Directors and Advisers 2. Chairman s Statement 3. Operational Review 8. Corporate Governance 11. Directors Remuneration Report 14.

cathay international Holdings Limited

Registered Office

Canon’s Court, 22 Victoria Street Hamilton HM12, Bermuda

Head Office

25/F Standard Chartered Bank Building 4-4A Des Voeux Road, Central, Hong Kong

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TIONAL HOLDINGS LIMITED

ANNUAL REPOR

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Directors and Advisers 2

Chairman’s Statement 3

Operational Review 8

Corporate Governance 11

Directors’ Remuneration Report 14

Directors 18

Directors’ Report 19

Statement of Directors’ Responsibilities for the Financial Statements 21

Report of the Independent Auditors 22

Group Income Statement 24

Group Balance Sheet 25

Company Balance Sheet 26

Group Statement of Changes in Equity 27

Group Cash Flow Statement 28

Accounting Policies 30

Notes to the Accounts 37

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

DIRECTORS J.R.H. Buchanan Non-executive Chairman Wu Zhen Tao Chief Executive S.B. Hunt Deputy Chairman P. Sung Finance Director J.H. Cosson Non-executive Director

Mao Yu Min (Resigned on 3 April 2006)

Director

SECRETARY

Linda Carter

AUDITORS

Grant Thornton UK LLP Grant Thornton House Melton Street Euston Square London NW1 2EP

SOLICITORS

Hunton & Williams 30 St Mary Axe London EC3A 8EP

Clifford Chance 30th Floor, Jardine House One Connaught Place Central Hong Kong REGISTERED OFFICE Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda REGISTERED NUMBER 29892 Bermuda HEAD OFFICE

25/F Standard Chartered Bank Building 4-4A Des Voeux Road Central Central

Hong Kong

REGISTRARS AND TRANSFER OFFICE Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

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INTRODUCTION

Repositioning was the theme for Cathay International Holdings Limited in 2005. We acquired a pharmaceutical business to complement our biotech investments in the fast growing and changing China market. We also made a major investment in the redesign and renovation of the Landmark Hotel in Shenzhen (the “Hotel”) to position the Hotel at the very top end of the market as an all suite luxury business hotel.

LANDMARK HOTEL (SHENZHEN)

In December 2004, the Company closed the Hotel for a major renovation. The Hotel started operation on a “soft opening” basis in the last quarter of 2005; the Hotel has been redesigned to reflect the market trend towards larger rooms for five-star hotels in China and to meet the new “platinum five-star” hotel rating of the China National Tourism Administration, the highest hotel standard in China.

The all suite Landmark (smallest suite size 48 sq.m.) is located in the central business district of Shenzhen. Shenzhen is one of the two

main financial centres in China, is a major commercial centre and is close to Hong Kong. The renovation has upgraded the standard to satisfy the most demanding of business travellers. There will be an official re-opening ceremony combined with an extensive marketing programme in mid-2006. The web site of the Hotel (http://www.szlandmark.com/eng/index.htm) has also been redesigned. The Board believes that the Hotel will continue to be an important and valuable asset and expects it to make a major contribution from mid-year 2006 onwards.

BIOTECHNOLOGY AND PHARMACEUTICAL BUSINESS

The Company completed the acquisitions of Ningbo Liwah Pharmaceutical Company Limited (“Liwah”) and Lansen Medicine (Shenzhen) Company Limited (“Lansen”) in August 2005. Liwah is principally engaged in the manufacture and sale of Chinese herbal medicine and herbal extracts. Lansen is principally engaged in the marketing and distribution of pharmaceutical products in China.

We continued with our strategy of developing a complete value chain for our biotechnology and pharmaceutical investments in China.

Supported by China’s dynamic economy, we believe these businesses will generate long-term growth and improved shareholder returns in the future.

Atrium Ballroom, The Landmark

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

PERFORMANCE

Hotel Corporate

Operations Pharmaceuticals Office Production

Research & marketing &

(Stated in USD’000) development distribution Total

For the year ended 31 December 2005

Contracted income – 4,950 6,282 – 11,232

Less consolidation adjustment – (4,950) – – (4,950)

Revenue – – 6,282 – 6,282

Segment profit/(loss) before taxation (2,298) 4,554 708 (3,609) (645)

Less consolidation adjustment – (4,950) – – (4,950)

(2,298) (396) 708 (3,609) (5,595)

For the year ended 31 December 2004

Revenue 6,918 – – – 6,918

Segment profit/(loss) before taxation 819 (1,509) – (6,142) (6,832)

BACKGROUND ON CONSOLIDATION ADJUSTMENT FOR PHARMACEUTICAL’S RESEARCH & DEVELOPMENT OPERATION

In 2003, the Company’s subsidiary, Tianjin Longbai Biological Engineering and Technology Company Limited (“Longbai”) reached an advanced stage of development of the application of oral fast release technology on several drugs, ready for sale to the market. Amongst interested buyers in the market at that time was Liwah, then an associated company of the Sanjiu Group, a listed pharmaceutical group in China, who approached Longbai and expressed interest in buying Longbai’s technology.

As it took time for Longbai to completely develop all the oral fast release drugs that Liwah targeted to acquire, on 20 December 2003, Liwah entered into an initial agreement with Longbai whereby Longbai agreed to sell and transfer to Liwah the technology and related rights and interests to an oral fast release drug, Paracetamol, for an agreed price of RMB10 million (approximately USD1.2 million). Liwah continued negotiations with Longbai on the acquisition of another five of the eight oral fast release drugs in advanced stages of development.

On 26 May 2005, a supplementary agreement (“Technology Transfer Agreement”) was entered into between Liwah and Longbai which included the sale and transfer of six oral fast release drugs (including Paracetamol) developed by Longbai for a total consideration of RMB40 million (approximately USD5 million).

As described in the open offer document to shareholders of the Company dated 28 July 2005, on 14 March 2005 and 10 May 2005, the Group via wholly owned subsidiaries signed share transfer agreements with the then shareholders of Liwah (including Sanjiu) relating to the acquisition of Liwah. The acquisition of Liwah was subject to a number of conditions, including the obtaining of all necessary government approvals and the Company’s shareholders approval. On the other hand, the Technology Transfer Agreement was a legally binding agreement and both Longbai and Liwah had recorded the transaction in their own accounts before the completion of the acquisition of Liwah by the Group. The Company completed the acquisition of Liwah on 19 August 2005 and Liwah became a subsidiary of the Group.

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The Company considered that the Technology Transfer Agreement was entered into when Liwah was an independent third party and was not yet a subsidiary of the Group and accordingly that the revenue and associated profit arising from the Technology Transfer Agreement should also be accounted for in the consolidated accounts of the Group.

However, on subsequent review of the pertinent accounting requirements and standards, the treatment of this revenue and associated profit in the consolidated accounts of the Group is open to debate. The directors have adopted the most prudent accounting approach of eliminating by consolidation adjustments this revenue and associated profit in the consolidated accounts of the Group.

As the Technology Transfer Agreement represented Longbai’s first major commercial success and made a significant contribution to the Group after its over three years’ investment in Longbai, the directors and the auditors of the Company feel it is proper to show in the table above this revenue and associated profit, which have been eliminated from the consolidated accounts.

