Television Broadcasts Limited — M&A Activity 2005

Sep 2, 2005

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

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 290)

VERY SUBSTANTIAL ACQUISITION – ACQUISITION OF 49% INTEREST IN A COMPANY ENGAGED IN THE MANUFACTURING AND DISTRIBUTION OF PHARMACEUTICAL PRODUCTS IN THE PEOPLE’S REPUBLIC OF CHINA AND RESUMPTION OF TRADING

Financial adviser to the Company

The Proposed Acquisition

On 26 August 2005, Country Super, an indirect wholly owned subsidiary of the Company and the PRC Party entered in the Share Transfer Agreement. Pursuant to the Share Transfer Agreement, Country Super shall acquire 49% interest in the PRC Company for a consideration of RMB46.55 million (equivalent to approximately HK$44.76 million). The Proposed Acquisition is conditional upon fulfilment of the Conditions Precedent.

To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, the PRC Party is independent of and not connected with the connected persons of the Company. The PRC Party is wholly owned by CITIC Group. CITIC Group through its subsidiaries (including Party A) is deemed to be interested in approximately 18.70% of CSCP, a company listed on the Main Board of the Stock Exchange. Mr. Chan Tat Chee and Mr. Hon Ming Kong, both of whom are Directors are deemed to be interested in approximately 0.44% and 28.8% of the issued share capital of CSCP, respectively.

The Proposed Acquisition constitutes a very substantial acquisition for the Company under Rule 14.08 of the Listing Rules and is conditional upon approval of the Shareholders. A circular containing details of the Proposed Acquisition together with the notice of the EGM will be despatch to Shareholders as soon as possible.

Resumption of trading

At the request of the Company, trading in the Shares was suspended with effect from 2:30 p.m. on Friday, 26 August 2005 pending the release of this announcement. Application has been made to the Stock Exchange for resumption of trading of the Shares from 9:30 a.m. on Monday, 5 September 2005.

THE PROPOSED ACQUISITION

1. Introduction

References are made to the announcements made by the Company in relation to the Proposed Acquisition dated 22 November 2004, 6 December 2004, 3 February 2005 and 4 May 2005, respectively.

On 6 December 2004, Country Super and the PRC Party entered into the Letter of Intent relating to the Proposed Acquisition. The Letter of Intent was superseded by the Investment Framework Agreement entered into among Country Super, Party A and the PRC Party on 3 February 2005, which was supplemented by a supplemental agreement dated 4 May 2005.

On 26 August 2005, Country Super, an indirect wholly owned subsidiary of the Company and the PRC Party entered in the Share Transfer Agreement. The Company was informed that Party A and the PRC Party are still in negotiation for the acquisition of 20% in the PRC Company by Party A from the PRC Party. Upon finalisation of the negotiation, a separate share transfer agreement in respect of the 20% interest in the PRC Company will be entered into between Party A and the PRC Party.

2. The Share Transfer Agreement

Parties:

• (1) The PRC Party as the seller. The PRC Party is a direct investment, trust investment and assets management company established in the PRC. To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, the PRC Party is independent of and not connected with the connected persons of the Company. The PRC Party is wholly owned by CITIC Group. CITIC Group through its subsidiaries (including Party A) is deemed to be interested in approximately 18.70% of CSCP, a company listed on the Main Board of the Stock Exchange. Mr. Chan Tat Chee and Mr. Hon Ming Kong, both of whom are Directors are deemed to be interested in approximately 0.44% and 28.8% of the issued share capital of CSCP, respectively.

• (2) Country Super as the purchaser. Country Super is an indirect wholly owned subsidiary of the Company.

Subject matter:

Pursuant to the Share Transfer Agreement, Country Super shall acquire 49% interest of the PRC Company from the PRC Party. Consideration:

The Consideration payable by Country Super for the 49% interest in the PRC Company is RMB46,550,000 (equivalent to approximately HK$44.76 million) payable as to RMB13,965,000 (equivalent to approximately HK$13.43 million) within five working days after the approval of the Transfer by 北京產權交易中心 (Beijing Assets Transfer Centre[*] ); as to RMB18,620,000 (equivalent to approximately HK$17.9 million) within five working days after the approval of the Transfer by the relevant authorities, including but not limited to State Assets Bureau, the Ministry of Commerce and the State Industry and Commerce Administration Bureau; and as to the remaining RMB13,965,000 (equivalent to approximately HK$13.43 million) within five working days after the registration of the Transfer and the issue of the business licence for the PRC Company as a sino-foreign enterprise. Apart from the Consideration, Country Super has no further capital commitment under the Share Transfer Agreement. The Consideration of RMB46,550,000 (equivalent to approximately HK$44.76 million) is equivalent to 49% of RMB95 million (equivalent to approximately HK$91.35 million), the value of the entire equity interest of the PRC Company as mutually agreed

