Ulferts International Limited — Proxy Solicitation & Information Statement 2005

Dec 23, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Shougang Concord Grand (Group) Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser, the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(incorporated in Bermuda with limited liability)

(Stock Code: 730)

VERY SUBSTANTIAL ACQUISITION

RELATING TO

PROPOSED SUBSCRIPTION OF NEW SHARES IN

CHINA LIFE INSURANCE (OVERSEAS) COMPANY LIMITED

AND

AMENDMENTS TO THE BYE-LAWS

A letter from the Board in respect of the Subscription and amendments to the Bye-laws is set out on pages 4 to 16 of this circular.

A notice convening the SGM to be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on 20 January 2006 at 10:30 a.m. is set out on pages 185 to 188 of this circular. A form of proxy for use by the Shareholders at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong branch share registrars and transfer office of the Company, Tengis Limited of Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong (to be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong with effect from 3 January 2006) as soon as possible and in any event, not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting (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 meeting or any adjourned meeting (as the case may be) should you so wish.

* For identification purpose only

23 December 2005

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Shareholders’ Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Information relating to CLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Management discussion and analysis for CLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Financial effects of the proposed Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Amendments to the Bye-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I – Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix II – Accountants’ report on the CLIO Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	76
Appendix III – Unaudited pro forma financial information of the Enlarged Group. . . . . . .	136
Appendix IV – Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	144
Appendix V – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	172
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	185

DEFINITIONS

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

“associate”	has the meaning ascribed to it in the Listing Rules
“bancassurance”	the distribution of insurance products through banks
“Board”	the board of Directors
“Bye-laws”	the bye-laws of the Company
“CLIG”	China Life Insurance (Group) Company, a company incorporated
	in the PRC with limited liability and the holding company of
	CLIO
“CLIO”	China Life Insurance (Overseas) Company Limited, a company
	incorporated in the PRC with limited liability, and is wholly owned
	by CLIG as at the Latest Practicable Date
“CLIO Group”	CLIO and its subsidiaries
“CLIO Share(s)”	share(s) of RMB1.00 each in the share capital of CLIO
“Code”	the Code on Corporate Governance Practices as set out in Appendix
	14 of the Listing Rules
“Company”	Shougang Concord Grand (Group) Limited, a company
	incorporated in Bermuda with limited liability, the ordinary shares
	of which are listed on the main board of the Stock Exchange
“Completion”	completion of the Subscription Agreement
“Controller”	has the meaning as defined in the Insurance Companies Ordinance
	(Chapter 41 of the Laws of Hong Kong), who is, i) a managing
	director of the applicant or of a body corporate of which it is a
	subsidiary; ii) a chief executive of the applicant or of a body
	corporate, being an insurer, of which it is a subsidiary; or iii) a
	person a) in accordance with whose directions or instructions the
	directors of the applicant or of a body corporate of which it is a
	subsidiary (or any of them) are accustomed to act; or b) who,
	alone or with any associate or through a nominee, is entitled to
	exercise, or control the exercise of, 15% or more of the voting
	power at any general meeting of the applicant or of a body
	corporate of which it is a subsidiary

“Directors”

the directors of the Company

– 1 –

DEFINITIONS

“Enlarged Group”	the Group upon Completion
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	21 December 2005, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information for inclusion in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Macau”	the Macau Special Administrative Region of the PRC
“New CLIO Shares”	626,950,496 new shares of RMB1.00 each in the issued share
	capital of CLIO
“PRC”	the People’s Republic of China, which, for the purposes of this
	circular does not include Hong Kong, Macau and Taiwan
“Report”	an independent review report prepared by Watson Wyatt in respect
	of the economic value of CLIO Group as at 31 December 2004
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“SGM”	the special general meeting of the Company to be held at JW
	Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific
	Place, 88 Queensway, Hong Kong on 20 January, 2006 at 10:30
	a.m. or any adjournment thereof, to consider and, if thought fit,
	approve and ratify the Subscription Agreement and to approve the
	amendments to the Bye-laws
“Share(s)”	ordinary share(s) of HK$0.01 each in the capital of the Company
“Shareholder(s)”	holder(s) of Share(s)
“Shareholders’ Agreement”	a shareholders’ agreement to be entered into between the Company
	and CLIG as a condition to Completion
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription of the New CLIO Shares pursuant to the
	Subscription Agreement

– 2 –

DEFINITIONS

“Subscription Agreement”	the conditional subscription agreement dated 27 September 2005
	entered into between the Company and CLIO in relation to the
	Subscription
“Subscription Price”	being HK$800 million payable by the Company to CLIO under
	the Subscription Agreement
“Valuation”	the valuation of economic value of the CLIO Group of about
	HK$1,300 million to HK$1,900 million as at 31 December 2004
“Watson Wyatt”	Watson Wyatt Insurance Consulting Limited, an independent
	actuarial consultant
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“RMB”	Reminbi, the lawful currency of the PRC

– 3 –

LETTER FROM THE BOARD

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(incorporated in Bermuda with limited liability)

(Stock Code: 730)

Directors: Wang Qinghai (Chairman) Cao Zhong (Vice Chairman) Chen Zheng Wang Tian Cheng Xiaoyu Yuan Wenxin Leung Shun Sang, Tony Choy Hok Man, Constance Tam King Ching, Kenny Hui Hung, Stephen Zhou Jianhong*

Registered office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda Principal place of business in Hong Kong: 6th Floor, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

* Independent non-executive Directors

23 December 2005

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION RELATING TO PROPOSED SUBSCRIPTION OF NEW SHARES IN CHINA LIFE INSURANCE (OVERSEAS) COMPANY LIMITED AND AMENDMENTS TO THE BYE-LAWS

INTRODUCTION

On 30 September 2005, the Board announced that the Company had entered into the Subscription Agreement on 27 September 2005 with CLIO for the subscription of the New CLIO Shares. The Subscription constitutes a very substantial acquisition of the Company under chapter 14 of the Listing Rules and is subject to the approval of the Shareholders at the SGM.

* For identification purpose only

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with further details relating to the Subscription, financial information of CLIO and the Enlarged Group and to give notice of the SGM at which an ordinary resolution will be proposed to approve the Subscription Agreement. A special resolution will also be proposed at the SGM to amend the Bye-laws.

THE SUBSCRIPTION AGREEMENT

Date

27 September 2005

Parties

• the Company

• CLIO

To the best knowledge, information and belief of the Directors, and having made all reasonable enquires, both CLIO and its ultimate beneficial owner are independent third parties not connected with the Company or any of its subsidiaries or any of their respective directors, chief executive or substantial shareholders or any of their respective associates.

Subscription

Pursuant to the Subscription Agreement, the Company has conditionally agreed to subscribe for the New CLIO Shares representing about 66.7% of the issued share capital of CLIO and 40% of the enlarged issued share capital of CLIO. Pursuant to the Subscription Agreement, there is no restriction to the subsequent sale of the New CLIO Shares post Completion. The New CLIO Shares shall rank pari passu in all respects with all existing issued shares of CLIO. The remaining 60% of the enlarged issued share capital of CLIO is held by CLIG. CLIG is principally engaged in investment holding and management of life insurance business.

Subscription Price

The Subscription Price of HK$800 million has been determined based on arm’s length negotiations and on normal commercial terms with reference to the economic value of CLIO as at 31 December 2004 of approximately HK$1,300 million to HK$1,900 million as prepared by CLIO and have been reviewed by Watson Wyatt, an independent actuarial consultant jointly appointed by the Company and CLIO. Watson Wyatt has reviewed the principal assumptions and rates adopted by CLIO in arriving at the Valuation and set out their views in the Report. Principal assumptions underlying the Valuation regarding the mortality rate, discontinuance rates and expenses including agency commission are based on the recent performance of CLIO, particularly in the past two years ended 31 December 2004. Compared to the year ended 31 December 2003, turnover of CLIO increased by approximately 79% for the year ended 31 December 2004. The mortality rate used is with reference to the rates published by the Actuarial Society of Hong Kong in 2001 and those of CLIO Group. The assumed discontinuance rates for all distribution channels ranged from 0% to 35%, depending on the type of insurance products. Other assumptions made include an expected rate of growth in premium income to be gained from writing new

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LETTER FROM THE BOARD

insurance policies (based on the expected rate of growth of CLIO as projected by CLIO with reference to its historical performance and the new endowment products with maturity period of around or less than ten years to be launched to the market in 2005 and coming years and that of the insurance industry in Hong Kong with reference to the average historical industry growth rate in the past three years), the rate of investment return ranged from 5.5% to 5.75% for life and annuity business and 4.5% to 5.5% for retirement business which provide guaranteed capital return, the risk discount rate which represents the rate to compensate the investor with the risk associated with the realisation of CLIO’s future earnings ranged from 11.5% to 14% and the continuation of the economic and legal environment currently prevailing in Hong Kong. An endowment product with maturity period of five years has been launched in the first half of 2005 which has contributed to the improvement in performance of the interim results of the CLIO Group for the six months ended 30 June 2005.

The Report is an independent actuarial report prepared by Watson Wyatt to perform an independent review of the main components of economic value of CLIO which consists of the net asset value, the value attributed to the shareholders of CLIO in respect of the future benefits expect to be generated from the existing insurance policies written and new insurance policies to be written by CLIO (principal assumptions of which as disclosed above) where the insurance policies written and to be written include life insurance, group health and retirement insurance policies. The Report was prepared for the purpose of the proposed Subscription as requested by the Company and CLIO. It is based upon information provided by and warranted to be accurate and complete by CLIO. No warranty is given by Watson Wyatt as to its accuracy, completeness or suitability for any third party for any other purpose. Watson Wyatt is of the opinion that the assumptions and the modeling approach of the Valuation are reasonable as the assumptions adopted by CLIO in arriving at the Valuation have taken into account the recent operating performance of CLIO. The risk discount rates and the rate of return derived from the expected growth in premium income (based on the expected rate of growth of CLIO and the insurance industry) to be gained from writing new insurance policies are consistent with those adopted by other life insurance companies in Hong Kong and other Asian countries. The modeling approach is based on a projection of the major revenue items (using the principal assumptions disclosed above) for different age groups and different policy durations, using an average size of policy for the major insurance products. The Valuation is the present value of the earnings derived by the projection of these major revenue items from the existing insurance policies written and new insurance policies to be written. The Directors, after reviewing the Report, also consider that the assumptions of the Valuation are reasonable. The range of the Valuation of HK$1,300 million to HK$1,900 million is derived from the range of rates to reflect the high to low levels of risk environment and business conditions including decrease and increase in the number of insurance policies written.

Based on the range of the Valuation of HK$1,300 million to HK$1,900 million and the number of 940,425,743 CLIO Shares in issue as at the date of the Subscription Agreement, the valuation per CLIO Share amounts to approximately HK$1.382 to HK$2.02. Based on the Subscription Price and the number of New CLIO Shares to be subscribed for, the implied subscription price per New CLIO Share amounts to approximately HK$1.276 representing a discount of approximately 7.67% to 36.83% per CLIO Share before the Subscription. On a post-Subscription basis after taking into account the proceeds from the Subscription, the range of the Valuation will amount to HK$2,100 million to HK$2,700 million accordingly.

Given the above discounts of the Subscription Price to the valuation per CLIO Share before the Subscription and to the Valuation as enlarged by the Subscription, the Directors (including the independent non-executive Directors) consider that the terms of the Subscription Agreement are fair and reasonable so far as the Company and the Shareholders are concerned. The Directors consider that given i) CLIO has been engaged in the Hong Kong insurance industry since 1984; ii) CLIO’s operating model of principally

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LETTER FROM THE BOARD

distributing insurance products through banassurance arrangements which have relatively lower distribution cost; iii) Watson Wyatt’s opinion on the Valuation together with the underlying bases and assumptions of the Valuation as stated above; iv) the accountants’ report of CLIO Group as disclosed in Appendix II to the circular; v) the discussion on the performance of the CLIO Group for the period covered under the accountants’ report of CLIO Group; and vi) the continued support from CLIO’s parent, CLIG, which is one of the largest insurance groups in the PRC, the Directors believe that sufficient information relating to CLIO have been disclosed in the circular to facilitate Shareholders in forming their opinion with regard to the proposed Subscription.

The Subscription Price will be payable as to HK$480 million, representing 60% of the Subscription Price upon Completion; HK$320 million, representing 40% of the Subscription Price will be payable within six months from the date of Completion. The Company will finance the Subscription Price by way of equity funding and borrowings. The Company is negotiating and finalising the terms of a bank loan for up to HK$400 million and may finance HK$80 million, being the remaining balance of the first stage payment by equity funding. The Directors do not envisage this will lead to any change in control in the shareholding of the Company. In the event that such equity fund raising exercise to be effected by the Company did lead to a change in control or constitute a reverse takeover under the Listing Rules, the Company will duly comply with the relevant requirements set out in the Listing Rules in that regard. As at the Latest Practicable Date, the Company has yet to enter into any loan agreement and equity funding agreement. If the Company cannot proceed with the settlement in accordance with the Subscription Agreement, the Company has to pay 0.02% daily on the amount payable as a penalty to CLIO. Should such penalty be imposed, the Company considers its liquidity level will not be materially affected in the short term. However, such penalty may adversely affect the Company’s liquidity level in the long term. Apart from the financing of the HK$800 million, the Company does not intend to raise other external borrowings as additional working capital.

Conditions Precedent

The Subscription Agreement is conditional upon, amongst others:

• (a) the Subscription has been approved by the Ministry of Finance of the PRC and the China Insurance Regulatory Commission;

• (b) the agreement and execution of the Shareholders’ Agreement and the revised articles of association of CLIO by CLIG and the Company;

• (c) the Company becoming a Controller in CLIO has been approved by the Insurance Authority of Hong Kong; and

• (d) the passing by the Shareholders of resolutions in the SGM approving the Subscription Agreement in accordance with the Listing Rules.

If the conditions are not fulfilled or waived by 31 December 2005 or such later day as may be agreed between the parties, the Subscription Agreement will cease to be of any effect save for any antecedent breach. As at the Latest Practicable Date, the Directors do not intend to waive any of the above conditions precedent.

– 7 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the parties intended to extend the date for the fulfilment of the conditions.

Completion

Completion of the Subscription will take place on the fifteen business day after the satisfaction of the above conditions or the waiver thereof (as applicable).

SHAREHOLDERS’ AGREEMENT

As a condition to Completion, the Company and CLIG will enter into the Shareholders’ Agreement which will set forth their mutual agreement regarding the management and operation of CLIO. Further announcement will also be made by the Company relating to the details of the Shareholders’ Agreement in due course.

INFORMATION RELATING TO CLIO

CLIO was incorporated on 31 August 1984 in the PRC. The CLIO Group is principally engaged in the provision of life insurance in Hong Kong, Macau and Singapore and investment of property principally in Hong Kong and Macau. Hong Kong is the core market of the CLIO Group’s life insurance business accounted for an average of 95% of the turnover of the CLIO Group in the last two years ended 31 December 2004. The CLIO Group currently holds an insurance license in Singapore but operation in Singapore is currently inactive. The CLIO Group has had a branch office in Macau. Turnover from Macau only represents a small portion of the CLIO Group’s total turnover in recent years. The directors of CLIO regard Hong Kong as the core market of CLIO, which accounted for almost all of CLIO’s turnover in recent years. The directors of CLIO has no present intention to actively develop the Macau and Singapore markets.

The principal business operation of CLIO includes life and health insurance, retirement schemes administration and investment management which represented approximately 89.75%, 9.63% and 0.62% of the Group’s turnover for the year ended 31st December 2004. As disclosed in the accountants’ report of the CLIO Group set out in Appendix II to this circular, for management purpose, the CLIO Group is currently organized into two major business segments namely, life insurance and retirement schemes administration. Insurance products currently offered by CLIO include whole life insurance, endowment, term insurance and supplementary benefits covering disability, hospitalization, critical illnesses and accident. The major class of business of CLIO is individual life insurance and, in terms of type of premium, single premium type business represents the largest portion of CLIO’s business. CLIO principally distributes its insurance products through bancassurance brokers and agencies. As at 31 December 2004, CLIO’s total assets under management amounted to over HK$7.5 billion.

– 8 –

LETTER FROM THE BOARD

The following table sets out the summary of the audited financial results of CLIO Group for the three financial years ended 31 December 2004 and six months ended 30 June 2005:

Turnover Life premium Retirement premium Management fees (Loss)/Profit before taxation Net (loss)/profit after taxation Net asset value	For the year ended For the six months 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 691,883 1,645,871 3,147,138 2,382.477 2,787,217 262,089 242,278 271,594 107,105 135,364 15,077 33,096 21,659 9,212 8,490 969,049 1,921,245 3,440,391 2,498,794 2,931,071 (157,183) (57,406) 8,448 (50,850) 89,881 (157,183) (60,787) 5,387 (54,902) 88,141 183,977 153,989 405,131 46,732 467,307	For the year ended For the six months 31 December ended 30 June 2002 2003 2004 2004 2005 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 691,883 1,645,871 3,147,138 2,382.477 2,787,217 262,089 242,278 271,594 107,105 135,364 15,077 33,096 21,659 9,212 8,490 969,049 1,921,245 3,440,391 2,498,794 2,931,071 (157,183) (57,406) 8,448 (50,850) 89,881 (157,183) (60,787) 5,387 (54,902) 88,141 183,977 153,989 405,131 46,732 467,307
		2,931,071
		89,881 88,141 467,307

For the second half of 2005 up to 30 November 2005, the insurance business of CLIO performed principally in line with CLIO’s management expectations and with the corresponding period in 2004. However, the directors of CLIO consider that there may not be any material surplus on revaluation of investment properties of CLIO, for the second half of 2005.

MANAGEMENT DISCUSSION AND ANALYSIS FOR CLIO

For the year ended 31 December 2002

Operating results

CLIO recorded a net loss of HK$157.2 million for the year ended 31 December 2002. This was mainly attributable to the stagnant economic environment, fears against terrorism and the low interest rate environment. In addition, to reflect the impact of the decline in property values, a revaluation of investment properties and land & buildings, which include the China Life Building, the China Insurance Building and Yuen Yuet Garden in Hong Kong and the China Insurance Group Building in Macau resulted in a charge to the profit & loss account of HK$93.4 million.

Premiums earned

Gross written premiums in 2002 was HK$954.0 million. Premiums written continued to growth slowly as compared with previous years.

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LETTER FROM THE BOARD

Life business

Premiums of life insurance business and group health insurance business amounted to HK$661.1 million and HK$30 million respectively for the year ended 31 December 2002. Of the total premiums written in 2002, HK$18.9 million was attributable to single premium business. During the year, CLIO started to consolidate its health insurance business aiming at controlling the claim ratios, which included termination of policies with less favourable claims experience.

Retirement business

The provident fund under management during the year ended 31 December 2002 was HK$1,707 million. Without any material transfer of schemes into and outside CLIO, contributions received from the retirement business followed a relatively stable trend.

Net investment income

Net investment income earned in 2002 was HK$170.8 million. Low interest rate environment & weak investors’ confidence place restraint on the growth in the investment market. CLIO kept 29.6% of its total assets as cash & deposits pending for investment opportunities.

Insurance benefits and claims

Insurance benefits and claims, net of amount ceded through reinsurance was HK$1,247.4 million for 2002. Withdrawals of provident fund accounted for 45% of the total benefits & claims payment for the year.

Management and other expenses

Management and other expenses included investment expenses and other operating expenses. Total management and other expenses was HK$143.1 million for 2002 and considered to be at a reasonable level to support the infrastructure of CLIO in running its insurance business in Hong Kong.

For the year ended 31 December 2003

Operating results

CLIO recorded a net loss of HK$60.8 million for the year ended 31 December 2003, compared to a net loss of HK$157.2 million in 2002. With the global outbreak of SARS in 2003, Hong Kong property market was adversely affected. There was a sharp drop in property prices. A deficit on revaluation of investment properties and land & buildings, which include the China Life Building, the China Insurance Building and Yuen Yuet Garden in Hong Kong and the China Insurance Group Building in Macau of HK$39.5 million was recorded in 2003.

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LETTER FROM THE BOARD

Premiums earned

Gross written premiums increased by HK$934.2 million, or 97.9%, to HK$1,888.1 million in 2003. The increase was mainly due to the increased market demands for endowment products.

Life business

Premiums of life insurance business and group health insurance business amounted to HK$1,629.3 million and HK$16.6 million respectively for the year ended 31 December 2003. Of the total premiums written in 2003, HK$934.6 million was attributable to single premium business. The increase was primarily due to increase in sales of endowment products. CLIO continued to consolidate its health insurance business aiming at controlling the claim ratios, which included termination of policies with less favourable claims experience.

Retirement business

The provident fund under management during the year ended 31 December 2003 was HK$1,755.2 million. Without any material transfer of schemes into and outside CLIO, contributions received from the retirement business followed a relatively stable trend.

Net investment income

Net investment income earned in 2003 was HK$297.8 million compared to HK$170.8 million in 2002. The growth was attributable to the increase in investment assets during the period. Net realized gains of HK$107.9 million on investment securities was recorded during year.

Insurance benefits and claims

Insurance benefits and claims, net of amount ceded through reinsurance, decreased by HK$294.9 million to HK$952.5 million in 2003 from HK$1,247.4 million in 2002.

Management and other expenses

Management and other expenses included investment expenses and other operating expenses. Total management and other expense was HK$122.2 million for the year ended 31 December 2003, as compared to HK$143.1 million for 2002. Tight control of expenses is the main key to the mild changes in management and other expenses.

For the year ended 31 December 2004

Operating results

CLIO recorded a net profit of HK$5.4 million for the year ended 31 December 2004, compared to a net loss of HK$60.8 million in 2003. The improvement in performance in 2004 was mainly contributed by CLIO’s innovative product design, improved productivity of sales divisions, favorable claim experience, tight control of expenses as well as CLIO’s cautious investment management strategies. The rebound of

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LETTER FROM THE BOARD

Hong Kong properties market from the damage inflicted by the SARS epidemic in 2003 is also a key factor to such improvement. A surplus on revaluation of investment properties and land & buildings, which include the China Life Building, the China Insurance Building and Yuen Yuet Garden in Hong Kong and the China Insurance Group Building in Macau of HK$60.9 million was recorded in 2004.

The substantial increase in the net asset value of the CLIO Group from approximately HK$154.0 million as at 31 December 2003 to approximately HK$405.1 million as at 31 December 2004 was due to the increase in the paid-up capital of CLIO and the substantial increase in the premium received from life insurance business during the year.

Premiums earned

CLIO’s 2004 total premium on insurance business reached a record high of HK$3,418.7 million, an increase of 81.1% from 2003’s figure, driven by high new policies premium and renewal premium. It was also due to the increased market demand for endowment products.

Life business

Premiums of life insurance business amounted to HK$3,137.3 million for 2004. Of the total premiums written in 2004, HK$2,298.8 million was attributable to single premium business. The increase was primarily due to increases in sales of endowment products, attributable to the low interest rate environment. For the group health insurance business, total premium generated in 2004 decreased by 40.9% to HK$9.8 million from HK$16.6 million in 2003. This change was primarily due to CLIO’s continuing consolidation of its health insurance business, which included termination of policies with less favourable claims experience aiming at controlling the claim ratios.

Retirement business

The provident fund under management during the year ended 31 December 2004 was HK$1,978.3 million, an increase of 12.7% from HK$1,755.2 million in 2003. Contributions received from the retirement business followed a relatively stable trend.

Net investment income

Net investment income earned in 2004 was HK$280.6 million, represented a drop of 5.8% from the results of 2003. The net realized gain on disposals of investment securities, especially fixed interest securities investment, was lower than that of 2003 as CLIO increased its investment in held to maturity securities in 2004.

Insurance benefits and claims

Insurance benefits and claims, net of amount ceded through reinsurance, increased by HK$61.5 million to HK$1,014 million in 2004 from HK$952.5 million in 2003. The increase was mainly due to a slightly increase in the maturity payments in 2004.

– 12 –

LETTER FROM THE BOARD

Management and other expenses

Management expenses and other expenses included investment expenses and other operating expenses. Total management and other expense was HK$120.1 million, compared to HK$122.2 million for 2003. As CLIO adopted an effective budgetary control system, it was able to maintain a stable management expenses.

For the six months ended 30 June 2005

Operating results

CLIO recorded a net profit of HK$88.1 million for the period ended 30 June 2005, compared to a net loss of HK$54.9 million for the same period last year. The net profit included HK$89 million interest income on CLIO’s held to maturity investment securities. The continuing rebound of properties market generated a surplus on revaluation of investment properties and land & buildings, which include the China Life Building, the China Insurance Building and Yuen Yuet Garden in Hong Kong and the China Insurance Group Building in Macau of HK$74.9 million for the period under review. As a result of adoption of HKFRS 3, 4, 32 & 39 since 1 January 2005, the effect of which is summarized in note 2 to the Accountants’ Report, profit for the period was increased by HK$10.3 million and equity was decreased by HK$6.5 million.

The net asset value of the CLIO Group further increased from approximately HK$405.1 million as at 31 December 2004 to approximately HK$467.3 million as at 30 June 2005. Such increase was principally due to the premiums received from a new endowment product launched during the year.

Premiums earned

For the period under review, CLIO’s total premiums on insurance business was HK$2,922.6 million, representing an increase of 17.3% from HK$2,489.6 million for the same period last year, driven by high new policies premium and renewal premium. Due to uncertainty in local interest rate movement, there was great demand for endowment products in the market during the first half of 2005.

Life business

Premiums of life insurance business amounted to HK$2,785.2 million for the period under review. Of the total premiums written, HK$2,253.4 million was attributable to single premium business. The introduction of a new five-year endowment product in the first half of 2005 was well received by customers. For the group health insurance business, total premium generated for the six months ended 30 June 2005 was HK$2.1 million, representing 21.4% of 2004 full year’s figure. This is a result of CLIO’s efforts to consolidate its health insurance business, which included termination of policies with less favourable claims experience aiming at controlling the claim ratios.

Retirement business

The provident fund under management at end of the period under review was HK$1,994.7 million, representing an increase of 0.8% from HK$1,978.3 million of 2004. Contributions received from the retirement business followed a relatively stable trend.

– 13 –

LETTER FROM THE BOARD

Net investment income

Net investment income earned in the period under review was HK$228.3 million, representing an increase of 358.68% from the results of same period last year, driven by the satisfactory performance of the local stock market and the increase in accrued interest income on held to maturity investment securities portfolio.

Insurance benefits and claims

Insurance benefits and claims, net of amount ceded through reinsurance, was HK$224.2 million for the period under review, representing a decrease of 72.3% from the results of same period last year. Maturity payments decreased by 93% for this period.

Management and other expenses

Management expenses and other expenses included investment expenses and other operating expenses. Total management and other expense was HK$80 million, as compared to HK$48.2 million for same period last year. Most of the expenditures were recorded in the second half of the year ended 31 December 2004. In addition, due to the adoption of HKAS32 & 39 starting from 1 January 2005, an impairment of loan receivable of HK$11.2 million was recorded as expenses in the period under review.

The existing board of directors of CLIO comprises nine members. Upon Completion, the board of CLIO will continue to comprise of nine members and the Company will have the right to nominate four directors to the board of CLIO. The Company will finalise the appointment of directors to the board of CLIO in due course at time nearer date of Completion.

REASONS FOR THE SUBSCRIPTION

The Group is principally engaged in investment and management of property, provision of financial services and provision of cultural recreation content. As stated in its 2004 annual report, the Company has been exploring new business opportunities with a view to diversify its business and the Subscription represents a step forward in the actualisation of the Group’s business plan.

The Board understands from CLIO that its management objective is to improve agent productivity, customer services, operational efficiency and product design and with a favourable industry outlook, CLIO is expected to sustain a healthy and stable growth rate in the coming years. As disclosed on the website of the Hong Kong Office of the Commission of Insurance, the Hong Kong insurance industry as a whole has continued to grow in 2004 and the nine months ended 30 September 2005. According to the latest audited returns filed by the insurers, total gross premiums grew by 19.5% to HK$121.9 billion in 2004. The Board concurs with the view of CLIO’s management and considers that with the market positioning of CLIO in the Hong Kong life insurance market and the favourable industry prospects as evidenced by the continuous growth in the amount of gross premiums of the Hong Kong insurance industry and the improvement in CLIO financial performance, the Subscription will provide the Company with another opportunity to broaden its investment portfolio. With regard to the bancassurance distribution channels, the Board also considers CLIO will have a relatively lower distribution cost and therefore, has its own competitive edge.

– 14 –

LETTER FROM THE BOARD

The Directors (including the independent non-executive Directors) consider that the terms of the Subscription are fair and reasonable so far as the Company and the Shareholders are concerned and the Subscription is also beneficial to and is in the interest of the Company and the Shareholders as a whole.

Upon Completion, CLIO will become an associated company of the Company. The Company will treat its 40% interest in CLIO as a long-term investment, and will equity account for its interests in CLIO.

FINANCIAL EFFECTS OF THE PROPOSED SUBSCRIPTION

As disclosed in Appendix III – Unaudited Pro Forma Financial Information of the Enlarged Group, the Enlarged Group’s unaudited pro forma net assets as at 30 June 2005 will be increased from approximately HK$333.4 million before Completion to approximately HK$433.4 million after Completion. Accordingly, the proposed Subscription will have positive impact on the Enlarged Group’s net assets immediately upon Completion. Subsequent to Completion, the Enlarged Group is expected to record interest expense on the new bank and shareholder’s loan obtained to finance the Subscription, amortization of goodwill arising on acquisition of CLIO and will share 40% of the results of CLIO Group in accordance with equity accounting treatment. For details, please refer to pages 136 to 143 of Appendix III – Unaudited Pro Forma Financial Information of the Enlarged Group to this circular.

GENERAL

The Subscription constitutes a very substantial acquisition for the Company under chapter 14 of the Listing Rules and is subject to the approval of the Shareholders at the SGM. To the best knowledge, information and belief of the Directors, and having made all reasonable enquires, both CLIO and its ultimate beneficial owner are independent third parties not connected with the Company or any of its subsidiaries or any of their respective directors, chief executive or substantial shareholders or any of their respective associates. On this basis, and to the best knowledge, information and belief of the Directors, the Directors believe that no Shareholder has a material interest in the Subscription and hence, no Shareholder should be required to abstain from voting at the SGM to approve the Subscription Agreement.

AMENDMENTS TO THE BYE-LAWS

The Stock Exchange has recently amended the Listing Rules by replacing the Code of Best Practice in Appendix 14 by the Code and adding a new Appendix 23 to the Listing Rules requiring for a corporate governance report to be included in annual reports of listed issuers. Subject to certain transitional arrangements, the amendments took effect on 1 January 2005.

To ensure full compliance with the Code, the Directors proposed to amend the Bye-laws by (i) specifying that every Directors (except the chairman and the managing director) shall be subject to retirement by rotation at least once every three years; and (ii) requiring that any Director appointed by the Board to fill a casual vacancy should be subject to election by Shareholders at the first general meeting of the Company after such Director’s appointment.

– 15 –

LETTER FROM THE BOARD

In addition to the above amendments relating to the Code, certain minor amendments to the Byelaws will also be proposed for approval at the SGM. Details of the proposed amendments to the Bye-laws are set out in the notice of the SGM on pages 185 to 188 of this circular.

SGM

Set out on pages 185 to 188 of this circular is the notice convening the SGM to be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on 20 January, 2006 at 10:30 a.m. at which resolutions will be proposed and, if thought fit, passed to approve the Subscription Agreement and the amendments to the Bye-laws.

A form of proxy for your use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Hong Kong branch share registrars and transfer office of the Company, Tengis Limited of Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon (to be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong with effect from 3 January 2006) as possible and in any event, not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting (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 adjourned meeting (as the case may be) should you so wish.

RECOMMENDATION

The Directors consider that (i) the Subscription is in the interests of the Company and that the terms thereof are fair and reasonable so far as the Company and the Shareholders are concerned; and (ii) the proposed amendments to the Bye-laws are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolution and the special resolution to be proposed at the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board

Shougang Concord Grand (Group) Limited Cao Zhong Vice Chairman

– 16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the results and financial position of the Group for the three years ended 31 December 2004 extracted from the annual report of the Company for the year ended 31 December 2004:

RESULTS

RESULTS
Turnover Loss from operations less finance costs Share of results of: Jointly controlled entity (net of amortisation of goodwill) An associate Gain on deemed disposal of an associate Gain on distribution of an associate Impairment loss on goodwill of interest in a jointly controlled entity Profit before taxation Taxation Profit before minority interest Minority interest Net profit attributable to shareholders	For the year ended 31 December 2004 2003 2002 HK$’000 HK$’000 HK$’000 14,386 15,470 15,661 (10,607) (1,267) (6,071) (72,334) (7,456) (4,427) (5,835) 7,049 12,045 115 28,273 – 189,210 – – (22,471) – – 78,078 26,599 1,547 4,441 1,882 1,239 82,519 28,481 2,786 64 – – 82,583 28,481 2,786
		2002 HK$’000 15,661 (6,071) (4,427) 12,045 – – – 1,547 1,239 2,786 – 2,786

ASSETS AND LIABILITIES

ASSETS AND LIABILITIES
Total assets Total liabilities	As at 31 December 2004 2003 2002 HK$’000 HK$’000 HK$’000 457,516 754,165 711,928 (113,738) (122,210) (92,234) 343,778 631,955 619,694
		2002 HK$’000 711,928
		(92,234) 619,694

– 17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004

Set out below are the audited consolidated financial statements of the Group for the year ended 31 December 2004, together with the comparative the figures for the previous year as extracted from the annual report of the Company for the year ended 31 December 2004.

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004

– 18 – Notes Turnover Other operating income Administrative expenses Loss on disposal of investment properties (Loss) profit from operations 5 Finance costs 7 Share of result of a jointly controlled entity 14 Amortisation of goodwill arising on acquisition of a jointly controlled entity Share of result of an associate Gain on deemed disposal of an associate Gain on distribution of an associate 15 Impairment loss on goodwill of interest in a jointly controlled entity 14 Profit before taxation Taxation 8 Profit before minority interest Minority interest Net profit for the year Dividends 9&15 Earnings per share 10 Basic Diluted	2004 HK$’000 14,386 849 (22,300) (1,427) (8,492) (2,115) (71,397) (937) (5,835) 115 189,210 (22,471) 78,078 4,441 82,519 64 82,583 374,740 HK8.92 cents N/A	2003 HK$’000 15,470 2,115 (15,945) – 1,640 (2,907) (5,583) (1,873) 7,049 28,273 – – 26,599 1,882 28,481 – 28,481 – HK3.34 cents N/A

– 18 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2004

Notes Non-current assets Investment properties 11 Property, plant and equipment 12 Interest in a jointly controlled entity 14 Interest in an associate 15 Payment for acquisition of an associate 16 Current assets Investments in securities 17 Films in progress Prepayments, deposits and other receivables 16&18 Pledged bank deposits Bank balances and cash Current liabilities Creditors and accruals Rental and management fee deposits received Taxation payable Bank borrowings – due within one year 19 Net current assets Total assets less current liabilities	2004 HK$’000 92,400 3,412 118,022 – 2,861 216,695 23,145 2,482 30,011 65,500 119,683 240,821 5,996 1,451 210 15,800 23,457 217,364 434,059	2003 HK$’000 236,000 2,669 211,582 249,394 –
		699,645
		1,020 – 1,823 – 51,677
		54,520
		3,580 3,281 478 5,600
		12,939
		41,581
		741,226

– 19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET (continued)

AT 31 DECEMBER 2004

Notes Non-current liabilities Bank borrowings – due after one year 19 Deferred tax liabilities 20 Net assets Capital and reserves Share capital 21 Reserves Minority interest Shareholders’ funds	2004 HK$’000 90,000 281 90,281 343,778 9,393 332,951 342,344 1,434 343,778	2003 HK$’000 105,800 3,471
		109,271
		631,955
		8,579 623,376
		631,955 –
		631,955

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

AT 31 DECEMBER 2004

Notes Non-current assets Interests in subsidiaries 13 Current assets Prepayments, deposits and other receivables Amounts due from subsidiaries Pledged bank deposits Bank balances and cash Current liabilities Creditors and accruals Amount due to subsidiaries Taxation payable Bank borrowings – due within one year 19 Net current assets Total assets less current liabilities Non-current liabilities Bank borrowings – due after one year 19 Net assets Capital and reserves Share capital 21 Reserves 22 Shareholders’ funds	2004 HK$’000 333,162 36 13,202 65,500 47,385 126,123 314 13,609 29 15,800 29,752 96,371 429,533 90,000 339,533 9,393 330,140 339,533	2003 HK$’000 631,037
		13 13,819 – 51,051
		64,883
		149 27,288 29 5,600
		33,066
		31,817
		662,854 105,800
		557,054
		8,579 548,475
		557,054

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004

At 1 January 2003 Exchange differences on translation of a jointly controlled entity outside Hong Kong and net losses not recognised in the consolidated income statement Shares issued at premium Release on deemed disposal of an associate Net profit for the year At 31 December 2003 and 1 January 2004 Exchange differences on translation of a jointly controlled entity outside Hong Kong and net gains not recognised in the consolidated income statement Shares issued at premium Release on deemed disposal of an associate Release on distribution of an associate Transfer_(note 22) Dividend paid(note 9&15)_ Net profit for the year At 31 December 2004 Attributable to: The Company and subsidiaries Jointly controlled entity At 31 December 2004 The Company and subsidiaries Jointly controlled entity Associates At 31 December 2003	Share capital HK$’000 8,279 – 300 – – 8,579 – 814 – – – – – 9,393 9,393 – 9,393 8,579 – – 8,579	Share premium HK$’000 192,744 – 14,100 – – 206,844 – 59,473 – – – – – 266,317 266,317 – 266,317 206,844 – – 206,844	Negative Contributed goodwill surplus HK$’000 HK$’000 (Note 22) 85,217 364,866 – – – – (27,921) – – – 57,296 364,866 – – – – (202) – (57,094) – – (362,731) – – – – – 2,135 – 2,135 – – – 2,135 57,296 364,866 – – – – 57,296 364,866	Accumulated Translation (losses) reserve profits HK$’000 HK$’000 3,711 (35,123) (1,842) – – – (857) – – 28,481 1,012 (6,642) 1,314 – – – (6) – (1,753) – – 362,731 – (374,740) – 82,583 567 63,932 – 126,545 567 (62,613) 567 63,932 – (11,990) (747) 7,584 1,759 (2,236) 1,012 (6,642)	Total HK$’000 619,694 (1,842) 14,400 (28,778) 28,481 631,955 1,314 60,287 (208) (58,847) – (374,740) 82,583 342,344 404,390 (62,046) 342,344 625,595 6,837 (477) 631,955

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004

OPERATING ACTIVITIES Profit before taxation Adjustments for: Finance costs Share of results of a jointly controlled entity and an associate Amortisation of goodwill arising on acquisition of a jointly controlled entity Gain on deemed disposal of an associate Gain on distribution of an associate Impairment loss on goodwill of interest in a jointly controlled entity Dividend income from investments in securities Depreciation Interest income Unrealised holding gain on investments in securities Loss on disposal of property, plant and equipment Loss on disposal of investment properties Revaluation deficit of investment properties Operating cash flows before movements in working capital (Increase) decrease in prepayments, deposits and other receivables Increase in films in progress Increase in creditors and accruals Decrease in rental and management fee deposits received Cash (used in) generated from operations Hong Kong Profits Tax paid Tax refunded Interest paid Bank facility arrangement fee NET CASH USED IN OPERATING ACTIVITIES	2004 HK$’000 78,078 2,115 77,232 937 (115) (189,210) 22,471 (50) 196 (320) (75) 1 1,427 2,800 (4,513) (17,345) (2,482) 2,252 (1,830) (23,918) (206) 7 (1,700) (251) (26,068)	2003 HK$’000 26,599 2,907 (1,466) 1,873 (28,273) – – (54) 142 (202) (190) – – – 1,336 31 – 1,313 (176) 2,504 (1,749) 257 (2,833) (250) (2,071)

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT (continued)

FOR THE YEAR ENDED 31 DECEMBER 2004

INVESTING ACTIVITIES Proceeds from disposal of investment properties Capital contribution from minority shareholders Dividend received from a jointly controlled entity Interest received Dividends received from investments in securities Purchases of property, plant and equipment Increase in pledged bank deposits Purchase of investments in securities Loan to Global Digital Creations Holdings Limited Payment for acquisition of an associate NET CASH FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Proceeds from issue of shares Repayment of bank borrowings Expense incurred for the distribution of shares in an associate New bank loan raised NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Time deposits	2004 HK$’000 139,373 1,498 1,269 320 50 (940) (65,500) (22,050) (10,843) (2,861) 40,316 60,287 (5,600) (929) – 53,758 68,006 51,677 119,683 78,068 41,615 119,683	2003 HK$’000 – – 3,290 202 54 (68) – – – – 3,478 14,400 (70,600) – 100,000 43,800 45,207 6,470 51,677 955 50,722 51,677

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

31 DECEMBER 2004

1. GENERAL

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

The Company is an investment holding company. The principal activities of its subsidiaries, jointly controlled entity and associate are set out in notes 13, 14 and 15 respectively.

2. POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

In 2004, the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) issued a number of new or revised Hong Kong Accounting Standards and Hong Kong Financial Reporting Standards (herein collectively referred to as “new HKFRS(s)”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004.

The Group has commenced considering the potential impact of these new HKFRSs but is not yet in a position to determine whether these new HKFRSs would have a significant impact on how its results of operations and financial position are prepared and presented. These new HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented.

3. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention as modified for the valuation of investment properties and investments in securities and in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below:

Basis of consolidation

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

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

Investments in subsidiaries

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

Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates, less any identified impairment loss.

Jointly controlled entity

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Group’s interest in a jointly controlled entity is included in the consolidated balance sheet at the Group’s share of the net assets of a jointly controlled entity plus the goodwill in so far as it has not already been amortised, less any identified impairment loss. The Group’s share of the post-acquisition results of its jointly controlled entity is included in the consolidated income statement.