OPERATING RESULTS

Turnover of USD6,282,000 (after the consolidation adjustment) for the year 2005 was generated from the sale of pharmaceutical products by Liwah and Lansen in the production, marketing and distribution division.

The loss before taxation of the Hotel operation for the year 2005 mainly arose from interest on bank borrowing and pre-opening expenses. Since the Hotel was in its pre-opening phase, the operating profit of the Hotel during this period was recorded as a reduction of pre-operating expenses capitalized during the renovation period.

The profit before taxation of the pharmaceutical business for the year 2005 was owing to profit contributions from Liwah and Lansen.

The gross profit of the biotechnology and pharmaceutical division was USD4,176,000 (2004: Nil). The profit before tax and minority interests was USD312,000 (2004: loss of USD1,509,000).

The Company recorded a reduced overall loss for the year 2005 as a result of the positive contribution from its pharmaceutical business:

– the operating loss for 2005 was USD4,111,000 (2004: loss of USD5,573,000).

– the pre-tax loss before minority interests was USD5,595,000 (2004: loss of USD6,832,000).

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005 Net assets at the end of 2005 were USD86,023,000 (2004:

USD72,341,000). The increase was primarily due to the Company’s equity fund raising by way of an open offer to shareholders which financed the acquisitions and investments in Liwah and Lansen. Net assets per share at the end of 2005 were USD0.33 (2004: USD0.40). This small reduction is partly due to the dilutive effect of the open offer.

On 28 July 2005, the Company conducted an open offer and issued 80,017,779 new common shares at 9 pence per new common share raising net proceeds of USD12,355,679 to finance its acquisitions of and investments in Liwah and Lansen.

On 19 August 2005, a loan facility for up to USD18 million, on normal commercial terms and on an unsecured basis, was entered into by the Company with Cathay International EW No. 43 Limited, the immediate parent undertaking of Cathay International Enterprises Limited, which is itself the immediate parent undertaking of the Company.

Gearing increased to 57% (2004: 35%), primarily as a result of the consolidation in the Group’s accounts of bank and other borrowings arising as a result of the acquisitions of Liwah and Lansen and borrowings related to the Hotel renovation.

On 20 April 2006, the Company announced that it had raised £1,500,000 (approximately USD2,673,000) by way of a private placement of 15,000,000 new common shares (the “New Common Shares”) at an issue price of 10 pence per share (the “Placing”). The principal purposes of the Placing was to ensure that at least 25% of the Company’s listed securities are in public hands, as required by the listing rules of the UK Listing Authority (the “UKLA”) and to

introduce new investors to the Company. The funds raised are to be used for general working capital. The Company had the authority to issue the New Common Shares under the Placing pursuant to resolutions passed by shareholders at the special general meeting of the Company held on 16 August 2005. The New Common Shares represent 5.44% of the issued share capital of the Company as enlarged as a result of the Placing. Immediately following the completion of the Placing, approximately 27.77% of the Company’s listed securities will be in public hands as defined by the listing rules of the UKLA.

Cigar and Wine Lounge, The Landmark

Prego Italian Restaurant, The Landmark

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CONCLUSION AND APPRECIATION

Despite the challenges of the past year, we have successfully implemented our strategy and laid the foundations for our future growth.

Your Board continues to believe that there are attractive opportunities for investment in China, and we are actively seeking additional business opportunities in China to provide new sources of steady earnings and capital growth. New investments in China will only be made after conducting careful and professional evaluations of the risks.

On 3 April 2006, Mr. Mao Yu Min resigned as a director of the Company. On behalf of the Board, I would like to thank Mr. Mao for his past services to the Company.

On behalf of the Board, I would also like to thank our staff for their continued dedication and commitment.

James Buchanan

Chairman

Meeting Room, The Landmark

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

LANDMARK HOTEL (SHENZHEN)

In 2004, the Company decided to renovate its 5-star hotel located in the Lowu district of Shenzhen. The Hotel has been redesigned to meet the new “platinum five-star” hotel rating of the China National Tourism Administration which is the highest standard for hotels in China.

During the closur e of the Hotel, the Company took the opportunity to undertake further staf f training. The Hotel engaged a firm associated with Singapor e Airlines specializing in developing and

enhancing service quality to pr ovide training to staf f of all ranks in the Hotel. Personalized butler service was intr oduced into the Hotel and a UK firm specializing in butler training was engaged to pr ovide tuition in this unique service for the Hotel. Additional training was provided to the sales and marketing team. The Hotel is being positioned firmly at the top end of the corporate and business market.

The Hotel has 235 r enovated and enlarged suites (compar ed to 351 smaller rooms befor e the r enovation). In addition, the Hotel has a new and enlarged banqueting facility , a new executive lounge, a new Italian r estaurant, a new cigar and wine lounge, new confer ence r oom facilities and a new wellness centr e including spa facilities.

The Hotel commenced business again in the last quarter of 2005 and gradually released new r ooms and facilities to the market. The Hotel will be applying for the “platinum five-star” hotel rating later in the year .

The total cost of the major r enovation is expected to be at the high end of the pr eviously announced range of appr oximately USD10-12 million and has been financed by existing cash r esour ces and shar eholder loans.

In accor dance with its usual practice, the Gr oup conducted an annual r evaluation of the Hotel. The Hotel was valued at USD118 million (2004: USD102 million) as at 31 December 2005 by Colliers Inter national, an independent firm of pr ofessional valuers.

Although the Hotel was not able to generate a positive contribution to the Company’ s results in year 2005, the Boar d believes that the Hotel will make a major contribution fr om mid-year 2006 onwar ds.

Grand Ballroom, The Landmark

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BIOTECHNOLOGY AND PHARMACEUTICAL BUSINESS

NINGBO LIWAH PHARMACEUTICAL COMPANY LIMITED (“LIWAH”)

The principal business of Liwah is the manufactur e and sale of Chinese herbal medicine in r eady-to-use form and herbal extracts, principally in the form of capsules, tablets, granules and liquid medication. Liwah has Good Manufacturing Practice (“GMP”) pr oduction facilities for tablets, capsules, granules, syrup, oral solution, mixtur e, bulk and ointment.

The business activities of Liwah include the manufactur e of Chinese medicine (including r eady-to-use medicine), invigorants and wester n medicine and also the import and export of its own and thir d parties’ products and technologies.

Liwah, incr eased its pr oduction capacity during the year to meet incr easing sales demand and in anticipation of a further incr ease in demand, is curr ently expanding its pr oduction facilities for capsule and tablet forms. T wo new GMP pr oduction lines ar e expected to commence pr oduction in 2006.

Liwah is implementing further quality contr ol measur es thr oughout

the whole pr ocess including but not limited to raw material pur chase, manufacturing and delivery of pr oducts.

Liwah has been str eamlined during the period to achieve gr eater specialization and business synergy , including the merger of the sales teams of Liwah and Lansen. All the Chinese herbal pr oducts pr oduced by Liwah ar e now distributed and marketed thr ough Lansen. Liwah has also spun of f its extraction business and its newly developed oral fast r elease business into two separate subsidiaries to concentrate its focus on its cor e business which is the manufactur e of Chinese herbal medicine.