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by the parties. According to a valuation report (the “Valuation Report”) prepared by a licensed accountants in the PRC, which is an independent third party, the net asset value of the Pharmaceutical Group in accordance with PRC GAAP as at 31 March 2005 was RMB84.52 million (equivalent to approximately HK$81.27 million. On the basis of the net asset value of the Pharmaceutical Group as at 31 March 2005 as set out in the Valuation Report, the parties after arm’s length negotiation agreed that the value of the entire equity interest of the PRC Company to be RMB95 million (equivalent to approximately HK$91.35 million). The Valuation Report is not an audited report of the financial statements of the Pharmaceutical Group. Given that the PRC Company is a state-owned enterprise, the Valuation Report on the value of the assets of the Pharmaceutical Group as at 31 March 2005 is required to be prepared under the PRC laws for determining the consideration payable by Country Super for the Proposed Acquisition.

The Consideration shall be funded as to approximately HK$30 million from the proceeds from a placing of new Shares as announced by the Company in the announcement dated 22 March 2005 and as to remaining balance of approximately HK$14.76 million by internal resources of the Group, including receipts from receivables, cash on hand and income generated from the normal business activities. As at 31 March 2005, the Group has receivables in the amount of approximately HK$38.8 million, which were current assets. The Directors are of the view that the receipts from receivables, cash on hand and income generated from normal business activities would be sufficient to finance the balance of the Consideration in the amount of HK$14.76 million as and when the same falls due.

Taking into account the factors mentioned in the paragraph headed “Reasons for the Proposed Acquisition” below, in particular, the ability of the Pharmaceutical Group to generate a stable stream of income from its wide distribution channels, the Directors considered the Consideration to be fair and reasonable.

Conditions Precedent:

Completion of the Proposed Acquisition shall be conditional upon fulfillment of the following Conditions Precedent within six months from the date of the Share Transfer Agreement (ie. on or before 25 February 2006) (the “Long-stop Date”) (or such later date as the parties shall agree in writing):

• (a) the approval of the Share Transfer Agreement and the transactions contemplated thereunder, and compliance with the disclosure and approval requirements of the Listing Rules;

• (b) the approval of the Share Transfer Agreement and the transactions contemplated thereunder by CITIC Group, including the Reorganisation and the Transfer;

• (c) completion of due diligence review of the affairs of the Pharmaceutical Group, including but not limited to the due establishment and valid existence of the members of the Pharmaceutical Group, the assets and financial aspects of the Pharmaceutical Group, by Country Super;

• (d) the approval of the Reorganisation and the Transfer by the relevant PRC authorities (including but not limited to State Assets Bureau, the Ministry of Commerce and the State Industry and Commerce Administration Bureau) in accordance with the applicable laws of the PRC;

• (e) the delivery of a asset valuation report prepared by a licensed accountants in the PRC as referred to the sub-paragraph “Consideration” above, which formed the basis of the consideration for the Transfer by Country Super;

• (f) completion of the Transfer and registration of the 49% interest in the PRC Company in the name of Country Super and the issue of a capital verification report by a licensed accountant in the PRC as required by the regulation for transfer and registration of state-owned assets; and

• (g) the delivery of a PRC legal opinion as to due establishment and valid existence of the members of the Pharmaceutical Group, to Country Super.

As at the date of this announcement, the Group has completed a preliminary due diligence review of the affairs of the Pharmaceutical Group. None of the Conditions Precedent can be waived. In the event any of the Conditions Precedent cannot be fulfilled by the Long-stop Date, the Share Transfer Agreement will be terminated and neither party shall have any liability towards the other party. Further announcement will be made by the Company as appropriate.

Completion:

Completion of the Share Transfer Agreement shall take place upon payment of the Consideration in the manner provided for in the sub-paragraph headed “Consideration” above via北京產權交易中心 (Beijing Assets Transfer Centre). Completion has to take place at 北京產權交易中心 (Beijing Assets Transfer Centre) because the PRC Company is a state-owned enterprise and transfer of all state assets have to take place at a relevant assets transfer centre at which the state-owned assets is located.

