Ulferts International Limited — Proxy Solicitation & Information Statement 2009

Apr 23, 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your 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 to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee.

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

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

PROPOSED MAJOR TRANSACTION IN RELATION TO THE CAP AMOUNT FOR THE CONSTRUCTION OF THE BUILDING

* For identification purpose only

24 April 2009

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Appendix II – Property valuation report of the Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	93
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	98

i

DEFINITIONS

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

“Board” the board of Directors; “Building” the building with a gross floor area of approximately 40,795 square meters to be constructed by Shenzhen IDMT on the Land; “Bureau” 深圳市國土資源和房產管理局(Shenzhen Municipal Bureau of Land Resources and Housing Management*); “Cap Amount” HK$200,000,000, being the maximum amount for the cost of construction of the Building (including the cost of the Land); “Company” Shougang Concord Grand (Group) Limited, a company incorporated in Bermuda with limited liability whose securities are listed on the main board of the Stock Exchange; “connected person(s)” has the meaning ascribed to it under the Listing Rules and the GEM Listing Rules (as appropriate); “Directors” directors of the Company; “GDC” Global Digital Creations Holdings Limited, an indirect non-wholly owned subsidiary of the Company incorporated in Bermuda with limited liability whose securities are listed on GEM; “GDC Directors” directors of GDC; “GDC Group” GDC and its subsidiaries; “GDC Shareholders” shareholders of GDC; “GEM” the Growth Enterprise Market of the Stock Exchange; “GEM Listing Rules” the Rules Governing the Listing of Securities on GEM; “Group” the Company and its subsidiaries; “HK$” Hong Kong dollar, the lawful currency of Hong Kong; “Hong Kong” the Hong Kong Special Administrative Region of the PRC;

* For identification purpose only

1

DEFINITIONS

• “Land” the piece of land located at 深圳市高新中三路(Gaoxinzhong Third Road, Shenzhen*), the PRC with a site area of approximately 5,925 square meters;

• “Latest Practicable Date” 20 April 2009, being the latest practicable date prior to the printing of this circular for ascertaining certain information in the circular;

• “Listing Rules” the Rules Governing the Listing of the Securities on the Stock Exchange;

• “Max Same” Max Same Investment Limited, a company incorporated in Hong Kong which is a wholly owned subsidiary of Cheung Kong (Holdings) Limited and is interested in approximately 7.94% of the issued share capital of the Company;

• “Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules;

• “PRC” the People’s Republic of China; “Resolution” the resolution passed by the Directors and the GDC Directors (as appropriate) on 2 March 2009 to approve the proposed Cap Amount for the construction of the Building;

• “RMB” Renminbi, the lawful currency of the PRC; “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);

• “Shares” ordinary shares of HK$0.01 each in the share capital of the Company;

• “Shareholders” shareholders of the Company; “Shenzhen IDMT” 環球數碼媒體科技研究（深圳）有限公司 (Institute of Digital Media Technology (Shenzhen) Limited), a wholly foreign owned enterprise established in the PRC and a wholly-owned subsidiary of GDC;

• “Shougang Holding” Shougang Holding (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability, the controlling shareholder of the Company;

• “Stock Exchange” The Stock Exchange of Hong Kong Limited; “%” per cent.

• For identification purpose only

2

DEFINITIONS

For illustration purposes, amounts in RMB in this circular have been translated into HK$ at RMB1 = HK$1.136.

No representation is made that any amount in HK$ could have been or could be converted at the above rate or at any other rates or at all.

Certain English translation of Chinese names or words in this circular are included for information purpose only and should not be regarded as the official English translation of such Chinese names or words.

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 and Managing Director) Chen Zheng (Managing Director of Operations) Wang Tian (Deputy Managing Director) Yuan Wenxin (Deputy Managing Director) Leung Shun Sang, Tony (Non-executive Director) Tam King Ching, Kenny (Independent Non-executive Director) Zhou Jianhong (Independent Non-executive Director) Yip Kin Man, Raymond (Independent Non-executive Director)

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda

Principal Office in Hong Kong: Rooms 1101-4, 11th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong

24 April 2009

To the Shareholders

Dear Sir or Madam,

PROPOSED MAJOR TRANSACTION IN RELATION TO THE CAP AMOUNT FOR THE CONSTRUCTION OF THE BUILDING

INTRODUCTION

On 3 March 2009, the Company announced in a joint announcement with GDC that Shenzhen IDMT, a wholly-owned subsidiary of GDC, plans to construct the Building to house the research, development and production centre of its multi-media digital contents and computer graphic business. It is currently estimated that the cost for constructing the Building, including the cost of the Land, will be approximately HK$200 million.

The purpose of this circular is to provide you with information in respect of, among other things, the details of the Building.

* For identification purpose only

4

LETTER FROM THE BOARD

THE PROPOSED CONSTRUCTION OF THE BUILDING

On 28 June 2007, Shenzhen IDMT, a wholly-owned subsidiary of GDC, has acquired from the Bureau the land use right of a piece of land with a gross area of approximately 5,925 square meters located at 深圳市高新中三路(Gaoxinzhong Third Road, Shenzhen*), the PRC, for a term of 50 years. The consideration paid by Shenzhen IDMT for the Land is approximately RMB5,262,000 (equivalent to approximately HK$5,977,000).

Since the acquisition of the Land in 2007, Shenzhen IDMT has been preparing the budget and the preliminary designs for the construction of the Building. The Land is for industrial purposes and Shenzhen IDMT plans to construct the Building to house the research, development and production centre of its multi-media digital contents and computer graphic business. The Building will be designed to have a gross floor area of approximately 40,795 square meters. According to the budget prepared by an independent consultant engaged by Shenzhen IDMT in respect of the Building, the total cost for the construction of the Building is estimated to be approximately HK$200 million, based on the costs of the Land and construction costs of the Building. Such costs will be satisfied by the internal resources of the GDC Group and bank borrowings. The Building is expected to be completed in 2010.

The construction of the Building will involve Shenzhen IDMT negotiating and entering into numerous contracts with independent third parties concerning various aspects of the construction, which may be subject to disclosure and/or shareholders approval requirements under the Listing Rules and the GEM Listing Rules. The Directors and the GDC Directors consider that it would be too costly and impractical to make disclosure of the relevant transactions, and would seek prior approval from the Shareholders and the GDC Shareholders as required by the Listing Rules and/or the GEM Listing Rules for contracts to be entered with regard to the construction of the Building. The Directors and the GDC Directors thus passed the Resolution to seek from their respective shareholders’ approvals for a cap amount of HK$200 million for the construction of the Building, including the cost of the Land. Each of the Company and GDC will comply with the requirements of the Listing Rules and the GEM Listing Rules respectively if for any reasons the cost of construction of the Building exceeds the Cap Amount or where any of the contracts in relation to the construction of the Building is entered into with a connected person of either the Company or GDC which constitute non-exempt connected transaction(s) under the Listing Rules and/or the GEM Listing Rules.

The contracts to be entered into by Shenzhen IDMT in relation to the construction of the Building will be on an arm’s length basis and are of the types that are entered into in the usual course of construction of the Building.

REASONS FOR THE TRANSACTION

The Company is an investment holding company and its subsidiaries are principally engaged in provision and distribution of cultural recreations content, provision of financial services and property investment and management.

* For identification purpose only

5

LETTER FROM THE BOARD

In order to secure GDC’s leading position in the development of digital contents in the PRC, the Company and GDC are committed to introduce new and advanced technologies into the PRC, extend its product range, expand its production capacity, and enhance its product quality and service standards. The construction of the Building will enable GDC to house the research, development and production centre of the multi-media digital contents and computer graphic business of GDC and also expand its research, development and production facility. The Directors (including the independent non-executive Directors) are of the view that the construction of the Building is in line with the present strategy of GDC, which is to continue to develop its digital content business. The Directors also believe that the Cap Amount for the construction of the Building is fair and reasonable and it is in the interest of the Shareholders to approve the Cap Amount for the construction of the Building.

FINANCIAL EFFECT OF THE TRANSACTION

Immediately upon completion of the construction of the Building for a cap amount of HK$200 million and assuming HK$40 million to be satisfied by the internal resources of the Group and the remaining HK$160 million by bank borrowings, the total assets and the total liabilities of the Group will be both increased by HK$160 million. The Company considers that there will not be any material effect on the earnings of the Group immediately upon completion of the construction of the Building.

GENERAL

As at the date of the Resolution, the Company was indirectly interested in approximately 52.6% of GDC. The Cap Amount for the construction of the Building constitutes a major transaction for the Company under the Listing Rules. Accordingly, the Cap Amount for the construction of the Building is subject to the approval of the Shareholders.

To the best of their knowledge, information and belief of the Directors, having made all reasonable enquiry, none of the Shareholders has a material interest in the proposed construction of the Building and is required to abstain from voting for the resolutions to approve the Cap Amount for the construction of the Building. Shougang Holding (through its wholly-owned subsidiaries) and Max Same, a closely allied group of the Shareholders, which were respectively interested in 489,840,710 Shares and 91,491,193 Shares, representing approximately 42.54% and 7.94% of the issued share capital of the Company respectively and an aggregate of approximately 50.48% in the Company as at the date of the Resolution, approved the Cap Amount for the construction of the Building by written shareholders’ approvals on 2 March 2009 pursuant to Rule 14.44 of the Listing Rules in lieu of resolutions to be passed at the Shareholders’ meeting.

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

By order of the Board

Shougang Concord Grand (Group) Limited Cao Zhong

Vice Chairman and Managing Director

6

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• I. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP FOR THE THREE FINANCIAL YEARS ENDED 31 DECEMBER 2006, 31 DECEMBER 2007 AND 31 DECEMBER 2008

The table set out below is the summary of the financial information of the Group for the year ended 31 December 2006, 31 December 2007 and 31 December 2008, as extracted from the annual report of the Company for the year ended 31 December 2007 and 2008.

Results

Revenue Cost of sales Gross profit (Loss)/profit before tax Income tax expense (Loss)/profit for the year Attributable to: Equity holders of the Company Minority interests (Loss)/earnings per share Basic Diluted	For the year ended 2006 HK$’000 (restated) 90,629 (53,670) 36,959 (15,075) (1,103) (16,178) (15,204) (974) (16,178) (HK$1.34 cents) N/A	For the year ended 2007 HK$’000 284,303 (193,371) 90,932 447,998 (6,785) 441,213 425,661 15,552 441,213 HK$37.19 cents HK$35.99 cents	For the year ended 2008 HK$’000 308,181 (262,550) 45,631 (156,209) (1,540) (157,749) (119,446) (38,303) (157,749) (HK$10.38 cents) N/A

7

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial position

Total assets Total liabilities Net assets Equity attributable to equity holders of the Company Share options reserve of subsidiaries Minority interests Total equity	As at 31 December 2006 HK$’000 457,164 (235,601) 221,563 212,010 5,907 3,646 221,563	As at 31 December 2007 HK$’000 2,566,391 (1,598,035) 968,356 635,814 55,249 277,293 968,356	As at 31 December 2008 HK$’000 2,418,299 (1,547,125) 871,174 551,644 54,603 264,927 871,174

8

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. EXTRACT FROM THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31 DECEMBER 2008

The following is an extract of the latest published audited consolidated financial statements of the Group for the year ended 31 December 2008 together with the notes therein, from the 2008 annual report of the Company.

Consolidated Income Statement

For the year ended 31 December 2008

NOTES Revenue 7 Cost of sales Gross profit Interest income from entrusted loan receivables Other income 9 Distribution costs and selling expenses Administrative expenses (Decrease) increase in fair value of investment properties Changes in fair value of held-for-trading investments Finance costs 10 Share of results of associates Other expense 11 Discount on acquisition of additional interest in a subsidiary 42(c) Gain on disposal and dilution of interests in subsidiaries 12 Gain on disposal of interest in a jointly controlled entity 13 (Loss) profit before tax Income tax expense 14 (Loss) profit for the year 15 Attributable to: Equity holders of the Company Minority interests (Loss) earnings per share 17 Basic Diluted	2008 HK$’000 308,181 (262,550) 45,631 3,674 12,035 (14,240) (128,233) (15,960) (30,011) (6,046) (857) (22,202) – – – (156,209) (1,540) (157,749) (119,446) (38,303) (157,749) (HK10.38 cents) N/A	2007 HK$’000 284,303 (193,371) 90,932 – 23,369 (5,553) (156,036) 31,130 23,713 (4,873) 7,255 – 1,342 375,680 61,039 447,998 (6,785) 441,213 425,661 15,552 441,213 HK37.19 cents HK35.99 cents

9

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

At 31 December 2008

NOTES Non-current assets Property, plant and equipment 18 Prepaid lease payments 19 Investment properties 20 Goodwill 21 Intangible asset 23 Interests in associates 24 Advances 26 Finance lease receivables 27 Entrusted loan receivables 28 Restricted bank deposits 33 Pledged bank deposit 33 Advance paid for acquisition of intangible asset Current assets Inventories 29 Production work in progress 30 Amounts due from customers for contract work 31 Finance lease receivables 27 Entrusted loan receivables 28 Trade receivables 32 Prepayments, deposits and other receivables 33 Prepaid lease payments 19 Amount due from an associate 25(b) Held-for-trading investments 34 Pledged bank deposits 33 Bank balances and cash 33	2008 HK$’000 60,510 7,512 125,200 52,935 244,111 21,856 126,547 827,138 25,499 66,069 665 – 1,558,042 21,904 3,875 16,935 463,170 26,879 20,524 22,957 156 – 85,668 2,808 195,381 860,257	2007 HK$’000 47,634 7,230 141,160 63,332 221,545 424 – 1,029,469 – 72,482 – 35,581
		1,618,857
		25,781 11,094 1,494 344,404 – 19,043 42,259 147 1,053 29,846 8,852 463,561
		947,534

10

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

NOTES Current liabilities Amounts due to customers for contract work 31 Trade payables 35 Other payables and accruals Income received in advance 36 Rental and management fee deposits received Amount due to a related party 37 Tax liabilities Borrowings 38 Net current assets Total assets less current liabilities Non-current liabilities Income received in advance 36 Borrowings 38 Security deposits received Deferred tax liabilities 39 Net assets Capital and reserves Share capital 40 Reserves Equity attributable to equity holders of the Company Share options reserve of subsidiaries Minority interests Total equity		2008 HK$’000 1,763 8,117 53,492 38,108 1,189 – 9,506 427,048 539,223 321,034 1,879,076 16,393 930,248 60,168 1,093 1,007,902 871,174 11,514 540,130 551,644 54,603 264,927 871,174	2007 HK$’000 1,440 5,146 44,848 23,361 1,044 455 8,291 362,267
			446,852
			500,682
			2,119,539
			21,245 1,055,103 73,495 1,340
			1,151,183
			968,356
			11,504 624,310
			635,814 55,249 277,293
			968,356

11

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2008

At 1 January 2007 Exchange differences on translation of associates/subsidiaries representing income recognised directly in equity Profit for the year Release of translation reserve upon disposal of interest in a jointly controlled entity Release of translation reserve upon disposal of interests in subsidiaries Total recognised income for the year Recognition of share-based payments Exercise of share options Exercise of share options of subsidiaries Acquisition of subsidiaries Cancellation of share options granted by a subsidiary Additional contribution from minority shareholders Dilution of interests in subsidiaries Partial disposal of interests in subsidiaries Additional investments in subsidiaries shared by minority shareholders of subsidiaries At 31 December 2007 Exchange differences on translation of associates/subsidiaries representing income recognised directly in equity Loss for the year Total recognised income and expense for the year Recognition of share-based payments Exercise of share options Reduction of share premium_(Note (c)) Elimination of accumulated losses (Note (c))_ Cancellation of share options granted by subsidiaries Capital contribution from a minority shareholder At 31 December 2008	Share capital HK$’000 11,369 – – – – – – 135 – – – – – – – 11,504 – – – – 10 – – – – 11,514	Share premium HK$’000 417,690 – – – – – – 7,569 – – – – – – – 425,259 – – – – 559 (425,259) – – – 559	Capital contribution Contributed reserve surplus HK$’000 HK$’000 (Note (a)) 445 2,135 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 445 2,135 – – – – – – – – – – – 425,259 – (311,818) – – – – 445 115,576	Translation reserve HK$’000 16,369 12,502 – (12,352) 983 1,133 – – – – – – – – – 17,502 23,351 – 23,351 – – – – – – 40,853	Share options reserve HK$’000 – – – – – – 14,949 (2,155) – – – – – – – 12,794 – – – 10,869 (159) – – – – 23,504	(Accumulated losses) Special retained reserve profits HK$’000 HK$’000 (Note (b)) – (235,998) – – – 425,661 – – – – – 425,661 – – – – – – – – – 8 – – – – – – (23,496) – (23,496) 189,671 – – – (119,446) – (119,446) – – – – – – – 311,818 – 646 – – (23,496) 382,689	Total HK$’000 212,010 12,502 425,661 (12,352) 983 426,794 14,949 5,549 – – 8 – – – (23,496) 635,814 23,351 (119,446) (96,095) 10,869 410 – – 646 – 551,644	Share options reserve of subsidiaries HK$’000 5,907 – – – – – 57,402 – (8,052) – (8) – – – – 55,249 – – – – – – – (646) – 54,603	Minority interests HK$’000 3,646 3,968 15,552 – – 19,520 – – 33,986 27,608 – 427,224 (268,781) 1,539 32,551 277,293 11,117 (38,303) (27,186) – – – – – 14,820 264,927	Total HK$’000 221,563 16,470 441,213 (12,352) 983
										446,314
										72,351 5,549 25,934 27,608 – 427,224 (268,781) 1,539 9,055
										968,356 34,468 (157,749)
										(123,281)
										10,869 410 – – – 14,820
										871,174

12

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes:

• (a) 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, and the transfers as mentioned in note (c) below.

• (b) Special reserve represented the difference between the fair value and the carrying amount of the net assets attributable to the additional interest in a subsidiary being acquired from minority shareholders during the year ended 31 December 2007 (see note 42(c)).

• (c) A special resolution was passed by shareholders of the Company at the Special General Meeting of the Company held on 6 June 2008 and completed thereafter that an amount of approximately HK$425,259,000 standing to the credit of the share premium account of the Company as at 31 December 2007 be reduced, with the credit arising therefrom being transferred to the contributed surplus of the Company. Upon the said transfer becoming effective, an amount of approximately HK$311,818,000 standing to the credit of the contributed surplus of the Company has been applied to eliminate the accumulated losses of the Company as at 31 December 2007. The Company has complied with the requirements of section 46(2) of The Companies Act 1981 of Bermuda (as amended). Details of which are set out in the circular of the Company dated 9 May 2008.