As a r esult of the abovementioned spin-of f, two new companies wer e formed in September 2005, namely Ningbo Liwah Plant Extraction Technology Limited (“Plant Extraction Company”) and Ningbo Lansen Pharmaceutical T echnology Limited (“Ningbo Lansen”).

The main business of the Plant Extraction Company is the manufactur e and sale and marketing of plant extract pr oducts such as Ginkgo Biloba extract, Paeonia Lactiflora extract and Chinese herbal extract granule. The Management is committed to impr oving the price competitiveness of the pr oducts as well as making the pr oducts mor e accessible to inter national markets such as Eur ope and Japan. The Plant Extraction Company is now constructing a new GMP pr oduction plant equipped with advanced facilities. The construction is expected to be completed in 2007. During the interim period, the pr oduction and sales activities of the plant extraction business will continue to be carried out by Liwah in leased facilities.

The main business of Ningbo Lansen is the manufactur e, marketing and sale of oral fast r elease drugs. Ningbo Lansen is also constructing a new pr oduction plant with GMP pr oduction lines that will enable the company to manufactur e oral fast r elease pr oducts. The new plant is expected to be completed in 2007. Until then, the Liwah pr oduction facilities will be used. Ningbo Lansen has alr eady filed the applications with the State Food and Drug Administration (“SFDA”) for the Pr oduction Licences for two oral fast r elease drugs. It is expected that at least one oral fast r elease drug will be launched in 2006.

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

LANSEN MEDICINE (SHENZHEN) COMPANY LIMITED (“LANSEN”)

The principal business of Lansen is the marketing and distribution of pharmaceutical pr oducts in China.

Lansen is r esponsible for the marketing and distribution of drugs owned and manufactur ed by Liwah, including pr escription drugs primarily used for rheumatic, orthopedic and stomatology r elated diseases, as well as some over -the-counter (“OTC”) drugs. Lansen also acts as the agency for distribution of drugs manufactur ed by other pharmaceutical companies. In year 2005, Lansen was engaged by a pharmaceutical company in Fujian Pr ovince to act as the exclusive PRC nationwide distribution agent for a pr escription drug for rheumatic r elated diseases. Another pharmaceutical company in Zhejiang Pr ovince has also granted Lansen the right to distribute a prescription drug used for orthopedic r elated diseases.

The company has built up a national marketing and sales network with mor e than 250 sales r epr esentatives, covering national and major hospitals and clinics in major pr ovinces in China.

CHANGCHUN BOTAI MEDICINE AND BIOLOGICAL TECHNOLOGY COMPANY LIMITED (“BOTAI”)

Botai continued to concentrate on the r esear ch and development of biological materials, diagnostic kits and drug delivery systems.

In December 2005, a New Drug Licence and Pr oduction Licence of a hydr ogel drug for the r elief of pain associated with rheumatoid arthritis was granted by the SFDA.

In January 2006, the GMP certificate for the hydr ogel pr oduction line was granted to Botai and limited pr oduction has commenced to test the market for this pr oduct.

TIANJIN LONGBAI BIOLOGICAL ENGINEERING AND TECHNOLOGY COMPANY LIMITED (“LONGBAI”)

Longbai has been involved in the r esear ch and development of drug delivery formats and oral fast r elease drugs which ar e its cor e business.

Applications for New Drug Licences and Pr oduction Licences for thr ee oral fast r elease drugs have been submitted to the SFDA for appr oval.

During the year , Longbai completed the sale of six oral fast r elease drugs to Liwah, an associated company , and r eceived the consideration of USD4,950,000.

In December 2005, the registered capital of Longbai increased from USD687,000 to USD1,009,000 , with capital contributed by existing shareholders of Longbai on a pro-rata basis. In April 2006, the r egister ed capital of Longbai was further incr eased fr om USD1,009,000 to USD1,733,000. The capital incr ease was financed by the transfer of unappr opriated pr ofit of USD724,000 to r egister ed capital.

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COMPLIANCE

Following a review of our procedures the Board concluded that, throughout the accounting period, the Group complied with the Code provisions as set out in Section 1 of the revised Combined Code with exceptions relating to the composition of the Board and its committees as set out below. Exceptions from compliance with the Code were that during the year, the Remuneration Committee and the Audit Committee did not consist exclusively of independent non-executive Directors (provisions B.2.1 and C.3.1 of the Code), and there is no separate nominations committee (provision A.4.1).

APPLICATION OF PRINCIPLES

DIRECTORS

Throughout the period under review the Board consisted of a non-executive Chairman, four executive directors and one other non-executive Director. The non-executive members of the Board are independent of management and any business or other relationship which could interfere with the exercise of their independent judgement. J.R.H. Buchanan is both the non-executive Chairman and the senior independent director. Five Board meetings were convened during the year which included reviews of the financial and business performance of the Group. Management supply the Board with appropriate and timely information and the Directors are free to seek any further information they consider necessary. All Directors have access to advice from the company secretary and independent professionals at the Group’s expense. The Board members and their experience are described on page 18.

RELATIONS WITH SHAREHOLDERS

The Group values the views of its shareholders and recognises their interest in the Group’s strategy and performance, Board membership and quality of management.

The Shareholder Information Sessions and the AGMs are used to communicate with private shareholders and they are encouraged to participate. Members of the Audit and Remuneration Committees are available to answer questions at those meetings. Separate resolutions are proposed on each issue so that they can be given proper consideration and there is a resolution to approve the annual report and financial statements. The Group counts all proxy votes and will indicate the level of proxies lodged on each resolution after it has been dealt with by a show of hands.

In addition, shareholders in the Company can gain access to information regarding the operations of the Landmark Hotel through its web site address at http://www.szlandmark.com/eng/index.htm.

ACCOUNTABILITY AND AUDIT

The Audit Committee comprises both the non-executive Directors and Stephen Hunt, and is chaired by James Buchanan. The Audit Committee is required by its terms of reference to meet not less than twice a year. Its principal function is to review the Group’s interim and annual accounts before submission for approval by the Board and in addition it considers any matters raised by the Group’s auditors, focusing particularly on:

(a) any changes in accounting policies and practices;

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005 (d) compliance with accounting standards;

(e) compliance with Stock Exchange and legal requirements; and

(f) maintenance of relationships with external auditors and nature and extent of non-audit activity, which may affect their independence.

The Group does not have an internal audit function at present as it is not considered economic at this stage of development.

GOING CONCERN

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts.

INTERNAL CONTROL

The Board is responsible for establishing and maintaining the Group’s system of internal control to safeguard shareholders’ investment and the Group’s assets. Internal control systems are designed to meet the particular needs of the Group and the risk to which it is exposed, and by their nature can provide reasonable but not absolute assurance against material misstatement or loss.

The Board has reviewed its risk management and identified areas where procedures need to be managed or installed. An ongoing process for identifying, evaluating and managing significant risks faced by the Group was set up and is regularly reviewed by the Board in accordance with Turnbull guidance.

The Directors confirm that they have undertaken a full risk and control assessment and the process for identifying, evaluating and managing significant risks is in place. The Directors view this as an ongoing process.

The key procedures which the Directors have established with a view to providing effective internal control are as follows:

MANAGEMENT STRUCTURE

The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for the Board.

The executive Directors together with key senior executives constitute the management committee, which meets on a regular basis to discuss operational matters of the Group.