INFORMATION ON THE PRC COMPANY

The PRC Company was established in the PRC on 14 June 1993 as a state-owned enterprise. The current paid up capital of the PRC Company is RMB60 million. The scope of business of the PRC Company includes sale and distribution of western medical material and products, Chinese medicine and Chinese medical herbs, medical equipment, health care food and products, medical production equipment, chemical raw materials and products, cosmetics, biological products, antibiotics, micro-chemical products, birth control products and diagnosis testers. The PRC Company has obtained the relevant licences for the operation of its business, including medical products sales licence(藥品經營許可証 ), medical equipment enterprise operation licence (醫療器械經營企業許可 証 ) and medical products quality certification* (藥品經營質量管理規範認証証書 ). The Pharmaceutical Group has over 400 customers including all major hospital in Beijing and handle the distribution of over 3,000 pharmaceutical products in the PRC.

The consolidated unaudited net asset value of the Pharmaceutical Group based on HK GAAP as at 31 March 2005 was RMB67,500,000 (equivalent to approximately HK$64.9 million).

The consolidated unaudited net profits of the Pharmaceutical Group before and after taxation based on HK GAAP for the two years ended 31 December 2004 and for the three months ended 31 March 2005 were:

	For the year ended	For the year ended	For the three months
	31 December 2003	**31 December 2004 **	ended 31 March 2005
	RMB	RMB	RMB
Net profit before taxation	28,352,000	15,726,000	221,000
Net profit/(loss) after taxation	24,145,000	13,237,000	(1,148,000)
			(Note 1)

Notes:

1. For the period ended 31 March 2005, some of the members of the Pharmaceutical Group have incurred an operating loss and accordingly there is no taxable income for such entities. The income tax expenses mainly related to the income of a profitable subsidiary.

2. The full accountants’ report of the Pharmaceutical Group will be set out in the circular to be issued by the Company in connection with the Proposed Acquisition.

Prior to the completion of the Proposed Acquisition, the PRC Company will complete the disposal of its interest in three subsidiaries and one associated company pursuant to the Reorganisation.

Upon completion of the Proposed Acquisition, the PRC Company shall be converted into a sino-foreign enterprise. Taking into account the completion of the Possible Transfer, the equity interest of the PRC Company will be held as to 49% by Country Super, as to 20%

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by Party A and as to 31% by the PRC Party. The current paid up capital of the PRC Company in the amount of RMB60 million will be converted into the registered capital of the PRC Company upon its conversion into a sino-foreign enterprise. Prior to the Conversion, as a state-owned enterprise, the PRC Company is not required to have an agreed total investment amount. No additional contribution to the registered capital of the PRC Company by the parties is required for the purpose of the Conversion. The profit and loss of the PRC Company will be shared among Country Super, Party A and the PRC Party in proportion to the percentage of their respective equity interest in the company.

The board of the PRC Company will comprise of seven directors. Country Super will be entitled to nominate four directors to the board whether or not the Possible Transfer is to consummated. One of the four directors nominated by Country Super will be the chairman of the board of the PRC Company. In the event the Possible Transfer is consummated, each of Country Super, Party A and the PRC Party will be entitled to nominate four directors, one director and two directors, respectively, to the board of the PRC Company.

As upon completion of the Proposed Acquisition, the Company will control the board of the PRC Company (irrespective whether or not the Possible Transfer is consummated) which governs the financial and operating policies of the PRC Company, the PRC Company will be accounted for as a subsidiary of the Company upon completion of the Proposed Acquisition.

Further agreement will be entered into between Party A and the PRC Party in relation to the Possible Transfer. Completion of the Proposed Acquisition is not conditional upon the finalization of the negotiation between Party A and the PRC Party in relation to the Possible Transfer. Further announcement will be made by the Company as appropriate.

REASONS FOR THE PROPOSED ACQUISITION

The Group is principally engaged in electrical engineering contracting business, trading in electrical equipment and material, investment holding, securities brokerage and finance business, company secretarial services and sea freight forwarding services.