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is capitalised and amortised on a straight line basis over its useful economic life. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

Negative Goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisition prior to 1 January 2001 continues to be held in reserves and will be credited to income at the time of disposal of the relevant associate.

Negative goodwill arising on acquisition after 1 January 2001 is presented as deduction from assets. To the extent that such negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately.

Negative goodwill arising on the acquisition of an associate or a jointly controlled entity is deducted from the carrying value of that associate of jointly controlled entity. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets.

Investment properties

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

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

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

No depreciation is provided on investment properties except where the unexpired term of the relevant lease, including the renewable period, is 20 years or less.

Property, plant and equipment

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

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

Leasehold land	Over the shorter of the term of the lease, or 50 years
Buildings	2%
Leasehold improvements	Over the lease term
Furniture and fixtures	20% – 25%
Motor vehicles	30%
Office equipment	25%

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

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another Statement of Standard Accounting Practice (“SSAP”) issued by the HKICPA, in which case the impairment loss is treated as revaluation decrease under that SSAP.

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

Investments in securities

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

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

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

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

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

Films in progress

Films in progress are stated at cost less any impairment losses. Costs include all direct costs associated with the production of films or television drama series. Costs are transferred to film rights upon completion.

Taxation

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

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

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

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

Turnover

Turnover represents rental and management fee income but excludes intra-group transactions.

Revenue recognition

Rental and management fee income is recognised on a straight line basis over the relevant lease terms.

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

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Leases

Rentals payable under operating leases are charged to income statement on a straight line basis over the relevant lease terms.

Foreign currencies

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

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

Retirement benefit costs

Payments to the Mandatory Provident Fund Scheme are charged as expenses as they fall due.

Borrowing costs

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

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

4. SEGMENTAL INFORMATION

The Group is principally engaged in property leasing and building management services and therefore no business segment information is presented.

No geographical segment information is presented as over 90% of the Group’s segment revenue and assets are derived from operations carried out in Hong Kong. The jointly controlled entity is not a reportable segment as defined by SSAP 26 “Segment reporting”. Further details of the location and principal activities of the jointly controlled entity are set out in note 14.

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. (LOSS) PROFIT FROM OPERATIONS

(Loss) profit from operations has been arrived at after charging: Staff costs, including directors’ remuneration_(note 6): – Salaries, wages and other benefits(Note) – Retirement benefit scheme contributions Total staff costs Auditors’ remuneration Costs incurred in the provision of rental and management services(Note)_ Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Loss on disposal of investment properties Minimum lease payments under operating leases for land and buildings Revaluation deficit of investment properties and after crediting: Gross rents from investment properties Less: outgoings Dividend income from investments in securities Interest income from bank deposits Interest income from investments in securities Other interest income Unrealised holding gain on investments in securities

THE GROUP 2004 2003 HK$’000 HK$’000 10,242 9,000 180 170 10,422 9,170 350 270 2,799 2,689 196 142 1 – 1,427 – 841 594 2,800 – 12,736 13,910 (597) (618) 12,139 13,292 50 54 236 202 37 – 47 – 75 190

Note: Staff costs of HK$1,889,000 (2003: HK$1,430,000) are included in costs incurred in the provision of rental and management services.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

Fees: Executive directors Non-executive directors Independent non-executive directors Salaries and other benefits: Executive directors Non-executive directors Independent non-executive directors Retirement benefit scheme contributions: Executive directors Total directors’ emoluments The emoluments of the directors were within the following bands: Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 No director waived any emoluments in both years.	2004 2003 HK$’000 HK$’000 – – 127 66 80 120 207 186 2,858 2,635 11 – 15 – 2,884 2,635 22 5 3,113 2,826 Number of directors 2004 2003 8 8 1 1 9 9	2003 HK$’000 – 66 120
		186
		2,635 – –
		2,635
		5
		2,826
		9

(b) Employees’ Emoluments

Of the five individuals with the highest emoluments in the Group, two (2003: two) were directors of the Company whose emoluments are set out above. The emoluments of the remaining three (2003: three) individuals were as follows:

Salaries and other benefits Contributions to retirement benefits schemes	2004 HK$’000 2,142 35 2,177	2003 HK$’000 1,764 36
		1,800

The aggregate emoluments of each of the highest paid employees were within the emolument band ranging from HK$Nil to HK$1,000,000 for both years.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest on bank and other borrowings wholly repayable within five years Other finance costs 8. TAXATION Current tax: Hong Kong Provision for the year Overprovision in prior years Deferred taxation_(note 20)_: Current year Attributable to a change in tax rate Taxation attributable to the Company and its subsidiaries Share of taxation attributable to: A jointly controlled entity An associate	2004 HK$’000 1,860 255 2,115 2004 HK$’000 276 (345) (69) (3,190) – (3,190) (3,259) (1,200) 18 (4,441)	2003 HK$’000 2,530 377 2,907 2003 HK$’000 303 (5) 298 559 250 809 1,107 (1,803) (1,186) (1,882)

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the year.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

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

– 31 – Profit before taxation Tax at Hong Kong Profits Tax rate of 17.5% Tax effect on share of result of a jointly controlled entity Tax effect on share of result of an associate Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Overprovision in prior years Tax effect of deferred tax assets not recognised Tax effect of utilisation of deferred tax assets previously not recognised Increase in opening deferred tax liabilities resulting from an increase in Hong Kong Profits Tax rate Tax credit for the year	2004 HK$’000 78,078 13,664 11,294 1,039 1,391 (31,600) (345) 1,481 (1,365) – (4,441)	2003 HK$’000 26,599 4,655 (825) (2,420) 1,124 (5,158) (5) 738 (241) 250 (1,882)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. DIVIDENDS

Ordinary shares: Interim – HK39.9 cents per share, by way of distribution in specie_(note 15)_ EARNINGS PER SHARE	2004 HK$’000 374,740	2003 HK$’000 –

10. EARNINGS PER SHARE

The calculation of the basic earnings per share is based on the net profit for the year of approximately HK$82,583,000 (2003: HK$28,481,000) and on the weighted average of 926,043,210 shares (2003: 852,689,832 shares) in issue during the year.

No diluted earnings per share has been presented because the exercise price of the Company’s options was higher than the average market price for shares for both years.

11. INVESTMENT PROPERTIES

	THE GROUP
	HK$’000
At 1 January 2004	236,000
Disposals	(140,800)
Revaluation deficit	(2,800)
At 31 December 2004	92,400

Investment properties were valued at their open market value at 31 December 2004 by AA Property Services Limited, an independent professional valuer, and are rented out under operating leases.

The Group’s investment properties have been pledged to banks to secure general banking facilities granted to the Company.

The carrying amount of investment properties comprises leasehold land and buildings in Hong Kong as follows: Long lease Medium-term lease	THE GROUP 2004 2003 HK$’000 HK$’000 92,400 87,650 – 148,350 92,400 236,000	THE GROUP 2004 2003 HK$’000 HK$’000 92,400 87,650 – 148,350 92,400 236,000
		236,000

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. PROPERTY, PLANT AND EQUIPMENT

THE GROUP

COST At 1 January 2004 Additions Disposals At 31 December 2004 DEPRECIATION At 1 January 2004 Provided for the year Eliminated on disposals At 31 December 2004 NET BOOK VALUES At 31 December 2004 At 31 December 2003	Leasehold land and Leasehold buildings improvements HK$’000 HK$’000 3,143 126 – 247 – – 3,143 373 551 126 56 47 – – 607 173 2,536 200 2,592 –	Other fixed assets HK$’000 3,569 693 (76) 4,186 3,492 93 (75) 3,510 676 77	Total HK$’000 6,838 940 (76
			7,702
			4,169 196 (75
			4,290
			3,412
			2,669

The Group’s leasehold land and buildings are situated in Hong Kong held under long leases.

13. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due from subsidiaries	THE COMPANY 2004 2003 HK$’000 HK$’000 231,154 231,154 102,008 399,883 333,162 631,037	THE COMPANY 2004 2003 HK$’000 HK$’000 231,154 231,154 102,008 399,883 333,162 631,037
		631,037

The balances with subsidiaries are unsecured and in the opinion of directors, the balances will not be receivable within one year from the balance sheet date, and are therefore shown as non-current. Except for amounts due from subsidiaries of approximately HK$13,202,000 (2003: HK$13,819,000) which bears interest at 3% per annum, the remaining balances are interest free.

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. INTERESTS IN SUBSIDIARIES (continued)

Details of the Company’s principal subsidiaries at 31 December 2004 are as follows:

			Proportion of
		Issued and	nominal value of
	Place of	fully paid	issued share
	incorporation/	share capital/	capital held by
Name of subsidiary	operation	contributed capital	the Company	Principal activities
Direct subsidiary
SCG Investment (B.V.I.)	British Virgin	HK$100,000	100%	Investment holding
Limited	Islands (“BVI”)
Indirect subsidiaries
四方源創國際影視文化傳播	PRC	RMB7,945,000	80%	Production of films and
(北京)有限公司				television drama series
首方實業發展(深圳)有限公司	PRC	RMB65,887,400	100%	Investment holding
Dunley Developments Limited	BVI	US$1	100%	Investment holding
Ecko Limited	Hong Kong	HK$2	100%	Property management
Eldex Investment Company	Hong Kong	HK$541,000	100%	Property investment
Limited		(ordinary)
		HK$1,459,000
		(non-voting deferred)
Grand Award Limited	BVI	US$1	100%	Investment holding
Grand Park Investment Limited	Hong Kong	HK$2	100%	Property investment
Grand Phoenix Limited	BVI	US$1	100%	Investment holding
Jeckman Holdings Limited	BVI	US$16	100%	Investment holding
Linksky Limited	Hong Kong	HK$2	100%	Property holding
Long Cosmos Investment	Hong Kong	HK$2	100%	Provision of
Limited				management services
Lyre Terrace Management	Hong Kong	HK$1,000,000	100%	Investment holding
Limited				and property
				investment
On Hing Investment	Hong Kong	HK$1,000	100%	Property investment
Company, Limited		(ordinary)
		HK$2,000,000
		(non-voting deferred)
SCG Financial Investment Limited	BVI	US$1,000	100%	Investment holding
SCG Leasing Corporation	Hong Kong	HK$2	100%	Property investment
Limited
Strenbeech Limited	BVI/	HK$147,000,008	100%	Property investment
	Hong Kong
Tin Fung Investment	Hong Kong	HK$975,000	100%	Property investment
Company, Limited		(ordinary)
		HK$210,000
		(non-voting
		deferred)
Upper Nice Assets Ltd.	BVI	US$1	100%	Investment holding

Note: All issued share capital are ordinary shares unless otherwise stated.

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. INTERESTS IN SUBSIDIARIES (continued)

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

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

14. INTEREST IN A JOINTLY CONTROLLED ENTITY

Share of net assets Goodwill_(Note) _Note: GOODWILL COST At 1 January 2003, 31 December 2003 and 31 December 2004 AMORTISATION 1 January 2003 Charge for the year At 31 December 2003 and 1 January 2004 Charge for the year Impairment loss for the year At 31 December 2004 NET BOOK VALUE At 31 December 2004 At 31 December 2003	THE GROUP 2004 2003 HK$’000 HK$’000 118,022 188,174 – 23,408 118,022 211,582 HK$’000 33,710 8,429 1,873 10,302 937 22,471 33,710 – 23,408	THE GROUP 2004 2003 HK$’000 HK$’000 118,022 188,174 – 23,408 118,022 211,582 HK$’000 33,710 8,429 1,873 10,302 937 22,471 33,710 – 23,408
		211,582
		HK$’000 33,710
		8,429 1,873
		10,302 937 22,471
		33,710
		–
		23,408

Goodwill is amortised over a period of 18 years.

During the year, the directors reviewed the carrying amount of the net assets of the Group’s jointly controlled entity, Beijing Dongzhimen International Apartment Co., Ltd. 北京東直門國際公寓有限公司 (“Beijing Dongzhimen”), in the light of current market condition and with reference to the financial results and business operated by Beijing Dongzhimen. The directors identified an impairment loss in respect of its share of net assets and goodwill of approximately HK$67,529,000 and HK$22,471,000 respectively with reference to the valuation report of the underlying properties of Beijing Dongzhimen, such amounts were dealt with in the income statement.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. INTEREST IN A JOINTLY CONTROLLED ENTITY (continued)

At 31 December 2004, the Group had interest in the following jointly controlled entity:

			Proportion of
			nominal value of
	Form of	Place of	issued ordinary
	business	incorporation	share capital indirectly
Name of entity	structure	and operation	held by the Company	Principal activities
Beijing Dongzhimen	Sino-foreign	PRC	44%	Property holding and
	equity joint			provision of residential
	venture			service apartments

Beijing Dongzhimen is a sino-foreign equity joint venture which was established in the PRC on 18 December 1986 with a tenure of 14 years and 8 months to 17 August 2001 (the “initial JV term”). The extension of the initial JV term for a further period of 15 years from the date of expiry of the initial JV term to 17 August 2016 has been approved by the relevant authorities.

Beijing Dongzhimen has obtained approval from relevant authorities to further extend the land use right of the residential service apartments for 40 years following the expiry of the initial JV term.

A summary of the results and financial position of Beijing Dongzhimen is set out below:

Results

Turnover Loss before taxation Loss before taxation attributable to the Group Financial position Non-current assets Current assets Current liabilities Non-current liabilities Net assets Net assets attributable to the Group	2004 HK$’000 98,765 (162,265) (71,397) 2004 HK$’000 473,475 15,848 (98,601) (122,491) 268,231 118,022	2003 HK$’000 87,250
		(12,689
		(5,583
		2003 HK$’000 712,158 11,498 (100,443 (195,545
		427,668
		188,174

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. INTEREST IN AN ASSOCIATE

Share of net assets Loan to an associate Due from an associate Less: Allowance for doubtful debts Associates include: Share of net assets of a Hong Kong listed company Market value of listed shares	THE GROUP 2004 2003 HK$’000 HK$’000 – 249,394 27,900 27,900 3,589 3,589 31,489 280,883 (31,489) (31,489) – 249,394 – 249,394 – 393,948

The loan of HK$27,900,000 (2003: HK$27,900,000) to an associate is unsecured, interest-bearing at 15% per annum and has no fixed terms of repayment. The amount “Due from an associate” is unsecured, interest-free and has no fixed terms of repayment. Both of these amounts have been fully provided against at the balance sheet date.

As at 31 December 2004, the Group had interest in the following associate:

		Place of	Proportion of
	Form of	incorporation/	nominal of value
	business	registration	issued share capital
Name of entity	structure	and operation	held by the Group	Principal activities
Top Pearl International	Incorporated	BVI/PRC	50%	Property development
Development Limited

On 13 February 2004, the directors of the Company declared to distribute a special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31.02%, representing 371,029,995 shares in an associate, Shougang Concord Technology Holdings Limited (“Shougang Technology”), to the Company’s shareholders on a pro-rata basis (the “Distribution”). The Distribution was completed on 23 March 2004 and the market price of Shougang Technology’s share at that date was HK$1.01 per share. Total special dividend distributed amounted to approximately HK$374,740,000.

Pursuant to the completion of the Distribution, the interest of an associate is considered disposed of accordingly. Total net gain of approximately HK$189,210,000, after expenses incurred of approximately HK$929,000 arisen on the Distribution was dealt with in the income statement.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. PAYMENT FOR ACQUISITION OF AN ASSOCIATE

THE GROUP

During the year, the Group entered into an agreement with an independent third party and paid a total consideration of approximately HK$12,995,000, comprising the consideration of approximately HK$2,861,000 to acquire 40% equity interest in 南方國際租賃有限公司 South China International Leasing Company Limited (“South China Leasing”) and the assignment of a shareholder’s loan of approximately HK$10,134,000, which is unsecured, interest bearing at prevailing market rate and repayable on demand and is classified as other receivables as at 31 December 2004. South China Leasing is a company established in the PRC with principal activities in the provision of finance leasing including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties, in the PRC. It is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with an operation term of 40 years expiring in 2029 and registered capital amounted to US$5,000,000. Since the acquisition of 40% equity interest in South China Leasing by the Group was in September 2004, South China Leasing has applied to the relevant PRC authorities for approval of the change in shareholder. Such approval and relevant significant influence to South China Leasing by the Group has been obtained and established in January 2005. Accordingly, South China Leasing was not considered as an associate for the year and the amount was classified as payment for acquisition of an associate as at 31 December 2004.

17. INVESTMENTS IN SECURITIES

Listed equity investments in Hong Kong, at market value Unlisted debt securities in the PRC, at cost PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES	THE GROUP 2004 2003 HK$’000 HK$’000 13,776 1,020 9,369 – 23,145 1,020	THE GROUP 2004 2003 HK$’000 HK$’000 13,776 1,020 9,369 – 23,145 1,020
		1,020

18. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in other receivables was an amount of approximately HK$10,843,000 (2003: HK$Nil) due from Global Digital Creations Holdings Limited (“GDC”), whose shares are listed on the Growth Enterprise Market operated by the Stock Exchange. The Group has granted GDC an unsecured loan facility of up to an aggregate principal amount of HK$20,000,000 in December 2004 to be used solely for fulfilling GDC’s working capital requirements and repayments of short-term borrowings for corporate requirements. This amount is unsecured, interest bearing at prevailing market rate and repayable on demand.

19. BANK BORROWINGS

– 38 – Secured Unsecured The maturity of the bank borrowings is as follows: On demand or within one year More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amounts due within one year shown under current liabilities	THE GROUP AND THE COMPANY 2004 2003 HK$’000 HK$’000 105,040 109,520 760 1,880 105,800 111,400 15,800 5,600 20,000 15,800 70,000 90,000 105,800 111,400 (15,800) (5,600) 90,000 105,800	THE GROUP AND THE COMPANY 2004 2003 HK$’000 HK$’000 105,040 109,520 760 1,880 105,800 111,400 15,800 5,600 20,000 15,800 70,000 90,000 105,800 111,400 (15,800) (5,600) 90,000 105,800
		111,400
		5,600 15,800 90,000
		111,400 (5,600)
		105,800

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. DEFERRED TAX LIABILITIES

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

THE GROUP

At 1 January 2003 Charge to income statement Effect of a change in tax rate – charge to income statement At 31 December 2003 and 1 January 2004 (Credit) charge to income statement At 31 December 2004	Accelerated Investment tax properties depreciation HK$’000 HK$’000 2,628 34 557 2 247 3 3,432 39 (2,753) 5 679 44	Tax losses HK$’000 – – – – (442) (442)	Total HK$’000 2,662 559 250
			3,471 (3,190
			281

The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax liabilities Deferred tax asset	2004 HK$’000 723 (442) 281	2003 HK$’000 3,471 –
		3,471

At the balance sheet date, the Group has unused tax losses of HK$70,992,000 (2003: HK$67,511,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$2,527,000 (2003: HK$Nil) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$68,465,000 (2003: HK$67,511,000) due to the unpredictability of future profit streams.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$1,097,000 (2003: HK$1,384,000) attributable to the difference between tax allowances and depreciation. No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. SHARE CAPITAL

Ordinary shares of HK$0.01 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Share issued at premium_(Note)_ At 31 December	2004 Number Nominal of shares value HK$’000 2,000,000,000 20,000 857,867,914 8,579 81,448,753 814 939,316,667 9,393	2003 Number Nominal of shares value HK$’000 2,000,000,000 20,000 827,867,914 8,279 30,000,000 300 857,867,914 8,579	2003 Number Nominal of shares value HK$’000 2,000,000,000 20,000 827,867,914 8,279 30,000,000 300 857,867,914 8,579
			8,279 300
			8,579

Note: During the year, 81,448,753 shares of HK$0.01 each were issued upon the exercise of 53,811,339 and 27,637,414 share options at subscription prices of HK$0.73 and HK$0.76 per share respectively. The shares issued during the year rank pari passu with the then existing shares in all respects.

22. RESERVES

THE GROUP

The contributed surplus represented the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group reorganisation in 1991 over the nominal value of the Company’s shares issued in exchange.

THE COMPANY

At 1 January 2003 Shares issued at premium Net loss for the year At 31 December 2003 and 1 January 2004 Shares issued at premium Transfer_(Note) Net profit for the year Dividend paid(Note 9)_ At 31 December 2004	Share Accumulated premium Contributed (losses) account surplus profits HK$’000 HK$’000 HK$’000 192,744 362,731 (18,532) 14,100 – – – – (2,568) 206,844 362,731 (21,100) 59,473 – – – (362,731) 362,731 – – 96,932 – – (374,740) 266,317 – 63,823	Total HK$’000 536,943 14,100 (2,568)
		548,475 59,473 – 96,932 (374,740)
		330,140

The contributed surplus represented the difference between the consolidated shareholders’ funds of the subsidiaries at the date on which they are acquired by the Company and the nominal amount of the Company’s shares issued for the acquisition at the time of a group reorganisation in 1991. Under The Companies Act 1981 of Bermuda (as amended), the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or

(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

In the opinion of the directors, as at 31 December 2004, the Company’s reserves available for distribution consisted of contributed surplus and accumulated profits (losses) of HK$63,823,000 (2003: HK$341,631,000).

Note: On 4 March 2004, a resolution was passed by the directors to transfer HK$362,731,000 from contributed surplus to accumulated profits for the purpose of dividend distribution in specie.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. MAJOR NON CASH TRANSACTIONS

During the year, the Company declared to distribute special dividend in specie of the Group’s entire shareholding in an associate. Details of the Distribution are set out in note 15.

24. OPERATING LEASES

The Group as lessor

The Group’s property rental income earned during the year was HK$12,736,000 (2003: HK$13,910,000). The Group’s investment properties have committed tenants for the next one to three years.

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

Within one year In the second to fifth year inclusive 25. CAPITAL COMMITMENTS The Group’s share of the jointly controlled entity’s capital commitments: Contracted but not provided for The Company had no significant capital commitment at the balance sheet date. 26. OTHER COMMITMENTS	THE GROUP 2004 2003 HK$’000 HK$’000 2,934 7,119 1,240 1,782 4,174 8,901 THE GROUP 2004 2003 HK$’000 HK$’000 7,066 11,814	THE GROUP 2004 2003 HK$’000 HK$’000 2,934 7,119 1,240 1,782 4,174 8,901 THE GROUP 2004 2003 HK$’000 HK$’000 7,066 11,814

Expenditure contracted for but not provided in the financial statements in respect of: Film production costs The Company had no significant other commitment at the balance sheet date.	THE GROUP 2004 2003 HK$’000 HK$’000 11,207 –	THE GROUP 2004 2003 HK$’000 HK$’000 11,207 –

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. PLEDGE OF ASSETS

At the balance sheet date, the following assets were pledged by the Group and the Company to secure banking facilities:

Investment properties Leasehold land and buildings Bank deposits	THE GROUP 2004 2003 HK$’000 HK$’000 92,400 236,000 2,536 2,592 65,500 – 160,436 238,592	THE COMPANY 2004 2003 HK$’000 HK$’000 – – – – 65,500 – 65,500 –	THE COMPANY 2004 2003 HK$’000 HK$’000 – – – – 65,500 – 65,500 –
			–

28. SHARE OPTIONS SCHEMES

On 7 June 2002, the share option scheme (the “Old Scheme”) of the Company adopted on 8 September 1993 ceased to operate and a new share option scheme (the “New Scheme”) has been adopted to comply with the new requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. No share options under the Old Scheme were outstanding as at 1 January 2002 and no share option was granted by virtue of the Old Scheme for the period from 1 January 2002 and up to 7 June 2002, being the date of termination of the Old Scheme.

The Company operates the New Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations and/or its associated companies. Eligible participants of the New Scheme included directors (including executive and non-executive directors), executives, officers, employees or shareholders of the Company or any of its subsidiaries or any of its associated companies and any suppliers, customers, consultants, advisers, agents, partners or business associates. The New Scheme became effective on 7 June 2002, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the New Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at the date of the passing of such resolution. At 8 June 2004, the total number of shares available for issue under the New Scheme was 93,931,666, which represented approximately 10% of the Company’s shares in issue as at that date. The maximum number of shares issuable under share options to each eligible participant in the New Scheme within any 12month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a director, executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 60 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the New Scheme at any time within 10 years from the date of the options granted.

The exercise price of the share options is determinable by the directors, but may not be less than the higher of (i) the Stock Exchange’s closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange’s closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s ordinary shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meeting.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. SHARE OPTIONS SCHEMES (continued)

The following table discloses the details of the share options and movements in such holdings during the years ended 31 December 2004 and 2003:

Exercise price Grantees Date of grant Exercisable period per share HK$ Directors 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 8.6.2004 8.6.2004 – 7.6.2014 0.82 Former directors 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 Employees 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 8.6.2004 8.6.2004 – 7.6.2014 0.82 Others 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 Grantees Date of grant Exercisable period Directors 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013 Former directors 23.8.2002 23.8.2002 – 6.6.2012 Employees 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013 Others 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013			Number of share options	Number of share options	Number of share options	Number of share options
	At 1.1.2004 31,431,112 10,762,283 – 16,557,358 – 4,000,000 5,120,000 – 1,822,944 13,085,735		Transfer during the year (Note) (6,455,735) (1,822,944) – 8,278,679 8,278,679 (4,000,000) (3,460,000) – 2,177,056 (2,995,735)		Exercised Granted during during the year the year (24,975,302) – (8,938,735) – – 71,202,000 (24,836,037) – (8,278,679) – – – (330,000) – – 14,584,000 (4,000,000) – (10,090,000) – (81,448,753) 85,786,000 Number of share options		At 31.12.2004 75 604 71,202,000 – – – 1,330,000 14,584,000 – –
	82,779,432		–				87,116,679
	Exercise price per share HK$ 0.73 0.76 0.73 0.73 0.76 0.73 0.76
		At 1.1.2003 31,431,112 – 16,557,358 4,000,000 – 1,822,944 – 53,811,414			Granted during the year – 10,762,283 – – 5,120,000 – 13,085,735 28,968,018	Exercised during the year – – – – – – – –	At 31.12.2003 31,431,112 10,762,283 16,557,358 4,000,000 5,120,000 1,822,944 13,085,735
							82,779,432

Note: Transfer of share options upon the redemption/termination of services of certain directors and employees during the year.

Total consideration received during the year from employees for taking up the options granted amounted to HK$5 (2003: HK$7).

The closing price of the shares of the Company immediately before 8 June 2004, the date of grant of the share options, was HK$0.60.

The weighted average closing price of the shares of the Company immediately before the dates on which share options were exercised was HK$1.25.

The financial impact of share options granted is not recorded in the Company’s or the Group’s balance sheet until such item as the options are exercised, and no charge is recognised in the income statement in respect of the value of options granted in the year. Upon the exercise of the share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the share premium account. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. RETIREMENT BENEFIT SCHEMES

The Group operates a Mandatory Provident Fund (“MPF”) scheme for all qualifying employees in Hong Kong. The assets of the MPF scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes HK$1,000 or 5% of the relevant payroll costs, whichever is lower for each employee, to the scheme, which contribution is matched by employees.

30. POST BALANCE SHEET EVENTS

• (a) On 28 January 2005, the Group entered into a memorandum with China Life Insurance (Overseas) Company Limited (“China Life (Overseas)”), a wholly owned subsidiary of China Life Insurance (Group) Company established under the laws of the PRC with principal activities in the provision of life insurance business in Hong Kong, Macau and Singapore, in respect of a proposed subscription of 40% equity interest of China Life (Overseas) as enlarged by the proposed subscription. The initial subscription price is proposed to be HK$800,000,000 which will be adjusted with reference to a valuation of China Life (Overseas) to be agreed by the parties. The formal subscription agreement has yet to be negotiated at the report date.

• (b) On 31 January 2005, a special resolution has been passed by the shareholders for the acquisition of all the issued shares of, through share exchange and cancellation of all the outstanding options of, GDC.

• (c) On 28 February 2005, the Group has revised the unsecured loan facility granted to GDC of up to an aggregate principal amount from HK$20,000,000 to HK$30,000,000 at prevailing market rate. As at 31 December 2004, GDC has withdrawn an aggregate amount of approximately HK$10,843,000 from the Group.

• (d) On 1 March 2005, the Group received valid acceptances in respect of 658,466,023 issued shares of GDC and 22,631,615 issued options of GDC (“GDC Options”), representing approximately 82.2% of the existing issued share capital of GDC and all the issued GDC Options respectively. GDC became a subsidiary of the Group subsequent to 31 December 2004.

• (e) On 10 March 2005, the Group acquired a further 20% equity interest in South China Leasing from another independent third party at a consideration of approximately HK$6,527,000, comprising the consideration of approximately HK$1,434,000 for the 20% equity interest and the assignment of a shareholder’s loan of approximately HK$5,093,000. South China Leasing will become a subsidiary of the Company subsequent to 31 December 2004.

• (f) On 15 March 2005, the Group entered into an agreement to participate in the increase in the registered capital of South China Leasing from US$5,000,000 (equivalent to approximately HK$39,000,000) to US$24,000,000 (equivalent to approximately HK$187,200,000) (the “Capital Increase Agreement”). According to the Capital Increase Agreement, the Group has committed to further contribute US$11,400,000 (equivalent to approximately HK$88,920,000) to South China Leasing. Up to the report date, no payment has yet been paid out by the Group.

• (g) On 24 March 2005, the Group has provided a corporate guarantee to a bank in the PRC to secure the banking facility of RMB13,000,000 granted to GDC.

31. RELATED PARTY TRANSACTIONS

During the year, the Group entered into certain transactions with Shougang Holding (Hong Kong) Limited (“Shougang Holding”), the intermediate holding company of the Group and with Shougang Holding’s subsidiary.

Rental expenses charged by Winluck Properties Limited_(Note a) Consultancy expenses charged by Shougang Holding(Note b) _Notes:	2004 HK$’000 594 960	2003 HK$’000 594
		960

• (a) The rental expenses were charged in accordance with the agreements between the Group and Winluck Properties Limited, a subsidiary of Shougang Holding.

• (b) The consultancy expenses were charged in accordance with the agreement between the Group and Shougang Holding.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005

Set out below are the unaudited consolidated financial statements of the Group for the six months ended 30 June 2005, together with the comparative figures for the corresponding period in the previous year as extracted from the interim report of the Company for the six months ended 30 June 2005.

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2005

Notes Revenue 5 Cost of sales Gross (loss) profit Other operating income Distribution costs Administrative expenses Gain (loss) arising from a change in fair value of investment properties Finance costs 6 Share of result of a jointly controlled entity Share of result of an associate Gain on deemed disposal of an associate Gain on disposal of an associate Impairment loss on goodwill of interest in a jointly controlled entity Impairment loss on goodwill arising from acquisition of a subsidiary 7 (Loss) profit before taxation 8 Taxation 9 Net (loss) profit for the period Attributable to: Equity holders of the parent Minority interest Dividend paid 10 (Loss) earnings per share 11 Basic Diluted

Six months ended 30 June 2005 2004 HK$’000 HK$’000 (unaudited) (unaudited and restated) 12,802 8,162 (13,124) – (322) 8,162 1,720 369 (1,175) – (54,613) (9,812) 10,743 (7,550) (3,285) (973) 337 (70,146) (248) (5,853) – 115 – 189,210 – (22,471) (129,950) – (176,793) 81,051 (501) 999 (177,294) 82,050 (176,972) 82,050 (322) – (177,294) 82,050 – 374,740 (HK16.4) cents HK9.0 cents N/A HK8.7 cents

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2005

Notes Non-current assets Investment properties 12 Property, plant and equipment 12 Goodwill 7 Intangible asset 21 Interest in a jointly controlled entity Payment for acquisition of an associate 21 Deferred tax assets Current assets Inventories Production work in progress Trade receivables 13 Prepayments, deposits and other receivables Investments held for trading Investments in securities Pledged bank deposits Bank balances and cash Current liabilities Trade payables 14 Other payables and accruals Rental and management fee deposits received Amounts due to shareholders Amounts due to related parties Taxation payable Obligations under finance leases Borrowings 15 Net current assets Total assets less current liabilities	30 June 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (audited and restated) 104,000 92,400 34,035 3,412 80,000 – 22,411 – 115,385 118,022 – 2,861 151 – 355,982 216,695 7,416 – 20,071 2,482 9,033 – 13,559 30,011 15,130 – – 23,145 3,949 65,500 70,024 119,683 139,182 240,821 3,700 – 29,847 5,996 961 1,451 3,020 – 1,422 – 358 210 4,278 – 78,382 15,800 121,968 23,457 17,214 217,364 373,196 434,059	30 June 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (audited and restated) 104,000 92,400 34,035 3,412 80,000 – 22,411 – 115,385 118,022 – 2,861 151 – 355,982 216,695 7,416 – 20,071 2,482 9,033 – 13,559 30,011 15,130 – – 23,145 3,949 65,500 70,024 119,683 139,182 240,821 3,700 – 29,847 5,996 961 1,451 3,020 – 1,422 – 358 210 4,278 – 78,382 15,800 121,968 23,457 17,214 217,364 373,196 434,059
		216,695
		– 2,482 – 30,011 – 23,145 65,500 119,683
		240,821
		– 5,996 1,451 – – 210 – 15,800
		23,457
		217,364
		434,059

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes Non-current liabilities Borrowings 15 Amount due to a shareholder Deferred tax liabilities Obligations under finance leases Net assets Capital and reserves Share capital 16 Reserves Equity attributable to equity holders of the parent Minority interests Total equity	30 June 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (audited and restated) 20,000 90,000 18,237 – 692 281 898 – 39,827 90,281 333,369 343,778 11,369 9,393 318,537 332,951 329,906 342,344 3,463 1,434 333,369 343,778	30 June 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (audited and restated) 20,000 90,000 18,237 – 692 281 898 – 39,827 90,281 333,369 343,778 11,369 9,393 318,537 332,951 329,906 342,344 3,463 1,434 333,369 343,778
		90,281
		343,778
		9,393 332,951
		342,344 1,434
		343,778

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2005

At 1 January 2004 Exchange differences on translation of a jointly controlled entity outside Hong Kong and net gains recognised directly in equity Net profit for the period (restated) Total income recognised for the period Shares issued at premium Release on deemed disposal of an associate Release on distribution of an associate Transfer Dividend paid Employee share option benefits At 30 June 2004 Exchange differences on translation of a jointly controlled entity outside Hong Kong and net gains recognised directly in equity Net loss for the period Total expenses recognised for the period Establishment of a subsidiary Employee share option benefits At 31 December 2004 Exchange adjustment on translation of a jointly controlled entity/subsidiaries outside Hong Kong and net losses recognised directly in equity Net loss for the period Total expenses recognised for the period Acquisition of subsidiaries Employee share option benefits At 30 June 2005			Attributable to equity holders of the parent	Attributable to equity holders of the parent	Total HK$’000 631,955 1,099 82,050 83,149 60,287 (208 ) (58,847 ) – (374,740 ) 1,651 343,247 215 (14,330 ) (14,115 ) – 13,212 342,344 (795 ) (176,972 ) (177,767 ) 153,349 11,980 329,906	Minority interests HK$’000 – – – – – – – – – – – – (64 ) (64 ) 1,498 – 1,434 – (322) (322) 2,351 – 3,463	Total HK$’000 631,955 1,099 82,050 83,149 60,287 (208 ) (58,847 ) – (374,740 ) 1,651 343,247 215 (14,394 ) (14,179 ) 1,498 13,212 343,778 (795 ) (177,294 ) (178,089 ) 155,700 11,980 333,369
	Share capital HK$’000 8,579 – – – 814 – – – – – 9,393 – – – – – 9,393 – – – 1,976 – 11,369	Share premium HK$’000 206,844 – – – 59,473 – – – – – 266,317 – – – – – 266,317 – – – 151,373 – 417,690	Negative Contributed Translation goodwill surplus reserve HK$’000 HK$’000 HK$’000 57,296 364,866 1,012 – – 1,099 – – – – – 1,099 – – – (202 ) – (6 ) (57,094 ) – (1,753 ) – (362,731 ) – – – – – – – – 2,135 352 – – 215 – – – – – 215 – – – – – – – 2,135 567 – – (795 ) – – – – – (795 ) – – – – – – – 2,135 (228 )	Shares Accumulated option (loss) reserve profits HK$’000 HK$’000 – (6,642 ) – – – 82,050 – 82,050 – – – – – – – 362,731 – (374,740 ) 1,651 – 1,651 63,399 – – – (14,330 ) – (14,330 ) – – 13,212 – 14,863 49,069 – – – (176,972 ) – (176,972 ) – – 11,980 – 26,843 (127,903 )

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2005

Net cash used in operating activities Net cash (used in) from investing activities Net cash from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of the balances of cash and cash equivalents Bank balances and cash Bank overdrafts	Six months ended 30 June 2005 2004 (unaudited) (unaudited) HK$’000 HK$’000 (25,776) (1,827) (105,871) 8 79,256 59,058 (52,391) 57,239 119,683 51,677 67,292 108,916 70,024 108,916 (2,732) – 67,292 108,916

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2005

1. BASIS OF PREPARATION

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

2. SIGNIFICANT ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention except for certain properties and financial instruments, which are measured at fair values or revalued amounts, as appropriate.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2004 except as described below.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financial charges are charged to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs.

Rentals payable under operating leases are charged to profit or loss on a straight line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

In the current period, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2005. The application of the new HKFRSs has resulted in a change in the presentation of the income statement, balance sheet and the statement of changes in equity. In particular, the presentation of minority interests and share of tax of an associate/a jointly controlled entity have been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs including HKAS 1 “Presentation of Financial Statements” and HKFRS 3 “Business Combinations” has had no material effect on how the results for the current or prior accounting periods are prepared and presented:

(a) Business Combinations

In the current period, the Group has applied HKFRS 3 “Business Combinations”, which is effective for business combinations for which the agreement date is on or after 1 January 2005. The principal effects of the application of HKFRS 3 to the Group are summarised below:

Goodwill

In previous periods, goodwill arising on acquisition was capitalised and amortised over its estimated useful life. The Group has applied the relevant transitional provisions in HKFRS 3. With respect to goodwill previously capitalised on the balance sheet, the Group has discontinued amortising such goodwill from 1 January 2005 onwards and goodwill will be tested for impairment at least annually. Goodwill arising on acquisition after 1 January 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. As a result of this change in accounting policy, no amortisation of goodwill has been charged in the current period. Comparative figures for 2004 have not been restated.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases (continued)

(b) Share-based Payment

In the current period, the Group has applied HKFRS 2 “Share-based Payment” which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of Directors’ and employees’ share options of the Company determined at the date of grant of the share options over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. The Group has applied HKFRS 2 to share options granted on or after 1 January 2005. In relation to share options granted before 1 January 2005, the Group has not applied HKFRS 2 to share options granted on or before 7 November 2002 and share options that were granted after 7 November 2002 and had not yet been vested before 1 January 2005 in accordance with the relevant transitional provisions. However, the Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7 November 2002 and had not yet vested on 1 January 2005. Comparative figures have been restated.

(c) Financial Instruments

In the current period, the Group has applied HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement”. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit to recognise, derecognise or measure financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 32 and HKAS 39 are summarised below:

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

By 31 December 2004, the Group classified and measured its debt and equity securities in accordance with the benchmark treatment of the Statement of Standard Accounting Practice 24 (“SSAP 24”). Under SSAP 24, investments in debt or equity securities are classified as “investment securities”, “other investments” or “held-to-maturity investments” as appropriate. “Investment securities” are carried at cost less impairment losses (if any) while “other investments” are measured at fair value, with unrealised gains or losses included in the profit or loss. Held-to-maturity investments are carried at amortised cost less impairment losses (if any). From 1 January 2005 onwards, the Group classifies and measures its debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. The classification depends on the purpose for which the assets are acquired. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method. This change in accounting policy has had no material effect on the Group’s accumulated profits as at 1 January 2005.

(d) Owner-occupied leasehold interest in land

In previous periods, owner-occupied leasehold land and buildings were included in property, plant and equipment and measured using the cost model. In the current period, the Group has applied HKAS 17 “Leases”. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight line basis. Alternatively, where the allocation between the land and buildings elements cannot be made reliably, the leasehold interests in land continue to be accounted for as property, plant and equipment. This change in accounting policy has been applied retrospectively and has had no material effect on the Group’s accumulated profits as at 1 January 2005 since no reliable allocation between land and building can be made.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases (continued)

(e) Investment properties

In the current period, the Group has, for the first time, applied HKAS 40 “Investment Property”. The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the period in which they arise. In previous periods, investment properties under the previous standard were measured at open market values, with revaluation surplus or deficits credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and revaluation subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 from 1 January 2005 onwards. This change in accounting policy has had no material effect on the Group’s accumulated profits as at 1 January 2005.

(f) Deferred taxes related to investment properties

In previous periods, deferred tax consequences in respect of revalued investment properties were assessed on the basis of the tax consequence that would follow from recovery of the carrying amount of the properties through sale in accordance with the predecessor Interpretation. In the current period, the Group has applied HKAS Interpretation 21 “Income Taxes – Recovery of Revalued Non-Depreciable Assets” which removes the presumption that the carrying amount of investment properties are to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the property at each balance sheet date. This change in accounting policy has had no material effect on the Group’s accumulated profits as at 1 January 2005.

3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

The effects of the changes in the accounting policies described in Note 2 on the results for the current and prior period are as follows:

Analysis of increase (decrease) in profit for the period by line items presented according to their function.