The organisational structure, which is the framework through which business activities are controlled and monitored, has specified the key areas and limits of authority.

The Board identified several business, financial and operation risks that affect the Group’s business activities. Control policies addressing these risks were in place throughout the period under review. Details of these policies are described below.

Responsibilities and accountabilities in each area are properly defined. A reporting system, including budgetary control and a monthly financial reporting system, gives the Board sufficient, accurate and timely information to manage the business in pursuit of its business objectives.

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QUALITY AND INTEGRITY OF PERSONNEL

The Group has appointed, both by recruitment and promotion, a number of experienced and professional staff of the necessary calibre to fulfil their allotted responsibilities. Through high recruitment standards and subsequent on-the-job training, the integrity and competence of personnel is ensured.

CORPORATE ACCOUNTING AND PROCEDURES MANUAL

The Group’s policies and procedures have been established with procedures for reporting weaknesses and for monitoring corrective action.

Moreover, responsibility levels are communicated throughout the Group in accordance with the corporate accounting and procedures manual which sets out the general ethos of the Group, delegation of authority and authorisation levels, segregation of duties and other control procedures. The manual is updated on a regular basis.

BUDGETARY PROCESS

Each year the Board approves the annual budget and key risk areas are identified. Performance is monitored and relevant action is taken throughout the year through monthly reporting to the Board of the key variances from the budget.

INFORMATION SYSTEMS

In order to exercise effective control over the business and the risks the Group faces, the most up to date data and information are always available for the Board to monitor the actual performance of the organisation against past and planned performance and to identify changes, problems and opportunities. In addition, regular reports have been prepared and reviewed by the Board on competitor hotel room rates and the daily occupancy levels of the Group’s hotel.

INVESTMENT APPRAISAL

Capital expenditure is regulated by the budgetary process and through setting authorisation limits within the Group hierarchy. For expenditure beyond specific levels, detailed written proposals have to be submitted to the Board. Reviews are carried out after the acquisition is completed, and for some projects, during the acquisition period, to monitor expenditure. Major overruns are investigated.

Due diligence work is carried out if a business is to be acquired.

INTERNAL AUDIT

The Group’s head office finance department undertakes periodic examination of business processes and ensures divisional management follow up on recommendations to improve controls.

QUALITY OF PROPERTIES

In order to maintain the competitiveness of the hotel, the Group adopted a policy of regular maintenance and refurbishment for the hotel property. Based on its condition, management prepares an annual maintenance and refurbishment program for the hotel. The progress of these programs is closely monitored.

GOVERNMENT POLICIES

Changes in government policies, especially in developing economies, could have a significant effect on the Group’s results. The management maintains a close relationship with local government authorities to keep abreast of government policy developments.

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

The Boar d recognises that dir ectors’ r emuneration is of legitimate concer n to the shar eholders and is committed to following curr ent best practice.

SECTION 1: INFORMATION NOT SUBJECT TO AUDIT

THE REMUNERATION COMMITTEE

The Remuneration Committee has r esponsibility for making r ecommendations to the Boar d on the Company’ s general policy on remuneration of senior management, including specific packages for individual dir ectors. It carries out the policy on behalf of the Boar d.

The membership of the Committee is as follows:

J.R.H. Buchanan Chairman

S.B. Hunt J.H. Cosson

J.R.H. Buchanan and J.H. Cosson ar e independent non-executive Dir ectors. Although both have served in excess of the term r ecommended by the r evised combined code, neither of them has any personal financial inter est in the matters to be decided (other than as shar eholders), potential conflicts of inter est arising fr om cr oss-dir ectorships or any day-to-day involvement in running the business.

The Committee meets and consults r egularly during the year . As well as considering conditions in the Gr oup as a whole, it takes into account the position of the Company r elative to other companies and is awar e of what these companies ar e paying, though comparisons are treated with caution to avoid an upwar d ratchet in r emuneration. The Committee consults the other executive dir ectors, has access to pr ofessional advice within the Company and, when appr opriate, can obtain its own independent pr ofessional advice fr om outside the Company .

Policy on Executive Directors’ Remuneration

The policy of the Boar d is to pr ovide executive r emuneration packages designed to attract, motivate and r etain dir ectors of the calibr e necessary to maintain the Gr oup’s position as an investor in China and to r ewar d them for enhancing the Gr oup’s shar eholder value. It aims to pr ovide suf ficient levels of r emuneration to do this, but to avoid paying mor e than is necessary . The r emuneration should also reflect the dir ectors’ r esponsibilities to deliver the Company’ s objectives.

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Main Elements of Remuneration

The Dir ectors’ curr ent r emuneration packages consist solely of a basic annual salary . Each executive Dir ector’s basic salary is r eviewed annually by the Remuneration Committee. In deciding upon appr opriate levels of r emuneration the Remuneration Committee believes that the Company should of fer average levels of base pay r eflecting individual r esponsibilities compar ed to similar jobs in comparable companies. Ther e are no annual bonus, shar e option incentives, shar e scheme or long-term incentives pr esently available to the Dir ectors.

Service Contracts

Ther e ar e no Dir ector’s service contracts which ar e not terminable on one year’ s notice or less.

Directors’ Pension Arrangements

The Company has no pension arrangement for dir ectors.

Non-executive Directors

The r emuneration of the non-executive Dir ectors is determined by the Boar d in accor dance with the Company’ s Bye-Laws.

The non-executive Dir ectors ar e not involved in any decisions about their own r emuneration.

PERFORMANCE GRAPHS

CATHAY INTERNATIONAL HOLDINGS LTD (CTI) VS FTSE ALL SHARE (ASX)

TSR Performance Graph 2001 2002 2003 2004 2005 60 80 100 120 140 160 180 TSCATHAY

FTSE ALL SHARE - TOT RETURN IND

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

The above graph shows the Company’ s Total Shar eholder Retur n (TSR) performance compar ed to the TSR of the FTSE ALL SHARE Index over the past five years. TSR is defined as the per centage change over the period in market price assuming the r e-investment of income and funding of liabilities of the theor etical holding.

The Company is a constituent company of the FTSE ALL SHARE Index and the Dir ectors do not believe that ther e is a mor e appr opriate comparator gr oup upon which a br oad equity market index is calculated. TSR has been calculated on a one month averaging basis in order to r educe the volatility associated with spot prices.

INFORMATION ON SERVICE CONTRACTS

The following ar e particulars of the Dir ectors’ existing service contracts:

(i) Wu Zhen T ao was appointed under a service contract with Cathay Inter national Holdings Limited (a U.K. wholly-owned subsidiary of the Company) dated 12 September 1994 and his employment may be terminated with one month’ s notice.

(ii) Stephen Hunt was appointed under a service contract with Cathay Inter national Services Limited (a wholly-owned subsidiary of the Company) dated 1 April 2000 and his employment may be terminated with immediate ef fect by written notice.

(iii) Patrick Sung was appointed under a service contract with Cathay Inter national Services Limited dated 1 April 2000 and his employment may be terminated with immediate ef fect by written notice.

(iv) Mao Y u Min was appointed under a service contract with Cathay Inter national Holdings Limited dated 2 October 2003 and his employment may be terminated with immediate ef fect by written notice. Mao Y u Min r esigned on 3 April 2006.

(v) James Buchanan does not have a service contract with the Company .