China is one of the world’s major spenders on medical and health care. According to the statistics of the PRC Ministry of Health, China’s expenditure on medical and health care from 1999 to 2003 were RMB417.9 billion, RMB458.7 billion, RMB502.6 billion, RMB568.5 billion and RMB662.3 billion, respectively, with an annual growth rate of approximately 14.6% per annum during the period. The outbreak of the severe acute respiratory syndromes in 2003 and the avian flu in 2004 have speeded up the development of the pharmaceutical industry in the PRC providing ample investment opportunities. Furthermore, as mentioned in the annual report of the Company for the year ended 31 March 2004, it is the corporate policy of the Group to identify and explore investment opportunities in the PRC with the aim to diversify the business of the Group and to continue to consolidate and streamline the existing business of the Group, so as to provide maximum return to the investment of the Shareholders.

Although the net profit of the Pharmaceutical Group has decreased in 2004 and the first quarter of 2005, the turnover of the Pharmaceutical Group has increased during the same period. The turnover of the Pharmaceutical Group for the year ended 31 December 2003, 31 December 2004 and the three months ended 31 March 2005 were approximately HK$1,233,150,000, HK$1,566,494,000 and HK$452,289,000, respectively. The decrease in net profit is principally attributable to the making of one-off provision for loss of capital verification based on assets (清產核資損失 ), a necessary provision before the sale of state-owned asset and the increase in operating expenses at a percentage higher than the increase in turnover. Having considered the non-recurring nature of the provision for loss of capital verification based on assets (清產核資損失 ) and that operating cost will remain stable once the turnover of the Pharmaceutical Group reached the optimal size as well as the distribution network of the Pharmaceutical Group as mentioned in the paragraph headed “Information on the PRC Company” above, the Directors are of the view that the Proposed Acquisition will be able to provide the Group with a stable stream of revenue.

In addition to the potential contribution of the future earnings of the Pharmaceutical Group to the Group, the Directors have also considered the resources of the Group in managing the investment in the PRC Company in deciding to make the investment in the PRC Company. With the completion of the disposal of the Company’s 51% equity interest in the waste incineration and process business in July 2005, the Company can allocate more resources to investment opportunities for diversification. In addition to the availability of resources for the diversification, Mr. Zhao Lin, an executive Director, is a Deputy Director Pharmacist, a State approved specialist for imported natural medicine and State General Manufacturing Practice certification and examination officer for pharmaceutical manufacturers, has the requisite experience in assisting the Group in overseeing its investment in the PRC Company.

In the premises, the Directors consider the Proposed Acquisition to be in the interest of the Shareholders and the Group as a whole and in line with the diversification policy of the Group. The Directors also consider the terms of the Share Transfer Agreement to be fair and reasonable.

GENERAL

The Proposed Acquisition constitutes a very substantial acquisition for the Company under Rule 14.08 of the Listing Rules and is conditional upon approval of the Shareholders. A circular containing details of the Proposed Acquisition together with the notice of the EGM will be despatch to Shareholders as soon as possible. As no Shareholder is required to abstain from voting on the resolutions to be proposed at the EGM, all Shareholders are eligible to vote on the ordinary resolutions to be proposed at the EGM. RESUMPTION OF TRADING

At the request of the Company, trading in the Shares was suspended with effect from 2:30 p.m. on Friday, 26 August 2005 pending the release of this announcement. Application has been made to the Stock Exchange for resumption of trading of the Shares from 9:30 a.m. on Monday, 5 September 2005.

DEFINITIONS

DEFINITIONS
In this announcement, unless	the context otherwise requires, terms used herein shall have the following meaning:
“Board”	the board of directors of the Company;
“CITIC Group”	a state-owned enterprise established in the PRC and the holding company of the PRC Party and Party A;
“CSCP”	China Sciences Conservational Power Limited, a company incorporated in Hong Kong whose securities
	are listed on the Main Board of the Stock Exchange;
“Company”	China Conservational Power Holdings Limited, a company incorporated in the Cayman Islands whose
	securities are listed on the Main Board of the Stock Exchange;
“Completion”	completion of the Proposed Acquisition pursuant to the Share Transfer Agreement;
“Condition(s) Precedent”	the condition(s) precedent of the Proposed Acquisition as set out in the paragraph headed “The Proposed
	Acquisition – Conditions Precedent” above;
“connected person(s)”	has the meaning ascribed in the Listing Rules;
“Consideration”	the amount of RMB46,550,000 (equivalent to approximately HK$44.76 million), the consideration for
	the 49% interest in the PRC Company;
“Conversion”	the conversion of the PRC Company from a state-owned enterprise into a sino-foreign enterprise upon
	Completion;
“Country Super”	Country Super Limited (邦瑞有限公司), an indirect wholly owned subsidiary of the Company;
“Director(s)”	director(s) of the Company;
“EGM”	the extraordinary general meeting of the Company to be convened for the purpose of approving the
	Share Transfer Agreement and the Proposed Acquisition by the Shareholders;