13

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW

For the year ended 31 December 2008

OPERATING ACTIVITIES (Loss) profit before tax Adjustments for: Changes in fair value of held-for-trading investments Amortisation of intangible asset Decrease (increase) in fair value of investment properties Share-based payments expenses Impairment loss in respect of goodwill Depreciation of property, plant and equipment Allowance for bad and doubtful debts Finance costs Research and development costs Allowance for inventories Share of results of associates Amortisation of prepaid lease payments Loss on disposal of property, plant and equipment Interest income Interest income from entrusted loan receivables Dividend income from held-for-trading investments Gain on disposal of intangible asset Discount on acquisition of additional interest in a subsidiary Gain on disposal and dilution of interests in subsidiaries Gain on disposal of interest in a jointly controlled entity Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease in production work in progress (Increase) decrease in amounts due from customers for contract work Decrease in finance lease receivables Increase in trade receivables Decrease (increase) in prepayments, deposits and other receivables (Increase) decrease in held-for-trading investments Increase in amounts due to customers for contract work Increase in trade payables Increase (decrease) in other payables and accruals Increase in income received in advance Increase in rental and management fee deposits received (Decrease) increase in security deposits received Cash generated from (used in) operations Dividend received from held-for-trading investments Income tax paid Interest paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	2008 HK$’000 (156,209) 30,011 28,491 15,960 10,869 10,397 7,857 6,386 6,046 2,843 1,031 857 161 50 (5,190) (3,674) (3,118) (104) – – – (47,336) 4,043 7,965 (13,549) 170,090 (7,314) 20,985 (85,275) 338 2,971 7,707 8,172 145 (17,954) 50,988 3,118 (848) (6,046) 47,212	2007 HK$’000 447,998 (23,713) – (31,130) 72,351 – 2,433 230 4,873 4,432 – (7,255) 99 119 (14,084) – (144) – (1,342) (375,680) (61,039) 18,148 (14,330) 1,443 168 34,631 (141,615) (8,301) 8,567 227 1,302 (18,528) 3,334 29 1,604 (113,321) 144 (806) (4,721) (118,704)

14

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

NOTE INVESTING ACTIVITIES Advances paid Capital contribution to associates Increase in entrusted loan receivables Purchases of property, plant and equipment Expenditure on product development Acquisition of intangible asset Advance paid for acquisition of intangible asset Prepaid lease payments made Decrease in restricted bank deposits Decrease (increase) in pledged bank deposits Interest received Interest received from entrusted loan receivables Proceeds from disposal of intangible asset Repayment from associates Proceeds from disposal of interest in a jointly controlled entity Proceeds from disposal of partial interest in a subsidiary (net of expense) Acquisition of subsidiaries 42(a) Proceeds from disposal of property, plant and equipment NET CASH (USED IN) FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Repayment of borrowings Repayment to related parties New borrowings raised Capital contribution from a minority shareholder Issue of shares from exercise of share options Repayment to a fellow subsidiary Repayment of obligations under finance leases Repayment to a shareholder Proceeds from issue of shares by subsidiaries to minority shareholders, net of transaction costs of approximately HK$13,075,000 Proceeds from exercise of share options of subsidiaries NET CASH (USED IN) FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, represented by bank balances and cash	2008 HK$’000 (126,547) (21,084) (52,378) (20,670) (2,843) (548) – (87) 10,976 5,379 5,190 3,674 1,250 1,053 – – – – (196,635) (440,820) (455) 296,773 14,820 410 – – – – – (129,272) (278,695) 463,561 10,515 195,381	2007 HK$’000 – (17,503) – (15,132) (4,432) (88,633) (35,581) (5,794) – (7,838) 14,084 – – 16,190 174,176 68,308 42,447 20 140,312 (71,678) (1,928) 13,898 – 5,549 (40,000) (1,973) (512) 467,519 25,769 396,644 418,252 34,705 10,604 463,561

15

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2008

1. GENERAL

The Company is a public limited company 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”). Its controlling shareholder, which is defined under the Rules Governing the Listing of Securities on the Stock Exchange as a person who is entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of the issuer, is Shougang Holding (Hong Kong) Limited (“Shougang Holding”), a company incorporated in Hong Kong with limited liability. The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section to the annual report.

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 50.

The functional currency of the Company is Renminbi. The consolidated financial statements are presented in Hong Kong dollars for the convenience of the readers.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied the following amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which have become effective.

HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets HK(IFRIC) – Int 11 HKFRS 2: Group and Treasury Share Transactions HK(IFRIC) – Int 12 Service Concession Arrangements HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKAS 1 (Revised) Presentation of Financial Statements[2] HKAS 23 (Revised) Borrowing Costs[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[3] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[2] HKAS 39 (Amendment) Eligible hedged items[3] HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate[2] HKFRS 2 (Amendment) Vesting Conditions and Cancellations[2] HKFRS 3 (Revised) Business Combinations[3] HKFRS 7 (Amendments) Improving Disclosures about Financial Instruments[2] HKFRS 8 Operating Segments[2] HK(IFRIC) – Int 9 & HKAS 39 Embedded Derivatives[4]

HKFRS 2 (Amendment) HKFRS 3 (Revised) HKFRS 7 (Amendments) HKFRS 8 HK(IFRIC) – Int 9 & HKAS 39 (Amendments) HK(IFRIC) – Int 13 HK(IFRIC) – Int 15 HK(IFRIC) – Int 16 HK(IFRIC) – Int 17 HK(IFRIC) – Int 18

Customer Loyalty Programmes[5] Agreements for the Construction of Real Estate[2] Hedges of a Net Investment in a Foreign Operation[6] Distribution of Non-cash Assets to Owners[3] Transfers of Assets from Customers[7]

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009

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

3 Effective for annual periods beginning on or after 1 July 2009

4 Effective for annual periods ending on or after 30 June 2009

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

6 Effective for annual periods beginning on or after 1 October 2008

7 Effective for transfers on or after 1 July 2009

The application of HKFRS 3 (Revised) may affect the accounting for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 23 (Revised) will eliminate the option to expense all borrowing costs when incurred. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary. The directors of the Company (the “Directors”) anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and financial position of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

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

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

Basis of consolidation

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

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

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

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

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

17

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 “Business Combinations” are recognised at their fair values at the acquisition date.

When a business combination involves more than one exchange transaction, each exchange transaction shall be treated separately by the acquirer, using the cost of the transaction and fair value information at the date of each exchange transaction to determine the amount of any goodwill associated with that transaction. Any adjustment to those fair values relating to previously held interests of the Group is credited to the revaluation reserve.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the consolidated income statement.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Acquisition of additional interest in a subsidiary

Goodwill arising on acquisition of additional interest in a subsidiary represents the excess of the cost of the acquisition over the fair value of the net assets attributable to the additional interest in a subsidiary. If, after reassessment, the fair value of the net assets attributable to the additional interest in a subsidiary by the Group exceeds the cost of the acquisition, the excess is recognised immediately in profit and loss. The difference between the fair value and the carrying value of the underlying assets and liabilities attributable to the additional interest in a subsidiary is debited directly to special reserve.

Goodwill

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 acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement date is 1 January 2005, 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 (“CGU”) to which the goodwill relates may be impaired.

Goodwill arising on an acquisition of a business, 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 business, at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a business is presented separately in the consolidated balance sheet.

18

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant CGUs, or groups of CGUs, that are expected to benefit from the synergies of the acquisition. A CGU 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 CGU to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the CGU 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 consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant CGU, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Interests in associates

An associate is an entity over which the investor has significant influence and there is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which 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.

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

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

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.

Revenue recognition

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

Interest income from the finance leasing business and other financial assets is accrued on a timely 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 finance lease business and other financial assets to that asset’s net carrying amount.

Revenue from sales of goods is recognised when goods are delivered and title has passed.

19

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Distribution income for films and television programme is recognised when the films and/or television programme are delivered to the customers.

Training fee income is recognised over the period of the training course on a straight-line basis. Unearned training fee income received is recorded as income received in advance.

Rental income from property and equipment leasing is recognised on a straight-line basis over the relevant lease terms.

Royalty income from share of box office receipts is recognised when the digital motion pictures are exhibited using the digital cinema equipment sold by the Group and the right to receive certain percentage of the relevant box office receipts has been established.

Receipts from exhibition of digital motion pictures are recognised when the motion pictures are exhibited.

Technical service income and management fee income are recognised when services are provided.

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

Subcontracting revenue from computer graphic (“CG”) creation and production

Where the outcome of a subcontracting contract of CG creation and production can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Where the outcome of a subcontracting contract cannot be estimated reliably, subcontracting revenue is recognised to the extent of contract costs incurred that it is probable to be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated balance sheet, as a liability, as income received in advance. Amounts billed for work performed but not yet paid by the customer are included in the consolidated balance sheet under trade receivables.

Property, plant and equipment

Property, plant and equipment other than construction in progress are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Construction in progress includes property, plant and equipment in the course of construction for production or for its own use purposes as well as self-constructed investment properties. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

20

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

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

Investment properties

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

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

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

An investment property is transferred at fair value to property, plant and equipment when the property begins to be occupied by the owner. Gain or loss arising from change in fair value of the investment property upon the transfer is included in the consolidated income statement.

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

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

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

The Group as lessee

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

Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases except for those which are classified and accounted as investment properties under the fair value model.

21

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in 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 re-translated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

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 re-translation of non-monetary items carried at fair value are included in the consolidated income statement for the period except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s entities are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in the consolidated income statement in the period in which a 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.

Borrowing costs

All borrowing costs are recognised as and included in finance cost in the consolidated income statement in the year in which they are incurred.

Retirement benefits costs

Payments to the define contribution retirement benefit schemes are charged as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

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

22

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

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.

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 the consolidated 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.

Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives.

Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life.

Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Inventories

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

Production work in progress

Production work in progress is stated at the lower of cost and net realisable value. Costs include all direct costs associated with the production of films or television programme. The cost associated with the production of films and programme would be transferred to inventories upon the completion of films or television programme.

23

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 (“FVTPL”)) 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 FVTPL are recognised immediately in the consolidated income statement.

Financial assets

The Group’s financial assets are classified into one of the two categories: including held-for-trading investments and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Effective interest method

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

Income is recognised on an effective interest basis for debt instruments.

Held-for-trading investments

A financial asset is classified as held-for-trading if:

• it has been acquired principally for the purpose of selling in the near future; or

• it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

At each balance sheet date subsequent to initial recognition, held-for-trading investments are measured at fair value, with changes in fair value recognised directly in the consolidated income statement in the period in which they arise. The net gain or loss recognised in the consolidated income statement excludes any dividend or interest earned on the financial assets.

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 entrusted loan receivables, trade receivables, other receivables, amount due from an associate, restricted bank deposits, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).

24

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment of financial assets

Financial assets, other than held-for-trading investments, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.

For those loans and receivables, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For loans and receivables, an impairment loss is recognised in the consolidated income statement 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.

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

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

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.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities including trade payables, other payables, amount due to a related party and borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

25

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in the consolidated income statement.

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

Equity settled share-based payment transactions

Share options granted to the Directors and employees of the Group

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed, with a corresponding increase in equity (share options reserve). For share options which are vested at the date of grant, the fair value of the share options granted is expensed immediately to profit or loss.

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to accumulated profits or losses.

For share options granted on or before 7 November 2002 and share options granted after 7 November 2002 but vested before 1 January 2005, the Group did not recognise any financial effect of these share options in accordance with the transitional provisions of HKFRS 2.

The financial impact of share options granted is not recorded in the consolidated financial statements until such time as the options are exercised, and no charge is recognised in the consolidated income statement in respect of the value of options granted. Upon the exercise of the share options, the resulting shares issued are recorded 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 as share premium. Options which lapse or are cancelled prior to their exercise date are deleted from the register of outstanding options.

Share options granted to other participants

Share options issued in exchange for goods or services are measured at the fair value of the goods or services received, unless that fair value cannot be reliably measured, in which case the goods or services received are measured by reference to the fair value of the share options granted.

Impairment losses on tangible and intangible assets other than goodwill (see accounting policy in respect of goodwill above)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible 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.

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.

26

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

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

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

Key sources of estimation uncertainty

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

Estimated impairment of intangible asset

At 31 December 2008, the carrying amount of intangible asset was approximately HK$244,111,000 (2007: HK$221,545,000). In determining whether there is objective evidence of impairment loss, the Directors take into consideration the estimation of future cash flows to be generated from use of the intangible asset and fair value of the intangible asset less cost to sell. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and higher of the present value of estimated future cash flows discounted at a suitable discount rate or the fair value less cost to sell. Where the actual future cash flows or the net selling price are less than expected, an impairment loss may arise.

During the year ended 31 December 2008 and 2007, the Directors did not identify any impairment loss on the intangible asset.

Provision for litigations

The management of the Group monitor any litigation against the Group closely. Provision for litigations is made based on the opinion of the legal adviser on the possible outcome and liability of the Group. As at 31 December 2008 and 2007, there is no foreseeable financial impact to the Group and no provision for litigations has been made. Details are set out in note 44.

Estimated impairment of finance lease receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows and fair value of the pledged assets less cost to sell. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and higher of the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition) or the fair value of the pledged assets less cost to sell. Where the actual future cash flows or the net selling price of the pledged assets are less than expected, a material impairment loss may arise.

As at 31 December 2008, the carrying amount of finance lease receivables is approximately HK$1,290,308,000 (2007: HK$1,373,873,000).

Write-down of production work in progress

The policy for write-down of production work in progress of the Group is based on the evaluation of the certainty in finalising the distribution/license agreements in the potential markets and on management’s judgement. Where the net realisable value is less than the cost, a material impairment loss may arise. The management estimates the net realisable value for such production work in progress was approximately HK$3,875,000 as at 31 December 2008 (2007: HK$11,094,000). There was no write-down of production work in progress made for the year ended 31 December 2008 (2007: Nil).

27

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL INSTRUMENTS

a. Categories of financial instruments

	2008	2007
	HK$’000	HK$’000
Financial assets
Loan and receivables (including cash and
cash equivalents)	355,172	598,602
Finance lease receivables	1,290,308	1,373,873
Fair value through profit or loss
Held-for-trading investments	85,668	29,846
Financial liabilities
Amortised cost	1,457,025	1,519,371

b. Financial risk management objectives and polices

The Group’s major financial instruments include finance lease receivables, entrusted loan receivables, trade receivables, other receivables, restricted bank deposits, pledged bank deposits and bank balances, amount due from an associate, borrowings, trade payables and other payables. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

(i) Currency risk

The normal operations and investments of the Group are mainly in Hong Kong and the People’s Republic of China (the “PRC”, for the purpose of this report, does not include Hong Kong, Macau and Taiwan), with revenue and expenditure denominated in Hong Kong dollars, Renminbi and United States dollars which are primarily transacted using functional currencies of the respective group entities. The Directors believe that the Group does not have significant foreign exchange exposures. However, if necessary, the Group will consider using forward exchange contracts to hedge against foreign currency exposures.

(ii) Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate finance lease receivables for the year ended 31 December 2008 and 2007, certain entrusted loan receivables for the year ended 31 December 2008 and borrowings for the year ended 31 December 2007 (see note 38 for details of the borrowings).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group is exposed to cash flow interest rate risk in relation to variable-rate finance lease receivables, an entrusted loan receivable, bank balances and bank borrowings (see note 38 for details of the borrowings). It is the Group’s policy to keep majority of its finance lease receivables, entrusted loan receivable and borrowings at floating rates of interest so as to minimise the fair value interest rate risk.

The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of the People’s Bank of China Renminbi Lending Rate (“PBC Rate”) arising from the Group’s variable-rate finance lease receivables, entrusted loan receivables and borrowings. The Group currently does not use any derivative contracts to hedge its exposure to interest rate risk. However, the management will consider hedging significant interest rate exposure should the need arise.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for variable-rate finance lease receivables, entrusted loan receivables, borrowings and bank balances at the balance sheet date. The analysis is prepared assuming these outstanding balances at the balance sheet date was outstanding for the whole year. A 100 basis point (2007: 50 basis point) increase or decrease is used which represents management’s assessment of the reasonably possible change in interest rates. As a result of the volatile financial market, the management adjusted the sensitivity rate from 50 basis points to 100 basis points in current year for the purpose of analysing interest rate risk.

If interest rates had been 100 basis points (2007: 50 basis points) higher/lower and all other variables were held constant, the Group’s post-tax loss for the year ended 31 December 2008 would increase/decrease by approximately HK$8,921,000 (2007: post-tax profit would decrease/ increase by approximately HK$3,894,000).

The Group’s sensitivity to interest rates has increased during the current year which is mainly due to change of sensitivity rate from 50 basis points to 100 basis points and increase in variable-rate entrusted loan receivables.

(iii) Other price risk

The Group is exposed to equity price risk through its investments in listed equity securities. The management manages this exposure by maintaining a portfolio of investments with different risks. The Group’s equity price risk is mainly concentrated on equity instruments of entities operating in the PRC which are quoted in stock exchanges in the PRC and Hong Kong. In addition, the Group has appointed a team to monitor the price risk and will consider hedging the risk exposure should the need arise.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date. For sensitivity analysis purpose, the sensitivity rate is increased to 10% (2007: 5%) in the current year as a result of volatile financial market.

If the prices of the respective equity instruments had been 10% (2007: 5%) higher/lower, post-tax loss the year ended 31 December 2008 would decrease/increase by approximately HK$7,153,000 (2007: post-tax profit would increase/decrease by approximately HK$1,492,000) as a result of the changes in fair value of held-for-trading investments.

The Group’s sensitivity to held-for-trading investments has increased from the prior year, which is mainly due to the purchase of held-for-trading investments during the year.

29

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Credit risk

As at 31 December 2008 and 2007, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arises from the carrying amount of the respective recognised financial assets as stated in the consolidated balance sheet.

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

The Group’s credit risk is also attributable to advances paid to third parties as disclosed in note 26. The Group has concentration of credit risk on the advances which have been paid to three counterparties. The management of the Group reviews the recoverability of these amounts at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regards, the Directors consider that the Group’s credit risk is significantly reduced.

Before accepting any new finance lease and entrusted loan borrower, the Group assesses the credit quality of each potential finance lease borrower or entrusted loan borrower and defined credit rating and limits for each finance lease borrower or entrusted loan borrower. The Group also demands certain finance lease borrowers to place security deposits with the Group at the time the finance lease arrangement is entered into. In addition, the Group has reviewed the repayment history of finance lease payments from each finance lease borrower or repayment from each entrusted loan borrower with reference to the repayment schedule from the date of finance lease or entrusted loan was initially granted up to the reporting date to determine the recoverability of a finance lease receivable and an entrusted loan receivable.

The credit risk on restricted bank deposits, pledged bank deposits and bank balances is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

The Group’s concentration of credit risk by geographical locations is mainly in the PRC, which accounted for 81% (2007: 47%) of the total trade receivables as at 31 December 2008, 100% (2007: 100%) of the total financial lease receivables as at 31 December 2008 and 100% (2007: Nil) of the total entrusted loan receivables as at 31 December 2008.

The Group has concentration of credit risk on its trade receivables as 8% (2007: 24%) and 33% (2007: 58%) of the total trade receivables was due from the Group’s largest customer and the five largest customers, respectively. The customers are mainly engaged in the media business.

The Group also has concentration of credit risk from finance leasing business as 35% (2007: 31%) and 72% (2007: 79%) of the total finance lease receivables was due from the Group’s largest finance lease borrower and the five largest finance lease borrowers, respectively. The borrowers are spread across diverse industries.

The Group also has concentration of credit risk on its entrusted loan receivables as 44% (2007: Nil) and 100% (2007: Nil) of the total entrusted loan receivables was due from the Group’s largest entrusted loan borrower and the three entrusted loan borrowers, respectively. The borrowers are from different industry sectors.

30

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity risk

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

The following table details the Group’s remaining contractual maturity for its financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Liquidity table

Weighted average effective interest rate % 2008 Trade payables – Other payables – Security deposits received – Borrowings 8 Weighted average effective interest rate % 2007 Trade payables – Other payables – Amount due to a related party – Security deposits received – Borrowings 7	Less than three months HK$’000 6,568 22,688 – 119,276 148,532 Less than three months HK$’000 4,802 22,905 455 – 96,385 124,547	Three to six months HK$’000 76 8,756 – 105,063 113,895 Three to six months HK$’000 344 – – – 87,917 88,261	Six months to one year HK$’000 1,473 – – 211,250 212,723 Six months to one year HK$’000 – – – 749 195,378 196,127	One to five years HK$’000 – – 60,168 997,239 1,057,407 One to five years HK$’000 – – – 62,080 1,271,102 1,333,182	Total Over undiscounted five years cash flows HK$’000 HK$’000 – 8,117 – 31,444 – 60,168 52,976 1,485,804 52,976 1,585,533 Total Over undiscounted five years cash flows HK$’000 HK$’000 – 5,146 – 22,905 – 455 10,666 73,495 – 1,650,782 10,666 1,752,783	Carrying amount at 31/12/2008 HK$’000 8,117 31,444 60,168 1,357,296
						1,457,025
						Carrying amount at 31/12/2007 HK$’000 5,146 22,905 455 73,495 1,417,370
						1,519,371

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

c. Fair value

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

• the fair value of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and

• the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using market rates from the observable current market transactions as input.