(vi) John Cosson was appointed as a non-executive Dir ector of the Company under a service contract dated 2 January 2002. The service contract may be terminated with immediate ef fect by written notice.

(vii) The service contracts with all the Dir ectors do not pr ovide for any termination payment.

Dir ectors ar e subject to election by shar eholders at the first opportunity after their appointment and to r e-election at intervals of no mor e than thr ee years. A Dir ector r etiring by r otation is eligible for r eappointment and acts as a dir ector thr oughout the meeting at which he r etir es.

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SECTION 2: INFORMATION SUBJECT TO AUDIT

DIRECTORS’ EMOLUMENTS AND COMPENSATION

Year ended Year ended 31 December 31 December

2005 2004

USD’000 USD’000

In r espect of executive services 1,003 1,003

Dir ectors’ fees 115 115

1,118 1,118

Highest paid Dir ector 383 383

Ther e ar e no arrangements in place to pr ovide Dir ectors with performance r elated pay or pension contributions. No Dir ector has any options over shar es in the Company . Ther e wer e no emoluments waived during the year .

The emoluments of the Dir ectors ar e as follows:

Year ended Year ended 31 December 31 December

2005 2004

USD’000 USD’000

J.R.H. Buchanan (£50,000 per annum) 96 96

Wu Zhen T ao (£50,000 per annum) 96 96

S.B. Hunt 383 383

J.H. Cosson (£10,000 per annum) 19 19

P. Sung 174 174

Mao Y u Min 350 350

1,118 1,118

Other than the basic salary , no Dir ector is entitled to any other benefits, performance-r elated payments, or shar e incentive schemes.

ON BEHALF OF THE BOARD James Buchanan

Director

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Repor t 2005 The curr ent dir ectors and secr etary of the Company ar e as follows:

*† _{J.R.H. Buchanan Chairman} Wu Zhen Tao Chief Executive

† _{S.B. Hunt Deputy Chairman} P. Sung Finance Director

*† _{J.H. Cosson}

* Non-executive

† _{Member of Audit and Remuneration Committees}

Linda Carter, Secretary

JAMES R.H. BUCHANAN

Mr. Buchanan, 50, has been a non-executive Dir ector with the Gr oup since 1987 and he became Chairman of Cathay Inter national Holdings Limited in 1988. He has been involved in investments in Asia since 1982.

WU ZHEN TAO

Mr. Wu, 52, is Chief Executive of the Company . He was bor n and educated in Beijing and is a Science graduate of Beijing Industrial University . He also has a degr ee in Business Administration. Following a period as a senior executive in gover nment scientific institutes, he held posts as Managing Dir ector of two newly established state owned financial institutions. Since 1988 Mr . Wu has, thr ough companies, invested in and developed the Landmark Hotel in Shenzhen and established the Cathay Inter national W ater Limited gr oup of companies.

STEPHEN B. HUNT

Mr. Hunt, 66, is Deputy Chairman of the Company . He was formerly Managing Dir ector of Aliant Capital, a mer chant bank in Hong Kong. Mr . Hunt, a US citizen, spent 24 years with Bank of America in management and lending positions including posts in New Y ork, Singapor e, London, Amster dam and T aiwan. He was Senior V ice-Pr esident and Ar ea General Manager for Bank of America located in Hong Kong.

PATRICK SUNG

Mr. Patrick Sung, 45, is Finance Dir ector of the Company . Mr. Sung has a degr ee in Business Administration fr om Simon Fraser University in Canada. He is a member of the Institute of Charter ed Accountants of British Columbia and a member of the Hong Kong Society of Accountants. Prior to joining the Gr oup as Financial Contr oller in January 1994, he had over eight years of experience with inter national accounting firms, PricewaterhouseCoopers and Er nst & Y oung, in Canada and Hong Kong.

JOHN H. COSSON

Mr. Cosson, 66, has been a non-executive Dir ector with the Gr oup since 1989. He was UK Head of Corporate Banking of Standar d Charter ed Bank and prior to that was Assistant General Manager of Midland and Inter national Banks Limited.

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The Directors present their Report together with the Accounts for the year ended 31 December 2005.

1. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

A review of the Group’s principal activities and its business are contained in the review of operations on pages 8 to 10.

2. RESULTS AND DIVIDENDS

The results are set out in the Group Income Statement on page 24.

No interim dividend has been paid and the Directors do not recommend payment of a final dividend on the Common Shares or the A Shares.

3. DIRECTORS AND THEIR INTERESTS

The Directors at 31 December 2005 and their interests and those of their families in the share capital of the Company as shown in the Register of Directors’ interests as at the dates indicated below were as follows:

Common Shares of USD0.05 each A Shares of USD0.05 each 31.3.2006 31.12.2005 1.1.2005 31.3.2006 31.12.2005 1.1.2005 J.R.H. Buchanan 1,585,009 1,585,009 1,425,602 119,999 119,999 119,999 Wu Zhen Tao 172,376,874 172,376,874 98,001,401 8,249,276 8,249,276 8,249,276 S.B. Hunt – – – – – – J.H. Cosson 8,269 8,269 8,269 726 726 726 P. Sung – – – – – – Mao Yu Min – – – – – –

No rights to subscribe for shares in or debentures of the Company or any subsidiary undertakings existed at 31 December 2005 nor were any granted in the year.

Mr. Wu Zhen Tao’s interest arises as a result of his beneficial interest in Cathay International Enterprises Limited. On 12 March 2004, Barclays Private Bank & Trust (Cayman) Ltd. acquired, as trustee, the indirect interest of Mr. Wu Zhen Tao in the Company, but Mr. Wu Zhen Tao and members of his family are the beneficiaries of the trust of which Barclays Private Bank & Trust (Cayman) Ltd. is trustee.

Directors are subject to election by shareholders at the first opportunity after their appointment. Each Director (other than the Chairman and the Chief Executive) is also subject to retirement by rotation and each Director is subject to re-election at intervals of no more than three years. Biographical information on the Directors is included on page 18. A Director retiring by rotation is eligible for reappointment and acts as a Director throughout the meeting at which he retires.

Non-executive Directors are appointed for specified terms subject to re-election and to the provisions set out in the Bye-laws of the Company relating to the removal of a Director. Their reappointment is not automatic.

There are no Directors’ service contracts which are not terminable on one year’s notice or less.

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Report 2005

4. PROPERTY, PLANT & EQUIPMENT

Changes in property, plant & equipment together with details of revaluations of certain of these assets are shown in note 8 of the Financial Statements.

5. SIGNIFICANT SHAREHOLDINGS

At 31 March 2006, save as shown in the Directors’ shareholdings on page 19, there were the following interests in 3% or more of the Company’s issued share capital.

Common Shares of % of issued A Shares of % of issued USD0.05 Common Share USD0.05 A Share

each Capital each Capital

Simon Phillips 13,827,321 5.56 92,075 0.77

New Capital Investment

(Hong Kong) Limited 9,121,679 3.67 864,513 7.19

6. TERMS OF AGREEMENT WITH SUPPLIERS

The Group agrees payment terms and conditions with individual suppliers which vary according to the commercial relationship and the terms of agreements reached. It is the policy of the Group that whenever possible payments to suppliers are made in accordance with the terms agreed.