For the six months ended 30 June 2005 (unaudited) Decrease in amortisation of goodwill Decrease in share of result of a jointly controlled entity Decrease in income tax expenses Expenses in relation to share options granted to employees Increase (decrease) in net loss for the period Attributable to: Equity holders of the parent Minority interests Increase (decrease) in net loss for the period	HKAS 1 HK$’000 (Note 2) – (245) 245 – – – – –	HKFRS 3 HK$’000 (Note 2a) (3,499) – – – (3,499) (3,499) – (3,499)	HKFRS 2 Total effect HK$’000 HK$’000 (Note 2b) – (3,499) – (245) – 245 11,980 11,980 11,980 8,481 11,980 8,481 – – 11,980 8,481

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (continued)

For the six months ended 30 June 2004 (unaudited) Increase in share of result of a jointly controlled entity Increase in income tax expenses Decrease in share of result of an associate Decrease in income tax expenses Expenses in relation to share options granted to employees Decrease in net profit for the period Attributable to: Equity holders of the parent Minority interests	HKAS 1 HK$’000 (Note 2) 779 (779) (18) 18 – – – – –	HKFRS 2 Total effect HK$’000 HK$’000 (Note 2b) – 779 – (779) – (18) – 18 1,651 1,651 1,651 1,651 1,651 1,651 – – 1,651 1,651

The cumulative effects of the new HKFRSs as at 31 December 2004 and 1 January 2005 are summarised below:

As at 31 December As at Adjustment 2004 Retrospective 31 December on 1 January (Originally adjustments 2004 2005 stated) HKFRS 2 (Restated) HKAS39 HK$’000 HK$’000 HK$’000 HK$’000 (Note 2b) (Note 2c) Balance sheet items Investment properties 92,400 – 92,400 – Property, plant and equipment 3,412 – 3,412 – Interest in a jointly controlled entity 118,022 – 118,022 – Payment for acquisition of an associate 2,861 – 2,861 – Investments in securities 23,145 – 23,145 (23,145) Investments held for trading – – – 23,145 Deferred tax liabilities (281) – (281) – Other assets and liabilities 104,219 – 104,219 – 343,778 – 343,778 – Share capital 9,393 – 9,393 – Accumulated profits 63,932 (14,863) 49,069 – Share premium 266,317 – 266,317 – Contributed surplus 2,135 – 2,135 – Translation reserve 567 – 567 – Shares option reserve – 14,863 14,863 – Equity holders of the parent 342,344 – 342,344 – Minority interests 1,434 – 1,434 – 343,778 – 343,778 –

As at 1 January 2005 (Restated) HK$’000 92,400 3,412 118,022 2,861 – 23,145 (281) 104,219 343,778 9,393 49,069 266,317 2,135 567 14,863 342,344 1,434 343,778

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (continued)

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

HKAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures HKAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 (Amendment) The Fair Value Option HKFRS 6 Exploration for and Evaluation of Mineral Resources HKFRS – INT 4 Determining whether an Arrangement Contains a Lease HKFRS – INT 5 Rights to Interests Arising from Decommissing, Restoration and Environmental Rehabilitation Funds

The Directors anticipate that the application of these new HKFRSs will have no material impact on the financial statements of the Group.

4. CRITICAL ACCOUNTING ESTIMATE

Impairment of goodwill arising from acquisition of a subsidiary

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculated present value. The carrying amount of goodwill at the balance sheet date was approximately HK$80,000,000 after an impairment loss of approximately HK$129,950,000 was recognised in the income statement.

Details of the impairment loss on goodwill are provided in note 7.

5. SEGMENTAL INFORMATION

Revenue represents rental and management fee income, the net amounts received and receivable for goods sold by the Group to outside customers, less returns and trade discounts, revenue arising on distribution of digital motion pictures and franchise fee, rental income from equipment leasing, computer graphic (“CG”) films and television drama production income.

For management purposes, the Group is currently organised into four operating divisions – property leasing and building management services, digital content distribution and exhibitions, CG creation and films and television drama production and CG training courses. These divisions are the basis on which the Group reports its primary segment information.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. SEGMENTAL INFORMATION (continued)

Segment information about these divisions is presented below:

Six months ended 30 June 2005

Six months ended 30 June 2005
					CG creation
		Property		Digital		and
	leasing and			content		films and
		building	distribution			television
	management			and		drama	CG training
		services	exhibitions		production			courses	Consolidated
		HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
REVENUE		2,739		4,490		3,751		1,822		12,802
RESULT
Segment result		13,317		(5,203)		(28,793)		(85)		(20,764)
Unallocated corporate income										1,206
Unallocated corporate expenses										(24,089)
Finance costs										(3,285)
Share of result of a jointly
controlled entity										337
Share of result of an associate										(248)
Impairment loss on goodwill arising
from acquisition of a subsidiary										(129,950)
Loss before taxation										(176,793)
Taxation										(501)
Net loss for the period										(177,294)

For the six months ended 30 June 2004, the Group was engaged in single business – property leasing and building management. Accordingly, no business segment information is presented. No geographical segment information is presented as over 90% of the Group’s segment revenue and assets are derived from operations carried out in Hong Kong.

6. FINANCE COSTS

Interest on: Bank borrowings wholly repayable within five years Finance leases Other finance costs Other loans	Six months ended 30 June 2005 2004 HK$’000 HK$’000 2,145 844 188 – 228 129 724 – 3,285 973	Six months ended 30 June 2005 2004 HK$’000 HK$’000 2,145 844 188 – 228 129 724 – 3,285 973
		973

7. IMPAIRMENT LOSS ON GOODWILL ARISING FROM ACQUISITION OF A SUBSIDIARY

During the period, the Group acquired 658,466,023 shares, representing 82.2% of the issued share capital, of Global Digital Creations Holdings Limited (“GDC”). GDC is incorporated in Bermuda and its shares are listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited. The principal activities of GDC’s subsidiaries are engaged in production of CG films and films digital content distribution and exhibition.

The Directors reviewed the business valuation, the anticipated profitability and the anticipated future operating cash flows of GDC. With reference to the financial results and business operated by GDC, the Directors identified impairment loss in respect of goodwill of approximately HK$129,950,000, such amounts were dealt with in the income statement for the six months ended 30 June 2005.

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. (LOSS) PROFIT BEFORE TAXATION

(Loss) profit before taxation has been arrived at after charging: Allowance on production work in progress Amortisation of goodwill of a jointly controlled entity (included in share of result of a jointly controlled entity) Cost incurred in the provision of rental and management services* Depreciation of property, plant and equipment Unrealised holding loss on investments in securities and after crediting: Dividend income from investments held for trading/investments in securities Interest income from bank deposits Profit on disposal of property, plant and equipment Gain on fair value changes on investments held for trading

Six months ended 30 June 2005 2004 HK$’000 HK$’000 (restated) 17,114 – – 937 500 1,205 3,539 52 – 20 41 39 914 21 36 – 228 –

• This amount included staff costs of HK$500,000 (six months ended 30 June 2004: HK$924,000).

9. TAXATION

The charge (credit) comprises: Hong Kong Profits Tax: Current period Overprovision in prior period Deferred taxation Taxation attributable to the Company and its subsidiaries	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (restated) 90 161 – (345 411 (815 501 (999	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (restated) 90 161 – (345 411 (815 501 (999
		(999

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the period.

No provision for the People’s Republic of China (the “PRC”, which for the purposes of this report, does not include Hong Kong, Macau and Taiwan) Enterprise Income Tax was made in the financial statements as the Group’s subsidiaries operating in the PRC either have no assessable profit for the six months ended 30 June 2005 or pursuant to the relevant income tax regulations for productive enterprises with foreign investment established in the PRC and being approved by the relevant PRC tax authority, some subsidiaries in the PRC are eligible for an exemption from PRC Enterprise Income Tax for two years starting from the first profit-making year after offsetting all tax losses carried forward from the previous five years, followed by a 50% reduction of the tax rate in the next three years. The Group did not have any subsidiaries operating in the PRC for the six months ended 30 June 2004.

At 30 June 2005, the Group has unused tax losses of HK$84,201,000 (31 December 2004: HK$70,992,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$2,733,000 (31 December 2004: HK$2,527,000) of such tax losses and the whole amount has been offset with the deferred tax liabilities for the period. No deferred tax asset has been recognised in respect of the remaining HK$81,468,000 (31 December 2004: HK$68,465,000) due to the unpredictability of future profit streams.

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

10. DIVIDEND

For the six months ended 30 June 2004, the Directors declared to distribute special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31.02%, representing 371,029,995 shares in an associate, Shougang Concord Technology Holdings Limited (“Shougang Technology”), to the Company’s shareholders on a pro-rata basis (the “Distribution”). The Distribution was completed on 23 March 2004 and the market price of Shougang Technology’s share at that date was HK$1.01 per share. Total dividend paid during the six months ended 30 June 2004 amounted to approximately HK$374,740,000.

No dividend was paid during the six months ended 30 June 2005. The Directors do not recommend the payment of an interim dividend.

11. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share is based on the following data:

(Loss) earnings (Loss) earnings for the purposes of basic and diluted (loss) earnings per share Number of shares Weighted average number of ordinary shares for the purposes of basic (loss) earnings per share Effect of dilutive potential ordinary shares on share options Weighted average number of ordinary shares for the purposes of diluted (loss) earnings per share	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Restated) (176,972) 82,050 ’000 ’000 1,080,176 912,624 28,908 941,532	Six months ended 30 June 2005 2004 HK$’000 HK$’000 (Restated) (176,972) 82,050 ’000 ’000 1,080,176 912,624 28,908 941,532
		’000 912,624 28,908
		941,532

The computation of diluted loss per share for the six months ended 30 June 2005 did not assume the exercise of the Company’s outstanding share options as the exercise would result in a decrease in loss per share.

12. MOVEMENTS IN INVESTMENT PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT

The Group’s investment properties were fair-valued by AA Property Services Limited, an independent professional valuer, at 30 June 2005. The resulting increase in fair value of investment properties of HK$10,743,000 (30 June 2004: deficit on revaluation of investment properties of HK$7,550,000) has been recognised directly in the income statement.

During the period, the Group acquired a building at a cost of approximately HK$20,120,000. In addition, the Group acquired an investment property at revalued amount and computer equipment at net book value of approximately HK$1,200,000 and HK$9,165,000 respectively as a result of the acquisition of subsidiaries.

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13.

TRADE RECEIVABLES

The Group allows different credit periods to its trade customers depending on the type of products or services provided. The majority of sales of goods are on letter of credit against payment, the remaining amounts are granted with average credit terms of 90 days.

The following is an age analysis of trade receivables at the reporting date:

0 – 90 days 91 – 180 days Over 181 days	30 June 2005 HK$’000 6,388 2,139 506
	9,033

14. TRADE PAYABLES

The following is an age analysis of trade payables at the reporting date:

0 – 90 days 91 – 180 days Over 181 days	30 June 2005 HK$’000 1,457 1,384 859
	3,700

15. BORROWINGS

During the period, the Group obtained new bank loans of HK$29.1 million (31 December 2004: Nil) and repaid bank loans of HK$60.3 million (31 December 2004: HK$5.6 million) in accordance with the repayment terms. All bank loans bear interest at market rates and are repayable over a period of 5 years.

16. SHARE CAPITAL

Authorised: At beginning and end of the period/year Issued and fully paid: At beginning of the period/year Shares issued at premium for acquisition of a subsidiary At end of the period/year	Number of ordinary shares of HK$0.01 each 30 June 31 December 2005 2004 2,000,000,000 2,000,000,000 939,316,667 857,867,914 197,539,802 81,448,753 1,136,856,469 939,316,667	Amount 30 June 31 December 2005 2004 HK$’000 HK$’000 20,000 20,000 9,393 8,579 1,976 814 11,369 9,393	Amount 30 June 31 December 2005 2004 HK$’000 HK$’000 20,000 20,000 9,393 8,579 1,976 814 11,369 9,393
			8,579 814
			9,393

17. PLEDGE OF ASSETS

At 30 June 2005, all of the Group’s pledged bank deposits, investment properties and land and buildings with an aggregate carrying value of approximately HK$112 million (31 December 2004: HK$160 million) were pledged to banks for bank loans. At 30 June 2005, the outstanding amounts of such bank loans were HK$71 million (31 December 2004: HK$105 million).

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. CAPITAL COMMITMENTS

The Group had the following commitments at the interim reporting date:

The Group’s share of a jointly-controlled entity’s capital commitments: Contracted, but not provided for OTHER COMMITMENTS Expenditure contracted for but not provided in the financial statements in respect of: Advertising expenses Film production costs	30 June 31 December 2005 2004 HK$’000 HK$’000 6,084 7,066 30 June 31 December 2005 2004 HK$’000 HK$’000 470 – 3,051 11,207

19. OTHER COMMITMENTS

20. LITIGATION

On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), a wholly-owned subsidiary of GDC, entered into a co-production agreement (the “Co-production Agreement”) with West Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“PPM”), in which GDC has a 25% equity interest, in relation to an animated television series.

In November 2004, PPM issued a summons for summary judgment against WAMC and GDC Entertainment in the Court of Commerce of Angouleme (France), seeking the appointment of an agent who would oversee the coproduction.

A hearing was scheduled to take place on 11 January 2005. However, at that time, PPM modified its claims against GDC Entertainment by seeking to substitute a new producer of the “same nationality” in replacement of GDC Entertainment pursuant to the Co-production Agreement, or the appointment of an expert whose task would be basically to assess the parties respective liabilities.

On 13 January 2005, GDC was informed by its French legal advisers that PPM’s new claims do not affect accrued rights, as even if GDC were substituted, the monies invested by GDC are recoverable as an account payable under the co-production.

However, on 14 February 2005, PPM further modified its claims which include, inter-alia (i) the enforcement of an article of the Co-production Agreement which provides that in case of substitution of a producer to another one, the monies already invested by GDC shall become an account payable, recoverable from the revenues of the co-production, however, only “in last position with the recovery by the other co-producers of their contribution”, and (ii) that GDC be sentenced to pay PPM the provisional amount of Euro5 million, as damages, this amount being subject to revision according to the findings of the expert to be appointed by the Court. The claim for damages is totally unparticularised.

On 10 March 2005, GDC’s French legal adviser advised that the chances to recoup the totality of the investment are uncertain and in any event, the sums owed to GDC Entertainment will be recoupable only in the last position pursuant to the Co-production Agreement.

On 15 March 2005, the French legal adviser advised that the claims by PPM for the aforesaid provisional amount of Euro5 million, as damages, is out of touch with reality given that (i) PPM does not provide any explanation or detail computation for the claims of Euro5 million; (ii) the amount is more or less equals to the total budgeted costs under the Co-production Agreement; and (iii) the claim is still subject to the summary judgment to be rendered. The legal adviser further advised that in any event, the summary judgment to be rendered shall be very difficult to enforce or even may not be enforceable. Based on the abovementioned legal advice, the Directors considers that the claims of Euro5 million as damages should not have any immediate effect on the Group and no provision for this amount is considered necessary. Consideration is also being given by the directors of GDC to launch a counterclaim against PPM in the Hong Kong courts. GDC’s Hong Kong legal advisor has advised that GDC have good and meritorious causes of action against PPM and pursuant to the agreement an application has been made to the Hong Kong International Arbitration Centre for arbitration. As soon as the arbitrator is appointed, a claim will be filed.

Up to 30 June 2005 and the date of this report, the position of this case has not been changed, as compared with 15 March 2005.

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. ACQUISITION OF SUBSIDIARIES

In September 2004, the Group paid HK$2,861,000 as payment for acquisition of an associate in respect of a 40% equity interest of South China International Leasing Company Limited (“South China Leasing”), which is established in the PRC with principal activities in the provision of finance leasing including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC. It is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with an operation term of 40 years expiring in 2029. The relevant approval from the PRC authority of the change in shareholder was obtained in January 2005. Accordingly, the payment for acquisition of an associate was transferred as investment cost of an associate. In May 2005, the Group has further acquired 20% equity interest of South China Leasing at a consideration of HK$1,471,000 and it became a subsidiary of the Company since 26 May 2005. As at 30 June 2005, the Group held a 60% equity interest of South China Leasing.

The net assets acquired in the transaction are as follows:

Acquiree’s carrying amount before Fair value combination adjustment HK$’000 HK$’000 Net assets acquired: Property, plant and equipment 1,064 – Intangible asset in respect of a finance lease licence – 22,411 Bank balances and cash 7,137 – Trade and other receivables 6,219 – Trade and other payables (49) – Borrowings (29,976) – (15,605) 22,411 Total consideration satisfied by: Interest in an associate Minority interest Cash consideration paid Net cash inflow arising on acquisition: Cash consideration paid Bank balances and cash

Fair value HK$’000 1,064 22,411 7,137 6,219 (49) (29,976) 6,806 2,613 2,722 1,471 6,806 1,471 (7,137) (5,666)

South China Leasing contributed nil revenue and net profit of HK$127,000 to the Group’s loss before taxation for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on 1 January 2005, total revenue for the Group for the period would have been HK$12,802,000 and the loss for the period would have been HK$177,965,000. The proforma information is for illustrative purpose only and is not necessarily an indicative revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2005, nor it is intended to be a projection of future results.

In February 2005, the Group has acquired 461,833,761 shares of GDC, representing approximately 57.7% of the issued share capital of GDC through share exchange of 138,550,125 shares of the Company. Subsequently in February and March 2005, the Group has further acquired in aggregate of 196,632,262 shares of GDC, representing approximately 24.5% of the issued share capital of GDC through share exchange of 58,989,677 shares of the Company. As at 30 June 2005, the Group held 658,466,023 shares of GDC, representing approximately 82.2% of the issued share capital of GDC.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21.

ACQUISITION OF SUBSIDIARIES (continued)

The net assets acquired in the transaction, and the goodwill arising, are as follows:

Acquiree’s carrying amount before Fair value combination adjustment HK$’000 HK$’000 Net assets acquired: Property, plant and equipment 13,093 – Other non-current assets 410 – Deferred tax assets 151 – Production work in progress 24,765 – Inventories 5,233 – Trade and other receivables 11,442 – Bank and cash balances 4,926 – Trade and other payables (88,407) – Bank borrowings (27,623) – (56,010) – Goodwill Total consideration, satisfied by: – share exchange_(Note)_ – cash

Fair value HK$’000 13,093 410 151 24,765 5,233 11,442 4,926 (88,407) (27,623) (56,010) 209,950 153,349 591 153,940

Note: The consideration of HK$153,349,000 of share exchange was determined by the Directors with reference to the fair value of shares of the Company issued upon share exchange during February and March 2005 based on a valuation performed by Sallmanns (Far East) Limited, an independent professional valuer.

The goodwill arising on the acquisition of GDC is attributable to the anticipated profitability and the anticipated future operating cash flows of GDC. For the six months ended 30 June 2005, the Directors reviewed the business valuation, the anticipated profitability and the anticipated future operating cash flows of GDC. With reference to the financial results and business operated by GDC, the Directors identified an impairment loss in respect of goodwill of approximately HK$129,950,000, such amount is dealt with in the income statement for the six months ended 30 June 2005.

GDC contributed HK$7,061,000 to the revenue and incurred net loss of HK$32,792,000 to the Group’s loss before taxation for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on 1 January 2005, total revenue for the Group for the period would have been HK$16,061,000 and net loss for the period would have been HK$181,536,000. The proforma information is for illustrative purpose only and is not necessarily an indicative revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2005, nor it is intended to be a projection of future results.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

22. POST BALANCE SHEET EVENTS

On 22 August 2005, the Group entered into a placing agreement with Baron Capital Limited (“Baron Capital”), whereby Baron Capital was appointed as the placing agent and has agreed to place not more than 58,000,000 shares of HK$0.01 each beneficially owned by the Group in the issued share capital of GDC at a price of HK$0.22 per share (the “Placing Shares”) to not less than six placees who are independent third parties (the “Share Placing”).

Subject to completion of the Share Placing, the Group would enter into an option agreement (the “Option Agreement(s)”) with each of the placees. Pursuant to the Option Agreements, the Group would grant put options (“Put Options”) to all the placees whereby the Group is obliged to purchase, upon exercise of the Put Option by the placees. The number of the option shares in respect of which the Put Options are exercised at an initial exercise price of HK$0.22 per share on any business day within the period commencing from the date of the Option Agreement up to and including the second anniversary of the date of the Option Agreement, during which the Put Options can be exercised in accordance with the provision of the Option Agreement. In the event that a placee exercises the Put Options, such placee shall be entitled to sell up to all of the option shares beneficially owned by such placee at the exercise price and the Group is obliged to purchase the number of option shares in respect of which the Put Options are exercised at such exercise price.

On 7 September 2005, 58,000,000 Placing Shares were successfully placed to eight placees at a price of HK$0.22 per share, the shareholding of the Group in GDC has been diluted from approximately 82.2% to approximately 74.98% of the issued share capital of GDC after the completion of the Share Placing.

23. RELATED PARTY TRANSACTIONS

During the period, the Group entered into certain transactions with related parties:

Consultancy expenses charged by Shougang Holding (Hong Kong) Limited (“Shougang Holding”), an intermediate holding company of the Group Rental expenses charged by Winluck Properties Limited, a subsidiary of Shougang Holding Interest expenses charged by Mr. Anthony Francis Neoh (“Mr. A. Neoh”), a shareholder of the Company Interest expenses charged by Ms. Chan Wing Yee, Betty, spouse of Mr. A. Neoh

Six months ended 30 June 2005 2004 HK$’000 HK$’000 480 480 577 297 552 – 25 –

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. INDEBTEDNESS

Borrowings

At the close of business on 31 October 2005, being the Latest Practicable Date for this statement of indebtedness prior to the printing of the circular, the Group had outstanding borrowings of approximately HK$180,940,000 comprising secured borrowings of approximately HK$47,540,000 and unsecured borrowings of approximately HK$133,400,000. The secured borrowings of approximately HK$47,540,000 included bank loans of approximately HK$44,640,000 and bank overdraft of approximately HK$2,900,000. The unsecured borrowings of approximately HK$133,400,000 included payables due to related parties of approximately HK$1,422,000, payable due to a fellow subsidiary of approximately HK$23,976,000, payable due to a shareholder of approximately HK$20,819,000, obligations under finance leases of approximately HK$4,090,000, bank loans of approximately HK$52,491,000 and payables due to independent third parties of approximately HK$30,602,000.

Pledge of assets and guarantees

At the close of business on 31 October 2005, the secured borrowings were secured by certain of the Group’s assets of approximately HK$107,289,000.

At the close of business on 31 October 2005, the Group’s banking facility is also secured by personal guarantee given by a shareholder of the Company amounting to HK$15,000,000.

Debt securities

At the close of business on 31 October 2005, the Group had no debt securities.

Contingent liabilities

At the close of business on 31 October 2005, the Group was involved in claim for damage lawsuits in France. The damage claims arising from the lawsuits amounted to approximately EURO 5,000,000 (equivalent to HK$45,734,000). As the outcome of the lawsuits is not certain, no provision has been made by the Group as at 31 October 2005 to cover the possible damages as estimated by management.

In addition, the Group also was involved in claims for repayment of investment cost received by the Group before. The damage claims arising from the lawsuits amounted to approximately RMB 9,262,000 (equivalent to HK$8,883,000). After considering the advice from the Company’s lawyers, the Group made a provision of RMB 8,270,000 (equivalent to HK$7,797,000) for this case as at 31 October 2005 to cover the possible damages as estimated by management.

For details of the above litigations, please refer to “Appendix V. General Information 7. Litigation” of this circular.

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Disclaimer

Save as aforesaid and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31 October 2005 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

Foreign currency amounts were translated into Hong Kong dollars at the exchange rates prevailing at the close of business on 31 October 2005.

5. WORKING CAPITAL

Except for obtaining the HK$800 million financing for the Subsciption, after taking into account the Group’s internal resources and present available banking facilities, the Directors are of the opinion that the Group will have sufficient working capital for its present requirements and for the next twelve months from the Latest Practicable Date.

6. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2004 AND THE SIX MONTHS ENDED 30 JUNE 2005

The Group is principally engaged in investment and management of property, provision of financial services and provision of cultural recreation content.

A. Results of operation

For the year ended 31 December 2002

The turnover of the Group amounted to approximately HK$15,661,000. The turnover for the year ended 31 December 2002 represented rental and management fee income. The Group recorded a profit of HK$2,786,000 (as restated) for the year 2002 as compared to a net loss of HK$72,782,000 in 2001.

Property investment and management

Hong Hong investment properties

Due to the continuous sluggishness of the property leasing market in Hong Kong, rental rate continued to decline in the year of 2002. Gross rental income of the Group for the year under review fell by about 29%. With the Group’s dedicated efforts and revised leasing strategies, the occupancy rates of its Hong Kong investment properties have begun to pick up slightly by the end of the year 2002.

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Beijing Dongzhimen International Apartment Co., Ltd. (“Beijing Dongzhimen”)

The Group has acquired 44% of Beijing Dongzhimen’s shareholding interests in 1998. Beijing Dongzhimen mainly engages in leasing business of East Lake Villas (consists of renting out of garden villas, high-rise apartments and office building).

Despite the keen competition in the property leasing market in Beijing, occupancy rate of Phase 2 of Beijing Dongzhimen exceeded 90% in its first year of operation. However, due to the combined effects of the reduction in revenue of Phase I resulting from its close down for renovation and the increased depreciation charges resulting from the operation of Phase II, the Group shared a loss of Dongzhimen for the year 2002. The renovation of Phase I is mainly to further enhance its competitiveness in the market.

Investment in an associated company

Shougang Concord Technology Holdings Limited (“Shougang Technology”)

Notwithstanding the current difficult operating conditions under the weak general economy and consumer confidence, Shougang Technology achieved a turnaround on its financial results for the year 2002 with its cost reduction measures.

During the year 2002, both sales and profits of its telephone accessories and power cords division and high precision metal parts division increased. On the other hand, despite a substantial drop in turnover of its adaptors and electronic products division, it was still able to maintain a profit for the year.

Shougang Technology’s jointly-controlled entity has successfully maintained its leading position in the supply of copper wire for computer cords in the Pearl River Delta Region with its flexible pricing policy. It achieved a growth in both turnover and profit during the year under review. In addition, Shougang Technology’s long term investment in printed circuits board factory in Tianjin also continued to show satisfactory growth in profit.

For the year ended 31 December 2003

The turnover of the Group amounted to approximately HK$15,470,000 for the year ended 31 December 2003, representing a slight decrease of approximately 1 per cent as compared with that in 2002.

The Group reported a net profit of approximately HK$28,481,000 for the year 2003 as compared to that of HK2,786,000 in 2002. The significant increase was mainly attributable to gain on deemed disposal its associated company arising from the dilution of the Group’s interest in Shougang Technology.

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Property investment and management

Hong Kong investment properties

Due to the outbreak of Severe Acute Respiratory Syndrome (“SARS”) and the sluggishness of the property leasing market, the rental rate experienced a severe downward adjustment in the first half of 2003 and the tenancies of the Group’s Hong Kong investment properties have been renewed at lower rates. Despite of that, the Group managed to maintain roughly the same rental income as that in 2002 due to an increase in the occupancy rates of its Hong Kong investment properties throughout the year 2003. Its average occupancy rate increased from 73% in 2002 to 84% in 2003, which results from the Group’s continuous dedicated efforts.

Beijing Dongzhimen

The outbreak of SARS in the second quarter together with the reduction in revenue resulting from the suspension of business of East Lake Villas Phase 1 for renovation had a severe impact on its performance in 2003. The renovation of East Lake Villas Phase 1 has been completed by the end of 2003 as scheduled.

Investment in an associated company

Shougang Technology

Shougang Technology reported a net profit of approximately HK$22,400,000 for the year 2003, representing a decrease of approximately 15% from that of HK$26,284,000 in 2002. The significant decrease in the Group’s share of results of associates was mainly attributable to the dilution of its shareholding in Shougang Technology from approximately 46.30% at the start of the year to approximately 31.13% at the end of the year, as a result of the conversion of Shougang Technology’s convertible bonds and the placing and subscription of Shougang Technology’s shares during the year.

For the year ended 31 December 2004

For the year ended 31 December 2004, the Group’s turnover decreased by approximately 7.0% to approximately HK$14,386,000 (2003: HK$15,470,000). Profit for the year ended 31 December 2004 increased by approximately 190.0% to approximately HK$82,583,000 (2003: HK$28,481,000).

On 13 February 2004, the Board declared to distribute a special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31.02%, representing 371,029,995 shares in Shougang Technology, to the Company’s shareholders on a pro-rata basis (the “Distribution”). The Distribution was completed on 23 March 2004 and market price of Shougang Technology’s share at that date was HK$1.01 per share. Total special dividend distributed amounted to approximately HK$374,740,000, represented approximately HK39.9 cents per share.

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The decrease in turnover for the year ended 31 December 2004 was mainly due to the disposal of certain investment properties during the year while the significant increase in profit for the year ended 31 December 2004 was largely attributable to the gain on the Distribution.

Property investment and management

Hong Kong Investment Properties

In line with the recovery of the economy and the property market in Hong Kong, the rental market has shown improvement during the year under review. The property market in Hong Kong has experienced a significant downturn since the Asian financial crisis in 1997. Although the property market has improved since the beginning of 2004, the improved market conditions apply, to a large extent, to newly constructed residential projects. The difficult market conditions in local property market have caused the Group to take a fresh look at its core business in Hong Kong. During the year, the Group has disposed of certain of its industrial investment properties, which are relatively old with high maintenance costs, and the Directors believe that the Group’s resources could be better applied in other investments that offer better return. In this regard, the Group has been exploring new business opportunities with a view to diversifying its existing business.

Beijing Dongzhimen

As a result of the severe competition in Beijing property leasing market and performance of Beijing Dongzhimen for the past few years, an impairment loss in respect of the Group’s share of net assets and goodwill in Beijing Dongzhimen amounted to approximately HK$90 million in aggregate was made for the year ended 31 December 2004.

Financial leasing business

The Group has acquired 40% and 20% interests of South China International Leasing Company Limited (“South China Leasing”) in September 2004 and March 2005 respectively. South China Leasing is a Sino-foreign equity joint venture established in the PRC and is principally engaged in the financial leasing business, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC. South China leasing did not contribute to the Group’s turnover for the year 2004 as it was being restructured.

Cultural recreation content business

Furthermore, on 19 November 2004, the Group has announced a voluntary conditional offer to acquire all the issued share capital of and cancel all the outstanding options of Global Digital Creations Holdings Limited (“GDC”), which is listed on the Growth Enterprise Market operated by The Stock Exchange of Hong Kong Limited (the “Voluntary Offer”). Headquartered in Hong Kong, GDC provides an integrated value chain in digital content business which encompasses computer graphics creation and production, distribution and exhibitions of digital content, and training of Computer Graphic artists in the Asia Pacific region.

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the six months ended 30 June 2005

The turnover of the Group amounted to approximately HK$12.8 million for the period under review, representing an increase of approximately 56% as compared with that for the corresponding period in 2004. The Group reported a net loss of approximately HK$177.3 million for the period under review, as compared to a net profit of approximately HK$82.1 million for the corresponding period in 2004.

Revenue from property investment and management continued to decrease as the Group had disposed of certain investments in property in the second half of 2004, in order to carry out its plan of diversifying business. At the same time, the Group started cultural recreation content provision business, through acquiring and establishing subsidiaries, and generated revenue. As the revenue generated by new business has outweighed the decrease in revenue of property investment and management, the Group’s turnover increased.

During the period under review, there was an expense of impairment of goodwill amounted to approximately HK$130.0 million. During the first six months in 2004, there were two nonrecurring transactions, namely exceptional gain on deemed disposal of the Group’s holding in shares of Shougang Technology amounted to approximately HK$189.2 million and expenses of impairment and amortization of goodwill and net assets of a jointly controlled entity amounted to approximately HK$90.0 million. Adjusted for the abovementioned non-operating profit or loss items, adjusted net loss for the period under review was approximately HK$47.3 million, comparing with the adjusted net loss of HK$17.1 million for the corresponding period in 2004. The increase in adjusted net loss was mainly due to that, (a) while provided new source of revenue, new business of cultural recreation content provision, especially those of GDC, was still under restructuring/streamlining after acquisition/establishment, the revenues generated were not sufficient to cover the subsidiaries’ own expenses and the increase in head office expenses incurred for controlling the expanded business; (b) there was a surplus on revaluation of investment properties amounted to approximately HK$10.7 million during the period under review while there was a deficit of such revaluation during the corresponding period in 2004; (c) due to the number of exercisable share options granted to the Company’s management increased, although the related share options have not been exercised, their estimated financial effect has been included in the income statement as expense and expense increased for approximately HK$10.3 million as the result; and (d) expenses of impairment of value of a movie work-in-progress amounted to approximately HK$17.1 million.

Property investment and management

Hong Kong investment properties

Both rental income and resalable value of the Group’s investment properties has been improving comparing with 2004. However, as the Group had disposed of certain investments in industrial property, the aggregate amount of rental and management fee income decreased for 66%, comparing with the corresponding period in 2004 , to approximately HK$2.7 million.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Beijing Dongzhimen

The Group continually holds 44% interests in Beijing Dongzhimen. Despite competition in Beijing service department market is severe, the performance of Beijing Dongzhimen was significantly improved. At the same time, as the net profit of Beijing Dongzhimen has been improved, the Directors consider that there were no further impairment in book value of Beijing Dongzhimen’s net asset and a provision for such impairment which was amounted to approximately HK$67.5 million for the corresponding period in 2004 is not necessary. Further, as there is no balance of goodwill of investment in Beijing Dongzhimen, there was no amortization and/or writeoff of goodwill, which was amounted to approximately HK$22.5 million for the corresponding period in 2004, charged to the income statement during the period under review.

Financial leasing business

The Group has acquired 60% interest in South China Leasing up to 30 June 2005. During the period under review, business of South China Leasing was restructured and streamlined and resumed generating finance lease income from July 2005.

Cultural recreation content business

By a voluntary conditional share exchange offer, the Group acquired approximately 82.22% interest in GDC. To comply with the requirements of the Rules Governing the Listing of Securities on GEM in respect of maintaining minimum public floating of 25%, the Group placed out shares of GDC held by the Group equivalent to approximately 7.24% of GDC’s issued share capital in September 2005. After the voluntary conditional share exchange offer being completed, the Group reorganized GDC’s business and expected it will generate positive return in the foreseeable future.

During the period under review, through subsidiaries other than GDC, the Group started providing cultural recreation content, including movies and television drama series, and generating revenue.

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

B. Segmental Information

The Group is currently organised into four operating divisions – property leasing and building management services, digital content distribution and exhibitions, CG creation and films and television drama production and CG training courses. These divisions are the basis on which the Group reports its primary segment information.

Segment information about these divisions is presented below:

Six months ended 30 June 2005

Six months ended 30 June 2005
				CG creation
		Property	Digital		and
	leasing and		content		films and
		building	distribution		television
	management		and		drama	CG training
		services	exhibitions	production			courses	Consolidated
		HK$’000	HK$’000		HK$’000		HK$’000		HK$’000
REVENUE		2,739	4,490		3,751		1,822		12,802
RESULT
Segment result		13,317	(5,203)		(28,793)		(85)		(20,764)
Unallocated corporate income									1,206
Unallocated corporate expenses									(24,089)
Finance costs									(3,285)
Share of result of a jointly
controlled entity									337
Share of result of an associate									(248)
Impairment loss on goodwill arising
from acquisition of a subsidiary									(129,950)
Loss before taxation									(176,793)
Taxation									(501)
Net loss for the period									(177,294)

For the three years ended 31 December 2004, the Group was engaged in single business – property leasing and building management. Accordingly, no business segment information is presented.

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

C. Liquidity, financial resources and capital structure

As at 31 December 2002

As at 31 December 2002, the Group had net current liabilities of approximately HK$29,018,000. The Group’s current assets consisted of cash at banks and in hand of approximately HK$6,470,000, other investments of approximately HK$830,000, other receivables, deposits and prepayments of approximately HK$1,854,000. The Group’s current liabilities consisted of creditors and accruals of approximately HK$2,443,000, bank borrowings of approximately HK$30,600,000, tax payables of approximately HK$1,672,000 and rental and management fee deposits received of approximately HK$3,457,000.

As at 31 December 2002, the Group had outstanding borrowings of approximately HK$82,000,000 comprising current portion and long term portion of bank borrowings amounting to approximately HK$30,600,000 and HK$51,400,000 respectively. The borrowings were interest bearing at Hong Kong Inter-Bank Offering Rate (“HIBOR”) for Hong Kong dollar plus 1.50% to 1.75% per annum.

As at 31 December 2003

As at 31 December 2003, the Group had net current assets of approximately HK$41,581,000. The Group’s current assets consisted of cash at banks and in hand of approximately HK$51,677,000, other investments of approximately HK$1,020,000, other receivables, deposits and prepayments of approximately HK$1,823,000. The Group’s current liabilities consisted of creditors and accruals of approximately HK$3,580,000, bank borrowings of approximately HK$5,600,000, tax payable of approximately HK$478,000, rental and management fee deposits received of approximately HK$3,281,000.

As at 31 December 2003, the Group had outstanding borrowings of approximately HK$111,400,000, comprising current portion and long term portion of bank borrowings amounting to approximately HK$5,600,000 and HK$105,800,000 respectively. The borrowings were interest bearing at HIBOR for Hong Kong dollar plus 1.35% to 1.75% per annum.

On 19 February 2003, Shougang Holding (Hong Kong) Limited (“Shougang Holding”), the intermediate holding company, entered into an agreement with the placing agent, CITIC Capital Markets Limited (“CITIC”), to place on a fully underwritten basis 30,000,000 existing ordinary shares of the Company at a price of HK$0.48 per share. The shares were placed by CITIC to an independent third party on 21 February 2003.

On the same date, the Company entered into a conditional agreement with Shougang Holding for the subscription of 30,000,000 new ordinary existing shares by Shougang Holding at a price of HK$0.48 per share. On 5 March 2003, the condition as specified in the agreement had been fulfilled and, accordingly the said transaction was completed.

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at 31 December 2004

As at 31 December 2004, the Group had net current assets of approximately HK$217,364,000. The Group’s current assets consisted of cash at banks and in hand of approximately HK$119,683,000, pledged bank deposits of approximately HK$65,500,000, other receivables, deposits and prepayments of approximately HK$30,011,000, films in progress of approximately HK$2,482,000 and investments in securities of approximately HK$23,145,000. The Group’s current liabilities consisted of creditors and accruals of approximately HK$5,996,000, bank borrowings of approximately HK$15,800,000, taxation payable of approximately HK$210,000, and rental and management fee deposits received of approximately HK$1,451,000.

As at 31 December 2004, the Group had outstanding borrowings of approximately HK$105,800,000, comprising current portion and long term portion of bank borrowings amounting to approximately HK$15,800,000 and HK$90,000,000 respectively. The borrowings were interest bearing at HIBOR for Hong Kong dollar plus 1.35% to 1.75% per annum.

During the year ended 31 December 2004, 81,448,753 shares of HK$0.01 each were issued upon the exercise of 53,811,339 and 27,637,414 share options at subscription prices of HK$0.73 and HK$0.76 per share respectively. The shares issued during the year rank pari passu with the then existing shares in all respects.

As at 30 June 2005

As at 30 June 2005, the Group had net current assets of approximately HK$17,214,000. The Group’s current assets consisted of cash at banks and in hand of approximately HK$70,024,000, pledged bank deposits of approximately HK$3,949,000, trade receivables of approximately HK$9,033,000, other receivables, deposits and prepayments of approximately HK$13,559,000, investments held for trading of approximately HK$15,130,000, production work in progress of approximately HK$20,071,000 and inventories of approximately HK$7,416,000. The Group’s current liabilities consisted of trade payables of approximately HK$3,700,000, other payables and accruals of approximately HK$29,847,000, borrowings of approximately HK$78,382,000, taxation payable of approximately HK$358,000, obligations under finance leases of approximately HK$4,278,000 and rental and management fee deposits received of approximately HK$961,000, amounts due to shareholders of approximately HK$3,020,000 and amounts due to related parties of approximately HK$1,422,000.

As at 30 June 2005, the Group had outstanding borrowings of approximately HK$98,382,000, comprising current portion and long term portion of bank and other borrowings amounting to approximately HK$78,382,000 and HK$20,000,000 respectively. The borrowings were interest baring at i) HIBOR for Hong Kong dollar plus 1.35% to 1.75% per annum; or ii) prime rate (as announced by a bank in Hong Kong) plus 1% per annum; or iii) fixed rates ranged from 6.138% to 6.696% per annum.

During the six months ended 30 June 2005, 197,539,802 ordinary shares were issued at premium for acquisition of a subsidiary. Consequently, the issued share capital was increased by approximately HK$1,976,000 to HK$11,369,000.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

D. Gearing ratios

The following is a summary of the total bank and other borrowings and total assets of the Group as at 31 December 2002, 31 December 2003, 31 December 2004 and 30 June 2005. The gearing ratio, defined as the ratio of total bank and other borrowings to total assets, as at 31 December 2002, 31 December 2003, 31 December 2004 and 30 June 2005 were approximately 11.5%, 15.1%, 23.1% and 19.9% respectively.

	As at	As at	As at	As at
	31 December	31 December	31 December	30 June
	2002	2003	2004	2005
	HK$’000	HK$’000	HK$’000	HK$’000
Bank and other borrowings	82,000	114,000	105,800	98,382
Total assets	711,928	754,165	457,516	495,164
Gearing ratio (%)	11.5	15.1	23.1	19.9

E. Charges on group assets

At 31 December 2002, 2003 and 2004 and 30 June 2005, the Group’s bank loans were secured by the following:

Investment properties Leasehold land and buildings Bank deposits Other fixed assets	2002 HK$’000 236,000 2,662 – – 238,662	As at 31 December 2003 2004 HK$’000 HK$’000 236,000 92,400 2,592 2,536 – 65,500 – – 238,592 160,436	As at 30 June 2005 HK$’000 102,800 2,508 3,949 3,114
			112,371

F. Material acquisitions and disposals

There were neither significant investments held nor material acquisitions or disposals of subsidiary companies and affiliated companies during the three years ended 31 December 2004 and the six months ended 30 June 2005.

G. Employees and remuneration policies

As at 31 December 2002, the Group had 28 employees. The staff costs for the year ended 31 December 2002 was approximately HK$7,347,000.

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at 31 December 2003, the Group had 28 employees. The staff costs for the year ended 31 December 2003 was approximately HK$9,170,000.