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

6. CAPITAL RISK MANAGEMENT

The Group’s objectives to manage its capital are to ensure that entities of the Group will be able to continue as a going concern while maximising the return to shareholders, to support the Group’s stability and growth, and to strengthening the Group’s financial management capability. The Group’s overall strategy remains unchanged from the prior year.

The capital structure of the Group consists of net debt, which includes borrowings disclosed in note 38 net of restricted bank deposits, pledged bank deposits, bank balances and cash, and total equity.

The Directors review the capital structure regularly and manage its capital structure to ensure an optimal capital structure and shareholders’ returns, taking into consideration the future capital requirements of the Group, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Directors monitor capital mainly using net debt to total equity ratio and current ratio. These ratios as at 31 December 2008 and 2007 were as follows:

Net debt_(1) Total equity(2) Net debt to total equity ratio(%) Current assets Current liabilities Current ratio (%)_	2008 HK$’000 1,092,373 871,174 125 860,257 539,223 160	2007 HK$’000 872,475 968,356
		90
		947,534 446,852
		212

The Directors considered that the Group maintained healthy capital as at 31 December 2008 as the Group had excess of current assets over current liabilities.

Notes:

(1) Net debt equals borrowings less restricted bank deposits, pledged bank deposits and bank balances and cash.

• (2) Total equity equals to all capital and reserves of the Group.

32

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. REVENUE

Revenue represents finance lease income, the amounts received and receivable for goods sold by the Group to outside customers (less sales related taxes, returns and trade discounts), films and television programme distribution income, CG creation and production services, revenue arising on training fee, property leasing and management fee income, royalty income from share of box office receipts, receipts from exhibition of digital motion pictures, technical service income and rental income from equipment leasing during the year.

An analysis of the Group’s revenue is as follows:

Finance lease income Sales of goods Films and television programme distribution income Revenue from contracts for CG creation and production Training fee Property leasing and management fee income Royalty income from share of box office receipts Receipts from exhibition of digital motion pictures Technical service income Rental income from equipment leasing	2008 HK$’000 128,467 51,984 52,832 42,542 14,420 6,702 5,518 3,024 2,652 40 308,181	2007 HK$’000 16,771 180,715 13,839 51,300 10,963 7,568 – – 3,131 16
		284,303

Included in revenue from sales of goods for the year ended 31 December 2007 is an amount of HK$132,912,000 (2008: Nil) in respect of goods sold in exchange for intangible asset.

33

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

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

Segment information about these divisions is presented below:

For the year ended 31 December 2008

REVENUE RESULT Unallocated corporate income Unallocated corporate expenses Finance costs Share of loss of an associate Loss before tax Income tax expense Loss for the year	Property leasing and building management services HK$’000 6,702 (10,883)	Digital content distribution and exhibitions HK$’000 60,194 (77,108)	CG creation and films and television programme production HK$’000 98,398 775	CG training courses HK$’000 14,420 2,510	Finance leasing HK$’000 128,467 20,369	Consolidated HK$’000 308,181
						(64,337) 5,751 (90,720) (6,046) (857)
						(156,209) (1,540)
						(157,749)

34

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2008

CG creation Property Digital and films leasing and content and building distribution television CG management and programme training Finance services exhibitions production courses leasing HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 BALANCE SHEET Assets Segment assets 146,225 374,957 51,629 4,267 1,577,527 Interests in associates Held-for-trading investments Unallocated corporat assets Consolidated total assets Liabilities Segment liabilities 4,906 32,253 43,742 4,864 1,282,509 Borrowings Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 2,154,605 21,856 85,668 156,170
	2,418,299
	1,368,274 171,199 7,652
	1,547,125

35

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the year ended 31 December 2008

			CG creation
	Property	Digital	and films
	leasing and	content	and
	building	distribution	television	CG
	management	and	programme	training	Finance
	services	exhibitions	production	courses	leasing	Corporate	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
OTHER INFORMATION
Capital additions	–	39,345	17,762	1,453	10	556	59,126
Other expense_(note 11)_	–	22,202	–	–	–	–	22,202
Depreciation of property, plant
and equipment	21	1,442	5,663	736	619	1,848	10,329
Allowance for bad and doubtful
debts	–	–	6,000	386	–	–	6,386
Allowance for inventories	–	1,031	–	–	–	–	1,031
Amortisation of intangible asset
(included in cost of sales)	–	28,491	–	–	–	–	28,491
Amortisation of prepaid lease
payments	–	–	125	–	–	36	161
Share-based payments
expenses_(note 46)_	–	–	–	–	–	10,869	10,869
Gain on disposal of
intangible asset	–	104	–	–	–	–	104
Impairment loss in respect
of goodwill	–	10,397	–	–	–	–	10,397
Loss on disposal of property,
plant and equipment	–	–	50	–	–	–	50
Decrease in fair value of
investment properties	15,960	–	–	–	–	–	15,960

36

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2007

REVENUE RESULT Unallocated corporate income Unallocated corporate expenses Finance costs Share of results of associates Discount on acquisition of additional interest in a subsidiary Gain on disposal and dilution of interests in subsidiaries Gain on disposal of interest in a jointly controlled entity Profit before tax Income tax expense Profit for the year	Property leasing and building management services HK$’000 7,568 37,464	Digital content distribution and exhibitions HK$’000 183,862 4,522	CG creation and films and television programme production HK$’000 65,139 15,967	CG training courses HK$’000 10,963 1,987	Finance leasing HK$’000 16,771 488	Consolidated HK$’000 284,303
						60,428 41,068 (93,941) (4,873) 7,255 1,342 375,680 61,039
						447,998 (6,785)
						441,213

37

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2007

CG creation Property Digital and films leasing and content and building distribution television CG management and programme training Finance services exhibitions production courses leasing HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 BALANCE SHEET Assets Segment assets 149,229 259,886 80,791 6,296 1,554,963 Interests in associates Amount due from an associate Held-for-trading investments Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 1,574 24,678 27,841 6,405 1,443,897 Borrowings Unallocated corporate liabilities Consolidated total liabilities	Consolidated HK$’000 2,051,165 424 1,053 29,846 483,903
	2,566,391
	1,504,395 78,822 14,818
	1,598,035

38

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the year ended 31 December 2007

			CG creation
	Property	Digital	and films
	leasing and	content	and
	building	distribution	television	CG
	management	and	programme	training	Finance
	services	exhibitions	production	courses	leasing	Corporate	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
OTHER INFORMATION
Capital additions	1,498	225,121	5,098	2,734	119	2,107	236,677
Depreciation of property,
plant and equipment	21	115	2,880	351	102	1,013	4,482
Allowance for bad and
doubtful debts	–	–	230	–	–	–	230
Amortisation of prepaid
lease payments	–	–	68	–	–	31	99
Share-based payments
expenses_(note 46)_	–	15,914	–	–	–	56,437	72,351
(Gain) loss on disposal of
property, plant and
equipment	–	(20)	–	–	–	139	119
Increase in fair value of
investment properties	31,130	–	–	–	–	–	31,130

(b) Geographical segments

The Group’s five business segments operate in four main geographical areas, namely the PRC, the United States, Europe and other regions. The head office of the Group is located in Hong Kong. The Group’s CG creation and films and television programme production centres, CG training facilities and finance leasing are located in the PRC. For property leasing and building management services, the business is mainly located in Hong Kong.

The following table provides an analysis of the Group’s revenue by geographical market, irrespective of the origin of the goods/services:

The PRC The United States Europe Other regions	2008 HK$’000 236,822 36,434 12,076 22,849 308,181	2007 HK$’000 173,837 68,073 12,962 29,431
		284,303

39

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following is an analysis of the carrying amount of segment assets, and capital additions, analysed by the geographical area in which the assets are located:

Carrying amount of segment assets 2008 2007 HK$’000 HK$’000 The PRC 1,734,051 1,109,322 Hong Kong 416,118 937,315 The United States 342 1,986 Singapore 4,094 2,501 Other regions – 41 Total 2,154,605 2,051,165 9. OTHER INCOME Interest income from loans and receivables Dividend income from held-for-trading investments Waiver of interest payable on other loan Waiver of rental payable to a landlord Others 10. FINANCE COSTS Interest on bank and other borrowings wholly repayable within five years Interest on bank and other borrowings not wholly repayable within five years Other finance costs		Capital additions 2008 2007 HK$’000 HK$’000 58,089 231,317 886 4,547 137 177 14 636 – – 59,126 236,677 2008 2007 HK$’000 HK$’000 5,190 14,084 3,118 144 – 4,156 – 3,228 3,727 1,757 12,035 23,369 2008 2007 HK$’000 HK$’000 5,047 4,858 335 – 664 15 6,046 4,873	Capital additions 2008 2007 HK$’000 HK$’000 58,089 231,317 886 4,547 137 177 14 636 – – 59,126 236,677 2008 2007 HK$’000 HK$’000 5,190 14,084 3,118 144 – 4,156 – 3,228 3,727 1,757 12,035 23,369 2008 2007 HK$’000 HK$’000 5,047 4,858 335 – 664 15 6,046 4,873	Capital additions 2008 2007 HK$’000 HK$’000 58,089 231,317 886 4,547 137 177 14 636 – – 59,126 236,677 2008 2007 HK$’000 HK$’000 5,190 14,084 3,118 144 – 4,156 – 3,228 3,727 1,757 12,035 23,369 2008 2007 HK$’000 HK$’000 5,047 4,858 335 – 664 15 6,046 4,873
				236,677
				2007 HK$’000 14,084 144 4,156 3,228 1,757
				23,369
				2007 HK$’000 4,858 – 15
				4,873

11. OTHER EXPENSE

Other expense for the year ended 31 December 2008 represents a one-off payment to China Film Group Corporation (“CFGC”), the majority shareholder of an associate of the Group, for the acquisition of certain of its film distribution rights in the PRC.

40

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. GAIN ON DISPOSAL AND DILUTION OF INTERESTS IN SUBSIDIARIES

The gain on disposal and dilution of interests in subsidiaries for the year ended 31 December 2007 of approximately HK$375,680,000 (2008: Nil) resulted from the following transactions:

• (i) During that year, Global Digital Creations Holdings Limited (“GDC”), a subsidiary of the Company with its shares listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange, issued in aggregate 378,000,000 new shares through one subscription and three top-up placing and subscriptions (“the GDC Top-up Placing Transactions”). In addition, the Group’s interest in GDC has been diluted upon exercise of GDC’s share options with the issue of approximately 62,426,000 new shares of GDC (“the GDC Dilution”), and the Group also disposed of approximately 44,106,000 shares of GDC (“the GDC Disposal Transaction”) during that year. An aggregate gain on the GDC Top-up Placing Transactions, the GDC Dilution and the GDC Disposal Transaction of approximately HK$335,550,000 has been recognised in the consolidated income statement with aggregate proceeds of approximately HK$508,667,000.

• (ii) A gain of approximately HK$40,295,000 arising from dilution of the GDC’s interest in GDC Technology Limited (“GDC Technology”), a subsidiary of the Company, from approximately 83.3% to 56.3% of the issued capital of GDC Technology upon the completion of a subscription of 52,383,580 shares of GDC Technology by a subscriber at a consideration of US$6.5 million (equivalent to approximately HK$50,570,000) in January 2007.

• (iii) A net loss of approximately HK$165,000 on further dilution of the Group’s interest in GDC Technology upon exercise of share options of GDC Technology during that year.

13. GAIN ON DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

On 1 December 2006, the Group entered into an agreement with China Beijing Shougang Hotel Development Company (“Shougang Hotel”), a wholly owned subsidiary of Shougang Corporation, and Strength Up Investments Limited (“Strength Up”), a wholly owned subsidiary of Shougang Holding, for the disposal of the Group’s 44% interest in 北京東直門國際公寓有限公司 Beijing Dongzhimen International Apartment Co. Ltd. (“Beijing Dongzhimen”) to Shougang Hotel and Strength Up for a consideration of RMB170,000,000 (the “Dongzhimen Disposal”). Beijing Dongzhimen was a sino-foreign equity joint venture which was established in the PRC and was principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas located in Dongcheng District, Beijing, the PRC. The Dongzhimen Disposal was approved by the independent shareholders of the Company in January 2007 and was completed in June 2007 upon receipt of approval from the relevant PRC authorities. Accordingly, a gain on disposal of interest in a jointly controlled entity of approximately HK$61,039,000 (2008: Nil) was recognised in the consolidated income statement for the year ended 31 December 2007.

41

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INCOME TAX EXPENSE

The income tax expense comprises: Current tax: Hong Kong Provision for the year Overprovision in prior year PRC Enterprise Income Tax (“EIT”) Provision for the year Overprovision in prior year Deferred taxation_(note 39)_: Current year	2008 HK$’000 63 (431) (368) 4,401 (2,246) 2,155 1,787 (247) 1,540	2007 HK$’000 1,479 – 1,479 5,352 – 5,352 6,831 (46) 6,785

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% (2007: 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.

On 16 March 2007, the PRC promulgated the Law of the PRC on EIT (the “New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of the New Law. Under the New Law and Implementation Regulation, the EIT rate of certain Group’s subsidiaries operating in the PRC was either reduced from 33% to 25% or was increased from 18% to 25% progressively from 1 January 2008 onwards. The relevant tax rates for the Group’s subsidiaries in the PRC ranged from 18% to 25% (2007: 15% to 33%).

In 2008, a PRC subsidiary was granted two years’ tax exemption for the financial years ended 2007 and 2008, a provision for PRC EIT of approximately HK$2,246,000 made in 2007 was therefore reversed in the consolidated income statement for the current financial year.

42

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The income tax expense for the year can be reconciled to the (loss) profit before tax in the consolidated income statement as follows:

(Loss) profit before tax Tax (credit) charge at PRC EIT rate of 25% (2007: Hong Kong Profits Tax rate of 17.5%) Tax effect on share of results of associates Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Overprovision in prior year Tax effect of deferred tax assets not recognised Tax effect of utilisation of deferred tax assets previously not recognised Tax effect of temporary differences arising from unrealised profits resulting from intra-group transactions not recognised Utilisation of temporary differences arising from unrealised profits resulting from intra-group transactions previously not recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of tax exemptions granted to a subsidiary in the PRC Decrease in opening deferred tax liabilities resulting from a decrease in applicable tax rate Others Income tax expense for the year	2008 HK$’000 (156,209) (39,052) 214 18,449 (920) (2,677) 15,951 (317) – (423) 13,205 (1,618) (66) (1,206) 1,540	2007 HK$’000 447,998 78,400 (1,270) 8,551 (76,762) – 4,578 (8,551) 2,961 – (898) – – (224) 6,785

43

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. (LOSS) PROFIT FOR THE YEAR

(Loss) profit for the year has been arrived at after charging: Staff costs, including Directors’ remuneration (note 16): – Salaries, wages and other benefits – Retirement benefit scheme contributions – Share-based payments Total staff costs Less: amounts included in production work in progress Allowance for bad and doubtful debts Allowance for inventories Amortisation of intangible asset (included in cost of sales) Amortisation of prepaid lease payments Auditor’s remuneration Cost of inventories recognised as an expense Depreciation of property, plant and equipment Less: amounts included in production work in progress government grants Impairment loss in respect of goodwill Loss on disposal of property, plant and equipment Minimum lease payments under operating leases for land and buildings Research and development costs and after crediting: Gain on disposal of intangible asset Gross rents from investment properties Less: outgoings	2008 HK$’000 94,028 2,905 10,869 107,802 (10,526) 97,276 6,386 1,031 28,491 161 3,433 35,574 10,329 (1,904) (568) 7,857 10,397 50 7,992 2,843 104 6,702 (580) 6,122	2007 HK$’000 76,697 1,814 72,351 150,862 (13,612) 137,250 230 – – 99 3,252 137,819 4,482 (2,049) – 2,433 – 119 6,008 4,432 – 7,568 (579) 6,989

44

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 9 (2007: 11) Directors were as follows:

2008

Wang Cao Chen Qinghai Zhong Zheng HK$’000 HK$’000 HK$’000 Fees 150 – – Other emoluments Salaries and other benefits – 1,950 1,560 Retirement benefit scheme contributions – 12 72 Share-based payments – 2,979 1,813 Total emoluments 150 4,941 3,445 2007 Wang Cao Chen Wang Qinghai Zhong Zheng Tian HK$’000 HK$’000 HK$’000 HK$’000 Fees 120 – – – Other emoluments Salaries and other benefits – 720 2,280 1,600 Retirement benefit scheme contributions – – 72 60 Share-based payments 1,810 1,810 1,810 1,448 Total emoluments 1,930 2,530 4,162 3,108	Wang Tian HK$’000 – 1,560 72 1,555 3,187 Cheng Xiaoyu HK$’000 – 800 37 1,448 2,285	Leung Shun Tam King Yip Kin Yuan Sang, Ching, Zhou Man, Wenxin Tony Kenny Jianhong Raymond HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 190 240 240 240 1,560 – – – – 72 – – – – 1,555 2,073 298 298 298 3,187 2,263 538 538 538 Leung Shun Tam King Yip Kin Yuan Sang, Ching, Zhou Man, Wenxin Tony Kenny Jianhong Raymond Liu Wei HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 120 150 150 143 10 1,600 – – – – – 60 – – – – – 1,448 1,810 181 181 181 181 3,108 1,930 331 331 324 191	Total HK$’000 1,060 6,630 228 10,869
			18,787
			Total HK$’000 693 7,000 229 12,308 20,230

No Director waived any emoluments in both years.

45

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(b) Employees’ Emoluments

Of the five individuals with the highest emoluments in the Group, four (2007: three) were the Directors whose emoluments are set out above. The emoluments of the remaining one (2007: two) individual were as follows:

Salaries and other benefits Contributions to retirement benefits schemes Share-based payments Their emoluments were within the following bands: Nil to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$3,000,001 to HK$13,500,000 HK$13,500,001 to HK$14,000,000 HK$14,000,001 to HK$21,500,000 HK$21,500,001 to HK$22,000,000 HK$22,000,001 to HK$24,000,000	2008 HK$’000 2,680 12 – 2,692 2008 No. of employees – 1 – – – – –	2007 HK$’000 3,680 16 31,967
		35,663
		2007 No. of employees – – – 1 – 1 –

17. (LOSS) EARNINGS PER SHARE

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

(Loss) earnings (Loss) earnings for the purposes of basic (loss) earnings per share ((loss) profit for the year attributable to equity holders of the Company) Effect of dilutive potential ordinary shares: – adjustment to the share of profits of subsidiaries based on dilution of their earnings per share (Loss) earnings for the purposes of 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: – share options Weighted average number of ordinary shares for the purpose of diluted (loss) earnings per share	2008 HK$’000 (119,446) – (119,446) ’000 1,151,206 – 1,151,206	2007 HK$’000 425,661 (740)
		424,921
		’000 1,144,518 36,267
		1,180,785

No diluted loss per share has been presented for the year ended 31 December 2008 as the exercise of the share options could result in a decrease in the loss per share.