At 31 December 2005, the Group had an average of 143 days purchases outstanding in trade creditors (2004: 32 days).

7. ANNUAL GENERAL MEETING

In continued recognition of the corporate structure of the Group and its international profile, it has been decided to hold this year’s Annual General Meeting in Paris. Notice of the Annual General Meeting is set out at the end of this document. In order to allow UK based shareholders who do not wish to travel to Paris an opportunity to raise questions with the Board, a Shareholder Information Session will be held in London at 4:00 p.m. on 8 June 2006 at the Mansfield Suite, Renaissance Chancery Court Hotel, 252 High Holborn, London WC1V 7EN.

The Directors continue to believe that it is advantageous for the Company to be able to buy its own Common Shares in the market and accordingly resolution 6, which will be proposed at the annual general meeting, seeks a general authority to do so. The Directors have no present intention of utilising this authority and will only make any such purchase if they believe that doing so would be in the best interests of shareholders generally.

By order of the Board Linda Carter

Secretary

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It is the r esponsibility of the Dir ectors to pr epar e financial statements for each financial year which give a true and fair view of the state of af fairs of the Company and the Gr oup and of the pr ofit or loss of the Gr oup for that year . In pr eparing those financial statements, the Directors:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that ar e reasonable and prudent; and

state whether applicable accounting standar ds have been followed, subject to any material departur es disclosed and explained in the financial statements.

The Dir ectors ar e responsible for maintaining pr oper accounting r ecor ds which disclose with r easonable accuracy at any time the financial position of the Gr oup. They ar e also r esponsible for safeguar ding the assets of the Gr oup and hence for taking r easonable steps for the pr evention and detection of fraud and other irr egularities.

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CATHAY INTERNATIONAL HOLDINGS LIMITED Annual Repor t 2005

We have audited the gr oup financial statements of Cathay Inter national Holdings Limited for the year ended 31 December 2005 which comprise the principal accounting policies, the gr oup income statement, the gr oup balance sheet, the gr oup cash flow statement, the group statement of change in shar eholders’ equity and notes 1 to 27. These gr oup financial statements have been pr epar ed under the accounting policies set out ther ein. W e have also audited the information in the Dir ectors’ Remuneration Report that is described as being audited.

This r eport is made solely to the Company’ s members, as a body , in accor dance with Section 90(2) of the Bermudan Companies Act 1981. Our audit work has been undertaken so that we might state to the Company’ s members those matters we ar e requir ed to state to them in an auditors’ r eport and for no other purpose. T o the fullest extent permitted by law , we do not accept or assume r esponsibility to anyone other than the Company and the Company’ s members as a body , for our audit work, for this r eport, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The dir ectors’ r esponsibilities for pr eparing the annual r eport and the gr oup financial statements in accor dance with Bermudan law and Inter national Financial Reporting Standar ds (IFRSs) as adopted by the Eur opean Union ar e set out in the Statement of Dir ectors’ Responsibilities.

Our r esponsibility is to audit the gr oup financial statements in accor dance with r elevant legal and r egulatory r equir ements and Inter national Standar ds on Auditing (UK and Ir eland), the listing rules of the Financial Services Authority and the United Kingdom Dir ectors Remuneration Report Regulations 2002.

We r eport to you our opinion as to whether the gr oup financial statements give a true and fair view and whether the gr oup financial statements have been pr operly pr epar ed in accor dance with the Bermudan Companies Act 1981, the United Kingdom Dir ectors Remuneration Report Regulations 2002 and Article 4 of the IAS Regulation. W e also r eport to you if, in our opinion, the Dir ectors’ Report is not consistent with the gr oup financial statements, if we have not r eceived all the information and explanations we r equir e for our audit, or if information specified by law r egar ding dir ector’ s remuneration and other transactions is not disclosed.

We review whether the Corporate Gover nance Statement r eflects the Company’ s compliance with the nine pr ovisions of the 2003 FRC Combined Code specified for our r eview by the Listing Rules of the Financial Services Authority , and we r eport if it does not. W e ar e not requir ed to consider whether the Boar d’s statements on inter nal contr ol cover all risks and contr ols, or form an opinion on the ef fectiveness of the Gr oup’s corporate gover nance pr ocedur es or its risk and contr ol pr ocedur es.

We r ead other information contained in the annual r eport and consider whether it is consistent with the audited gr oup financial statements. The other information comprises only the dir ectors’ r eport, the chairman’ s statement, the operational r eview and the corporate gover nance statement. W e consider the implications for our r eport if we become awar e of any appar ent misstatements or material inconsistencies with the gr oup financial statements. Our r esponsibilities do not extend to any other information.

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BASIS OF AUDIT OPINION

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements.

OPINION

In our opinion:

– the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 December 2005 and of its loss for the year then ended;

– the parent company financial statements give a true and fair view, in accordance with IFRS’s as adopted by the European Union as applied in accordance with the provisions of the Bermudan Companies Act 1981 of the state of the company’s affairs as at 31 December 2005; and

– the group financial statements have been properly prepared in accordance with the Bermudan Companies Act 1981, the United Kingdom Directors Remuneration Report Regulations 2002 and Article 4 of the IAS Regulation.

Grant Thornton UK LLP

Registered Auditors Chartered Accountants

London 28 April 2006

Note: Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

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Year ended Year ended

31 December 31 December

2005 2004 Note USD’000 USD’000

CONTRACTED INCOME 11,232 6,918

CONSOLIDATION ADJUSTMENT 1.3 (4,950) –

REVENUE 1 6,282 6,918

COST OF SALES (2,106) (6,099)

GROSS PROFIT 4,176 819

SELLING AND DISTRIBUTION EXPENSES (2,405) –

ADMINISTRATIVE EXPENSES

Administrative expenses (5,006) (5,769)

Write off and impairment of intangible assets – (623)

(5,006) (6,392)

PRE-OPERATING EXPENSES (876) –

LOSS FROM OPERATIONS 2 (4,111) (5,573)

FINANCE COSTS-NET 3 (1,484) (1,259)

LOSS BEFORE TAXATION 1 (5,595) (6,832)

TAXATION 5 – –

LOSS ON ORDINARY ACTIVITIES

AFTER TAXATION (5,595) (6,832)

ATTRIBUTABLE TO:

MINORITY INTEREST 750 (14)

EQUITY SHAREHOLDERS (6,345) (6,818)

(5,595) (6,832)

LOSS PER SHARE

BASIC 7 (2.87 cents) (3.77 cents)

As at 31 December 2005

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As at As at

31 December 31 December

2005 2004 Note USD’000 USD’000

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 8 129,452 107,288

Investment property 9 1,319 –

Intangible assets 10 575 192

Goodwill 11 6,243 180

Investments 12 – 4,946

Loans to minority shareholders 126 –

137,715 112,606

CURRENT ASSETS

Inventory 13 2,520 235

Trade and other receivables 14 11,538 2,653

Cash and cash equivalents 10,020 3,835

24,078 6,723

TOTAL ASSETS 161,793 119,329

EQUITY AND LIABILITIES

CAPITAL AND RESERVES

Called up share capital 15 13,043 9,042

Share premium 8,355 –

Capital and special reserve 43,320 43,320

Revaluation reserve 55,884 53,529

Exchange equalisation reserve (11,551) (10,463 )