As at 31 December 2004, the Group had 16 employees. The staff costs for the year ended 31 December 2004 was approximately HK$10,422,000.

As at 30 June 2005, the Group had 371 employees. The staff costs for the six months ended 30 June 2005 was approximately HK$10,001,000.

The Group’s remuneration, bonus and share option scheme policies are granted based on the prevailing industry practice, and the performance and experience of individual employees.

H. Foreign exchange exposure

The Group has not used financial instruments for hedging risk of converting foreign currency into Hong Kong dollars.

The routine business operation and investment of the Group are in Hong Kong and the PRC, with revenue and expenditure denominated mainly in Hong Kong dollars and Renminbi. The Renminbi income from the PRC is mainly remitted to Hong Kong at the prevailing official exchange rate. Given the stable official exchange rate of Renminbi to Hong Kong dollars, the Group believe that it will not be subject to any significant exposure associated with fluctuation in exchange rates under foreseeable circumstances.

I. Contingent liabilities

As at 31 December 2002, 2003 and 2004, the Group had no material contingent liabilities..

As at 30 June 2005, the Group had no contingent liability save as disclosed in the section headed “4. Indebtedness – Contingent liabilities” of this Appendix.

J. Order book

By nature of business, the Group does not maintain an order book.

7. MATERIAL ADVERSE CHANGES

Save as entering into the Subscription Agreement, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, the date to which the latest published audited accounts of the Group were made up.

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. TRADING PROSPECTS

The principal businesses of the Group are property investment and management, provision of financial services and provision of cultural recreation content. As at the Latest Practicable Date, the Directors are not aware of any special trade factors or risks which could materially affect the results of the Group.

The Subscription is considered a new step of the Group in actualising its plan to diversify its core business. The Board understands from CLIO that its management objective is to improve agent productivity, customer services, operational efficiency and product design and CLIO is expected to sustain a healthy and stable growth rate in the coming years. In addition, CLIO will continue to enlarge its distribution channel to improve market share. The Board considers that with the market positioning of CLIO in the Hong Kong life insurance market and the industry prospects, the Subscription will provide the Company with an opportunity to broaden its investment portfolio. The Company will treat its 40% interests in CLIO as a long-term investment. Further, as CLIO’s current business strategy has improved its financial performance for the year ended 31 December 2004 and the six months ended 30 June 2005, the Board does not expect to change CLIO’s existing business strategy immediately after Completion.

The Group will share its resources and knowledge in asset management including relevant experience of the Directors with CLIO, aiming to enhance CLIO’s performance on one hand and generate income such as asset management fee to the Group on the other hand. Shareholders should note that any disruption of CLIO’s bancaasurance arrangements and the unfavorable change in rate of growth of the Hong Kong insurance market may have an adverse impact on the performance of CLIO.

9. FINANCIAL PROSPECTS

The Directors expect to improve the Group’s financial position after the Subscription by equity funding. As at the Latest Practicable Date, the Company has yet to formulate a concrete plan in this regard. The Directors consider that the Subscription will broaden the Group’s investment portfolio and improve the Group’s financial performance by (a) sharing the profit of CLIO, generated by the increase in insurance premium and the appreciation in asset value and (b) creating synergy between CLIO and the Group, especially in respect of asset management, which the Directors and senior staff of the Group have had relevant experience. The Group’s financial position will be further improved by the income generated from new sources such as asset management fee.

– 75 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

The following is a text of the accountants’ report from Deloitte Touche Tohmatsu, the reporting accountants of CLIO prepared for the sole purpose of incorporation in this circular.

==> picture [76 x 58] intentionally omitted <==

23 December 2005

The Directors

Shougang Concord Grand (Group) Limited

Dear Sirs,

We set out below our report on the financial information regarding China Life Insurance (Overseas) Company Limited (the “Company” or “CLIO”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2002, 2003 and 2004 and for the six months ended 30 June 2005 (the “Relevant Periods”) for inclusion in a circular issued by Shougang Concord Grand (Group) Limited (“Shougang”) dated 23 December 2005 (the “Circular”).

CLIO is a private limited company incorporated in the People’s Republic of China (the “PRC”) on 31 August 1984. The head office of CLIO is situated in Beijing, the PRC. The principal business of CLIO is underwriting of long term insurance policies. As at the date of this report, CLIO has the following subsidiaries, which all are private companies with limited liability:

			Proportion of	Proportion of
			nominal value
			of issued	ordinary
		Issued and	share capital/
	Place and	fully paid	quota capital
	date of	share capital/	held	by CLIO
Name of subsidiary	incorporation	quota capital	Direct	Indirect	Principal activities
Antron International Limited	Hong Kong	HK$10,000,000	100%	–	Property investment
	16 February 1993	Ordinary shares
Chak Ian Investment	Macau	MOP100,000	100%	–	Investment holding
Company Limited	27 April 2002	Quota capital
(“Chak Ian”)
China Life (Overseas)	Hong Kong	HK$10,000	100%	–	Not yet commenced
Asset Management	14 July 2004	Ordinary shares			operation
Company Limited
(“CL Asset Management”)
China Life Consulting	Hong Kong	HK$2	100%	–	Provision of
Co., Limited	9 August 1994	Ordinary shares			consultancy
					services

– 76 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

			Proportion of	Proportion of
			nominal value
			of issued	ordinary
		Issued and	share capital/
	Place and	fully paid	quota capital
	date of	share capital/	held	by CLIO
Name of subsidiary	incorporation	quota capital	Direct	Indirect	Principal activities
China Life Trustees Limited	Hong Kong	HK$35,000,000	80%	20%	Provision of
	8 August 1995	Ordinary shares			trustee services
Entrepot Limited	Hong Kong	HK$100	95%	–	Property investment
	25 April 1995	Ordinary shares			and provision of
					training services
Hong Li Da Investment	Macau	MOP100,000	79%	21%	Leasing of property
Company, Limited	12 January 1995	Quota capital
Konco Limited	Hong Kong	HK$100,000	100%	–	Investment holding
	19 March 1992	Ordinary shares
Redwin Development	Hong Kong	HK$10,000	100%	–	Inactive
Limited (“Redwin”)	5 August 1993	Ordinary shares
Sunnoon Development Limited	Hong Kong	HK$10,000,000	100%	–	Property investment
	2 July 1991	Ordinary shares

No audited financial statements have been prepared since the date of incorporation of Chak Ian as there are no statutory requirements for the entity to prepare audited financial statements. For the purpose of this report, we have, however, reviewed all the relevant transactions of Chak Ian for the Relevant Periods.

No audited financial statements have been prepared for CL Asset Management and Redwin as they have not carried on any business since their respective dates of incorporation. For the purpose of this report, we have, however, reviewed all the relevant transactions of these companies for the Relevant Periods.

We have carried out audit procedures we considered necessary in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) on the consolidated financial statements of CLIO for the year ended 31 December 2002 and six months ended 30 June 2005 which were prepared in accordance with accounting principles generally accepted in Hong Kong.

We have carried out independent audit in accordance with Statements of Auditing Standards issued by the HKICPA on the consolidated financial statements of CLIO for the two years ended 31 December 2003 and 2004 which were prepared in accordance with accounting principles generally accepted in Hong Kong.

– 77 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

We have examined the audited consolidated financial statements, or where appropriate, management accounts (the “Underlying Financial Statements”) of CLIO for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The financial information of the Group for the Relevant Periods set out in this report has been prepared from the Underlying Financial Statements.

The Underlying Financial Statements are the responsibility of the directors of CLIO. The directors of Shougang Concord Grand (Group) Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an independent opinion on the financial information and to report our opinion to you.

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of CLIO and of the Group as at 31 December 2002, 2003 and 2004 and 30 June 2005 and of the consolidated results and cash flows of the Group for the Relevant Periods.

We have acted as auditors of all the companies now comprising the Group for the Relevant Periods.

The comparative consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement of CLIO for the six months ended 30 June 2004 together with the notes thereon (the “30 June 2004 financial information”) have been extracted from CLIO’s financial information for the same period which was prepared by the directors of CLIO solely for the purpose of this report. We have reviewed the financial information for the six months ended 30 June 2004 in accordance with the Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. A review consists principally of making enquires of the management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 30 June 2004 financial information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 30 June 2004 financial information.

– 78 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

(A) FINANCIAL INFORMATION

Consolidated income statement

Year ended 31 December 2002 2003 2004 NOTES HK$ HK$ HK$ (restated) (restated) (restated) Turnover 7 969,048,794 1,921,245,530 3,440,391,042 Gross written premiums 953,971,605 1,888,149,390 3,418,731,943 Less: Reinsurance premiums (26,521,463) (25,733,050) (706,824,855) Net written premiums 927,450,142 1,862,416,340 2,711,907,088 Other gains and losses 8 170,762,676 297,815,942 280,637,474 Other income 9 31,598,111 48,066,080 70,238,550 1,129,810,929 2,208,298,362 3,062,783,112 Claims, dividends, maturities and surrenders 1,278,169,988 966,465,871 1,031,382,078 Reinsurance claims recoverable (30,796,221) (14,012,192) (17,383,569) Commission expense 54,373,179 113,271,546 149,296,660 Commission income (468,401) (1,572,435) (53,854,061) (Decrease) increase in insurance funds (261,227,208) 1,031,617,247 1,861,775,981 Revaluation deficit (surplus) of investment properties 15 70,698,055 33,509,044 (45,518,014) Revaluation deficit (surplus) of land and buildings 16 22,744,000 6,031,201 (15,400,000) Amortisation of goodwill 18 316,546 316,546 316,546 Amortisation of negative goodwill 19 (1,093,180) (1,093,181) (1,093,181) Management and other expenses 143,139,889 122,229,313 120,149,980 1,275,856,647 2,256,762,960 3,029,672,420 (Loss) profit from operations 10 (146,045,718) (48,464,598) 33,110,692 Finance costs 11 (11,137,290) (8,941,494) (24,662,851) (Loss) profit before taxation (157,183,008) (57,406,092) 8,447,841 Income tax expenses 14 – (3,381,049) (3,060,995) Net (loss) profit for the year/period (157,183,008) (60,787,141) 5,386,846

Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 2,498,794,130 2,931,071,205 2,489,581,745 2,922,580,961 (11,503,459) (11,485,788) 2,478,078,286 2,911,095,173 49,791,053 228,335,102 30,926,094 24,031,372 2,558,795,433 3,163,461,647 816,891,830 228,845,707 (7,863,455) (4,635,636) 86,276,817 94,048,749 (1,142,005) (196,566) 1,664,129,529 2,735,258,502 – (62,228,863) – (12,648,350) 158,273 – (523,919) – 48,158,337 79,973,583 2,606,085,407 3,058,417,126 (47,289,974) 105,044,521 (3,559,597) (15,163,153) (50,849,571) 89,881,368 (4,052,817) (1,740,684) (54,902,388) 88,140,684

– 79 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated balance sheet

NOTES Non-current assets Investment properties 15 Property, plant and equipment 16 Prepaid lease payments 17 Goodwill 18 Negative goodwill 19 Investments in securities 20 Investments in associates 22 Investment in an infrastructure project Loans receivable 23 Deposits with banks with maturities over one year 24 Statutory deposits 26 Reinsurance assets 27 Current assets Non-current assets held for sale 17 Investments in securities 20 Loans receivables 23 Direct premiums receivables 28 Amounts due from reinsurers under reinsurance contracts ceded, unsecured 25 Amount due from an associate, unsecured 25 Amounts due from fellow subsidiaries 25 Interest receivable 25 Other debtors and deposits, unsecured 25 Tax recoverable Cash balances with securities brokers Deposits with banks 24 Cash	2002 HK$ (restated) 1,104,746,621 302,856,078 22,989,594 1,266,185 (4,058,714) 1,010,311,547 240,000 12,582,315 66,374,450 97,264,803 3,000,000 8,011,644 2,625,584,523 – 637,776,512 135,539,473 36,470,788 10,357,086 9,660,000 964,314 134,521,339 26,452,082 6,224,305 2,446,923 1,386,662,148 168,632 2,387,243,602	At 31 December 2003 HK$ (restated) 1,054,720,500 306,969,044 22,989,594 949,639 (2,965,533) 1,222,119,047 240,000 – 96,644,347 97,264,803 3,012,287 4,768,916 2,806,712,644 – 563,884,726 92,992,182 29,588,697 5,310,579 9,660,000 – 135,601,695 48,591,421 5,626,322 3,478,396 2,450,444,437 66,788 3,345,245,243	2004 HK$ (restated) 1,104,841,645 314,100,365 22,545,089 633,093 (1,872,352) 2,751,366,356 90,000 – 87,070,338 – 1,500,000 664,050,121 4,944,324,655 – 2,418,835,673 97,471,235 36,278,321 775,468 9,660,000 3,715,211 174,680,788 30,631,068 482,216 3,186,654 1,663,924,948 147,528 4,439,789,110	At 30 June 2005 HK$ 1,154,491,794 329,360,531 – – – 4,626,310,064 92,997 – 82,972,155 65,361,433 1,500,000 674,268,033
				6,934,357,007
				21,632,112 3,058,845,575 100,711,527 48,062,266 746,243 9,660,000 6,109,994 179,627,274 40,782,201 293,074 5,110,788 1,962,139,928 158,418
				5,433,879,400

– 80 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated balance sheet (Continued)

NOTES Current liabilities Claims payable 29 Amounts due to reinsurers under reinsurance contracts ceded 29 Amount due to ultimate holding company Amounts due to fellow subsidiaries Premiums in advance under direct underwriting business 29 Policyholders’ funds on deposit 29 Deposit premiums 29 Other insurance liabilities 29 Financial liabilities arising from investment contracts 33 Other creditors and accrued charges 29 Tax liabilities Bank loan – due within one year 30 Net current assets Total assets less current liabilities Non-current liabilities Bank loan – due after one year 30 Insurance funds 32 Premiums in advance under direct underwriting business 29 Other liabilities Net assets Capital and reserves Paid-up capital 34 Reserves Total capital and reserves	2002 HK$ (restated) 21,180,323 11,759,725 31,995,270 48,318 3,456,281 172,491,607 – 21,141,478 84,101,223 395,432,098 – 19,319,249 760,925,572 1,626,318,030 4,251,902,553 187,765,681 3,861,860,101 18,299,680 – 4,067,925,462 183,977,091 566,100,775 (382,123,684) 183,977,091	At 31 December 2003 HK$ (restated) 11,278,532 15,815,841 – – 5,705,420 197,772,666 120,529,296 22,308,716 131,727,302 394,736,697 – 20,398,356 920,272,826 2,424,972,417 5,231,685,061 167,029,882 4,890,234,620 19,775,638 656,336 5,077,696,476 153,988,585 566,100,775 (412,112,190) 153,988,585	2004 HK$ (restated) 12,595,816 663,475,911 – – 5,847,873 252,697,343 40,344,252 26,179,806 177,404,894 163,466,689 841,796 20,939,167 1,363,793,547 3,075,995,563 8,020,320,218 146,100,670 7,447,399,135 21,689,684 – 7,615,189,489 405,130,729 877,335,146 (472,204,417) 405,130,729	At 30 June 2005 HK$ 15,943,609 674,669,691 – – 6,508,565 292,725,753 27,354,367 23,117,253 196,340,976 272,643,400 2,393,338 20,618,468 1,532,315,420 3,901,563,980 10,835,920,987 136,117,762 10,210,910,492 21,585,767 – 10,368,614,021 467,306,966 877,335,146 (410,028,180) 467,306,966

– 81 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Balance sheet

NOTES Non-current assets Investment properties 15 Property, plant and equipment 16 Prepaid lease payments 17 Investments in securities 20 Interests in subsidiaries 21 Loans to subsidiaries 21 Investments in associates 22 Loans receivable 23 Deposits with banks with maturities over one year 24 Investment in an infrastructure project Reinsurance assets 27 Current assets Non-current assets held for use Investments in securities 20 Loans receivables 23 Direct premiums receivables 28 Amounts due from reinsurers under reinsurance contracts ceded, unsecured 25 Amounts due from fellow subsidiaries 25 Amounts due from subsidiaries, unsecured 25 Amount due from an associate, unsecured 25 Interest receivable 25 Other debtors and deposits, unsecured 25 Tax recoverable Cash balances with securities brokers Deposits with banks 24 Cash	2002 HK$ (restated) 43,346,145 10,937,692 22,989,594 1,010,311,547 89,891,951 1,130,942,056 240,000 66,374,450 97,264,803 12,582,315 8,011,644 2,492,892,197 – 637,776,512 135,539,473 36,470,788 10,357,086 964,314 28,690,634 9,660,000 134,521,339 16,521,414 6,224,305 2,446,923 1,275,132,725 36,151 2,294,341,664	At 31 December 2003 HK$ (restated) 41,440,000 8,082,558 22,989,594 1,222,119,047 61,138,948 1,095,155,562 240,000 96,644,347 97,264,803 – 4,768,916 2,649,843,775 – 563,884,726 92,992,182 29,588,697 5,310,579 – 37,826,624 9,660,000 135,601,695 40,855,288 5,626,322 3,478,396 2,359,408,757 54,619 3,284,287,885	2004 HK$ (restated) 46,733,365 6,207,563 22,545,089 2,751,366,356 28,165,640 1,157,746,469 90,000 87,070,338 – – 664,050,121 4,763,974,941 – 2,418,835,673 97,471,235 36,278,321 775,468 616,307 51,497,357 9,660,000 181,708,807 22,883,854 – 3,186,654 1,591,541,766 44,274 4,414,499,716	At 30 June 2005 HK$ 57,420,000 4,784,070 – 4,626,310,064 48,062,950 1,162,024,627 92,997 82,972,155 65,361,433 – 674,268,033
				6,722,296,329
				21,632,112 3,058,845,575 100,711,527 48,062,266 746,243 538,099 58,262,104 9,660,000 179,627,274 39,652,984 – 5,110,788 1,878,640,631 111,723
				5,401,601,326

– 82 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Balance sheet (Continued)

NOTES Current liabilities Claims payable 29 Amounts due to reinsurers under reinsurance contracts ceded 29 Premiums in advance under direct underwriting business 29 Amount due to ultimate holding company Policyholders’ funds on deposit 29 Deposit premiums 29 Financial liabilities arising from investment contracts 33 Other insurance liabilities 29 Other creditors and accrued charges 29 Amounts due to subsidiaries Net current assets Total assets less current liabilities Non-current liabilities Insurance funds 32 Premiums in advance under direct underwriting business 29 Other liabilities Net assets Capital and reserves Paid-up capital 34 Reserves 35 Total capital and reserves	2002 HK$ (restated) 21,180,323 11,759,725 3,456,281 28,024,261 172,491,607 – 84,101,223 10,215,895 397,870,613 13,617,719 742,717,647 1,551,624,017 4,044,516,214 3,861,860,101 18,299,680 – 3,880,159,781 164,356,433 566,100,775 (401,744,342) 164,356,433	At 31 December 2003 HK$ (restated) 11,278,532 15,815,841 5,705,420 – 197,772,666 120,529,296 131,727,302 22,308,716 378,902,035 1,128,580 885,168,388 2,399,119,497 5,048,963,272 4,890,234,620 19,775,638 656,336 4,910,666,594 138,296,678 566,100,775 (427,804,097) 138,296,678	2004 HK$ (restated) 12,595,816 663,475,911 5,847,873 – 252,697,343 40,344,252 177,404,894 26,179,806 142,587,827 7,061,834 1,328,195,556 3,086,304,160 7,850,279,101 7,447,399,135 21,689,684 – 7,669,088,819 381,190,282 877,335,146 (496,144,864) 381,190,282	At 30 June 2005 HK$ 15,943,609 674,669,691 6,508,565 – 292,725,753 27,354,367 196,340,976 23,117,253 260,024,516 1,090,275 1,497,775,005 3,882,194,209 10,626,122,650 10,210,910,492 21,585,767 – 10,232,496,259 393,626,391 877,335,146 (483,708,755) 393,626,391

– 83 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated statement of changes in equity

At 1 January 2002 Exchange differences on translation of overseas operations and net expense recognised directly in equity Net loss for the year Total recognised income and expense for the year Transfer of exchange gain of unification of Renminbi exchange rates (note c) At 31 December 2002 and 1 January 2003 Revaluation increase of investments in securities and net income recognised directly in equity Net loss for the year Total recognised income and expense for the year At 31 December 2003 as restated Exchange differences on translation of overseas operations and net income recognised directly in equity Realised on disposals Net profit for the year Total recognised income and expense for the year Shares issued Transfer of unassigned surplus to insurance funds_(Note b) At 31 December 2004 as restated Effects of changes in accounting policies(see Note 2)_ At 1 January 2005 as restated	Share capital HK$ 566,100,775 – – – – 566,100,775 – – – 566,100,775 – – – – 311,234,371 – 311,234,371 877,335,146 – 877,335,146	Investment revaluation reserve HK$ – – – – – – 30,798,635 – 30,798,635 30,798,635 – (30,725,568) – (30,725,568) – – – 73,067 – 73,067	Capital reserve HK$ (Note a) 205,759,993 – – – – 205,759,993 – – – 205,759,993 – – – – – – – 205,759,993 – 205,759,993	Exchange reserve/ translation reserve HK$ 30,051,088 (4,730,168) – (4,730,168) (25,320,920) – – – – – 1,353,824 – – 1,353,824 – – – 1,353,824 – 1,353,824	Accumulated losses HK$ (456,021,589) – (157,183,008) (157,183,008) 25,320,920 (587,883,677) – (60,787,141) (60,787,141) (648,670,818) – – 5,386,846 5,386,846 – (36,107,329) (36,107,329) (679,391,301) (9,380,988) (688,772,289)	Total HK$ 345,890,267 (4,730,168) (157,183,008) (161,913,176) – 183,977,091 30,798,635 (60,787,141) (29,988,506) 153,988,585 1,353,824 (30,725,568) 5,386,846 (23,984,898) 311,234,371 (36,107,329) 275,127,042 405,130,729 (9,380,988) 395,749,741

– 84 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated statement of changes in equity (Continued)

Exchange differences on translation of overseas operations and net income recognised directly in equity Realised on disposals Net profit for the period Total recognised income and expense for the period Transfer of unassigned surplus to insurance funds_(Note b) At 30 June 2005 At 1 January 2004 as restated Exchange differences on translation of overseas operations (unaudited) and net income recognised directly in equity (unaudited) Realised on disposals (unaudited) Net loss for the period (unaudited) Total recognised income and expense for the period (unaudited) Transfer of unassigned surplus to insurance funds(Note b)_ (unaudited) At 30 June 2004 (unaudited)	Share capital HK$ – – – – – 877,335,146 566,100,775 – – – – – 566,100,775	Investment revaluation reserve HK$ – (73,067) – (73,067) – – 30,798,635 – (17,797,462) – (17,797,462) – 13,001,173	Capital reserve HK$ (Note a) – – – – – 205,759,993 205,793,993 – – – – – 205,793,993	Translation reserve HK$ 1,039,309 – – 1,039,309 – 2,393,133 – 1,488,159 – – 1,488,159 – 1,488,159	Accumulated losses HK$ – – 88,140,684 88,140,684 (17,549,701) (618,181,306) (648,670,818) – – (54,902,388) (54,902,388) (36,044,313) (739,617,519)	Total HK$ 1,039,309 (73,067) 88,140,684 89,106,926 (17,549,701) 467,306,966 153,988,585 1,488,159 (17,797,462) (54,902,388) (71,211,691) (36,044,313) 46,732,581

Notes:

• (a) Capital reserve represents reserve arising from donated assets received in prior years.

• (b) The transfer, which is an appropriation from reserves to insurance funds, represents the amount of unassigned surplus retained in the insurance funds, based on the recommendations from the Group’s appointed actuary.

• (c) During the year, the Group discovered that reserves included an exchange gain arising from the unification of Renminbi (“RMB”) exchange rates in 1994. This exchange gain should have been amortised to the income statement over five years from 1994, the year when it arose. Accordingly, during the year, the Group reclassified the “exchange gain arising from unification of RMB exchange rate” which was included in reserves of HK$30,051,088 to the opening balance of the accumulated losses.

– 85 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated cash flow statement

				Six months ended	Six months ended	Six months ended
	Year ended 31 December			30	June
	2002	2003	2004	2004		2005
	HK$	HK$	HK$	HK$		HK$
				(unaudited)
OPERATING ACTIVITIES
(Loss) profit before taxation	(157,183,008)	(57,406,092)	8,447,841	(50,849,571)	89,881,368
Adjustments for:
Accretion of discounts or amortisation of premiums
on investments in securities	–	10,366,334	(4,284,345)	6,483,679	(18,590,738)
Net unrealised/realised (gain) loss on investments
in securities	(21,790,818)	(157,026,357)	(93,168,501)	23,517,576	(32,167,491)
(Gain) loss on disposal of property, plant and
equipment	–	–	(41,898)	–		24,764
Gain on disposal of infrastructure project	–	(4,775,337)	–	–		–
Loss on disposal of investment properties	1,347,264	–	–	–		–
Loss on disposal of an associate	–	–	150,000	–		–
Interest income	(106,012,773)	(102,304,662)	(146,749,801)	(61,921,807)	(139,590,839)
Imputed interest income on impaired loans	–	–	–	–	(11,124,853)
Interest expense	11,137,290	8,941,494	24,662,851	3,559,597	15,163,153
Dividend income from equity securities	(5,416,604)	(16,302,843)	(3,654,116)	(917,565)	(9,950,411)
Depreciation	8,983,465	7,530,032	9,643,146	1,679,476	6,415,175
Amortisation of premium on mortgage loan
portfolio acquired	935,550	2,806,700	2,027,025	155,929		779,625
Revaluation deficit (surplus) of investment
properties	70,698,055	33,509,044	(45,518,014)	–	(62,228,863)
Allowance (write back of) for doubtful loans	2,495,000	176,415	(1,523,199)	–		–
Allowance for doubtful bank deposits and accrued
interest	21,233,690	–	–	–		–
Revaluation deficit (surplus) of land and buildings	22,744,000	6,031,201	(15,400,000)	–	(12,648,350)
Amortisation of goodwill	316,546	316,546	316,546	158,273		–
Amortisation of negative goodwill	(1,093,180)	(1,093,181)	(1,093,181)	(523,919)		–
Impairment loss on goodwill	–	–	–	–		633,093

– 86 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated cash flow statement (Continued)

Operating cash flows before movements in working capital (Increase) decrease in direct premiums receivable (Increase) decrease in amounts due from reinsurers under reinsurance contracts ceded Decrease (increase) in reinsurance assets Decrease (increase) in other debtors and deposits Increase (decrease) in claims payable Increase in amounts due to reinsurers under reinsurance contracts ceded (Decrease) increase in premiums in advance under direct underwriting business Increase in policyholders’ funds on deposit Increase (decrease) in deposit premiums Increase (decrease) in other insurance liabilities Increase (decrease) in other creditors and accrued charges Increase (decrease) in other liabilities Decrease in amounts due to fellow subsidiaries (Decrease) increase in insurance funds Increase in financial liabilities arising from investment contracts Cash generated from operations Interest paid Net Hong Kong Profits Tax refunded (paid) NET CASH (USED IN) GENERATED FROM OPERATING ACTIVITIES	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (151,605,523) (269,230,706) (266,185,646) (13,423,076) 6,882,091 (6,689,624) (9,642,777) 5,046,507 4,535,111 4,725,156 3,242,728 (659,281,205) 62,226,414 (22,139,339) 17,960,353 3,877,315 (9,901,791) 1,317,284 2,608,965 4,056,116 647,660,070 (3,229,151) 3,725,097 2,056,499 30,643,981 25,281,059 54,924,677 – 120,529,296 (80,185,044) 15,377,597 1,167,238 3,871,090 255,583,688 (695,401) (231,270,008) – 656,336 (656,336) (957,443) (48,318) – (283,447,306) 1,028,374,519 2,521,057,186 40,129,184 47,626,079 45,677,592 (47,132,976) 944,571,511 2,054,791,499 (11,137,290) (8,941,494) (24,662,851) (2,556,272) (2,783,066) 2,924,907 (60,826,538) 932,846,951 2,033,054,055	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) (78,658,332) (173,404,367) (11,031,483) (11,783,945) 288,487 29,225 568,454 (10,217,912) 26,569,157 (10,151,133) 123,759 3,347,793 1,872,337 11,193,780 95,941 556,775 40,356,962 40,028,410 (74,649,296) (12,989,885) (4,234,380) (3,062,553) (263,667,573) 109,176,711 (656,336) – – (2,394,783) 1,603,561,370 2,745,961,656 15,933,989 18,936,082 1,316,473,056 2,705,225,854 (3,559,597) (15,163,153) (5,225,590) – 1,307,687,869 2,690,062,701	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) (78,658,332) (173,404,367) (11,031,483) (11,783,945) 288,487 29,225 568,454 (10,217,912) 26,569,157 (10,151,133) 123,759 3,347,793 1,872,337 11,193,780 95,941 556,775 40,356,962 40,028,410 (74,649,296) (12,989,885) (4,234,380) (3,062,553) (263,667,573) 109,176,711 (656,336) – – (2,394,783) 1,603,561,370 2,745,961,656 15,933,989 18,936,082 1,316,473,056 2,705,225,854 (3,559,597) (15,163,153) (5,225,590) – 1,307,687,869 2,690,062,701
			2,705,225,854 (15,163,153) –
			2,690,062,701

– 87 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated cash flow statement (Continued)

INVESTING ACTIVITIES Dividend received Interest received Purchase of investment properties Purchase of property, plant and equipment Purchase of leasehold land held for undetermined future use Purchase of investments in securities Proceeds from disposal of property, plant and equipment Proceeds from disposal of infrastructure project Proceeds from disposal of investment properties Decrease (increase) in deposits with banks with original maturity more than three months Decrease (increase) in amounts due from fellow subsidiaries Proceeds from disposal of investments in securities Cash released from (paid for) statutory deposits Decrease (increase) in loans receivable Purchase of an associate NET CASH (USED IN) GENERATED FROM INVESTING ACTIVITIES	2002 HK$ 5,416,604 62,448,103 (26,432,055) (1,649,195) (791,565) (1,107,203,281) 27,363,891 – 4,334,784 (97,264,803) 20,199,007 423,806,709 – 85,500,954 – (604,270,847)	Year ended 31 December 2003 2004 HK$ HK$ 16,302,843 3,654,116 101,224,306 107,670,708 – – (1,157,122) (3,050,854) – – (1,137,972,123) (4,396,113,040) – 1,651,165 17,357,652 – – – – 97,264,803 964,314 (3,715,211) 1,177,515,067 1,078,642,062 (12,287) 1,512,287 9,294,279 4,591,130 – – 183,516,929 (3,107,892,834)	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 917,565 9,950,411 47,271,777 145,769,206 – – (2,544,299) (138,457) – – (1,373,742,331) (3,160,360,840) – – – – – – 97,264,803 (65,361,433) – – 176,510,854 696,092,392 1,512,287 – 4,303,605 (11,175,074) – (2,997) (1,048,505,739) (2,385,226,792)

– 88 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

Consolidated cash flow statement (Continued)

FINANCING ACTIVITIES Proceeds from issue of shares Repayment of bank loans Advance (repayment) in amount due to ultimate holding company NET CASH (USED IN) GENERATED FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD (a) ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Being: Cash balances with securities brokers Deposits with banks Cash Less: Deposits with banks with original maturity more than three months	2002 HK$ – (22,744,945) 6,713,743 (16,031,202) (681,128,587) 2,070,974,496 (568,206) 1,389,277,703 2,446,923 1,483,926,951 168,632 1,486,542,506 (97,264,803) 1,389,277,703	Year ended 31 December 2003 2004 HK$ HK$ – 311,234,371 (19,656,692) (20,388,401) (31,995,270) – (51,651,962) 290,845,970 1,064,711,918 (783,992,809) 1,389,277,703 2,453,989,621 – (2,737,682) 2,453,989,621 1,667,259,130 3,478,396 3,186,654 2,547,709,240 1,663,924,948 66,788 147,528 2,551,454,424 1,667,259,130 (97,264,803) – 2,453,989,621 1,667,259,130	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – (10,132,774) (10,303,607) – – (10,132,974) (10,303,607) 249,049,356 (294,532,302) 2,453,989,621 1,667,259,130 (3,114,972) 5,617,702 2,699,924,005 1,967,409,134 2,807,820 5,110,788 2,697,104,501 2,027,501,361 11,684 158,418 2,699,924,005 2,032,770,567 – (65,361,433) 2,699,924,005 1,967,409,134

(b) MAJOR NON CASH TRANSACTIONS

During the year ended 31 December 2002, the Group acquired a property situated in Macau from a former fellow subsidiary, at a consideration of HK$21,169,590. Of this amount, HK$15,749,093 has been settled through the loans receivable account and HK$4,969,177 has been settled through the Head Office current account. The remaining amount was paid by cash.

– 89 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

(B) NOTES TO THE FINANCIAL INFORMATION

1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

Starting from the period of six months ended 30 June 2005, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as the “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2005. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the Relevant Periods are prepared and presented.

Business combinations

From 1 January 2005 onwards, the Group has applied HKFRS 3 Business Combinations which is effective for business combinations for which the agreement date is on or after 1 January 2005. The principal effects of the application of HKFRS 3 to the Group are summarised below:

Goodwill

In previous years, goodwill arising on acquisitions was capitalised and amortised over its estimated useful life. The Group has applied the relevant transitional provisions in HKFRS 3. With respect to goodwill previously capitalised on the balance sheet, the Group eliminated the carrying amount of the related accumulated amortisation as of 1 January 2005 of HK$949,638 with a corresponding decrease in the cost of goodwill (see Note 18). The Group has discontinued amortising such goodwill from 1 January 2005 onwards and such goodwill will be tested for impairment at least annually. Goodwill arising on acquisitions after 1 January 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. As a result of this change in accounting policy, no amortisation of goodwill has been charged in the six months ended 30 June 2005. Comparative figures for 2004, 2003 and 2002 have not been restated (see Note 2 for the financial impact).

Excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost (previously known as “negative goodwill”)

In accordance with HKFRS 3, any excess of the Group’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition (“discount on acquisition”) is recognised immediately in profit or loss in the period in which the acquisition takes place. In previous periods, negative goodwill arising on acquisitions was presented as a deduction from assets and released to income based on an analysis of the circumstances from which the balance resulted. In accordance with the relevant transitional provisions in HKFRS 3, the Group derecognised all negative goodwill on 1 January 2005 (of which negative goodwill of HK$1,872,352 was previously presented as a deduction from assets). A corresponding adjustment to the Group’s retained earnings of HK$1,872,352 has been made (see Note 2 for the financial impact).

Financial instruments

From 1 January 2005 onwards, the Group has applied HKAS 32 Financial Instruments: Disclosure and Presentation and HKAS 39 Financial Instruments: Recognition and Measurement. HKAS 32 requires retrospective application. The implementation of HKAS 32 has had no significant impact on the presentation of financial instruments for the current and prior periods. HKAS 39, which is effective for accounting periods beginning on or after 1 January 2005, generally requires limited retrospective application with no restatement of prior periods balances in relation to the recognition, and measurement requirements of financial assets and liabilities. The principal effects resulting from the implementation of HKAS 39 are summarised below:

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Financial instruments (continued)

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to the classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

Prior to 1 January 2005, the Group classified and measured its debt and equity securities in accordance with the alternative treatment of Statement of Standard Accounting Practice 24 (SSAP 24). Under SSAP 24, investments in debt or equity securities are classified as “trading securities”, “non-trading securities” or “held-to-maturity investments” as appropriate. Both “trading securities” and “non-trading securities” are measured at fair value. Unrealised gains or losses of “trading securities” are reported in profit or loss for the period in which gains or losses arise. Unrealised gains or losses of “non-trading securities” are reported in equity until the securities are sold or determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for that period. From 1 January 2005 onwards, the Group has classified and measured its debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method after initial recognition.

On 1 January 2005, the Group classified and measured its debt and equity securities in accordance with the transitional provisions of HKAS 39. Trading securities and held-to-maturity securities continues to be classified as trading and held-to-maturity investments respectively. For “non-trading securities” that are designated as “financial assets at fair value through profit or loss”, the cumulative unrealised gains or losses previously reported in equity at 1 January 2005 continue to be held in equity. On subsequent derecognition or impairment of the investment, the unrealised gain or loss remaining in equity will be transferred to profit or loss. No adjustment to the previous carrying amounts of assets and liabilities at 1 January 2005 has been made.

Financial assets and financial liabilities other than debt and equity securities

From 1 January 2005 onwards, the Group has classified and measured its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “heldto-maturity financial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit or loss” or “other financial liabilities”. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss directly. Other financial liabilities are carried at amortised cost using the effective interest method after initial recognition.

Prior to the application of HKAS 39, an interest-free non-current loan to a subsidiary was stated at the nominal amount. HKAS 39 requires all financial assets and financial liabilities to be measured at fair value on initial recognition. Such an interest-free loan is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The Group has applied the relevant transitional provisions in HKAS 39. As a result of this change in the accounting policy, the carrying amount of the loan and the investments in subsidiaries as at 1 January 2005 has been decreased and increased respectively by HK$4,897,310 in order to state the loan at amortised cost in accordance with HKAS 39. There is no impact on the results of the Group for the current and prior periods.

Upon the application of HKAS 39, an impairment loss of HK$11,253,340 was made on the Group’s partly secured loan as at 1 January 2005 which was determined based on future cash flows of the loan discounted at the original effective interest rate. A corresponding adjustment has been made to the Group’s retained earnings.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Owner-occupied leasehold interest in land

In previous periods, owner-occupied leasehold land and buildings were included in property, plant and equipment and measured using the revaluation model. In the current period, the Group has applied HKAS 17 Leases. Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight-line basis. Alternatively, where the allocation between the land and buildings elements cannot be made reliably, the leasehold interests in land continue to be accounted for as property, plant and equipment. As the Group considered that the payment for the leasehold interests in land cannot be separately identified from those of the buildings, this change in accounting policy has had no material effect on the results for the current and prior periods.

Investment properties

From 1 January 2005 onwards, the Group has, for the first time, applied HKAS 40 Investment Property. The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the period in which they arise. In previous periods, investment properties under the predecessor standard were measured at open market values, with revaluation surplus or deficit credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and a revaluation surplus subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 retrospectively. As the investment properties have been revalued downwards as compared to their respective costs despite the revaluation surplus in certain periods of the Relevant Periods, there were no investment properties revaluation reserve as at period ends of the Relevant Periods. Accordingly, this change has had no material effect on the results for the current or prior periods.

Leasehold land held for undetermined future use

Previously, leasehold land held for an undetermined future use was carried at cost less impairment. Under HKAS 17, such leasehold land is classified as a prepaid lease payment under an operating lease, carried at cost and amortised on a straight-line basis over the lease term. In the absence of any specific transitional provisions in HKAS 17, such change in accounting policy has been applied retrospectively. (see Note 2 for the financial impact).

Deferred taxes related to investment properties

In previous periods, deferred tax consequences in respect of revalued investment properties were assessed on the basis of the tax consequence that would follow from recovery of the carrying amount of the properties through sale in accordance with the predecessor interpretation. In the current period, the Group has applied HK(SIC) Interpretation 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets which removes the presumption that the carrying amounts of investment properties is to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the property at each balance sheet date. In the absence of any specific transitional provisions in HK(SIC) Interpretation 21, this change in accounting policy has been applied retrospectively. With respect to the recognition of the deferred tax liabilities related to the revaluation of investment properties, the Group has made a corresponding increase in the recognition of the deferred tax assets arising from the unutilised estimated tax losses, if appropriate, for certain periods during the Relevant Periods. Accordingly, this change has no net impact for the year ended 31 December 2002 and the period ended 30 June 2005. Comparative figures for prior periods have been restated (see Note 2 for the financial impact).

Insurance contracts

From 1 January 2005 onwards, the Group has adopted HKFRS 4 Insurance Contracts which represents the first HKFRS to deal with insurance contracts. The main features of HKFRS 4 include but are not limited to the definition of an insurance contract, the use of liability adequacy tests and impairment tests for reinsurance assets, and prohibition of catastrophe and equalisation provisions.

The adoption of HKFRS 4 resulted in the reclassification of investment contracts without discretionary participation features (“DPF”), previously classified as insurance contracts, as investment contracts, to be accounted for under the provisions of HKAS 39. As a result, the premium income from these contracts is accounted for as financial liabilities, and related policyholders’ benefits to the extent covered by the said contracts are accounted for as a direct debit to the financial liabilities. For insurance contracts and investment contracts with DPF, the accounting policy adopted is consistent with that of the previous financial year, including the recognition of premiums as turnover.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

1. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (continued)

Insurance contracts (continued)

Some insurance contracts comprise an insurance component and a deposit component. Under HKFRS 4, an insurer is required to unbundle the deposit component if the insurer can measure the deposit component (including any embedded surrender options) separately and its accounting policies do not otherwise require it to recognise all obligations and rights arising from the deposit component. The Group chose not to unbundle the deposit component of all of its insurance contracts as its accounting policies require it to recognise all obligations and rights arising from the deposit component, though the Group can measure the deposit component separately. The accounting treatment is specially permitted under HKFRS 4.

Liabilities in respect of insurance contracts are tested for adequacy by discounting the current estimates of all future contractual cash flows and comparing this amount to the carrying value of the liability. Where a shortfall is identified, an additional provision is required.

In prior periods, insurance liabilities are net of reinsurance assets in the balance sheet. In accordance with HKFRS 4, reinsurance assets are separately disclosed in the balance sheet and are assessed for impairment as at balance sheet date. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement.

The adoption of HKFRS 4 has no change on the results of the current or prior periods. The details of the adjustments for the Relevant Periods are set out in Note 2.

2. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

The cumulative effects of the application of the new HKFRSs on the balance sheet and income statement items are summarised as follows:

As at 31.12.2002 (originally stated) HK$ Balance sheet items Impact of HKFRS 4 Reinsurance assets – Financial liabilities – Insurance funds (3,937,949,680) Impact of HKAS 17 Leasehold land held for undetermined future use 22,989,594 Prepaid lease payments – Total effects on assets and liabilities (3,914,960,086) Year ended 31.12.2002 (originally stated) HK$ Income statement items Impact of HKFRS 4 Gross premiums written (1,028,888,598) Other gains and losses (165,266,292) Claims, dividends, maturities and surrenders 1,276,665,193 Reinsurance claims recoverable – Decrease in insurance funds (221,098,025) Total effects on income statement and retained earnings (138,587,722)	Adjustments HK$ 8,011,644 (84,101,223) 76,089,579 (22,989,594) 22,989,594 – Adjustments HK$ 74,916,993 (5,496,384) 1,504,795 (30,796,221) (40,129,183) –	As at 31.12.2002 (restated) HK$ 8,011,644 (84,101,223) (3,861,860,101) – 22,989,594 (3,914,960,086) Year ended 31.12.2002 (restated) HK$ (953,971,605) (170,762,676) 1,278,169,988 (30,796,221) (261,227,208) (138,587,722)

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

2. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (continued)

As at 31.12.2003 (originally stated) Adjustments HK$ HK$ Balance sheet items Impact of HKFRS 4 Reinsurance assets – 4,768,916 Financial liabilities – (131,727,302) Insurance funds (5,017,193,006) 126,958,386 Impact of HKAS 17 Leasehold land held for undetermined future use 22,989,594 (22,989,594) Prepaid lease payments – 22,989,594 Impact of HK(SIC)-INT 21 Deferred tax related to investment properties (3,234,404) 3,234,404 Total effects on assets and liabilities (4,997,437,816) 3,234,404 Year ended 31.12.2003 (originally stated) Adjustments HK$ HK$ Income statement items Impact of HKFRS 4 Gross premiums written (1,947,307,802) 59,158,412 Other gains and losses (319,972,835) 22,156,893 Claims, dividends, maturities and surrenders 986,053,816 (19,587,945) Reinsurance claims recoverable – (14,012,192) Management and other expenses 122,318,402 (89,089) Increase in insurance funds 1,079,243,326 (47,626,079) Impact of HK(SIC)-INT 21 Deferred tax related to investment properties 6,615,453 (3,234,404) Total effects on income statement and retained earnings (73,226,055) (3,234,404) As at As at 31 December 2004 31 December 2004 (originally stated) Adjustments (restated) Adjustments HK$ HK$ HK$ HK$ Balance sheet items Impact of HKFRS 4 Reinsurance assets – 664,050,121 664,050,121 – Financial liabilities – (177,404,894) (177,404,894) – Insurance funds (6,960,753,908) (486,645,227) (7,447,399,135) – Impact of HKAS 17 Leasehold land held for undetermined future use 22,545,089 (22,545,089) – – Prepaid lease payments – 22,545,089 22,545,089 – Impact of HKFRS 3 Derecognition of negative goodwill (1,872,352) – (1,872,352) 1,872,352 Impact of HKAS 32 and HKAS 39 Impairment on partly secured loans 184,541,573 – 184,541,573 (11,253,340) Impact of HK(SIC)-INT 21 Deferred tax related to investment properties (2,878,193) 2,878,193 – – Total effects on assets and liabilities (6,758,417,791) 2,878,193 (6,755,539,598) (9,380,988)

As at 31.12.2003 (restated) HK$ 4,768,916 (131,727,302) (4,890,234,620) – 22,989,594 – (4,994,203,412) Year ended 31.12.2003 (restated) HK$ (1,888,149,390) (297,815,942) 966,465,871 (14,012,192) 122,229,313 1,031,617,247 3,381,049 (76,460,459) As at 1 January 2005 (restated) HK$ 664,050,121 (177,404,894) (7,447,399,135) – 22,545,089 – 173,288,233 – (6,764,930,586)

– 94 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

2. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (continued)

Year ended 31.12.2004 (originally stated) HK$ Income statement items Impact of HKFRS 4 Gross premiums written (3,482,899,024) Other gains and losses (297,879,118) Claims, dividends, maturities and surrenders 1,049,297,683 Reinsurance claims recoverable – Management and other expenses 120,581,939 Increase in insurance funds 1,907,453,573 Impact of HK(SIC)-INT 21 Deferred tax related to investment properties 2,704,784 Total effects on income statement (700,740,163) Total effects on profit and loss for prior years (73,226,055) Total effects on income statement and retained earnings (773,966,218)	Adjustments HK$ 64,167,081 17,241,644 (17,915,605) (17,383,569) (431,959) (45,677,592) 356,211 356,211 (3,234,404) (2,878,193)	Year ended 31.12.2004 (restated) HK$ (3,418,731,943 (280,637,474 1,031,382,078 (17,383,569 120,149,980 1,861,775,981 3,060,995
		(700,383,952 (76,460,459
		(776,844,411

The application of the new HKFRSs has no financial impact to the Group’s equity on 1 January 2001.

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

HKAS 1 (Amendment)	Capital Disclosures1
HKAS 19 (Amendment)	Actuarial Gains and Losses, Group Plans and Disclosures2
HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup Transactions2
HKAS 39 (Amendment)	The Fair Value Option2
HKAS 39 & HKFRS 4 (Amendments)	Financial Guarantee Contracts2
HKFRS 6	Exploration for and Evaluation of Mineral Resources2
HKFRS 7	Financial Instruments: Disclosures1
HK(IFRIC)-Int 4	Determining whether an Arrangement Contains a Lease2
HK(IFRIC)-Int 5	Rights to Interests Arising from Decommissing, Restoration and
	Environmental Rehabilitation Funds2
HK(IFRIC)-Int 6	Liabilities arising from Participating in a Specific Market Waste
	Electrical and Electronic Equipment3

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

2 Effective for annual periods beginning on or after 1 January 2006.

3 Effective for annual periods beginning on or after 1 December 2005.

– 95 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES

The financial information has been prepared in accordance with the new HKFRS issued by the HKICPA.

The financial information has been prepared on the historical cost basis, except for certain properties and financial instruments which are measured or revalued at fair value amounts or revalued amounts, appropriate. The principal accounting policies adopted are set out below:

Basis of consolidation

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

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

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

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

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

Goodwill

Goodwill arising on acquisitions prior to 1 January 2005

Goodwill arising on an acquisition of a subsidiary for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary at the date of acquisition.

For previously capitalised goodwill arising on acquisitions after 1 January 2001, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired (see the accounting policy below).

Goodwill arising on acquisitions on or after 1 January 2005

Goodwill arising on an acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary, associate or jointly controlled entity at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, an associate or a jointly controlled entity, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Excess of an acquirer’s interest in the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over cost (“discount on acquisition”)

A discount on acquisition arising on an acquisition of a subsidiary, an associate or a jointly controlled entity for which an agreement date is on or after 1 January 2005 represents the excess of the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. Discount on acquisition is recognised immediately in profit or loss. A discount on acquisition arising on an acquisition of an associate or a jointly controlled entity (which is accounted for using the equity method) is included as income in the determination of the investor’s share of results of the associate or jointly controlled entity in the period in which the investment is acquired.

As explained in Note 1 above, negative goodwill arising on acquisitions was presented as a deduction from assets and released to income based on an analysis of the circumstances from which the balance resulted. Following the implementation of HKFRS 3, all negative goodwill as at 1 January 2005 has been derecognised with a corresponding adjustment to the Group’s retained earnings.

Investments in associates

The results and assets and liabilities of associates are incorporated in the financial information using the equity method of accounting, except when the investment is classified as held for sale (in which case it is accounted for under HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations ). Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

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

Leasehold land held for undetermined future use

Leasehold land held for undetermined future use is classified as a prepaid lease payment under an operating lease and amortised on a straight-line basis over the lease term.

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Revenue recognition

Insurance premiums and retirement benefit contributions, other than those from investment contracts without DPF, are recognised in the income statement on an accruals basis.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the Group’s rights to receive payment have been established.

Realised gain or loss on disposal of financial assets is recognised on a trade date basis.

Management fee and other fee income are recognised when services are provided.

Rental income under operating leases is recognised on a straight-line basis over the terms of the relevant lease.

Property, plant and equipment

Property, plant and equipment are stated at cost or fair value less subsequent accumulated depreciation and accumulated impairment losses.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment (continued)

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at their revalued amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation and any subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on revaluation of land and buildings is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that it exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to retained profits.

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

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

Impairment losses (other than goodwill (see the accounting policies in respect of goodwill above))

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

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

Investment properties

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

Investments in subsidiaries

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

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including direct premiums receivable, amounts due from reinsurers under reinsurance contracts coded, other debtors and deposits and amounts due from associates/fellow subsidiaries) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. At each balance sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed on initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not be reversed in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss has two subcategories, including financial liabilities held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise.

Other financial liabilities

Other financial liabilities including bank loans, claims payable, premiums in advance, reinsurance liabilities, policyholders’ funds on deposit, deposit premiums, other insurance liabilities and other creditors and accrued charges are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by CLIO are recorded at the proceeds received, net of direct issue costs.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Insurance contracts and investment contracts with discretionary participating feature (“DPF”)

The Group issues contracts that transfer insurance risk or financial risk or a combination thereof. A contract under which the Group accepts significant insurance risk from another party, by agreeing to compensate that party on the occurrence of a specified uncertain future event, is classified as an insurance contract. An insurance contract may also transfer financial risk, but is accounted for as an insurance contract if the insurance risk is significant. A contract issued by the Group that transfers financial risk, without significant insurance risk, is classified as an investment contract.

Some insurance and investment contracts issued by the Group contain a DPF. This feature entitles the holder to receive, as a supplement to benefits under the contracts, additional benefits or bonuses.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Insurance contracts and investment contracts with discretionary participating feature (“DPF”) (Continued)

Insurance contracts and investment contracts with DPF, which are accounted for under HKFRS 4, are classified into the following two major categories:

Long-term traditional insurance contracts

Long-term traditional insurance contracts represent traditional life insurance contracts, including participating contracts. Premiums of these type of contracts are recognised as revenue when due from the policyholders. The liabilities arising from long-term traditional insurance contracts are calculated using an adjusted Net Level Reserve Method based on actuarial assumptions as to mortality, persistency, expenses, withdrawals, and investment return including a margin for adverse deviation.

Where insurance contracts have a single premium or a limited number of premium payments due over a significantly shorter period than the period during which benefits are provided, the excess of the premiums payable over the valuation premiums is deferred and recognised as income in line with the decrease of unexpired insurance risk of the contracts in-force or, for annuities in-force, in line with the decrease of the amount of future benefits expected to be paid.

Long-term investment contracts with DPF

The contracts issued in retirement business – Class G are classified as investment contracts with DPF. The liability for these contracts, in which there is minimal mortality and morbidity risk, is determined using a retrospective calculation method. Under this method, the liability represents an account balance based on the premium received to date plus interest or bonus credited to the policyholders less policy charges, such as for insurance administration and surrenders.

Investment contracts without DPF

Investment contracts without DPF represent the accumulation of premium received less charges. Amounts collected as premiums from investment contracts without DPF are reported as liabilities. Revenue from these contracts consists of policy fees charged against the liability amount for the cost of insurance, administration fees and gains on surrenders during the year. Policy benefits and claims that are charged to expenses include benefit claims incurred in the year in excess of related contract balances and interest credited to these contracts.

Liability adequacy test

At each balance sheet date, the Group assesses its recognised insurance liabilities to determine whether they are adequate, using current estimates of future cash flows under its insurance contracts. If the assessment shows that the carrying amounts of its insurance liabilities are inadequate in the light of the estimated future cash flows, the entire deficiency is recognised in profit or loss.

Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due.

The Group assesses its reinsurance assets for impairment as at balance sheet date. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement. If a reinsurer is unable to satisfy its obligation under the reinsurance contracts, the liability becomes the responsibility of the Group.

– 101 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Insurance claims

Claims expenses are charged to the income statement as incurred. Claims outstanding in respect of life insurance business represent the estimated value of death and maturity claims in respect of claims reported and an estimate of claims incurred but not reported at the balance sheet date.

Unassigned surplus

The amount of unassigned surplus which represents the excess of assets over the liabilities of the long term business, is determined by the directors of CLIO based on the recommendations of the appointed actuary and is included in insurance funds.

Taxation

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

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

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

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

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

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies (continued)

For the purpose of presenting consolidated financial information of the Group, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of CLIO (i.e. Hong Kong dollars (“HK$”)) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

Retirement benefit costs

Payments to defined contribution retirement benefits schemes are charged as expenses as they fall due.

Leasing

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

The Group as lessor

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

The Group as lessee

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

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies, the Company’s management has made various estimates and judgments (other than those involving estimates) based on past experience, expectations of the future and other information. The key sources of estimation uncertainty and the critical judgments that can significantly affect the amounts recognised in the financial information are disclosed below.

Insurance funds

The assumptions which have the greatest effect on the measurement of the policy liabilities are valuation interest rates and mortality assumption. The valuation interest rates are determined in accordance with the relevant local regulations. They are determined from a prudent assessment of the yields on existing assets. These rates are then adjusted to the extent appropriate with reference to the yields which are expected on amounts to be invested in the future. The mortality assumption is determined on a prudent basis with reference to past mortality analysis. Should there be any changes to the yields on the existing assets, government bond yields, asset mix or mortality experience, the assumptions used shall be revised where appropriate to reflect such changes.

Depreciation

The Group’s net book value of property, plant and equipment as at 30 June 2005 was HK$329,360,531. The Group depreciates land and buildings on a straight line basis over the shorter of the lease term and 50 years and depreciates the leasehold improvements, computer equipment, office machinery and furniture, motor vehicles and air-conditioners over their estimated useful lives and after taking into account of their estimated residual values, using the straight line method, at 5% to 33.33% per annum. The estimated useful life reflects the directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the Group’s property, plant and equipment. The residual values reflect the directors’ estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Income taxes

As at 30 June 2005, a deferred tax asset of approximately HK$5 million in relation to unused tax losses has been recognised in the Group’s consolidated balance sheet. No deferred tax asset was recognised in the Group’s balance sheet in relation to the remaining unused tax losses. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are more than expected, a material recognition of deferred tax asset may arise, which would be recognised in the income statement for the period in which such a recognition takes place.

5. MANAGEMENT OF INSURANCE AND FINANCIAL RISKS

Financial risk

The Group is exposed to financial risks through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contacts. The most important components of this financial risk are credit risk, price risk, interest rate risk, foreign currency risk and liquidity risk.

These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risk that the Group primarily faces due to the nature of its investments and liabilities is interest rate risk.

The Group manages these positions within an asset liability management framework that has been developed to achieve long-term investment returns in excess of its obligations under insurance and investment contracts.

Credit risk

Key areas where the Group is exposed to credit risk are investments in debt securities, loans receivables, bank balances, reinsurers’ share of insurance liabilities, amounts due from reinsurers in respect of claims already paid and amounts due from insurance contract holders and insurance intermediaries.

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at the balance sheet date in relation to each class of recognised financial assets is the carrying amounts of those assets as stated in the consolidated balance sheet. The Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.

– 104 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

5. MANAGEMENT OF INSURANCE AND FINANCIAL RISKS (continued)

Credit risk (continued)

The creditworthiness of these counterparties is considered by reviewing their financial strength prior to finalisation of any contract, purchase agreement and transaction. Individual operating units maintain records of the payment history for significant contract holders with whom they conduct regular business. The Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

Price risk

The Group’s held-for-trading investments are measured at fair value at each balance sheet date. Therefore, the Group is exposed to equity and debt security price risk. The management manages this exposure by maintaining a portfolio of investment with different risk profiles.

Interest rate risk

Interest rate risk is the only financial risk that has a materially different impact across the assets and liabilities. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group has exposure to interest rate risk through the impact of the rate changes on bank balances, bank borrowing, investments in debt securities and loans receivable. In order to minimise the exposure to interest rate risk, the Group may consider hedging its position with financial derivatives, like interest rate swaps, whenever the situation becomes appropriate.

Insurance and investment contracts with DPF are backed by two distinct funds and can be single premium or regular premium contracts. The supplemental benefits payable to holders of such contracts are based on historic and current rates of return on the fixed income securities in which the fund is invested. The Group only bears financial risk in relation to the guaranteed benefits payable under these contracts. These guaranteed benefits increase as supplemental benefits are declared and distributed to contract holders. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The amount involved is considered not material in the context of the Group’s financial position.

Foreign currency risk

The Group’s exposure to foreign currency risk within the investment portfolios supporting the Group’s insurance and investment operations arise primarily from purchased investments that are denominated or payable in currencies other than the currencies of insurance or investment contracts.

A significant portion of the Group’s HK$ liabilities assets are backed by the United States Dollars (“US$”) assets. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise. Details of the foreign currency risk arising on the insurance funds are set out in Note 32.

Liquidity risk

The Group is exposed to daily calls on its available cash resources mainly from claims arising from investment and insurance contracts. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank borrowings. In the opinion of the directors, the Group is able to renew the bank borrowing for another one year and the Group is able to generate adequate funds to finance its operations and to cover maturities, claims and surrenders at unexpected levels of demand.

– 105 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

5. MANAGEMENT OF INSURANCE AND FINANCIAL RISKS (continued)

Insurance risk

Product risk

Major product assumptions are mortality, morbidity, investment, lapse or surrender. There are risks of financial loss to the Group, if the actual experience of these factors turn out to be less favourable than the assumptions.

Higher than expected mortality or morbidity experience shall lead to a loss. The Group has entered into several reinsurance contracts to mitigate insurance risk, including excess reinsurance and modified coinsurance.

Early surrenders may cause a financial loss to our Group especially when the initial expenses have not been fully recouped when the surrenders happen. The policy liabilities have been set to be at least equal to the surrender value to avoid surrender loss.

The actual investment return may be different to the expected investment return assumption the Group may suffer a loss. Such risk is mitigated to some extent by the participating feature of some of the products.

Market risk

In general the terms of the assets of the Group are shorter than those of the liabilities since the Group has a high proportion of term deposits awaiting suitable investment opportunities. This represents some degree of re-investment risk since it is possible that the reinvestment rate is lower than the yield on current assets if interest rate falls.

Operational risk

The Group is minimising its operational risk through the work of the internal audit team as well as regular monitoring from the internal audit division of the ultimate holding company.

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purpose, the Group is currently organised into two major business segments: life and retirement. These segments are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below:

Income statement for the year ended 31 December 2002

Turnover Segment results Unallocated operating income Unallocated corporate expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the year	Life HK$ 691,882,537 (105,370,120)	Retirement HK$ 277,166,257 (40,951,085)	Consolidated HK$ 969,048,794 (146,321,205) 356,132 (80,645) (146,045,718) (11,137,290) (157,183,008) – (157,183,008)

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Balance sheet as at 31 December 2002

Life HK$ ASSETS Segment assets 3,345,009,496 Goodwill 1,266,185 Negative goodwill (4,058,714) Consolidated total assets LIABILITIES Segment liabilities 2,939,674,120 Unallocated corporate liabilities Consolidated total liabilities Other information for the year ended 31 December 2002 Life HK$ Allowance for doubtful loans 2,495,000 Allowance for doubtful bank deposits and accrued interest 21,233,690 Purchase of investment properties 26,432,055 Purchase of property, plant and equipment 1,649,195 Purchase of leasehold land held for undetermined future use 791,565 Depreciation 8,983,465 Amortisation of goodwill 316,546 Amortisation of negative goodwill (1,093,180) Loss on disposal of investment properties 1,347,264 Revaluation deficit of investment properties 70,698,055 Revaluation deficit of land and buildings 22,744,000 Income statement for the year ended 31 December 2003 Life HK$ Turnover 1,645,871,174 Segment results (84,522,949) Unallocated operating income Unallocated corporate expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the year	Retirement HK$ 1,670,611,158 – – 1,854,329,795 Retirement HK$ – – – – – – – – – – – Retirement HK$ 275,374,356 36,488,423	Consolidated HK$ 5,015,620,654 1,266,185 (4,058,714) 5,012,828,125 4,794,003,915 34,847,119 4,828,851,034 Consolidated HK$ 2,495,000 21,233,690 26,432,055 1,649,195 791,565 8,983,465 316,546 (1,093,180) 1,347,264 70,698,055 22,744,000 Consolidated HK$ 1,921,245,530 (48,034,526) 1,721,991 (2,152,063) (48,464,598) (8,941,494) (57,406,092) (3,381,049) (60,787,141)

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Balance sheet as at 31 December 2003

Life HK$ ASSETS Segment assets 4,042,637,668 Goodwill 949,639 Negative goodwill (2,965,533) Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 4,008,640,846 Unallocated corporate liabilities Consolidated total liabilities Other information for the year ended 31 December 2003 Life HK$ Allowance for doubtful loans 176,415 Purchase of property, plant and equipment 1,157,122 Depreciation 7,514,784 Amortisation of goodwill 316,546 Amortisation of negative goodwill (1,093,181) Gain on disposal of infrastructure project 4,775,337 Revaluation deficit of investment properties 33,509,044 Revaluation deficit of land and buildings 6,031,201 Income statement for the year ended 31 December 2004 Life HK$ Turnover 3,147,137,921 Segment results 5,757,773 Unallocated operating income Unallocated corporate expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year	Retirement HK$ 1,910,145,825 – – 1,958,224,130 Retirement HK$ – – 15,248 – – – – – Retirement HK$ 293,253,121 21,034,376	Consolidated HK$ 5,952,783,493 949,639 (2,965,533) 201,190,288 6,151,957,887 5,966,964,976 31,004,326 5,997,969,302 Consolidated HK$ 176,415 1,157,122 7,530,032 316,546 (1,093,181) 4,775,337 33,509,044 6,031,201 Consolidated HK$ 3,440,391,042 26,792,149 4,507,467 (17,205,642) 14,093,974 (5,646,133) 8,447,841 (3,060,995) 5,386,846

– 108 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Balance sheet as at 31 December 2004

Life HK$ ASSETS Segment assets 6,852,634,798 Goodwill 633,093 Negative goodwill (1,872,352) Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 6,725,666,254 Unallocated corporate liabilities Consolidated total liabilities Other information for the year ended 31 December 2004 Life HK$ Purchase of property, plant and equipment 3,045,454 Write back of allowance for doubtful loans (1,523,199) Loss on disposal of an associate 150,000 Gain on disposal of property, plant and equipment (41,898) Depreciation 9,483,238 Amortisation of goodwill 316,546 Amortisation of negative goodwill (1,093,181) Revaluation surplus of investment properties (45,518,014) Revaluation surplus of land and buildings (15,400,000) Income statement for the six months ended 30 June 2004 (unaudited) Life HK$ Turnover 2,382,476,394 Segment results (25,847,511) Unallocated operating income Unallocated corporate expenses Loss from operations Finance costs Loss before taxation Taxation Net loss for the year	Retirement HK$ 2,055,187,938 – – 2,220,618,326 Retirement HK$ 5,400 – – – 159,908 – – – – Retirement HK$ 116,317,736 (38,236,106)	Consolidated HK$ 8,907,822,736 633,093 (1,872,352) 477,530,288 9,384,113,765 8,946,284,580 32,698,456 8,978,983,036 Consolidated HK$ 3,050,854 (1,523,199) 150,000 (41,898) 9,643,146 316,546 (1,093,181) (45,518,014) (15,400,000) Consolidated HK$ 2,498,794,130 (64,083,617) 21,924,267 (5,130,624) (47,289,974) (3,559,597) (50,849,571) (4,052,817) (54,902,388)

– 109 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Other information for the six months ended 30 June 2004 (unaudited)

Life HK$ Purchase of property, plant and equipment 2,544,299 Depreciation 1,679,476 Amortisation of goodwill 158,273 Amortisation of negative goodwill (523,919) Income statement for the six months ended 30 June 2005 Life HK$ Turnover 2,787,217,120 Segment results 41,421,785 Unallocated operating income Unallocated corporate expenses Profit from operations Finance costs Profit before taxation Taxation Net profit for the year Balance sheet as at 30 June 2005 Life HK$ ASSETS Segment assets 9,672,649,722 Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities 9,544,799,521 Unallocated corporate liabilities Consolidated total liabilities	Retirement HK$ – – – – Retirement HK$ 143,854,085 49,620,661 Retirement HK$ 2,140,790,220 2,331,066,726	Consolidated HK$ 2,544,299 1,679,476 158,273 (523,919) Consolidated HK$ 2,931,071,205 91,042,446 6,630,456 (4,744,381) 92,928,521 (3,047,153) 89,881,368 (1,740,684) 88,140,684 Consolidated HK$ 11,813,439,922 554,796,485 12,368,236,407 11,875,866,247 25,063,194 11,900,929,441

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Other information for the six months ended 30 June 2005

	Life	Retirement	Consolidated
	HK$	HK$	HK$
Purchase of property, plant and equipment	138,457	–	138,457
Depreciation	6,398,976	16,199	6,415,175
Impairment loss on goodwill	633,093	–	633,093
Loss on disposal of property, plant
and equipment	24,764	–	24,764
Revaluation surplus of investment
properties	(62,228,863)	–	(62,228,863)
Revaluation surplus of land and
buildings	(12,648,350)	–	(12,648,350)

Geographical segments

No geographical segment information is presented as over 90% of the activities of the Group during the Relevant Periods were carried out in Hong Kong and over 90% of assets and liabilities of the Group were located in Hong Kong at the respective balance sheet dates.

7. TURNOVER

Turnover represents gross insurance premiums written and management fee during the Relevant Periods as follows:

Gross premiums from: Life business Retirement business Management fees	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ 691,882,537 1,645,871,174 3,147,137,921 262,089,068 242,278,216 271,594,022 953,971,605 1,888,149,390 3,418,731,943 15,077,189 33,096,140 21,659,099 969,048,794 1,921,245,530 3,440,391,042	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 2,382,476,394 2,787,217,120 107,105,351 135,363,841 2,489,581,745 2,922,580,961 9,212,385 8,490,244 2,498,794,130 2,931,071,205	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 2,382,476,394 2,787,217,120 107,105,351 135,363,841 2,489,581,745 2,922,580,961 9,212,385 8,490,244 2,498,794,130 2,931,071,205
			2,922,580,961 8,490,244
			2,931,071,205

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

8. OTHER GAINS AND LOSSES

2002 HK$ Accretion of discounts or amortisation of premiums on investments in securities – Amortisation of premium on mortgage loan portfolio acquired (935,550 ) Dividend income from equity securities 5,416,604 Gain on disposal of infrastructure project – Interest income on financial assets not stated at fair value 101,765,073 Other interest income 4,247,700 Imputed interest income on impaired loans – Loss on disposal of investment properties (1,347,264 ) Net unrealised/realised gain (loss) on investments in securities 21,790,818 Rental income 39,825,295 170,762,676	Year ended 31 December 2003 2004 HK$ HK$ (10,366,334) 4,284,345 (2,806,700 ) (2,027,025 ) 16,302,843 3,654,116 4,775,337 – 23,047,503 97,448,929 79,257,159 49,300,872 – – – – 157,026,357 93,168,501 30,579,777 34,807,736 297,815,942 280,637,474	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) (6,483,679 ) 18,590,738 (155,929) (779,625) 917,565 9,950,411 – – 45,134,676 111,355,797 16,787,131 28,235,042 – 11,124,853 – – (23,517,576) 32,167,491 17,108,865 17,690,395 49,791,053 228,335,102

9. OTHER INCOME

Management fee Training fee income Trustee fee income Others	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ 15,077,189 33,096,140 21,659,099 5,730,994 1,875,594 9,101,681 6,849,106 10,597,873 17,800,417 3,940,822 2,496,473 21,677,353 31,598,111 48,066,080 70,238,550	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 9,212,385 8,490,244 1,563,556 12,079,634 4,149,513 4,230,487 16,000,640 (768,993) 30,926,094 24,031,372

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APPENDIX II

10. (LOSS) PROFIT FROM OPERATIONS

Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (Loss) profit from operations has been arrived at after charging (crediting): Allowance for doubtful bank deposits and accrued interest 21,233,690 – – Allowance (write back) for doubtful loans 2,495,000 176,415 (1,523,199) Auditors’ remuneration 1,755,581 1,927,169 1,152,982 Impairment loss on goodwill – – – Depreciation 8,983,465 7,530,032 9,643,146 Directors’ emoluments (Note 12) 897,288 987,288 620,174 Gross rentals from investment properties (39,825,295) (30,579,777) (34,807,736) Less: Outgoings 2,737,392 6,446,211 4,488,187 Net rental income (37,087,903) (24,133,566) (30,319,549) Loss on disposal of an associate – – 150,000 Net foreign exchange loss (gain) 356,133 195,576 (18,028,007) (Gain) loss on disposal of property, plant and equipment – – (41,898) Operating lease rentals in respect of land and buildings – 772,965 1,122,318 Salaries and other benefits 33,600,663 33,864,358 48,101,921 Contributions to retirement benefits schemes 1,051,738 1,161,087 1,584,930 Total staff costs 34,652,401 35,025,445 49,686,851 FINANCE COSTS Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ Interest on Bank loans with instalments repayable after five years 3,506,750 5,525,197 4,650,358 Other borrowings 7,630,540 3,416,297 995,775 Reinsurance arrangements – – 19,016,718 11,137,290 8,941,494 24,662,851	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (Loss) profit from operations has been arrived at after charging (crediting): Allowance for doubtful bank deposits and accrued interest 21,233,690 – – Allowance (write back) for doubtful loans 2,495,000 176,415 (1,523,199) Auditors’ remuneration 1,755,581 1,927,169 1,152,982 Impairment loss on goodwill – – – Depreciation 8,983,465 7,530,032 9,643,146 Directors’ emoluments (Note 12) 897,288 987,288 620,174 Gross rentals from investment properties (39,825,295) (30,579,777) (34,807,736) Less: Outgoings 2,737,392 6,446,211 4,488,187 Net rental income (37,087,903) (24,133,566) (30,319,549) Loss on disposal of an associate – – 150,000 Net foreign exchange loss (gain) 356,133 195,576 (18,028,007) (Gain) loss on disposal of property, plant and equipment – – (41,898) Operating lease rentals in respect of land and buildings – 772,965 1,122,318 Salaries and other benefits 33,600,663 33,864,358 48,101,921 Contributions to retirement benefits schemes 1,051,738 1,161,087 1,584,930 Total staff costs 34,652,401 35,025,445 49,686,851 FINANCE COSTS Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ Interest on Bank loans with instalments repayable after five years 3,506,750 5,525,197 4,650,358 Other borrowings 7,630,540 3,416,297 995,775 Reinsurance arrangements – – 19,016,718 11,137,290 8,941,494 24,662,851	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (Loss) profit from operations has been arrived at after charging (crediting): Allowance for doubtful bank deposits and accrued interest 21,233,690 – – Allowance (write back) for doubtful loans 2,495,000 176,415 (1,523,199) Auditors’ remuneration 1,755,581 1,927,169 1,152,982 Impairment loss on goodwill – – – Depreciation 8,983,465 7,530,032 9,643,146 Directors’ emoluments (Note 12) 897,288 987,288 620,174 Gross rentals from investment properties (39,825,295) (30,579,777) (34,807,736) Less: Outgoings 2,737,392 6,446,211 4,488,187 Net rental income (37,087,903) (24,133,566) (30,319,549) Loss on disposal of an associate – – 150,000 Net foreign exchange loss (gain) 356,133 195,576 (18,028,007) (Gain) loss on disposal of property, plant and equipment – – (41,898) Operating lease rentals in respect of land and buildings – 772,965 1,122,318 Salaries and other benefits 33,600,663 33,864,358 48,101,921 Contributions to retirement benefits schemes 1,051,738 1,161,087 1,584,930 Total staff costs 34,652,401 35,025,445 49,686,851 FINANCE COSTS Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ Interest on Bank loans with instalments repayable after five years 3,506,750 5,525,197 4,650,358 Other borrowings 7,630,540 3,416,297 995,775 Reinsurance arrangements – – 19,016,718 11,137,290 8,941,494 24,662,851	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – – – – 248,982 – 633,093 1,679,476 6,415,175 187,115 624,229	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – – – – 248,982 – 633,093 1,679,476 6,415,175 187,115 624,229	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – – – – 248,982 – 633,093 1,679,476 6,415,175 187,115 624,229
	(30,579,777) 6,446,211 (24,133,566) – 195,576 – 772,965 33,864,358 1,161,087	(34,807,736) 4,488,187 (30,319,549) 150,000 (18,028,007) (41,898) 1,122,318 48,101,921 1,584,930	(17,108,865) 1,786,180 (15,322,685) – (29,554,582) – 561,159 13,577,188 730,356	(17,690,395) 1,071,571 (16,618,824) – (1,154,759) 24,764 533,911 14,504,375 737,130	(17,690,395) 1,071,571
					14,504,375 737,130
			14,307,544 15,241,505 Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 2,371,097 2,364,343 1,188,500 682,810 – 12,116,000 3,559,597 15,163,153

11. FINANCE COSTS

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APPENDIX II

12. DIRECTORS’ EMOLUMENTS

Directors’ emoluments are analysed as follows:

Year 2002 HK$ Fees – Other emoluments Salaries and other benefits 861,990 Contributions to retirement benefits schemes 35,298 897,288	ended 31 December 2003 2004 HK$ HK$ – – 951,990 593,700 35,298 26,474 987,288 620,174	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – 178,290 606,580 8,825 17,649 187,115 624,229	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) – – 178,290 606,580 8,825 17,649 187,115 624,229
			624,229

Details of emoluments of individual directors are set out as follows:

Salaries and other benefits: Mr. Su Ruishi Mr. Chen Wei Contributions to retirement benefit schemes: Mr. Su Ruishi Mr. Chen Wei	Year 2002 HK$ – 861,990 861,990 – 35,298 35,298	ended 31 December 2003 2004 HK$ HK$ – 593,700 951,990 – 951,990 593,700 – 26,474 35,298 – 35,298 26,474	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 178,290 606,580 – – 178,290 606,580 8,825 17,649 – – 8,825 17,649	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 178,290 606,580 – – 178,290 606,580 8,825 17,649 – – 8,825 17,649
				606,580
				17,649 –
				17,649

Other directors of CLIO did not receive any emoluments from the Group during the Relevant Periods. None of the directors has waived any emoluments during the Relevant Periods.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

13. EMPLOYEES’ EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, one, one, one, zero and one were directors of the Company for each of the three years ended 31 December 2002, 2003 and 2004 and the six months ended 30 June 2004 and 2005 respectively, details of whose emoluments are set out in Note 12 above. The emoluments of the remaining individuals are as follows:

Salaries and other benefits Contributions to retirement benefits schemes	Year 2002 HK$ 2,945,510 268,346 3,123,856	ended 31 December 2003 2004 HK$ HK$ 3,192,874 3,178,010 168,686 246,086 3,361,560 3,424,096	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 1,516,504 1,918,680 123,043 99,570 1,639,547 2,018,250	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 1,516,504 1,918,680 123,043 99,570 1,639,547 2,018,250
				2,018,250

Employees’ emoluments were within the following bands:

			Number of employees	Number of employees
					Six months
	Year ended 31 December				ended 30 June
	2002	2003	2004		2004	2005
				(unaudited)
Nil to HK$1,000,000	3	3	3		5	4
HK$1,000,001 to
HK$1,500,000	1	1	1		–	–

14. INCOME TAX EXPENSES

Year 2002 HK$ Hong Kong Profits Tax: Provision for the year – Underprovision in prior years – Deferred taxation_(Note 31)_ – –	ended 31 December 2003 2004 HK$ HK$ (restated) (restated) – 1,788,522 3,381,049 1,272,473 – – 3,381,049 3,060,995	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 3,076,458 1,740,684 976,359 – – – 4,052,817 1,740,684	Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) 3,076,458 1,740,684 976,359 – – – 4,052,817 1,740,684
			1,740,684

Under the Hong Kong Inland Revenue Ordinance, assessable profit from life insurance business is deemed to be 5 percent of net premium income for the year/period. Hong Kong Profits Tax is calculated at 17.5% (2004: 17.5%, 2003: 17.5%, 2002: 16%) of the estimated assessable profit for the year/period.

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

14. INCOME TAX EXPENSES (continued)

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

Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (restated) (restated) (Loss) profit before taxation (157,183,008) (57,406,092) 8,447,841 Adjustments: Profit before taxation transferred from Hong Kong long term life business 129,497,107 61,115,736 25,315,340 Adjusted (loss) profit before taxation (27,685,901) 3,709,644 33,763,181 Tax at the domestic income tax rate (4,429,744) 649,188 5,908,557 Tax on Hong Kong life insurance business 4,755,103 13,601,973 20,254,029 Tax effect of expenses that are not deductible in determining taxable profit 3,653,961 1,991,635 1,414,655 Tax effect of income that is not taxable in determining taxable profit (15,543,453) (11,931,045) (24,288,029) Tax effect of utilisation of tax losses not previously recognised (840,494) (8,198,109) (2,741,234) Effect of different tax rates of subsidiaries and branches operating in other jurisdictions 137,510 (440,566) 40,698 Tax effect of tax losses not recognised 13,921,740 6,910,773 1,841,803 Underprovision in prior years – 3,381,049 1,272,473 Others (1,654,623) (2,583,849) (641,957) Tax charge for the year/period – 3,381,049 3,060,995

Six months ended 30 June 2004 2005 HK$ HK$ (unaudited) (50,849,571) 89,881,368 30,167,578 38,683,939 (20,681,993) 128,565,307 (3,619,349) 22,498,929 20,082,307 23,590,223 3,619,741 3,913,416 (4,459,612) (26,430,995) (12,933,117) (22,421,809) – (31,546) 988,720 1,083,096 976,359 – (602,232) (460,630) 4,052,817 1,740,684

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

15. INVESTMENT PROPERTIES

2002 2003 HK$ HK$ THE GROUP At 1 January 1,282,694,669 1,104,746,621 Exchange adjustment – – Additions 26,432,055 – Net transfer (to) from property, plant and equipment (128,000,000) (16,517,077) Disposals (5,682,048) – Revaluation (deficit) surplus recognised in the income statement (70,698,055) (33,509,044) At 31 December/30 June 1,104,746,621 1,054,720,500 The carrying amount of investment properties shown above comprises: Properties situated in Hong Kong – Long lease 377,237,908 517,850,000 – Medium-term lease 636,508,237 445,870,000 1,013,746,145 963,720,000 Properties situated in Macau – Medium-term lease 91,000,476 91,000,500 1,104,746,621 1,054,720,500 THE COMPANY At 1 January 55,926,248 43,346,145 Net transfer from property, plant and equipment – – Disposals (5,682,048) – Revaluation (deficit) surplus recognised in the income statement (6,898,055) (1,906,145) At 31 December/30 June 43,346,145 41,440,000 The carrying amount of investment properties shown above comprises: Properties situated in Hong Kong – Long lease 33,837,908 32,850,000 – Medium-term lease 9,508,237 8,590,000 43,346,145 41,440,000	2004 HK$ 1,054,720,500 4,379,766 – 223,365 – 45,518,014 1,104,841,645 535,153,365 469,288,000 1,004,441,365 100,400,280 1,104,841,645 41,440,000 223,365 – 5,070,000 46,733,365 36,353,365 10,380,000 46,733,365	2005 HK$ 1,104,841,645 – – (12,578,714) – 62,228,863 1,154,491,794 375,113,921 662,230,000 1,037,343,921 117,147,873 1,154,491,794 46,733,365 – – 10,686,635 57,420,000 44,790,000 12,630,000 57,420,000

Other than an investment property with an amount of HK$223,365 as at 31 December 2004 and 30 June 2005, which was revalued by the Company’s management with reference to market value, the fair values of the Group’s investment properties at the end of the Relevant Periods have been arrived at on the basis of a valuation carried out on that date by FPD Savills (Hong Kong) Limited, independent qualified professional valuers not connected with the Group. FPD Savills (Hong Kong) Limited are members of the Hong Kong Institute of Surveyors, and have appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to the HKIS Valuation Standards on Properties, was arrived at by reference to market evidence of transaction prices for similar properties.