46

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2007 Exchange realignment Additions Disposals Acquired on acquisition of subsidiaries Transfer from investment properties_(note 20)_ At 31 December 2007 Exchange realignment Additions Disposals At 31 December 2008 DEPRECIATION AND IMPAIRMENT At 1 January 2007 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2007 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2008 CARRYING VALUES At 31 December 2008 At 31 December 2007	Buildings HK$’000 1,043 – – – – 27,931 28,974 1,755 – – 30,729 295 2 122 – 419 12 694 – 1,125 29,604 28,555	Leasehold improvements HK$’000 2,304 1,583 3,511 – 41 – 7,439 1,641 1,825 (104) 10,801 2,152 1,637 353 – 4,142 1,543 1,572 (104) 7,153 3,648 3,297	Computer equipment HK$’000 14,751 1,314 6,144 (35) – – 22,174 1,415 10,134 (13,898) 19,825 10,636 1,049 2,233 (35) 13,883 1,038 5,593 (13,898) 6,616 13,209 8,291	Other fixed assets HK$’000 8,047 305 3,958 (428) 1,077 – 12,959 543 1,343 (278) 14,567 5,270 232 1,774 (289) 6,987 272 2,470 (228) 9,501 5,066 5,972	Construction in progress HK$’000 – – 1,519 – – – 1,519 96 7,368 – 8,983 – – – – – – – – – 8,983 1,519	Total HK$’000 26,145 3,202 15,132 (463) 1,118 27,931
						73,065 5,450 20,670 (14,280)
						84,905
						18,353 2,920 4,482 (324)
						25,431 2,865 10,329 (14,230)
						24,395
						60,510
						47,634

Depreciation is provided to write off the cost of items of property, plant and equipment other than the construction in progress 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:

Buildings Over the shorter of term of the lease or 50 years Leasehold improvements Over the shorter of term of the lease or 5 years Computer equipment 331/3% Other fixed assets 20% – 30%

At 31 December 2008, the Group has pledged buildings with a carrying value of approximately HK$29,604,000 (2007: HK$28,555,000) to secure general banking facilities granted to the Group.

47

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Long-term leasehold land in Hong Kong Medium-term leasehold land in the PRC Analysed for reporting purposes as: Current asset Non-current asset	2008 HK$’000 1,619 6,049 7,668 156 7,512 7,668	2007 HK$’000 1,650 5,727
		7,377
		147 7,230
		7,377

The Group has pledged leasehold land with a carrying value of approximately HK$1,619,000 (2007: HK$1,650,000) to secure general banking facilities granted to the Group.

20. INVESTMENT PROPERTIES

FAIR VALUE At 1 January 2007 Exchange realignment Net increase in fair value recognised in the consolidated income statement Transfer to property, plant and equipment (Note) At 31 December 2007 Net decrease in fair value recognised in the consolidated income statement At 31 December 2008	HK$’000 136,098 1,863 31,130 (27,931)
	141,160 (15,960)
	125,200

Note: During the year ended 31 December 2007, an investment property with a fair value of approximately HK$27,931,000 was transferred to property, plant and equipment. This property was leased by the Group to South China International Leasing Company Limited (“South China Leasing”) for that year. Upon the completion of acquisition of further 30% effective interest in South China Leasing during that year, South China Leasing became a subsidiary of the Company and this property was considered as used by the Group and was therefore transferred to property, plant and equipment. Upon the transfer, the investment property was valued by AA Property Services Limited. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.

The fair value of the Group’s investment properties at 31 December 2008 and 2007 have been arrived at on the basis of a valuation carried out on that date by AA Property Services Limited, an independent qualified professional valuer not connected with the Group. AA Property Services Limited is a registered firm of the Hong Kong Institute of Surveyors, and has appropriate qualifications and experiences. The valuation 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 are measured using the fair value model and are classified and accounted for as investment properties.

At 31 December, 2008, all of the Group’s investment properties are held under long leases with the lease terms of 52 to 126 years and investment properties with carrying amount of approximately HK$125,200,000 (2007: HK$141,160,000) have been pledged to banks to secure general banking facilities granted to the Group.

48

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. GOODWILL

COST At 1 January 2007 Transfer from interests in associates (note 24) Arising on acquisition of subsidiaries (note 42(a)) Arising on acquisition of additional interest in a subsidiary_(note 42(b))_ At 31 December 2007 and 2008 IMPAIRMENT At 1 January 2007 and 31 December 2007 Impairment loss recognised At 31 December 2008 CARRYING VALUE At 31 December 2008 At 31 December 2007	HK$’000 191,457 787 52,148 10,397
	254,789
	191,457 10,397
	201,854
	52,935
	63,332

Particulars regarding impairment testing on goodwill are disclosed in note 22.

22. IMPAIRMENT TESTING ON GOODWILL

As explained in note 8, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill set out in note 21 has been allocated to CGUs mainly represented by finance leasing division and digital content distribution and exhibitions division. The carrying amounts of goodwill allocated to these units are as follows:

goodwill allocated to these units are as follows:
Finance leasing – South China Leasing Digital content distribution and exhibitions – GDC	2008 HK$’000 52,935 – 52,935	2007 HK$’000 52,935 10,397
		63,332

The recoverable amount of the CGU arising from finance leasing division has been determined on the basis of value in use calculations. The recoverable amount is based on certain key assumptions. For the purpose of impairment testing, the value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, and discount rates of 9% (2007: 8%) for finance leasing division. Cash flow projections during the budget period for the CGUs are based on the expected revenue and gross margins during the budget period. Budgeted revenue and gross margins have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of the above CGU to exceed the recoverable amount of the above CGU.

As disclosed in note 48(b), the Group has entered into a conditional agreement with CFGC to dispose the intangible asset which represents the contractual rights to share a specific percentage of the box office receipts from certain cinemas in the PRC using the digital cinema equipment installed by the Group. Based on the terms of this disposal, the fair value less cost to sell in relation to this CGU is less than the carrying amount of the CGU as at year end. The management has therefore determined that goodwill associated with the Group’s digital content distribution and exhibitions division was impaired and impairment loss was recognised for the entire carrying amount of approximately HK$10,397,000 (2007: Nil).

49

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

23. INTANGIBLE ASSET

COST At 1 January 2007 Acquisition At 31 December 2007 Exchange realignment Acquisition Disposal At 31 December 2008 AMORTISATION At 1 January 2007 and 31 December 2007 Charge for the year Eliminated on disposal At 31 December 2008 CARRYING VALUE At 31 December 2008 At 31 December 2007	HK$’000 – 221,545 221,545 13,834 38,369 (1,250) 272,498 – 28,491 (104) 28,387 244,111 221,545

The intangible asset represents the contractual rights to share a specified percentage of the box office receipts from certain cinemas in the PRC using the digital cinema equipment installed by the Group for exhibition of digital contents. It has finite useful life and is amortised on a straight-line basis over the relevant contract up to 10 years.

On 9 January 2009, the Group conditionally agreed to dispose the intangible asset to CFGC for a consideration of RMB223,791,600 (equivalent to approximately HK$254,227,000). Details of which are set out in note 48(b).

50

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. INTERESTS IN ASSOCIATES

Cost of investment in unlisted associates Share of post-acquisition translation reserve Share of post-acquisition losses Less: Impairment loss recognised	2008 HK$’000 22,586 1,205 (1,155) (780) 21,856	2007 HK$’000 1,502 – (298) (780) 424

Details of the Group’s principal associates at 31 December 2008 and 2007 are as follows:

			Proportion of
		Place of	nominal of value
	Form of	incorporation/	issued share capital/	Proportion
	business	establishment	registered capital	of voting
Name of entity	structure	and operation	held by the Group	power held	Principal activities
Top Pearl International	Incorporated	BVI/The PRC	50%	50%	Property development
Development Ltd.
(“Top Pearl”)
中影首鋼環球數碼	Sino-foreign	The PRC/	49%	40%	Deployment of digital
數字影院建設（北京）	equity joint	The PRC		(Note)	cinema network and
有限公司	venture				related business
CFGDC Digital Cinema
Company Limited
(“CFGDC”)

Note: The Group holds 49% of the registered capital of CFGDC and holds 2 out of 5 votes (representing 40% of total votes) in the board of directors of CFGDC. Pursuant to the Articles of Association of CFGDC, over 50% vote is required to pass a resolution in relation to the financial and operating policies of CFGDC. The Directors consider the Group does not control CFGDC but the Group can exercise significant influence over CFGDC. Hence, CFGDC is classified as an associate of the Group.

51

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

Total assets Total liabilities Net assets The Group’s share of net assets of associates Goodwill (Note) Revenue (Loss) profit for the year The Group’s share of results of associates for the year Note: GOODWILL As at 1 January 2007 Transfer to goodwill (note 21)_upon acquisition of further interests in associates(Note)_ As at 31 December 2007 and 2008	2008 HK$’000 44,639 (35) 44,604 21,856 – 21,856 611 (1,749) (857)	2007 HK$’000 2,837 (1,972) 865 424 – 424 99,860 14,498 7,255 HK$’000 787 (787) –

Note: In November 2007, the Group acquired a further 50% equity interest in Jeckman Holdings Limited (“Jeckman”), which represented an effective acquisition of a further 30% equity interest in South China Leasing (the “Jeckman Acquisition”). Upon the completion of the Jeckman Acquisition, the Group’s equity interest of Jeckman increased from 50% to 100% and the Group’s effective equity interest in South China Leasing increased from 50% to 80%. Accordingly, Jeckman and South China Leasing became subsidiaries of the Company thereafter.

52

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

25. LOAN TO/AMOUNT DUE FROM AN ASSOCIATE

(a) Loan to Top Pearl

Loan to Top Pearl Due from Top Pearl Less: Allowance for bad and doubtful debt	2008 HK$’000 27,900 3,589 31,489 (31,489) –	2007 HK$’000 27,900 3,589
		31,489 (31,489)
		–

The loan to and due from Top Pearl as at 31 December 2008 and 2007 of approximately HK$31,489,000 are unsecured, interest-free and has no fixed terms of repayment. The Directors considered the whole amount of loan to and due from Top Peal was fully impaired at the balance sheet date.

(b) Amount due from an associate

The amount was unsecured, non-interest bearing and was fully settled during the year.

26. ADVANCES

Advances paid for: Agreement for a term loan facility and call options (note 48(a)) Agreements for acquisition of non-performing loans and interests_(note 48(c)) Agreement for acquisition of additional interest in a subsidiary (Note)_	2008 HK$’000 68,182 32,136 26,229 126,547	2007 HK$’000 – – –
		–

Note: On 20 August 2008, the Group entered into an agreement with the minority shareholder of South China Leasing pursuant to which the minority shareholder agreed to transfer its 20% equity interest in the registered capital of South China Leasing to the Group for a consideration of RMB31,755,150 (equivalent to approximately HK$36,085,000). This acquisition is subject to the approval by the authority in the PRC and South China Leasing having received its new business license. Details of this acquisition are set out in the circular of the Company dated 3 September 2008.

As at 31 December 2008, the amount of advance paid and direct transaction costs incurred in relation to the acquisition of the additional interest in a subsidiary amounted to approximately HK$26,229,000.

53

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. FINANCE LEASE RECEIVABLES

Minimum lease receipts 2008 2007 HK$’000 HK$’000 Finance lease receivables comprise: Within one year 543,315 453,221 In more than one year but not more than two years 530,174 445,482 In more than two years but not more than three years 209,746 465,960 In more than three years but not more than four years 115,246 162,768 In more than four years but not more than five years 33,278 77,156 More than five years 943 15,799 1,432,702 1,620,386 Less: Unearned finance income (142,394) (246,513) Present value of minimum lease receipts 1,290,308 1,373,873 Analysed as: Current finance lease receivables (receivable within 12 months) Non-current finance lease receivables (receivable after 12 months) Effective interest rates of the above finance lease receivables for the year are a Effective interest rates	Present value of minimum lease receipts 2008 2007 HK$’000 HK$’000 463,170 344,404 492,351 367,104 193,068 427,555 108,464 147,825 32,409 71,792 846 15,193 1,290,308 1,373,873 N/A N/A 1,290,308 1,373,873 463,170 344,404 827,138 1,029,469 1,290,308 1,373,873 s follows: 2008 2007 6% to 16% 6 % to 17%	Present value of minimum lease receipts 2008 2007 HK$’000 HK$’000 463,170 344,404 492,351 367,104 193,068 427,555 108,464 147,825 32,409 71,792 846 15,193 1,290,308 1,373,873 N/A N/A 1,290,308 1,373,873 463,170 344,404 827,138 1,029,469 1,290,308 1,373,873 s follows: 2008 2007 6% to 16% 6 % to 17%
		1,373,873 N/A
		1,373,873
		344,404 1,029,469
		1,373,873
		2007 6 % to 17%

54

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2008, finance lease receivables of approximately HK$1,258,941,000 (2007: HK$1,345,221,000) have been pledged against specific bank borrowings granted to the Group. As at 31 December 2008, finance lease receivables amounting to approximately HK$39,393,000 (2007: Nil) were past due but not impaired. The finance lease receivables past due but not impaired are all aged 90 to 180 days. The Directors considered that those receivables are with good credit quality according to their past repayment history. The Directors have assessed the estimated fair value of the leased assets of receivables which are past due but not impaired to determine whether adequate collateral has been held for these finance lease borrowers and considered that the estimated fair value of these leased assets held is in excess of the carrying amount of the receivables. The leased assets for those past due receivables mainly include machineries and vessels.

For the finance lease receivables which are neither past due nor impaired, the Directors assessed that the balances are with good credit quality according to their past repayment history.

Security deposits of approximately HK$60,168,000 (2007: HK$73,495,000) has been received by the Group to secure the finance lease receivables. In addition, the finance lease receivables are secured over the leased assets as at 31 December 2008. The Group is not permitted to sell or re-pledge the collateral in the absence of default by the lessee.

All the Group’s finance lease receivables are denominated in Renminbi, the functional currency of the relevant group entity.

28. ENTRUSTED LOAN RECEIVABLES

During the year, two of the PRC subsidiaries of the Company entered into entrusted loan arrangements with banks, in which the subsidiaries acted as the entrusting parties and the banks acted as the lenders to provide funding to specified borrowers. Details of the entrusted loan receivables are as follows:

Entrusted loan receivables comprise: Within one year In more than one year but not more than two years In more than two years but not more than three years Less: Amounts due within one year shown under current assets Amounts due after one year	2008 HK$’000 26,879 25,272 227 52,378 (26,879) 25,499	2007 HK$’000 – – –
		– –
		–

55

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2008, the exposure of the Group’s fixed-rate receivables and the contractual maturity dates are as follows:

Fixed-rate receivables which are due: Within one year In more than one year but not more than two years In more than two years but not more than three years	2008 HK$’000 26,879 2,545 227 29,651	2007 HK$’000 – – –
		–

As at 31 December 2008, the Group’s variable-rate receivable amounted to approximately HK$22,727,000 (2007: Nil) which is due in more than one year but not more than two years.

The ranges of effective interest rates (which are equal to contractual interest rates) on the Group’s entrusted loan receivables are as follows:

	2008	2007
Effective interest rate:
Fixed-rate receivables	13% to 15%	–
Variable-rate receivable	PBC Rate up by a	–
	premium of 5%

For the year ended 31 December 2008, no entrusted loan receivables have been past due but not impaired. The Directors considered that the entrusted loan borrowers have good credit quality according to their past repayment history.

All the Group’s entrusted loan receivables are denominated in Renminbi, the functional currency of the relevant group entities. During the year, the Group entered into an entrusted loan agreement with a finance lease borrower amounting to approximately HK$23,987,000.

The entrusted loan receivables are mainly secured by properties and vessels pledged by the specified borrowers or their related parties. The Group is not permitted to sell or re-pledge the collateral in the absence of default by the entrusted loan borrower.

29. INVENTORIES

Raw materials Finished goods	2008 HK$’000 6,345 15,559 21,904	2007 HK$’000 4,395 21,386
		25,781

56

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

30. PRODUCTION WORK IN PROGRESS

	2008	2007
	HK$’000	HK$’000
Movie and television series	3,875	11,094

31. AMOUNTS DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK

The following is details of contracts from CG production in progress at the balance sheet date:

Contract costs incurred plus recognised profits less recognised losses Less: progress billings Analysed for reporting purposes as: Amounts due from customers for contract work Amounts due to customers for contract work 32. TRADE RECEIVABLES Trade receivables Less: Allowance for doubtful debts	2008 HK$’000 28,574 (13,402) 15,172 16,935 (1,763) 15,172 2008 HK$’000 26,910 (6,386) 20,524	2007 HK$’000 19,137 (19,083)
		54
		1,494 (1,440)
		54
		2007 HK$’000 19,273 (230)
		19,043

The Group allows an average credit period of 90 days to its trade customers. The following is an aged analysis of the trade receivables, net of allowance for doubtful debts, at the balance sheet date:

0 – 90 days 91 – 180 days Over 180 days	2008 HK$’000 8,302 8,527 3,695 20,524	2007 HK$’000 17,179 1,053 811
		19,043

57

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Included in the Group’s trade receivable balances are debtors with an aggregate carrying amount of approximately HK$12,222,000 (2007: HK$1,864,000) which are past due at the reporting date for which the Group has not provided for impairment loss. The Directors assessed that the balances will be recovered as these receivables have good credit quality according to their past repayment history. The Group does not hold any collateral over these balances.

The following is an aged analysis of trade receivables which are past due but not impaired:

91 – 180 days 181 – 270 days 271 – 360 days Over 360 days Total Movement in the allowance for doubtful debts Balance at beginning of the year Allowance for impairment losses Amounts written off as uncollectible Amounts recovered during the year Balance at end of the year	2008 HK$’000 8,527 1,446 2,046 203 12,222 2008 HK$’000 230 6,386 – (230) 6,386	2007 HK$’000 1,053 – 306 505
		1,864
		2007 HK$’000 1,660 230 (1,660) –
		230

Included in the allowance for doubtful debts as at 31 December 2008 and 2007 were individually impaired trade receivables with an aggregate balance of approximately HK$6,386,000 and HK$230,000, respectively, in respect of which the customers were not fully satisfied with the quality of products provided by CG creation and films and television programme production division and services provided by CG training division and the amount was considered uncollectible.

33. OTHER FINANCIAL ASSETS

Prepayments, deposits and other receivables

Prepayments, deposits and other receivables
Other receivables Prepayments Deposits	2008 HK$’000 17,347 3,336 2,274 22,957	2007 HK$’000 33,611 2,268 6,380
		42,259

58

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other receivables as at 31 December 2007 mainly represented a temporary payment of approximately HK$24,600,000 (2008: Nil) to a third party for a potential project of which a minority shareholder of a subsidiary agreed to pledge its equity interest in the subsidiary as security of the settlement and handling fee receivable from the finance lease borrower. The temporary payment has been repaid by the third party during the year ended 31 December 2008.

The Group does not hold any collateral over these balances except for the temporary payment mentioned above.

Restricted bank deposits

The amounts as at 31 December 2008 and 2007 represented bank deposits restricted and the restricted bank deposits will be released upon the full settlement of the relevant bank borrowings. Therefore, they are classified as noncurrent assets.

The deposits carried at average interest rate at 3.60% (2007: 8.64%) per annum.

Pledged bank deposits

As at 31 December 2008, pledged bank deposits represent deposits of approximately HK$2,808,000 (2007: HK$7,800,000) and HK$665,000 (2007: Nil) pledged to banks to secure a purchase of raw materials agreement (classified as current asset) and a construction agreement (classified as non-current asset), respectively, entered into with independent third parties. The pledged bank deposits will be released upon the settlement of the relevant agreements.

As at 31 December 2007, a bank deposit of approximately HK$1,052,000 (2008: Nil) was restricted for the repayment of short-term bank borrowing. This deposit was released during the year ended 31 December 2008 upon full settlement of the relevant bank borrowing.

As at 31 December 2008, the deposits carried interest rate from 0.1% to 3.22% per annum (2007: 3.75% per annum).

Bank balances and cash

The Group’s deposits carry interest rate at prevailing bank saving deposits rate ranging from 0.18% to 1.69% (2007: 1.34% to 4.65%) per annum.