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“Group”	the Company and its subsidiaries;
“HK GAAP”	Hong Kong Generally Accepted Accounting Principles;
“Hong Kong”	The Hong Kong Special Administrative Region of the PRC;
“Independent Third Party”	a third party which is independent of and not connected with the Company, the directors, the chief
	executives and the substantial shareholders of the Company and its subsidiaries and their respective
	associates (within the meaning of the Listing Rules);
“Investment Framework	the investment framework agreement dated 3 February 2005 and entered into among the PRC Party,
Agreement”	Party A and Country Super in relation to the Proposed Acquisition as disclosed in the announcement
	made by the Company dated 3 February 2005 and supplemented by the supplemental agreement dated 4
	May 2005 as disclosed in the announcement made by the Company dated 4 May 2005;
“Letter of Intent”	the legally binding letter of intent dated 6 December 2004 entered into between Country Super and the
	PRC Party in relation to the Proposed Acquisition as disclosed in the announcement made by the
	Company dated 6 December 2004;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange;
“PRC” or “China”	The People’s Republic of China, and for the sole purpose of this announcement shall exclude the Hong
	Kong, the Macau Special Administrative Region and Taiwan;
“PRC Company”	中信醫藥實業公司(CITIC Pharmaceutical Company)* a company established in the PRC and engaged
	in the distribution of pharmaceutical products in the PRC and is currently wholly owned by the PRC
	Party;
“PRC GAAP”	The PRC Generally Accepted Accounting Principles;
“PRC Party”	中信信託投資有限責任公司(CITIC Trust Investment Co., Ltd.)* the beneficial owner of the entire
	equity interest of the PRC Company, a company established in the PRC and wholly owned by CITIC
	Group;
“Party A”	a company incorporated in Hong Kong, a non-wholly owned subsidiary of CITIC Group and is interested
	in approximately 10.34% in the issued share capital of CSCP. To the best of the knowledge, information
	and belief of the Directors, having made all reasonable enquiries, the minority shareholders of Party A
	are independent of and not connected with the connected persons of the Company;
“Pharmaceutical Group”	the PRC Company and its subsidiaries, excluding the three subsidiaries and the associated company to
	be disposed of by the Company pursuant to the Reorganisation;
“Possible Transfer”	the possible acquisition of 20% in the PRC Company by Party A from the PRC Party;
“Proposed Acquisition”	the proposed acquisition of 49% interest of the PRC Company by Country Super pursuant to the Share
	Transfer Agreement;
“Reorganisation”	the Conversion and the disposal of three subsidiaries and one associated companies by the PRC Company
	prior to the Completion;
“Share Transfer Agreement”	the share transfer agreement dated 26 August 2005 entered into among the PRC Party as the seller,
	Country Super as the purchaser, in relation to the transfer of 49% interest in the PRC Company;
“Share(s)”	share(s) of HK$0.10 each in the capital of the Company;
“Shareholder(s)”	holder(s) of Shares;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Transfer”	the transfer of the 49% interest in the PRC Company to Country Super pursuant to the Share Transfer
	Agreement;
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong;
“RMB”	Reminbi, the lawful currency of the PRC; and
“US$”	United States dollars, the lawful currency of the United States of America.

In this announcement, RMB1.04 is equivalent to HK$1.00. The conversion rate is for the purpose of illustration only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at the aforementioned or any other rates.

As at the date of this announcement, the Board comprises ten Directors: Mr. Chan Tat Chee (Chairman), Mr. Hon Ming Kong, Mr. Lee Yu Leung, Mr. Lin Hoi Kwong and Mr. Zhao Lin, all of whom are executive Directors; Mr. Li Yong, Alfa, who is a non-executive Director; and Mr. Loo Chung Keung, Steve, Mr. Tsoi Wai Kwong, Mr. Au Yeung Ka Cheung and Mr. Wong Tik Tung, all of whom are independent non-executive Directors.

By Order of the Board China Conservational Power Holdings Limited Chan Tat Chee Chairman

Hong Kong, 2 September 2005

* for identification purpose only

“Please also refer to the published version of this announcement in China Daily.”

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