistency, the English text of this circular and the accompanying form of proxy shall prevail over the Chinese text.

IV – 11

NOTICE OF SGM

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SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 01223)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT a special general meeting of the shareholders of Symphony Holdings Limited (the “Company”) will be held at the Boardroom on the 10th Floor of Island Place Tower, 510 King’s Road, North Point, Hong Kong on Wednesday, 28 August 2013 at 10:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following, which will be proposed as ordinary resolution:

ORDINARY RESOLUTION

1. “ THAT :

the conditional disposal agreement dated 28th June 2013 entered into between Cosmo Group Holdings Limited, a direct wholly-owned subsidiary of the Company (the “Seller”), and Global Castle Holdings Limited (the “Purchaser”) in relation to the disposal of the entire issued share capital of Yi Ming Investments Limited (the “Sale Share”), and the shareholder’s loan due by Yi Ming Investments Limited (the “Sale Loan”), free from all liens, charges, encumbrances and third party rights and together with all rights attaching thereto as at the Completion Date, a copy of which has been produced to the meeting, marked “A” and initialed by the chairman of the meeting for the purpose of identification, pursuant to which, amongst other things, the Seller conditionally agreed to sell and the Purchaser conditionally agreed to purchase the Sale Share and the Sale Loan for an aggregate consideration of HK$429,198,743 (subject to adjustment), be and is hereby approved.”

By order of the Board Chan Ting Chuen Chairman

Hong Kong, 12 August 2013

For identification purpose only

SGM – 1

NOTICE OF SGM

As at the date of this notice, the directors of the Company are:

Executive Directors: Mr. Chan Ting Chuen (Chairman) Mr. Sze Sun Sun Tony (Deputy Chairman & Managing Director) Mr. Chang Tsung Yuan (Deputy Chairman) Mr. Chan Lu Min Ms. Chen Fang Mei Dr. Ho Ting Seng Non-executive Director: Mr. Li I Nan Independent Non-executive Directors: Mr. Cheng Kar Shing Mr. Feng Lei Ming Mr. Ho Shing Chak Mr. Huang Shenglan

SGM – 2

AI assistant

Symphony Holdings Limited — Proxy Solicitation & Information Statement 2013

49779_rns_2013-08-12_506e35ca-649e-4e24-ace8-a39453df631a.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

Financial Adviser to the Company

Independent Financial Adviser to

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

INTRODUCTION

LETTER FROM THE BOARD

THE DISPOSAL AGREEMENT

Date:

Parties:

Assets to be disposed of:

LETTER FROM THE BOARD

Consideration:

LETTER FROM THE BOARD

Conditions:

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Completion:

Termination:

LETTER FROM THE BOARD

INFORMATION ON THE TARGET GROUP

REASONS FOR THE DISPOSAL

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE DISPOSAL

LETTER FROM THE BOARD

INFORMATION ON THE REMAINING GROUP

Outlet mall

LETTER FROM THE BOARD

“PONY” brand

“Speedo” brand

Property investment and development

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

SGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

SYMPHONY HOLDINGS LTD. 新灃集團有限公司 *

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

LETTER FROM HERCULES

VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION IN RELATION TO THE DISPOSAL OF THE ENTIRE EQUITY INTEREST IN AND SHAREHOLDER’S LOAN DUE BY YI MING INVESTMENTS LIMITED

INTRODUCTION

LETTER FROM HERCULES

LETTER FROM HERCULES

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Information on the Group

LETTER FROM HERCULES

LETTER FROM HERCULES

LETTER FROM HERCULES

2. Information on the Target Group

LETTER FROM HERCULES

LETTER FROM HERCULES

LETTER FROM HERCULES

3. Information on the Remaining Group

Outlet malls

LETTER FROM HERCULES

“PONY” brand

“Speedo” brand

LETTER FROM HERCULES

Property investment and development

4. Reasons for the Disposal

LETTER FROM HERCULES

LETTER FROM HERCULES

5. Principal terms of the Disposal Agreement

LETTER FROM HERCULES

Adjustments on the consideration of the Sale Share

LETTER FROM HERCULES

Consideration of the Sale Share

Symphony Holdings Limited Proxy Solicitation & Information Statement 2013