34. HELD-FOR-TRADING INVESTMENTS

Held-for-trading investments as at 31 December 2008 and 2007 represented equity securities as follows:

Listed in the PRC Listed in Hong Kong_(note 49(a))_	2008 HK$’000 73,588 12,080 85,668	2007 HK$’000 8,864 20,982
		29,846

The fair values of the held-for-trading investments were determined based on the quoted market bid prices available on the relevant exchanges.

59

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. TRADE PAYABLES

The following is an aged analysis of trade payables at the balance sheet date:

0 – 90 days 91 – 180 days Over 180 days	2008 HK$’000 6,568 76 1,473 8,117	2007 HK$’000 4,802 344 –
		5,146

36. INCOME RECEIVED IN ADVANCE

As at 31 December 2008 and 2007, the income received in advance represented handling fee income received from finance lease borrowers for administrative services provided over the relevant lease term, deposits received in advance before sales of goods are completed, training fee income received in advance before the training courses are completed and production and distribution income of films and television programme received before completion of production and distribution of films and television programme to the customers.

Analysed for reporting purposes: Current Non-current 37. AMOUNT DUE TO A RELATED PARTY Mr. Raymond Dennis Neoh_(Note)_	2008 HK$’000 38,108 16,393 54,501 2008 HK$’000 –	2007 HK$’000 23,361 21,245
		44,606
		2007 HK$’000 455

Note: As at 31 December 2007, the amount due to Mr. Raymond Dennis Neoh was unsecured, non-interest bearing and was stated at amortised cost at effective interest rate of 9.8%. The amount was fully settled during the year ended 31 December 2008.

60

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

38. BORROWINGS

2008 HK$’000 Bank loans 1,357,296 Other loans – 1,357,296 Secured 1,357,296 Unsecured – 1,357,296 Carrying amount repayable: On demand or within one year 427,048 More than one year, but not exceeding two years 568,735 More than two years, but not exceeding three years 181,320 More than three years, but not exceeding four years 100,915 More than four years, but not exceeding five years 33,454 More than five years 45,824 1,357,296 Less: Amounts due within one year shown under current liabilities (427,048) Amounts due after one year 930,248 The Group’s fixed-rate borrowings and the contractual maturity dates are as follows: 2008 HK$’000 Fixed-rate borrowings which are due within one year – Bank loan – – Other loans –

2007 HK$’000 1,412,688 4,682 1,417,370 1,412,688 4,682 1,417,370 362,267 390,048 436,334 147,004 81,717 – 1,417,370 (362,267) 1,055,103 2007 HK$’000 13,898 4,682

61

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s variable-rate borrowings and the contractual maturity dates are as follows:

Variable-rate borrowings which are due: Within one year More than one year, but not exceeding two years More than two years, but not exceeding three years More than three years, but not exceeding four years More than four years, but not exceeding five years More than five years	2008 HK$’000 427,048 568,735 181,320 100,915 33,454 45,824 1,357,296	2007 HK$’000 343,687 390,048 436,334 147,004 81,717 –
		1,398,790

The ranges of effective interest rates (which are equal to contractual interest rates) on the Group’s borrowings are as follows:

	2008	2007
Effective interest rate:
Fixed-rate borrowings
– Bank loan	–	6.73%
– Other loans	–	12%
Variable-rate borrowings
– Bank loans	(Note)	(Note)

Note: The interest rate in the Group’s bank borrowing varies from different subsidiaries. The interest rate varies from prime rate minus 2.25%, HIBOR plus 1% to 1.375% and variable PBC rate up by a premium ranged from approximately 6% to 9% (2007: HIBOR plus 1% to 1.375% and variable PBC rate up by a premium ranged from approximately 6% to 9%). The proceeds were used as general working capital for the Group.

62

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. DEFERRED TAX LIABILITIES

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

Deferred tax liabilities Deferred tax assets	2008 HK$’000 10,148 (9,055) 1,093	2007 HK$’000 10,335 (8,995) 1,340

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

At 1 January 2007 Charge (credit) to the consolidated income statement At 31 December 2007 Credit to the consolidated income statement Effect of change in tax rate At 31 December 2008	Investment properties HK$’000 4,751 5,448 10,199 (120) (59) 10,020	Accelerated tax depreciation HK$’000 135 1 136 (8) – 128	Tax losses HK$’000 (3,500) (5,495) (8,995) (53) (7) (9,055)	Total HK$’000 1,386 (46) 1,340 (181) (66) 1,093

At the balance sheet date, the Group has unused tax losses of approximately HK$181,450,000 (2007: HK$115,434,000) available for offset against future profits subject to approval from the relevant tax authority. A deferred tax asset has been recognised in respect of approximately HK$54,878,000 (2007: HK$51,400,000) of such losses. No deferred tax asset has been recognised in respect of the remaining HK$126,572,000 (2007: HK$64,034,000) due to the unpredictability of future profit streams.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$32,716,000 (2007: HK$32,716,000) attributable to the difference between tax allowances and depreciation. No deferred tax asset has been recognised in relation to such deductible temporary differences as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Under the New Law of the PRC, withholding tax is imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. Deferred taxation has not been provided for in the consolidated financial statements in respect of temporary difference attributable to the profits earned by the PRC subsidiaries amounting to approximately HK$27 million as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

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40. SHARE CAPITAL

SHARE CAPITAL
Ordinary shares of HK$0.01 each Authorised: At 1 January and 31 December Issued and fully paid: At 1 January Exercise of share options_(Note)_ At 31 December	2008 Number Nominal of shares value HK$’000 2,000,000,000 20,000 1,150,392,469 11,504 1,000,000 10 1,151,392,469 11,514	2007
	Number of shares 2,000,000,000 1,150,392,469 1,000,000 1,151,392,469	Number of shares 2,000,000,000 1,136,856,469 13,536,000 1,150,392,469	Nominal value HK$’000 20,000
			11,369 135
			11,504

Note: During the year, share option holders exercised their right to subscribe for 1,000,000 (2007: 13,536,000) ordinary shares of the Company at HK$0.41 per share.

41. CAPITAL COMMITMENTS

Capital expenditure contracted for but not provided in the consolidated financial statements in respect of: Acquisition of property, plant and equipment and intangible asset Investment in an associate	2008 HK$’000 8,350 – 8,350	2007 HK$’000 2,928 20,954
		23,882

In addition, as disclosed in note 26, the Group entered into an agreement with the minority shareholder of South China Leasing to acquire the remaining 20% equity interest in the registered capital of South China Leasing, which will give rise to a future payment of approximately HK$9,856,000 (2007: Nil) subsequent to the approval by the authority in PRC and South China Leasing having received its new business licence.

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42. ACQUISITION OF SUBSIDIARIES/ADDITIONAL INTERESTS IN SUBSIDIARIES

• (a) On 14 August 2007, the Group signed an agreement to acquire a further 50% equity interest in Jeckman and the assignment of the HK$22.8 million shareholder’s loan to Jeckman for a total consideration of HK$52 million (the “Jeckman Acquisition”). The Jeckman Acquisition was completed on 2 November 2007, the Group’s effective interest in Jeckman increased from 50% to 100% and the effective interest in South China Leasing increased from 50% to 80%. Details of which are set out in the Company’s circular dated 11 October 2007.

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

Net assets acquired: Property, plant and equipment Finance lease license Held-for-trading investments Finance lease receivables Restricted bank deposits Other receivables Bank balances and cash Borrowings Trade and other payable Income received in advance Shareholder’s loan Amounts due to group companies Security deposits received Interests in associates Minority interests Goodwill_(note 21)_ Assignment of shareholder’s loan Total consideration satisfied by: Cash Net cash inflow arising on acquisition: Cash consideration paid Bank balances and cash acquired	Acquiree’s carrying amount before combination HK$’000 1,118 20,149 5,598 1,370,413 70,522 26,149 94,447 (1,320,561) (12,313) (28,185) (22,800) (66,226) (69,947) 68,364	Fair value adjustments HK$’000 – (20,149) – – – – – – – – – – – (20,149)	Fair value HK$’000 1,118 – 5,598 1,370,413 70,522 26,149 94,447 (1,320,561) (12,313) (28,185) (22,800) (66,226) (69,947) 48,215 (43,555) (27,608) 52,148 22,800 52,000 52,000 (52,000) 94,447 42,447

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South China Leasing contributed a loss of approximately HK$1.1 million to the Group for the period between the date of acquisition and 31 December 2007.

Had the acquisition been completed on 1 January 2007, total group revenue for the year ended 31 December 2007 would have been increased by approximately HK$100 million and profit for that year would have been increased by approximately HK$7 million. The pro forma information was for illustrative purposes only and was not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2007, nor was it intended to be a projection of future results.

The fair value of certain assets of South China Leasing acquired had been determined based on a valuation report by an independent professional valuer.

• (b) On 16 March 2007, Upper Nice Assets Ltd. (“Upper Nice”), a wholly owned subsidiary of the Company, and GDC entered into a subscription agreement, pursuant to which Upper Nice conditionally agreed to subscribe for 100,000,000 new shares of GDC at HK$0.54 per share. The subscription was approved by independent shareholders of GDC at the special general meeting held on 23 April 2007. Accordingly, goodwill of approximately HK$10,397,000 arose during the year ended 31 December 2007.

• (c) On 14 August 2007, GDC Holdings Limited (“GDC Holdings”), a subsidiary of the Company, entered into a subscription agreement with GDC Technology, pursuant to which GDC Holdings conditionally agreed to subscribe for 53,388,178 new shares of GDC Technology at HK$2 per share (the “GDC Tech Subscription”) at a consideration of approximately HK$106,776,000. The GDC Tech Subscription was completed on 2 November 2007 and GDC Holdings’ equity interest in GDC Technology increased from approximately 51.1% to 62.4% thereafter.

The Group appointed Messrs. Greater China Appraisal Limited, an independent qualified professional valuer not connected with the Group, to assist the Group to ascertain the fair value of the net assets of GDC Technology in relation to the acquisition of additional interest in GDC Technology at the date of completion of the GDC Tech Subscription. Intangible assets mainly including customer orders and technology, had been identified with aggregate amount of fair value of approximately HK$410 million in accordance with the income approach and replacement cost approach while the fair value of other assets and liabilities of GDC Technology at that time did not differ significantly from their respectively carrying amounts.

Accordingly, a discount on the acquisition of the additional interest in GDC Technology of approximately HK$1,342,000 arose, which represented the excess of the Group’s additional interest in the fair values of the net assets of GDC Technology over the cost of the GDC Tech Subscription at the date of completion of the GDC Tech Subscription. In addition, it resulted in a special reserve in the amount of approximately HK$23,496,000 attributable to the equity holders of the Company which represented the difference between the fair value and the carrying amount of the net assets of GDC Technology attributable to the additional interest in GDC Technology being acquired.

43. MAJOR NON CASH TRANSACTION

During the year ended 31 December 2007, the Group had goods sold in exchange for intangible asset in the amount of HK$132,912,000 (2008: Nil).

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44. LITIGATIONS

• (i) On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), a subsidiary of the Company, entered into a co-production agreement (the “Co-production Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“P&PM”) in relation to an animated television series.

In about November 2004, P&PM and WAMC commenced proceedings against GDC Entertainment in the Court of Commerce of Angouleme (France) alleging breaches on the part of GDC Entertainment of the Coproduction Agreement.

In relation to the French proceedings, the Group’s French legal advisers had advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/ or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. Award of the arbitrator was published on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with the arbitration.

The Directors are of the opinions that settlement of the claim is remote. Accordingly, no provision for any potential liability has been made in the consolidated financial statements.

Effective from 1 May 2008, GDC Entertainment has been struck off but can be restored at any time up to ten years after the strike off date.

• (ii) In April 2008, a former employee of the Company filed a claim to the District Court of Hong Kong (the “District Court”) against the Company for an alleged disability discrimination to him and claimed for a compensation of approximately HK$6,659,000. In May 2008, the Company filed a defence to the District Court.

The legal advisor of the Company to the above District Court’s case advised that the Company has an arguable defence to his claim and the Directors are of the opinion that settlement of the claim is remote, therefore no provision for any potential liability has been made in the consolidated financial statements.

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45. OPERATING LEASES

The Group as lessor

Property rental income earned during the year was approximately HK$6,702,000 (2007: HK$7,568,000). All of the properties held have committed tenants for the next one to two 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 years inclusive	2008 HK$’000 4,308 1,901 6,209	2007 HK$’000 2,546 276
		2,822

The Group as lessee

Minimum lease payments paid under operating lease in respect of office premises during the year was approximately HK$7,992,000 (2007: HK$6,008,000).

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

Within one year In the second to fifth years inclusive Over five years	2008 HK$’000 9,407 8,093 2,754 20,254	2007 HK$’000 9,268 8,244 3,289
		20,801

Operating lease payments represent rentals payable by the Group for certain of its office premises, production studios, training centres, warehouse and staff quarters. Leases for properties are negotiated for a term ranging from one to ten years with fixed rentals.

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APPENDIX I

46. SHARE OPTIONS SCHEMES

a. Share Option Scheme of the Company

The Company operates the share option scheme (the “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 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 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 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. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month 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 Scheme at any time within 10 years from the date of the options granted. All options granted would vest immediately on the date of grant of options.

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’ meetings.

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The following table discloses the details of the share options and movements in such holdings during the years ended 31 December 2008 and 2007:

For the year ended 31 December 2008

Exercise Category of price grantees Date of grant Exercise period per share Directors 23.8.2002 23.8.2002 – 6.6.2012 HK$0.73 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 22.1.2008 22.1.2008 – 21.1.2018 HK$0.724 Employees 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 22.1.2008 1.7.2008 – 30.6.2018 HK$0.724 Exercisable at the end of the year Weighted average exercise price(HK$)		Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2008 75 604 63,068,000 – 1,330,000 8,200,000 – 72,598,679 0.42	Granted during the year – – – 41,950,000 – – 40,000,000 81,950,000 0.724	Exercised during the year – – – – – (1,000,000) – (1,000,000) 0.41	Lapsed during the year (Note (a)) – – – – – – (40,000,000) (40,000,000) 0.724	Balance as at 31.12.2008 75 604 63,068,000 41,950,000 1,330,000 7,200,000 –
					113,548,679
					113,548,679
					0.53

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For the year ended 31 December 2007

Exercise Category of price grantees Date of grant Exercise period per share Directors 23.8.2002 23.8.2002 – 6.6.2012 HK$0.73 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 Employees 6.3.2003 6.3.2003 – 5.3.2013 HK$0.76 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 Other 19.1.2007 19.1.2007 – 18.1.2017 HK$0.41 participants (Note (c)) Exercisable at the end of the year Weighted average exercise price(HK$) Notes:			Number of share options	Number of share options
	Balance as at 1.1.2007 75 604 – 1,330,000 – – 1,330,679 0.76	Granted during the year – – 77,298,000 – 15,200,000 1,400,000 93,898,000 0.41	Transfer during the year (Note (b)) – – (1,136,000) – – 1,136,000 – 0.41	Exercised during the year – – (4,000,000) – (7,000,000) (2,536,000) (13,536,000) 0.41	Lapsed during the year – – (9,094,000) – – – (9,094,000) 0.41		Balance as at 31.12.2007 75 604 63,068,000 1,330,000 8,200,000 –
							72,598,679
					0.41		72,598,679
							0.42

(a) Such share options were granted to four grantees, who are employees of the Group, with the exercise period for 10 years commencing from 1 July 2008 at an exercise price of HK$0.724 per share, subject to a condition that the grantees shall procure that the Company and/or its subsidiaries successfully obtain bank financing of HK$100 million before 1 July 2008 (the “Condition”). As the Condition for each of the grantees was not satisfied, the 40,000,000 options lapsed on 1 July 2008 accordingly.

• (b) Transfer of share options upon resignation of a Director during that year.

(c) Other participants include persons who will or have contributed to the Company or any subsidiaries or any associated companies of the Company.

No consideration received from employees for taking up the options granted for both years.

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The closing price of the Company’s shares on 22 January 2008 and 19 January 2007, the grant date of the 41,950,000 options and 93,898,000 options, was HK$0.68 per share and HK$0.41 per share, respectively. The fair value of the share options determined at the date of grant using the Binomial Option Valuation pricing model was approximately HK$10,869,000 and HK$14,949,000, respectively.

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

	22 January 2008	19 January 2007
Grant date share price	HK$0.68	HK$0.41
Exercise price	HK$0.724	HK$0.41
Option life	10 years	10 years
Expected volatility	60%	56%
Dividend yield	Nil	Nil
Risk-free interest rate	2.78%	4.04%

Expected volatility of the Company was determined by using the historical volatility of the Company’s weekly average share prices over the past two years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

Share-based compensation expenses in respect of grant of the share options by the Company of approximately HK$10,869,000 for the year ended 31 December 2008 (2007: HK$14,949,000) was included in administrative expenses.

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

b. Share option schemes of GDC (the “GDC Scheme”) and GDC Technology (the “GDC Technology Scheme”)

The GDC Scheme was adopted pursuant to a resolution passed at a special general meeting of GDC held on 18 July 2003 for the primary purpose of providing incentives or rewards to selected participants for their contribution to GDC and its subsidiaries. The GDC Scheme will expire on 4 August 2013.

An option may be exercised at any time during the period to be determined and notified by the directors of GDC to the grantee but may not be exercised after the expiry of ten years from the date of offer of that opinion. Option is fully vested at the date of grant and a consideration of HK$1 is payable upon acceptance of the offer.

The exercise price is determined by the directors of GDC, and will not be less than the higher of the nominal value of the share on the date of offer, the closing price of GDC’s shares on the date of offer; and the average closing price of the shares for the five business days immediately preceding the date of offer.

The GDC Technology Scheme was adopted pursuant to a resolution passed at a special general meeting of GDC held on 19 September 2006 for the primary purpose of providing incentives or rewards to eligible participants for their contribution to GDC Technology, its subsidiaries and its holding companies (including intermediate and ultimate holding companies). The GDC Technology Share Scheme will remain in force for a period of 10 years to 18 September 2016.

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Details of the GDC Scheme and the GDC Technology Scheme are disclosed in the section headed “Share Option Schemes” in the Report of the Directors.

During the year ended 31 December 2007, 48,300,000 options (2008: Nil) and 19,095,000 options (2008: Nil) had been granted under the GDC Scheme and the GDC Technology Scheme to the directors, employees and other participants of GDC, respectively. All options granted would vest immediately on the date of grant of options.

The following table sets out the movements in the share options of GDC during the year ended 31 December 2008:

Exercise Category Date of price of grantees grant Exercise period per share Directors of 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 GDC 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Employees 22.3.2007 22.3.2007 – 21.3.2010 HK$1.07 of GDC 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Other 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 participants 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 (Note) 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Totals Weighted average exercise price(HK$)		Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2008 8,809,020 28,170,000 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000 – 55,722,840 2.09	Transferred to other category during the year (800,820) (490,000) – – – – – – (1,290,820) 1.23	Transferred from other category during the year – – – – – 800,820 – 490,000 1,290,820 1.23	Lapsed during the year – – – – – (800,820) – (490,000) (1,290,820) 1.23	Balance as at 31.12.2008 8,008,200 27,680,000 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000 –
					54,432,020
					2.11

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The following table sets out the movements in the share options of GDC Technology during the year ended 31 December 2008:

Category Date of Exercise price of grantees grant Exercise period per share Directors of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Employees of GDC 5.10.2006 5.10.2006 – 4.10.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Other participants 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 (Note) Totals Weighted average exercise price (HK$)	Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2008 3,333 17,445,000 4,563,332 1,650,000 1,173,333 24,834,998 1.57	Lapsed during the year – (165,000) (650,000) – (320,000) (1,135,000) 0.41	Balance as at 31.12.2008 3,333 17,280,000 3,913,332 1,650,000 853,333
			23,699,998
			1.63

Note: Other participants mainly represent employees of the Group.