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

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APPENDIX II

16. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST OR VALUATION At 1 January 2002 Exchange adjustment Additions Net transfer from investment properties Disposals Revaluation deficit At 31 December 2002 Additions Net transfer from investment properties Disposals Revaluation deficit At 31 December 2003 Exchange adjustment Additions Net transfer to investment properties Disposals Revaluation surplus At 31 December 2004 Exchange adjustment Additions Net transfer from investment properties Disposals Revaluation surplus At 30 June 2005 Comprising: At cost At 2002 valuation At cost At 2003 valuation At cost At 2004 valuation At cost At 30 June 2005 valuation	Land and buildings HK$ 222,472,070 (4,080,218 ) – 128,000,000 (27,213,129 ) (26,200,000 ) 292,978,723 – 16,517,077 – (9,398,194 ) 300,097,606 143,338 – (400,517 ) (1,845,489 ) 9,372,000 307,366,938 (3,624,682 ) – 12,578,714 – 7,703,765 324,024,735 – 292,978,723 292,978,723 – 300,097,606 300,097,606 – 307,366,938 307,366,938 – 324,024,735 324,024,735	Leasehold improvements HK$ 7,435,187 (824,918 ) 454,318 – – – 7,064,587 29,880 – – – 7,094,467 347,483 325,699 – (49,756) – 7,717,893 208,425 26,197 – – – 7,952,515 7,064,587 – 7,064,587 7,094,467 – 7,094,467 7,717,893 – 7,717,893 7,952,515 – 7,952,515	Computer equipment HK$ 12,312,050 (41,911 ) 95,932 – (962,646 ) – 11,403,425 684,268 – – – 12,087,693 54,275 685,865 – (153,465 ) – 12,674,368 (820,419 ) 23,693 – (114,442 ) – 11,763,200 11,403,425 – 11,403,425 12,087,693 – 12,087,693 12,674,368 – 12,674,368 11,763,200 – 11,763,200	Office machinery and furniture HK$ 20,441,826 (405,017 ) 1,098,945 – (25,000 ) – 21,110,754 442,974 – (41,958 ) – 21,511,770 99,574 226,087 – – – 21,837,431 975,192 88,567 – (21,168 ) – 22,880,022 21,110,754 – 21,110,754 21,511,770 – 21,511,770 21,837,431 – 21,837,431 22,880,022 – 22,880,022	Motor vehicles HK$ 2,561,319 (34,172 ) – – – – 2,527,147 – – – – 2,527,147 37,397 1,813,203 – (451,801 ) – 3,925,946 (12,931 ) – – – – 3,913,015 2,527,147 – 2,527,147 2,527,147 – 2,527,147 3,925,946 – 3,925,946 3,913,015 – 3,913,015	Air- conditioners HK$ 144,220 – – – – – 144,220 – – – – 144,220 – – – – – 144,220 – – – – – 144,220 144,220 – 144,220 144,220 – 144,220 144,220 – 144,220 144,220 – 144,220	Total HK$ 265,366,672 (5,386,236) 1,649,195 128,000,000 (28,200,775 ) (26,200,000 ) 335,228,856 1,157,122 16,517,077 (41,958 ) (9,398,194) 343,462,903 682,067 3,050,854 (400,517 ) (2,500,511 ) 9,372,000 353,666,796 (3,274,415) 138,457 12,578,714 (135,610 ) 7,703,765 370,677,707 42,250,133 292,978,723 335,228,856 43,365,297 300,097,606 343,462,903 46,299,858 307,366,938 353,666,796 46,652,972 324,024,735 370,677,707

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ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

16. PROPERTY, PLANT AND EQUIPMENT (continued)

THE GROUP DEPRECIATION At 1 January 2002 Exchange adjustment Provided for the year Eliminated on disposals Eliminated on revaluation At 31 December 2002 Provided for the year Eliminated on disposals Eliminated on revaluation At 31 December 2003 Exchange adjustment Provided for the year Net transfer to investment properties Eliminated on disposals Eliminated on revaluation At 31 December 2004 Exchange adjustment Provided for the period Eliminated on disposals Eliminated on revaluation At 30 June 2005 CARRYING VALUES At 31 December 2002 At 31 December 2003 At 31 December 2004 At 30 June 2005	Land and buildings HK$ 756,044 (13,092 ) 3,521,093 (306,621 ) (3,456,000 ) 501,424 3,499,095 – (3,366,993 ) 633,526 19,111 5,990,159 (177,152 ) (236,222 ) (6,028,000 ) 201,422 (6,130 ) 4,955,460 – (4,944,585 ) 206,167 292,477,299 299,464,080 307,165,516 323,818,568	Leasehold improvements HK$ 6,788,838 (773,505 ) 688,888 – – 6,704,221 127,072 – – 6,831,293 347,457 90,009 – (49,756) – 7,219,003 235,787 43,337 – – 7,498,127 360,366 263,174 498,890 454,388	Computer equipment HK$ 7,203,453 (38,943 ) 1,740,380 (505,263 ) – 8,399,627 1,809,777 – – 10,209,404 48,075 1,476,421 – (153,465 ) – 11,580,435 (765,465 ) 520,044 (108,552 ) – 11,226,462 3,003,798 1,878,289 1,093,933 536,738	Office machinery and furniture HK$ 11,752,932 (370,648 ) 2,808,047 (25,000 ) – 14,165,331 2,024,896 (41,958 ) – 16,148,269 73,782 1,982,705 – – – 18,204,756 939,740 783,009 (2,294 ) – 19,925,211 6,945,423 5,363,501 3,632,675 2,954,811	Motor vehicles HK$ 2,260,984 (28,086 ) 225,057 – – 2,457,955 69,192 – – 2,527,147 37,397 103,852 – (451,801 ) – 2,216,595 (12,931 ) 113,325 – – 2,316,989 69,192 – 1,709,351 1,596,026	Air- conditioners HK$ 144,220 – – – – 144,220 – – – 144,220 – – – – – 144,220 – – – – 144,220 – – – –	Total HK$ 28,906,471 (1,224,274) 8,983,465 (836,884 ) (3,456,000) 32,372,778 7,530,032 (41,958 ) (3,366,993) 36,493,859 525,822 9,643,146 (177,152 ) (891,244 ) (6,028,000) 39,566,431 391,001 6,415,175 (110,846) (4,944,585) 41,317,176 302,856,078 306,969,044 314,100,365 329,360,531

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APPENDIX II

16. PROPERTY, PLANT AND EQUIPMENT (continued)

THE COMPANY COST OR VALUATION At 1 January 2002 Additions Disposals At 31 December 2002 Additions At 31 December 2003 Exchange adjustment Additions Disposals Net transfer to investment properties At 31 December 2004 Exchange adjustment Additions At 30 June 2005 Comprising: At cost At 2002 valuation At cost At 2003 valuation At cost At 2004 valuation At cost At 30 June 2005 valuation DEPRECIATION At 1 January 2002 Provided for the year Eliminated on disposals At 31 December 2002 Provided for the year At 31 December 2003 Exchange adjustment Provided for the year Eliminated on disposals Net transfer to investment properties At 31 December 2004 Exchange adjustment Provided for the period At 30 June 2005 CARRYING VALUES At 31 December 2002 At 31 December 2003 At 31 December 2004 At 30 June 2005	Land and buildings HK$ 3,378,725 – – 3,378,725 – 3,378,725 142,244 – (1,845,489 ) (400,517 ) 1,274,963 (44,407 ) – 1,230,556 – 3,378,725 3,378,725 – 3,378,725 3,378,725 – 1,274,963 1,274,963 – 1,230,556 1,230,556 436,331 65,093 – 501,424 65,094 566,518 18,017 30,259 (236,222 ) (177,152 ) 201,420 (6,127 ) 10,875 206,168 2,877,301 2,812,207 1,073,543 1,024,388	Leasehold improvements HK$ 6,501,968 – – 6,501,968 – 6,501,968 295,957 325,699 (49,756) – 7,073,868 (229,100 ) 26,197 6,870,965 6,501,968 – 6,501,968 6,501,968 – 6,501,968 7,073,868 – 7,073,868 6,870,965 – 6,870,965 6,050,225 91,377 – 6,141,602 126,823 6,268,425 295,957 87,021 (49,756) – 6,601,647 (228,407 ) 43,337 6,416,577 360,366 233,543 472,221 454,388	Computer equipment HK$ 10,572,013 95,931 – 10,667,944 604,618 11,272,562 53,502 588,282 (153,465 ) – 11,760,881 (37,570 ) 23,693 11,747,004 10,667,944 – 10,667,944 11,272,562 – 11,272,562 11,760,881 – 11,760,881 11,747,004 – 11,747,004 6,347,477 1,595,739 – 7,943,216 1,649,955 9,593,171 47,303 1,236,948 (153,465 ) – 10,723,957 (33,735 ) 520,044 11,210,266 2,724,728 1,679,391 1,036,924 536,738	Office machinery and furniture HK$ 17,924,233 91,765 (25,000 ) 17,990,998 93,268 18,084,266 56,109 148,221 – – 18,288,596 (44,190 ) 19,397 18,263,803 17,990,998 – 17,990,998 18,084,266 – 18,084,266 18,288,596 – 18,288,596 18,263,803 – 18,263,803 11,514,718 1,595,175 (25,000 ) 13,084,893 1,641,956 14,726,849 52,139 1,594,084 – – 16,373,072 (41,932 ) 760,133 17,091,273 4,906,105 3,357,417 1,915,524 1,172,530	Motor vehicles HK$ 2,527,147 – – 2,527,147 – 2,527,147 37,397 1,813,203 (451,801 ) – 3,925,946 (12,931 ) – 3,913,015 2,527,147 – 2,527,147 2,527,147 – 2,527,147 3,925,946 – 3,925,946 3,913,015 – 3,913,015 2,232,898 225,057 – 2,457,955 69,192 2,527,147 37,397 103,852 (451,801 ) – 2,216,595 (12,931 ) 113,325 2,316,989 69,192 – 1,709,351 1,596,026	Air- conditioners HK$ 144,220 – – 144,220 – 144,220 – – – – 144,220 – – 144,220 144,220 – 144,220 144,220 – 144,220 144,220 – 144,220 144,220 – 144,220 144,220 – – 144,220 – 144,220 – – – – 144,220 – – 144,220 – – – –	Total HK$ 41,048,306 187,696 (25,000 ) 41,211,002 697,886 41,908,888 585,209 2,875,405 (2,500,511 ) (400,517 ) 42,468,474 (368,198 ) 69,287 42,169,563 37,832,277 3,378,725 41,211,002 38,530,163 3,378,725 41,908,888 41,193,511 1,274,963 42,468,474 40,939,007 1,230,556 42,169,563 26,725,869 3,572,441 (25,000 ) 30,273,310 3,553,020 33,826,330 450,813 3,052,164 (891,244 ) (177,152 ) 36,260,911 (323,132 ) 1,447,714 37,385,493 10,937,692 8,082,558 6,207,563 4,784,070

– 120 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

16. PROPERTY, PLANT AND EQUIPMENT (continued)

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

Land and buildings Shorter of the terms of the lease and 50 years Leasehold improvements 20% – 33.33% Computer equipment 20% – 33.33% Office machinery and furniture 5% – 33.33% Motor vehicles 12.5% – 33.33% Air-conditioners 10%

The carrying value of the properties shown above comprises:

THE GROUP Properties situated in Hong Kong – Long lease – Medium-term lease Properties situated in Macau – Freehold – Medium-term lease – Short-term lease THE COMPANY Properties situated in Hong Kong – Long lease Properties situated in Macau – Freehold – Short-term lease	2002 HK$ 246,473 289,599,998 289,846,471 2,192,127 – 438,701 2,630,828 292,477,299 246,473 2,192,127 438,701 2,630,828 2,877,301	At 31 December 2003 2004 HK$ HK$ 231,069 – 296,651,873 306,091,973 296,882,942 306,091,973 2,152,630 635,093 – – 428,508 438,450 2,581,138 1,073,543 299,464,080 307,165,516 231,069 – 2,152,630 635,093 428,508 438,450 2,581,138 1,073,543 2,812,207 1,073,543	At 30 June 2005 HK$ – 314,076,078
			314,076,078
			606,724 8,718,102 417,664
			9,742,490
			323,818,568
			–
			606,724 417,664
			1,024,388
			1,024,388

All leasehold land and buildings situated in Hong Kong were revalued at end of the Relevant Periods by FPD Savills (Hong Kong) Limited, independent qualified professional valuers not connected with the Group, on an open market existing use basis.

The land and buildings situated in Macau were revalued by the Company’s management with reference to market values of similar properties.

If leasehold land and buildings had not been revalued, they would have been included in these financial information at historical cost less accumulated depreciation of HK$325,195,590 (31.12.2004: HK$306,976,058, 31.12.2003: HK$315,434,934, 31.12.2002: HK$322,230,157).

– 121 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

17. PREPAID LEASE PAYMENTS

The Group’s and the Company’s prepaid lease payments comprise:

		At 31 December		At 30 June
	2002	2003	2004	2005
	HK$	HK$	HK$	HK$
Leasehold land situated in Macau:
Medium-term lease	22,989,594	22,989,594	22,545,089	–

During the period of 2005, the Group has reclassified the leasehold land as a non-current asset held for sale as the directors are committed to a plan to sell the leasehold land and expect the sale will take place in the next twelve months.

18. GOODWILL

	THE GROUP
	HK$
COST
At 1 January 2002, 31 December 2002,
31 December 2003 and 31 December 2004	1,582,731
Elimination of accumulated amortisation upon the
application of HKFRS 3 (see Note 1)	(949,638)
At 30 June 2005	633,093
AMORTISATION
At 1 January 2002	–
Charge for the year	316,546
At 31 December 2002	316,546
Charge for the year	316,546
At 31 December 2003	633,092
Charge for the year	316,546
At 31 December 2004	949,638
Elimination of accumulated amortisation upon the
application of HKFRS 3	(949,638)
At 30 June 2005	–
IMPAIRMENT
At 1 January 2002, 31 December 2002,
31 December 2003 and 31 December 2004	–
Impairment loss recognised for the period	633,093
At 30 June 2005	633,093
CARRYING VALUES
At 31 December 2002	1,266,185
At 31 December 2003	949,639
At 31 December 2004	633,093
At 30 June 2005	–

Up to 31 December 2004, goodwill was amortised over its estimated useful life of 5 years.

In 2005, the Group reviews the carrying amount of the goodwill with reference to the financial position of the respective subsidiaries and considered that goodwill is fully impaired and accordingly an impairment loss of HK$633,093 is made.

– 122 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

19. NEGATIVE GOODWILL

	THE GROUP
	HK$
GROSS AMOUNT
At 1 January 2002, 31 December 2002,
31 December 2003 and 31 December 2004	5,465,901
RELEASED TO INCOME
At 1 January 2002	314,007
Released during the year	1,093,180
At 31 December 2002	1,407,187
Released during the year	1,093,181
At 31 December 2003	2,500,368
Released during the year	1,093,181
At 31 December 2004	3,593,549
Carrying amount as at 31 December 2004	1,872,352
Derecognised upon the application of HKFRS 3	1,872,352
Carrying amount as at 1 January 2005	–
CARRYING AMOUNT
At 31 December 2002	4,058,714
At 31 December 2003	2,965,533
At 31 December 2004	1,872,352
At 30 June 2005	–

As explained in Note 1, all negative goodwill arising on acquisitions prior to 1 January 2005 was derecognised as a result of the application of HKFRS 3.

– 123 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

20. INVESTMENTS IN SECURITIES

THE GROUP AND THE COMPANY

Investments in securities as at 31 December 2002, 2003 and 2004 are set out below.

Fixed interest debt securities – Listed – Unlisted Equity securities – Listed Unlisted unit trusts Analysed as follows: Non-current Current Market value of listed securities	Held-to-maturity securities At 31 December 2002 2003 2004 HK$ HK$ HK$ 778,267,471 – 2,912,305,228 266,629,551 – 1,769,004 – – – – – – 1,044,897,022 – 2,914,074,232 1,010,311,547 – 2,724,232,156 34,585,475 – 189,842,076 1,044,897,022 – 2,914,074,232 814,098,883 – 2,992,354,699	Held-to-maturity securities At 31 December 2002 2003 2004 HK$ HK$ HK$ 778,267,471 – 2,912,305,228 266,629,551 – 1,769,004 – – – – – – 1,044,897,022 – 2,914,074,232 1,010,311,547 – 2,724,232,156 34,585,475 – 189,842,076 1,044,897,022 – 2,914,074,232 814,098,883 – 2,992,354,699	Trading securities	Trading securities	Trading securities		Other securities			Total
		At 31 December 2003 2004 HK$ HK$ – 2,912,305,228 – 1,769,004 – – – – – 2,914,074,232 – 2,724,232,156 – 189,842,076 – 2,914,074,232 – 2,992,354,699	2002 HK$ – – – – – – – – –	At 31 December 2003 HK$ 30,875,011 152,243,846 141,507,223 195,768,005 520,394,085 – 520,394,085 520,394,085 172,382,234	2004 HK$ 1,456,702,021 128,814,855 372,286,488 264,670,233 2,222,473,597 – 2,222,473,597 2,222,473,597 1,828,988,509	2002 HK$ 96,482,251 83,372,395 270,699,635 152,636,756 603,191,037 – 603,191,037 603,191,037 367,181,886	At 31 December 2003 HK$ 1,103,162,667 162,447,021 – – 1,265,609,688 1,222,119,047 43,490,641 1,265,609,688 1,103,162,667	2004 HK$ – 33,654,200 – – 33,654,200 27,134,200 6,520,000 33,654,200 –	2002 HK$ 874,749,722 350,001,946 270,699,635 152,636,756 1,648,088,059 1,010,311,547 637,776,512 1,648,088,059 1,181,280,769	At 31 December 2003 HK$ 1,134,037,678 314,690,867 141,507,223 195,768,005 1,786,003,773 1,222,119,047 563,884,726 1,786,003,773 1,275,544,901	2004 HK$ 4,369,007,249 164,238,059 372,286,488 264,670,233
											5,170,202,029
											2,751,366,356 2,418,835,673
											5,170,202,029
											4,821,343,208

Upon the application of HKAS 39 on 1 January 2005, investments in securities were reclassified to appropriate categories as follows under HKAS 39 (see Note 1 for details).

Held-to-maturity financial assets as at 30 June 2005 comprise:

THE GROUP AND THE COMPANY

Fixed interest debt securities: – Listed – Unlisted Analysed as follows: – Non-current – Current Fair value of held-to-maturity assets	HK$ 4,634,615,149 1,672,395
	4,636,287,544
	4,626,310,064 9,977,480
	4,636,287,544
	4,648,811,242

Fair values for held-to-maturity financial assets are based on market prices or broker/dealer price quotations. Where this information is not available, fair value has been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics.

– 124 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

20. INVESTMENTS IN SECURITIES (continued)

The maturity profile of the held-to-maturity debt securities which bear fixed interest rates was as follows:

Within 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years More than 5 years Fair value Effective interest rate (% per annum)	2002 HK$ 34,585,475 13,095,471 185,136,057 – 35,601,513 776,478,506 1,044,897,022 1,080,603,140 6.5%	At 31 December 2003 2004 HK$ HK$ – 189,842,076 – – – 3,944,596 – – – 7,793,370 – 2,712,494,190 – 2,914,074,232 – 2,992,354,699 – 3.7%	At 30 June 2005 HK$ 9,977,480 – 3,795,597 55,640,164 1,405,809,077 3,161,065,226
			4,636,287,544
			4,648,811,242
			5.6%

Investments held for trading as at 30 June 2005 include:

THE GROUP AND THE COMPANY

Fixed interest debt securities: – Listed – Unlisted Equity securities: – Listed Unlisted unit trusts	HK$ 1,548,313,346 156,047,012 1,195,425,964 149,081,773
	3,048,868,095

Fair values for debt securities are based on market prices or broker/dealer price quotations. Where this information is not available, fair value has been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics.

The fair values of the listed equity investment held for trading are determined based on the quoted market bid price available on the relevant exchanges.

For the unlisted unit trusts, the fair values are determined based on the total net asset value of the underlying investment portfolio which is based on market prices or broker/dealer price quotations.

The maturity profile of the held-for-trading and other debt securities which bear fixed interest rates was as follows:

Within 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years More than 5 years Effective interest rate (% per annum)	At 31 December 2002 2003 2004 HK$ HK$ HK$ (Trading and other securities) 47,998,092 42,359,843 72,844,917 20,264,684 67,354,298 46,074,400 5,661,150 93,626,264 63,191,073 41,839,715 131,591,509 26,629,200 5,732,900 79,842,942 87,662,704 58,358,105 1,033,953,689 1,322,768,782 179,854,646 1,448,728,545 1,619,171,076 5.4% 5.4% 4.3%	At 30 June 2005 HK$ (Held-for- trading) 84,220,157 3,099,500 71,429,465 17,367,200 88,266,062 1,439,977,974
		1,704,360,358
		4.4%

– 125 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

21. INTERESTS IN SUBSIDIARIES

THE COMPANY Unlisted shares, at cost Fair value adjustment of loans to subsidiaries_(Note 1) Impairment of investments Loans to subsidiaries(Note 1)_ Allowance for doubtful loans to subsidiaries Fair value of loans	At 31 December 2002 2003 HK$ HK$ 99,891,951 81,238,948 – – 99,891,951 81,238,948 (10,000,000) (20,100,000) 89,891,951 61,138,948 1,202,942,056 1,184,732,420 (72,000,000) (89,576,858) 1,130,942,056 1,095,155,562 1,220,834,007 1,156,294,510 1,130,828,973 1,095,144,611	2004 HK$ 48,265,640 – 48,265,640 (20,100,000) 28,165,640 1,209,234,465 (51,487,996) 1,157,746,469 1,185,912,109 1,157,630,706	At 30 June 2005 HK$ 48,265,640 4,897,310
			53,162,950 (5,100,000
			48,062,950
			1,212,333,608 (49,308,981
			1,163,024,627
			1,211,087,577
			1,145,842,158

Loans to subsidiaries are unsecured and have no fixed terms of repayment. In 2005, the loans have been restated in accordance with HKAS 39, as set out in Note 1.

Except for loans of the amount of HK$530,724,533 (31.12.2004: HK$530,724,533; 31.12.2003: HK$530,724,533; 31.12.2002: HK$556,448,473), HK$200,000,000 (31.12.2004: HK$200,000,000; 31.12.2003: HK$200,000,000; 31.12.2002: Nil) and HK$99,725,520 (31.12.2004: HK$103,413,263; 31.12.2003: HK$98,664,630; 31.12.2002: Nil), which bear fixed interest at 3% (31.12.2004: 3%; 31.12.2003: 3.5%; 31.12.2002: 3.5%), 2.6% (31.12.2004: 2.6%; 31.12.2003: 1%; 31.12.2002: Nil) and 6.75% (31.12.2004: 5%; 31.12.2003: 1%; 31.12.2002: Nil) respectively per annum, the loans to subsidiaries are non-interest bearing. These interest rates were set with reference to the prevailing market rates and repriced annually. In the opinion of the Company’s management, no part of the loans will be repaid within the next twelve months. Accordingly, the loans are shown as non-current assets.

22. INVESTMENTS IN ASSOCIATES

THE GROUP AND THE COMPANY

		At 31 December		At 30 June
	2002	2003	2004	2005
	HK$	HK$	HK$	HK$
Unlisted shares, at cost and
share of net assets of associates	240,000	240,000	90,000	92,997

Details of the associates at 30 June 2005 are as follows:

				Proportion of
				nominal value
	Form of		Principal	of issued ordinary
	business	Place of	place of	share capital directly
Name of entity	structure	incorporation	operation	held by CLIO	Principal activities
Sanlink Investments	Incorporated	Hong Kong	Hong Kong	30%	Investment holding
Limited
Savills Property	Incorporated	Hong Kong	Hong Kong	30%	Property management
Management Limited

The Group has discontinued recognition of its share of losses of the above associates. The amounts of unrecognised share of those associates for the Relevant Periods and cumulatively are insignificant.

– 126 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

23. LOANS RECEIVABLES

THE GROUP AND THE COMPANY

Secured mortgage loans Policyholders’ loans Partly secured loans Unsecured loans Less: Allowance for doubtful loans Due after one year Due within one year	At 31 December 2002 2003 HK$ HK$ 52,323,865 31,984,963 21,996,250 25,710,427 60,000,000 64,789,499 71,948,807 71,683,054 206,268,922 194,167,943 (4,354,999) (4,531,414) 201,913,923 189,636,529 66,374,450 96,644,347 135,539,473 92,992,182 201,913,923 189,636,529	2004 HK$ 23,173,014 27,779,732 60,000,000 76,686,563 187,639,309 (3,097,736) 184,541,573 87,070,338 97,471,235 184,541,573	At 30 June 2005 HK$ 17,908,187 32,018,112 59,871,512 76,496,227
			186,294,038 (2,610,356
			183,683,682
			82,972,155 100,711,527
			183,683,682

The fair value of the Group’s loans receivables as at the balance sheet date, determined based on the present value of the estimated future cash flows discounted using the prevailing market rate at the balance sheet date approximates to the carrying amount of the receivables.

The exposure of the Group’s mortgage loans and policyholders’ loans to interest rate risks are as follows:

Secured mortgage loans

Interest on the mortgage loans is charged at a variable rate ranging from prime plus 1.3% to prime plus 4.5%. The effective interest rate would change in line with the prime rate starting from the next installment payment date immediately after the announcement of any changes in prime rate by the bank.

Policyholders’ loans

The policyholders’ loans are made to policyholders and secured by the policies’ cash surrender value and are repayable at the discretion of the policyholders.

The range of effective interest rates on the Group’s mortgage loans and policyholders’ loans are as follows:

		At 31 December		At 30 June
	2002	2003	2004	2005
Fixed-rate loan receivables	9.5%	9.5%	9.5%	9.5%
Variable-rate loan receivables	7.6%	7.4%	7.4%	8.9%

Partly secured loans

The carrying amount primarily comprises an overdue loan with original principal amount of HK$60,000,000, an original effective interest rate of 16% and a collateral of land located in the PRC. Interest was accrued up to year 2001 amounted to approximately HK$95,731,000. This has been included in interest receivable in the balance sheets. At 1 January 2005 an impairment loss of HK$11,253,340 was made on estimated irrecoverable loan receivable, which is determined based on the difference between the carrying amount of those receivables and the present value of estimated future cashflows arising from the foreclosure of the pledged land, discounted at the original effective interest rate. Imputed interest income on the impaired receivables of HK$11,124,853 for the current period has been included in other gains and losses (Note 8).

– 127 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

23. LOANS RECEIVABLES (continued)

Unsecured loans

The unsecured loans comprise mainly a HK$71,000,000 non-interest bearing loan due from a subsidiary of the CLIO’s former holding company (the “borrower”) and agents’ loans. Subsequent to 30 June 2005, a mutual repayment agreement was entered into with the borrower. Amounts of HK$410,000 and HK$17,000,000 were paid in October 2005 and November 2005 respectively and an amount of HK$29,000,000 was set-off against a payable amount in September 2005 through inter-company current account. The remaining loans will be settled within two years with an annual interest of six-month HIBOR.

24. DEPOSITS WITH BANKS

The maturity profile of the fixed-rate interest bearing deposits with banks was as follows:

THE GROUP Within 1 year 1 - 2 years 2 - 3 years Fair value Effective interest rate (% per annum) THE COMPANY Within 1 year 1 - 2 years 2 - 3 years Fair value Effective interest rate (% per annum)	2002 HK$ 1,386,662,148 – 97,264,803 1,483,926,951 1,487,138,707 0.1% to 4.6% 1,275,132,725 – 97,264,803 1,372,397,528 1,375,609,284 0.1% to 4.6%	At 31 December 2003 HK$ 2,450,444,437 97,264,803 – 2,547,709,240 2,553,935,293 0.1% to 4.4% 2,359,408,757 97,264,803 – 2,456,673,560 2,462,899,613 0.1% to 4.4%	2004 HK$ 1,663,924,948 – – 1,663,924,948 1,663,924,948 0.1% to 4.4% 1,591,541,766 – – 1,591,541,766 1,591,541,766 0.1% to 4.4%	At 30 June 2005 HK$ 1,962,139,928 65,361,433 –
				2,027,501,361
				2,028,445,639
				0.1% to 4.4%
				1,878,640,631 65,361,433 –
				1,944,002,064
				1,944,946,342
				0.1% to 4.4%

25. FINANCIAL ASSETS

The fair values of amounts due from reinsurers under reinsurance contracts ceded, amounts due from an associated and fellow subsidiaries, interest receivable and other debtors and deposits determined based on estimated cash flow discounted at the prevailing market rate at each balance sheet date approximate to the corresponding carrying amounts.

26. STATUTORY DEPOSITS

The amounts represent one-year rate bank fixed deposits of a subsidiary of CLIO in the name of the Director of Accounting Services in compliance with Section 77(2e) of the Trustee Ordinance. The fair value of the deposits as at each balance sheet date approximate to the corresponding carrying amount.

– 128 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

27. REINSURANCE ASSETS

Reinsurance assets mainly represent the reinsurers’ share of long term life policy reserves.

Movements in reinsurance assets are set out as follows:

At 1 January Reinsurance premiums payable Reinsurance claims recoverable Commission income Interest expense Reinsurance (loss) gain At 31 December/30 June	THE GROUP AND THE COMPANY 2002 2003 2004 HK$ HK$ HK$ (restated) (restated) (restated) 12,736,800 8,011,644 4,768,916 26,656,988 25,733,050 706,824,855 (30,796,221) (14,012,192) (17,383,569) (468,401) (1,572,435) (53,854,061) – – 19,016,718 (117,522) (13,391,151) 4,677,262 8,011,644 4,768,916 664,050,121	2005 HK$ 664,050,121 11,485,788 (4,635,636 (196,566 12,126,511 (8,562,185
		674,268,033

Gain/loss on reinsurance P.37 (a) and (b).

28. DIRECT PREMIUMS RECEIVABLES

The Group allows an average credit period of one month to its policyholders.

The following is an aged analysis of direct premiums receivable at the balance sheet date:

0 – 30 days 31 – 90 days Over 90 days	2002 HK$ 33,962,904 712,283 1,795,601	THE GROUP AND THE COMPANY At 31 December 2003 2004 HK$ HK$ 28,122,505 35,456,837 1,158,669 513,961 307,523 307,523 29,588,697 36,278,321	At 30 June 2005 HK$ 29,194,331 5,617,653 314,062
		At 31 December 2003 HK$ 28,122,505 1,158,669 307,523 29,588,697
	36,470,788		48,062,266

All the direct premiums receivables are expected to be recovered within one year. The estimated fair values of the direct premiums receivables are the discounted amount of the estimated future cash flows expected to be received which approximate to the corresponding carrying values.

29. FINANCIAL LIABILITIES

The fair values of claims payable, amounts due to reinsurers under reinsurance contracts ceded, premiums in advance under direct underwriting business, deposit premiums, other insurance liabilities and other creditors and accrued charges, determined based on estimated cash flow discounted at the prevailing market rate at each balance sheet date, approximate to the corresponding carrying amounts.

The policyholders’ funds on deposits and premiums in advance under direct underwriting business bear fixed interest rate which is subject to the review of the Group annually with reference to the prevailing market rate. In the opinion of the directors of CLIO, the fair values of policyholders’ funds and premiums in advance under direct underwriting business on deposits approximate to their carrying values at each balance sheet dates.

– 129 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

30.

BANK LOAN

The loan is secured by a charge over the investment properties of one of the Company’s subsidiaries and the assignment of the rental proceeds from existing and future leasing of the investment properties.

The maturity profile is as follows:

Current Within one year Non-current Two to five years After five years	At 31 December 2002 2003 HK$ HK$ 19,319,249 20,398,356 77,535,530 87,152,202 110,230,151 79,877,680 187,765,681 167,029,882 207,084,930 187,428,238	2004 HK$ 20,939,167 89,449,531 56,651,139 146,100,670 167,039,837	At 30 June 2005 HK$ 20,618,468
			90,446,331 45,671,431
			136,117,762
			156,736,230

Interest on the bank loan is charged at a variable rate agreed to prime rate minus 2.4%. The effective interest rate would change in line with the prime rate starting from the next installment payment date immediately after the announcement of any changes in prime rate by the bank.

In the opinion of the directors of CLIO, the fair value of the above Group’s bank loan estimated by discounting its future cash flows at the prevailing market borrowing rate at the balance sheet date for similar borrowings approximate to its carrying value.

31.

DEFERRED TAXATION

The following are the major deferred tax liability and asset recognised by the Group and movements thereon during the Relevant Periods:

Revaluation of investment properties HK$ Analysed as follows: At 1 January 2002, as originally stated – Effects of changes in accounting policies (see Note 2) 8,454,168 At 1 January 2002, as restated 8,454,168 Effects of changes in accounting policies (see Note 2) (5,031,964) At 31 December 2002, as restated 3,422,204 Charge (credit) to income statement 7,193,427 Effects of changes in accounting policies (see Note 2) (9,825,392) At 31 December 2003, as restated 790,239 Charge (credit) to income statement 6,286,695 Effects of changes in accounting policies (see Note 2) (3,176,321) At 31 December 2004, as restated 3,900,613 Charge (credit) to income statement 1,220,644 At 30 June 2005 5,121,257	Tax losses HK$ – (8,454,168) (8,454,168) 5,031,964 (3,422,204) (3,959,023) 6,590,988 (790,239) (6,642,906) 3,532,532 (3,900,613) (1,220,644) (5,121,257)	Total HK$ – –
		– –
		– 3,234,404 (3,234,404)
		– (356,211) 356,211
		– –
		–

At 30 June 2005, the Group has estimated unused tax losses of approximately HK$294 million (31.12.2004: HK$380 million; 31.12.2003: HK$457 million; 31.12.2002: HK$512 million) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$29 million (31.12.2004: HK$22 million; 31.12.2003: HK$5 million; 31.12.2002: HK$21 million) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$265 million (31.12.2004: HK$358 million; 31.12.2003: HK$452 million; 31.12.2002: HK$491 million) due to the unpredictability of the future profit streams. For the tax losses arising in Macau amounted to HK$13 million (31.12.2004: HK$20 million; 31.12.2003: HK$23 million; 31.12.2002: HK$86 million), it can only be carried forward to offset future profits arising in the following three years in accordance with Article 34 (1) of the Macau Complementary Tax ordinance. Other tax losses may be carried forward indefinitely.

– 130 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

32. INSURANCE FUNDS

(a) Process used to determine the assumptions

The assumptions which have the greatest effect on the measurement of the policy liabilities are valuation interest rates and mortality assumption. The valuation interest rates are determined in accordance with the relevant local regulations. They are determined from a prudent assessment of the yields on existing assets. These rates are then adjusted to the extent appropriate with reference to the yields which are expected on sums to be invested in the future. The mortality assumption is determined on a prudent basis with reference to past mortality analysis.

In addition to the actuarial liabilities, a number of contingency reserves including a resilience reserve and currency mismatch reserve for Class A and a reserve for guarantees on Class G business are set up for the Hong Kong Business. The resilience reserve is calculated from a small number of scenarios under which combinations of bond yield rise/fall and equity drop/rise are assumed. The currency mismatch reserve as at 30 June 2005 amounted to approximately HK$119 million and is calculated based on a percentage of the mismatched assets and liabilities. The percentage used has reference to the probability of a removal of link between the relevant currencies as well as an estimate of the adverse movement in the event of such removal. The Class G reserve for guarantees is calculated with reference to the Guidance Note 7 “Reserving Standards for Investment Guarantees” issued by the Insurance Authority. A stochastic asset model is chosen to project future expected asset returns. Asset returns are assumed to follow the log-normal distribution. 1,000 scenario runs are performed. Policies are grouped into different model points according to the level of guarantee interest rate. Future contribution amounts are assumed to be equal to the current level adjusted by the increment due to salary increase and decrements due to withdrawals.

(b) Change in assumptions and sensitivity analysis as at 30 June 2005

An increase of 10% in the mortality rate assumption would require the recognition of an additional loss of HK$17 million.

A drop of 50 basis points in the bond yields shall lead to approximately a reduction in 13 basis points in the valuation interest rate which would require the recognition of an additional loss of HK$86 million.

Nearly all of the assets and liabilities are denominated in either HK$ and US$. In the event that the link between HK$ and US$ exchange rate is removed and a subsequent adverse devaluation of the US$ currency against the HK$ of 5%, there shall be the recognition of additional loss of HK$239 million.

(c) Amounts, timing and uncertainty of future cash flows from insurance contracts

A claim or termination of insurance contract usually arises from an event of death, surrender, lapse or maturity. The uncertainty of future cash flows therefore arises mainly from the uncertainty of the timing of occurrence of such event.

The Class A business comprises mainly of whole life and endowment plans, term insurance and riders covering accidental, critical illnesses, disablement and hospitalisation.

For the whole life and endowment plans, benefits are payable on death, surrender and maturity. Some of these plans are participating for which yearly dividends are declared and payable. The whole life plans mature when the life insured attained the age of 100. The terms of the endowment plans range from 5 years up to 65 years. As the endowment plans issued are as short as 5 years, there shall be large maturity claims in the coming years.

(d) Liability adequacy test

The actuarial liabilities are reported on the basis laid out in the relevant local regulation governing valuation of liabilities. Such liabilities so determined are on a prudent basis and without allowance for future surrenders. The valuation basis is strong enough to avoid future valuation strain and the reserve is strong enough to pass the test based on best estimate basis. No adjustment to the policy liabilities is necessary.

– 131 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

32. INSURANCE FUNDS (continued)

(e) Movements in insurance funds

At 1 January Net valuation premium received Fees deducted from account balance Interest credited Liabilities released for payments on – death – surrender – other terminations Change in other contingency reserves Change in unassigned surplus Others At 31 December/30 June Represented by: Policy reserves Unassigned surplus	2002 HK$ (restated) 4,145,303,407 690,635,764 (15,750,298) 183,729,270 (42,544,583) (565,761,009) (495,655,811) (9,000,000) – (29,100,639) 3,861,860,101 3,861,860,101 – 3,861,860,101	2003 HK$ (restated) 3,861,860,101 1,725,190,857 (29,099,499) 226,109,038 (42,526,188) (375,713,126) (529,457,072) 67,300,000 – (13,429,491) 4,890,234,620 4,890,234,620 – 4,890,234,620	2004 HK$ (restated) 4,890,234,620 3,142,524,157 (7,733,749) 312,556,562 (41,815,297) (258,866,172) (674,127,823) 51,300,000 36,107,329 (2,780,492) 7,447,399,135 7,411,291,306 36,107,329 7,447,399,135	2005 HK$ 7,447,399,135 2,802,144,908 (7,793,725) 173,071,375 (24,215,417) (128,520,815) (46,009,747) 18,939,025 17,549,701 (41,653,948)
				10,210,910,492
				10,157,253,462 53,657,030
				10,210,910,492

33. FINANCIAL LIABILITIES ARISING FROM INVESTMENT CONTRACTS

The financial liabilities arising from investment contracts and bearing variable rate of interest represent the amount that the policyholders of the investment contracts will be entitled to as at the balance sheet date. In the opinion of the directors, the fair values of these financial liabilities, determined based on estimated cash flow discounted at the prevailing market rate at each balance sheet date, approximate to the corresponding carrying amounts.

34. PAID-UP CAPITAL

At 1 January 2002, 31 December 2002 and 31 December 2003 Shares issued for cash proceeds At 31 December 2004 and 30 June 2005	HK$ 566,100,775 311,234,371
	877,335,146

The paid-up capital as at 31 December 2002, 2003 and 2004 and 30 June 2005 represented the registered capital of CLIO as at those dates.

– 132 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

35. RESERVES

THE COMPANY

THE COMPANY
At 1 January 2002 Exchange differences on translation of overseas operations and net expense recognised directly in equity Net loss for the year Total recognised income and expense for the year Transfer of exchange gain of unification of Renminbi exchange rates At 31 December 2002 and 1 January 2003 Revaluation increase of investments in securities and net income recognised directly in equity Net loss for the year Total recognised income and expense for the year At 31 December 2003 Exchange differences on translation of overseas operations and net income recognised directly in equity Realised on disposals Net loss for the year Total recognised income and expense for the year Transfer of unassigned surplus to insurance funds_(Note b) At 31 December 2004 Effects of changes in accounting policies (see Note 2) At 1 January 2005 as restated Exchange differences on translation of overseas operations and net income recognised directly in equity Realised on disposals Net profit for the period Total recognised income and expense for the period Transfer of unassigned surplus to insurance funds (Note b)_ At 30 June 2005	Investment revaluation reserve HK$ – – – – – – 30,798,635 – 30,798,635 30,798,635 – (30,725,568) – (30,725,568) – – 73,067 – 73,067 – (73,067) – (73,067) – – –	Capital reserve HK$ (Note a) 205,759,993 – – – – 205,759,993 – – – 205,759,993 – – – – – – 205,759,993 – 205,759,993 – – – – – – 205,759,993	Translation reserve HK$ 30,051,088 (4,730,168) – (4,730,168) (25,320,920) – – – – – 1,275,704 – – 1,275,704 – – 1,275,704 – 1,275,704 1,069,584 – – 1,069,584 – – 2,345,288	Accumulated losses HK$ (459,888,792) – (172,936,463) (172,936,463) 25,320,920 (607,504,335) – (56,858,390) (56,858,390) (664,362,725) – – (2,783,574) (2,783,574) (36,107,329) (36,107,329) (703,253,628) (11,253,340) (714,506,968) – – 40,242,633 40,242,633 (17,549,701) (17,549,701) (691,814,036)	Total HK$ (224,077,711)
					(4,730,168) (172,936,463)
					(177,666,631)
					–
					(401,744,342)
					30,798,635 (56,858,390)
					(26,059,755)
					(427,804,097)
					1,275,704 (30,725,568) (2,783,574)
					(32,233,438)
					(36,107,329)
					(36,107,329)
					(496,144,864) (11,253,340)
					(507,398,204)
					1,069,584 (73,067) 40,242,633
					41,239,150
					(17,549,701)
					(17,549,701)
					(483,708,755)

Notes:

(a) Capital reserve represents reserve arising from donated assets received in prior years.

(b) The transfer, which is an appropriation from reserves to insurance funds, represents the amount of unassigned surplus retained in the insurance funds, based on the recommendations from the Group’s appointed actuary.

(c) During the year, the Group discovered that reserves included an exchange gain arising from the unification of Renminbi (“RMB”) exchange rates in 1994. This exchange gain should have been amortised to the income statement over five years from 1994, the year when it arose. Accordingly, during the year, the Group reclassified the “exchange gain arising from unification of RMB exchange rate” which was included in reserves of HK$30,051,088 to the opening balance of the accumulated losses.

– 133 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

36. PLEDGED ASSETS

Other than as disclosed in Note 25, at 30 June 2005, the Group has bank deposits of approximately HK$102 million (31.12.2004: HK$102 million; 31.12.2003: HK$77 million; 31.12.2002: HK$73 million), debt securities of approximately HK$32 million (31.12.2004: HK$32 million; 31.12.2003: nil; 31.12.2002: nil) and investment properties of HK$127 million (31.12.2004: HK$127 million; 31.12.2003: HK$113 million; 31.12.2002: HK$91 million) pledged in favour of Monetary Authority of Macau as guarantee for its technical reserves, as required under the Macau Insurance Ordinance.

37. OPERATING LEASE COMMITMENTS

The Group as lessee

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

Within one year In the second to fifth year inclusive	At 31 December 2002 2003 HK$ HK$ – 76,320 – 60,420 – 136,740	2004 HK$ 215,505 – 215,505	At 30 June 2005 HK$ 88,725 –
			88,725

The Company as lessee

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

Within one year In the second to fifth year inclusive	At 31 December 2002 2003 HK$ HK$ 5,660,681 5,569,275 4,245,511 – 9,906,192 5,569,275	2004 HK$ 575,007 – 575,007	At 30 June 2005 HK$ 2,100,216 280,368
			2,380,584

Operating lease payments represent rentals payable by the Group and the Company for the office premises and agency offices. The leases are negotiable for every two years.