Statutory reserve 1,104 1,083

Profit and loss account (30,515) (24,170 )

SHAREHOLDERS’ FUNDS 79,640 72,341

MINORITY INTEREST 6,383 –

TOTAL EQUITY 86,023 72,341

NON-CURRENT LIABILITIES

Borrowings 16 23,241 21,331

Deferred tax liabilities 17 15,164 15,264

38,405 36,595 CURRENT LIABILITIES

Borrowings 16 8,332 4,391

Trade and other payables 18 29,033 6,002

37,365 10,393

TOTAL LIABILITIES 75,770 46,988

TOTAL EQUITY AND LIABILITIES 161,793 119,329

Approved by the Board on 28 April 2006

WU ZHEN TAO

Directors

STEPHEN HUNT

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As at As at

31 December 31 December

2005 2004 Note USD’000 USD’000

ASSETS

NON-CURRENT ASSETS

Investments in subsidiaries 19 17,595 17,595

17,595 17,595

CURRENT ASSETS

Trade and other receivables 14 10,914 6

Cash and cash equivalents 39 32

10,953 38

TOTAL ASSETS 28,548 17,633

EQUITY AND LIABILITIES

CAPITAL AND RESERVES

Called up share capital 15 13,043 9,042

Share premium 20 8,355 –

Capital and special reserve 20 (18,716) (18,716)

Profit and loss account 20 7,772 8,634

SHAREHOLDERS’ FUNDS 10,454 (1,040)

CURRENT LIABILITIES

Trade and other payables 18 18,094 18,673

18,094 18,673

TOTAL LIABILITIES 18,094 18,673

TOTAL EQUITY AND LIABILITIES 28,548 17,633

Approved by the Board on 28 April 2006

WU ZHEN TAO

Directors

STEPHEN HUNT

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Capital and Exchange Profit Share Share Special Revaluation Equalisation Statutory and Loss

Capital Premium Reserve Reserve Reserve Reserve Account Total

USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000 USD’000

Balance at 1 January 2004 9,042 – 42,923 51,422 (9,924) 1,078 (17,351) 77,190

Exchange differences arising on translation

of foreign currency operations – – – 295 (539) 5 (1) (240)

Adjustment of cost of fixed assets – – – 1,074 – – – 1,074

Surplus on revaluation of hotel properties – – – 738 – – – 738

Waiver of payable to minority interest on

impairment of intangible assets – – 397 – – – – 397

Net income recognised directly in equity – – 397 2,107 (539) 5 (1) 1,969

Loss for the year – – – – – – (6,818) (6,818)

Total recognised income and

expenses for the year – – 397 2,107 (539) 5 (6,819) (4,849)

Balance at 1 January 2005 9,042 – 43,320 53,529 (10,463) 1,083 (24,170) 72,341 Exchange differences arising on translation

of foreign currency operations – – – 1,322 (1,088) 21 – 255

Surplus on revaluation of hotel properties – – – 1,033 – – – 1,033

Net income recognised directly in equity – – – 2,355 (1,088) 21 – 1,288

Loss for the year – – – – – – (6,345) (6,345)

Total recognised income and

expenses for the year – – – 2,355 (1,088) 21 (6,345) (5,057)

Issue of share capital 4,001 9,032 – – – – – 13,033

Cost of issue – (677) – – – – – (677)

Balance at 31 December 2005 13,043 8,355 43,320 55,884 (11,551) 1,104 (30,515) 79,640

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Year ended Year ended

31 December 31 December

2005 2004

USD’000 USD’000

Operating activities

Loss from operations (4,111) (5,573)

Adjustments for:

Impairment of intangible assets – 143

Written off intangible assets – 480

Depreciation 642 513

Amortisation of goodwill – 23

Amortisation of intangible assets 29 –

Loss on investments 56 49

Loss on disposal of property plant and equipment 37 –

Gain on deemed acquisition of subsidiaries (188) –

Operating cash flows before movements in working capital (3,535) (4,365)

(Increase)/decrease in inventories (228) 170

Increase in receivables (181) (1,242)

(Decrease)/increase in payables (4,314) 252

Cash absorbed by operations (8,258) (5,185)

Interest paid (1,654) (1,478)

Net cash absorbed by operating activities (9,912) (6,663)

Investing activities

Purchase of property, plant and equipment (18,410) (1,744)

Purchase of intangible assets (62) (153)

Proceeds from disposal of investments 4,890 –

Proceeds from disposal of associate 152 –

Acquisition of subsidiaries (1,453) –

Interest received 170 219

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31 December 31 December

2005 2004

USD’000 USD’000

Financing activities

Capital element of finance lease payment (10) (5)

Proceeds from borrowings 183 1,000

Repayments of borrowings – (2,399)

Proceeds from issue of shares, net of expenses 12,356 –

Loans from an intermediate parent undertaking 17,831 –

Loans to minority shareholders (126) –

Net cash from/(used in) financing activities 30,234 (1,404)

Effects of exchange rate changes 576 (387)

Net increase/(decrease) in cash and cash equivalent 6,185 (10,132 )

Cash and cash equivalents at beginning of year 3,835 13,967

Cash and cash equivalents at end of year 10,020 3,835

Reconciliation of cash and cash equivalents Cash and cash equivalents for balance sheet and

cash flow statement purposes 10,020 3,835

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BASIS OF PREPARATION

These consolidated financial statements have been pr epar ed under the historical cost convention as modified by the r evaluation of certain property , plant & equipment.

These consolidated financial statements which incorporate the financial statements of the par ent company have been pr epar ed in accor dance with Inter national Financial Reporting Standar ds (IFRS), including all new and r evised standar ds ef fective for the period commencing 1 January 2005.

The pr eparation of financial statements in accor dance with IFRS r equir es the use of estimates and assumptions that af fect the r eported amounts of assets and liabilities, and disclosur e of contingent assets and liabilities at the date of the financial statements and the r eported amounts of r evenues and expenses during the r eporting period. Although these estimates ar e based on management’ s best knowledge of current events and actions, actual r esults may ultimately dif fer fr om those estimates.

ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the curr ent year , the Gr oup has adopted all of the new and r evised Standar ds and Interpr etations issued by the Inter national Accounting Standar ds Boar d (the IASB) and the Inter national Financial Reporting Interpr etations Committee (IFRIC) of the IASB that ar e relevant to its operations and ef fective for accounting periods beginning on 1 January 2005. The adoption of IFRS 3 has r esulted in changes to the Group’s accounting policy for goodwill.

IFRS 3 has been adopted for business combinations for which the agr eement date is on or after 31 Mar ch 2004. The option of limited retr ospective application of the Standar d has not been taken up, thus avoiding the need to r estate past business combinations.

After initial r ecognition, IFRS 3 r equir es goodwill acquir ed in a business combination to be carried at cost less any accumulated impairment losses. Under IAS 36 Impairment of Assets (as r evised in 2004), impairment r eviews ar e requir ed annually , or mor e frequently if ther e ar e indications that goodwill might be impair ed. IFRS 3 pr ohibits the amortisation of goodwill. Pr eviously , under IAS 22, the Gr oup carried goodwill in its balance sheet at cost less accumulated amortisation and accumulated impairment losses. Amortisation was charged over the

estimated useful life of the goodwill, subject to the r ebuttable pr esumption that the maximum useful life of goodwill was 10 years.