The following table sets out the movements in the share options of GDC during the year ended 31 December 2007:

Category Date of Exercise price of grantees grant Exercise period per share Directors of GDC 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Employees of GDC 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 22.3.2007 22.3.2007 – 21.3.2010 HK$1.07 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 30.10.2007 30.10.2007 – 29.10.2012 HK$2.75 Other participants 6.10.2006 6.10.2006 – 5.10.2009 HK$0.30 (Note) 4.4.2007 4.4.2007 – 3.4.2010 HK$1.52 Totals Weighted average exercise price (HK$)	Balance as at 1.1.2007 42,443,460 – 14,200,000 – – – 13,204,920 – 69,848,380 0.30	Number of share options	Number of share options
		Granted during the year – 28,170,000 – 3,000,000 2,890,000 9,900,000 – 4,340,000 48,300,000 2.46	Exercised during the year (33,634,440) – (14,200,000) (700,000) (628,000) – (10,704,100) (2,559,000) (62,425,540) 0.37	Balance as at 31.12.2007 8,809,020 28,170,000 – 2,300,000 2,262,000 9,900,000 2,500,820 1,781,000
				55,722,840
				2.09

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The following table sets out the movements in the share options of GDC Technology during the year ended 31 December 2007:

Category Date of Exercise price of grantees grant Exercise period per share Directors of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Employees of GDC 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 5.10.2006 5.10.2006 – 4.10.2009 HK$0.145 2.11.2007 2.11.2007 – 1.11.2012 HK$2.00 Other participants 29.9.2006 29.9.2006 – 28.9.2009 HK$0.145 (Note) Totals Weighted average exercise price(HK$)		Number of share options	Number of share options	Number of share options
	Balance as at 1.1.2007 10,563,334 – 7,466,666 5,313,332 – 1,173,333 24,516,665 0.145	Granted during the year – 17,445,000 – – 1,650,000 – 19,095,000 2.00	Exercised during the year (10,560,001) – (7,466,666) – – – (18,026,667) 0.145	Lapsed during the year – – – (750,000) – – (750,000) 0.145	Balance as at 31.12.2007 3,333 17,445,000 – 4,563,332 1,650,000 1,173,333
					24,834,998
					1.57

Note: Other participants mainly represent employees of the Group.

The fair value per option of approximately HK$0.58, HK$0.86, HK$0.88 and HK$0.83 for options granted on 22 March 2007, 4 April 2007, 30 October 2007 and 2 November 2007, respectively, were calculated using the Binomial Option Valuation pricing model. The inputs into the model were as follows:

Weighted average share price Exercise price Option life Expected volatility Dividend yield Risk-free rate	GDC Share option atgrant date 22 March 4 April 30 October 2007 2007 2007 HK$1.07 HK$1.52 HK$2.70 HK$1.07 HK$1.52 HK$2.75 3 years 3 years 5 years 89% 97% 68% Nil Nil Nil 3.88% 3.89% 3.49%	GDC Technology
		Share option at grant date
		2 November 2007 HK$2.00 HK$2.00 5 years 51% Nil 3.34%

Expected volatility of GDC and GDC Technology were determined by using the historical volatility of GDC’s share price and the share price of other companies in similar industries, respectively. The expected lives used in the model have been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

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Total expenses of approximately HK$57,402,000 (2008: Nil) were recognised by the Group for the year ended 31 December 2007 in relation to share options granted by GDC and GDC Technology.

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

47. RETIREMENT BENEFIT SCHEMES

The Group contributes to defined contribution retirement schemes which are available to all employees in Hong Kong and Singapore. The assets of the schemes are held separately from those of the Group in independently administered funds.

Pursuant to the relevant regulations of the government in the PRC, the subsidiaries in the PRC participate in the municipal government contribution scheme whereby the subsidiaries are required to contribute to the scheme for the retirement benefit of eligible employees. The municipal government is responsible for the entire benefit obligations payable to the retired employees. The only obligation of the Group with respect to the scheme is to pay the ongoing contributions required by the scheme.

The retirement benefit costs represent gross contributions paid and payable by the Group to the schemes operated in Hong Kong, the PRC and Singapore (collectively the “Retirement Schemes”). Contributions totalling approximately HK$105,000 (2007: HK$151,000) payable to the Retirement Schemes at 31 December 2008 are included in other payables and accruals. There was no forfeited contribution throughout two consecutive years.

48. POST BALANCE SHEET EVENTS

Subsequent to 31 December 2008, the Group has entered into the following four transactions:

• (a) On 23 December 2008, GDC Holdings entered into a conditional agreement with Southern International Limited (the “Borrower”), a company incorporated in Hong Kong with limited liability, and Keen Front Group Limited, the holding company of the Borrower which is incorporated in the British Virgin Islands, whereby:

• (i) GDC Holdings agreed to, and/or procure its designated companies to, make available to the Borrower and/or its designated companies a loan facility in the maximum principal amount of RMB100,000,000 (equivalent to approximately HK$113,600,000) for the purposes of satisfying the obligations of 廣州市影逸廣告有限公司 (“Guangzhou Yingyi”), a company established under the laws of the PRC and is indirectly owned as to 80% by the Borrower, under the agreement entered into between Guangzhou Yingyi and 廣東珠江電影文化發展有限公司 in December 2008, pursuant to which Guangzhou Yingyi will be the sole advertising agent for the television channel of Guangdong Television Station for a 20-year period commencing from 1 July 2009 and as working capital of Guangzhou Yingyi. The loan, which carries interest at 6% per annum and matures on 30 June 2012, is secured by a charge in favour of GDC Holdings and/or its designated companies in respect of each of (i) the entire issued capital of the Borrower; (ii) the entire equity interest in 寧波影逸信息技術有限公司, which is a wholly-owned subsidiary of the Borrower established under the laws of the PRC; and (iii) 80% of the equity interest of Guangzhou Yingyi; and

• (ii) the Borrower agreed to grant to GDC Holdings and/or its designated companies the exclusive rights and options to subscribe for an aggregate of up to 60% of the enlarged issued share capital of the Borrower at an exercise price to be determined with reference to the audited consolidated financial statements of the Borrower in respect of each of the 12-month periods beginning on 1 July each year from 2009 to 2012.

As at 31 December 2008, the Group advanced a sum of RMB60,000,000 (equivalent to approximately HK$68,182,000) to the Borrower and its designated companies. The sum was recognised as an advance in the consolidated balance sheet.

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The transaction was subsequently approved by the shareholders of the Company at the Special General Meeting of the Company held on 17 February 2009. Upon the agreement becoming effective, the advance formed part of the loan.

Details of the transaction are set out in the circular of the Company dated 23 January 2009.

• (b) On 9 January 2009, the Group conditionally agreed to dispose of the intangible asset which represents the contractual rights to share a specific percentage of the box office receipts from certain cinemas in the PRC using 445 units of digital cinema equipment installed by the Group to CFGC for a consideration of RMB223,791,600 (equivalent to approximately HK$254,227,000). The consideration should be payable by CFGC in cash to the Group in the following manner:

• (i) a sum of RMB100,000,000 (equivalent to approximately HK$113,600,000) should be payable within 3 days upon the agreement became effective; and

• (ii) the remaining balance of RMB123,791,600 (equivalent to approximately HK$140,627,000) shall be payable in three installments in accordance with the following schedule:

  • RMB50,000,000 (equivalent to approximately HK$56,800,000) shall be payable on or before 1 June 2009;

  • RMB50,000,000 (equivalent to approximately HK$56,800,000) shall be payable on or before 1 September 2009; and

  • RMB23,791,600 (equivalent to approximately HK$27,027,000) shall be payable on or before 1 December 2009.

The transaction was subsequently approved by the shareholders of the Company at the Special General Meeting of the Company held on 17 February 2009 and part of the consideration of RMB100,000,000 (equivalent to approximately HK$113,600,000) was received from CFGC on 24 February 2009.

Details of the transaction are set out in the circular of the Company dated 23 January 2009.

The Directors are still estimating the potential impact of the transaction.

• (c) On 30 January 2009, the Group entered into two agreements with an independent third party pursuant to which the Group would acquire two non-performing loans and interests accrued thereon with carrying amounts of approximately RMB41.5 million (equivalent to approximately HK$47.1 million) and RMB66.5 million (equivalent to approximately HK$75.6 million) for considerations of RMB9 million (equivalent to approximately HK$10.2 million) and RMB19 million (equivalent to approximately HK$21.6 million), respectively. Details of which are set out in the announcement of the Company dated 4 February 2009.

As at 31 December 2008, the Group advanced a sum of approximately RMB28 million (equivalent to approximately HK$32 million) to the vendor of the non-performing loans, 中國東方資產管理公司石家 莊辦事處, an assets management company as advances for the agreements. The sum was recognised as advances in the consolidated balance sheet.

The Directors are still estimating the potential impact of the transaction.

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• (d) On 2 March 2009, Shougang Holding and Max Same Investment Limited, a company incorporated in Hong Kong which is a wholly owned subsidiary of Cheung Kong (Holdings) Limited and is interested in approximately 7.94% of the issued share capital of the Company approved a cap amount of HK$200 million for the construction by the Group of a building in Shenzhen, including the land cost, with a gross floor area of approximately 40,795 square meters. Details of the aforesaid arrangement are set out in the announcement of the Company dated 3 March 2009.

Up to the date of this report, the Group has entered into a contract for the mentioned construction for a consideration of approximately RMB168,800,000 (equivalent to approximately HK$191,800,000).

49. RELATED PARTY TRANSACTIONS

(a) During the year, the Group entered into the following transactions with related parties:

(i) Rental expenses charged by Winluck Properties Limited, a wholly-owned subsidiary of Shougang Holding (ii) Rental income received from Gold Regal Limited, an associate of Shougang Holding (iii) Consultancy expense charged by Shougang Holding (iv) Management fee charged by Shougang Concord International Enterprises Company Limited (“Shougang International”), an associate of Shougang Holding (v) Interest expense charged by Shougang (Hong Kong) Finance Company Limited, a wholly-owned subsidiary of Shougang Holding (vi) Interest expense paid to South China Leasing in respect of finance lease obligations	2008 HK$’000 – 142 960 1,140 614 –	2007 HK$’000 1,615
		142
		960
		1,140
		109
		58

At 31 December 2008, the Group’s held-for-trading investments included listed securities of 13,870,000 shares (2007: 13,870,000 shares) of Shougang Concord Century Holdings Limited (“Shougang Century”), 13,766,000 shares (2007: 4,120,000 shares) of Shougang Concord Technology Holdings Limited (“Shougang Technology”) and 230,000 shares (2007: 230,000 shares) of Shougang International. Shougang Century, Shougang Technology and Shougang International are associates of Shougang Holding.

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FINANCIAL INFORMATION OF THE GROUP

(b) Compensation of key management personnel

The remuneration of the Directors and other members of key management during the year was as follows:

Short-term benefits Share-based payments Post-employment benefit	2008 HK$’000 19,251 10,869 296 30,416	2007 HK$’000 13,073 56,581 269
		69,923

The remuneration of the Directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

During the year, 41,950,000 share options with an exercise price of HK$0.724 per share were granted to the Directors.

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is a part of a larger group of companies under Shougang Corporation which is controlled by the PRC government. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

The Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the Directors are of the opinion that separate disclosure would not be meaningful. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

Details of balances with related parties as at the balance sheet date are set out in the consolidated balance sheet and in notes 25 and 37.

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APPENDIX I

50. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of principal subsidiaries at 31 December 2008 are as follows. The changes of subsidiaries as compared with 2007, were set out in note (f) for details:

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Direct subsidiary
SCG Investment	BVI	HK$100,000	100%	Investment holding
(BVI) Limited
Indirect subsidiaries
首方投資管理（深圳）	The PRC	HK$230,000,000	100%	Investment holding
有限公司	(Note (b))
Concord Grand TV &	BVI	US$1	100%	Investment holding
Movie Investment
Limited
Dunley Developments	BVI	US$1	100%	Investment holding
Limited
Durali Developments	BVI	US$1	100%	Investment holding
Limited
GDC Asset Management	BVI	US$1	51%	Investment holding
Limited	(Note (g))
GDC China Limited	Hong Kong	HK$2	51%	Investment holding
	(Note (g))
GDC Digital Cinema	BVI	US$1	51%	Investment holding
Network Limited	(Note (g))
GDC Digital Cinema	Hong Kong	HK$1	51%	Deployment of
Network Limited	(Note (f))			digital cinema
	(Note (g))			equipment
GDC Entertainment	BVI	US$3,510	51%	Struck off
	(Note (g))
GDC Holdings	BVI	US$5,214,181	51%	Investment holding
	(Note (g))
GDC International Limited	Samoa	US$1	51%	Provision of CG
	(Note (g))			animation creation
				and production
				services

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			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
GDC Management Services	Hong Kong	HK$2	51%	Provision of
Limited	(Note (g))			administrative and
				management
				services
GDC Technology	BVI	HK$23,259,509	32%	Provision of
	(Note (g))			computing
				solutions for
				digital content
				distribution and
				exhibitions in
				a worldwide basis
GDC Technology	Hong Kong	HK$2	32%	Provision of
(Hong Kong) Limited	(Note (g))			computing
				solutions for
				digital content
				distribution
				and exhibitions
GDC Technology Pte. Ltd.	Singapore	S$900,000	32%	Provision of
	(Note (g))			computing
				solutions for
				digital content
				distribution and
				exhibitions in
				a worldwide basis
GDC Technology (USA),	United States	US$1,000	32%	Provision of
LLC	(Note (g))			computing
				solutions for
				digital content
				distribution
				and exhibitions
GDC_(Note (c))_	Bermuda	HK$12,952,455	51%	Investment holding
Grand Award Limited	BVI	US$1	100%	Investment holding
Grand Park Investment	Hong Kong	HK$2	100%	Property investment
Limited
Grand Phoenix Limited	BVI	US$1	100%	Investment holding
環球數碼媒體科技（上海）	The PRC	US$1,300,000	51%	Provision of CG
有限公司	(Note (b))			animation
Institute of Digital Media	(Note (g))			training in the PRC
Technology (Shanghai)
Limited

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FINANCIAL INFORMATION OF THE GROUP

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
環球數碼媒體科技研究	The PRC	US$35,353,896	51%	Provision of CG and
（深圳）有限公司	(Note (b))			animation training,
Institute of Digital Media	(Note (g))			development of
Technology (Shenzhen)				multimedia
Limited				software and
				hardware, and
				provision of related
				technical
				consultancy
				services in the PRC
Jeckman	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				administrative and
				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 Finance Corporation	Hong Kong	HK$20	100%	Provision of financial
Limited				services
SCG Leasing	Hong Kong	HK$2	100%	Property investment
Corporation Limited
Shongang GDC Media	Hong Kong	HK$1	51%	Investment holding
Holding Limited	(Note (g))
South China Leasing	The PRC	US$24,000,000	80%	Leasing of property,
	(Note (d))			plant and
				equipment
Strenbeech Limited	BVI	HK$147,000,008	100%	Investment holding
天津首方投資管理有限公司	The PRC	RMB130,000,000	90%	Development of
	(Note (d))			finance and assets
	(Note (f))			investment and
				management

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FINANCIAL INFORMATION OF THE GROUP

			Proportion of
		Issued and	nominal value
	Place of	fully paid	of issued
	incorporation or	share capital/	share capital
	establishment/	contributed	held by
Name of subsidiary	operation	capital	the Company	Principal activities
		(Note (a))
Tin Fung Investment	Hong Kong	HK$975,000	100%	Property investment
Company, Limited		(ordinary)
		HK$210,000
		(non-voting deferred)
Upper Nice	BVI	US$1	100%	Investment holding
Valuework Investment	BVI	US$1	100%	Investment holding
Holdings Limited
四方源創國際影視文化傳播	The PRC	RMB20,000,000	80%	Production of films
（北京）有限公司	(Note (d))			and television
				programme series
廣東四方源創動畫制作	The PRC	RMB10,000,000	64%	Provision of graphic
有限公司	(Note (d))			animation creation
東陽市四方源創影視制作	The PRC	RMB1,000,000	80%	Production of films
有限公司	(Note (d))			and television
				programme series
東陽方源影視制作	The PRC	RMB1,000,000	80%	Production of films
有限公司	(Note (d))			and television
	(Note (f))			programme series
杭州四方源創動畫制作	The PRC	RMB3,000,000	64%	Provision of graphic
有限公司	(Note (d))			animation creation
深圳市環球數碼影視文化	The PRC	RMB3,000,000	51%	Animation
有限公司	(Note (d))			investment
	(Note (g))
深圳市環球數碼科技	The PRC	RMB3,000,000	32%	Provision of
有限公司	(Note (d))			computing
	(Note (g))			solutions for
				digital content
				distribution and
				exhibition
重慶環球數碼動畫有限公司	The PRC	RMB5,500,000	51%	Provision of CG and
	(Note (d))			animation training,
	(Note (f))			development of
	(Note (g))			multimedia
				software and
				hardware, and
				provision of
				related technical
				consultancy
				services in the PRC

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----- Start of picture text -----

Proportion of
Issued and nominal value
Place of fully paid of issued
incorporation or share capital/ share capital
establishment/ contributed held by
Name of subsidiary operation capital the Company Principal activities
(Note (a))
深圳市南山區環球數碼 The PRC RMB200,000 51% Provision of CG and
培訓學校 (Note (e)) animation training
(Note (g)) in PRC
上海環球數碼職業技能 The PRC RMB200,000 51% Provision of CG and
培訓學校 (Note (e)) animation training
(Note (g)) in the PRC
北京科創環球數碼技術 The PRC RMB200,000 32% Provision of
有限公司 (Note (d)) computer solutions
(Note (f)) for digital
(Note (g)) content
distribution and
exhibition
----- End of picture text -----

Note:

• (a) All issued share capital are ordinary shares unless otherwise stated.

• (b) These entities are wholly foreign owned enterprises.

• (c) This entity is listed on the GEM.

• (d) These entities are sino-foreign equity joint venture/enterprises or limited liability enterprises.

• (e) These entities are school.

• (f) The subsidiary was newly established/incorporated in current year.

• (g) The subsidiaries were indirectly owned subsidiaries of the Group through shareholdings of GDC.

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.