The Group as lessor

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

Within one year In the second to fifth year inclusive	At 31 December 2002 2003 HK$ HK$ 20,735,867 23,273,138 13,485,392 16,347,491 34,221,259 39,620,629	2004 HK$ 31,826,299 19,896,089 51,722,388	At 30 June 2005 HK$ 35,549,685 11,978,125
			47,527,810

The Company as lessor

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

Within one year In the second to fifth year inclusive	At 31 December 2002 2003 HK$ HK$ 2,278,550 1,571,380 1,320,364 691,550 3,598,914 2,262,930	2004 HK$ 1,929,632 143,500 2,073,132	At 30 June 2005 HK$ 1,180,616 25,000
			1,205,616

Certain of the properties held have committed tenants for the next two to three years.

– 134 –

ACCOUNTANTS’ REPORT ON THE CLIO GROUP

APPENDIX II

38. RELATED PARTY TRANSACTIONS

No significant related party transactions were carried out during the Relevant Periods, other than the remuneration of directors and other members of key management during the Relevant Periods as disclosed in Notes 12 and 13.

(C) DIRECTORS’ REMUNERATION

The directors’ remuneration after Completion has not been determined at this moment as it is dependent on the decision of the new Board after the Subscription.

(D) SUBSEQUENT EVENTS

Apart from those disclosed in Note 17 of this report, the following transactions took place subsequent to 30 June 2005:

• (a) On 17 October 2005, CLIO entered into an agreement with a buyer to sell its interest in leasehold land at a consideration of HK$32 million. The leasehold land interest was classified as non-current asset held for sale as at 30 June 2005.

• (b) On 27 September 2005, CLIO entered into an agreement with Shougang pursuant to which Shougang agreed to purchase 40% of the enlarged issued share capital of CLIO to be satisfied by equity funding and external borrowings. The transaction is conditional and is subject to the approval of the shareholders of Shougang.

(E) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of any of the companies in the Group have been prepared in respect of any period subsequent to 31 December, 2004.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 135 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

1. Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group

The following is the unaudited pro forma assets and liabilities statement of the Enlarged Group assuming that the proposed subscription of new shares in CLIO had been completed as at 30 June 2005. The unaudited pro forma assets and liabilities statement was prepared based on the unaudited consolidated balance sheet of the Group as at 30 June 2005 extracted from the interim report of the Group for the period ended 30 June 2005 (set out in Appendix I to this circular) and the audited consolidated balance sheet of the CLIO Group as at 30 June 2005 extracted from the financial information on the CLIO Group (set out in Appendix II to this circular) and with adjustments to reflect the effect of the Subscription.

This unaudited pro forma assets and liabilities statement was prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position of the Enlarged Group at any dates.

Non-current assets Investment properties Property, plant and equipment Goodwill Intangible asset Interest in an associate Interest in a jointly controlled entity Deferred tax assets Current assets Inventories Production work in progress Trade receivables Prepayment, deposits & other receivable Investments held for trading Pledged bank deposits Bank balances and cash	The Group as at 30 June 2005 HK$’000 (Note i) 104,000 34,035 80,000 22,411 – 115,385 151 355,982 7,416 20,071 9,033 13,559 15,130 3,949 70,024 139,182	Pro forma adjustments Notes HK$’000 – – 293,077 (ii) – 506,923 (iii) – – 800,000 – – – – – – 320,000 (iv) 320,000	Unaudited Pro forma Enlarged Group HK$’000 104,000 34,035 373,077 22,411 506,923 115,385 151
			1,155,982
			7,416 20,071 9,033 13,559 15,130 3,949 390,024
			459,182

– 136 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Current liabilities Trade payables Other payables and accruals Rental and management fee deposits Amounts due to shareholders Amounts due to related parties Taxation payable Obligations under finance leases Borrowings Net current assets Total assets less current liabilities Non-current liabilities Borrowings Amounts due to shareholders Deferred tax liabilities Obligations under finance leases Net assets Capital and reserves Share capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity	The Group as at 30 June 2005 HK$’000 (Note i) 3,700 29,847 961 3,020 1,422 358 4,278 78,382 121,968 17,214 373,196 20,000 18,237 692 898 39,827 333,369 11,369 318,537 329,906 3,463 333,369	Pro forma adjustments Notes HK$’000 – 320,000 (v) – – – – – – 320,000 – 800,000 400,000 (vi) 300,000 (vii) – – 700,000 100,000 2,274 (viii) 97,726 (viii) 100,000 – 100,000	Unaudited Pro forma Enlarged Group HK$’000 3,700 349,847 961 3,020 1,422 358 4,278 78,382
			441,968
			17,214
			1,173,196
			420,000 318,237 692 898
			739,827
			433,369
			13,643 416,263
			429,906 3,463
			433,369

Notes:

• (i) Being the unaudited consolidated balance sheet of the Group as at 30 June 2005 extracted from Appendix I.

• (ii) The adjustment reflects the goodwill of approximately HK$293 million arising from the acquisition of 40% interest in CLIO for a total consideration of HK$800 million with the assumption that the fair value of the net assets of CLIO is the same as the carrying amount of net assets as at 30 June 2005. The accounting treatment is in accordance with HKFRSs as mentioned in Note 2 “Significant Accounting Policies” in the financial information of the Group in Appendix I to this circular.

• (iii) The amount represents the share of 40% of net assets of CLIO as at 30 June 2005, adjusted for issue of new shares in CLIO as a result of the Subscription.

• (iv) Being net cash after settlement of 60% of the Subscription Price.

• (v) Being 40% of the Subscription Price which will be paid within six months after the Completion, in accordance with the Subscription Agreement.

• (vi) It is expected that a bank loan of HK$400 million, which represents 50% of the total Subscription Price, will be obtained by the Company.

• (vii) It is expected that the remaining HK$300 million, which represents 37.5% of the total Subscription Price, will be provided by Shougang Holding (Hong Kong) Limited through a shareholder’s loan.

• (viii) It is expected that the Company will raise fund of approximately HK$100 million, which represents 12.5% of the total Subscription Price, by issuing new Shares equivalent to 20% of its total issued share capital as at the Latest Practicable Date.

– 137 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

2. Unaudited Pro Forma Consolidated Income Statement of the Enlarged Group

The following is the unaudited pro forma income statement of the Enlarged Group assuming that the proposed subscription of new shares in CLIO had been completed as at 1 January 2004. The unaudited pro forma income statement was prepared based on the audited consolidated income statement of the Group for the year ended 31 December 2004 extracted from the annual report of the Group for the year ended 31 December 2004 (set out in Appendix I to this circular) and the audited consolidated income statement of the CLIO Group for the year ended 31 December 2004 extracted from the financial information on the CLIO Group (set out in Appendix II to this circular) and with adjustments to reflect the effect of the Subscription.

This unaudited pro forma income statement was prepared for illustrative purpose only and because of its nature, it may not give a true picture of the result of the Enlarged Group for any financial periods.

The Group for the year ended 31 December 2004 HK$’000 (Note i) Turnover 14,386 Other operating income 849 Administrative expenses (22,300) Loss on disposal of investment properties (1,427) Loss from operations (8,492) Finance costs (2,115) Share of result of a jointly-controlled entity (71,397) Amortisation of goodwill arising on acquisition of an associate – Amortisation of goodwill arising on acquisition of a jointly controlled entity (937) Share of result of associates (5,835) Gain on deemed disposal of an associate 115 Gain on distribution of an associate 189,210 Impairment loss on goodwill of interest in a jointly controlled entity (22,471) Profit before taxation 78,078 Taxation 4,441 Profit before minority interest 82,519 Minority Interest 64 Net profit for the year 82,583	Pro forma adjustments Notes HK$’000 – 4,800 (ii) – – 4,800 (35,480) (iii) – (41,840) (iv) – 3,379 (v) – – – (69,141) (1,224) (v) (70,365) – (70,365)	Unaudited Pro forma Enlarged Group HK$’000 14,386 5,649 (22,300) (1,427) (3,692) (37,595) (71,397) (41,840) (937) (2,456) 115 189,210 (22,471) 8,937 3,217 12,154 64 12,218

– 138 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Notes:

• (i) Being the audited consolidated income statement of the Group for the year ended 31 December 2004 extracted from Appendix I.

• (ii) It is expected that net cash after settlement of 60% of the Subscription Price, the balance of HK$320 million, being the remaining 40% of the Subscription Price will be paid within six months after the Completion will generate an interest income at the rate prevailing at the Latest Practicable Date, starting from 1 January 2004 to 30 June 2004. The adjustment is expected to have a continuing effect on the Enlarged Group.

• (iii) It is expected that the interest expenses on the new bank and shareholder’s loan will be charged on the market interest rate prevailing at the Latest Practicable Date, starting from 1 January 2004 to 31 December 2004. This adjustment is expected to have a continuing effect on the Enlarged Group.

• (iv) The adjustment reflects the release of goodwill of approximately HK$42 million to the pro forma income statement for the year ended 31 December 2004 on a straight-line basis over its estimated useful life of 10 years in accordance with the Group’s accounting policies with the assumption that the fair value of the net assets of CLIO is the same as the carrying amount of the net assets as at 31 December 2003 extracted from the financial information of CLIO set out in Appendix II to this circular, after adjustment relating to the Subscription. This adjustment is expected to have a continuing effect on the Enlarged Group.

• (v) The amount represents the share of 40% profit before taxation and taxation of CLIO for the year ended 31 December 2004. This adjustment is expected to have a continuing effect on the Enlarged Group.

3. Unaudited Pro Forma Consolidated Cash Flow Statement of the Enlarged Group

The following is the unaudited pro forma cash flow statement of the Enlarged Group assuming that the proposed subscription of new shares in CLIO had been completed as at 1 January 2004. The unaudited pro forma cash flow statement was prepared based on the audited consolidated cash flow statement of the Group for the year ended 31 December 2004 extracted from the annual report of the Group for the year ended 31 December 2004 (set out in Appendix I to this circular) and the audited consolidated cash flow statement of the CLIO Group for the year ended 31 December 2004 extracted from the financial information on the CLIO Group (set out in Appendix II to this circular) and with adjustments to reflect the effect of the Subscription.

This unaudited pro forma cash flow statement was prepared for illustrative purpose only and because of its nature, it may not give a true picture of the cash flow of the Enlarged Group for any financial periods.

		The Group
		for the			Unaudited
		year ended			Pro forma
	31 December		Pro forma		Enlarged
		2004	adjustments	Notes	Group
		HK$’000	HK$’000		HK$’000
		(Note i)
Operating activities
Profit before taxation		78,078	(69,141)	(ii), (iii),	8,937
				(iv) & (v)
Adjustments for:
Finance costs		2,115	35,480	(ii)	37,595
Share of results of a jointly
controlled entity and associates		77,232	(3,379)	(iii)	73,853
Amortisation of goodwill arising
on acquisition of an associate		–	41,840	(iv)	41,840
Amortisation of goodwill arising
on acquisition of a jointly
controlled entity		937	–		937
Gain on deemed disposal of an associate		(115)	–		(115)
Gain on distribution of an associate		(189,210)	–		(189,210)
Impairment loss on goodwill of
interest in a jointly controlled entity		22,471	–		22,471

– 139 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group for the year ended 31 December 2004 HK$’000 Dividend income from investments in securities (50) Depreciation 196 Interest income (320) Unrealised holding gain on investments in securities (75) Loss on disposal of property, plant and equipment 1 Loss on disposal of investment properties 1,427 Revaluation deficit of investment properties 2,800 Operating cash flows before movements in working capital (4,513) Increase in prepayments, deposits and other receivables (17,345) Increase in films in progress (2,482) Increase in creditors and accruals 2,252 Decrease in rental and management fee deposits received (1,830) Cash used in generated from operations (23,918) Hong Kong profits tax paid (206) Tax refunded 7 Interest paid (1,700) Bank facility arrangement fee (251) Net cash used in operating activities (26,068) Proceeds from disposal of investment properties 139,373 Capital contribution from minority shareholders 1,498 Dividend received from a jointly controlled entity 1,269 Interest received 320 Dividends received from investments in securities 50 Purchases of property, plant and equipment (940) Increase in pledged bank deposits (65,500) Purchase of investments in securities (22,050) Loan to Global Digital Creations Holdings Limited (10,843) Payment for acquisition of an associate (2,861) Investment in CLIO –	Pro forma adjustments Notes HK$’000 – – (4,800) (v) – – – – – – – – – – – – (35,480) (ii) – (35,480) – – – 4,800 (v) – – – – – – (800,000) (vi)	Unaudited Pro forma Enlarged Group HK$’000 (50) 196 (5,120) (75) 1 1,427 2,800 (4,513) (17,345) (2,482) 2,252 (1,830) (23,918) (206) 7 (37,180) (251) (61,548) 139,373 1,498 1,269 5,120 50 (940) (65,500) (22,050) (10,843) (2,861) (800,000)

– 140 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The Group for the year ended 31 December 2004 HK$’000 Net cash from investing activities 40,316 Financing activities Proceeds from issue of shares 60,287 Repayment of bank borrowings (5,600) Expense incurred for the distribution of shares in an associate (929) New bank raised – New shareholder’s loans raised – Net cash from financing activities 53,758 Net increase in cash and cash equivalents 68,006 Cash and cash equivalents at beginning of the year 51,677 Cash and cash equivalents at end of the year 119,683 Analysis of the balances of cash and cash equivalents Bank balances and cash 78,068 Time deposits 41,615 119,683	Pro forma adjustments Notes HK$’000 (795,200) 100,000 (vii) – – 400,000 (viii) 300,000 (viii) 800,000 (30,680) – (30,680) (30,680) – (30,680)	Unaudited Pro forma Enlarged Group HK$’000 (754,884) 160,287 (5,600) (929) 400,000 300,000 853,758 37,326 51,677 89,003 47,388 41,615 89,003

Notes:

• (i) Being the audited consolidated cash flow statement of the Group for the year ended 31 December 2004 extracted from Appendix I.

• (ii) It is expected that the interest expenses on the new bank and shareholder’s loan will be charged at the market interest rate prevailing at the Latest Practicable Date, starting from 1 January 2004 to 31 December 2004. This adjustment is expected to have a continuing effect on the Enlarged Group.

• (iii) The amount represents the share of 40% profit before taxation of CLIO for the year ended 31 December 2004. This adjustment is expected to have a continuing effect on the Enlarged Group.

• (iv) The adjustment reflects the release of goodwill of approximately HK$42 million to the pro forma income statement for the year ended 31 December 2004 on a straight-line basis over its estimated useful life of 10 years in accordance with the Group’s accounting policies with the assumption that the fair value of the net assets of CLIO is the same as the carrying amount of the net assets as at 31 December 2003 extracted from the financial information of CLIO set out in Appendix II to this circular, after adjustment relating to the Subscription. This adjustment is expected to have a continuing effect on the Enlarged Group.

• (v) It is expected that net cash after settlement of 60% of the Subscription Price, the balance of HK$320 million, being the remaining 40% of the Subscription Price will be paid six months after the Completion, will generate an interest income at the rate prevailing at the Latest Practicable Date, starting from 1 January 2004 to 30 June 2004. The adjustment is expected to have a continuing effect on the Enlarged Group.

• (vi) The amount represents the Subscription Price pursuant to the Subscription Agreement for the Company to acquire 40% interest in CLIO. This is an one-off adjustment item.

• (vii) It is expected that the Company will raise fund of approximately HK$100 million by issuing new Shares equivalent to 20% of its issued share capital as at the Latest Practicable Date. This is an one-off adjustment item.

• (viii) It is expected that a bank loan of HK$400 million will be obtained by the Company. It is expected that the remaining HK$300 million will be provided by Shougang Holding (Hong Kong) Limited through a shareholder’s loan. This is an one-off adjustment item.

– 141 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

B. LETTER ON UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following is the text of the report, prepared for the purpose of incorporation in this circular, from Deloitte Touche Tohmatsu in respect of the pro forma financial information of the Group as set out in this appendix:

==> picture [76 x 58] intentionally omitted <==

23 December 2005

The Board of Directors

Shougang Concord Grand (Group) Limited 6/F Bank of East Asia Harbour view Centre 56 Gloucester Road Wanchai Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Shougang Concord Grand (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) and China Life Insurance (Overseas) Company Limited (the “CLIO” together with the Group hereinafter collectively referred to as the “Enlarged Group”) set out in Appendix III (the “Unaudited Pro Forma Financial Information”) to the circular dated 23 December 2005 (the “Circular”) in connection with the very substantial acquisition relating to the proposed subscription of new shares in CLIO by the Group (the “Subscription”) , which has been prepared by the Directors of the Company (the “Directors”), for illustrative purposes only to provide information about how the Subscription might have affected the financial information presented.

RESPONSIBILITIES

It is the responsibility solely of the Directors to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

BASIS OF OPINION

We conducted our work with reference to the Statement of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the listing rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the Directors.

Our work does not constitute an audit or a review in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and accordingly we do not express any such assurance on the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information has been prepared on the basis set out in Appendix III to the Circular for illustrative purpose only and, because of its nature, it may not give an indicative financial position of the Enlarged Group as at 30 June 2005 or at any future date or an indicative results and cash flows of the Enlarged Group for the year ended 31 December 2004 or at any future period.

OPINION

In our opinion:

• (a) the Unaudited 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) except for the HK$800 million financing, including a bank loan of HK$400 million, a shareholder’s loan of HK$300 million and equity financing of HK$100 million, for the consideration of the Subscription is not in accordance with paragraph 29(6) of Chapter 4 of the Listing Rules which requires all adjustments to be factually supportable, in our opinion, the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

– 143 –

PROPERTY VALUATION

APPENDIX IV

The valuation report on the property interests of the Group has been prepared for the sole purpose for the inclusion in this circular. The following is the text of the letter, summary of valuation and the valuation certificates received from AA Property Services Limited and addressed to the Company in connection with its valuation as at 31st October, 2005 of the property interests of the Group.

Room 602 Mirror Tower No. 61 Mody Road Tsimshatsui East Kowloon

23rd December, 2005

The Directors Shougang Concord Grand (Group) Limited

6th Floor Bank of East Asia Harbour View Centre No.56 Gloucester Road Wan Chai Hong Kong

Dear Sirs,

In accordance with your instruction to value the property interests owned by Shougang Concord Grand (Group) Limited (hereinafter referred to as “the Company”) and its subsidiaries (hereinafter together referred to as “the Group”) located in Hong Kong, the People’s Republic of China and Singapore and also the property interests in which the Group has financial interests, we confirm that we have carried out inspections, made relevant searches and enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the property interests as at 31st October, 2005.

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

Our valuation has been made on the assumption that the property interests are to be sold on the open market in their existing state without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which could serve to increase the value of such property interests. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the property interests and no allowance has been made for the property interests to be sold in one lot or to a single purchaser.

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PROPERTY VALUATION

APPENDIX IV

We have valued the property interests on open market basis by the market approach whereby sales of property of nature and character similar to the property under consideration are collated and analysed and where appropriate on the basis of capitalisation of the net rental income receivable with due allowance for reversionary income potential. In employing the direct comparison approach, comparisons are made in respect of the locations, sizes and characters between the property and the comparable property in order to arrive at a value appropriate to the property interests.

The property interests under Group II are held by the Group under leases. All these property interests have no commercial value due to the prohibition against assignment provided under the tenancy agreements or lack of substantial profit rent.

As regards the property located in the People’s Republic of China, our valuation is made on the basis that the Group has proper legal title to the property interests and has full and uninterrupted right to use, lease, sell or mortgage the property interests in the open market for the residue of the term granted under the land use right in respect of the property interests without the payment of any fees or premium of substantial nature to the local authority. The property interests are freely disposable and transferable in their existing state to both local and overseas purchasers.

We have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, lettings, rentals, site and floor areas and all other relevant matters which could affect values. Unless otherwise stated, there are no other matters which may materially affect the values of the property interests included in the valuation certificates.

Unless otherwise stated, there are no further rent review provisions in the tenancy agreements in respect of the property interests included in the valuation certificate.

We have not carried out on-site measurements to verify the site and floor areas of the property under consideration. We have assumed that the site and floor areas supplied to us or shown on the documents handed to us are correct. We have no reason to doubt the truth and accuracy of the information provided to us. We have also been advised that no material facts have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

We have caused searches to be done in respect of the property interests located in Hong Kong. However, we have not scrutinised the original documents to verify ownership or to verify any lease amendments which may not appear on the copies handed to us. All documents and leases have been used as reference only and all dimensions, measurements and areas are approximate.

We have been provided with copies of agreements and title documents regarding the titles of the property interests in the People’s Republic of China. However, we have not caused searches to be made in respect of the title of the property interests and have not scrutinized the original documents to verify ownership or to verify any title amendments which may not appear on the copies handed to us. We have relied upon the advice given by the Group and the legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., as regards the title of the Group to the property interests and other legal matters. In arriving at the values of the property interests, we have relied upon the legal opinion of the legal adviser. All title documents have been used as reference only and all dimensions, measurements and areas are approximate.

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PROPERTY VALUATION

APPENDIX IV

As regards the property interests leased by the Group, we have been provided with the lease agreements or other documents in respect of the leases on the property interests. We have not however caused searches to be made in respect of the title of the property interests to verify ownership. We have relied upon the advice by the Group and the legal advisers on the laws of the People’s Republic of China and Singapore as regards the title of the landlords to the property interests and the validity of the leases held by the Group in arriving at the opinion of values. All lease documents have been used as reference only and all dimensions, measurements and areas are approximate.

We have inspected the exterior and, where possible, the interior of the property included in the valuation certificate attached herewith, in respect of which we have been provided with such information as we have required for the purpose of our valuation.

No structural survey has been made. However, in the course of our inspection, we did not note any serious defects. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the building services.

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

We have not been provided with the government rents payable in respect of the property interests located in the People’s Republic of China and Singapore. For the purpose of valuation, we have assumed the government rents (if any) are nominal and would not affect the value of the property interests.

Our valuation has been prepared in accordance with the HKIS Valuation Standards on Properties (1st Edition) published by the Hong Kong Institute of Surveyors and has complied with all the requirements under Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The translation of Renminbi (RMB) into Hong Kong Dollars (HK$) is based on the approximate rate of RMB1.04 to HK$1.00 prevailing on 31st October, 2005.

Our summary of valuation and the valuation certificate are attached.

Yours faithfully, For and on behalf of

A A PROPERTY SERVICES LIMITED

PATRICK W.C. LAI

MRICS, MHKIS, MCIArb., RPS

Executive Director

Note: Mr. Patrick W.C. Lai, Chartered Valuation Surveyor, has been a qualified valuer with A A Property Services Ltd. since 1991 and has over 15 years of experience in the valuation of property located in Hong Kong, the People’s Republic of China and Singapore. Mr. Lai is on the List of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in connection with Takeovers and Mergers under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

– 146 –

PROPERTY VALUATION

APPENDIX IV

SUMMARY OF VALUATION

Group I – Property owned by the Group:

Capital value in existing state Property as at 31st October, 2005 1. Flat 9 on 23rd Floor HK$6,300,000 Apartment Tower on the Western Side Convention Plaza No.1 Harbour Road Wan Chai Hong Kong 2. Unit 2602 on 26th Floor of Block N HK$2,800,000 Nos. 14-16 Hong On Street Kornhill Quarry Bay Hong Kong 3. Unit 1612 on 16th Floor of Block Q HK$3,500,000 Nos. 6-8 Hong On Street Kornhill Quarry Bay Hong Kong 4. Unit 2904 on 29th Floor of Block R HK$3,000,000 Nos. 2-4 Hong On Street Kornhill Quarry Bay Hong Kong 5. Unit 2907 on 29th Floor of West Tower HK$15,400,000 Shun Tak Centre Nos. 168-200 Connaught Road Central Sheung Wan Hong Kong 6. Flat 7 on 25th Floor HK$5,800,000 Apartment Tower on the Western Side Convention Plaza No. 1 Harbour Road Wan Chai Hong Kong

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PROPERTY VALUATION

APPENDIX IV

Property

1. 16th Floor together with Up Roof and Roof and Carparking Space Nos. 7, 8 and 9 on Ground Floor Manson Industrial Building A Kung Ngam Road A Kung Ngam Hong Kong 8. Flat 55 on 15th Floor Parkview Rise (Tower 8) and Carparking Space No. 283 on Car Park Entrance 3 (Level 4) Hong Kong Parkview No. 88 Tai Tam Reservoir Road Tai Tam Hong Kong 9. Units A and B on 3rd, 6th and 9th Floors together with the whole carparking area on 4th Floor Tin Fung Industrial Mansion No. 63 Wong Chuk Hang Road Aberdeen Hong Kong 10. Eight offices on 23rd Floor Times Financial Centre No. 4001 Shen Nan Avenue Futian District Shenzhen Guangdong Province The People’s Republic of China

2. Unit 1007 on 10th Floor Shen Hua Commercial Building Nanhu Road Shenzhen Guangdong Province The People’s Republic of China

Capital value in existing state as at 31st October, 2005

HK$9,000,000

HK$23,800,000

HK$36,000,000

HK$19,000,000

HK$1,200,000

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PROPERTY VALUATION

APPENDIX IV

Group II – Property leased by the Group:

Property

1. Portion of Sixth Floor Bank of East Asia Harbour View Centre No. 56 Gloucester Road Wanchai Hong Kong 13. Room 1205, 12th Floor No. 625 King’s Road Hong Kong 14. Room 1406 Zhuoyue Building Fu Hua Ei Road Futian District Shenzhen Guangdong Province The People’s Republic of China 15. Units 3101, 3102, 3103 and 3108 on 31st Floor Zhaofeng Building No. 1027 Chang Ning Road Shanghai The People’s Republic of China 16. Unit 2502, 25/F No. 10, Lane 1188 Chang Ning Road Shanghai The People’s Republic of China

2. Unit 108 Phoenix City Block B Chao Yang District Shu Guang Xi Li Jia No.5 Beijing The People’s Republic of China

3. Heng Dian Ying Shi Chan Ye Shi Yan Qu C2-001 Dong Yang County Zhejiang Province The People’s Republic of China

Capital value in existing state as at 31st October, 2005

No Commercial Value

No Commercial Value

No Commercial Value

No Commercial Value

No Commercial Value

No Commercial Value

No Commercial Value

– 149 –

PROPERTY VALUATION

APPENDIX IV

Property

1. 12th Floor Zhong Bai Building No. 320 Hao Pan Jie No. 231-237 Hai Zhu Nan Lu Yue Xiu District Guangzhou Guangdong Province The People’s Republic of China

2. 70A Amoy Street Singapore 069889 Singapore

Capital value in existing state as at 31st October, 2005

No Commercial Value

No Commercial Value

– 150 –

PROPERTY VALUATION

APPENDIX IV

VALUATION CERTIFICATE

Group I – Property owned by the Group:

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Flat 9 on Apartment Tower on the Western 23rd Floor, Side of Convention Plaza is a Apartment 35-storeyed apartment building Tower overmounting a multi-storeyed on the Western common podium of Convention/ Side Exhibition centre, hotel Convention Plaza, facilities, shopping arcade, No.1 restaurant and other ancillary Harbour Road, facilities plus 2 levels of Wan Chai, basement carport. It was Hong Kong completed in about 1990.

The property was, as at 31st October, 2005, let to an independent third party for a term of two years from 14th November, 2004 to 13th November, 2006 at a monthly rental of HK$20,000 inclusive of government rates and management fees.

HK$6,300,000

• 578/4,000,000th The property comprises a equal and residential unit on 23rd floor and undivided contains a gross floor area of shares of and about 843 square feet (or about in Inland Lot 78.32 square metres). No.8593

The property was let for residential use.

The saleable area of the subject property is about 618 square feet (or about 57.4 square metres).

The property is held under the government lease for a term of 75 years from 10th February, 1985.

The annual government rent for Inland Lot No. 8593 is HK$1,000.

Notes:

1. The registered owner of the property is Grand Park Investment Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968187 dated 30th June, 2003.

– 151 –

PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 2602 Kornhill is a large-scale on 26th residential development Floor of comprising 42 high-rise Block N, residential blocks with Nos.14-16 associated commercial, Hong On Street, recreational and carparking Kornhill, facilities. Quarry Bay, Hong Kong Block N is served by three lifts and two staircases and was

51/700,000th completed in 1987. equal and undivided The property comprises a shares of residential unit on 26th floor of and in the Block N. Remaining Portion of Inland Lot The gross floor area of the No.8566 property is about 582 square feet (or about 54.07 square metres).

The property is currently occupied by a Director of the Group as staff quarters.

HK$2,800,000

The saleable area of the property is about 461 square feet (or about 42.8 square metres) plus bay window about 26 square feet (or about 2.4 square metres).

The property is held under the government lease for a term of 75 years from 27th April, 1984 renewable for a further term of 75 years.

The annual government rent for Inland Lot No. 8566 is HK$1,000.

Notes:

1. The registered owner of the property is Linksky Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968184 dated 30th June, 2003.

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PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 1612 on Kornhill is a large-scale 16th Floor residential development of Block Q, comprising 42 high-rise Nos.6-8 residential blocks with Hong On Street, associated commercial, Kornhill, recreational and carparking Quarry Bay, facilities. Hong Kong

2. Block Q is served by three lifts

3. 67/700,000th and two staircases and was equal and completed in 1987. undivided shares of The property comprises a and in the residential unit on 16th floor of Remaining Portion Block Q. of Inland Lot No.8566 The gross floor area of the property is about 756 square feet (or about 70.21 square metres).

The property was, as at 31st October, 2005, let to an affiliated company of the Company for a term of one year from 1st January, 2005 to 31st December, 2005 at a monthly rental of HK$9,000 exclusive of government rates and management fees.

The property was let for residential use.

HK$3,500,000

The saleable area of the property is about 616 square feet (or about 57.2 square metres) plus bay window about 30 square feet (or about 2.8 square metres).

The property is held under the government lease for a term of 75 years from 27th April, 1984 renewable for a further term of 75 years.

The annual government rent for Inland Lot No. 8566 is HK$1,000.

Notes:

1. The registered owner of the property is Linksky Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of CITIC Ka Wah Bank Limited vide memorial no.UB8968184 dated 30th June, 2003.

– 153 –

PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 2904 Kornhill is a large-scale on 29th Floor of residential development Block R, comprising 42 high-rise Nos.2-4 residential blocks with Hong On Street, associated commercial, Kornhill, recreational and carparking Quarry Bay, facilities. Hong Kong

Block R is served by three lifts and two staircases and was completed in 1987.

54/700,000th and two staircases and was equal and completed in 1987. undivided shares of and in the The property comprises a Remaining Portion residential unit on 29th floor of of Inland Lot Block R. No.8566

The property was, as at 31st October, 2005, let to an independent third party for a term from 1st December, 2003 to 30th November, 2005 at a monthly rental of HK$7,600 inclusive of government rates and management fees.

The property was let for residential use.

HK$3,000,000

The gross floor area of the property is about 620 square feet (or about 57.60 square metres).

The saleable area of the property is about 490 square feet (or about 45.5 square metres) plus bay window about 34 square feet (or about 3.2 square metres).

The property is held under the government lease for a term of 75 years from 27th April, 1984 renewable for a further term of 75 years.

The annual government rent for Inland Lot No. 8566 is HK$1,000.

Notes:

• 1 The registered owner of the property is Linksky Limited, a wholly owned subsidiary of the Company.

• 2 The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968184 dated 30th June, 2003.

– 154 –

PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 2907 Shun Tak Centre West Tower is on 29th Floor, an office building of 30 storeys West Tower, and is erected over a multiShun Tak Centre, storeyed commercial and Nos.168-200 carport complex. Connaught Road The building is served by four Central, passenger lifts, one service lift Sheung Wan, and three staircases and was Hong Kong completed in 1986. 44/33,888th equal The property comprises an office and unit on 29th floor of the undivided shares building. of and in Inland Lot The gross floor area of the No.8517 property is about 2,481 square feet (or about 230.49 square metres) and the saleable area of the property is about 1,875 square feet (or about 174.19 square metres).

The property was, as at 31st October, 2005, let to an independent third party for a term of two years from 18th June, 2004 to 17th June, 2006 at a monthly rental of HK$42,177 exclusive of government rates and management fees.

The property was let for office use.

HK$15,400,000

The property is held under the government lease for a term of 75 years from 31st December, 1980 renewable for a further term of 75 years.

The annual government rent for Inland Lot No. 8517 is HK$1,000.

Notes:

1. The registered owner of the property is Lyre Terrace Management Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968186 dated 30th June, 2003.

– 155 –

PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Flat 7 on Apartment Tower on the Western 25th Floor, Side of Convention Plaza is a Apartment 35-storeyed apartment building Tower on the overmounting a multi-storeyed Western Side common podium of Convention/ Convention Plaza, Exhibition centre, hotel No.1 Harbour facilities, shopping arcade, Road, restaurant and other ancillary Wan Chai, facilities plus 2 levels of Hong Kong basement carport.

529/4,000,000th It was completed in about 1990. equal and undivided The property comprises a shares of and residential unit on 25th floor and in Inland Lot contains a gross floor area of No.8593 about 772 square feet (or about

The property comprises a residential unit on 25th floor and contains a gross floor area of about 772 square feet (or about 71.72 square metres).

The property was, as at HK$5,800,000 31st October, 2005, let to an independent third party for a term of one year from 15th August, 2005 to 14th August, 2006 at a monthly rental of HK$19,000 inclusive of government rates and management fees.

The property was let for residential use.

The saleable area of the subject property is about 565 square feet (or about 52.5 square metres).

The property is held under the government lease for a term of 75 years from 10th February, 1985.

The annual government rent for Inland Lot No. 8593 is HK$1,000.

Notes:

1. The registered owner of the property is Lyre Terrace Management Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968186 dated 30th June, 2003.

– 156 –

PROPERTY VALUATION

APPENDIX IV

Particulars of Occupancy

Property Description and Tenure Occupancy 7. 16th Floor Manson Industrial Building is a The 16th floor was, as together 17-storeyed industrial building at 31st October, 2005, with Up with carparking facilities on let to an independent Roof and ground floor. The building is third party for a term of Roof and served by 3 lifts and 4 two years from 1st Carparking staircases. The building was August, 2004 to 31st Space completed in 1976. July, 2006 at a monthly Nos.7, 8 rental of HK$6,888 and 9 on The property comprises an inclusive of Ground industrial unit on 16th floor government rates and Floor, together with Up Roof and Roof management fees. Manson and three carparking spaces on Industrial ground floor. The remaining portions Building, of the property were let A Kung Ngam The saleable area of the to various independent Road, industrial unit is about 3,210 third parties under A Kung Ngam, square feet (or about 298.22 various licenses in Hong Kong square metres). majority for a term of two years with the 60/1,000th equal The property is held under the latest expiry date on and government lease for a term of 31st July, 2008. undivided 75 years from 7th February, shares of 1966 renewable for a further The total monthly and in Shau term of 75 years. licence fees receivable Kei Wan were HK$104,600 Inland Lot The annual government rent for inclusive of No.739 Shau Kei Wan Inland Lot No. management fees and 739 is HK$172. government rates.

The 16th floor was, as at 31st October, 2005, let to an independent third party for a term of two years from 1st August, 2004 to 31st July, 2006 at a monthly rental of HK$6,888 inclusive of government rates and management fees.

Capital value in existing state as at 31st October, 2005

HK$9,000,000

The carparking spaces are occupied for carparking use. The remaining portions of the property are occupied for industrial use.

Notes:

1. The registered owner of the property is On Hing Investment Company, Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968183 dated 30th June, 2003.

3. The property is subject to an order No.DH0037/HK/03/C under section 27A of the Buildings Ordinance which is issued by the Building Authority vide memorial no.UB8909554 dated 12th March, 2003 (Re: the natural, formed or man-made land).

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PROPERTY VALUATION

APPENDIX IV

Property Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Flat 55 on Hong Kong Parkview comprises 15th Floor, eighteen residential buildings Tower 8 of with associated carparking and Parkview recreational facilities. Rise and Carparking Each of the residential buildings Space is served by three lifts and two No.283 on staircases and the development Car Park was completed in 1988. Entrance 3 (Level 4) of The property comprises a the Garage, residential unit on 15th floor of Hong Kong Tower 8 together with a Parkview, carparking space on Car Park No.88 Tai Tam Entrance 3 (Level 4) of the Reservoir Road, Garage. Tai Tam, Hong Kong The residential unit contains a gross floor area of about 2,366 203/190,149th square feet (or about 219.81 equal and square metres). undivided shares of and in Rural The saleable area of the property Building Lot is about 1,886 square feet (or No.1051 about 175.2 square metres). and the extension The property is held under thereto government lease for a term of 75 years from 3rd December, 1981 renewable for a further term of 75 years. The annual government rent for Rural Building Lot No. 1051 and the extension thereto is HK$2,000.

The residential unit was HK$23,800,000 as at 31st October, 2005 vacant whilst the carparking space was let to an independent third party under a monthly licence commencing on 25th May, 2005 at a monthly licence fee of HK$2,500 inclusive of government rates and management fees.

The property was let for residential use.

Notes:

1. The registered owner of the property is SCG Leasing Corporation Limited, a wholly owned subsidiary of the Company.

2. The property is subject to a mortgage in favour of Nanyang Commercial Bank Limited vide memorial no.UB8822612 dated 19th November, 2002.

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Property Description and Tenure 9. Units A and B Tin Fung Industrial Mansion is a on 3rd, 6th and 15-storeyed industrial building 9th Floors including a carparking area. together with The building is served by three the whole cargo lifts, one passenger lift carparking and three staircases and was area on completed in 1967. 4th Floor, Tin Fung The property comprises a total Industrial of six industrial units on 3rd, 6th Mansion, and 9th floors and the whole No.63 Wong carparking area on 4th floor of Chuk Hang the building. Road, Aberdeen, The industrial units contain a Hong Kong total saleable area of about 43,480 square feet (or about 69/315th 4,039.39 square metres). equal and undivided The property is held under the shares of government lease for a term of and in 75 years from 8th July, 1963 Aberdeen renewable for a further term of Inland Lot 75 years. No.285 The annual government rent for Aberdeen Inland Lot No. 285 is HK$418.

Capital value in existing state as at 31st October, 2005

Particulars of Occupancy

The industrial units HK$36,000,000 were, as at 31st October, 2005, let to various independent third parties under various tenancies and a licence with the latest expiry date on 31st May, 2006 at a total monthly rental and licence fee of HK$150,500 inclusive of management fee and government rates.

The carparking area contained 27 carparking spaces. The carparking spaces (except Nos.3 and 26 ) were, as at 31st October, 2005, let to various independent third parties under various monthly licences at a total monthly licence fees of HK$74,700 exclusive of government rates and management fee.

The industrial units are occupied for warehouse use. The carparking area is occupied for car parking use.

Notes:

1. The registered owner of the property is Tin Fung Investment Company, Limited, a wholly owned subsidiary of the Company.

2. The carparking area on the 4th floor has not been allocated any shares under the Deed of Mutual Covenant dated 20th September, 1967 in respect of the subject building.

3. The property is subject to a tripartite legal charge/mortgage in favour of The CITIC Ka Wah Bank Limited vide memorial no.UB8968182 dated 30th June, 2003.

4. The property is subject to the following tenancies:

Re: Factory Unit A on 3rd Floor Tenancy agreement in favour of Delifrance (HK) Limited vide memorial no.05070702360024 dated 21st June, 2005.

Re: Factory Unit B on 3rd Floor

Tenancy agreement in favour of Delifrance (HK) Limited vide memorial no.UB9388343 dated 8th November, 2004.

Re: Factory Unit A on 9th Floor

Tenancy agreement in favour of Ki Yip Chemical Works Limited vide memorial no.05050300290022 dated 11th April, 2005.

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Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Eight office The property comprises 8 office units on 23rd units on the 23rd floor of a 28Floor, Times storeyed commercial building Financial Centre, completed in 2003. No.4001 Shen Nan Avenue, The property contains a total Futian District, gross floor area of about 17,575 Shenzhen, square feet (or approximately Guangdong 1632.78 square metres). Province, The People’s The land use right of the Republic of property was granted for a term China of 50 years commencing on 11th June, 2001 and expiring on 10th June, 2051.

The property was HK$19,000,000 vacant as at 31st October, 2005.

The property is for office uses.

Notes:

1. Pursuant to the eight Contracts for Sale all dated 21st January, 2005, the property was sold to “首方實業發展（深 圳）有限公司 ” (now known as “首方投資管理（深圳）有限公司 ”) at a total consideration of RMB22,063,755. The said eight Contracts for Sale provided that the property was for office uses and the gross floor areas of the individual units were as follows:

Unit No.	Gross Floor Area
23A	389.31 sq.m.
23B	143.39 sq.m.
23C	138.80 sq.m.
23D	139.55 sq.m.
23E	396.15 sq.m.
23F	143.39 sq.m.
23G	138.80 sq.m.
23H	143.39 sq.m.

1. Pursuant to the Certificates for Real Estate Ownership Registration Nos.3000320286, 3000320287, 3000320288, 3000320289, 3000320290, 3000320291, 3000320292 and 3000320293 registered at the Shenzhen Real Estate Ownership Registration Centre on 16th March, 2005, the land use right in respect of the property was granted for a term of 50 years commencing on 11th June, 2001 and expiring on 10th June, 2051 for commercial and office purposes.

2. In accordance with the said Certificates for Real Estate Ownership Registration, the ownership of the property interest was vested in “首方投資管理（深圳）有限公司 ”. The property was permitted for office uses and the building was completed on 30th September, 2003.

3. Pursuant to the Business Licence No. 企獨粵深總字第 313202號 dated 15th June, 2004 issued by the Shenzhen Industrial and Commercial Administrative Bureau, 首方投資管理（深圳）有限公司 (formerly known as 首方實 業發展（深圳）有限公司 ) was incorporated with a registered capital of HK$230,000,000. The Licence is valid for a period from 15th June, 2004 to 15th June, 2024 and the scope of business covers consultancy services on project investment and investment management of self-owned assets.

4. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

5. a. 首方投資管理（深圳）有限公司 (formerly known as 首方實業發展（深圳）有限公司）is in possession of a proper legal title to the property interest and has full legal right to transfer the title to the property interest to both local and overseas purchasers for the residue of the term of the land use right granted in respect of the property interest at no extra land premium or other payment of onerous nature.

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• b. 首方投資管理（深圳）有限公司(formerly known as 首方實業發展(深圳)有限公司） has been incorporated in accordance with the laws of the People’s Republic of China.

• The status of titles and major approvals in accordance with the information provided to us and the opinion of the legal adviser on the laws of the People’s Republic of China are as follows:

Document Status a. Contracts for Sale Obtained b. Certificate of Real Estate Ownership Obtained c. Business Licence Obtained

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PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 1007 on The property comprises an office 10th Floor, unit on the 10th floor of a Shen Hua 21-storeyed office building Commercial erected over a multi-storeyed Building, commercial complex. Nanhu Road, Lowu District, The building was completed in Shenzhen, early 2000’s. Guangdong Province, The property contains a gross The People’s floor area of about 2,440 square Republic of feet (or approximately 226.7 China square metres).

The property was, as at HK$1,200,000 31st October, 2005, let to an independent third party for a term commencing on 20th July, 2005 and expiring on 9th August, 2007 at a monthly rental of RMB11,335.

• The property was let for office uses.

• The land use right of the property was granted for a term of 50 years commencing on 28th November, 1992 and expiring on 27th November, 2042.

Notes:

1. Pursuant to a pre-sale contract for sale dated 23rd February 2001, entered into between 深圳市深華房地產工 程開發公司 (“Party A”) and South China International Leasing Co. Ltd. (“Party B”), the office unit no.1007 on 10th Floor of Shen Hua Commercial Building with a gross floor area of 226.7 sq.m. has been transferred from Party A to Party B at a consideration of RMB4,004,710.64. South China International Leasing Co. Ltd. is a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the Business Licence No.企合粵深總字第 100428號 dated 20th May, 1989 issued by The Shenzhen Industrial and Commercial Administrative Bureau, South China International Leasing Co. Ltd. was incorporated with a registered capital of US$24,000,000. The Licence is valid for a period from 20th May, 1989 to 20th May, 2029 and the scope of business covers machinery and equipment, transporting vehicles, electrical appliances and services related to leasing of real estates.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. South China International Leasing Company Limited is in possession of a proper legal title to the property interest and has full legal right to transfer the title to the property interest to both local and overseas purchasers for the residue of the term of the land use right granted in respect of the property interest at no extra land premium or other payment of onerous nature, subject to the issuance of the Certificate of Real Estate Ownership of the property interest.

5. b. The tenancy agreement made between South China International Leasing Company Limited and 鄒小城 , who is an independent third party to the Group, is valid and enforceable under the laws of the People’s Republic of China subject to the issuance of the Certificate of Real Estate Ownership of the property interest.

6. c. South China International Leasing Company Limited has been incorporated in accordance with the laws of the People’s Republic of China.

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Group II – Property leased by the Group:

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Portion of The property comprises a Sixth Floor, portion of the sixth floor of a 30 Bank of storeyed commercial building. East Asia Harbour View Centre, The building was completed in No.56 about 1990. Gloucester Road, Hong Kong. The property contains a gross

Hong Kong. The property contains a gross floor area of about 6,412 square 624,908/ feet (or approximately 595.69 19,581,678th equal square metres). and undivided shares of and in The annual government rents for the Remaining Inland Lot No. 2818, Section D Portion of Inland of Inland Lot No. 2818, the Lot No. 2818, the Remaining Portion of Section F Remaining Portion of Inland Lot No. 2817 and of Section D of Section M of Inland Lot No. Inland Lot No. 2817 are HK$234, HK$27, 2818, the HK$36 and HK$32 respectively. Remaining Portion of Section F of Inland Lot No. 2817 and Section M of Inland Lot No. 2817 for whole of 6th Floor.

The property was leased by the Group for a term of 12 months commencing on 1st January, 2005 at a monthly rental of HK$96,180 exclusive of rates and management fee.

The property is occupied for office uses.

No Commercial Value

Note: The tenancy agreement was made on 17th January, 2005 between Winluck Properties Limited (“the Landlord”), a related company with the Group and Long Cosmos Investment Limited (“the Tenant”), a wholly owned subsidiary of the Company.

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Capital value in Particulars of existing state as at Occupancy 31st October, 2005

Property Description and Tenure Occupancy 31st October, 2005 13. Room 1205, The property comprises an office The property was, as at No Commercial Value 12th Floor, unit on the 12th floor of a 31st October, 2005, No.625 26-storeyed commercial building leased by the Group for King’s Road, erected over a 2-storeyed a term of two years Hong Kong basements. from 20th February, 2004 to 19th February, The building was completed in 2006 at a monthly rent about 2003. of HK$15,024 exclusive of rates and management fee. The property contains a total gross floor area of about 1,330 square feet (or approximately The property is 123.56 square metres). occupied for office uses.

The annual government rent for the whole building is HK$1,838.

Notes: The tenancy agreement was made on 17th February, 2004 between Island Land Development Limited (“the Landlord”) and GDC China Limited (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

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PROPERTY VALUATION

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Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Room 1406, The property comprises Zhuoyue Building, an office unit on the 14th floor Fu Hua Ei Road, of a 22-storeyed commercial/ Futian District, office building. Shenzhen, Guangdong The building was completed in Province, The about 2004. People’s Republic of China. The property contains a gross floor area of about 317.17 sq.m..

The land use right of the property was granted for a term of 50 years commencing on 23rd October, 2001 and expiring on 22nd October, 2051.

The property was, as at No commercial value 31st October, 2005, leased by the Group for a term of two years from 1st June, 2004 to 31st May, 2006 at a monthly rent of RMB26,968 exclusive of management fee.

The property is occupied for office uses.

Notes:

1. The tenancy agreement was made on 3rd June, 2004 between 深圳市招金金屬網絡交易有限公司 (“the Landlord”) and Grand Award Limited (“the Tenant”), a wholly owned subsidiary of the Company.

2. Pursuant to the Certificate of Incorporation issued by the Registrar of Companies of the British Virgin Islands, Grand Award Limited was incorporated on 23rd January, 1997 with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each and the scope of business covers investment holding.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. 歐陽勇 is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group.

5. b. The tenancy agreement made between 深圳市招金金屬網絡交易有限公司 and Grand Award Limited is valid and enforceable under the laws of the People’s Republic of China, subject to the production of valid authorisation from the owner of the property interest.

6. c. Grand Award Limited has been incorporated in accordance with the laws of the British Virgin Islands.

7. d. The use and occupation of the property by Grand Award Limited is lawful, subject to the production of valid authorisation from the owner of the property interest.

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PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Units 3101, 3102, The property comprises four 3103 and 3108 on office units on the 31st floor of a 31st Floor, 36-storeyed office building Zhaofeng erected over a 4-storeyed Building, commercial complex. No.1027 Chang Ning Road, The property has a total gross Shanghai, floor area of about 970.54 sq.m.. The People’s Republic of China. The building was completed in 2002.

The property was No commercial value leased by the Group for a term of 3 years from 1st January, 2005 to 31st December, 2008. The annual rent for the period from 2005 to 2006 is RMB1,500,000 exclusive of management fee. The annual rent for the period from 2007 to 2008 is RMB2,100,000 exclusive of management fee.

The land use right of the property was granted for a term exclusive of commencing on 19th August, management fee. 1997 and expiring on 18th August, 2047. The property is occupied for office use.

Notes:

1. The tenancy agreement was made between 上海百寧房產發展有限公司 (“the Landlord”) and Institute of Digital Media Technology (Shanghai) Limited (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the supplemental notes annexed to the tenancy agreement, the amount of rent for the period from 2005 to 2006 is to be settled according to the agreement made between the Landlord and 長寧區技術創新服務中心.

3. Pursuant to the Business Licence No.企獨滬總副字第 033942號 dated 25th March, 2005 issued by The Shanghai Industrial and Commercial Administrative Bureau, Institute of Digital Media Technology (Shanghai) Limited was incorporated with a registered capital of US$140,000. The Licence is valid for a period from 25th July, 2003 to 24th July, 2033 and the scope of business covers design and development of multi-media softwares, design of 2D and 3D computer graphics, training on the production of multi-media products and sales of self-developed product and related services.

4. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

5. a. 上海百寧房產發展有限公司 is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group.

6. b. The tenancy agreement made between 上海百寧房產發展有限公司and Institute of Digital Media Technology (Shanghai) Limited is valid and enforceable under the laws of the People’s Republic of China.

7. c. Institute of Digital Media Technology (Shanghai) Limited has been incorporated in accordance with the laws of the People’s Republic of China.

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Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 2502, 25/F The property comprises a No. 10, domestic unit on the 25th floor Lane 1188 Chang of a 32-storeyed apartment Ning Road, building. Shanghai, The People’s The building was completed in Republic of 2002. China.

The property has a gross floor area of about 102 sq.m..

The land use right of the property was granted for a term commencing on 1st June, 2000 and expiring on 31st May, 2050.

The property was No commercial value leased by the Group for a term of two years from 20th April, 2004 to 19th April, 2006 at a monthly rent of RMB6,500 exclusive of management fee.

The property is occupied for domestic use.

Notes:

1. The tenancy agreement was made on 1st April, 2004 between 孫燦 (“the Landlord”) and Institute of Digital Media Technology (Shanghai) Limited (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the Business Licence No.企獨滬總副字第 033942號 dated 25th March, 2005 issued by The Shanghai Industrial and Commercial Administrative Bureau, Institute of Digital Media Technology (Shanghai) Limited was incorporated with a registered capital of US$140,000. The Licence is valid for a period from 25th July, 2003 to 24th July, 2033 and the scope of business covers design and development of multi-media softwares, design of 2D and 3D computer graphics, training on the production of multi-media products and sales of self-developed product and related services.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. 孫燦 , being one of the three joint owners of the property interest, is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group, subject to the agreement from the other two owners.

5. b. The tenancy agreement made between 孫燦 and Institute of Digital Media Technology (Shanghai) Limited is valid and enforceable under the laws of the People’s Republic of China, subject to the agreement from the other two owners.

6. c. Institute of Digital Media Technology (Shanghai) Limited has been incorporated in accordance with the laws of the People’s Republic of China.

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Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

1. Unit 108, The property comprises a Phoenix City, 2-storeyed house completed in Block B, No. 5 about 2002. Shu Guang Xi Li Jia, Chao Yang The property contains a gross District, Shu floor area of about 309.13 sq.m. Guang Xi Li Jia No. 5, The land use right of the Beijing, property was granted for a term The People’s commencing on 13th July, 2004 Republic and expiring on 30th July, 2070. of China.

The property was, as at No commercial value 31st October, 2005, leased by the Group for a term of about one year from 20th July, 2005 to 20th July, 2006 at a monthly rent of RMB31,800 inclusive of management fee.

The property is occupied for domestic use.

Notes:

1. The tenancy agreement was made between 劉桂珠(“the Landlord”) and 四方源創國際影視文化傳播（北京）有 限公司 (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the Business Licence No.1101052753501 dated 9th October, 2004 issued by The Beijing Industrial and Commercial Administrative Bureau, 四方源創國際影視文化傳播（北京）有限公司 was incorporated with a registered capital of RMB20,000,000. The Licence is valid for a period from 9th October, 2004 to 8th October, 2024 and the scope of business covers any business subject to the approval of relevant government authorities and registration to industrial, commercial and administrative management authorities.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. 劉桂珠 , being one of the two joint owners of the property interest, is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group, subject to the agreement from the other owner.

5. b. The tenancy agreement made between 劉桂珠 and 四方源創國際影視文化傳播（北京）有限公司 is valid and enforceable under the laws of the People’s Republic of China, subject to the agreement from the other owner.

6. c. 四方源創國際影視文化傳播（北京）有限公司 has been incorporated in accordance with the laws of the People’s Republic of China.

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PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Capital value in Particulars of existing state as at Occupancy 31st October, 2005

1. Heng Dian Ying The property comprises an office Shi Chan Ye Shi building and forms part of a site Yan Qu C2-001 of about 11,770.79 sq.m.. Dong Yang County, Zhejiang Province, The People’s Republic of China.

2. The property was, as at No commercial value 31st October, 2005, leased by the Group for a term of two years from 16th April, 2005 to 15th April, 2007 at an annual rent of RMB15,000 exclusive of management fee.

The property is occupied for office use.

Notes:

1. The tenancy agreement was made on 12th April, 2005 between 淅江橫店影視產業試驗區 (“the Landlord”) and 東 陽市四方源創影視製作有限公司 (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the Business Licence No.3307832005904(1/1) dated 1st April, 2005 issued by The Dong Yang County Industrial and Commercial Administrative Bureau, 東陽市四方源創影視製作有限公司 was incorporated with a registered capital of RMB1,000,000. The Licence is valid for a period from 1st April, 2005 to 31st March, 2015 and the scope of business covers production, duplication and distribution of animation films, drama and TV shows (expiring after 23rd March, 2007); production, agency and broadcasting of television advertisement; production, sales and leasing of television clothing and related tools; sales and leasing of television equipment, and consultancy services related to television communication.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. 橫店集團控股有限公司 is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group.

5. b. The tenancy agreement made between 淅江橫店影視產業試驗區 and 東陽市四方源創影視製作有限公 司 is valid and enforceable under the laws of the People’s Republic of China, subject to the production of valid authorisation from the owner of the property interest.

6. c. 東陽市四方源創影視製作有限公司 has been incorporated in accordance with the laws of the People’s Republic of China.

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PROPERTY VALUATION

APPENDIX IV

Property

Description and Tenure

Particulars of Occupancy

Capital value in existing state as at 31st October, 2005

• The property comprises the 12th floor of a 14-storeyed commercial building.

• 12th Floor, The property comprises Zhong Bai the 12th floor of a 14-storeyed Building, commercial building. No.320 Hao Pan The property was completed in

Jie, Nos. 231-237 about 1981.

Hai Zhu Nan Lu, Yue Xiu District, The property contains a gross

Guangzhou, floor area of about 598.77 sq.m.

Guangdong Province, The People’s Republic of China

The property was, as at 31st October, 2005, leased by the Group on the following terms:

• i) One year from 11th November, 2004 to 10th November, 2005 at a monthly rent of RMB11,500.

• ii) One year from 11th November, 2005 to 10th November, 2006 at a monthly rent of RMB12,075

No commercial value

• iii) One year from 11th November, 2006 to 10th November, 2007 at a monthly rent of RMB12,679,

The property is occupied for office use.

Notes:

1. The tenancy agreement was made on 11th November, 2004 between 廣州百貨企業集團有限公司 (“the Landlord”) and 廣東四方源創動畫製作有限公司 (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding.

2. Pursuant to the Business Licence No.4400002093521 dated 17th November, 2004 issued by Guangdong Province Industrial and Commercial Administrative Bureau, 廣東四方源創動畫製作有限公司 was incorporated with a registered capital of RMB10,000,000. The Licence is valid for a period from 17th November, 2004 to 17th November, 2005 and the scope of business covers services related to computing technology.

3. According to the legal advice furnished by the Group’s legal adviser on the laws of the People’s Republic of China, Messrs. Hills & Co., the following opinion is noted:

4. a. 廣州百貨採購供應站 is in possession of a proper legal title to the property interest and has full legal right to let the property to the Group.

5. b. The tenancy agreement made between 廣州百貨企業集團有限公司and 廣東四方源創動畫製作有限公 司 is valid and enforceable under the laws of the People’s Republic of China, subject to the production of valid authorisation from the owner of the property interest.

6. c. 廣東四方源創動畫製作有限公司has been incorporated in accordance with the laws of the People’s Republic of China.

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Property

Description and Tenure

Capital value in Particulars of existing state as at Occupancy 31st October, 2005

1. 70A, Amoy Street, The property comprises Singapore 069889, a 2-storeyed commercial Singapore building.

The property contains a gross floor area of about 99.59 sq.m.

The property was, as at No Commercial Value 31st October, 2005, leased by the Group at a monthly rent of S$1,929.6 on monthly basis.

The property is occupied for office and commercial uses.

Notes:

1. The original tenancy agreement dated 31st March, 2004 the tenancy of which expired on 31st January, 2005 was extended on monthly basis from 1st February, 2005 between Tan Jin Chwee & Co. (PTE) Ltd. (the “Landlord”) and GDC Technology Pte. Ltd. (“the Tenant”), a subsidiary of the Company, in which the Company has a substantial shareholding, under the letter dated 10th January, 2005 made between Tan Jin Chwee & Co. (PTE) Ltd. and GDC Technonoly Pte. Ltd.

2. Pursuant to the Certificate of Incorporation of Private Company issued by the Registrar of Companies & Businesses of Singapore dated 7th September, 2000, Cycle Flow Pte. Ltd. is incorporated under the Companies Act Cap. 50 on and from 7th September, 2000 and that the company is a private company limited by shares.

3. Pursuant to the Certificate of Incorporation on Change of Name of Company issued by the Registrar of Companies & Businesses of Singapore dated 15th November, 2000, Cycle Flow Pte. Ltd. has changed its name to GDC Technology Pte. Ltd. with effect from 15th November, 2000.

4. According to the legal advice furnished by the Group’s legal adviser on the laws of Singapore, Messrs. Drew & Napier LLC, the following opinion is noted:

5. a. Tan Jin Chwee & Co. (PTE) Ltd. is the registered proprietor of the property interest and is entitled to lease the property to the Group.

6. b. The tenancy agreement made between Tan Jin Chwee & Co. (PTE) Ltd. and GDC Technology Pte. Ltd. is valid and enforceable under the laws of Singapore.

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GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised: 2,000,000,000 Shares Issued and fully paid: 1,136,856,469 Shares	HK$ 20,000,000
	HK$ 11,368,565

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3. DISCLOSURE OF DIRECTORS’ INTERESTS

(a) Interests and short positions in Shares and underlying shares of the Company

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

Long positions in Shares and underlying shares of the Company

			Number of Shares/	Total interests	Total interests
			underlying shares	as to % to the
			held in the Company		issued share
			Interests		capital
	Capacity in which	Interests	under equity	Total	of the
Name of Director	interests are held	in Shares	derivatives*	interests	Company
Wang Qinghai	Beneficial owner	8,278,679	–	8,278,679	0.73%
Cao Zhong	Beneficial owner	8,278,679	21,447,000	29,725,679	2.61%
Chen Zheng	Beneficial owner	–	18,015,000	18,015,000	1.58%
Wang Tian	Beneficial owner	–	16,299,000	16,299,000	1.43%
Cheng Xiaoyu	Beneficial owner	8,278,679	15,441,000	23,719,679	2.09%
Yuan Wenxin	Beneficial owner	4,920,000	–	4,920,000	0.43%
Leung Shun Sang, Tony	Beneficial owner	8,278,000	679	8,278,679	0.73%
Choy Hok Man, Constance	Beneficial owner	400,000	–	400,000	0.04%

* Unlisted cash settled options were granted pursuant to the Company’s share option scheme adopted on 7 June 2002. Upon exercise of the share options in accordance with such scheme, Shares are issuable.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the Shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

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APPENDIX V

(b) Interests in competing business

As at the Latest Practicable Date, the interests of the Directors in the businesses (other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or any member of the Group) which were considered to compete or were likely to compete, either directly or indirectly, with the businesses of the Group were as follows:

Description of Name of entity businesses of whose businesses were the entity which were considered to compete considered to compete Nature of or likely to compete or likely to compete interest of with the businesses with the businesses the Director Name of Director of the Group of the Group in the entity Wang Qinghai Shougang Corporation Property investment director Cao Zhong China Shougang Property investment director International Trade and Engineering Corporation

• ** Such businesses may be carried out through its subsidiaries or associates or by way of other forms of investments.

Save as disclosed above, as at the Latest Practicable Date, in so far the Directors were aware, none of the Directors or their respective associates had any interest in a business that competed or was likely to compete with the business of the Group.

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4. SUBSTANTIAL SHAREHOLDERS

• (a) As at the Latest Practicable Date, so far as was known to any Director or chief executive of the Company and according to the register kept by the Company under Section 336 of the SFO, the following person and companies (other than the Directors or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the Shares or underlying shares of the Company, which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Long positions in the Shares

			Interests
			as to % to
			the issued
	Capacity in which	Number of	share capital
Name of Shareholder	interests are held	Shares held	of the Company	Note(s)
Shougang Holding (Hong	Interests of controlled	465,753,673	40.97%	1
Kong) Limited	corporations
(“Shougang Holding”)
Wheeling Holdings	Beneficial owner	430,491,315	37.87%	1
Limited (“Wheeling”)
Cheung Kong (Holdings)	Interests of controlled	133,048,717	11.70%	2, 3
Limited (“Cheung Kong”)	corporations
Max Same Investment	Beneficial owner	91,491,193	8.05%	2
Limited (“Max Same”)
Li Ka-shing	Interests of controlled	133,048,717	11.70%	3
	corporations, founder
	of discretionary trusts
Li Ka-Shing Unity Trustee	Trustee	133,048,717	11.70%	3
Company Limited (“TUT1”)
Li Ka-Shing Unity Trustee	Trustee, beneficiary	133,048,717	11.70%	3
Corporation Limited (“TDT1”)	of a trust
Li Ka-Shing Unity Trustcorp	Trustee, beneficiary	133,048,717	11.70%	3
Limited (“TDT2”)	of a trust

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Notes:

1. Wheeling was a wholly-owned subsidiary of Shougang Holding and its interests was included in the interests held by Shougang Holding.

2. Max Same was a wholly-owned subsidiary of Cheung Kong and its interest was included in the interests held by Cheung Kong.

3. Li Ka-Shing Unity Holdings Limited (“Unity Holdco”), of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr. Li Tzar Kai, Richard was interested in one-third of the entire issued share capital, owned the entire issued share capital of TUT1. TUT1 as trustee of The Li Ka-Shing Unity Trust (“UT1”), together with certain companies which TUT1 as trustee of UT1 was entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, held more than one-third of the issued share capital of Cheung Kong.

In addition, Unity Holdco also owned the entire issued share capital of TDT1 as trustee of The Li KaShing Unity Discretionary Trust (“DT1”) and TDT2 as trustee of another discretionary trust (“DT2”). Each of TDT1 and TDT2 held units in UT1.

By virtue of the SFO, each of Mr. Li Ka-shing, being the settlor and may being regarded as a founder of each of DT1 and DT2 for the purpose of the SFO, TUT1, TDT1 and TDT2 was deemed to be interested in the same block of shares in which Cheung Kong was interested under the SFO.

• (b) As at the Latest Practicable Date, so far as is known to any Director, the following persons and companies were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any option in respect of such capital:

	Name of		% of
Name of registered	beneficial	Name of member	attributable
shareholder	owner	of the Group	interest
深圳市嘉殷達	Shenzhen	南方國際租賃有限公司	20.00%
投資有限公司	Jiayinda	(South China International
(Shenzhen Jiayinda		Leasing Company
Investment Company		Limited)
Limited)		(“South China Leasing”)
(“Shenzhen Jiayinda”)
Zhou Lin	Zhou Lin	四方源創國際影視文化	20.00%
		傳播（北京）有限公司
		(Concord Creation
		International (Beijing)
		Company Limited#)
		(“Concord Creation”)

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APPENDIX V

	Name of		% of
Name of registered	beneficial	Name of member	attributable
shareholder	owner	of the Group	interest
Yang Yong	Yang Yong	廣東四方源創動畫	20.00%
		製作有限公司
		(Concord Creation Animation
		Production Guangdong
		Company Limited#)
		(“Guangdong Creation”)
Concord Creation	Zhou Lin	Guangdong Creation	16.00%
			(Note 1)
Concord Creation	Zhou Lin	東陽市四方源創影視	20.00%
		製作有限公司	(Note 2)
		(Dongyang Concord
		Creation Film@TV
		Company Limited#)
		(“Dongyang Creation”)

• # For identification purpose only

Notes:

1. Guangdong Creation was held as to 80.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Guangdong Creation was deemed to be held as to 16.00% by Zhou Lin.

2. Dongyang Creation was held as to 90.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Creation was deemed to be held as to 18.00% by Zhou Lin. Together with Zhou Lin’s beneficial interest of 2% held in Dongyang Creation through another nominee, Zhou Lin has an aggregate interest of 20% in Dongyang Creation.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors knows of any person (other than the Directors or chief executive of the Company) who had, or were deemed or taken to have interests or short positions in the Shares or underlying shares of the Company, which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Division 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital.

Save as disclosed in this circular, none of the Directors or proposed Directors is a director or employee of a company which has interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provision of Division 2 and 3 of Part XV of the SFO.

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APPENDIX V

5. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTS

None of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date to which the latest published audited accounts of the Group were made up.

None of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group.

6. MATERIAL CHANGE

Save as disclosed in this circular, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date to which the latest published audited accounts of the Company were made.

7. LITIGATION

• (a) On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), a wholly-owned subsidiary of Global Digital Creations Holdings Limited (“GDC”) which was held as to approximately 74.98% by the Group as at the Latest Practicable Date (GDC and its subsidiaries together the “GDC Group”), entered into a co-production agreement (the “Coproduction Agreement”) with West Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“PPM”), in which the GDC Group has a 25% equity interest, in relation to an animated television series.

In November 2004, PPM issued a summons for summary judgment against WAMC and GDC Entertainment in the Court of Commerce of Angouleme (France), seeking the appointment of an agent who would oversee the co-production.

A hearing was scheduled to take place on 11 January 2005. However, at that time, PPM modified its claims against GDC Entertainment by seeking to substitute a new producer of the “same nationality” in replacement of GDC Entertainment pursuant to the Co-production Agreement, or the appointment of an expert whose task would be basically to assess the parties’ respective liabilities.

On 13 January 2005, the GDC Group was informed by its French legal advisers that PPM’s new claims did not affect accrued rights, as even if the GDC Group were substituted, the monies invested by the GDC Group were recoverable as an account payable under the coproduction.

However, on 14 February 2005, PPM further modified its claims which included, inter-alia (i) the enforcement of an article of the Co-production Agreement which provided that in case of substitution of a producer to another one, the monies already invested by the GDC Group should become an account payable, recoverable from the revenues of the co-production,

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APPENDIX V

however, only “in last position with the recovery by the other co-producers of their contribution”, and (ii) that the GDC Group be sentenced to pay PPM the provisional amount of Euro5 million, as damages, this amount being subject to revision according to the findings of the expert to be appointed by the Court. The claim for damages was totally unparticularised.

On 10 March 2005, the GDC Group’s French legal adviser advised that the chances to recoup the totality of the investment were uncertain and in any event, the sums owed to GDC Entertainment would be recoupable only in the last position pursuant to the Coproduction Agreement.

On 15 March 2005, the French legal adviser advised that the claims by PPM for the aforesaid provisional amount of Euro5 million, as damages, was out of touch with reality given that (i) PPM did not provide any explanation or detail computation for the claims of Euro5 million; (ii) the amount was more or less equals to the total budgeted costs under the Coproduction Agreement and (iii) the claim was still subject to the summary judgment to be rendered. The legal adviser further advised that in any event, the summary judgment to be rendered should be very difficult to enforce or even may not be enforceable. Based on the abovementioned legal advice, the board of GDC considered that the claims of Euro5 million as damages should not have any immediate effect on the GDC Group and no provision for this amount was considered necessary.

Arbitration proceedings were commenced by GDC Entertainment against PPM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005. In the arbitration, issues will be raised by GDC Entertainment as to whether PPM and/or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same and claim damages from PPM and WAMC. Pleadings have not yet exchanged in the arbitration. PPM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether she has jurisdiction to hear the disputes which GDC Entertainment will refer to her in the arbitration. The arbitrator has set a date of 23 December 2005 for PPM’s and WAMC’s application to be heard.

• (b) On 19 March 2003, GDC entered into an agreement with 上海新長寧（集團）有限公司 (“Shanghai Xin Chang Ning”) pursuant to which Shanghai Xin Chang Ning agreed to subscribe for and GDC agreed to issued 1% of GDC’s shares to Shanghai Xin Chang Ning for a cash consideration of US$1,000,000.

Pursuant to an agreement dated 23 April 2003 entered into between GDC’s Group and Shanghai Xin Chang Ning, Shanghai Xin Chang Ning agreed to invest in IDMT (Shenzhen), Limited (“IDMT (Shenzhen)”) for an amount of RMB8,270,000 (“Shanghai Xin Chang Ning Investment”) which was received by the GDC’s Group in April 2003 (“Investment Date”). The GDC’s Group has undertaken to convert the Shanghai Xin Chang Ning Investment into the GDC’s shares at a conversion rate of 75% of the issued price upon listing of the GDC’s shares on the GEM or other stock exchanges (the “Shanghai Xin Chang Ning Shares Conversion”), subject to conditions as stipulated in the agreement. Should the Shanghai Xin Chang Ning Shares Conversion fail to take place within one year from the Investment Date, the GDC’s Group shall buy back the Shanghai Xin Chang Ning Investment at 105% from Shanghai Xin Chang Ning.

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APPENDIX V

In June 2003, there was a cancellation agreement entered into with GDC and IDMT (Shenzhen) to release all previous agreements signed, whereas IDMT (Shenzhen) was required to repay an investment amount of RMB8.27 million to Shanghai Xin Chang Ning by 30 June 2004, and the repayment was guaranteed by GDC.

Later, before the due date, GDC and IDMT (Shenzhen) requested a delay of payment. Shanghai Xin Chang Ning agreed to enter into a supplementary agreement to extend the repayment due date to 30 June 2005, such that an amount of RMB8.27 million and a capital occupancy costs for one year of RMB496,200 shall be repaid by this extended due date. The parties also agreed to transfer the creditor’s right of IDMT (Shenzhen) of RMB496,200 in Shanghai Baining Real Estate Company Limited* (上海百寧房產發展有限公司) to Shanghai Xin Chang Ning. As such, the amount to be repaid totaled RMB9,262,400, and the delay penalty sum was 0.03% per day of delay.

As the amount is unsettled, Shanghai Xin Chang Ning has filed a suit with Shanghai First Intermediate People’s Court. GDC and IDMT (Shenzhen) are making effort to negotiate a repayment by installment with Shanghai Xin Chang Ning, and it is believed that a consensus will be reached soon, and that Shanghai Xin Chang Ning will retract the charge correspondingly.

Save for the above proceeding, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries as at the Latest Practicable Date.

8. EXPERTS AND CONSENTS

The followings are the qualifications of the experts who have given opinion or advice, which are contained in this circular:

Name Qualifications Deloitte Touche Tohmatsu Certified Public Accountants Watson Wyatt Consulting Actuaries AA Property Services Limited Registered Professional Surveyor

Deloitte Tohmatsu Touche, Watson Wyatt and AA Property Services Limited have given and have not withdrawn their written consent to the issue of this circular with the inclusion of their respective letter and references to their name in the form and context in which they appear.

* For identification purposes only

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APPENDIX V

9. EXPERTS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, each of Deloitte Touche Tohmatsu, Watson Wyatt and AA Property Services Limited:

• (a) was not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date to which the latest published audited accounts of the Group were made up; and

• (b) did not have any shareholding interest in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

10. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, there was no existing or proposed service contracts between any Directors and members of the Group which does not expire or is not determinable by the employer within one year without payment of compensation other than statutory compensation.

11. MATERIAL CONTRACTS

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

• (a) a joint venture agreement dated 25 June 2004 made between GDC Holdings Limited (“GDC Holdings”), a non-wholly owned subsidiary of the Company, and Gameone Online Entertainment Group Limited (“Gameone Online”), pursuant to which GDC Holdings and Gameone Online agreed to incorporate and subscribe for 600,000 and 400,000 shares, being 60% and 40% interest respectively, in GDC.GAMEONE LIMITED, for a respective cash consideration of HK$600,000 and HK$400,000, to engage in the business of development and production of on-line video games and other related industries.

• (b) the sale and purchase agreements dated 26 August 2004 entered into between Eldex Investment Company Limited, a wholly-owned subsidiary of the Company, and Sky Rich Enterprises Limited in respect of the disposal of certain properties located at Kaiser Estate, Man Yue Street, Man Lok Street and Hok Yuen Street, Hunghom, Kowloon, Hong Kong by Eldex Investment Company Limited;

• (c) the sale and purchase agreement dated 31 August 2004 entered into between Strenbeech Limited, a wholly-owned subsidiary of the Company and Kilobest Limited, an nominated company of Mr. Lam Kee Fung, in respect of the sale of the building known as Kader Industrial Centre located at 17 Lok Yip Road, On Lok Tsuen, Fanling, New Territories, Hong Kong by Strenbeech Limited;

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APPENDIX V

• (d) the agreement dated 9 September 2004 entered into between Jeckman Holdings Limited, a wholly-owned subsidiary of the Company and 聯亞金融有限公司 (Uni-Asia Finance Corporation) in respect of the acquisition of a 40% equity interest in South China Leasing by Jeckman Holdings Limited;

• (e) the agreement dated 10 March 2005 entered into between Jeckman Holdings Limited and 深 圳金融租賃有限公司 (Shenzhen Finance Leasing Company Limited) in respect of the acquisition of a 20% interest in the registered capital of South China Leasing by Jeckman Holdings Limited;

• (f) the agreement dated 15 March 2005 entered into between Jeckman Holdings Limited, Valuework Investment Holdings Limited and Shenzhen Jiayinda in respect of the participation in the increase in the registered capital of South China Leasing from USD5,000,000 to USD24,000,000 by Jeckman Holdings Limited;

• (g) the placing agreement dated 22 August 2005 entered into between Upper Nice Assets Ltd., a wholly-owned subsidiary of the Company, and Baron Capital Limited in respect of the placing of not more than 58,000,000 shares in GDC by Upper Nice Assets Ltd.;

• (h) the option agreements dated 7 September 2005 entered into between Upper Nice Assets Ltd. and the Company with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu XuPing in respect of ordinary shares of GDC;

• (i) the supplemental agreements to the option agreements dated 4 November 2005 entered into between Upper Nice Assets Ltd. and the Company with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richeal, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu XuPing;

• (j) the deed of assignments dated 4 November 2005 entered into between Upper Nice Assets Ltd, the Company and Li Baoku with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chau Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu XuPing in respect of the transfer of 58,000,000 option shares (with put options) to Li Baoku;

• (k) the share transfer agreement dated 18 October 2005 entered into between 首方投資管理 （深圳）有限公司 (Capital Steel Investment (China) Ltd.), a wholly-owned subsidiary of the Company, and 長沙新大新集團有限公司(Changsha Xindaxin Group Co. Ltd) in respect of the transfer of 20% interest in 張家界新大新置業有限公司(Zhangjiajie Xindaxin Zhiye Co. Ltd.) to 首方投資管理（深圳）有限公司 ; and

• (l) the Subscription Agreement.

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APPENDIX V

12. PROCEDURES FOR DEMANDING A POLL

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

• (a) the Chairman of the meeting; or

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

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

• (d) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less one-tenth of the total sum paid up on all the Shares conferring that right.

13. MISCELLANEOUS

• a. The Hong Kong branch share registrars and transfer office of the Company is Tengis Limited located at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong (to be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong with effect from 3 January 2006);

• b. The qualified accountant of the Company is Mr. Tsang Yu Tit, who is a fellow member of The Association of Chartered Certified Accountants and an associate member of The Hong Kong Institute of Certified Public Accountants, and holds a bachelor degree of arts in accountancy;

• c. The company secretary of the Company is Ms. Cheng Man Ching, who is a fellow member of each of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries and an associate member of the Hong Kong Institute of Bankers, and holds a master degree in business administration and a master degree of arts; and

• d. the English text of this circular and form of proxy shall prevail over the Chinese text in the case of inconsistency.

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APPENDIX V

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s principal place of business in Hong Kong at 6th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong during normal business hours on any weekday other than public holidays, from the date of this circular up to and including the date of the SGM:

• a. the Bye-laws of the Company;

• b. the Subscription Agreement;

• c. the material contracts referred to in the section headed “Material Contracts” in this appendix;

• d. the accountant’s report on the CLIO Group included in Appendix II to this circular;

• e. the written consents referred to under the section headed “Experts and Consents” in this appendix;

• f. the annual reports of the Company for the two years ended 31 December 2004;

• g. the interim report of the Company for the six months ended 30 June 2005;

• h. the letter from Deloitte Touche Tohmatsu set out their opinion on the pro forma financial information of the Enlarged Group on pages 142 to 143 of this circular;

• i. the letter, summary of values and valuation certificate relating to the property interests of the Group, prepared by AA Property Services Limited, as set out in Appendix IV to this circular; and

• j. the circular of the Company dated 14 September 2005.

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NOTICE OF THE SGM

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(incorporated in Bermuda with limited liability)

(Stock Code: 730)

NOTICE IS HEREBY GIVEN that a special general meeting of Shougang Concord Grand (Group) Limited (the “ Company ”) will be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong on 20 January 2006 at 10:30 a.m. for the purpose of considering, and, if thought fit, pass the following resolutions:

ORDINARY RESOLUTION

1. “THAT

2. (a) the conditional subscription agreement dated 27 September 2005 (the “ Subscription Agreement ”) entered into between the Company and China Life Insurance (Overseas) Company Limited (“ CLIO ”) in relation to the subscription by the Company of 626,950,496 new shares of RMB1.00 each in the issued share capital of CLIO, a copy of which has been produced to this meeting marked “A” and signed by the Chairman of this meeting for identification purpose, be and is hereby approved, ratified and confirmed; and

3. (b) any of the directors of the Company, or any two of the directors of the Company if the affixation of the common seal of the Company is necessary, be and is/are hereby authorized to execute all such documents and/or to do all such acts on behalf of the Company he/they may consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation and completion of the Subscription Agreement and the transactions contemplated therein. ”

SPECIAL RESOLUTION

1. “THAT the existing Bye-Laws of the Company be and are hereby amended in the following manner:

2. (a) by inserting the words “voting by way of a poll is required by the Listing Rules or” immediately after the words “on a show of hands unless” in the second line of the existing Bye-law 70;

3. (b) by replacing the full-stop at the end of the existing Bye-law 70(iv) with a semi-colon and the word “or” immediately thereafter;

* For identification purpose only

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NOTICE OF THE SGM

• (c) by inserting the following paragraph as new Bye-law 70(v) immediately thereafter Bye-law 70(iv):

• “70(v) if required by the Listing Rules, by any Director or Directors who, individually or collectively, hold proxies in respect of shares representing five (5) per cent. or more of the total voting rights at such meeting.”;

• (d) by inserting the following sentence after the words “poll was demanded.” in the ninth line of the existing Bye-law 71:

“The Company shall only be required to disclose the voting figures on a poll if such disclosure is required by the Listing Rules.”;

• (e) by deleting the existing Bye-law 99(A) in its entirety and substituting therewith the following new Bye-law 99(A):

• “99(A) Subject to the provisions of these Bye-Laws and subject to the manner of retirement by rotation of Directors as from time to time prescribed under the Listing Rules, at every annual general meeting one-third of the Directors (except for the chairman and the managing director) for the time being or, if their number is not three or a multiple of three, then the number nearest to but not less than one-third shall retire from office by rotation, provided that every Director (including those appointed for a specific term but except the chairman and managing director) shall be subject to retirement by rotation at least once every three years at the annual general meeting of the Company. The chairman or managing director shall not be taken into account in determining the number of directors to retire. The Directors to retire in every year shall be those who have been longest in office since their last election but as between persons who became Directors on the same day those to retire shall (unless they otherwise agree between themselves) be determined by lot.”;

• (f) by inserting the words “and such Director shall continue to act as a Director throughout the meeting at which he retires” after the word “re-election” at the end of the first sentence of the existing Bye-law 99(B);

• (g) by deleting the existing Bye-law 102(B) in its entirety and substituting therewith the following new Bye-law 102(B):

• “102(B) Without prejudice to the power of the Company in general meeting in pursuance of any of the provisions of these Bye-Laws to appoint any person to be a Director and subject to the Companies Act, the Board shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or, subject to the number of Directors determined for the time being by the Company in general meeting, as an addition to the existing Board. Any Director so appointed by the Board

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NOTICE OF THE SGM

shall hold office only until the next following general meeting (in the case of filling a casual vacancy), or until the next following annual general meeting of the Company (in the case of an addition to their number) who shall then be eligible for re-election at such annual general meeting but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at such annual general meeting.”;

• (h) by deleting the word “annual” in the tenth line of the existing Bye-law 104;

• (i) by deleting the existing Bye-law 182(vi) in its entirety;

• (j) by renumbering the existing Bye-laws 182(vii) and 182(viii) as Bye-laws 182(vi) and 182(vii) respectively;

and THAT any director of the Company be and is hereby authorized to take such further action as he/she may, in his/her sole and absolute discretion, think fit for and on behalf of the Company to implement the aforesaid amendments to the existing Bye-Laws.”

By Order of the Board Shougang Concord Grand (Group) Limited Cao Zhong Vice Chairman 23 December 2005 Registered office: Principal place of business in Hong Kong: Canon’s Court 6th Floor 22 Victoria Street Bank of East Asia Harbour View Centre Hamilton HM12 56 Gloucester Road Bermuda Wanchai Hong Kong

Notes:

1. Any member of the Company entitled to attend and vote at the meeting by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him/her. A proxy need not be a member of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.

3. In order to be valid, the instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority must be delivered to the office of Tengis Limited, the Company’s branch share registrars and transfer office in Hong Kong at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong (to be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong with effect from 3 January 2006) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting thereof (as the case may be).

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NOTICE OF THE SGM

1. Completion and return of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) and in such event, the instrument appointing a proxy shall be deemed to be revoked.

2. In the case of joint registered holders of any share, if more than one of such joint holders be present at the meeting, the vote of the senior who tenders a vote, whether in person, or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.

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