In accor dance with the transitional rules of IFRS 3, the Gr oup has applied the r evised accounting policy for goodwill pr ospectively fr om the beginning of its first annual period beginning on or after 31 Mar ch 2004, i.e. 1 January 2005, to goodwill acquir ed in business combinations for which the agr eement date was befor e 31 Mar ch 2004. Ther efor e, fr om 1 January 2005, the Gr oup has discontinued amortising such goodwill and has tested the goodwill for impairment in accor dance with IAS 36. At 1 January 2005, the carrying amount of amortisation accumulated befor e that date of USD46,000 has been eliminated, with a corr esponding decr ease in goodwill.

Because the r evised accounting policy has been applied pr ospectively , the change has had no impact on amounts r eported for 2004 or prior periods.

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BASIS OF CONSOLIDATION

The consolidated financial statements incorporate the financial statements of the Company and enterprises contr olled by the Company made up to 31 December each year . Contr ol is achieved wher e the Company has the power to gover n the financial and operating policies of an investee enterprise so as to obtain benefits fr om its activities.

The r esults of subsidiaries acquir ed or disposed of during the year ar e included in the consolidated income statement fr om the ef fective date of acquisition or up to the ef fective date of disposal, as appr opriate. Wher e necessary , adjustments ar e made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Gr oup.

All intra-gr oup transactions, balances, income and expenses ar e eliminated on consolidation.

Minority inter ests in the net assets of consolidated subsidiaries ar e identified separately fr om the Gr oup’s equity ther ein. Minority inter ests consist of the amount of those inter ests at the date of the original business combination (see below) and the minority’ s shar e of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’ s inter est in the subsidiary’ s equity ar e allocated against the inter ests of the Gr oup except to the extent that the minority has a binding obligation and is able to make an additional

investment to cover the losses.

BUSINESS COMBINATIONS

The acquisition of subsidiaries is accounted for using the pur chase method. The cost of the acquisition is measur ed at the aggr egate of the fair values, at the date of exchange, of assets given, liabilities incurr ed or assumed, and equity instruments issued by the Gr oup in exchange for contr ol of the acquir ee, plus any costs dir ectly attributable to the business combination. The acquir ee’s identifiable assets, liabilities and contingent liabilities that meet the conditions for r ecognition under IFRS 3 ar e recognised at their fair values at the acquisition date, except for non-curr ent assets (or disposal gr oups) that ar e classified as held for sale in accor dance with IFRS 5 Non-Curr ent Assets Held for Sale and Discontinued Operations, which ar e recognised and measur ed at fair value less costs to sell.

Goodwill arising on acquisition is r ecognised as an asset and initially measur ed at cost, being the excess of the cost of the business combination over the Gr oup’s inter est in the net fair value of the identifiable assets, liabilities and contingent liabilities r ecognised. If, after reassessment, the Gr oup’s inter est in the net fair value of the acquir ee’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is r ecognised immediately in pr ofit or loss.

The inter est of minority shar eholders in the acquir ee is initially measur ed at the minority’ s proportion of the net fair value of the assets, liabilities and contingent liabilities r ecognised.

INVESTMENTS IN SUBSIDIARIES

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GOODWILL

Goodwill arising on the acquisition of a subsidiary or a jointly contr olled entity r epr esents the excess of the cost of acquisition over the Group’s inter est in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly contr olled entity recognised at the date of acquisition. Goodwill is initially r ecognised as an asset at cost and is subsequently measur ed at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill is allocated to each of the Gr oup’ s cash-generating units expected to benefit fr om the synergies of the combination. Cash-generating units to which goodwill has been allocated ar e tested for impairment annually , or mor e frequently when ther e is an indication that the unit may be impair ed. If the r ecoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to r educe the carrying amount of each asset in the unit. An impairment loss r ecognised for goodwill is not r eversed in a subsequent period.

On disposal of a subsidiary or a jointly contr olled entity , the attributable amount of goodwill is included in the determination of the pr ofit or loss on disposal.

REVENUE RECOGNITION

Revenue consists of sale of goods, hotel and r estaurant r evenue net of sales tax for non-UK companies. Revenue fr om the sale of goods is recognised when significant risks and r ewar ds of owning the goods ar e transferr ed to the buyer . Revenue fr om the r endering of services is based on the stage of completion determined by r efer ence to services performed to date.

LEASES

Assets held under finance lease arrangements ar e included in pr operty , plant and equipment and ar e amortised in accor dance with the depr eciation policy . Obligations under such agr eements ar e included in borr owings net of finance charges allocated to futur e periods. Finance charges ar e taken to the pr ofit and loss account so that the annual rate of charge on the outstanding obligations at the end of each accounting period is appr oximately constant.

Operating lease r ental payments ar e charged dir ectly to the pr ofit and loss account on an accruals basis.

Rental income fr om operating leases is r ecognised on a straight-line basis over the term of the r elevant lease.

Rentals payable under operating leases ar e charged to income on a straight-line basis over the term of the r elevant lease.

RETIREMENT BENEFIT COSTS

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FOREIGN CURRENCIES

Transactions in curr encies other than United States Dollar ar e initially r ecorded at the rates of exchange pr evailing on the dates of the transactions. The United States Dollar has been used as the functional curr ency as the majority of the Gr oup’s transactions ar e denominated in this curr ency or in curr encies that ar e aligned with it. Monetary assets and liabilities denominated in such curr encies ar e retranslated at the rates pr evailing on the balance sheet date. Pr ofits and losses arising on exchange ar e included in net pr ofit or loss for the period.

On consolidation, the assets and liabilities of the Gr oup’ s for eign curr ency operations ar e translated at exchange rates pr evailing on the balance sheet date. Income and expense items ar e translated at the average exchange rates for the period. Exchange dif fer ences arising, if any, are classified as equity and transferr ed to the Gr oup’s exchange equalisation r eserve. Such translation dif fer ences ar e recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a for eign entity ar e tr eated as assets and liabilities of the par ent company and translated at the exchange rate at the balance sheet date.

BORROWING COSTS

Borr owing costs dir ectly attributable to the acquisition, construction or pr oduction of qualifying assets, which ar e assets that necessarily take a substantial period of time to get r eady for their intended use or sale, ar e added to the cost of those assets, until such time as the assets ar e substantially r eady for their intended use or sale, at the average inter est rate bor ne by the company on finance costs. Investment income ear ned on the temporary investment of specific borr owings pending their expenditur e on qualifying assets is deducted fr om the borr owing costs eligible for capitalisation.

All other borr owing costs ar e recognised in pr ofit or loss in the period in which they ar e incurr ed.

TAXATION

Income tax expense r epr esents the sum of the curr ent tax and deferr ed tax.

The tax curr ently payable is based on taxable pr ofit for the year . Taxable pr ofit dif fers fr om net pr ofit as r eported in the income statement because it excludes items of income or expense that ar e taxable or deductible in other years and it further excludes items that ar e never taxable or deductible. The Gr oup’s liability for curr ent tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferr ed tax is the tax expected to be payable or r ecoverable on dif fer ences between the carrying amount of assets and liabilities in the financial statements and the corr esponding tax basis used in the computati