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APPENDIX I

FIVE-YEAR FINANCIAL SUMMARY

Results

2004 HK$’000 Revenue 14,386 Cost of sales – Write-down for production work in progress – Gross profit (loss) 14,386 Interest income from entrusted loan receivables – Other income 849 Distribution costs and selling expenses – Administrative expenses (38,590) Finance costs (2,115) Share of results of: Jointly controlled entity (net of amortisation of goodwill) (71,134) Associates (5,853) (Loss) gain on disposal of partial interests in subsidiaries – Gain on deemed disposal of an associate 115 Gain on distribution of an associate 189,210 Impairment loss in respect of goodwill of interest in a jointly controlled entity (22,471) Impairment loss in respect of goodwill arising from acquisition of a subsidiary – Increase (decrease) in fair value of investment properties – Discount on acquisition of additional interest in a subsidiary – Gain on disposal and dilution of interests in subsidiaries – Gain on disposal of interest in a jointly controlled entity – Changes in fair value of held-for-trading investments – Other expense – Profit (loss) before tax 64,397 Income tax credit (expense) 3,259 Profit (loss) for the year 67,656 Attributable to: Equity holders of the Company 67,720 Minority interests (64) 67,656

For the year ended 31 December 2005 2006 2007 2008 HK$’000 HK$’000 HK$’000 HK$’000 45,811 90,629 284,303 308,181 (43,666) (53,670) (193,371) (262,550) (24,712) – – – (22,567) 36,959 90,932 45,631 – – – 3,674 4,564 9,732 23,369 12,035 (2,535) (6,932) (5,553) (14,240) (99,308) (83,474) (156,036) (128,233) (7,007) (10,132) (4,873) (6,046) 428 1,531 – – (248) (1,073) 7,255 (857) (12,345) 26,506 – – – – – – – – – – – – – – (191,457) – – – 14,400 8,500 31,130 (15,960) – – 1,342 – – – 375,680 – – – 61,039 – (2,180) 3,308 23,713 (30,011) – – – (22,202) (318,255) (15,075) 447,998 (156,209) (2,372) (1,103) (6,785) (1,540) (320,627) (16,178) 441,213 (157,749) (316,796) (15,204) 425,661 (119,446) (3,831) (974) 15,552 (38,303) (320,627) (16,178) 441,213 (157,749)

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Assets and Liabilities

Total assets Total liabilities Equity attributable to equity holders of the Company Share options reserve of subsidiaries Minority interests	2004 HK$’000 457,516 (113,738) 343,778 342,344 – 1,434 343,778	As at 31 December 2005 2006 2007 HK$’000 HK$’000 HK$’000 461,840 457,164 2,566,391 (253,437) (235,601) (1,598,035) 208,403 221,563 968,356 204,395 212,010 635,814 – 5,907 55,249 4,008 3,646 277,293 208,403 221,563 968,356	2008 HK$’000 2,418,299 (1,547,125) 871,174 551,644 54,603 264,927 871,174

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APPENDIX I

III. WORKING CAPITAL

After taking into account (i) the Group’s internal resources; and (ii) the Group’s bank borrowings of approximately HK$1,339.0 million at the close of business on 28 February 2009 (the “Facilities”) which have been confirmed by the relevant banks in writing that the Facilities exist, and assuming that there is no unforeseen circumstances, the Directors are of the opinion that the Group will have sufficient working capital to meet its present requirements for the next twelve months from the date of this circular.

IV. INDEBTEDNESS

Borrowings

At the close of business on 28 February 2009, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding secured bank loans of approximately HK$1,338,988,000.

Securities and guarantees

At the close of business on 28 February 2009, the Group has the following securities and guarantees relating to the Group’s borrowings:

• (i) The Group’s investment properties and leasehold land and building with an aggregate carrying value of approximately HK$156,300,000 were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$170,619,000.

• (ii) The Group’s finance lease receivables with a carrying value of approximately HK$1,246,512,000 were pledged to banks to secure for bank borrowings with outstanding amount of approximately HK$1,168,369,000.

• (iii) There were bank deposits of approximately HK$66,319,000 restricted for the repayment of bank borrowings, which will be released upon full settlement of the relevant bank borrowings.

• (iv) The Group pledged bank deposits amounted to approximately HK$19,554,000 and HK$2,808,000 to banks to secure a construction agreement and a purchase of raw materials agreement entered into with independent third parties, respectively. The pledged bank deposits will be released upon the settlement of the relevant agreements.

• (v) The Group’s secured bank loan of approximately HK$92,000,000 was supported by the corporate guarantee executed by Shougang Holding for HK$100,000,000.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Debt securities

At the close of business on 28 February 2009, the Group had no debt securities.

Contingent liabilities

Save as disclosed in the section headed “Litigations” in Appendix III to this circular, the Group did not have any material contingent liabilities as at the close of business on 28 February 2009.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not, at the close of business on 28 February 2009, have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptable credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

V. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position or prospects of the Group since 31 December 2008, the date to which the latest published audited accounts of the Group were made up.

VI. FUTURE PROSPECT FOR THE GROUP

Cultural Recreations Content Provision and Distribution

Digital content distribution and exhibitions

In late September 2008, several Hollywood studios finally signed the long-sought Virtual Print Fees (“VPF”) deals with the major exhibitors in the United States for 20,000 digital cinema screens. Together with the new VPF deal signed by a NASDAQ listed company, which is the largest (VPF based) digital cinema deployment entity, with five Hollywood studios for the second phase of deployment of another 10,000 digital cinema screens in the United States, and the VPF deal signed by a leading digital cinema service company in Europe with six Hollywood studios for the deployment of 8,000 digital cinema screens there, it is expected the deployment of digital cinemas has yet to begin.

In anticipation of the imminent digital cinema transition in the United States, the Group signed with two largest cinema service providers to expand its servicing network throughout the United States. Both of the service providers are industry heavy weight and their support will go a long way to help the Group build a trusted servicing network for its customers in the United States. The Group has also been awarded authorised vendor status by Cinema Buying Group of the United States, a buying program for independent theaters and has over 600 members made up of small to mediumsized independent theaters representing over 8,000 screens in North America. Besides, the Group’s digital cinema server has been included in the approved digital equipment list of the largest (VPF based) digital cinema deployment entity for its “Second Phase” deployment program over the next three years.

88

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

In Asia, the Group has reached separate non-exclusive VPF agreements with five Hollywood studios for digital cinema deployment across Asia, of which these studios are committed to supply Asian exhibitors with feature film content digitally, as well as to make financial contributions towards the hardware cost of Digital Cinema Initiative (“DCI”) compliant digital cinema equipment deployed. This milestone signals the Group’s on-going commitment to Asian exhibitors as a trusted partner in digital conversion.

To capture the potential opportunities, the Group successfully strengthened its production facilities in Shenzhen and Hong Kong in preparation of mass production of its products. The Group also continuously improved its production quality, its production facility in Shenzhen achieved ISO 9001:2000 certification.

On the other hand, the Group entered into an agreement to make available to a group, which is engaged in operation and sale of advertisement airtime for a television channel of Guangdong Television Station, a loan facility in the maximum principal amount of RMB100 million (equivalent to approximately HK$113.6 million) and acquisition of the exclusive rights and options to subscribe for an aggregate of up to 60% of that group. The Group considered that this provided an opportunity for the Group to extend its business to media advertising in the PRC, which is expected to sustain a healthy and stable growth rate and generate stable cash inflow in the coming years.

For the PRC Digital Cinema Project, after having further considered that additional substantial amount of capital would be needed to continue the project, prevailing conditions in the credit market and loss since its deployment of the digital cinema equipment, the Group considered that it would be more appropriate to terminate the cooperation with CFGC and dispose the installed equipment to them. On 9 January 2009, the Group entered into an agreement with CFGC to dispose the equipment for a consideration of approximately RMB223.8 million (equivalent to approximately HK$254.2 million), of which RMB100 million (equivalent to approximately HK$113.6 million) has been received. The net proceeds received and to be received would provide funding for the Group’s development in its existing business divisions and the media advertising business in the PRC.

CG creation and films and television programme production

The Group is actively developing new clients and has secured several CG projects with some world leading entertainment brands for animated television series and theatrical movies. The Group is also in discussion of co-production opportunities with several large North American and European children’s entertainment content development and broadcasting companies. Many existing and prospective clients have expressed the desire for long term and multi-project relationship with the Group based on the demonstrated track record of offering reliable, cost effective, high quality CG production services to international market, the customer base of the Group has already expanded to North America, Europe and Australia. At present, based on CG orders on hand, the production capacity of CG creation and production is already fully occupied up to the fourth quarter of the year 2009.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

To deal with the expected growth in CG orders, the Group established a subsidiary in Chongqing, its staff recruitment and installation of production facilities have been completed. The production capacity there was formed during the fourth quarter of this year and is expected to further develop and achieve the same level of CG production as the production in Shenzhen.

Following the success of the Group’s second full-length feature CGI film, “Happy Little Submarines”, a co-production with a Hollywood leading animation studio, the Group’s coproduced animated television series, “Dive Olly Dive” was also released on China Central Television (CCTV) since September 2008. This film and television series generated revenue of over HK$3,000,000 for this year and received support from the local municipal government on the distribution and promotion. The television series has also been released on popular channels in the United States, France, Germany and Australia, and had received positive audience share and media responses. The success of this co-production globally made the Group won recognition in the industry and increased confidence from international production companies to work with the Group not only limited to production, but also extend to distribution and other business. The Group will actively develop its original content creation business through different forms, including sole investment and co-production, in order to generate revenue from sale of derivatives, distribution and intellectual property sales in addition to the existing CG creation and production revenue.

Furthermore, with the support of the local municipal government, the Group is constructing its headquarters building at Shenzhen High-tech Industrial Park and the construction is scheduled to be completed in the year 2010. Upon completion, the Group will expand its research, development and production centre of its multi-media digital contents and CG business. The Group’s production capacity and efficiency will enhance further at that time.

On the other hand, the Group would also focus at producing television series with relatively reliable return. During this year, the Group produced four television series in the PRC while production of another two series was under planning.

CG training

CG training division served as a core component of its strategy towards professionalism. Tailored for students in the PRC, its training courses focused on the basic knowledge of CG production. Through continued improvement in the management system and infrastructure, comprehensive training materials for different categories, including CG animation and games, and open new training courses, the Group maintained a leading position in the CG professional training domain in the PRC.

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FINANCIAL INFORMATION OF THE GROUP

With the encouragement from the PRC government on subcontracting foreign CG projects and the development of domestic CG and game industries, many international well-know companies set up production centres in the PRC, demand for equipped people in this field increased. In addition to the existing training courses on the knowledge of CG production, the Group opens a new professional training programme for the game industry, including comprehensive training materials and case studies, in line with the market needs. The Group also tailors made some advanced courses for several companies in the different kinds of CG animation and game industries during this year to upgrade their employees in accordance with their positions, with an aim to enhance the production capacity of those companies.

Besides, the Group co-operates with several famous high schools in the PRC for “Skill and Qualification” training programme for their students to achieve their aim to have “One Course, Several Certificates” and to train up their practical production skills ready for the employment immediate after graduation.

In addition to the Group’s training centres in Shanghai and Shenzhen and direct operation training sites in Chongqing and Wuxi, the Group plans to set up more direct operation training sites to further expand its training network throughout the PRC and increase market shares there. The Group will also upgrade and strengthen its training system, the quality of its teaching staff and the graduate employment network, and diversify its revenue stream.

Financial Service Provision

Financial investment

Facing the dynamic market opportunities and economic environment in the PRC, merger and acquisition, reformation and restructuring are expected to be occurred in many different industries, the Group would proactively grasp the development opportunities by providing clients consultancy service or investing in high potential businesses, such as finance and assets investment and management, funds and trust.

Referring to announcements of the Company dated 12 June 2008 and 14 August 2008, and circular of the Company dated 3 September 2008 relating to the development of finance and assets investment and management business in the PRC between the Group and China Everbright Investment Management Corporation (“China Everbright”), the 90:10 joint venture company set up by the Group and a subsidiary of China Everbright in Tianjin entered into two agreements on 30 January 2009 with an independent third party pursuant to which the Group would acquire two nonperforming loans and interests accrued thereon with aggregate carrying amounts of approximately RMB108 million (equivalent to approximately HK$122.7 million) for a total consideration of RMB28 million (equivalent to approximately HK$31.8 million), details of which are set out in the announcement of the Company dated 4 February 2009. In view of the good prospect of the borrowers in the distilling business in the PRC and sufficient collaterals placed over its acquisition costs, the Group considers that this acquisition can generate a reasonable return to the Group and is a good opportunity for the Group to establish a presence in the finance and assets investment and management business which has good development potential in the PRC.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Finance leasing

In view of the global economic downturn, the central government in the PRC introduced a number of measures to stimulate its economic growth, the economic growth of the PRC would continue despite some adjustments in short-term. In the meantime, the Group would maintain and further improve its credit procedures for both existing and new finance leases in order to minimise the risk, if any. As at 31 December 2008, all outstanding finance lease receivables due from the finance lease borrowers either had good credit quality according to past repayment history or adequate collateral has been held with estimated fair values in excess of the receivables.

Once the global economy recover, economy of the PRC will bloom and the finance leasing business in the PRC will further expand, it is the intention of the Group to further develop the finance leasing business of South China Leasing. The Company announced on 21 August 2008 that the Group would acquire the remaining 20% equity interest in the registered capital of South China Leasing from the minority shareholder for a consideration of approximately RMB31,800,000. The Group considered that this acquisition would enable the Group to increase its participation in this business and seize the opportunities presented in this business in the PRC without the hindrances of the involvement of a minority shareholder.

Property Investment and Management

Under the shadow of the global financial turmoil, the property market in Hong Kong faced uncertainties during this year. However, the Group still received stable cash flow from rental income and expected that the investment properties would continue to contribute stable cash return in the foreseeable future.

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APPENDIX II

PROPERTY VALUATION REPORT OF THE LAND

Room 2703 Shui On Centre 6–8 Harbour Road Wanchai Hong Kong

24 April 2009

The Directors

Shougang Concord Grand (Group) Limited Rooms 1101-4, 11th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong

Dear Sirs,

In accordance with the instructions from Shougang Concord Grand (Group) Limited (“the Company”) for us to value the property at Lot No. T304-0124, Gaoxinzhong Third Road, Nanshan District, Shenzhen, Guangdong Province, the People’s Republic of China (“the PRC”), we confirm that we have carried out inspection, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the market value of the property as at 28 February 2009 (referred to as the “valuation date”).

It is our understanding that this valuation is for a proposed major transaction.

This letter which forms part of our valuation report explains the basis and methodology of valuation, and clarifies our assumptions made, titleship of property and the limiting conditions.

Basis of Valuation

The valuation of such property 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.”

Valuation Methodology

The property is valued by comparison method where comparison based on prices realised or market prices of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighed against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of capital values.

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APPENDIX II

In arriving at our valuation for property under development, we have taken into account the development costs already expended on the property.

Assumptions

Our valuation has been made on the assumption that the owner sells the property on the open market in its existing state without the benefit of any deferred terms contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to increase the value of the property.

It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defined, and considered in the appraisal report. Moreover, it is assumed that the utilization of the land and improvements is within the boundaries of the site held by the owner or permitted to be occupied by the owner. In addition, we assumed that no encroachment or trespass exists, unless noted in the report.

No environment impact study has been ordered or made. Full compliance with applicable national, provincial and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licences, consents, or other legislative or administrative authority from any local, provincial, or national government or private entity or organization either have been or can be obtained or renewed for any use which the report covers.

Other special assumptions of the valuation, if any, have been stated out in the footnote of the valuation certificate for the property.

Titleship Investigation

We have been provided with copies of legal documents regarding the property under valuation. However, we have not searched the original documents to verify ownership or to verify the existence of any amendments to the documents which do not appear on the copies handed to us.

In our valuation, we have relied on the legal opinions prepared by Shenzhen Office, Beijing W&H Law Firm (“the PRC Legal Advisers”) regarding the Company’s legal title to the property.

All legal documents disclosed in this report are for reference only and no responsibility is assumed for any legal matters concerning the legal title to the property set out in this report.

Limiting Conditions

We have carried out inspection for the property. However, no structural survey has been made and we are therefore unable to report as to whether the property is free from rot, infestation or any other structural defects. No tests were carried out on any of the services.

We have not carried out detailed site measurements to verify the correctness of the area in respect of the property but have assumed that the area shown on the legal documents provided to us are correct. Based on our experience of valuation of similar properties in the PRC, we consider the assumptions so made to be reasonable. All documents have been used as reference only and all dimensions, measurements and areas are approximations.

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PROPERTY VALUATION REPORT OF THE LAND

Having examined all relevant documentation, we have relied to a very considerable extent on the information provided by the Company and have accepted advice given to us by it on such matters as planning approvals, statutory notices, easements, tenure, occupation, lettings, construction costs, rentals, site and permissible floor areas and in the identification of the property. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We were also advised by the Company that no material factors have been omitted from the information to reach an informed view, and have no reason to suspect that any material information has been withheld.

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

Since the property is located in a relatively under-developed market such as the PRC, those assumptions are often based on imperfect market evidence. A range of values may be attributable to the property depending upon the assumptions made. While the valuer has exercised his professional judgment in arriving at the value, report readers are urged to consider carefully the nature of such assumptions which are disclosed in the valuation report and should exercise caution in interpreting the valuation report.

Opinion of Value

The valuation certificate has already shown the market value of the property.

Remarks

Our valuation has been prepared in accordance with generally accepted valuation procedures. In valuing the property, we have complied with the requirements contained in the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors effective from 1 January 2005 and the requirements of Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Valuation of the property is denominated in Chinese Renminbi (RMB).

The valuation certificate is enclosed herewith.

This valuation report is issued subject to our General Service Conditions.

Yours faithfully, For and on behalf of

GREATER CHINA APPRAISAL LIMITED

K. K. Ip BLE, LLD Chartered Valuation Surveyor Registered Professional Surveyor Managing Director

Note: Mr. K. K. Ip is a chartered valuation surveyor and a registered professional surveyor who has substantial experience in valuation of properties in the PRC since 1992.

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PROPERTY VALUATION REPORT OF THE LAND

APPENDIX II

VALUATION CERTIFICATE

Property held by the Company for development

Particulars Market Value as at Property Descriptions and tenure of Occupancy 28 February 2009 (RMB) A development site at The property comprises As at the date of inspection, No commercial Lot No. T304-0124 a development site (“the site formation as well value Gaoxinzhong Third Road Land”) with a site area of as the piling work have Nanshan District Shenzhen Guangdong Province approximately 5,925 square been completed. However, The PRC meters. no basement structure or superstructure of As advised by the Company, the property has been a building (“the Building”) commenced. will be constructed on the Land to house the research, As advised by the development and production Company, construction centre of the Company’s of the Building will be multi-media digital contents commenced in May 2009 and computer graphic business. and will be completed in March 2010. The Building will be a 16-storey building having a gross floor area of approximately 32,987 square meters (plus underground car park and machine room with approximately 9,517 square metres). The Land is held under a State-owned Land Use Right Certificate for a term of 50 years from 25 June 2007 to 24 June 2057 for industrial use.

Notes:

• (1) According to a State-owned Land Use Right Grant Contract entered into between Shenzhen Municipal Bureau of Land Resources (“the Bureau”) and Housing Management and 環球數碼媒體科技研究(深圳)有限公司 (Institute of Digital Media Technology (Shenzhen) Limited, “Shenzhen IDMT”, a 52.57%-owned subsidiary of the Company) dated 28 June 2007, the land use right of the Land was agreed to be granted to Shenzhen IDMT for a term of 50 years for industrial use with a consideration of RMB5,261,543.

• (2) According to a State-owned Land Use Right Certificate dated 6 July 2007, the land use right of the property has been granted to Shenzhen IDMT for a term of 50 years from 25 June 2007 to 24 June 2057 for industrial use.

• (3) Other land use conditions in accordance with the State-owned Land Use Right Grant Contract and the State-owned Land Use Right Certificate are shown as follows:

• (a) Land use: Industrial

• (b) Type of Building: Industrial research and development

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PROPERTY VALUATION REPORT OF THE LAND

• (c) Building density: not more than 40%

• (d) Plot ratio: not more than 5.57

• (e) Maximum gross floor area: 33,000 square metres (not including the floor area below ground level)

• (f) Height: not more than 70 metres

• (g) Green area: not less than 40%

• (h) Set-back from boundary: not less than 10 metres on the eastern and western sides; not less than 12 metres on the southern and northern sides

• (i) The Bureau has the right to resume the land use right of the Land and return the land premiums paid if Shenzhen IDMT failed to complete 25% of the building investment within 1 year from the date of the State-owned Land Use Right Grant Contract, 28 June 2007.

• (j) The Bureau has the right to terminate the State-owned Land Use Right Grant Contract and resume the land use right of the Land if Shenzhen IDMT failed to complete the construction of the Building before 25 June 2010.

• (k) Transfer of the Land is not allowed. Mortgage of the Land is not allowed without consent from the relevant authorities.

• (4) As stipulated in a Shenzhen Municipal Construction Land Use Planning Approval dated 29 May 2007, a Construction Work Planning Approval date 27 October 2008 and a Construction Work Commencement Permit dated 21 January 2009, Shenzhen IDMT was permitted to construct a 16-storey industrial and research building with a gross floor area of 32,987 square metres (plus underground car park and machine room with approximately 9,517 square metres) on the Land providing 250 car parking spaces (of which 223 car parking spaces are on basement level).

• (5) Due to non-transferability of the Land, we have assigned no value to the property. For reference purpose, assuming free from all encumbrances, the replacement cost of the property as at the valuation date is approximately RMB28,800,000, inclusive of approximately RMB5,700,000 of construction costs incurred reflecting the physical state of construction as at the valuation date.

• (6) Opinions of the PRC Lawyer are summarized as follows:

• (i) Shenzhen IDMT is the legal owner of the land use right of the Land. However, transfer of the Land is not allowed and mortgage of the Land is not allowed without consent from the relevant authorities.

• (ii) Shenzhen IDMT has obtained all necessary permits and approvals from the relevant authorities for the construction of the Building.

• (iii) According to the Construction Work Commencement Permit dated 21 January 2009, construction work of the Building should be commenced within 3 months from the date of the Construction Work Commencement Permit. As the piling work has been commenced on 5 January 2009 and the construction of Building has been scheduled to be completed on 20 March 2010, Shenzhen IDMT confirmed that the requirement of construction commencement date has been fulfilled. In case the construction work cannot be completed before the required completion date, Shenzhen IDMT should apply for extension in accordance with the PRC Construction Laws and the relevant regulations of Shenzhen municipal construction authorities.

97

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Interests and short positions of the Directors in the shares and underlying shares of the Company and its associated corporations

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 or debentures of the Company or any of its associated corporations (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 of the Company referred to therein; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange were as follows:

• (i) Long positions in the shares and underlying shares of the Company

Capacity in which interests Name of Director are held	Percentage of total Number of shares/underlying interests as shares held in the Company to the issued Interests share capital Interests under equity Total of the in shares derivatives interests Company*
Wang Qinghai Beneficial owner Cao Zhong Beneficial owner Chen Zheng Beneficial owner Wang Tian Beneficial owner Yuan Wenxin Beneficial owner Leung Shun Sang, Tony Beneficial owner Tam King Ching, Kenny Beneficial owner Zhou Jianhong Beneficial owner Yip Kin Man, Raymond Beneficial owner	– 11,368,000 11,368,000 0.99% – 22,868,000 22,868,000 1.99% – 18,368,000 18,368,000 1.60% 4,000,000 11,094,000 15,094,000 1.31% 4,000,000 15,094,000 19,094,000 1.66% 8,278,000 19,368,679 27,646,679 2.40% – 2,286,000 2,286,000 0.20% – 2,286,000 2,286,000 0.20% – 2,286,000 2,286,000 0.20%

• The relevant interests are unlisted physically settled options granted pursuant to the Company’s share option scheme adopted on 7 June 2002 (the “ Scheme ”). Upon exercise of the share options in accordance with the Scheme, Shares are issuable. The share options are personal to the respective Directors.

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GENERAL INFORMATION

• (ii) Long positions in the shares and underlying shares of GDC, an associated corporation of the Company

Capacity in which interests Name of Director are held	Percentage Number of shares/underlying of total shares held in GDC interests as Interests to the issued Interests under equity Total share capital in shares derivatives interests of GDC*
Cao Zhong Beneficial owner Chen Zheng Beneficial owner Wang Tian Beneficial owner Leung Shun Sang, Tony Beneficial owner Zhou Jianhong Beneficial owner	26,942,000 4,900,000 31,842,200 2.46% 8,718,200 4,900,000 13,618,200 1.05% 820 – 820 0.00% 20,008,200 4,900,000 24,908,200 1.92% 500,615 – 500,615 0.04%

• The relevant interests are unlisted physically settled options granted pursuant to GDC’s share option scheme adopted on 18 July 2003 (the “ GDC Scheme ”). Upon exercise of the share options in accordance with the GDC Scheme, ordinary shares of HK$0.01 each in the share capital of GDC are issuable. The share options are personal to the respective Directors.

• (iii) Long positions in the shares and underlying shares of GDC Technology Limited (“ GDC Tech ”), an associated corporation of the Company

Capacity in which interests Name of Director are held	Percentage Number of shares/underlying of total shares held in GDC Tech interests as Interests to the issued Interests under equity Total share capital in shares derivatives interests of GDC Tech*
Cao Zhong Beneficial owner Chen Zheng Beneficial owner Leung Shun Sang, Tony Beneficial owner	8,533,334 1,650,000 10,183,334 4.38% 8,533,334 1,650,000 10,183,334 4.38% 2,130,000 1,653,333 3,783,333 1.63%

• The relevant interests are unlisted physically settled options granted pursuant to GDC Tech’s share option scheme adopted on 19 September 2006 (the “ GDC Tech Scheme ”). Upon exercise of the share options in accordance with the GDC Tech Scheme, ordinary shares of HK$0.10 each in the share capital of GDC Tech are issuable. The share options are personal to the respective Directors.

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 (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

APPENDIX III

Save as disclosed in this circular, none of the Directors or proposed Director is a director or employee of a company which has an interest in the shares and underlying shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

(b) Directors’ service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group or any associated company of the Company (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

(c) As at the Latest Practicable Date:

• (i) none of the Directors had any direct or indirect interest in any assets which have been, since the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries; and

• (ii) none of the Directors is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the date of this circular and which is significant in relation to the business of the Group.

(d) Directors’ interests in competing businesses

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:

	Name of entity whose	Description of businesses
	businesses were considered	of the entity which were	Nature of
	to compete or likely to	considered to compete or	interest of the
	compete with the	likely to compete with the	Director in
Name of Director	businesses of the Group	businesses of the Group	the entity
Wang Qinghai	Shougang Corporation#	Property investment	Director
Cao Zhong	China Shougang	Property investment	Director
	International Trade and
	Engineering Corporation#
	Shougang Holding#	Property investment	Director

• Such businesses may be carried out through the subsidiaries or associates of the entity concerned or by way of other forms of investments.

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APPENDIX III

The Board is independent from the boards of the above-mentioned entities and is accountable to the Shareholders. Coupled with the diligence of its independent non-executive Directors whose views carry significant weight in the Board’s decisions, the Group is capable of carrying on its businesses independently of, and at arm’s length from, the businesses of these entities.

Save as disclosed above, as at the Latest Practicable Date, in so far as 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.

3. SUBSTANTIAL SHAREHOLDERS

• (a) As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO, the following persons and companies (other than the Directors or chief executive of the Company) had an interest or short position in the shares and the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of the Divisions 2 and 3 of Part XV of the SFO:

Long positions in the Shares

			Percentage of
			interests as to
		Number of	the issued
	Capacity in which	shares held	share capital
Name of Shareholder	interests are held	in the Company	of the Company	Note(s)
Shougang Holding	Interests of controlled	489,450,710	42.51%	1
	corporations
Wheeling Holdings	Beneficial owner	430,491,315	37.39%	1
Limited (“Wheeling”)
Prime Success	Beneficial owner	58,959,395	5.12%	1
Investments Limited
(“Prime Success”)
Cheung Kong	Interests of controlled	133,048,717	11.56%	2, 3
(Holdings) Limited	corporations
(“Cheung Kong”)
Max Same	Beneficial owner	91,491,193	7.95%	2
Li Ka-shing	Interests of controlled	133,048,717	11.56%	3
	corporations, founder of
	discretionary trusts

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APPENDIX III

				Percentage of
				interests as to
		Number of		the issued
	Capacity in which	shares held		share capital
Name of Shareholder	interests are held	in the Company	of the Company		Note(s)
Li Ka-Shing Unity Trustee	Trustee	133,048,717		11.56%	3
Company Limited
(“TUT1”)
Li Ka-Shing Unity Trustee	Trustee, beneficiary	133,048,717		11.56%	3
Corporation Limited	of a trust
(“TDT1”)
Li Ka-Shing Unity	Trustee, beneficiary	133,048,717		11.56%	3
Trustcorp Limited	of a trust
(“TDT2”)

Notes:

1. Shougang Holding indicated in its disclosure form dated 28 September 2007 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 25 September 2007, its interests included 430,491,315 and 58,959,395 Shares held by Wheeling and Prime Success respectively, both were whollyowned subsidiaries of Shougang Holding.

2. Cheung Kong indicated in its disclosure form dated 26 February 2005 (being the latest disclosure form filed up to the Latest Practicable Date) that as at 23 February 2005, its interests included 91,491,193 Shares held by Max Same, a wholly-owned subsidiary of 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 Ka-Shing 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.

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GENERAL INFORMATION

• (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:

			% of
Name of registered	Name of	Name of member	attributable
shareholder(s)	beneficial owner	of the Group	interest
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”)
Yang Yong	Yang Yong	廣東四方源創動畫製作	20.00%
		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 Concord
		Creation”)
Cao Zhong and Zhou Lin	Zhou Lin	東陽方源影視製作有限公司	20.00%
		(Dongyang Creation	(Note 3)
		Film@TV Company
		Limited*)
		(“Dongyang Creation”)
Guangdong Creation and	Zhou Lin	杭州四方源創動畫製作	16.00%
Chen Zheng		有限公司	(Note 4)
		(Concord Creation Animation
		Production Hangzhou
		Company Limited*)
		(“Hangzhou Creation”)

* For identification purpose only

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GENERAL INFORMATION

			% of
Name of registered	Name of	Name of member	attributable
shareholder(s)	beneficial owner	of the Group	interest
Guangdong Creation and	Yang Yong	Hangzhou Creation	20.00%
Chen Zheng			(Note 5)
Greater Appeal	Greater Appeal	GDC Tech	22.52%
Investments Limited
(“Greater Appeal”)
GDC Tech	Greater Appeal	GDC Technology Pte Ltd	22.52%
			(Note 6)
GDC Tech	Greater Appeal	GDC Technology China	22.52%
		Limited	(Note 6)
GDC Tech	Greater Appeal	GDC Technology (Hong Kong)	22.52%
		Limited	(Note 6)
GDC Tech	Greater Appeal	GDC Technology (USA), LLC	22.52%
			(Note 6)
Chen Zheng and Shenzhen	Greater Appeal	深圳市環球數碼科技有限公司	22.52%
IDMT		(“Shenzhen GDC Tech”)	(Note 7)
Shenzhen GDC Tech	Greater Appeal	北京科創環球數碼技術有限公司	22.52%
		(“Beijing GDC Tech”)	(Note 8)
深圳市嘉殷達投資有限公司	Shenzhen Jiayinda	南方國際租賃有限公司	20.00%
(Shenzhen Jiayinda		(South China International
Investment Company		Leasing Company Limited)
Limited*)
(“Shenzhen Jiayinda”)
天津渤海灣投資管理	Beihai Investment	天津首方投資管理有限公司	10.00%
有限公司		(Tianjin Capital Steel
(Tianjin Beihai Bay		Investment Management
Investment Management		Company Limited*)
Company Limited*)
(“Beihai Investment”)

* For identification purpose only

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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 Concord Creation was held as to 90.00% by Concord Creation. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Concord Creation was deemed to be held as to 18.00% by Zhou Lin. Together with Zhou Lin’s beneficial interest of 2.00% held in Dongyang Concord Creation through another nominee, Zhou Lin had an aggregate interest of 20.00% in Dongyang Concord Creation.

3. Dongyang Creation was beneficially held as to 100.00% by Concord Creation which included its beneficial interests of 80.00% and 20.00% held in Dongyang Creation through its nominees, Cao Zhong and Zhou Lin, respectively. As Concord Creation was beneficially held as to 20.00% by Zhou Lin, Dongyang Creation was deemed to be held as to 20.00% by Zhou Lin.

4. Hangzhou Creation was beneficially held as to 100.00% by Guangdong Creation which included its beneficial interest of 10.00% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was deemed to be beneficially held as to 16.00% by Zhou Lin, Hangzhou Creation was deemed to be held as to 16.00% by Zhou Lin.

5. Hangzhou Creation was beneficially held as to 100.00% by Guangdong Creation which included its beneficial interest of 10.00% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was held as to 20.00% by Yang Yong, Hangzhou Creation was deemed to be held as to 20.00% by Yang Yong.

6. Each of GDC Technology Pte Ltd, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and GDC Technology (USA), LLC was held as to 100.00% by GDC Tech. As GDC Tech was held as to 22.52% by Greater Appeal, each of GDC Technology Pte Ltd, GDC Technology China Limited, GDC Technology (Hong Kong) Limited and GDC Technology (USA), LLC was deemed to be held as to 22.52% by Greater Appeal.

7. Shenzhen GDC Tech was beneficially held as to 100.00% by GDC Tech which included its beneficial interests of 51.00% and 49.00% held in Shenzhen GDC Tech through its nominees, Chen Zheng and Shenzhen IDMT, respectively. As GDC Tech was held as to 22.52% by Greater Appeal, Shenzhen GDC Tech was deemed to be held as to 22.52% by Greater Appeal.

8. Beijing GDC Tech was beneficially held as to 100.00% by Shenzhen GDC Tech. As Shenzhen GDC Tech was deemed to be beneficially held as to 22.52% by Greater Appeal, Beijing GDC Tech was deemed to be held as to 22.52% by Greater Appeal.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company was aware of any other person or corporation who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which was, 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 any options in respect of such capital.

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4. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) had been entered into by the Group within the two years preceding the date of this circular and up to the Latest Practicable Date:

• (i) the agreement dated 9 January 2009 entered into between Shenzhen IDMT and 中國電影集 團公司(China Film Group Corporation) (“ China Film ”) in relation to the disposal of 445 units of digital cinema equipments by Shenzhen IDMT to China Film;

• (ii) the agreement dated 23 December 2008 entered into between GDC Holdings Limited (“ GDC Holdings ”), an indirect non-wholly owned subsidiary of the Company, Southern International Limited (“ Southern International ”) and Keen Front Group Limited in relation to the granting of the facility of RMB100 million (approximately HK$113,600,000) by GDC Holdings and/or its designated company to Southern International, and the granting of call options by Southern International to GDC Holdings and/or its designated company;

• (iii) the supplemental agreement dated 22 September 2008 entered into between Shougang GDC Media Holding Limited (“ Shougang GDC Media ”), an indirect non-wholly owned subsidiary of the Company, and China Film, in relation to the sale of digital cinema equipments to 中影首鋼環球數碼數字影院建設（北京）有限公司(CFGDC Digital Cinema Company Limited), which was subsequently agreed to be terminated by both parties on 28 November 2008;

• (iv) the share transfer agreement dated 20 August 2008 entered into between 首方投資管理（深 圳）有限公司(Capital Steel Investment (China) Ltd.), a wholly foreign owned enterprise established in the PRC and an indirect wholly-owned subsidiary of the Company, and Shenzhen Jiayinda, in respect of the transfer of 20% equity interest in the registered capital of South China International Leasing Company Limited from Shenzhen Jiayinda to Capital Steel Investment (China) Ltd.;

• (v) the co-operation agreement dated 12 August 2008 entered into between the Company and 中國光大投資管理公司(China Everbright Investment Management Corporation) for the establishment of a joint venture company in Tianjin, the PRC to engage in the acquisition and management of non-performing assets in the PRC;

• (vi) the agreement dated 14 August 2007 entered into between GDC Holdings and GDC Tech, in relation to the subscription of 53,388,178 new shares of GDC Tech at HK$2.00 per share by GDC Holdings;

• (vii) the agreement dated 14 August 2007 entered into between Shougang Holding and Grand Phoenix Limited, an indirect wholly-owned subsidiary of the Company, in relation to the purchase of 50% of the issued share capital of Jeckman Holdings Limited by Grand Phoenix Limited from Shougang Holding and the assignment of the aggregate outstanding amount of HK$22.8 million as at 14 August 2007 advanced by Shougang Holding to Jeckman Holdings Limited for an aggregate consideration of HK$52 million;

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• (viii) the agreement dated 14 August 2007 entered into between Shougang Holding and GDC Holdings in relation to the acquisition of the entire issued share capital of Shougang GDC Media by GDC Holdings for a consideration of HK$42 million;

• (ix) the placing and subscription agreement dated 4 July 2007 entered into between Upper Nice Assets Ltd. (“ Upper Nice ”), the Company, GDC and SBI E2-Capital Securities Limited, the placing agent, in respect of the top-up placing of 72,000,000 shares of GDC at HK$2.7 per share; and

• (x) the placing and subscription agreement dated 30 April 2007 and the supplemental agreement dated 2 May 2007 entered into between Upper Nice, the Company, GDC and CITIC Securities Corporate Finance (HK) Limited, the placing agent, in respect of the top-up placing of 105,000,000 shares of GDC at HK$1.61 per share.

Save as disclosed below, the Company has not entered into any material contracts (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular which are or may be material.

5. LITIGATION

As at the Latest Practicable Date, the Group was engaged in the following litigation or arbitration of material importance:

• (i) On 14 May 2003, GDC Entertainment Limited (“ GDC Entertainment ”), an indirect nonwholly owned subsidiary of the Company, entered into a co-production agreement (the “ Coproduction Agreement ”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“ WAMC ”) and Production and Partners Multimedia, SAS (“ P&PM ”) in relation to an animated television series.

In about November 2004, P&PM and WAMC commenced proceedings against GDC Entertainment in the Court of Commerce of Angouleme (France) alleging breaches on the part of GDC Entertainment of the Co-production Agreement.

In relation to the French proceedings, the Group’s French legal advisers had advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Coproduction Agreement which entitled GDC Entertainment to terminate the same and claim damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20

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January 2006. The Award of the arbitrator was published on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with the arbitration.

Effective from 1 May 2008, GDC Entertainment has been struck off but can be restored at any time up to ten years after the strike off date.

• (ii) In April 2008, a former employee of the Company filed a claim to the District Court of Hong Kong (the “ District Court ”) against the Company for an alleged disability discrimination to him and claimed for a compensation of approximately HK$6,659,000. In May 2008, the Company filed a defence to the District Court.

The legal adviser of the Company to the above District Court’s case advised that the Company has an arguable defence to his claim and the Directors are of the opinion that settlement of the claim is remote.

Save as disclosed above, neither the Company nor any other members of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

6. EXPERT AND CONSENT

Name Qualification

Greater China Appraisal Limited an independent professional property valuer

Greater China Appraisal Limited has given, and has not withdrawn, its written consent to the issue of this circular with the inclusion herein of its letter and/or references to its name, in the form and context in which it appears.

As at the Latest Practicable Date, Greater China Appraisal Limited was not interested in any Share or share in any member of the Group nor did it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Share or share in any member of the Group.

As at the Latest Practicable Date, Greater China Appraisal Limited did not have any direct or indirect interest in any asset which had been, since 31 December 2008, being the date to which the latest published audited financial statements of the Company were made up, 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.

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7. MISCELLANEOUS

• (a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda and the principal place of business of the Company in Hong Kong is at Rooms 1101-4, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong.

• (b) The Company’s Hong Kong branch share registrars and transfer office is Tricor Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (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 Chartered Secretaries and an associate member of the Hong Kong Institute of Bankers. She holds a master degree in business administration and a master degree in arts.

• (d) The English text of this circular shall prevail over the Chinese text.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal office in Hong Kong at Rooms 1101-4, 11th Floor, Harcourt House, 39 Gloucester Road, Wanchai, Hong Kong from the date of this circular up to and including 8 May 2009:

• (a) the bye-laws of the Company;

• (b) the material contracts referred to under the section headed “Material Contracts” in this appendix;

• (c) the written consent referred to under the section headed “Expert and Consent” in this appendix;

• (d) the annual reports of the Company for the two years ended 31 December 2007 and 31 December 2008; and

• (e) the property valuation report issued by Greater China Appraisal Limited on the Land as set out in Appendix II to this circular .

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